Korea Market Access For Cigarettes Record Of Understanding
RECORD OF UNDERSTANDING BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF KOREA CONCERNING MARKET ACCESS FOR CIGARETTES
The Government of the United States of America and the Government of the Republic of Korea, recognizing the need to provide open and non-discriminatory access for imported cigarettes to the Korean market, have agreed as follows:
I. BASIS OF THE UNDERSTANDING
A. The Government of the Republic of Korea (hereinafter shall be referred to as "the Korean government) shall accord foreign cigarette manufacturers, their subsidiaries, affiliates, branch offices or agents (hereinafter shall be referred to as 'foreign cigarette manufacturers") non-discriminatory access to the Korean market including the right to import, distribute, and sell imported cigarettes on terms consistent with this Record of Understanding.
B. Except as otherwise provided in this Record of Understanding, importation, distribution, and sale of imported cigarettes shall occur independent of the authority of the Korean Monopoly Corporation (hereinafter shall be referred to as "KMC").
C. The Korean government shall ensure that the level and conditions of market access for imported cigarettes provided for in this Record of Understanding remain unimpaired by restrictions or requirements affecting directly or indirectly the importation, distribution or sale of imported cigarettes.
The Korean government shall accord full national treatment in the importation, distribution and sale of imported cigarettes.
Any modification of the conditions of distribution or sale of cigarettes in the Korean market shall be applied equally to all classes and brands of cigarettes whether imported or of na-tional origin.
II. CONDITIONS OF IMPORTATION
A. The Korean government shall ensure that KMC automatically and immediately commission to any domestic or foreign-invested entity qualified to engage in import activities under the Korean Foreign Trade Act designated by any foreign cigarette manufacturer the authority to import, distribute, and sell imported cigarettes. Such commission shall be effective from July 1, 1988 to the effective date of the legislation enact-ed in connection with this Record of Understanding (hereinafter shall be referred to as "new legislation") . Any entity granted authority to import, distribute, or sell imported cigarettes shall be able to enter into agreements with wholesalers, distributors, or subdistributors to engage in these same activities.
Until the effective date of the new legislation, such entity shall provide KMC with a list of the parties to such agreements.
Upon the effective date of the new legislation, cigarettes shall be placed on automatic import approval status, and the requirement for the commissioning by KMC of the authority to import, dis-tribute, or sell imported cigarettes shall be rescinded in accordance with the new legislation.
Effective January 1,1989, foreign cigarette manufacturers shall be permitted to import directly and sell cigarettes in Korea upon automatic and immediate commissioning of such authority by KMC.
B . Any foreign cigarette manufacturer shall be permitted to import cigarettes directly into Korea without restriction on product cost, retail price, retail margin, quantity, style, size, package configuration, or frequency of importation, except that the retail margin shall not exceed 10 percent of the retail price for a period not to extend beyond December 31, 1988.
C. The importing entity shall be solely responsible for all functions and activities relat-ed to the importation process and formal customs clearance and customs entry into the Republic of Korea. Imports of cigarettes shall be cleared through Korean customs expeditiously in accordance with applicable laws and standard procedures.
D. Any foreign cigarette manufacturer shall be permitted to own bonded warehouses in accordance with relevant Korean laws. In addition, such entities shall be able to maintain, operate and manage bonded warehouses and to determine warehouse inventory levels. Such entities operating bonded warehouses shall be solely responsible for the flow of goods into and out of such warehouses, as well as the distribution of said goods through wholesalers, independent distributors, and directly to retail outlets.
III. CONDITIONS OF DISTRIBUTION
A. Any foreign cigarette manufacturer shall be permitted to distribute cigarettes through wholesalers, distributors and subdistributors to licensed retail outlets. In addition, any foreign cigarette manufacturer shall be permitted to sell directly cigarettes to wholesalers, distributors, subdistributors and licensed retail outlets. Sales of cigarettes at retail prices may be offered only by licensed retail outlets or service businesses which purchase cigarettes from licensed retail outlets.
B. Imported cigarettes may be sold directly to licensed duty-free outlets without payment of any fees, duties or taxes.
C. All retailers currently designated by the KMC to sell cigarettes of national origin shall be permitted to sell imported cigarettes without imposition of any additional requirement. Applications for designation as a cigarette retailer shall be granted automatically and immediately by the appropriate Korean authority, provided that such applications satisfy the applicable laws and regulations.
D. Any foreign cigarette manufacturer may retain the services of the KMC to distribute imported cigarettes under the terms to be mutually agreed upon between them.
A. Any foreign cigarette manufacturer shall determine the import price and retail price for each type, style or brand of imported cigarettes. These prices may be adjusted at the discretion of the foreign cigarette manufacturer.
Prior to the effective date of the new legislation, a foreign cigarette manufacturer should notify the KMC of the nationwide uniform retail price at which each brand of cigarettes shall be sold, and after the effective date of the new legislation, should notify the Ministry of Finance of the retail price as determined by such foreign cigarette manufacturers. The effective date of such retail price shall be the sixth day following such notification.
B. Commercial terms, fees, commissions, retail margins, credit and inventory terms, and prices to all classes of trade shall be determined solely by the foreign cigarette manufacturers, importers, wholesalers, distributors and other agents.
