customs law of east asia

Customs Law of East Asia

Edited by

Chia-Jui Cheng

Law & Business

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List of Contributors

Chia-Jui Cheng, LL.B., LL.M., LL.D., Attorney-at-Law, is Professor ofInternational Law at Soochow University School of Law, and the Secretary-General of the Curatorium of the Xiamen Academy of International Law. He isthe editor-in-chief of Soochow Law Journal and author of numerous articles andbooks on the law of international trade and international air and space law as wellas many articles on international river law. His principal publications are theediting of Clive M. Schmitthoff’s Select Essays on International Trade Law(Dordrecht/Boston/London: Martinus Nijhoff and Graham & Trotman Ltd.,1988) and Basic Documents on International Trade Law, 3rd rev. edn(The Hague/London/Boston: Kluwer Law International, 1999).

Chunrui Wang is a senior lecturer in Public Administration at the Universityof International Business and Economics, Beijing, China, specializing in tradecontrol and international customs conventions. She has published several articlesin customs administration and foreign trade administration.

Dong Soo Kim is a senior tax partner at Yulchon law firm in Seoul, advisingKorean and multinational companies on domestic and international tax issuesand also managing tax litigations. He has served as a technical advisor to theNational Tax Service and the Ministry of Finance and Economy and also lecturedat Seoul National University Graduate School of Law as an adjunct professor. Hereceived his LL.B. from Seoul National University College of Law, LL.M. fromSeoul National University Graduate School of Law and his LL.M. from theUniversity of Florida.

Yuka Fukunaga, LL.B. (Hitotsubashi University), LL.M. (University of Tokyo),LL.M. (UC at Berkeley), is Associate Professor of International Law andInternational Economic Law at Waseda University, Japan. She also teaches the

WTO Agreement in capacity building seminars for officials of developingcountries. She has written extensively on the WTO dispute settlement systemand trade remedies. She served as an intern at the WTO Appellate Body Secretariatin 2002. She was also a Visiting Professorial Fellow at the Institute of InternationalEconomic Law, Georgetown University Law Centre.

Zhang Hong is Professor of Law at the University of International Business andEconomics, Beijing, China, specializing in international economic law. Her pub-lications are in the area of customs administrative law, trade-related aspects ofintellectual property rights, and free trade area.

Hung Jui-Lung has a Bachelor of Accounting degree and a Master of Accountingdegree from National Taiwan University. Before becoming a licensed attorney,Hung passed the CPA exam of Taiwan in 2002. Hung currently practices atPricewaterhouseCoopers Legal and specializes in general corporate and businesslaw, mergers and acquisitions, and tax law. Hung is a member of Taipei BarAssociation.

David C. Buxbaum In 1970, Mr Buxbaum formed a predecessor of the firm,Anderson & Anderson LLP’s international division, and has been primarily resi-dent in Asia for the past forty-seven years, and in Mongolia and China for most ofthe past thirty-eight years. Mr Buxbaum is a well regarded expert on privateinternational, Mongolian, Chinese and American law who, in addition to beingan experienced and highly respected practitioner, has also published extensively inthe field. Mr Buxbaum, is also professionally active in international transactionalmatters, litigation, particularly regarding international business disputes, mining,real estate, intellectual property and commodities and securities matters.

Tsolmon Shar is a lawyer in Ulaanbaatar, Mongolia, at Anderson and AndersonLLP. She received her BA in commercial law from National University of Mon-golia and obtained China foreign investment law and capital markets in TsinghuaUniversity in China. She has experience in mining, international corporate trans-actions, antitrust and unfair competition, bankruptcy, capital markets, commercialcontracts, corporate governance, joint ventures, trademark and patent, copyright,tax law and administrative law. She had worked as a Managing Editor of TsinghuaLaw Review (citation), the first Law Review in China.

Lin Huan is Associate Professor of International Law at the Soochow UniversitySchool of Law. He received an LL.B. from National Taipei University; an LL.M.from the University of Virginia; a JD from the Delaware Law School of WidenerUniversity. Subsequently, he was called to the New York Bar. He was formerly theAdvisor to Council for Economic Planning and Development, Executive Yuan,Taiwan. Currently, he is teaching courses on corporate governance andinternational business at Soochow Law School.


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Tsai Eric is the head of PricewaterhouseCooper’s Legal practice in Taiwan and anattorney specializing in corporate, securities, and tax. His broad experience inplanning, structuring, and implementing domestic and cross-border projectsenables him to develop innovative approaches in a wide range of industries foran expansive list of clients, from high-growth entrepreneurs to established marketleaders. He obtained his LL.B. from National Taiwan University in 1994; theLL.M. in corporate law from New York University in 1995, and the EMBA inAccountancy, from National Taiwan University in 2007. Tsai is currently amember of the Taiwan Bar and New York Bar.

Un Sang Jung is the leader of the customs consulting team at Yulchon and is anexpert in customs and international trade, advising domestic and foreign-investedcorporations in Korea. Prior to join Yulchon, Jung worked as customs attorney atHwang Mok Park, P.C. after serving as customs official at the Seoul, Busan, andIncheon Customs Office and also at the Customs Bureau of the National TaxTribunal. He received his B.A. and M.A. from Sang Kyun Kwan University,and his Ph.D. from Kyang Hee University.

