CONTENTS
- 1. Foreign Trade Act | The Regulatory Framework Export and Import Companies Need to Know
- - Companies Subject to the Act
- - Basic Principles of Export and Import and the Approval Requirement
- 2. Foreign Trade Act | Country-of-Origin Labeling Obligations for Exported and Imported Goods
- - Country-of-Origin Labeling Obligations and Prohibited Conduct
- - Sanctions for Violations
- - Publication of Penalty Surcharge Dispositions
- 3. Foreign Trade Act | Key Obligations in Export and Import Transactions and the Level of Punishment
- - Import of Raw Materials and Equipment for Foreign-Currency Earning
- - Prohibition on Manipulating Export and Import Prices
- - Joint Penalty Provision
- 4. Foreign Trade Act | Points Often Overlooked in Practice
- - Misunderstanding the Country-of-Origin Labeling Standard
- - Country-of-Origin Marking Damaged During Domestic Distribution After Import
- - Continuing to Export or Import After the Approval Has Expired
- - Changing Approved Conditions Without Authorization
- 5. Foreign Trade Act | How to Respond at the Dispute and Investigation Stage
1. Foreign Trade Act | The Regulatory Framework Export and Import Companies Need to Know
The Foreign Trade Act is legislation designed to promote foreign trade and establish a fair trading order, thereby contributing to the development of the national economy.
It governs foreign trade as a whole, covering not only the export and import of goods but also services, the export and import of intangibles in electronic form, country-of-origin labeling, export and import controls on strategic items, and plant exports. A violation can trigger a broad range of sanctions, from administrative measures through criminal penalties.
Companies Subject to the Act
The Foreign Trade Act applies to every trader that takes part in export and import transactions.
It covers not only companies that export or import directly but also companies that handle transactions on behalf of foreign exporters or importers under a delegation.
Regardless of industry or size, any company involved in all or part of the export or import of goods or services falls within the scope of this Act.
Basic Principles of Export and Import and the Approval Requirement
The Foreign Trade Act declares that the export and import of goods should, in principle, take place freely.
When a company seeks to export or import restricted goods designated and announced by the Minister of Trade, Industry and Energy, however, it must obtain the approval of the Minister of Trade, Industry and Energy.
The approval is valid for one year as a general rule, and a company must obtain a modified approval to change any material term that was approved. A company that exports or imports without approval or obtains approval by improper means may face imprisonment of up to three years or a fine of up to 30 million won.
2. Foreign Trade Act | Country-of-Origin Labeling Obligations for Exported and Imported Goods
The Foreign Trade Act requires country-of-origin labeling on exported and imported goods.
A labeling violation can lead to penalty surcharges and corrective orders, and even criminal penalties, so manufacturers and distributors need to manage this carefully.
Country-of-Origin Labeling Obligations and Prohibited Conduct
Anyone who seeks to export or import goods that the Minister of Trade, Industry and Energy has announced as subject to country-of-origin labeling must mark the country of origin on those goods.
Traders and sellers must not engage in the conduct listed below.
Prohibited Conduct | Relevant Provision |
Falsely marking the country of origin or marking it in a misleading manner | Article 33(4)1 |
Damaging or altering the country-of-origin marking | Article 33(4)2 |
Failing to mark the country of origin on goods subject to country-of-origin labeling | Article 33(4)3 |
Trading the goods in violation of the above within the country | Article 33(4)4 |
Sanctions for Violations
A violation of country-of-origin labeling obligations may result in a corrective order such as a sales suspension or restoration to the original state, along with a penalty surcharge of up to 300 million won.
Certain violations, such as trading goods in violation, may be excluded from the penalty surcharge.
Criminal penalties may also apply.
A trader or seller who violates the country-of-origin labeling rules may face imprisonment of up to five years or a fine of up to 100 million won, and the imprisonment and fine may be imposed together.
In particular, exporting foreign goods disguised as domestic products or selling them abroad (including forging or altering a certificate of origin and falsely marking the country of origin) is subject to imprisonment of up to five years or a fine of up to 100 million won, and an attempt is also punishable.
Publication of Penalty Surcharge Dispositions
When a penalty surcharge disposition becomes final, the violator's location, the name of the goods, and the details of the violation may be made public.
Because this can directly damage brand trust, preventing violations matters a great deal.
3. Foreign Trade Act | Key Obligations in Export and Import Transactions and the Level of Punishment
The following looks at the key obligations that apply to export and import transactions under the Foreign Trade Act and the level of punishment for violations.
Import of Raw Materials and Equipment for Foreign-Currency Earning
When raw materials or equipment are imported for the purpose of earning foreign currency, a corresponding foreign-currency-earning obligation arises in connection with that import.
Using them for a purpose other than the original one, or transferring them without the approval of the Minister of Trade, Industry and Energy, is subject to imprisonment of up to three years or a fine of up to 30 million won.
Prohibition on Manipulating Export and Import Prices
A trader must not manipulate export or import prices for the purpose of capital flight.
A violation is subject to imprisonment of up to five years or a fine of up to three times the price of the goods.
Joint Penalty Provision
When a representative, agent, or employee of a corporation commits a violation, the same fine may be imposed on the corporation as well as on the actual offender.
A corporation is exempt, however, if it has not neglected the reasonable care and supervision needed to prevent the violation.
4. Foreign Trade Act | Points Often Overlooked in Practice
The following are common situations that cause problems in practice under the Foreign Trade Act.
Misunderstanding the Country-of-Origin Labeling Standard
An obligation to mark the original country of origin arises even when imported goods subject to country-of-origin labeling have undergone only simple processing.
Misunderstanding the scope of simple processing and changing the marked country of origin results in a violation.
Country-of-Origin Marking Damaged During Domestic Distribution After Import
In some cases, the country-of-origin marking is damaged or altered when a distributor replaces the packaging or changes the label.
This can constitute a violation even if the marking is not changed directly.
Continuing to Export or Import After the Approval Has Expired
An export or import approval is valid for one year as a general rule.
Continuing to trade after the approval expires, without obtaining an extension, amounts to export or import without approval and is subject to punishment.
Changing Approved Conditions Without Authorization
A company must obtain a modified approval to change any material term that was approved.
Changing the quantity, specifications, transaction conditions, or similar terms without going through the separate procedure results in a violation.
5. Foreign Trade Act | How to Respond at the Dispute and Investigation Stage
A Foreign Trade Act case often begins with an administrative investigation by the Ministry of Trade, Industry and Energy and expands into penalty surcharges, corrective orders, and a criminal investigation.
Origin-related disputes sometimes arise from enforcement by investigative authorities or customs, so organizing the facts and setting a response strategy at an early stage is important.
Prevention
∙ Reviewing whether goods are subject to country-of-origin labeling and the proper method of marking
∙ Assessing the scope of simple processing and reviewing in advance whether processing changes the country of origin
∙ Reviewing the legality of export and import contract terms and price structures
Response
∙ Handling administrative appeals and litigation challenging corrective orders and penalty surcharges arising from country-of-origin labeling violations
∙ Responding to criminal investigations involving false or disguised country-of-origin marking
∙ Responding to criminal investigations and joint penalty provisions related to export or import approval violations
∙ Handling trade dispute mediation and claims for damages
Once a violation is confirmed, administrative sanctions and a criminal investigation can proceed at the same time, so the early response can have a significant effect on the outcome.
The period right after receiving notice of a customs enforcement action or administrative investigation is the most important time.
Daeryun Law Firm has many international trade attorneys with experience handling customs and international trade matters.
If you need legal advice regarding the Foreign Trade Act, you can have your case assessed through a 🔗legal consultation booking with an international trade attorney.
