SOUTH KOREA In October 1989, the Republic of Korea announced that it would graduate from GATT balance of payments protection, and accordingly, the South Korean government has undertaken to eliminate remaining import controls or otherwise make them conform with GATT provisions by 1997. South Korea has implemented a GATT-approved three-year liberalization program through 1991. Under this program a total of 243 agricultural products were liberalized over the past three years (1989-91), bringing the percentage of liberalized agricultural products to 84.7 percent. However, in some cases liberalization has not lead to real market access due to phytosanitary requirements. Remaining import restrictions are subject to further liberalization under a plan presented by the Republic of Korea in March 1991 to the BOP committee. The government is expected to supplement that plan and add some "secondary" measures to the liberalization schedule. 4. Debt Management Policies In 1985 South Korea was the fourth largest debtor among developing countries with external debt totaling nearly $47 billion (52 percent of GNP). The Republic of Korea used its substantial current account surpluses between 1986 and 1989 to reduce and even prepay its foreign debt. As result, South Korea's gross foreign debt dropped to $29.4 billion in 1989. Net foreign debt, which topped $35.5 billion at the end of 1985, dropped to $3 billion by the end of 1989. Reflecting rising current account deficits and increased foreign borrowing, South Korea's outstanding gross foreign debt grew again in 1990 and 1991, reaching $36.8 billion in the first half of 1991. Net foreign debt reached its highest level in 3 years, $10.6 billion at the end of June 1991 and continued an upward trend through the remainder of the year. South Korea's 1991 debt service ratio is projected at about 8 percent. The total debt service to GNP ratio was 3.1 percent in 1990 and is estimated at 2.5 percent for 1991. As part of the government's September 1991 plan to improve the balance of payments, South Korean banking institutions were banned from obtaining long-term bank loans until the end of the year. The government also reduced the availability of foreign currency loans in an effort to curb rapidly growing imports of plant and equipment. In 1995 the Republic of Korea will graduate from its status as a World Bank loan recipient. In September 1991 the government formally filed a graduation plan with the bank which included a four-year phase out period agreed upon with World Bank officials. Over the past several years, formal South Korean import barriers have been reduced. However, many regulations remain on the books that inhibit access to the South Korean market. Also, with many areas formally open to imports, U.S. companies have faced a new series of less formal, but just as real, impediments to trade. One of the most pervasive of the formal impediments remaining is the restriction on the ability to SOUTH KOREA import on credit. Use of limited deferred payment terms is restricted to items with a tariff of ten percent or less, which are generally raw materials. Use of deferred payment terms for other goods requires a license from the Foreign Exchange Bank and permission from the governor of the Bank of Korea; it is rarely granted, except in cases of raw material or capital equipment imports. U.S. firms estimate that they could increase exports to the Republic of Korea by up to one third if South Korean firms were allowed to buy on credit. With the signing of the "Super 301" agreements in May 1989, the South Korean government committed to eliminate over a three-year period a number of important structural barriers in the Republic of Korea's trade and investment regime. The government of South Korea has yet to fully comply with several provisions of this agreement. In the cosmetics trade, an area where U.S. firms are very competitive, full liberalization of wholesaling, for example, has not been completed. Progress in implementing the BOP agreement has also been less than satisfactory. BOP liberalization of agricultural products has been largely limited to products with little import potential. Under a separate agreement, the South Korean government has also agreed to liberalize beef imports by 1997. In the interim, imports are restricted technically by a quota system, a quasi-governmental agency has been designated as the sole importer, and buyers may designate suppliers and negotiate prices directly for only a small percentage of imports. The South Korean government currently is importing well above specified quota levels in an effort to control domestic prices. The government of the Republic of Korea has done little to educate a public accustomed to a closed domestic market on the benefits of imports, particularly to consumers. Most South Koreans have been taught that imports are, by definition, luxury goods. The government has encouraged a "frugality campaign" against "over-consumption" that hits consumer imports particularly hard. While the government has privately pledged not to target imports, it has not publicly objected to rallies against foreign cigarettes or promotion of unfounded imported food safety scares by government-funded "consumer groups. In fact, the Bank of Korea has launched an investigation into "excessive" credit card spending overseas and the press frequently airs reports that the office of national taxation will audit individuals who travel "excessively" abroad or spend "too much" on so-called "luxury" goods. ་ The government continues to espouse a policy of gradually opening the South Korean market, and imports have grown rapidly along with the rapid growth of the South Korean economy. However, working level officials and officials in some of the conservative regulatory ministries still employ complex and opaque rules to effectively keep imports out after nominal "liberalization." For example, health, phytosanitary, electrical, testing and registration, and building material standards are sometimes used as a second line of defense against imports now that many outright import bans have been lifted. Since the early 1980s, the South Korean government has eliminated a number of direct export subsidies, including the special depreciation allowance for large exporting firms and overseas construction firms. In December 1991, in response to South Korea's growing trade deficits, the government initiated a review of its export support policies with a view to strengthening them, including making foreign currency export financing available to large firms, a facility which was terminated in 1988. These new measures will be added to existing programs of support for the Republic of 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 firms; rebates on the value-added tax (VAT) and a special consumption tax for export products; corporate income tax benefits from costs related to the promotion of overseas markets; unit export financing loans; and special depreciation allowances for small and medium exporters. mid-October 1991 the South Korean government began 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. In The Republic of Korea is a member of the GATT Code on Subsidies and Countervailing Duties. 