Under the current Foreign Trade Act, goods produced in Korea using imported materials and distributed or sold in Korea, may be labeled as domestic products only if they have been substantially transformed during the production process, giving them their essential characteristics.

Recently, numerous instances of non-compliance with these regulations have remained unaddressed due to insufficient grounds for enforcement actions or sanctions.  In response, the Ministry of Trade, Industry, and Energy (the “MOTIE”) amended the Foreign Trade Act on June 10, 2022, effective as of December 11, 2022, establishing legal grounds for enforcement actions against non-compliance with the country of origin (“COO”) labeling requirements for domestically produced goods.   

Following are some of the key provisions of the amended Foreign Trade Act:
 

1.   Establishing a Legal Basis for Enforcement Actions Against Non-Compliance with COO Labeling Requirements for Domestically Produced Goods, and Amending the Applicable Penal Provisions (Articles 33, 35, and 53-2)

Currently, the Foreign Trade Act does not clearly specify which goods require COO labeling, causing confusion as to whether the requirement applies to domestically produced goods.  The amended Foreign Trade Act now clarifies which goods are subject to COO labeling requirement, by adding “exported or imported goods, etc., and domestically produced goods, etc., in accordance with Article 35.” (Articles 33 and 35).

The amended Foreign Trade Act now clearly specifies that traders and distributors of goods may be sentenced to imprisonment of up to five years, or a fine of up to KRW 100 million, for violating the COO labeling requirement by mislabeling or causing damage or alterations to the COO label (Article 53-2). 
 

2.   Specifying Domestically Produced Goods as Being Eligible for Certificates of Origin (Article 37)

The current Foreign Trade Act does not clearly specify which goods are subject to the issuance of certificates of origin, leaving room for debate over whether domestically produced goods are subject to the issuance of certificates of origin.  Therefore, manufacturers have been voluntarily conducting self-checks to confirm that their domestically produced goods meet the COO requirements, and issuing applicable COO Certificates.

Under the amended Foreign Trade Act, domestically-produced goods are now included in the list of goods that may apply for certificates of origin from MOTIE.  In light of this, we expect that the reliability of certificates of origin issued for domestically produced goods will be revisited once the amended Foreign Trade Act takes effect.
 

Since the amendments to the Foreign Trade Act provide grounds for enforcement actions against non-compliance with COO labeling requirements for domestically produced goods, as well as revised penalties for such non-compliance, we anticipate an increase in customs investigations relating to COO labeling for domestically produced goods.  Therefore, it would be prudent for companies that handle goods produced in Korea using imported raw materials, and distributed or sold in Korea, to review for any non-compliance with COO labeling requirements in advance of the effective date for amendments to the Foreign Trade Act.