Wang Guiguo, LL.M. (Columbia Law School), JSD (Yale Law school) is Dean ofSchool of Law and Professor (Chair) of Chinese and Comparative Law at the CityUniversity of Hong Kong. He is the author of International Monetary and Finan-cial Law, 3rd edn (Beijing: Law Publication, 2007) and numerous articles oninternational economic and trade law in Chinese and English law reviews.

Xiaojie Lin is a senior lecturer in Management at the University of InternationalBusiness and Economics, Beijing, China. Her publications are in the areas ofcustoms administration.

Yungjin Jung is a partner at Kim & Chang, advising Korean and multinationalcompanies on various international antitrust and trade matters. Dr Jung served aslegal advisor to the Korean government on Korea-US FTA/Korea-EU FTA nego-tiations, and worked at the Ministry of Foreign Affairs and Trade of Korea. Hetaught at Duke Law School as Visiting Professor and at Georgetown Law School asAdjunct Professor. He was consistently nominated as a leading lawyer ininternational trade/customs/competition law by Chambers Global and Who’sWho International and Euromoney. He received his LL.B. and LL.M. fromSeoul National University and his LL.M. and JD from Yale Law School. He isa member of both the Korea and New York State Bar.


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Summary of Contents

List of Contributors v

List of Abbreviations xxi

Preface xxiii

List of Cases xxv

List of Legislations xxvii

List of International Conventions, Treaty Agreements,and Other Instruments xxxiii

Introduction 1

Chapter 1The Sources of National Customs Law in East Asian Countries 7Chia-Jui Cheng

Chapter 2Customs Law of the People’s Republic of China 39Zhang Hong, Chunrui Wang & Xiaojie Lin

Chapter 3Customs Law of Hong Kong 95Wang Guiguo

Chapter 4Customs Law of Japan 117Yuka Fukunaga

Chapter 5Primer on Korean Customs Law 165Youngjin Jung, Dong Soo Kim & Un Sang Jung

Chapter 6Mongolian Customs Law 183David C. Buxbaum & Tsolmon Shar

Chapter 7Customs Law of Taiwan 209Tsai Eric & Hung Jui-Lung

Chapter 8Taiwan Customs Law 243Lin Huan

Appendix I 257

Appendix II 531

Index 543

Summary of Contents

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Chapter 5

Primer on Korean Customs Law

Youngjin Jung, Dong Soo Kim & Un Sang Jung

I. CUSTOMS CLEARANCE PROCESS

A. OVERVIEW OF CUSTOMS CLEARANCE PROCESS

Every imported item must be reported to the customs authority in order to move theimported item out of the customs area. A customs clearance process means a seriesof steps under which the reporting of importation is made to the customs authority,the report is accepted by the customs authority, and the customs duty and thedomestic taxes due are paid.

A general customs clearance process consists of the following three stages:(1) submission and registration of the importation report, (2) review of the reportand verification of the requirements for customs clearance, and (3) acceptance ofthe importation report and moving the imported item out of the customs area.In addition to the general customs clearance process, there are simplified customsclearance processes as well as a special customs clearance process which is appli-cable to specific categories of goods. All customs clearance processes in Koreaare now being handled by an electronic customs clearance portal system calledUNI-PASS.

Chia-Jui Cheng, Customs Law of East Asia, pp. 165–181.# 2010 Kluwer Law International BV, The Netherlands.

1. Importation Reporting

In order to export, import, and return items, the name, size, quantity, and price ofthe item must be ‘declared’ to the customs authority. In case of importation report-ing, the item being imported and the applicable legal provisions are identified at thetime of the importation reporting. Thus, the customs duty is imposed according tothe character and quantity of the item at the time of importation and the legalprovisions effective at the time of importation.

2. Concepts of Exportation, Importation, and Return

Exportation is the act of moving the ‘domestic item’ out of Korea. Domestic itemmeans: (1) an item located in Korea which is not a foreign item; (2) fish caught byKorean-flagged ships in high seas; and (3) items regarding which importation report-ingwasmade. Importation is the act of moving‘foreign item’ into Koreaor consumingor using the item in Korea. Regarding fish caught by Korean-flagged ships in high seasas being domestic item, the Korean Supreme Court held that ‘high seas’ means watersexcluding internal and territorial waters of a foreign country, and even if no paymentwas made to the foreign country as to the fishing activities, internal and territorialwaters of a foreign country under this situation cannot be viewed as ‘high seas’.1

Foreign item means: (1) an item from foreign countries regarding which importa-tion reporting has not been accepted; (2) fish caught by foreign-flagged ships in high seasregarding which importation reporting has not been accepted; and (3) item regardingwhich exportation reporting has been accepted. As seen from the definition of impor-tationabove,even if theownership to the itemisnot transferred(e.g., leasingofan iteminKorea and then returning it to the lessor in a foreign country), moving the item intoKorea is regardedas importationand customsduty is thus imposed. ‘Return of item’ is anact of sending a foreign item out of Korea while the item’s status is still a foreign item.

