Customs Act | Supreme Court Judgment Holding That the Point in Time for Applying the Korea-Australia FTA Preferential Tariff Is the ‘Time of Acceptance of the Import Declaration’

The lower court rejected the plaintiff's argument.

The lower court held that, because ‘import,’ which serves as the basis for determining the preferential tariff rate under the Korea-Australia FTA, is not separately defined, it must be interpreted in accordance with the meaning of ‘import’ under the Customs Act, consistent with the framework of the FTA Customs Act.

In particular, the lower court found that, under the Customs Act, the time at which foreign goods are ‘brought into’ Korea and an import takes place is not the time when the goods enter the territory of the Republic of Korea, but the time when the import declaration is accepted and the goods are released from restriction under the Customs Act.

The lower court also found that, because the preferential tariff rate for the goods in this case rises sharply beginning May 1, 2021, the provisions of the Enforcement Decree of the Customs Act restricting pre-arrival import declarations, which are intended to prevent avoidance of the tariff increase, applied, so that a pre-arrival import declaration could not have been permitted in the first place, and that the goods should consequently be treated as imported after May 1, 2021, with the preferential tariff rate of 141.8% applying.

Accordingly, the lower court found the disposition imposing customs duties and other charges in this case to be lawful.

The Supreme Court first noted that neither the Korea-Australia FTA nor the Free Trade Agreement (FTA) Customs Act separately defines the meaning of ‘import.’

Accordingly, it held that the meaning of ‘import’ in connection with the application of the preferential tariff must be interpreted in accordance with Article 2 of the Customs Act.

Under the Customs Act, foreign goods remain foreign goods until the import declaration is accepted, and only at the time the import declaration is accepted are they released from restriction under the Customs Act and become domestic goods.

Accordingly, the Court held that the time at which foreign goods are brought into Korea and an ‘import’ under the Customs Act takes place is not the time of the vessel's entry into port or the time of physical arrival, but the ‘time of acceptance of the import declaration.’

The Supreme Court also examined the purpose of the pre-arrival import declaration system under the Customs Act.

The Enforcement Decree of the Customs Act restricts pre-arrival import declarations for goods subject to a scheduled tariff increase, in order to prevent avoidance of the higher rate.

The Court found that, because the preferential tariff rate for the goods in this case rises sharply beginning May 1, 2021, the goods are goods for which a pre-arrival import declaration could not have been permitted in the first place.

Accordingly, the Supreme Court held that the time of import of the goods in this case must be treated as falling after May 1, 2021, and that the disposition imposing customs duties by applying the preferential tariff rate of 141.8% is therefore lawful.

This judgment is a judgment that sets out a standard for how the ‘time of import’ is to be determined in the application of an FTA preferential tariff.

Rather than adopting a formalistic interpretation based on the text of the agreement or the time of physical entry, the Supreme Court interpreted the matter with reference to the overall framework of the Customs Act and the function of the import declaration system, reaching a determination that forecloses the possibility of avoiding the preferential tariff.

In particular, the judgment is significant in that it made clear that the application of the preferential tariff must be determined not by reference to ‘whether the goods have entered the territory of the Republic of Korea,’ but by reference to the time at which the goods are converted into domestic goods under the Customs Act, that is, the time of acceptance of the import declaration.

This is regarded as an important precedent that may directly affect imported goods in general for which the applicable rate varies by period, such as FTA preferential tariffs, seasonal tariffs, and quota tariffs.