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3. Barriers to trade
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3.1 Tariff and tariff administrative measures

The average level of tariff in ROK was under 8 percent in 2005, but the actual tariffs of some agricultural and industrial products are much higher than those in other industrialized countries. For instance, the weighted average of ROK's bound tariffs on all agricultural products is 64.1 percent.

3.1.1 Adjustment Tariffs

An adjustment tariff lower than 100 percent is, in addition to the basic tariff, applied to the agricultural, forestry, animal and aquatic imports whose domestic counterparts are weak in competition or whose increase is likely to result in the disruption of domestic market or injure related domestic industries, and to those imports whose domestic counterparts are subject to provisional protection on such reasons as environmental protection, domestic consumers' interests and the balance of domestic industry development. The imports subject to the adjustment tariffs scheme and the related rates are published once every year and the imposition runs from January 1 till December 31.

In 2005, 18 kinds of products are subject to adjustment tariffs, with the average level at 38.5 percent. Compared with the level of 2004, the adjustment tariff on poulp squid (frozen) is canceled and those on 8 kinds of products including sea-bream, sea bass, croakers, frozen shrimps, squid (frozen), oak mushroom, Chinese vermicelli and bean sauce pies were cut down by 2 percent-5 percent. The Chinese side found that among the 18 kinds of products subject to the adjustment tariffs, eel, sea bass, croakers, salted or in brine shrimps, oak mushroom, Chinese vermicelli, bean sauce pies, mixed seasonings (including red pepper paste) are totally or mostly Chinese imports in which Chinese producers enjoy competitive advantages. The types of products subject to the tariffs and the related rates are adjusted annually, which is not only uncertain and unforeseeable for Chinese exporters, but also adversely affects the trade stability between China and ROK. Although ROK reduces the number of types and lowers the adjustment tariff level year by year, but the reductions are quite limited in either respect.

3.1.2 Tariff quotas

In the negotiations of the Uruguay Round, ROK was allowed to implement tariff quotas on such agricultural products as rice and corn. In 2005, ROK maintained tariff quotas on 63 major kinds of agricultural products. Some of the covered items are subject to an over-quota tariff rates above 200 percent. For example, the rates of sesame, garlic, mung bean, date and green tea are 630 percent, 360 percent, 607.5 percent, 611.5 percent and 513.6 percent respectively. Most agricultural products in which China enjoys competitive advantages are subject to tariff quota administration by the ROK Government, so the over-quota tariff rates have, in fact, impeded the export of related Chinese products to ROK.

3.1.3 Special safeguard duties on agricultural products

The amendments to the Customs Act and its related decrees made by the Korean government in 2004 stipulates that as of January 1, 2005, if the imports of 45 agricultural and forestry products such as mung bean, red bean, buckwheat, soybean, peanut, and ginseng exceed the certain quantity, the special safeguard duties that can reach 1067 percent at maximum shall be imposed, and this measure shall remain valid for one year. Among the 45 products, 21 are Chinese imports. In accordance with the amendment, 810 percent and 561 percent emergency tariffs are imposed on the imports of mung bean and red bean respectively, if their aggregate quantity exceeds 33,052 tons; 307 percent emergency tariffs on peanut if the imports exceed 4,845 tons: 297 percent to 1005 percent emergency tariffs on the imports of 19 kinds of ginseng including Saengsam (unprocessed ginseng) and Red Ginseng and converted products if they exceed the import limit of 41 tons. On December 29, 2005, ROK made slight adjustments on the coverage of products subject to Special Safeguard Duties on agricultural products in 2006 and the related tariff level, and the covered goods are reduced to 44. According to ROK Customs statistics, Chinese imports of red bean and peanut were heavily affected by this measure, reduced by 20 percent and 30 percent respectively. The Chinese side hopes that the ROK Customs will strictly observe relevant WTO agreements so as to avoid the injury to bilateral trade.

3.1.4 Application of tariff items

The ROK Customs usually adopts 'main ingredient' or 'import purpose or motive' criteria in deciding the tariff items applicable to 'blended products', namely those containing various ingredients. This practice frequently results in unreasonably high tariff rates applied to certain products. "Blended products" disadvantaged by this practice include potato flakes, soybean flakes.