B. IMPORTATION

1. Pre-shipment Checking

Prior to entering into an importation contract, it is recommended to check inadvance whether the item is subject to certain importation requirements (suchas inspection, quarantine, permission, recommendation, etc.). Although most ofitems (i.e., approximately 99.9%) can be imported into Korea, obscene books orvideos, counterfeit money, or items infringing trademarks cannot be imported.

Some items require approval for importation from the relevant governmentoffice. In order to obtain approval, the requirements under the relevant laws mustbe satisfied. Certain items require approval from the customs authority in order tobe imported into Korea. In addition, importation of certain animals and plants into

1. Case 96 Do 1210, 25 Oct. 1996.

Youngjin Jung et al.

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Korea is heavily regulated in accordance with the Convention on InternationalTrade in Endangered Species of Wild Fauna and Flora (CITES). Korea becamea signatory to this convention in July of 1993.

2. Importation Process

a. General Customs Clearance Process

A general customs clearance process consists of: arrival at the port of entry !unloading ! bonded area transportation ! entry into bonded area ! impor-tation reporting ! inspection ! payment of customs duty, etc. ! departurefrom bonded area (and entry into Korea). Importation reporting is made by report-ing to the customs authority the name, size, quantity, price, etc. of the items beingimported. In principle, importation reporting should be made electronically.For certain items, submission of paper documents is required.

i. InspectionThe customs official that received the importation report may inspect the itemsbeing imported to check whether the items on the report matches the physical itemsbeing imported although in principle the review of only the importation report iscarried out by the customs officials. This type of physical inspection is done whenit is difficult to confirm the facts described in the importation report just by doc-ument review or the relevant importer had previously filed incorrect importationreports. The information on these types of importers is electronically managed.

ii. Bonded TransportationBonded transportation is an act of moving imported items to another bonded areawithout going through the customs clearance process at the port of entry afterobtaining approval from the relevant customs authority. In principle, the applica-tion for approval of bonded transportation is to be filed after the relevant itemsarrived at the port of entry. The period of bonded transportation is fifteen days fromthe date of acceptance of the application in case of marine transportation and sevendays in case of air transportation.

iii. Bonded Area‘Bonded area’ under the Customs Act is the location where foreign items can be usedfor installation, manufacture, processing, construction, sales, or display withoutpaying customs duty. The operator of the bonded area must report to the customsauthority entry and departure of the items and obtain approvals from the customsauthority prior to commencing the usage of the items in the bonded area.

b. Simplified Customs Clearance Process

For certain items, importation reporting is not required or a simplified customsclearance process is used so that the item can be moved out of the customs area


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once the inspection by the customs official is completed. In certain cases, therelevant item can be moved out of the customs area before the acceptance ofthe importation reporting by the customs authority. In this case, the applicationfor approval should be submitted and the customs authority may require theimporter to post a collateral which will cover the customs duty due.

II. RELIEF FROM CUSTOMS DUTY ANDINSTALMENT PAYMENTS

A. OVERVIEW

In general, exemption from customs duty or reduction in customs duty is grantedwhen a certain item is imported into Korea for certain purposes under a certainsituation. A conditional relief is granted when the relief is conditioned upon aspecified usage of the item. In contrast, an unconditional relief is granted whenthere is no condition regarding the usage of the item. Items subject to conditionalrelief cannot for a specified period of time be used for other purposes, sold, orleased without an approval from the customs authority.

In addition, the instalment payment system is available. In principle, thecustoms duty must be paid in its entirety prior to acceptance of the importationreport or within fifteen days from acceptance of the importation report. However,for machineries used in major industries, an instalment payment of customs duty ispossible to relieve the financial burden on the importers.

Application for relief from customs duty and for instalment payments must besubmitted to the customs authority prior to acceptance of the importation report.

B. ITEMS ELIGIBLE FOR RELIEF FROM CUSTOMS DUTY

– Exemptions for scientific, educational or experimental items.– Exemptions for religious items, items donated for charitable purposes, and

items for the handicapped.– Exemptions for governmental or military items.– Reductionforenvironmentalor factory-automationitems.Asforenvironmental

items, 50% reduction is granted to items regarding which importation reportingis made by 31 December 2009. Regarding factory-automation items, 30%reduction is granted to items regarding which importation reporting is madeby 31 December 2009. However, a small- or medium-sized enterprise (SME)may obtain up to 50% reduction with respect to factory-automation items.

– Exemption for items to be re-exported. The period for re-exporting is basi-cally one year, but this period can be extended for another one year whenthere is a justifying cause. Items eligible for this type of exemption (e.g.,shipping material, items to be displayed at exhibitions) are listed under theEnforcement Regulation of the Customs Act.


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– Exemption for items that are being re-imported. This type of exemption isavailable when an item that had been exported for processing or repair isre-imported within two years from the date of exportation or when an itemthat had been exported for overseas experiments or research is re-imported.

