Benefits of actively participating in the survey for items eligible for duty reduction related to factory automation

 

Among the duty exemption/reduction programs, the one prescribed in Article 95(1) 3 of the CUSTOMS ACT is designed to assist small and medium-sized manufacturers and medium-standing enterprises engaged in manufacturing products for factory automation.

CUSTOMS ACT Article 95 (Reduction or Exemption of Customs Duties for Goods Used to Prevent Environmental Pollution, etc.)    (1) Customs duties may be reduced or exempted on any of the following imported goods, which are difficult to be manufactured in Korea: 1.      Machinery, appliances, facilities and equipment prescribed by Ordinance of the Ministry of Economy and Finance as goods used to prevent emissions of pollutants (including noise and vibration) or treat pollutants; 2.      Machinery and appliances prescribed by Ordinance of the Ministry of Economy and Finance as goods used to treat wastes (including recycling); 3.      Factory automation machines, appliances, facilities and equipment (including its component appliances) and their key parts prescribed by Ordinance of the Ministry of Economy and Finance as machinery or electronic technology-applied goods or data-processing technology-applied goods. (2) If customs duties are reduced or exempted in accordance with paragraph (1), a period and rate for such duty reduction and exemption shall be prescribed by Ordinance of the Ministry of Economy and Finance. [This Article Wholly Amended on Dec. 30, 2010] [Title Amended on Dec. 22, 2020]

 

The items eligible for duty reduction under Article 95 (1) 3 are listed in Table 2-4 annexed to the ENFORCEMENT RULES OF THE CUSTOMS ACT, along with their 6-digit HS Code and detailed description. When the listed items are imported by small and medium-sized manufacturers and middle-standing enterprises producing products, a reduction of 70% and 50% of the tariff rate may apply, respectively, until December 31, 2023, according to Article 46 of the ENFORCEMENT RULES OF THE CUSTOMS ACT, which is amended annually.

 

In order to make the list useful, the Ministry of Trade, Industry and Energy (MOTIE) conducts a survey every year about the goods that are scheduled to be imported for factory automation in the upcoming year through the relevant industry association or organization.

As part of the submission, in addition to product catalogue, user manual, etc., three files must be attached as follows:

l  Suggested Table 2-4 Annexed to the ENFORCEMENT RULES OF THE CUSTOMS ACT, specifying the relevant division of MOTIE.

l  Card for Managing Items Eligible for Duty Reduction, containing:

-        Company name, business registration number, address

-        Person in charge, contact information (telephone number, cellphone number, fax number and email address)

-        Item introduction plan (item manufacturer, total introduction period and quantity, item unit price, annual import amount, and annual duty reduction estimates)

-        Item details (Korean and English names), item description, HS Code of Korea

-        Current tariff rate, initial application year, duty reduction period

-        Function/use/structure, reason for requesting duty reduction, and effect of duty reduction

l  List of Items Eligible for Duty Reduction, specifying:

-       Current Table 2-4 serial number or “New” and item description number

-       Model number, HS Code of Korea, type number(1: new investment area and new business area seeking to localize the import-dependent materials , 2: main facilities resulting from new factory construction or existing factory extension, 3: massive facilities imported in installments, constructed in a bonded factory, then customs-cleared, 4: facility investment items of small and medium-sized enterprises, and 5: other single products, items for repair, items eligible for long-term duty reduction, parts, etc.)

-       Product name, product description

-       Company name, business registration number

-       Person in charge, contact information (telephone number, cellphone number, and email address)

-       Duty reduction estimates, initial application year confirmed through the relevant industry association or organization, duty reduction period

-       Relevant MOTIE division

 

While preparing the submission might be bothersome, it's the necessary process to ensure the inclusion of the considered item in Table 2-4 and to safely apply for duty reduction. There have been instances where an item was later found ineligible for duty reduction after customs clearance, leading to denied duty reduction requests.

 

For example, in 2022, the following was the item description of Table 2-4 serial number ‘33’ and item description number ‘6’:

- Item of numeric, program or computer control designed to grind the rolling groove of the linear motion guide block, equipped with two whetstone shafts, mounting the workpiece in two rows on the electronic chuck to enable simultaneous grinding, and with a grinding length of 1,200 mm or more

 

If the individual who had proposed the description during the survey were to import the item, they might interpret the description accurately. However, a person importing the item designed to grind the rolling groove of the linear motion guide block interpreted the specifications too generously. Although it is equipped with whetstone shafts and has two rows on the electronic chuck, the imported item was not capable of simultaneous grinding. Instead, it conducts grinding in one row, followed by conveying and subsequent grinding in the other row. Additionally, the importer interpreted the requirement of a ‘grinding length of 1,200 mm or more’ as the total grinding length within a single processing. However, the authority interpreted the condition as the grinding length of a single row.

Customs denied the duty reduction, and the importer filed an appeal. The tax judge ruled that Customs' decision was legitimate (조심 2023관0031).

 

Of course, not all the items submitted during the survey are included in Table 2-4. However, by actively participating in the rule-making process, importers can enhance their understanding of regulations. If the importer in the appeal case had taken part in the survey, they could have inquired with the authority about the interpretation of the item description beforehand, at the very least.