VI. TRADE REGULATIONS AND STANDARDS Tariffs and import taxes The average tariff rate on manufactured goods imported into Korea is 7.9%. However, tariffs on agricultural products range from 30-100%, depending on the item. Korea has a flat 10% Value Added Tax on all imports. Also, a special excise tax of 15% to 100% is levied on the import of certain luxury items and durable consumer goods. The tariffs and taxes are payable in won before goods are permitted to clear customs. Customs valuation Most duties are assessed on an ad valorem basis. Specific rates apply to a few goods while both ad valorem and specific rates apply on a few others. The dutiable value of imported goods is the normal c.i.f. price at the time of import declaration. Import duties are not assessed on capital goods and raw materials imported in connection with foreign investment projects. Authorization to import those items and supplies designated in a foreign investment application on a duty-free basis usually accompanies the Ministry of Finance's approval of a foreign investment project. In addition, certain raw materials used in the production of export goods are often exempt from duty, and certain machinery, materials, and parts used in designed industries may enter Korea either duty free or at reduced rates. Import licenses An import license is required for every transaction and before a letter of credit may be opened in favor of a foreign supplier. The license, obtainable from the Korea Exchange Bank or from any one of the other 886 Class A foreign exchange banks and branches, is valid for up to 12 months. Under the system of licensing introduced in July 1967, all commodities may be freely imported (i.e., applications for import licenses will be approved automatically) unless they are included on a negative list, which includes commodities that are either prohibited or restricted. The negative list, known as the Export and Import Notice, is published by the Ministry of Trade, Industry and Energy, and remains effective until revised to meet changing economic conditions. Applications for licenses for the import of items currently in the restricted category are approved on a case-by- case after screening by the government agencies concerned, or by the relevant manufacturers' association. All applications for import licenses must be accompanied by firm offers issued by a foreign supplier, in most cases through the supplier's qualified local agent. Only firms that are registered as foreign traders are eligible to receive import licenses. Export controls The Special Trade Division of the Ministry of Trade, Industry and Energy and the Offices of Technology Cooperation at the Ministry of Science and Technology and Ministry of National Defense have legal responsibility for control of COCOM-related exports. Although not a member of COCOM, COCOM licensing procedures were put into effect during 1993. Korea is also a signatory to the Chemical Weapons Convention (CWC). Import/export documentation Import Licenses (I/L) are issued by banks when firms place import orders. An I/L is automatically issued based on a firm offer sheet and proforma invoices by foreign exporters for items locally called "automatic approval" (A/A) items. For non-A/A items the importer must complete additional procedures specific to items prior to application for the I/L. These include registration with government agencies, recommendations, or reports to government-authorized organizations. A/A items can clear customs with regular shipping documents. Most non-A/A items, typically health or safety related products, require additional testing or certification by previously registered or recommended organizations before clearing customs. Export licenses are issued by Korean customs at the time of export clearance. Most items are approved on the basis of regular shipping documents. Previous recommendation or report requirements similar to that for import are imposed on a few items. Particularly export of textile products, which is bound under export quotas, must be allotted share before export. Temporary entry Pursuant to the Korean Customs Law, advertising material and samples of merchandise are exempt from customs duties, provided that such items are used solely for that purpose. Some U.S. firms, however, have reported problems in receiving duty exemptions. In general, duty-free entry of these items is left to the discretion of the customs officials at the port of entry. Valuable samples may be admitted temporarily on a duty free basis under deposit for the amount of the duty. Careful documentation and handling of samples are essential to minimize problems. Korean customs also allows free customs entry of goods brought into Korea hand-carried by foreign business persons (such as personal computers) for use during their stay in Korea, by making a note on the travelers' passport and allowing them to leave the country only when accompanied by such goods. Goods entering Korea for exhibition purposes must be stored in a bonded area. The U.S. Trade Center at the U.S. Embassy in Seoul and the Korea Exhibition Center are bonded areas. Exhibition goods will be kept without charge at the Trade Center during the exhibition period, after which they must be either: 1) reshipped directly out of Korea without payment of duty; 2) presented at Customs for payment of regular duty on value declared at time of entry; or 3) transferred to the Seoul Customs house bonded storage area for no more than 90 days from their entry into Korea. Goods stored in a bonded warehouse can incur, if applicable, storage costs, customs brokerage charges, local transportation costs and moving equipement fees. Labeling, marking requirements Country of Origin labeling is required for commercial shipments entering Korea. The Korean Customs Administration (KCA) publishes a list of the country of origin labeling requirements by Harmonized System Code number. Further labeling and marking requirements for specific products, such as pharmaceuticals and food products, are covered by specific regulations from the Korean Government agencies responsible for these items. Korean labels, except country of origin markings which must be shown at the time of customs clearance, are allowed to be locally attached on products either in the bonded area before clearance or after clearance but before products are re-sold to the local market. Local importers usually print Korean labels when imported quantities are not large, and can consult with the KCA as to where they can be attached to the product. For example, all containers and packages of imported pharmaceuticals must be marked in a conspicuous place to show: 1) manufacturers' and importers' names and addresses; 2) name of product; 3) date of production and batch number; 4) names and weights of ingredients; 5) quantity; 6) number of units; 7) storage method; 8) distribution validity date; 9) instructions for use; 10) import license number; 11) effectiveness; and 12) suggested retail price. For imported food products, labels should be in Korean (stickers may be used instead of Korean language labels but