– In addition to the Customs Act, other laws such as the Special Tax Treat-ment Control Act or the Marine Mineral Exploration Act provide for relieffrom customs duty.

C. ITEMS ELIGIBLE FOR INSTALMENT PAYMENTS

Certain machinery and equipment listed by the Ministry of Strategy and Finance(MOSF) are eligible for instalment payments. The conditions for instalment pay-ments are that: (1) the item must not be a part of other item, (2) no customs dutyrelief was granted as to the item, and (3) the customs duty due is Korean Won(KRW) 5 million or more.

Certain items being imported by SMEs may also be eligible for instalmentpayments. The SME must be a manufacturing concern and the instalment paymentperiod may be granted for up to five years.

D. CUSTOMS DUTY RATE AT THE TIME OF IMPORTATION REPORTING

Customs duty is imposed based either on the price or the quantity of the importeditem. If it is price-based, the customs duty is the taxable price multiplied by thecustoms duty rate (%). If it is quantity-based, the customs duty is the quantitymultiplied by the customs duty amount per each unit.

Customs duty rate can be classified into domestic rate under Korean law andconvention rate under international conventions. Domestic rate is further classifiedinto base rate, temporary rate, and flexible rate. Convention rates are World TradeOrganization (WTO) concession tariffs and the ones under other internationalconventions.

1. Base Rate

This base rate under the Customs Act is in principle applied under normalcircumstances.

2. Temporary Rate

For certain items, this temporary rate is applied over the base rate.

3. Flexible Rate

In order to more effectively deal with the changing economic environment, thegovernment may adjust the customs duty rate to the extent it is authorized to do so


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under the law. This flexible rate is an exception to the principle of taxation by law,and therefore the requirements for applying the flexible rate and the rate of allow-able flexible rate are provided for under the law.

4. Concession Tariffs

In order to promote Korea’s international trade, concession tariffs are agreed to byKorea with a foreign country or an international organization. To apply concessiontariffs, the certificate of the country of origin must be checked by the customsauthority.

III. ANTI-DUMPING DUTY

The requirements for imposing anti-dumping duties are: (1) dumping, (2) injury tothe domestic industry, (3) the causal relationship between the act of dumping andthe injury, and (4) the need to protect the domestic industry. ‘Dumping’ is definedas importation of an item at a price below its normal price (i.e., market price at theexporting country).

The process of imposing anti-dumping duty is initiated when the interestedperson (e.g., a person who has an interest in the relevant industry or the minister ofthe Korean governmental office overseeing the relevant industry) requests theKorea Trade Commission (KTC) to investigate the matter. Within two monthsfrom receipt of the request, the KTC must determine whether to investigate thematter and notify the Ministry of Knowledge Economy (MKE) of its decision.

Within three months from the date on which the decision to investigate ispublished in the Official Gazette, the KTC must complete its preliminary reviewand notify the MKE of the result of its preliminary review. Within three monthsfrom submission of its preliminary review result, the KTC must notify the MKE ofthe result of its final review. Within one month of receipt of the final review result,the MKE must make its decision on imposition of anti-dumping duty. Anti-dumping duty must be imposed on all of the items which sustained injury to therelevant domestic industry and selective imposition is not allowed.

A provisional measure can be taken in order to prevent damages during theinvestigation period. Whether to take a provisional measure is determined within onemonth from the date of submission of the KTC’s preliminary review result to theMKE in case the KTC’s preliminary conclusion is that the anti-dumping duty mustbe imposed. A provisional measure can take the form of imposing additional customsduty or requiring a collateral which covers the amount of anti-dumping duty.

A. C.F. COUNTERVAILING DUTY

Countervailing duty is imposed on items regarding which a subsidy was granted inthe exporting country and that, as a result, damage the relevant domestic industry.The procedure to impose the countervailing duty is basically identical to that foranti-dumping duty.


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IV. SAFEGUARDS (EMERGENCY MEASURES)

When there is a sudden increase in the volume of importation of a certain item and,as a result, there is injury to the relevant domestic industry, the importing countrymay implement safeguard measures and temporarily restrict importation.The requirements for imposing safeguards are: (1) sudden increase in importationof a certain item, (2) a serious injury (or a threat of serious injury) to domesticindustry which produces the same item or items in competition with the item beingimported, and (3) the need to protect the domestic industry.

If the reason for a sudden increase in importation of a certain item is irregularactivity in the exporting country such as dumping or subsidy, then the anti-dumping duty or the countervailing duty will be imposed. In contrast, the safe-guards are imposed when a sudden increase in importation is caused by legitimateactivities in the exporting country. Thus, the country imposing the safeguards mustappropriately compensate the exporting country. The KTC is in charge of imposingthe safeguards and the procedure is similar to that of anti-dumping duty.

V. CUSTOMS VALUATION

Customs valuation is determination of taxable price in imposing price-based cus-toms duty.

A. METHOD I: TRANSACTION VALUE METHOD

Under Method I, the taxable price is the transaction value used. However, thistransaction value is not simply the price used, but the price which is paid or payableby the purchaser to the seller and then adjusted by the amounts to be added andsubtracted.