3.2 Barriers to customs procedures

3.2.1 Selected inspection of agricultural products

As of July 2003, the ROK Customs conducts pre-clearance examination on selected agricultural products under the reason for cracking down smuggling of agricultural products. The average rate of random inspection on selected imports is 3 percent to 5 percent only, but 20 percent on agricultural products and 100 percent on frozen chilli and mixed seasoning. This practice prolongs the clearance of related Chinese agricultural products and increases cost of trade.

3.2.2 Pre-clearance tariff examination

As of 2000 the ROK Customs conducts pre-clearance examination on selected agricultural products under the reason for preventing "duty evasion by low-priced customs declaration". The ROK Customs further intensified its pre-clearance examination on 18 agricultural products to be imported into ROK such as sesame, perillaseed, ginger, dried red bean, dried mung bean, seasoned peanut, soybean for bean sprout, onion, barley, sweet potato starch, frozen chili, frozen garlic, pickled garlic, fresh (chilled) whole garlic, fresh (chilled) garlic grains, garlic temporarily marinated for storage, dried garlic, carrot, etc. The agricultural products subject to examination must receive price examination by the ROK Customs for the possibility of duty evasion. Currently, the Korean Customs further intensified its pre-clearance examination. The Korean Customs evaluates the prices of products declared by importers by examining sales contracts and the modes of payment involved or by comparing the declared prices with the unit prices that the customs have constructed from their instant calculation. Only the products deemed proper in price are allowed to clear the customs. However, the Korean customs generally do not disclose their benchmark prices.

The 18 products subject to ROK's pre-clearance tariff examination are mainly Chinese imports. Except for perillasee, frozen chili, carrot, frozen garlic, the other 14 products shall be subject to quotas. The pre-clearance tariff examination has prolonged the customs clearance for related Chinese agricultural imports, thereby impeding Chinese agricultural exports to ROK. The Chinese side has expressed concern over the transparency and implementation of the measure.

3.3 Technical barriers to trade

The certification methods applied to the products declared are frequently altered by Korean Administration for Technical Standards (KATS) without prior notice, at the request of the Korean domestic enterprises. Such practices have compelled Chinese exporters to put in double expenses and time for certification, hence increasing costs and uncertainty for Chinese exports to ROK market.

3.4 Sanitary and phytosanitary measures

The Chinese products significantly affected by ROK's inspection and quarantine measures include agricultural products, aquatic products, products of animal origin, food and food additives, medicines and medicine materials.

3.4.1 Agricultural products

As of June 1, 2005, ROK initiated new regulations regarding the inspection on wooden packing for imports according to the Regulations on Wooden Packing Material in International Trade (shortened as ISPM No. 15) issued by the International Plant Protection Convention. According to the new measure, unprocessed wooden packing materials, such as wooden pallets, wooden cases, stow-wood and wooden padding shall receive heat treatment according to International Standard ISPM No. 15 or MB fumigation required by ROK, and sterilization labels are to be stenciled on two surfaces of each packing material or containers. In addition, for conifer wooden packing from Japan, China's mainland and Taiwan, U.S., Canada, Mexico and Portugal, heat treatment (with the core temperature of the wood remaining at 56°C for 30 minutes consecutively) or MB fumigation is required.

In accordance with related Korean laws, fresh fruits are subject to the risk evaluation on plant diseases and pests by Korean inspection and quarantine agencies. The evaluation process will usually take years to complete. Currently, Chinese fresh fruits are not importable to ROK. In October, 2003, Chinese quarantine departments submitted the application for the risk evaluation on plant diseases and pests risks on cherry and longan. However, the import of these fresh fruits has not been approved by the Korean side.

Chinese exporters hope that Koreans would lift those unreasonable requirements and discriminatory practices with regard to import quarantine and inspection as early as possible.

