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Republic of Korea
WT/TPR/S/73, 28th August 2000
III TRADE POLICIES AND PRACTISES BY MEASURE 36
(2) Measures Directly Affecting Imports 37
(ix) Government procurement 64
1. Since January 1997, Korea has implemented the WTO Agreement on Government
Procurement (GPA), and has passed enforcement legislation to regulate the procedures for
1
international tendering of covered entities ; relevant legislation was notified (1997) and examined
2
(1998, 1999) in the WTO Committee on Government Procurement. There have been a number of
regulatory changes, including the implementation of MFN and national treatment to other
GPA signatories, a prohibition against offsets as a condition for awarding contracts, and the possibility
to pursue alleged violations of the WTO Agreement through GPA-defined bid challenge procedures.
Furthermore, legislation governing public procurement of specific products identified by SMEs was
revised in 1999; as a result, the number of products subject to mandatory group negotiations with
SME Cooperatives is being cut gradually from 258 (1998) to 103 (2001), thus reducing expenditures
of the public organizations.3
2. Korea's GPA commitments, which were modified in late 19974, cover procurement and
construction contracts, valued over certain threshold amounts (Table III.6), by more than 40 central
government agencies, 15 regional/local (sub-central) authorities, and more than
20 government-invested entitities involved in printing, trading, chemicals, mining, electricity, coal,
5
petroleum, gas, construction, banking, telecommunications, and tourism business. The
GPA requirements are not extended to, inter alia: national security and defence (a market of about
6
W 14 trillion (US$11.6 billion) in 1998) ; single tendering in the case of set-asides for SMEs;
agricultural, fishery and livestock products; and satellites (for five years from the GPA's entry into
force for Korea, i.e. until 2002). Furthermore, Korea does not apply the GPA to contracts by the
National Railroad Administration and procurement for airports or urban transportation (including
subways), to suppliers and service providers from member States of the European Communities,
Norway, and Switzerland, until those countries give comparable and effective access for Korean
undertakings to their relevant markets. GPA provisions do not cover procurement by the
1
Special Regulations of the Enforcement Decree of the ARCSP (Act Relating to Contracts in which the
State is a Party) for Specific Procurement; APEC Survey on the Government Procurement Systems-Republic of
Korea [Online]. Available at: http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].
2
In this context, Korea replied to questions submitted by Canada, the European Community,
Switzerland, and the United States (WTO documents GPA/12, 11 February 1997; GPA/12/Rev.1, 9 June 1997;
GPA/25, 30 October 1998; and GPA/M/10, 18 February 1999). It also provided replies to the
WTO Questionnaires on Information Technology (for dissemination of information) in Government
Procurement, and on Government Procurement of Services; and submitted information on its procedures and
practices on transparency at the WTO Working Group on Transparency in Government Procurement
(WTO documents GPA/W/24/Add.3, 15 November 1996; S/WPGR/W/11/Add.13, 10 December 1996; and
WT/WGTGP/W/7, 30 October 1997).
3
When the Government and public enterprises wish to purchase products identified by the SMEs, they
are obliged to negotiate with the Cooperatives, which are authorized to determine the product prices and the
amount to be allocated to each member company (Korea Fair Trade Commission (1999)).
4
The lack of objection of other signatories allowed the GPA-coverage changes to become effective in
November 1997; the authorities indicated that rectifications were of a purely formal nature and did not alter the
mutually agreed coverage (WTO documents GPA/W/59, 24 October 1997; WT/Let/207, 19 January 1998; and
GPA/25, 30 October 1998).
5
WTO document GPA/W/35/Rev.1 (Loose-Leaf System for the Appendices to the Agreement),
8 July 1999.
6
Data contained in Bank of Korea (1999), p. 86.
local/regional authorities and public entities for goods and services (including construction services)
from Canada, until coverage issues are resolved with Canada.
3. Pursuant to the GPA, open, restricted or single tendering are used (Table III.6). At present the
Supply Administration of the Republic of Korea (SAROK, formerly the Office of Supply (OSROK))
undertakes procurement exceeding W 200 million (US$197,628 or SDR 150,000) (goods and
services), or W 7.8 billion (US$7.7 million or SDR 500,000) (construction), as well as the stockpiling
of raw materials; nevertheless, for certain end-users, recourse to SAROK is voluntary (e.g. for
7
government-funded or -sponsored agencies). Government-invested enterprises undertake
procurement procedures either through SAROK or independently; if GPA-covered, WTO-consistent
procedures must be followed.
Table III.6
Government procurement
(a) Threshold values for procurement by GPA-covered entities
Classification Type of contract Threshold value
(SDR)
Central government entities Supplies and services 130,000
Construction services 5,000,000
Sub-central government entities Supplies and services 200,000
Construction services 15,000,000
All other entities Supplies 450,000
Construction services 15,000,000
Note: These thresholds were also notified in national currency fixed for two years.
(b) Contracts 1996-98
1996 1997 1998
US$ million US$ million US$ million
(%) (%) (%)
Goods .. 7,264 5,192
.. (100) (100)
Tender procedure:
Single .. 3,083 2,814
.. (42.4) (54.2)
Restricted .. 2,109 1,043
.. (29.0) (20.1)
Open .. 2,072 1,335
.. (28.5) (25.7)
Public works .. 14,184 9,103
.. (100) (100)
Single tendering .. 1,798 1,256
.. (12.7) (13.8)
.. Not available.
Note: More recent data on procurement methods were not available.
Source: GPA/W/81, 11 February 1999; and Ministry of Finance and Economy, Government of Korea.
