On March 30, 2021, the Korea Customs Service (the “KCS”) reorganized its personnel structure and realigned the work process throughout the main office and the regional customs offices.

The drive behind the reorganization of the KCS was the increasing public awareness regarding the importance of border protection, in contrast to the public demand in the past for “expedited customs clearance,” and more emphasis is now being placed on securing the safety of exports and imports.  More specifically, the objectives of the KCS’ reorganization are to (i) provide strengthened national safety service; (ii) promote economic recovery post-pandemic; and (iii) implement digital administrative innovations in line with the Fourth Industrial Revolution.  Notably, the KCS reshuffled existing organizations without expanding its manpower or resources in an attempt to speedily overcome the pandemic’s impact on the economy and people’s daily lives.

The key changes resulting from the reorganization are as follows.

1.   Customs Clearance

The KCS merged the Customs Clearance Support Division and the Customs Border Monitoring Division to form the Customs Clearance Division.  The newly created Customs Clearance Division will be responsible for the entire process starting from the point where foreign-originating goods enter the country via shipping (or aircraft), to the point where those goods leave the bonded area after import clearance.

At the same time, each regional customs office was reorganized into divisions that monitor imported goods by function and divisions that specifically monitor dangerous goods.  The Customs Clearance Information Division and Customs Clearance Inspection Division have been newly created as divisions that specifically monitor dangerous goods.  The Customs Clearance Information Division will mainly process paperless declarations and analyze/distinguish dangerous goods and/or goods subject to inspection.  The Customs Clearance Inspection Division will solely carry out the task of inspecting import and export cargoes.

Considering that the processing of paperless declarations and inspection of cargoes will now be carried out by separate divisions within customs offices, we anticipate more stringent inspections conducted on import and export cargoes.  For example, we anticipate strengthened review of compliance with import/export and country of origin requirements, and whether the imported/exported goods infringe upon anyone’s intellectual property rights. 

2.   Customs Audit 

To encourage proactive tax filing, the KCS divided the audit function into a division that provides support for tax filing and a division that conducts customs audit.  Through the reorganization, the KCS also distinguished the relevant divisions of the KCS from the regional customs offices.  For the KCS, tax filing support will now be carried out by the Audit Policy Division, while the customs audits will be conducted by the Corporate Audit Division.

Notably, the Seoul Main Customs Office proposed an expansion in its audit organization, so that each division is now able to focus on a specific type of work.  In the past, each department under the Audit Division of the Seoul Main Customs Office used to carry out both customs audit and tax filing support simultaneously.  Through the recent reorganization, an additional audit division has been newly established so that Audit Division 2 can carry out work relating to customs audit and FTA verification, while Audit Division 1 can now focus solely on providing tax filing support, such as support related to the Advanced Customs Valuation Arrangement (ACVA), payment settlement for Authorized Economic Operators (AEO), and information on tax payment.  Therefore, we anticipate both increased intensity as well as an expanded scope of review for the customs audit, to cover the review of customs clearance requirements (e.g., requirements for imports and origin indication).  

3.   Customs Investigation

Through this reorganization, we expect that the roles carried out by the Customs Border Surveillance Division will shift from customs audit to the physical management of import and export clearance in order to preemptively ensure national safety.  For example, the KCS separated the Customs Border Surveillance Division from the audit departments in order to strengthen its identity as an investigative division, and promoted the International Investigation Division to strengthen its investigative power over crimes involving the environment and drug use, which are closely related to public safety.  Moreover, resources and manpower have been rearranged for each regional customs office in consideration of the demand for investigative work, and the KCS has strengthened the infrastructure relating to forensic and information analysis by newly creating a division dedicated to carrying out digital forensics in each regional customs office.  Lastly, we anticipate an increase in cases re non-compliance of the Customs Act and other relevant laws, as well as increase in number of cases transferred from the import/export site to investigative departments, by use of new technologies, such as big data and use of AI for cargo selectivity (CS) system.  

4.   FTA and Other Areas of Cooperation

By merging the FTA Division with the departments of the Information and Cooperation Division, the KCS newly established the International Division of Customs Cooperation.  The objective of this initiative is to maximize support for exporters and importers by merging organizations that are responsible for providing support for domestic companies and organizations that are responsible for engaging in external cooperation based on network with foreign customs offices.

On the one hand, of the FTA-related functions carried out by regional customs offices, tasks related to corporate support such as issuance of the FTA Certificate of Origin and management of certifications will be dealt by the Support Center for Importing/Exporting Corporates.  On the other hand, tasks such as origin verification for preferential/non-preferential treatment will be transferred to the audit departments.  However, overseeing of the origin verification work will be conducted by the Origin Verification Department under the International Customs Cooperation Division, as such work involves certain international cooperation.

As the origin verification work is transferred to the audit departments, we expect that the scope of quantitative analysis may be expanded and various inspection methods may be applied, possibly leading to an increase in the number of origin investigations and the amount of additional penalties imposed on corporates.

As discussed above, pursuant to a major reorganization of the KCS, we anticipate strengthened stringency of customs audits, and an increase in number of inspections of export/export cargoes.  We recommend therefore that companies review their customs compliance system currently in place to ensure that they can meet these increased enforcement trends by the KCS.