SEPTEMBER, 1999 KOREA: Opening of the Korean Market to Japanese Imports David A. Laverty Last restrictions lifted on June 30 Since 1978, Korea's "import source diversification policy" has operated to bar the importation into Korea of a broad range of Japanese products. While such restrictions have been gradually lifted, Korea reached a milestone as of June 30 1999, when restrictions were removed for the last significant categories of Japanese products. These liberalised categories, totaling 16, include passenger vehicles of over 1000cc, large colour TV sets of 25" or more, video cassette recorders, cellular telephones and rice cookers. As with the liberalisation of M&A activities reported in our June 1999 Korea Country File, such changes are yet another part of Korea's efforts to push the liberalisation of its economy, including attempts to end discrimination against foreign investors and traders. While directly benefiting manufacturers and distributors of such Japanese products, the liberalisation of restrictions on Japanese products has broader implications. Since certain products that are produced in Japan, or have a high Japanese-component content, had also been barred under the restrictions, US, European, and other manufacturers and distributors of such products will also be able to sell into Korea. A negative, however, is that any products which had, along with Korean products, benefited from the lack of competition from Japanese products in Korea will now be faced with new competition from the expected surge in imports of Japanese products in many of the liberalised categories. Affected laws and regulations While not explicitly targeting Japan, Korea's Foreign Trade Act and its implementing regulations and notices had sought to control imports from a country with a longstanding and large trade surplus with Korea, which happened to consistently be Japan. The policy was set forth in Article 25(2) of the Enforcement Decree of the Foreign Trade Act (which has now been removed) and the related Public Notification on Import Source Diversification issued by the Ministry of Commerce, Industry and Energy (which has now been repealed). Importers of a long list of products subject to special approval required prior confirmation from the Association of Foreign Trading Agents of Korea for licenses to import these items from Japan. Recent progress and liberalised categories The original restrictions had increased to some 924 categories in 1981, mainly applying to Japanese electronic goods, machinery and automobiles. Though Korea had gradually reduced the number of restricted products, Korea agreed to eliminate the "import diversification programme" by the end of 1999 as one of its commitments to the WTO. However, as part of its economic reform efforts of late 1997 required by the IMF and accepted by Korean policy-makers, Korea moved the timetable forward. Before the last 16 significant categories were eliminated six months ahead of schedule as of June 30 1999, the number of categories was reduced by 40 after June 30 1998 and by another 32 after December 31 1998. The categories liberalised in June 1998 included trucks, micro-buses, florescent lamps and facsimile machines, and those in December 1998 included jeeps over 1,500cc, roll film cameras and analog wristwatches. Local Korean manufacturers of such categories of electronics goods, machinery and automobiles had enjoyed a degree of protection in the local Korean market. For example, imports of Japanese electronics, long popular with Korean tourists and overseas residents (and available in Korea through black-market suppliers), are expected to greatly increase. Keum Seop Park at Lee & Ko in Seoul contributed to this update back to top | update index | home © Copyright 1997-2006, InternationalCounsel. All rights reserved. Disclaimer.