The price paid or payable by the purchaser includes indirect payments such asoffsetting of the seller’s liabilities, payment by the purchaser of the seller’s lia-bilities to third parties, etc. The amounts to be added should be determined basedonly on objective and quantifiable data and the examples of the amounts to beadded are brokerage fees, containers, packing cost, cost of assisting withmanufacturing, royalties, freight insurance cost, and transportation cost. Withrespect to the cost of assisting with manufacturing, which should be added tothe price that is paid or payable by the purchaser, the Supreme Court clarifiedthat when a purchaser performs the functions that should be carried out by the sellerand, as a result, the transaction price was lowered, then the cost of assisting theseller should be added and the customs authority has the burden of proof.2

2. Case 93 Nu 500, 7 Dec. 1993; Case 92 Nu 5263, 14 Dec. 1993.


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The amounts to be subtracted are the cost of construction, installation, assem-bly, maintenance and technical support after importation, transportation andinsurance cost after importation and customs duty, taxes, and other public charges.In the case of royalties, it is not enough that the royalty is related to the importeditem, but the customs authority must prove that payment of the royalty is part of theterms of the importation transaction, the Supreme Court held:3

Under the following circumstances, Method I cannot be used:

– The item is being imported without paying consideration for it.– There are restrictions on the use or disposal of the item.– The transaction or the price was affected by unquantifiable factors.– A related party relationship between the seller and the purchaser affected

the transaction price.

B. ALTERNATIVE METHODS OF VALUATION

1. Method II: Identical Goods Method

If Method I cannot be used, then the taxable price can be determined based on theprice of items of the identical type and quality (i.e., ‘identical goods’). Identicalgoods mean goods that are produced in the exporting country (where the relevantitem at issue was produced) and identical in terms of every aspect of the goodsincluding physical nature, quality, reputation among consumers, etc. althoughthere can be slight variations as to outward appearance.

2. Method III: Similar Goods Method

If Method I and Method II cannot be used, then the taxable price can be determinedbased on the price of items of the similar type and quality (i.e., ‘similar goods’).Similar goods mean goods that are produced in the exporting country (where therelevant item at issue was produced) and that have similar functions and can thus beused alternatively even though the goods are not identical in terms of every aspect ofthe items. In its 2007 decision, the National Tax Tribunal held that Method III couldnot be used when there is a difference in manufacturing process of the relevant item.4

3. Method IV: Resale Price Method

If Method I through III cannot be used, then the taxable price can be determined bysubtracting certain amounts from the domestic resale price of the item (i.e., trans-portation cost to the sales location which occurred after importation5). The domestic

3. Case 93 Nu 500, 7 Dec. 1993.4. Case Kuksim 2000 Kwan 0076, 1 Apr. 2001.5. Case Kuksim 2001 Kwan 0049, 19 Oct. 2001.


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resale price which can be used under this method is the resale price of the relevantitem itself, identical goods or similar goods at the time of importation or immediatelythereafter to an unrelated party in largest quantity.

4. Method V: Computed Value Method

If Method I through IV cannot be used, then the taxable price can be determined bythe manufacturing cost plus normal profit and general expenses and transportationcost. If the taxpayer requests, this Computed Value Method must be applied overthe Resale Price Method. In its 1999 decision, the National Tax Tribunal held thatthe customs duty assessment could not be upheld because the customs authority didnot have data on normal profit and general expenses of manufacturers in theexporting country.6

5. Method VI: Other Reasonable Method

If Method I through V cannot be used, then the taxable price can be determined byany other reasonable method. For example, there can be a situation where a certainmethod described above may not be used because some of the requirements forapplication of the method are not satisfied. However, if Method I through V cannotbe used, some flexibility is allowed and the particular method under considerationcan be used with somewhat relaxed requirements.

C. REVIEW OF TAXABLE PRICE

Review of taxable price means a review by the customs authority on whether thetaxable price reported by the taxpayer is an appropriate one. This review can bedone either before or after acceptance of the importation reporting. Sometimes thisreview focuses on certain items or industries. This type of focused review is con-ducted by the Headquarter of the Korea Customs Service (KCS).

VI. ADVANCE CUSTOMS VALUATION ARRANGEMENT

The KCS introduced the Advance Customs Valuation Arrangement (ACVA) sys-tem in order to provide companies with a much-needed certainty in customs-related matters. Because the ACVA-related work is handled by the experts withinthe KCS on customs valuation, the global standards in valuation is strictly applied.Taxpayers and the KCS freely exchange their opinions during the negotiation foran ACVA and thus there is a high probability of reaching an ACVA that is satis-factory both to taxpayers and the KCS.

6. Case Kuksim 1999 Kwan 0035, 18 Aug. 2000.


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Regarding an ACVA, the taxpayer may receive an advance consulting fromthe Customs Valuation and Classification Institute (CVCI). If the taxpayer decidesto apply for an ACVA, it files an application for ACVA with the CVCI. TheCVCI then reviews, among others, whether there is a related-party relationshipbetween the exporter and the importer, whether such relationship affected thetransaction price, and whether certain amounts should be added to or subtractedfrom the transaction price. In case of related-party ACVA, the CVCI must make adetermination within one year from the date of application. The taxpayer thatobtained an ACVA must submit annual reports to the CVCI within three monthsfrom the end of the fiscal year on compliance with the ACVA.