7. Protection of U.S. Intellectual Property The Republic of 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 1991 the South Korean government continued to take steps to improve the protection of U.S. intellectual property rights (IPR) in South Korea. Most recently, legislation to protect trade secrets was passed by the National Assembly in its December 1991 session. Enforcement, however, remains a problem. The Republic of Korea remains on the U.S. trade representative's special 301 "watch list" under the provisions of the 1988 Omnibus Trade and Competitiveness Act. In December 1988 the South Korean government created an interministerial task force chaired by the Ministry of Trade and Industry. The task force has been a useful forum for addressing IPR problems, but major successes have been achieved only through constant monitoring. Patents: Patent experts report that, while South Korea's patent laws are satisfactory, the actual extent of patent protection in the Republic of 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 "improvement patents" (whether patentable or not) do not infringe on the pioneer patent. Existing laws on compulsory licensing pose problems for some U.S. firms in that they specify that a patent can be SOUTH KOREA subject to compulsory licensing if the patent is not worked. Trademarks: Trademark violations are widespread in South Korea despite regular crackdowns by the authorities. Of continuing concern is the export of counterfeit goods from South Korea to the United States and third countries. Although South Korean law allows prosecutors or police to investigate trademark infringement cases without the filing of a formal complaint, U.S. firms have complained that South Korean prosecutors often provide little or no information about the status or results of these investigations. Copyrights: South Korea and the United States established copyright relations when Korea joined the Universal Copyright Convention in 1987. South Korean government administrative measures outlined in the 1986 U.S.-South Korea IPR agreement were intended to provide retroactive protection for books copyrighted from 1977 to 1987 and software copyrighted from 1982 to 1985. To date, the South Korean government has had some success in curbing pirating activities through the use of tax and trademark infringement laws. Nevertheless, software piracy continues to be widespread. South 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 have maintained that this requirement causes delays which allow the alleged violator to remove evidence from the premises before the authorities arrive. New Technologies: Draft legislation to extend IPR protection to semiconductor mask works was introduced in the National Assembly in November 1991, but was not passed before adjournment on December 18. The bill is expected to be reintroduced in 1992. While the bill addresses many of the concerns expressed by U.S. companies, it does not deal with third party infringement issues, particularly downstream infringement. 8. Worker Rights a. The Right of Association The Constitution gives workers, with the exception of most public service employees and teachers, the right to free association. The government also has refused to legalize the teachers' union, since the teachers (even those working in private schools) are considered to be public service employees. Companies operating in South Korea's two export processing zones (EPZ's) have been considered public-interest enterprises whose employees' rights to organize and bargain collectively face restrictions. In practice, however, unions at EPZ companies have been formed and workers in the two EPZ's exercise the right to organize and collectively bargain to the same degree as other private sector unions. Only a single union is permitted to represent workers at each place of employment; there is no minimum on the number of workers required to form a union. Unions must register with the government and affiliate with the Federation of Korean Trade Union (FKTU) although there are attempts to form an alternative labor center and unaffiliated unions. 53-153 0-92 - 5 SOUTH KOREA Strikes are also 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 10-day "cooling-off period" before a strike can actually begin. The cooling-off period is 15 days in public interest sectors. b. The Right to Organize and Bargain Collectively The Constitution and the Trade Union Law guarantee the autonomous right of workers to enjoy the freedom of association, collective bargaining, and collective action. Extensive collective bargaining is practiced. South Korean labor law does not extend the right to bargain collectively to employees of government agencies, state-run enterprises, and defense industries. There is no independent system of labor courts. Labor disputes have been marked by violence. c. Prohibition of Forced or Compulsory Labor The Constitution provides that no person shall be punished, placed under preventive restriction, 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 the Employment of Children. The South Korean labor standards law prohibits the employment of persons under the age of 13 without a special employment certificate from the Ministry of Labor. Because the Republic of Korea has compulsory education to the age of 13, the authorities issue very few special employment certificates for full-time work. Children employed under the age of 18 must have written approval from their parents or guardians. Employers are permitted to have minors work only a limited number of overtime hours, and are prohibited from employing them at night without special permission from the Ministry of Labor. The labor standards and industrial safety and health law limit the maximum work week (including overtime) to 60 hours. By October 1991, the standard work week in large firms was 44 hours. The Government sets health and safety standards, but the Ministry of Labor employs few inspectors, and the standards are not effectively enforced. The South Korean Government reviews the minimum wage rate annually. The minimum wage law does not apply to firms employing fewer than ten workers. 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 electrical |