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been taught that imports are, by definition, luxury goods. The government has en. couraged regular "frugality campaigns" against "over-consumption" that hit consumer imports particularly hard. Domestic industry often puts pressure on the government to use its authority against foreign companies. In 1993, for example, foreign firms in the recently-liberalized cosmetics sector simultaneously underwent customs valuation audits and investigation of their import procedures. Numerous press articles negatively highlighted the increase in sales of foreign cosmetics and the amount of floor space devoted to their display by department stores. Such reports continue to appear sporadically in the press, along with news that tax offices will audit individuals who travel excessively abroad or spend too much on "luxury goods, such as imported automobiles.

The streamlining of Korea's complex import clearance procedures is an important U.S. policy objective. Korea is now implementing PEI and DEC recommendations for improvement of customs and import clearance procedures. A new customs subgroup has been established to deal with the long-term implementation of improvements in the Korean import clearance system.

Korea has agreed to join the new GATT Government Procurement Code. For Korea, the Code will be effective January 1, 1997. 6. Export Subsidies Policies:

Since the early 1960s, Korea has eliminated several indirect export subsidies, in. cluding the special depreciation allowance for large exporting firms and overseas construction firms. In 1988, Korea terminated the provision of export loans to large firms not affiliated with business conglomerates. However, in response to Korea's growing trade deficits, the government resumed the provision of short-term export loans to large exporting firms in April 1992.

This measure was added to existing programs of support for Korea's export industries, including customs duty rebates for raw material imports used in the production of exports; short term export loans for small and medium sized firms; rebates on the value-added tax (VAT) and a special consumption tax for export products; corporate income tax benefits for costs related to the promotion of overseas markets; unit export financial loans; and special depreciation allowances for small and me dium exporters. Korea also maintains a special loan program for small and medium business to facilitate exports to Japan as a measure to curb its bilateral trade deficit with that country. Export subsidies to the shipbuilding industry are within OECD guidelines. Korea is a signatory to the GATT code on subsidies and countervailing duties. 7. Protection of U.S. Intellectual Property:

In February 1993, Korea launched a new comprehensive plan to strengthen intellectual property rights (IPR) protection and the enforcement of IPR laws. The socalled special enforcement program was originally scheduled to run three months, but was later extended to ten months. It included the establishment of an information network on cases and twice-weekly raids on markets where counterfeit goods were prevalent. Key trouble areas, such as the electronics markets in Seoul and Pusan, were targeted more often. Korean authorities gave high priority to the prosecution of IPR-related cases. For the first time, IPR offenders routinely spent time in jail and paid fines. The government also announced plans to increase the pen. alties for copyright infringement and to amend the customs law to strengthen IPR enforcement for imports and exports of copyright and trademark goods. The government has continued this campaign into late 1994, dedicating extra budgetary resources and sponsoring public awareness seminars.

As a result of this concentrated push, the U.S. government, in its 1993 and 1994 special 301 reviews, elected not to upgrade Korea to “priority foreign country” status, but kept it on the “priority watch list” with the possibility of further "out-ofcycle” reviews. The American business community, encouraged by the new signs of a serious approach to IPR by the Korean government, supported the U.S. govern. ment's decision.

Patents: Patents are one area that the new campaign has not affected. While Korea's patent laws are satisfactory, the actual extent of patent protection in Korea depends on judicial interpretation. Problems include a lack of discovery procedures, limits on the use of the doctrine of equivalents," and a determination that "im. provement patents” (whether patentable or not) do not infringe on the pioneer patent. Existing laws on compulsory licensing, pose problems for some U.S. firms because they specify that a patent can be subject to compulsory licensing if the patent is not worked.

Trademarks: Trademark violations typically have been the most visible area of infringement and were the prime target of the 1993 crackdown, particularly since Korean law allows prosecutors or police to investigate trademark infringement cases without the filing of a formal complaint. Problems remain with the definition of "famous marks” in Korea. Reviews by the Korean

authorities charged with deciding whether a trademark has famous mark status have resulted in inconsistent deci. sions. Three dimensional characters still have no protection at all.

