FOCUS Supporting e-commerce: Korea Customs Service’s strategy By Tae-kon Sung, DIRECTOR GENERAL OF THE CLEARANCE FACILITATION BUREAU, declaration must be submitted: for and Yeon-Soo Choi, express cargo, a ‘list clearance’ proce- DIRECTOR OF THE MULTILATERAL COOPERATION DIVISION, KOREA CUSTOMS SERVICE dure allows a trader to receive goods and, providing their value is below the Cross-border e-commerce is increasing sharply in Korea. de minimis threshold, clear them by sub- mitting 26 pieces of information, such as This is not surprising given that the country ranked trader’s name and address, consignee’s name and address, and type and price No.1 in the world in terms of Internet connection speed of the goods; as for goods entering via the international mail channel, they are at the beginning of 2015, and that the Korean economy cleared on-the-spot. is extremely dependent on foreign trade. However, the About 96% of e-commerce transactions benefit from the tax exemption system. increase poses a number of challenges to the Korea Only 0.3% of transactions consist of high- value goods that exceed 1,000 USD, but Customs Service (KCS) which has, since 2014, been these imports are growing at a high rate, with an eight-fold increase from 2010 to taking various e-commerce measures accordingly. This 2014 indicating that the number of Korean consumers buying high-end goods online article gives an overview of the scale of e-commerce in and paying duties is on the rise. Korea, its impact on tax revenue, and how the KCS is Impact on tax revenue As most e-commerce products are being promoting e-commerce and managing the risks around imported under the tax exemption system, the current increase in such transactions this growing form of trade. results in lower tax revenue. In 2014 for example, 15 million goods worth 1.2 bil- The volume of imports resulting from provider, as well as the value of the goods lion USD were imported, representing a e-commerce has been growing conti- being traded (see Tables 1 and 2). Korea loss in terms of tax collection of 230 mil- nuously in Korea over the past few years. has a tax-exemption system and simplified lion USD. Although this amount is impor- Statistics show that there were 7,941,000 Customs procedures in place for low-value tant, it represents only 0.4% of Korea’s total transactions in 2012, 11,155,000 in 2013 goods. tax revenue. and 15,530,000 in 2014, indicating an approximate annual increase of 40%. There are severalde minimis thresholds, In the view of the KCS, the importation of Korea’s largest e-commerce partner is the which are used in different ways: e-commerce goods under the tax exemp- United States (US), accounting for more tion system enables consumers to buy pro- than 70% of overall imports for the last • as a ‘value’ threshold below which ducts at a more ‘reasonable’ price, as the three years – 79% in 2012, 75% in 2013 and duties and taxes are not collected and system eliminates price bubbles, such as 73% in 2014. However, origin countries no Customs declaration is required: for ‘rent-seeking’ behaviour, caused by mono- are diversifying, with 19 countries listed postal operators the threshold is 125 US polies on imported or domestic goods. In in 2010 and 38 in 2014, and the number of dollars (USD) using the CIF price; and this regard, the KCS has been making e-commerce transactions originating from for couriers the threshold is 100 USD various efforts to facilitate e-commerce these countries is constantly increasing. using the FOB price, or 200 USD for activities. goods originating in the US, under the Tax-exemption system terms of the Free Trade Agreement sig- Promoting e-commerce Most e-commerce goods are delivered by ned between Korea and the US; Measures have been taken by the KCS to either express cargo service or express mail streamline the import and export process service (EMS), under procedures which • as a ‘reporting’ threshold for goods for goods bought online. differ according to the status of the service in respect of which a full Customs 44 © Korea Customs Service Table 1: Types of import clearance for express cargo List clearance Simplified declaration General declaration Reporting requirements A form listing 26 information fields Import declaration composed of Import declaration composed of (name, address, goods, price, 57 information fields. 69 information fields. etc.). Goods concerned Goods for personal use or com- All items. All items. mercial samples. FOB price: 100-2000 USD, or FOB price: above 2000 USD. FOB price: under 100 USD, or 200-2000 USD (for the US). 