3.4.2 Chinese traditional medicine materials Pesticide residues and residual limits of heavy metal

In April, 2005, Korean Food and Drug Administration (KFDA) promulgated Amendment to the Recommendation on the Limits of Pesticide Residues/Heavy Metals in Materials for Traditional Chinese Medicines and Related Testing Methods. The Amendment not only includes new items for testing pesticide residues and adjusts the maximal residual limits but also establishes the maximal residual limits for heavy metal content in the materials for traditional Chinese medicines as follows: the maximal content for plant medicines: lead (Pb) 5mg/kg; arsenic (As) 3mg/Kg; mercury(Hg) 0.2mg/kg, and cadmium (Gd) 0.3mg/kg; for pilose antler: arsenic 3mg/Kg. The aggregate residue limit of heavy metal in patent medicine or preparation with herbal medicines as the main ingredients (exclusive of preparation containing mineral medicine material) must be lower than 30mg/kg. The Chinese side has expressed great concern over the Amendment and hopes the Korean side can timely provide solid scientific evidence for the adjustment of maximal residual limits so as to avoid the impact on materials for traditional Chinese medicines exported to ROK. Pilose antler

Currently, China's exports of pilose antler to ROK account for 10-15 percent of its import market share. The inspection on imported deer horns is generally conducted by the institutions designated by Korean Food and Drug Administration (KFDA). Its purpose is to detect the ash content which is required to be lower than 35 percent. It is known that of all the countries in the world only ROK conducts such inspections. However, the Korean inspectors seem quite discretionary because they tend to take samples from the root of the horns, the part where the aging of the horn is most serious. Thus, the result is usually the excessive ash content and the subsequent demand for rejection put forward by Korean importers. This regulation of KFDA as well as the method applied by Korean inspectors has aroused serious concern on the part of Chinese exporters.

3.4.3 Aquatic products

As of September 1999, ROK adopted precise test on the live eel and mandarin fish imported from China Mainland and Taiwan, asserting excessive residue of terramycin, oxilinic acid and mercury.
The ROK government conducts "clearance after precise inspection" on some Chinese aquatic products to ROK. In January 2005, the Korean Aquatic Products Inspection Bureau declared to increase the number of products subject to "clearance after precise inspection" in order to ban illegal marketing and improve sanitary safety of food. As of January 10, 2005, the measure "clearance after precise inspection" applies to frozen food, dried food and pickled food except live and fresh aquatic products. As of July 1, 2005, the measure also extends to cover live (except fish) and fresh aquatic products. Currently, special import regulation is administered on 6 aquatic products, namely loach, eel (2 varieties), blood clam, scallop and oyster. Chinese companies exporting above-mentioned products are required to receive the precision inspection from Korean quarantine authorities at least once a month, and should any inconformity be found in the case of one company, all other companies exporting the same products to ROK shall be required to receive the precision inspection.

This practice, usually lasting for 3-4 days, greatly prolonged time needed for customs clearance, thus reducing the fishes' survival rate and hampering Chinese export of live fishes to ROK. The Chinese side has expressed much concern over it.

3.4.4 Animal products Registration system for production enterprises

Companies exporting animal products to ROK shall be subject to evaluation and registration conducted by competent Korean authorities prior to exportation. However, the procedures involved are extraordinarily slow. Currently only 11 Chinese animal meat processing companies have gone through registration and acquired qualifications for export to ROK, thereby tightly limiting Chinese animal meat exports to ROK. Import quarantine recognition system

This system is applied to all imported animal products. According to the system, exporting countries are required to make application and submit relevant documents on its animal diseases, if any, to be evaluated and endorsed by competent Korean authorities. Non-OIE-member countries shall be subjected to on-site inspections and investigations by competent Korean authorities and are able to export related products after a bilateral quarantine agreement is signed. Claiming that China is not a member country of OIE and is affected by mouth- feet-disease, Korean authorities have banned the import of artiodactylous products produced in the whole territory of China mainland. Furthermore, according to the requirements of Sanitary Conditions for Import of Coarse Fodder formulated by ROK's Ministry of Agriculture and Forestry, countries that are banned to export artiodactylous animals and related products to ROK are automatically not included on the list of countries free to export coarse fodder to ROK. Subsequently, Chinese coarse fodder exporters have to accept one-by-one quarantine recognition by Korean authorities before being allowed to export this product to ROK. Meat inspection

In the second half year of 2003, ROK imposed import ban on poultry meat from China, for the reason of outbreak of avian flu in China. Through the Chinese side's active negotiation with ROK, in the second half of 2004, ROK began to allow the import of Chinese heat-treated poultry meat and endorsed 11 Chinese heat-treated poultry production enterprises. However, ROK insisted on rigid inspection on every heat-treated poultry product, which retarded customs clearance and increased the storage expenses and costs. In addition, the Korean quarantine departments refuse to inspect the exports of some enterprises on the pretext that the suppliers of the materials used by Chinese enterprises in processing are not approved by the Korean side. The subsequent rejection by Korean importers has subjected Chinese exporters to great loss.

