[The Betrayal of the Korea Customs Service] How Did Customs Destroy Import Companies?

600% Tariff Retroactive Levy Puts Importers at Risk of Mass Bankruptcies
Origin Certification Issues Surrounding 'Peru Green Beans'
Customs Service Remains Inflexible Despite Criticism of Investigation Methods
"Tax Refunds Expected to Exceed 200 Billion Won"
Companies Say "It's Unfair... We Have No Choice but to Close"

"I feel so wronged. I'm so frustrated that I can't sleep. How can this happen?"

The voice of a man trembled over the receiver. Mr. A, who has been running an import business in Korea for over a decade, is currently suffering from massive customs tax surcharges and intense investigations by the Korea Customs Service. He imports mung beans duty-free from Peru, which has a Free Trade Agreement (FTA) with Korea, but the Customs Service notified him to pay back the taxes he had been exempted from, claiming he failed to provide proper 'proof of origin.'

Farmers at a mung bean cultivation site in Peru showing the mung beans they are growing to representatives of a Korean importing company. Photo by Informant Provided

Companies like Mr. A that import mung beans from Peru are facing the risk of bankruptcy. The Korea Customs Service has launched massive customs tax surcharges against companies it judged to have failed to properly prove the origin. Behind this situation lies the Customs Service’s administrative convenience relying on authority, inadequate on-site investigations, and a lack of understanding of Peru. (Related article: [Exclusive] Trusted Governmental FTA... Companies Become Mung Bean Smugglers)

According to Asia Economy’s comprehensive coverage on the 3rd, the Korea Customs Service is currently investigating domestic import companies that bring mung beans from Peru. The key issue is whether the Peruvian mung beans are truly from Peru. To verify this, the Customs Service began its first importer investigation in September 2021. It then conducted on-site investigations in Peru in April and August of last year, and intensified efforts by launching a third investigation in September.

There are roughly 50 to 80 companies importing Peruvian mung beans domestically, with about 60 companies estimated to be under investigation. Most of these companies started operations after the Korea-Peru Free Trade Agreement (FTA) took effect on August 1, 2011. Originally, the tariff on Peruvian mung beans was as high as 607.5%, but after the FTA, it was gradually reduced over ten years and became duty-free (0%) starting in 2020. Consequently, domestic importers began bringing in large quantities of affordable mung beans from Peru.

Korea Customs Service Imposes 600% Tax Surcharge... "Companies Have No Choice but to Close"

The volume of mung beans imported by companies during the investigation period exceeds 10,000 tons. The Customs Service is demanding repayment of the 607.5% tariff exemption on mung beans for which proof of origin was not provided. Industry insiders estimate the total surcharge could range from several billion to as much as 200 billion Korean won. As the investigation drags on, business uncertainty and additional costs have increased, and the surcharge amount is so large that companies say they can no longer continue operations.

Mr. A is also in a position where he must close the company he has operated for a long time. He said, "This is an amount that even large companies would find difficult to pay," and expressed his frustration, "If we pay all the surcharges, our company will inevitably go bankrupt." He raised his voice, saying, "I even personally confirmed that mung beans grow on Peruvian soil, so how can I possibly accept the Customs Service’s claims?"

Mr. A and several other importers complain about the Customs Service’s bureaucratic inertia. They pointed out unreasonable aspects during the surcharge process, but none were accepted. Although there is a way to request mediation from higher authorities or other agencies, they hesitated because being stigmatized by the Customs Service could be detrimental. Meanwhile, news of the Customs Service’s investigation leaked to some media outlets, causing companies to face suspicions of involvement in smuggling.

The future looks bleak. Even if the issue is resolved smoothly and taxes are not reclaimed, no one will compensate for the direct losses caused by the investigation and business disruptions. They also worry about how to endure the Customs Service’s scrutiny going forward. Mr. A sighed deeply, saying, "I regret why I have been running an honest import business only to end up like this."