200 USD (for the US). Tax exemption All taxes exempted. If total tax is under 10,000 KRW If total tax is under 10,000 KRW (about 8 USD), taxes are not (about 8 USD), taxes are not levied. levied. Table 2 - Types of import clearance for express mail Exemption on the spot Simplified clearance or taxation General declaration on the spot Reporting requirements Standardized forms, namely the Import declaration composed of Import declaration composed of CN22 and the CN23, which 57 information fields or issuance 69 information fields. provide brief details of the goods’ of a duty-imposition notice. origin, classification and Customs Import declaration composed of value, as well as the name and 69 information fields. address of the sender and the importer on the CN23. Goods concerned Goods for personal use and All items under 1,000 USD All items over 1,000 USD goods with a CIF price under 125 USD (about 150,000 KRW). Commercial samples and goods with a CIF price under 250 USD Tax exemption All taxes exempted. If total tax is under 10,000 KRW If total tax is under 10,000 KRW (about 8 USD), taxes are not (about 8 USD), taxes are not levied. levied. 45 FOCUS Express Cargo Logistics Center 2nd floor Storage warehouse (Tax unpaid) (Products for inspection) Customs Automatic inspection X-Ray sorter area (Inspection finished) 1st floor Cargo release (goods are sorted out Cargo entry by couriers) Access restriction Import clearance the large numbers of sales, the KCS will E-commerce and security To facilitate the utilization of the conve- be setting up an e-commerce export plat- Trade facilitation and trade security are nient ‘list clearance’ procedure, the KCS form, which will be able to convert details closely linked. Amid the continuous has extended the types of goods covered by of orders and sales of online retailers into increase in e-commerce transactions, the this procedure from six categories (clothes, export declarations automatically. This KCS is enhancing its monitoring and risk shoes, etc.) to all goods, excluding food platform will be connected to UNIPASS, management capacity in order to prevent and medicines related to public health the Korean e-clearance system. illegal goods from entering the country. and safety. To make things more convenient for At present, X-ray inspections of expedited In addition to the tax exemption, the KCS exporters who are not familiar with inter- cargo and international mail are conduc- is also providing a swift clearance pro- national trade and the associated proce- ted by the KCS on a 100% basis. Postal cess for e-commerce goods. For example, dures, the KCS now offers a Harmonized operators and couriers are obliged to according to data extracted from the auto- System (HS) Navigation Service. Users can send information requested for clearance mated e-clearance system (UNIPASS), on find the correct HS code which has to be electronically, in order to permit the pre- average it takes only 4 hours to complete used in export declarations by searching advice and possible pre-clearance of items. the Customs clearance of expedited cargo for the actual name of the goods. To do so, postal operators use the electro- under the list clearance procedure. nic version of the CN 22 and CN 23 forms The KCS has also begun to keep official developed by the WCO and the Universal Export clearance records of e-commerce exports conduc- Postal Union (UPU). All information on Given the characteristics of e-commerce ted via the international mail channel, the packages selected for inspection, such goods, which are wide in variety and low and to issue ‘certificates of exportation’ in as the X-ray image and the data contained in value per transaction, the KCS crea- order to enable exporters to enjoy certain in the form used for clearance, is loaded on ted a Simplified Export Declaration for benefits, such as a trade finance facility the computer screen of the Customs officer e- Commerce, significantly reducing the and VAT refunds. For those not familiar handling the inspection. information items on the export declara- with the term, the ‘trade finance facility’ tion from 57 to 37. is a loan offered by banking institutions The KCS has enhanced its monitoring to exporters or importers who are able to of express delivery service providers. Moreover, to address the difficulties expe- prove that they handle a certain volume Penalties are imposed on those who sub- rienced by exporters, who must fill out of transactions. mit false declarations. In 2014, the KCS many export declarations as a result of also implemented a measure that obliges 46 WCO news N° 78 October 2015 delivery service providers to report the Lastly, for small and medium courier To address the actual destination of express cargo to companies which do not have modern difficulties experienced the KCS once delivery is complete. The facilities, the KCS is building an ‘Express objective is to prevent the misuse of the Cargo Logistics Center’ with a total by exporters, who de minimis facility by way of vendors split- floor area of 36,000 square metres, at the must fill out many ting consignments in order to wilfully take Incheon International Airport cargo ter- advantage of the tax exemption system and minal.