3.4.5 Regionalization of epidemic-infected area

As far as regionalization of epidemic area is concerned, the total territory of China mainland has always been regarded as a whole region by ROK, which means if an epidemic or a pest forbidden to enter the Korean territory is discovered in products originating from a region of China, ROK will accordingly ban the import of products of the same kind from other regions on China mainland.

The Chinese side has expressed concern over the consistence between the ROK measures and the "principle of regionalization of epidemic areas" under the WTO SPS Agreement and hopes the Korean practices will not exert unnecessary adverse impact on the normal trade in animal products between China and ROK.

3.5 Trade remedies

3.5.1 Anti-dumping measures

Up to the end of 2005, ROK had initiated 20 antidumping investigations and ten safeguard investigations involving Chinese exports. Most antidumping investigations were concluded with imposition of antidumping duties or price undertakings, and 10 cases involve Chinese exports. The antidumping duties are imposed on 7 Chinese exports: disposable lighter, alkplali battery, silicon-manganese alloy, printing paper, sodium dithionite, choline oxide, and titanium dioxide. The on-going antidumping investigations are against two products: extension-processed long-staple polyester silk and floor or wall tiles.

In January 2005, with regard to titanium dioxide of Chinese origin, the Korean government made the final adjudication by imposing 4.82 percent to 23.08 percent anti-dumping duties on relevant imports from all Chinese manufacturers. In June and November 2005, the Korean government conducted anti-dumping investigations against Chinese floor or wall tiles and extension-processed long-staple polyester silk respectively. In the recent anti-dumping investigation launched by ROK, the total amount of the involved tiles is valued at US$58.66 million. On November 24, 2005, Korean Trade Commission made a preliminary ruling that China-made tile exports constituted dumping, and proposed that the Korean government impose provisional anti-dumping duties ranging from 7.25 percent to 37.4 percent. Chinese enterprises request that the Korean side exempt some expensive high-grade products that Korean enterprises do not produce from investigations and their petition be taken into consideration in the final ruling. In the anti-dumping investigations conducted against choline oxide and titanium dioxide in 2005, ROK acknowledged the market economy status of some Chinese enterprises and related industries under investigation. On November 16, 2005, ROK officially declared China's market economy status, which has been favorably received by the Chinese side.

3.5.2 Special safeguards and special restrictions on textiles

So far, ROK has not proposed investigations on special safeguards against or special restrictions on Chinese textiles. The Chinese side hopes, after acknowledging China's market economy status, the Korean side will waive the rights to conduct such special safeguard investigations as stipulated in Article 16 of the Protocol on China's Accession to the WTO and such investigations as specified in Paragraph 242 of the Working Group's Report on China's WTO Accession, so as to facilitate the further development of economic and trade relations between the two countries.

3.6 Government procurement

ROK is a signatory country to the WTO Agreement on Government Procurement. However, in the public bidding for import of agricultural products under the government procurement program, Korean Agricultural & Fishery Marketing Corporation AFMC adopts unduly stringent standards for public bidding, and uses highly unilateral contracts, which is inconsistent with accepted trade practices. For example, bidding companies are required to render a guarantee bond equivalent to 10 percent of the contract value before bidding, and this bond may be seized, partially or wholly, by the Korean authorities on various reasons. In addition, it is stipulated in the public bidding import contract that if the Korean side deems prices of agricultural products lower than prices required, it may refuse to give shipping instructions. This provision is significantly arbitrary, and may directly threaten the reimbursement of the bond and the execution of the contract. After the arrival of the imports at Korean ports, apart from the inspections to be conducted according to the relevant Korean laws and regulations, Korean Agricultural & Fishery Marketing Corporation may carry out quality or quantity inspection by itself, and if the result of either inspection proves not consistent, the involved goods will be rejected, even though approved at the port of shipment. The above practices have increased risks sustained by Chinese exporters in participating in ROK's public bidding for import of agricultural products under government procurement program, and pose unreasonably heavy burden on Chinese exporters. The Chinese side hopes that ROK will further improve bidding methods and follow international customary practices by recognizing the result of inspection conducted by exporting countries and conducting re-inspection in importing countries.