such stickers must be in Korean and should not be easily removable), and should have the following inscriptions printed in large enough letters to be readily legible: 1) name of product; 2) name of the importer, address and telephone number; 3) importer's business registration number; 4) date of manufacturing or date of import (not mandatory); 5) shelf life (the shelf life stipulated by the manufacturer must be shown, and must come immediately under the date of manufacturing or date of import when it is shown. For fresh fruits, this item may be omitted); 6) weight, volume or number of pieces (if the number of pieces is shown, the weight or volume must be shown in parentheses); 7) name and volume of ingredients (for dairy and meat products, fish meal products, canned and bottled food products, instant food, etc.). Names of more than five raw materials must be listed in order of volume and of these, the quantities of at least three major ingredients must be shown in percentages); 8) addresses where products with defects may be returned or exchanged; and 9) cautions and standards for use or preservation (for products which must be kept at a low temperature, such temperature should be shown). Prohibited imports All commodities may be freely imported into Korea unless they are included on the negative list, which includes commodities that are either prohibited or restricted. The negative list is published by the Ministry of Trade, Industry and Energy as the Annual Trade Plan (Export and Import Notice). Restricted items include firearms, illicit drugs, endangered species, etc. Standards The Korean Government adopted the ISO 9000 system as its official standard system as of April 1992 and published related regulations in September 1993. The Industrial Advancement Administration (IAA) is a research, standards-making and regulatory administration under the Ministry of Trade, Industry and Energy, established to promote Korea's industrial technology and assure product quality. The IAA has authorized five local laboratories to give ISO evaluations. As of June 1994, approximately 180 Korean firms have been certified to fit into ISO standards. However, despite this progress, the U.S. Government remains concerned about implementation of the commitments Korea made when it signed the GATT Agreement on Technical Barriers to Trade (the "Standards Code") in 1980 and the need, as the Korean economy has developed, to apply developed, as opposed to developing country standards procedures. Many standards and regulations still have no scientific basis, deviate substantially from international practices in both substance and implementation, and serve mainly to keep imported products out of the market. Standards often only affect imported goods and are not applied in an equal manner to domestic products. In addition, the Korean Government often issues new regulations without using public rule-making procedures. This absence of comment period and time for industry to adjust is a significant barrier to trade. Finally, implementation periods are frequently unrealistically short, giving exporters insufficient time to comply, which leads to interruptions in trade. Free trade areas/warehouses The government has designated two free export zones for the bonded processing of imported materials into finished goods for export. The free export zones are specially established industrial areas where foreign invested firms can manufacture, assemble, or process export products using freely imported, tax- free raw materials or semifinished goods. Tax incentives are provided for foreign invested firms. The Masan Free Export Zone, established in 1971, is located near Pusan at the southern end of the country. The Iri Free Export Zone opened in 1975 and is located near Gunsan on the western coast. Information on these free export zones can be obtained from the Director, Regional Industry Division, Ministry of Trade, Industry and Energy, Unified Government Building, 1 Choongang- dong, Kwachon City, Kyunggi-Do, Korea. A new industrial park, intended for the exclusive use of foreign- invested high-technology firms, is being planned for Asan, a city about two hours southwest of Seoul. It will provide essentially the same services as do Masan and Iri and is scheduled for completion in 1996. The bonded storage facilities in Korea are under the supervision of the Collector of Customs. Korea has two kinds of bonded areas: 1) designated bonded areas (designated storage sites and customs inspection sites); and 2) licensed bonded areas (bonded storage sites, bonded warehouses, bonded factories, bonded exhibition sites, bonded construction sites, and bonded sales sites). Goods may be stored in bonded warehouses for up to two years, and duties are payable only when they are cleared through customs. Storage fees are high, and the use of a bonded warehouse to maintain inventories is limited. Inquiries regarding bonded facilities in Korea can be addressed to: Director, Surveillance Division, Office of Customs Administration, 71, Nonhyun-dong, Kangnam-Ku, Seoul. The two-year storage period does not apply to the storage of live animals or plants, perishable merchandise, or other commodities that may cause damage to other merchandise or to the warehouse. The Collector of Customs bears no responsibility for goods while they are stored in customs facilities. With the permission of the Collector of Customs, goods stored in bonded facilities may be repacked, stored, divided and combined, or repaired, provided that the nature and quality of the goods are not changed in doing so. At present, there are no U.S.-owned warehouses in Korea. In principle, bonded warehouses are the only warehouses facilities available in Korea to foreign companies where a U.S. exporter can store shipped goods and still maintain title until they are cleared through customs by normal import procedures. Korea's Customs law specifies that any person who desires to established a bonded warehouse shall obtain a license from the Director of Customs. Applications must include the name of the bonded warehouse, location, structure, numbers and sizes of buildings, storage capacity and types of products to be stored, and where applicable, must be accompanied by articles of incorporation and corporate register. Special import provisions Certain items are subject to special approval procedures if imported from a country with which Korea has a large, unfavorable trade balance of long standing. Japan has dominated this category for a number of years do to its chronic trade surpluses with Korea since 1965. In 1991, Korea's trade deficit with Japan peaked at $8.8 billion, accounting for more than 90% of Korea's overall trade gap. The list of items subject to special approval covers a wide array of products, and can be added to or deleted from during occasional revisions by the Ministry of Trade, Industry and Energy. Importers need prior confirmation from the Association of Foreign Trading Agents of Korea for licenses to import these items from Japan. Membership in free trade agreements Korea is not a party to any free trade agreements.