Republic of Korea

WT/TPR/S/73, 28th August 2000

IIITRADE POLICIES AND PRACTISES BY MEASURE36

(2)Measures Directly Affecting Imports37

(ix) Government procurement64

  1. Since January1997, Korea has implemented the WTO Agreement on Government Procurement(GPA), and has passed enforcement legislation to regulate the procedures for international tendering of covered entities[1]; relevant legislation was notified (1997) and examined (1998, 1999) in the WTO Committee on Government Procurement.[2] There have been a number of regulatory changes, including the implementation of MFN and national treatment to other GPAsignatories, a prohibition against offsets as a condition for awarding contracts, and the possibility to pursue alleged violations of the WTOAgreement 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 SMECooperatives is being cut gradually from 258(1998) to 103(2001), thus reducing expenditures of the public organizations.[3]
  2. Korea's GPAcommitments, which were modified in late 1997[4], cover procurement and construction contracts, valued over certain threshold amounts(TableIII.6), by more than 40central government agencies, 15regional/local (sub-central) authorities, and more than 20governmentinvested entitities involved in printing, trading, chemicals, mining, electricity, coal, petroleum, gas, construction, banking, telecommunications, and tourism business.[5] The GPArequirements are not extended to, interalia: national security and defence (a market of about W14trillion (US$11.6billion) in 1998)[6]; single tendering in the case of set-asides for SMEs; agricultural, fishery and livestock products; and satellites (for fiveyears 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. GPAprovisions do not cover procurement by the 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 (TableIII.6). At present the Supply Administration of the Republic of Korea (SAROK, formerly the Office of Supply(OSROK)) undertakes procurement exceeding W200million(US$197,628 or SDR150,000) (goods and services), or W7.8billion(US$7.7million or SDR500,000) (construction), as well as the stockpiling of raw materials; nevertheless, for certain end-users, recourse to SAROK is voluntary (e.g. for government-funded or -sponsored agencies).[7] 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 / Thresholdvalue
(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.

  1. 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 1April 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 procurement opportunities will be advertised in English only by the year 2001 at the earliest. Plans for introducing a fullfledged EDI(electronic data interchange) system to public agencies procurement by 2001 were initiated in July1999; a pilot EDI system, involving 3,520public agencies and 192 private suppliers (end 1999), is to be expanded to the entire procurement business encompassing all 26,000 public institutions and 21,000 suppliers.[9] In July1999, a law requiring both public agencies and their suppliers to exchange documents (e.g.orders, confirmations, and invoices) online, was enacted.
  2. In 1999, the total Korean government procurement market for goods, services and construction was estimated at around W43.7 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 KoreaGas 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 environmentfriendly (e.g. recycled) products. Since 1996, the share of SMEs in the government procurement market has grown from 30% to 57% (1997).[10] 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 UnitedStates and the EU accounting for the largest individual shares (Chart III.7).[11]
  3. Since 1996, procurement of telecommunications equipment and changes in procurement responsibilities in airport construction have been raised as concerns by certain WTOMembers (ChapterII(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 WTOMember with respect to complaints on irregularities in the bid tendering procedures conducted by various GPA-covered government entities, the MOFE had not received any bid challenges by 1999.[13] 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).
  4. In April1997, 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 construction bids was passed in December1997.[14] 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 (section(4)(iii)) took sanctions stronger than those recommended for correction in 23bid-rigging cases (more than half related to construction works).

  1. Effective 1997 Korea has been entitled to compete in the GPAsignatories' markets.[15] In the first half of 1998, Korean companies shipped a wide range of products, worth US$7.2million, to the international government procurement market, representing 16procurement contracts in nine countries mainly from the region(non-GPAsignatories).[16]

In the context of APEC, since 1995 Korea has participated in efforts undertaken within a Government Procurement Experts Group to develop a common understanding on government procurement policies and systems (as well as on each APEC economy's government procurement practices); and to achieve liberalization of government procurement markets throughout the AsiaPacific region, and contribute in the evolution of work on government procurement in other multilateral fora.[17]

[1] Special Regulations of the Enforcement Decree of the ARCSP(Act Relating to Contracts in which the State is a Party) for Specific Procurement; APECSurvey on the Government Procurement SystemsRepublic of Korea [Online]. Available at: [17September1999].

[2] In this context, Korea replied to questions submitted by Canada, the European Community, Switzerland, and the United States(WTOdocuments GPA/12, 11February1997; GPA/12/Rev.1, 9June1997; GPA/25, 30October1998; and GPA/M/10, 18February1999). It also provided replies to the WTOQuestionnaires 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 WTOWorking Group on Transparency in Government Procurement (WTOdocuments GPA/W/24/Add.3, 15November1996; S/WPGR/W/11/Add.13, 10December1996; and WT/WGTGP/W/7, 30October1997).

[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 November1997; the authorities indicated that rectifications were of a purely formal nature and did not alter the mutually agreed coverage(WTOdocuments GPA/W/59, 24October1997; WT/Let/207, 19January1998; and GPA/25, 30October1998).

[5] WTOdocument GPA/W/35/Rev.1(Loose-Leaf System for the Appendices to the Agreement), 8July1999.

[6] Data contained in Bank of Korea(1999), p. 86.

[7]APEC Survey on the Government Procurement Systems-Republic of Korea [Online]. Available at:

[8]APEC(1999).

[9]The Korea Herald [Online], 5December1998. Available at: [30September1999].

[10]The Korea Herald [Online], 18January1997. Available at: [30September1999].

[11] It should be noted that the analysis is not complete, due to lack of data; by June2000, 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:

[13]USTR(1999).

[14]OECDdocument DAFFE/CLP(99)3/FINAL, Committee On Competition Law and Policy/Competition Policy and Procurement Markets [Online], pp. 79-81. Available at: daf/clp/Roundtables/Procu00.htm [8October1999].

[15]The EC, Iceland, Norway, and the Principality of Liechtenstein do not extend to Korean suppliers the GPA benefits for procurement contracts on airports and urban transport; supplies of HS items 8504, 8535, 8537 and 8544 (electrical transformers, plugs, switches, and insulated cables); and GPA ArticleXX provisions. The United States limits access to its procurement market for Korean construction services and suppliers of such services, to the procurement of certain entities above a threshold of SDR15million (WTOdocuments GPA/IC/10, 16January1996; GPA/W/32, 17December1996; and GPA/W/35/Rev.1(Loose-Leaf System for the Appendices to the Agreement), 7July1999).

[16]The Korea Herald [Online], 14July1998. Available at: [30September1999].

[17]Government Procurement in APEC [Online]. Available at: gphome.html [17September1999].