According to some Chinese enterprises, after the Chinese enterprises won the bidding for onions in 2005, the Korean Agricultural & Fishery Marketing Corporation came to conduct on-site inspections at the Chinese points of origin or the place of shipment within a short period (3 days or so) shortly before delivery and required that no cracks appear on the skin of the onion or no mud on the fibrous root and that. Moreover, the criteria for the length of the rhizome are arbitrarily set by the inspectors. The Koreans' requirements are obviously beyond what the contracted stipulations. Even if Chinese enterprises have the goods re-processed in accordance with their requirements, punctual shipment is generally impossible as the time left is too limited.

As a result, these excessively stringent standards imposed by Korean inspectors have in effect not only impeded Chinese bid-winners from exporting products to ROK, but also brought about subsequent losses of the performance bond they have paid.

3.7 Barriers to trade in services

3.7.1 Financial services

ROK applies different standards to the supervision over foreign banks' branches in ROK and Korean local banks. It requires that, if a foreign bank wishes to establish a new branch in ROK, all the procedures required for the establishment of the first branch in ROK be completed and that relevant information be submitted. No such requirements are needed in case of the application for establishment of new branches submitted by a domestic bank. Besides, some Korean measures are not favorable for the business development of Chinese banks in ROK, such as treating foreign banks' branches as their subsidiaries with regard to the business scope and capitals of foreign banks, and imposing capital limits on the supplementary institutions of foreign banks' branches. ROK's restrictions on the size of loans to individual borrowers and of credits and large loans to groups as well as on the size of inter-bank lending and borrowing have limited the financing ability and asset sizes of Chinese-funded banks in ROK.

Chinese banks also complain that the expenses involved for the access to the Won Settlement System charged on foreign banks are dearly high.

3.7.2 Telecommunications

Korean authorities require that foreign ownership in telecommunications services not exceed 49 percent.

3.7.3 Legal services

Currently foreigners are not allowed to set up law offices or conduct legal consultancy in ROK.

The existing laws forbid Korean law offices to employ foreign lawyers or come into partnership with foreign offices. Foreign lawyers can only act as legal advisers at Korean law offices and are not allowed to practice as lawyers.

3.8 Other barriers

3.8.1 Multiple-entry visa

In spite of the agreement signed between Chinese and ROK visa authorities on issuance of multiple-entry visas to business people of both countries, however, in dealing with visa applications submitted by Chinese companies for their resident staff in ROK, the Korean competent authorities are found violating the agreement or operating without transparency. All these have caused much inconvenience to the living and working of Chinese business people in ROK. In addition, Korean authorities often impose fines on Chinese companies, or refuse to issue or extend visas on pretext of cracking down on overstay in ROK. It is reported that since 2003 over 100 Chinese companies have been obliged to close down because the Korean side refused to issue or extend visas. The Chinese side has expressed concern about this issue and hopes the Korean side will solve the problem appropriately.

3.8.2 Transparency in legislation

Koreans are expected to improve the transparency in formulating and implementing their laws and regulations. Relevant Korean authorities often make internal policies, namely 'Guidelines', regarding inspection and quarantine of imported products, in particular, agricultural products and aquatic products, but these "guidelines" are seldom made public. The implementation of laws and regulations by Koran officials seem so discretionary that the exporters involved tend to feel at a loss, thus bringing about much uncertainty to their business operation.

3.8.3 Interests protection for shipping companies

No relevant customs regulations are available in ROK for protecting the interests of foreign shipping companies, and this has subjected Chinese shipping companies to losses of no reason. For example, according to a certain Chinese shipping company, some Korean consignees refuse to take delivery of the consignment (usually of agricultural products of relatively low value) even after making the relevant payment, merely because of price fluctuations in their market. Under the circumstances, the Korean customs tend to hold the carrier for the disposal of the goods. Meanwhile, according to their regulations, the responsible shipping company will have to wait at least two years before they are able to auction off the goods. By then, not only the value of most of the goods will have diminished to the minimum, but also the shipping company will have to sustain the accumulated costs for the disposal. The Chinese side therefore hopes that the Korean Customs will make early amendments to relevant regulations so that the legitimate interests of Chinese shipping companies can be protected.

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