Copyrights: Korea and the United States established copyright relations when Korea joined the Universal Copyright Convention in 1987. Korean government administrative measures outlined in the 1986 United States-Korea IPR agreement were intended to provide retroactive protection for books copyrighted from 1977 to 1987, software copyrighted from 1962 to 1985, and all pre-1987 sound and video recordings.

Following the 1986 agreement, Korea had some immediate success in curbing pirating activities, particularly in the area of printed materials, through the use of tax and trademark infringement laws. However, until the advent of the 1993 special enforcement campaign, relatively little attention was given to the problem of piracy in the area of sound recordings. One of the chief successes of the new IPR regime has been the establishment of a mechanism for reviewing registration applications that tracks the ownership of both pre- and post-1987 works. The continued effective management of the registration system for these works—and follow up in order to destroy illegally-produced or imported copies—will be key concerns in future evaluations of Korea's IPR regime.

Software piracy continues to be widespread. The Korean authorities have conducted raids on retailers and wholesalers, but have given relatively low priority to large end-users. The few raids that have been conducted on training schools and other end-users have sparked significant purchase orders to legitimate vendors. In 1994, the government sponsored a series of public seminars on the importance of copyright protection for software, and the number of raids and arrests continued to rise.

Korea agreed in 1993 to extend copyright protection to textile designs. Korean officials began to work with local textile manufacturers to develop mechanisms for tracking rights ownership and protecting Korean producers from liability.

A key complaint of U.S. firms is that Korean law does not permit the prosecutor or the police to undertake an investigation of alleged copyright infringement unless a formal complaint has been filed. U.S. firms maintain that this requirement causes delays which allow the alleged violator to remove evidence from the premises before the authorities arrive. U.S. companies have welcomed the proposal to significantly increase the penalties for copyright infringement. The Korean government currently has no plans to change its complaint requirement.

New technologies: In November 1992, the National Assembly passed legislation to extend IPR protection to semiconductor mask works. If the Korean law becomes compatible with U.S. law, Korea could seek reciprocal protection for its chips under U.S. law, provided it demonstrates that no “unauthorized duplication” is occurring. The Korean government has been very responsive to U.S. government suggestions on how the law and its implementing regulations should be changed to make its compulsory licensing provisions acceptable to U.S. industry.

Legislation to protect trade secrets took effect in December 1992. A Prime Ministerial decree effective January 1, 1993 mandates the handling of trade secrets, including business confidential information, in such a manner that legitimate commercial interests are protected. In 1992, the Korean government enacted new legislation to regulate cable television. The U.S. government views the legislation with concern because certain provisions may inhibit market access for U.S. firms.

Korea is a party to the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty, the Universal Copyright Convention, the Geneva Phonograms Convention, and is a member of the World Intellectual Property Organization. In November 1992, the National Assembly ratified the United StatesKorea Patent Secrecy Agreement signed in January 1992. 8. Worker Rights

a. Right of Association.—The Constitution gives workers, with the exception of most public service employees and teachers, the right to free association. There are, however, blue collar public sector unions in railways, telecommunications, the postal system, and the national medical center. The trade union law specifies that only one union is permitted at each place of work, and all unions are required to notify the authorities when formed or dissolved.

In the past the government did not formally recognize labor federations which were not part of, nor affiliated with, the country's legally recognized labor confederation—the Federation of Korean Trade Unions (FKTU). In 1993, however, the Labor Ministry officially recognized independent white collar federations represent

ing hospital workers, journalists, financial workers, and white collar employees in construction companies and government research institutes. In practice, labor federations not formally recognized by the Labor Ministry existed and worked without government interference, except if the authorities considered their involvement in Tabor disputes harmful to the nation.

