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China-Korea Free Trade And What That Means For You
On Monday earlier this week, China and South Korea signed a Free Trade Agreement (FTA) that covers goods traded between the two countries. Under the FTA, each country is expected to eliminate tariffs on over 70% of the goods imported from the other. China and Korea launched FTA negotiations in May 2012 and tentatively concluded FTA provisions last November. With the agreement now inked, Chinese and Korean leaders have expressed their mutual desires for the FTA to become effective in the near future.
Photo from Korea Herald
So is this a really big deal? Yes! For companies operating in China and Korea, the FTA may open or increase access to opportunities in the other country. Because the two countries are reducing import tariffs to zero on over 70% of traded goods, companies that may have been previously priced out of the other country’s market may now be able to export their products and compete on a more level pricing field.
By way of a general example, let’s assume that hypothetical China Startup Company (“CSC”) manufactures and exports Product NewMarkIt. In the past, Product NewMarkIt was subject to a 20% Korean import duty. Although CSC wanted to export Product NewMarkIt to South Korea, it couldn’t make the numbers work – not after shipping expenses to Korea, the 20% Korean import duty, and sales and marketing expenses in Korea. However, because the FTA will eliminate the 20% Korean import duty on Product NewMark, CSC can now recalculate potential profit margins on exporting Product NewMarkIt to Korea.
If you haven’t been closely following FTA developments, and you are a company in China or Korea that manufactures, imports, and/or exports products, you should act now to ensure you fully take advantage of FTA benefits.
Exporters
Chinese exporters should review the FTA to determine whether South Korean import tariffs are eliminated for your products. If so, and to the extent you are not already exporting products there, Korea may now be a strategic market. In addition to the market research and demand/pricing studies you may undertake on the business side, we also encourage you to take this opportunity to understand the Korean legal environment in which you may operate.
By developing and implementing compliance policies and procedures for exporting goods to and selling them in Korea, you can ensure that your company’s employees fully understand company practices for the new market. In addition, documenting these procedures now ensures that the company will be in a position to preserve and retain all the effort undertaken on such export protocols in the event that key personnel leave your company in the future.
Some specific issues that your company will want to consider are:
- signing a sales agreement that protects your interests by appropriately addressing important legal issues such as pricing, term, confidentiality, IP ownership, exclusivity, termination, and dispute settlement;
- South Korean import license requirements;
- South Korean labeling requirements; and
- South Korean Customs entry and in-country shipping requirements.
Importers
Companies importing goods from Korea into China may also benefit from the FTA. Just as higher Korean import tariffs may have prevented Chinese companies from exporting to Korea, higher Chinese import tariffs may have deterred Chinese importers from sourcing products from South Korea.
Importers located in China evaluating potential benefits under the FTA should first determine whether China import tariffs on desired goods from Korea will be eliminated or reduced under the FTA. If expanding your pool of suppliers to include South Korean companies, in addition to business concerns we encourage you to carefully consider the following legal issues as well:
- sign a supply agreement that protects your interests by appropriately addressing important legal issues such as pricing, insurance, term, inspections, warranties, non-conforming products, returns, indemnification, confidentiality, exclusivity, termination, and dispute settlement;
- conduct due diligence on your Korean suppliers to ensure they are complying with Korean laws and producing goods that comply with both Korean and Chinese commercial and regulatory standards;
- ensure your Korean vendors understand China labeling requirements; and
- if you are a company subject to U.S. jurisdiction, ensure your Korean suppliers understand their obligations under U.S. Foreign Corrupt Practices Act (“FCPA”) and have them endorse your FCPA compliance program and sign certifications to this effect.
If you are a company in China (and this includes WFOEs) producing goods in China, those goods will be of China origin and thus covered by the China-Korea FTA. The China-Korea FTA may open up a whole new country of opportunities for your company.
The post China-Korea Free Trade And What That Means For You appeared first on China Law Blog.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2015/06/china-korea-free-trade-and-what-that-means-for-you.html