4. Public notice of international tenders is published through the Official Government Gazette (the
Kwanbo) and a daily newspaper (Seoul Shinmun) at least forty days prior to the tender submission
deadline; essential elements of the tender are supposed to be issued in English, French or Spanish.8
As from 1 April 2000, some procurement opportunities have been advertised in English (including in
SAROK's Internet homepage); as a result of translation difficulties, SAROK expects that all
7
APEC Survey on the Government Procurement Systems-Republic of Korea [Online]. Available
at: http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].
8
APEC (1999).
procurement opportunities will be advertised in English only by the year 2001 at the earliest. Plans
for introducing a full-fledged EDI (electronic data interchange) system to public agencies
procurement by 2001 were initiated in July 1999; a pilot EDI system, involving 3,520 public agencies
and 192 private suppliers (end 1999), is to be expanded to the entire procurement business
9
encompassing all 26,000 public institutions and 21,000 suppliers. In July 1999, a law requiring both
public agencies and their suppliers to exchange documents (e.g. orders, confirmations, and invoices)
online, was enacted.
5. In 1999, the total Korean government procurement market for goods, services and construction
was estimated at around W 43.7 trillion (US$43 billion); the market is dominated by construction
contracts (Chart III.6). Procurement by GPA-covered entities represented 77.2% of the market
(44.9% of procurement market value above threshold) and foreign suppliers captured 4.8% of the
market (mainly goods). Procurement by state-owned (i.e. government-invested) enterprises accounted
for 32.2% of the market and consisted mainly of construction projects and goods; contracts by firms
like the Korea Electric Power Co., Korea Telecom, Korea National Housing Co., and Korea Gas Co.
were responsible for 79% of total purchases by state enterprises. Despite consecutive increases in
1996 and 1997, between 1995 and 1998 there has been a decline of the share of open tendering in
favour of single tendering procedures as the share of the former dropped from 42.6% of total
procurement to 40.2%; this development reflected, inter alia, the decline in procurement after the
Asian financial crisis as well as SAROK's policy in favour of domestic SMEs (particularly in
provincial towns) and environment-friendly (e.g. recycled) products. Since 1996, the share of SMEs
10
in the government procurement market has grown from 30% to 57% (1997). Medical, educational,
and sewage treatment equipment, scientific testing instruments, and helicopters were the main goods
purchased through open tendering. Foreign suppliers may have attained about 4.6% of the Korean
procurement market, with the United States and the EU accounting for the largest individual shares
(Chart III.7).11
6. Since 1996, procurement of telecommunications equipment and changes in procurement
responsibilities in airport construction have been raised as concerns by certain WTO Members
(Chapter II(7)(i)). As from 1997, foreign supplier allegations on compliance with GPA (including
objections) may be addressed to the International Contract Dispute Mediation Committee (ICDMC),
which may review complaints and mediate with timely and non-discriminatory procedures.12 Despite
allegations by a WTO Member with respect to complaints on irregularities in the bid tendering
procedures conducted by various GPA-covered government entities, the MOFE had not received any
13
bid challenges by 1999. Recourse to the WTO Dispute Settlement mechanism in 1999 confirmed
Korea's compliance with GPA commitments in 2000 (Chapter II(7)(i)) and Table AII.3).
7. In April 1997, corrective measures against bid-rigging were strengthened by considerably
increasing the rate of surcharge to 5% of revenues of the relevant good or service multiplied by the
duration of the illegal act; in addition, a Notice on determining unfair trade practices related to public
14
construction bids was passed in December 1997. Participants are also barred from future bids for a
period of one month to two years. Between 1995 and 1999 the Korea Fair Trade Commission
9
The Korea Herald [Online], 5 December 1998. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
10
The Korea Herald [Online], 18 January 1997. Available at: http://www.koreaherald.co.kr/
[30 September 1999].
11
It should be noted that the analysis is not complete, due to lack of data; by June 2000, the WTO
Committee on Government Procurement had not received the data submission from Korea.
12
APEC Survey on the Government Procurement Systems-Republic of Korea, [Online]. Available
at: http://www.apecsec.org.sg/govtproc/gp-rok.html [17 September 1999].
13
USTR (1999).
14
OECD document DAFFE/CLP(99)3/FINAL, Committee On Competition Law and
Policy/Competition Policy and Procurement Markets [Online], pp. 79-81. Available at: http://www.oecd.org//
daf/clp/Roundtables/Procu00.htm [8 October 1999].
(section (4)(iii)) took sanctions stronger than those recommended for correction in 23 bid-rigging
cases (more than half related to construction works).
Chart III.6
Government procurement market, 1999
(a) By type of contract and entity
By contract By entities
National Railroad
Administration Other central
Construction Ministry of 7.0% gov. 4.9%
services Construction and Sub-central Gov.
63.9% Transportation 8.6%
8.6%
Sub-sub-central
Ministry of Central Government
National Defence Government Local
36.5% government 18.6%
16.0% 31.3%
Other
a
public entities
32.2% Local education
Services Other 6.6% offices
6.1% 4.2%
Gas corporation 2.6%
Goods Korea telecom Electric power corp.
30.0% 5.1% National 13.5
Housing Corp.
4.4%
Total: Won 43,753.2 billion Total: Won 43,753.2 billion
(b) GPA covered contracts
By contract By entities
Sub-central government
5.0%
Construction Goods Government-invested
services 21.4% enterprises
33.8% 25.1%
Central Government
28.1%
Above threshold Above threshold
58.1% Services 58.1%
3.0%
Below threshold Below threshold
41.9% 41.9%
Services Construction Central
3.3% services Government
Government-invested 19.2%
Goods 23.1% enterprises
15.4% 16.6%
Sub-central Government
6.1%
Total: Won 33,786.8 billion Total: Won 33,786.8 billion
a Includes government-invested enterprises.
Source: Information provided by the authorities of the Republic of Korea.
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