No minimum number of members is required to form a union, and unions may be formed without a vote of the full, prospective membership. Korea's election and labor laws forbid unions from donating money to political parties or participating in election campaigns. However, trade unionists have circumvented the ban by temporarily resigning their union posts and running for office on the ticket of a political party or as an independent.

Strikes are prohibited in government agencies, state-run enterprises, and defense industries. By law, enterprises in public interest sectors such as public transportation, utilities, public health, banking, broadcasting, and communications must submit to government-ordered arbitration in lieu of striking. The Labor Dispute Adjustment Act requires unions to notify the Ministry of Labor of their intention to strike and mandates a ten day cooling-off period before a strike may legally begin. Overall membership in Korean labor unions has been declining over the last several years largely because the explosion in labor organizing in 1987–89 left the movement divided but well compensated, and worker rights significantly improved.

Since July 1991, South Korea has been suspended from U.S. Overseas Private Investment Corporation (OPIC) insurance programs because of the limits placed on the freedom of association and other worker rights.

b. Right To Organize and Bargain Collectively. The Constitution and the Trade Union Law guarantee the autonomous right of workers to enjoy collective bargain. ing and collective action. Although the Trade Union Law is ambiguous, the authorities, backed up by the courts, have ruled that union members cannot reject collective bargaining agreements (CBAS) signed by management and labor negotiators

. Nonetheless, union members continue to reject CBAS agreed to by labor and management negotiators. Extensive collective bargaining is practiced. Korea's labor laws do not extend the right to bargain collectively to government employees, including employees of state or publicly run enterprises and defense industries.

Korea has no independent system of labor courts. The Central and Local Labor Commissions form a semiautonomous agency of the Ministry of Labor that adjudicates disputes in accordance with the Labor Dispute Adjustment Law. The Law authorizes labor commissions to start conciliation and mediation of labor disputes after, not before, negotiations break down and the two sides are locked into their positions. Labor-management antagonism remains a serious problem, and some major employers remain strongly anti-union.

c. Prohibition of Forced or Compulsory Labor.-The Constitution provides that no person shall be punished, placed under preventive restrictions, or subjected to involuntary labor, except as provided by law and through lawful procedures. Forced or compulsory labor is not condoned by the government.

d. Minimum Age for Employment of Children. The Labor Standards Law prohibits the employment of persons under the age of 13 without a special employment certificate from the Ministry of Labor. Because education is compulsory until the age of 13, few special employment certificates are issued for full-time employment. Some children are allowed to do part-time jobs such as selling newspapers. In order to gain employment, children under 18 must have written approval from their parents or guardians. Employers may require minors to work only a reduced number of overtime hours and are prohibited from employing them at night without special permission from the Ministry of Labor.

e. Acceptable Conditions of Work.--Korea implemented a minimum wage law in 1988. The minimum wage level is reviewed annually. Companies with fewer than ten employees are exempt from this law, but, due to tight labor markets, most firms pay wages well above the minimum levels. The Labor Standards and Industrial Safety and Health Laws provide for a maximum 56-hour workweek, and a 24-hour rest period each week. Amendments to the Labor Standards Law passed in March 1989 brought the maximum regular workweek down to 44 hours, but such rules are sometimes ignored, especially by small firms.

The government sets health and safety standards, but South Korea suffers from unusually high accident rates. The Ministry of Labor employs few inspectors, and its standards are not effectively enforced.

f. Rights in Sectors with U.S. Investment.-U.S. investment in Korea is concentrated in petroleum, chemicals and related products, transportation equipment, processed food, and to a lesser degree, electric and electronic manufacturing Workers in these industrial sectors enjoy the same legal rights of association and collective bargaining as workers in other industries. Manpower shortages are forcing

labor-intensive industries to improve wages and working conditions, or move offshore. Working conditions at U.S. owned plants are for the most part better than at Korean plants. Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

(Millions of U.S. dollars)

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Income, Production and Employment:

Real GDP (1978 prices)
Real GDP Growth (pct.).
By Sector:

Whole and Retail Trade
Financial Services
Government Services

Other Services
Net Exports of Goods & Services
Real Per Cap GDP (1978 base)
Labor Force (000s)

Unemployment Rate (pct.)
Money and Prices:

Money Supply (M2 pct.)
Base Interest Rate (pct.)
Gross Nat. Savings/GNP (pct.)
Inflation (CPI) (pct.)