VII. COUNTRY OF ORIGIN

The system of marking the country of origin under Korean domestic law wasintroduced in 1991. Under the laws dealing with international trade, there areprovisions on the standards to determine the country of origin, the items thatare subject to country of origin marking requirement and penalties in case ofnon-compliance. Customs-related laws also have provisions on checking ofcountry of origin at the time of customs clearance and later enforcement of therelevant rules when the imported items are sold in the market.

When the country of origin is in doubt, the customs authorities may order thetaxpayer to submit the Certificate of Origin. The standard to determine the countryof origin is divided into the Wholly Produced Criterion and the Substantial Trans-formation Criterion. Under the Wholly Produced Criterion, a certain item’scountry of origin is the country where the item was fully manufactured, grown,etc. In case the production activity was performed in two or more countries, theSubstantial Transformation Criterion is used. Under this criterion, the country oforigin is a country where substantial transformation is made. The usual criterion ofsubstantial transformation is whether there is a substantial change in the Harmo-nized System Code (HS Code), but for certain items the criterion such as the value-added in each country is used. However, the country where only packing was done,trademark was attached, or assembly is done cannot be the country of origin.

In order to be eligible for preferential tariffs based on the country of origin, theCertificate of Origin for Preferential Tariffs issued by the competent governmentalauthority must be submitted to the Korean customs authority.

Under the Foreign Trade Act, consumer goods such as agricultural products,foods, clothes, bags, electronic products are subject to country of origin markingrequirement. The country of origin can be written in Korean, Chinese or Englishand it should be easily visible and firmly attached to the item. Certain items areexempt from country of origin marking requirement. For example, samples andrepair parts do not need to be marked with the country of origin. If the country oforigin marking requirement is not complied with, the Customs Act provides forpenalties such as disallowance of customs clearance, an order to correct the country


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of origin markings, etc. Under the Foreign Trade Act, the penalties such as impris-onment up to three years and/or fines can be imposed.

VIII. INTELLECTUAL PROPERTIES

In line with WTO Agreement on Trade-Related Aspects of Intellectual PropertyRights, the Korean customs authority restricts cross-border trading of goodsinfringing on trademarks and other intellectual property rights. Customs officialsalso have an authority to conduct criminal investigation of intellectual propertyinfringement cases.

A. PARALLEL IMPORT OR GREY IMPORT

Parallel import or grey import means importation of products with authentictrademark labels sold in foreign countries without permission from the holderof the trademark in Korea. If parallel import is entirely prohibited, it can stiflethe competition among importers and the trademark holder will realize excessivemonopolistic profits. On the other hand, if parallel import is categorically allowed,the holder of the trademark in Korea will suffer damages and the consumers mayalso sustain damages due to faulty after-sale services. Thus, parallel import isallowed in Korea only for certain trademarks and it is necessary to check priorto importation whether parallel import is allowed as to the particular item.

B. PROTECTION OF TRADEMARK RIGHTS BY CUSTOMS AUTHORITY

When an item suspected of trademark infringement is traded, the customs authoritywill notify the owner of the trademark as well as the relevant exporter and importer.Within seven days from receipt of such notification, the owner of the trademarkmay request the customs authority to suspend the customs clearance procedure byposting a collateral worth 120% of the taxable price of the relevant item. If thecustoms authority determines that the relevant item infringes on trademark rights,it will suspend the customs clearance procedure and notify the owner of thetrademark, the exporter and the importer. The initial suspension period is tendays and if the owner of the trademark submits evidence of filing of a lawsuitor the court’s preliminary injunction to extend the suspension of the customsclearance procedure, the suspension period can be extended.

On the other hand, the exporter or the importer may request the customsauthority to allow the customs clearance by submitting evidence that the relevantitem does not infringe on trademark rights and by posting a collateral worth 125%of the collateral posted by the owner of the trademark. When the customs authorityreceives such request from the exporter or the importer, it has to make a decision


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within fifteen days from receipt of the request after consulting with the KCSHeadquarter and the Korean Patent Office.

In addition to disallowance of customs clearance, infringement of trademarkrights or copyrights can be punished by imprisonment or fine. In order to betterprotect trademark rights, the customs authority require that the trademark beregistered with the customs authority using the importation or exportation report-ing form. If such registration is not made, the level of protection by the customsauthority will be lowered and parallel import will be allowed for items with suchunregistered trademark rights or copyrights.

IX. COMMODITY CLASSIFICATION

A. COMMODITY CLASSIFICATION

In Korea, imported and exported items are classified in accordance with the Har-monized Commodity Description and Coding System, generally referred to as‘Harmonized System’ or simply ‘HS’, for customs purposes. The HS is a multi-purpose international product nomenclature developed by the World CustomsOrganization (WCO) and is governed by the International Convention on theHarmonized Commodity Description and Coding System.

