RESTRICTED
WORLD TRADE WT/DS40/1
G/L/74
G/STR/D1/1
ORGANIZATION 20May1996
(96-1905)
Original: English
KOREA -LAWS, REGULATIONS AND PRACTICES INTHE
TELECOMMUNICATIONS PROCUREMENT SECTOR
Request forConsultations bytheEuropean Communities
Thefollowing communication, dated 9May1996, from thePermanent Delegation ofthe
European Commission tothePermanent Mission ofKorea, iscirculated inaccordance withArticle 4.4
oftheDSU.
_______________
Onbehalf oftheEuropean Community, Ihereby request consultations withKorea under
Article XXIII:1 oftheGATT 1994 andArticle 4oftheUnderstanding onRules andProcedures
Governing theSettlement ofDisputes (hereinafter alsoreferred toasthe"Understanding") withrespect
toKorean laws, regulations andpractices inthetelecommunications procurement sector.
According totheBasic Telecommunications Act(hereafter: "Telecom Act"), theMinister of
Communications (MoC) isresponsible fordeveloping andexecuting aplanforthepromotion of
telecommunications technology (Article 8),including, forinstance, theestablishment andfinancing
ofresearch institutes (Article 10). TheMoC canrequire network operators tomake financial
contributions tothese institutes andtospend acertain ratioofannual revenues onR&D investments
(Article 12).According toArticle 6oftheEnforcement Decree, theMoC canselect research subjects
fortheseinstituteswhichincludethepromotionofdomesticproductionoftelecommunicationsequipment.
TheKorean government hasapplied these provisions topromote thebuild-up ofadomestic industry
intelecommunications network equipment.
TheGovernment Procurement Fund Act(hereafter: "Procurement Act") regulates the
procurement ofgovernment agencies. Itcovers government andlocal agencies aswellas"other
agencies" asdescribed inthePresidential Decree fortheEnforcement oftheProcurement Fund Act
(hereafter: "Presidential Decree"). Thelatter establishes thattheterm"other agencies" refers to
government-invested corporations such as,forinstance, Korea Telecom (KT). Article 2ofthe
Presidential Decree distinguishes between "foreign currency" procurement and"domestic currency"
procurement. Theformer applies toprocurement ofgoods andservices which arenotavailable on
thedomestic market. Participation isopentoallforeign suppliers. Thisdoesnotholdforequipment
which isavailable onthedomestic market. The"Working Rules fortheProcurement Fund Act"
determine under Article 10thattheDirector General notifies agencies covered bytheProcurement
Actwhich products havetobepurchased locally. Aspointed outabove, thisprocurement regime applies
toKT,asagovernment-invested corporation.
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Thecombinedeffectofthepromotionofdomesticmanufacturingoftelecommunicationsnetwork
equipment andtheabove-mentioned procurement legislation hasbeentodrive European manufacturers
outoftheKorean market during thelastdecade. Today, more than90percentofKT'sprocurement
ofnetwork equipment iscarried outunder the"domestic currency" regime towhich European suppliers
donothaveaccess. TheEuropean Community considers thatthislegislation constitutes abreach of
Korea 'sobligations under theWTO, particularly those under Articles IIIandXVII oftheGATT 1994,
orthatitconstitutes ameasure applied byKorea which, evenifitdidnotconflict withtheprovisions
oftheWTO, maynullify orimpair benefits accruing totheEuropean Community thereunder.
Following theconclusion oftwoKorea-US bilateral telecommunications agreements, in1992
Korea adopted aSpecial Regulation ontheAccounting ofGovernment-Invested Corporations (hereafter:
"Special Regulation") requiring KTtoopen partly itsnetwork equipment market toUSsuppliers.
Bydoing so,Korea hasgranted USproducts anadvantage, favour orprivilege which hasnotbeen
accorded tolikeproducts originating intheEuropean Community. TheEuropean Community therefore
considers thatthisSpecial Regulation constitutes abreach ofKorea 'sobligations under Article Iof
theGATT 1994.
ThesecondnetworkoperatorintheKoreantelecommunicationsmarket,Dacom,appliesinternal
procurement ruleswhich discriminate against foreign products. Article 5ofDacom 's"Working Rules
forMaterials Purchasing" provides thatforeign purchasing should onlybeundertaken when thematerial
isnotavailable onthedomestic market. Itistheunderstanding oftheEuropean Community thatsuch
procurement rulesareagainst thecommercial interests ofaprivate company operating inacompetitive
market. TheEuropean Community wishes toexamine withKorea towhatextent Dacom 'spurchasing
policy andthegovernment 'sroletherein constitute breaches ofArticles XVII andIIIoftheGATT
1994.
Therefore, theEuropean Community requests ameeting withtheappropriate Korean authorities
todiscuss thematter withaviewtofinding amutually satisfactory solution inaccordance withArticle 4
oftheUnderstanding.