Exchange Rate (avg USD/RM)
Balance of Payments and Trade:

Merchandise Exports

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Key Economic Indicators Continued

(Millions of U.S. dollars unless otherwise noted]



1994 1

Exports to U.S. (FAS)

8,293 10,568 11,413 Merchandise Imports .....

36,200 42,869 552,950 Imports from U.S. (CV)

4,396 6,061 6,550 Aid from U.S.


0.3 Aid from Other Countries

N/A N/A N/A External Debt .......

16,784 20,121 24,431 Public Sector

12,667 14,163 16,995 Private Sector

4,117 5,959 7,436 Debt Service Payments (paid)*

1,995 2,184 NA Official Net Reserves 5

18,068 29,741 31,184 Merchandise Trade Balance

3,373 3,188 52,444 Trade Balance With U.S.

3,897 4,507 4,863 N/A—Not available. 1 Malaysian Government estimates *Calculated in ringgit to avoid exchange rate changes U.S. Embassy estimates. • Excluding prepayments. *1994 data to August only. 1. General Policy Framework

Malaysia has a relatively open, market-oriented economy and real GDP growth ranged between 6 percent and 8 percent from 1964–1984. Since independence in 1957, the Malaysian economy has shown sustained growth and has diversified away from the twin pillars of the colonial economy: tin and rubber. In 1985–1986, the col. lapse of commodity prices led to Malaysia's worst recession since independence, with real GDP growth a negative 1 percent and nominal GNP falling 11 percent. Since then, the economy has rebounded, led by strong growth in both foreign and domestic investment and exports of manufactures with real GDP growing at an average rato of over 8 percent. In 1994, real GDP growth is expected to reach 8.5 percent. Malay. sia's 1995 Federal budget, tabled in Parliament October 28, 1994, introduced 2,600 tariff cuts and additional fiscal policy changes.

While the government plays a diminishing role as a producer of goods and services, it continues to hold

equity stakes (generally minority shares) in a wide range of domestic companies. These entities are rarely monopolies; instead, they are one (generally the largest) player among several competitors in a given sector. However, government-owned entities are major players in some sectors, particularly plantations and financial institutions. Since 1986, the government has been privatizing many entities, including telecommunications, the national electricity company, the national airline and the government shipping firm. The government sold off its remaining shares in Malaysia Airlines Systems (MAS) in August 1994 and MAS is being reorganized to improve profitability. Seaports and government hospitals and pharmaceutical supply centers are in various stages of privatization.

Malaysia supports global trade liberalization measures and encourages direct foreign investment, particularly in export-oriented manufacturing and high technology products. It has been very active in the Uruguay Round negotiations and ratified the agreement on September 6, 1994. Multinational corporations control a substantial share of the manufacturing sector. U.S. and Japanese firms dominate the production of electronic components (Malaysia is the world's third largest producer of integrated circuits), consumer electronics, and electrical goods. Foreign investors also play an important role in petroleum, textiles, vehicle assembly, steel, cement, rubber products, and electrical machinery.

Fiscal Policy: The government follows a prudent and conservative fiscal policy, with a surplus in its operating account. With the intention of improving the investment climate, the government reduced the corporate income tax rate by two percentage points from 38 to 32 percent in the 1994 budget and reduced it by another two percentage points, to 30 percent, in the 1995 budget.

Monetary Policy: Malaysian monetary policy is aimed at controlling inflation while providing adequate liquidity to stimulate economic growth. Monetary aggregates are controlled by the central bank through its influence over interest rates in the banking sector, open market operations and, occasionally, changes in reserve requirements.

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