The Act on Designation and Management of Free Trade Zones provides that occupancy qualification in Free Trade Zones is mainly based on evidence of exports, but the definition of “export” is confined to “shipping domestic goods into foreign countries” under Article 2, subparagraph 2 of the Customs Act, leading to a possible interpretation that enterprises that supply materials, equipment, etc., necessary for finished products to be exported are not eligible for occupancy in Free Trade Zones.

Moreover, critics of the Act say that among products manufactured or processed using agricultural and livestock products as raw materials, those that are not exported and thus enter domestic markets could inflict damage on domestic rural communities and related industries.

Hence, the current Act needs to be amended so that enterprises that supply raw materials and equipment that are necessary for finished products for export to earn foreign currencies become eligible for occupancy in Free Trade Zone; and that sectors engaged in the manufacture and processing of products using agricultural and livestock products as raw materials that receive tariff concessions corresponding to the price differential between Korea and abroad pursuant to provisions of Customs Act, etc., are allowed to move into Free Trade Zones under the condition that the entire amount of said raw materials and finished products is exported. These amendments aim to protect domestic rural communities and related industries, expand exports of high value added agricultural and livestock products to overseas markets, and promote the development of Free Trade Zones through the addition and revision of related provisions including penalties.

Details
A. Enterprises that supply raw materials and equipment designated for earning foreign currency that are used to make finished products for exports shall be included as eligible occupant enterprises (Article 10).
B. Sectors that use as raw materials agricultural and livestock products that were granted tariff concessions corresponding to the difference between domestic and overseas prices as per Customs Act shall be designated as sectors whose occupancy is prohibited in Free Trade Zones; provided that enterprises who intend to ship the entire amount of such products out of Free Trade Zones and operate goods management systems such as inventory control and hiring of bonded area specialists are allowed to occupy in Free Trade Zones (Article 10-2 newly inserted).
C. Besides sectors that are not allowed to occupy Free Trade Zones since they use agricultural and livestock products as raw materials that receive tariff concessions corresponding to the difference between domestic price and overseas price as per the Customs Act, sectors that use agricultural and livestock products as raw materials shall be obligated to establish goods management systems such as inventory control IT system and hiring of bonded area specialists (Article 11).
D. Occupant enterprises that use or consume imported goods shipped into Free Trade Zones in Free Trade Zones shall report such use or consumption to the head of the Customs House (Article 29-2 newly inserted).
E. The case where raw materials and goods that were shipped into Free Trade Zones on the condition that the entire amount of such materials and goods shall be exported but are shipped out of the Free Trade Zones into customs territory, and the case where foreign goods that were shipped into Free Trade Zones are used without reporting the use and consumption of said goods shall be added as reasons for prohibition of shipment into Free Trade Zones (Article 40-2).
F. Persons who ship out of Free Trade Zones into customs territory raw materials and products that were shipped into Free Trade Zones on the condition that the entire amount of them will be exported; and persons who use foreign goods that were shipped into Free Trade Zones, without reporting the use and consumption of said goods shall be added to those who are subject to penalty and fine (Article 57, Article 60, Article 61, Article 70).

Business Sectors with Occupancy Restriction (Article 10-2), Occupancy Contract (Article 11), Shipment of Goods into Free Trade Zones or Import thereof (Article 29), Reporting of Use and Consumption (Article 29-2), Work Performed outside Free Trade Zones (Article 34), Shipment of Goods out of Designated Areas (Article 37), Suspension of Shipments into Free Trade Zones (Article 40-2)