B. SIGNIFICANCE OF THE HS

The HS contributes to the harmonization of the customs and trade procedures, thusreducing the costs related to international trade. It is also extensively used bygovernments, international organizations, and the private sector for many otherpurposes such as internal taxes, trade policies, monitoring of controlled goods,rules of origin, freight tariffs, transport statistics, and economic research and anal-ysis. The HS is thus a universal economic language and code for goods, and anindispensable tool for international trade.

C. NEXUS BETWEEN THE CUSTOMS DUTIES AND

COMMODITY CLASSIFICATION

As customs duty rates applicable to imported items are determined based on theheadings under the HS, accurate classification thereof must precede the determi-nation of customs duty payable. In this regard, the functions, forms, and othercharacteristics of goods (e.g., general/exclusive use, etc.) affecting the HS classi-fication should be considered to determine the correct HS headings for the goods inquestion.


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D. ADVANCE COMMODITY CLASSIFICATION REVIEW

The Advance Commodity Classification Review system allows exporters andimporters to request a review and decision by the customs authority on the customsclassification under the duty rate schedule that would apply to the goods inquestion prior to filing of importation report. According to the Supreme Court,the reply to this advance review is binding only on the customs authority and thereply itself is not an appealable administrative disposition.7

X. TAXPAYERS’ RIGHTS AND ADMINISTRATIVE RELIEF

Under the Customs Act, taxpayers are conferred certain rights such as the right toobtain the charter of taxpayers’ rights, protection against duplicate audits, right toassistance during a customs audit, right to presumption of good faith, etc. Regard-ing duplicate audits, the Supreme Court held that, if audit is re-conducted as toidentical tax item and identical tax period, then the audit is a duplicate audit and itis not necessary that the governmental office conducting the audit is identical.8

In the event of erroneous customs assessment and collection by the customsauthority, taxpayers can protect their lawful rights by pursuing various customsadministrative procedures (e.g., administrative appeals to the tax tribunal) at afraction of costs of litigating at a court by retaining an attorney while, prior tofiling a lawsuit, filing an administrative appeal is required. Administrative appealmust be filed within ninety days from the date when the taxpayer becomes aware ofthe customs duty assessment.

Under the administrative relief regime, a person claiming infringement on hisrights or profits by an act of an administrative agency can file a claim to a relevantadministrative agency to seek restitution, damages, or cancellation of the admin-istrative action. This administrative relief regime is largely comprised of threeprocedural systems, that is, administrative appeal, administrative compensationfor damages, and administrative indemnification for losses.

XI. EXPORTS

A. CUSTOMS CLEARANCE FOR EXPORTS

For customs purposes, an ‘export’ is the removal of goods in Korea to a placeoutside Korea, prior to which it must first be determined whether export of goods inquestion is permitted under the Foreign Trade Act and other relevant statutes, andwhether the concerned method of payment is not subject to any restriction underthe Foreign Exchange Transaction Act.

7. Case 83 Nu 485, 22 May 1984.8. Case 2004 Du 12070, 2 Jun. 2006.


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Goods intended for export must undergo customs clearance procedure forexports, which refers to filing of an export declaration with the customs authority,followed by acceptance thereof, and loading of the goods onto a carrier engaged ininternational transportation.

A person intending to export goods should file an export declaration with thecustoms office having jurisdiction over the location of the goods in question priorto the loading thereof. Through the use of the Electronic Data Interchange (EDI)system and Internet customs clearance procedures, customs clearance can be pro-cessed simply and quickly.

Although exported goods are generally exempt from customs inspection, in rarecases, they may be subject to review for of data sampling inspection, etc. In this case,it should be noted that disclosures of fraudulent or otherwise illegal exports, violationof origin marking regulations, or infringement of intellectual property rights, etc.would be punished pursuant to the Customs Act and other relevant laws.

Following the clearance of an export declaration, the goods in question mustbe loaded onto a carrier engaged in international transportation within thirty daysfrom the clearance date. It should be noted that a failure to load the goods duringthe loading period may result in cancellation of export declaration clearance, inwhich case no refund would be issued for duties already paid. However, with theshowing of unavoidable circumstances such as change in loading schedule, etc., theconcerned exporter can obtain an extension of the thirty-day period.

B. CHECKLIST BEFORE LOADING

1. Filing of a Manifest with the Customs Office

Prior to filing an export declaration, the exporter must confirm whether export of thegoods in question are permitted and, if so, submit a manifest (MF) to the customsoffice. A manifest is a statement made by the owner of a ship, aircraft or their agent tothe customs office listing all cargo loaded on board the ship or aircraft.

2. Export Procedure

a. Preparation of Export Declaration

To carry goods out from a bonded factory or a free trade zone for return or exportoverseas, an export declaration must be prepared and filed using commercialinvoice or packing list, etc.

b. Preparation and Submission of Manifest

A manifest listing all cargo loaded on board a ship or aircraft must be submitted bythe shipping company or the airline by entering data on its Master B/L via com-puter. This Master B/L data input is combined with H-B/L data input by a for-warder via computer and then submitted to the customs office.