C. The Korean government shall submit to the National Assembly at the opening of its Fall 1988 session all legislation necessary to establish a specific excise tax on all cigarettes, the rights of foreign cigarette manufacturers to engage in all activities set forth in this Record of Understanding and a zero percent import tariff on cigarettes. Such excise tax shall be applied to all cigarettes whether imported or of national origin. The specific amount of tax shall be 18,000 won per thousand cigarettes. However, cigarettes with a retail price of 200 won or less may be subject to a lower excise tax.
The excise tax shall replace any and all other taxes and revenue measures, including local and regional taxes. The legislation establishing the excise tax shall specify that the terms and conditions of the payment of said tax shall be the same for cigarettes of national origin and imported cigarettes. The Korean government shall exert every effort to achieve prompt enactment of such legislation. on enactment of such legislation, the Korean government shall take all necessary steps to implement the law immediately.
Prior to the effective date of the new legislation, the financial contribution payable by the foreign cigarette manufacturer to the KMC shall be 18,000 won per thousand cigarettes. This payment shall constitute all financial contributions imposed on imported cigarettes including tariffs, defense taxes, value added taxes, education tax, tobacco sales taxes, mo-nopoly payments, and any other assessments or charges.
Upon payment by the foreign cigarette manufacturer to the KMC of 10,800 won per thousand cigarettes, the KMC shall provide immediately to the foreign cigarette manufacturer a receipt of proof of payment.
Presentation of such receipt at customs shall satisfy all requirements for payment of any tax burden needed to accomplish formal customs entry. Within thirty (30) days from the end of the month of custom entry, the foreign cigarette manufacturer shall pay to KMC 7,200 won per thousand cigarettes. Any and all liability for payment of each portion of the financial contribution shall cease immediately upon presentation of each payment.
D. Prior to the effective date of the new legislation, the Korean government shall ensure that KMC refunds to the foreign cigarette manufacturer the entire fiscal contribution paid by the foreign cigarette manufacturer in the event that imported cigarettes have been so damaged as to be unable to be sold to consumers, and such damaged cigarettes are reexported within one year of customs clearance of such cigarettes. The portion of the fiscal contribution allocated by KMC to the education tax and tobacco sales taxes shall be refunded upon presentation of proof that such cigarettes have been physically destroyed. Upon the effective date of the new legislation, the Korean government shall ensure that the appropriate tax authority refunds the full excise tax if the damaged cigarettes are reexported within one year of customs clearance or upon presentation of proof that the cigarettes were physically destroyed.
A. Any foreign cigarette manufacturer may negotiate technology transfer and enter into licensing agreements with the KMC.
B. The zero percent import tariff to be established by the new legislation shall be maintained at zero percent until such time as the Korean government permits foreign investment in the manufacture of cigarettes in Korea without restriction on the form of such investment.
VI. ADVERTISING AND PROMOTIONAL ACTIVITIES
A. No later than July 1, 1988, the Korean government shall modify the relevant regulations to permit any foreign cigarette manufacturer to conduct temporary and permanent point of sale promotions independently or through retail outlets, provided that such promotions should be conducted in the immediate vicinity of retail outlets, and are intended to promote awareness of the availability of imported cigarettes and to facilitate brand experimentation among smokers, and are not intended to stimulate new smokers.
B. The modified regulations shall permit each foreign cigarette manufacturer to place 120 advertisements per brand family in magazines annually, provided such magazines are not specifically directed at women or youth. Such magazines shall not be subject to restrictions in accepting such advertisements. In addition, such advertisements shall include Korean health warning in effect at the time of advertisement.
C. Any foreign cigarette manufacturer may sponsor social, cultural, musical, athletic, or similar events or functions. Brand sponsorship of such events shall be permitted. Such events shall not be specifically directed at women or youth.
D . Cigarette samples may be restricted to stick by stick distribution at licensed retail outlets.
E. A health warning shall appear on each pack of cigarettes. The text shall be in the Korean language on the side of the package and shall be identical to that of Korean brands of national origin. The type size, type face, and format shall be essentially equivalent to the current health warning on Korean brands of national origin. In the event that the health warning on Korean brands of national origin is modified, a minimum of six months advance notice shall be provided to each cigarette manufacturer, and all cigarettes in inventory or ordered prior to the modification shall be allowed to continue to be sold in Korea for a period of one year from the date of such advance notice.
A. Both sides agree to consult promptly at the request of either party on any matter relating to this Record of Understanding.
B. Initial consultations shall be held prior to the submission of the new legislation to review and discuss its contents to ensure consistency with this Record of Understanding.
C. Based on the commitments contained in this Record of Understanding, and in anticipation that successful implementation of these commitments will proceed' as scheduled, the United States government shall terminate the investigation into Korea's policies and practices relating to market access for cigarettes conducted under section 301 of the U.S. Trade Act of 1974, as amended.
VIII. EFFECTIVE DATE
This Record of Understanding shall be effective on July 1, 1988.
Done at Washington, D.C. on this twenty-seventh day of May 1988.
For the Government of the United States of America
For the Government of the Republic of Korea
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