Despite stagnating growth post-pandemic and some obstacles—among them, government spending, inflation, and an aging and shrinking economy—South Korea remains one of the top global economies for U.S. exporters, especially those interested in high-tech fields. In this article, I’ll look at the history of U.S. trade with South Korea; the process of exporting to South Korea, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the South Korean marketplace.
Federal Reserve of St. Louis, South Korea experienced a significant economic transformation in the past 60 years. What started as an agriculture-based economy in the 1960s has now become the 13th largest economy in the world in terms of GDP.
As Kwan S. Kim describes it in The Korean Miracle (1962-1980) Revisited, South Korea saw three distinct phases that characterize its “rags to riches” story: import substitution (1954–1960), outward orientation (1961–1979), and balance and stabilization (post–1980). Throughout these decades, the United States and South Korea have shared a long history of cooperation based on mutual trust; shared values of democracy, human rights and the rule of law; and common strategic interests.
South Korea (also known as the Republic of Korea) joined the OECD in 1996 and the Korea-U.S. Free Trade Agreement, known as KORUS FTA, went into effect on March 15, 2012.
In 2023, U.S. goods exports to South Korea totaled $64.84 billion. According to the U.S. Trade Representative, U.S. goods and services trade with South Korea totaled an estimated $224.4 billion in 2022 (most recent data), with the transportation, travel and intellectual property sectors noted as the leading services exports from the U.S. to Korea.
Exporting to South Korea: The Challenges
According to the International Trade Administration (ITA), exporters face the following challenges when attempting to conduct business in South Korea:
- Unique industry standards
- Opaque export regulations
- Resistance to foreign business models
- Competition and price pressures from domestic manufacturers
- Complex import regulations and testing requirements, especially for agricultural commodities
Despite these barriers, U.S. exporters of all sizes can absolutely be successful in South Korea.
The ITA notes that firms that are innovative, patient and committed to entering the Korean market will find business to be rewarding and Koreans to be eager and loyal customers. Korean consumers are quick to adapt to new technologies, and many U.S. firms have found their technological products to be well-received in the country.
U.S. Commercial Service Offices
One of the first places to consider are your local and in-country U.S. Commercial Service offices. Commercial Service in-country offices effectively serve as your business partners in South Korea—boots on the ground in the country. Commercial service offices also include representation by an agent, distributors or partners who can provide essential local knowledge and contacts that are crucial to your success.
You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service’s In-Country Offices.
District Export Councils (DECs)
DECs across the country help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth and create jobs. DEC members also serve as mentors to new exporters and provide advice to smaller companies.
Sponsored by state and local trade offices as well as commercial service offices, trade missions offer introductions to important contacts and networking opportunities. Check into them.
International Trade Administration
The ITA is an excellent resource to help you combat trade problems. ITA staff members are resident experts in advocating for U.S. businesses of all sizes. They customize their services to help solve your trade dilemmas as efficiently as possible. Plus, the ITA makes it easy to report a problem, allowing you to submit your report online.
Chambers of Commerce
Chambers of Commerce may also be a resource when exporting to South Korea. You can learn more about various chambers and how they can help smooth the way for your export activities in our article, The Chamber of Commerce Role in Exporting.
Export Document Requirements for South Korea
Accurate export documentation and attention to procedures are as critical in exporting to South Korea as they are for exporting to any other country. Documents you’ll need to export to South Korea from the U.S. will vary depending on your products but may include:
A note on certificates of origin: Prior to the implementation of the KORUS FTA, a certificate of origin, in duplicate, was required for some products. Exporters are encouraged to discuss shipping document requirements with their respective importer. Learn more about the KORUS FTA here.
Export Compliance Issues When Exporting to South Korea
It’s important to understand the regulations covering exports to South Korea, especially export controls.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department’s International Traffic in Arms Regulations (ITAR).
If your goods fall under the jurisdiction of the Commerce Department—which most products do—you must determine if your export requires authorization from the Bureau of Industry and Security (BIS, part of the Commerce Department). To make that determination, first answer the following questions:
- What is the Export Control Classification Number (ECCN) of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
There are three ways to classify your products for export controls: You can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor to provide the information. Learn about that process in our article, Export Codes: ECCN vs. HS, HTS and Schedule B. By classifying your product correctly, you’ll be protecting yourself from potential fines, penalties and even jail time.
Export License Determination
Next, companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. Countries fitting that bill are Cuba, Iran, North Korea and Syria.
Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that uses the ECCN code for your product(s) and the destination country to tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export your products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce, not items controlled by the State Department or some other agency.
Deemed Exports
Surprise! You may be an exporter without even knowing it! Deemed exports, or the disclosure of information or services rather than an actual product, is an important issue to pay attention to when exporting. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR) is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, conducting tours of facilities, and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly. You can learn how to apply this principle here.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with. There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization; they may have a history of corrupt business practices; or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more of the restricted party lists to ensure their potential partners are legally accepted. The primary restricted party lists in the United States are published by the Department of Commerce, Department of State, and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to South Korea, it’s imperative you check every single restricted party list every time you export because:
- Fines for export violations can reach up to $1 million per violation in criminal cases (Bureau of Industry and Security).
- Administrative cases can result in a penalty amounting to $250,000 or twice the value of the transaction, whichever is greater.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re considering exporting to South Korea, Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Register for a free demo of Shipping Solutions software to see how it will revolutionize the way you’re currently creating your export paperwork.
This is one in a series of articles exploring exporting to specific countries across the globe—we previously featured China, the United Kingdom, Japan, Mexico, Canada, India, Brazil, Germany, France, the Netherlands, and the EU.
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