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c. Loading of the Customs Cleared Export Goods

As stated above, customs cleared export goods must be loaded on board a carrierengaged in international transportation within thirty days from the clearance date.Notwithstanding the customs clearance issued, unloaded goods are not recognizedas exported goods. An exporter faced with unavoidable circumstances necessitat-ing a delay in loading, can obtain an extension on the loading period by filing anapplication for such extension with the customs office.

XII. CUSTOMS DUTY REFUND

Under the Act on Special Customs Refund Treatment of Raw Materials for Export, acustoms duty refund is issued to exporters or manufacturers of exported goods forcustoms duties paid or payable at the time of importation of raw materials forproduction of exported goods. This Act is part of the export support system thataims to enhance the international price competitiveness of goods exported by Korea.

A. KEY CRITERIA AND CONDITIONS FOR CUSTOMS DUTIES REFUND

– The imported raw materials in question must be intended for production ofexported goods, and the customs duties payable at the time of such impor-tation must have been paid.

– The export of finished goods produced using the imported raw materialsmust occur within two years from the import date of such raw materials.

– Raw materials eligible for the customs duty refund must be consumed toform a part of the exported goods in question in the course of physical orchemical processing, etc., and the quantity of such raw materials requiredfor production of finished goods must be objectively assessable under therelevant regulations.

XIII. BONDED AREA SYSTEM

The bonded area system refers to the customs supervision system in which thegoods, after approval from the customs office to temporarily postpone the formal-ities such as payment of customs duty on entering the Korean territory, arere-carried out of the territory after being stored, processed, and assembled underthe supervision of the customs office. From the perspective of importers, thebonded area system can reduce their customs duties liability, as they can deferpayment of customs duties on their imports during the period when the importeditems are stored within bonded areas, and pay the customs duties at the time ofcustoms clearance in the future.

The bonded area system under the Customs Act is comprised of the bonded areasystem and the bonded transportation system. The ‘bonded area’ refers to areas


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designated by the customs authority for storage, manufacture, processing, sale, con-struction, or exhibition of foreign goods prior to customs clearance of their import.

1. Bonded Areas

Bonded storage facilities in Korea are under the supervision of the Collector ofCustoms. Korea has three kinds of bonded areas: (i) designated bonded areas(designated storage sites and customs inspection sites), (ii) licensed bondedareas (bonded storage sites, bonded warehouses, bonded factories, bonded exhi-bition sites, bonded construction sites and bonded sales sites), and (iii) integratedbonded areas.

The period for which goods may be stored in a licensed bonded warehouse isone year and can be extended for another year. Customs duties are payable onlywhen goods are cleared through customs. The storage period does not apply to thestorage of live animals or plants, perishable merchandise, or other commoditiesthat may cause damage to other merchandise or to the warehouse. The Collector ofCustoms bears no responsibility for goods while they are stored in customs facil-ities. Integrated bonded areas, however, have no time limit for storage.

In addition to the integrated bonded area designated as a Foreign InvestmentZone, bonded warehouses are the facilities available in Korea to foreign companieswhere a foreign exporter can store shipped goods and still maintain title until theyare cleared through customs by normal importation procedures. Korea’s customslaws specify that any person who wishes to establish a bonded warehouse mustobtain a license from the customs authority. Applications must include the name ofthe bonded warehouse, location, structure, numbers and sizes of buildings, storagecapacity, and types of products to be stored. In addition, articles of incorporationand corporate register must be submitted, if applicable.

2. Bonded Transportation

Bonded transportation refers to the transportation of foreign goods from the port ofentry to a bonded area at the port of destination where the cargo will clear thecustoms process. When the customs clearance procedure is carried out at thecustoms office at destination, a Customs Importation Certificate is issued afterthe customs duty is paid or a security is deposited.

XIV. INVESTIGATION AND REGULATION

A. MONITORING OF FOREIGN EXCHANGE TRANSACTIONS

The customs authority monitors foreign exchange transactions relating to pay-ments and receipts arising from imports and exports and investigates trade settle-ments in violation of the Foreign Exchange Transaction Act, etc.


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B. PROHIBITED IMPORTS AND EXPORTS

In principle, all commodities, subject to specific conditions, may be freelyimported into Korea unless they are included on the list of prohibited or restricteditems. The list of restricted items is published by the MKE as the Annual TradePlan (Export and Import Notice). Restricted items include firearms, illegal drugs,endangered species, etc. More important than the list, however, are market accessbarriers related to imports prohibited from entry into Korea due to non-compliancewith standards and/or testing as set by the relevant Korean ministries responsiblefor the particular industry/agricultural category. Pharmaceuticals, medical devices,cosmetics, and food products are particularly vulnerable to lengthy, cumbersome,and costly testing requirements.

Further, the customs authority closely monitors, inter alia, contraband trade,fraudulent import/export filings, and unfair trades (e.g., dumping and infringementof intellectual property rights) and illegal foreign exchange transactions (i.e., car-rying foreign currencies into or outside Korea without reporting), which negativelyimpact the Korean economy.


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