Price manipulation, unfair referrals, hoarding: W546.8b in violations caught, agency vows to root out abuse
A group of companies manipulated import prices, made unfair referrals and hoarded goods subject to tariff quotas, reaping unjust profits while destabilizing consumer prices. Customs authorities have caught them.
The Korea Customs Service said Wednesday its crackdown on abuse of the tariff-quota system uncovered 546.8 billion won ($408 million) worth of violations, including 58.6 billion won in evaded taxes. The crackdown, aimed at protecting consumer price stability, ran from February through August. On-site inspections of bonded warehouses also led to the release of 292 tons of illegally stockpiled goods into the market.
To back the pan-government "emergency measures to stabilize consumer prices," the agency carried out intensive customs investigations from February to August. The probe targeted illegal and unfair practices that undermined the purpose of the tariff-quota system and weakened price-stabilization policies by allowing some firms to reap unjust profits.
The investigation covered 21 import companies through targeted customs probes, uncovering various types of illegal and unfair conduct at 10 of them.
Manipulating import prices of goods under tariff quotas
Investigators found that some companies exploited a zero percent tariff-quota rate by inflating import prices and failing to lower distribution prices by the amount of the tariff cut. They also excessively transferred their domestic subsidiaries' profits -- generated through the tariff-quota benefit -- to overseas headquarters disguised as import payments. Some firms also evaded corporate taxes by inflating purchase costs to lower their operating profit margins. Investigators additionally found violations of payment procedures under the Foreign Exchange Transactions Act during the process of remitting foreign currency to overseas headquarters.
Unfair referrals for goods under tariff quotas
Some companies effectively led the entire import process, from signing import contracts to bringing goods into the country, while unfairly securing more tariff-quota volume than what was allotted to them.
They signed sham bill-of-lading transfer contracts with multiple shell importers and had those companies receive the tariff-quota referral and complete customs clearance. They then repurchased the goods on paper immediately after clearance to supply them to the actual end users. By staying involved in every stage from customs clearance to distribution and sales, these firms evaded taxes and passed on the fees paid to shell companies by raising distribution prices.
Hoarding goods under tariff quotas
Investigators also found violations of referral conditions requiring goods to be released from bonded warehouses within a set period. That condition, set by referral agencies, was meant to ensure the swift market supply of tariff-quota items. Some companies instead stockpiled the goods in bonded warehouses for extended periods.
To ensure the swift market supply of major tariff-quota items such as frozen mackerel, chicken and sugar, the agency also conducted on-site inspections of bonded warehouses 1,572 times. It issued 392 notices urging the release of long-stored goods and imposed additional charges for delayed reporting. These special inspections uncovered 292 tons of illegally stockpiled goods and led to 398 administrative fines and 1,021 cases of delayed-reporting surcharges totaling 1.4 billion won. The agency took strict action against delays in releasing goods from bonded warehouses.
"The tariff-quota system was designed to stabilize prices and benefit the public and end users, so this exceptional support measure -- introduced in good faith -- should never be exploited by some companies as a means of pursuing unfair profits through loopholes," Korea Customs Service Commissioner Lee Jong-wook said. "We will mobilize every available means and capability, including on-site inspections of bonded warehouses, administrative investigations, and customs probes, to track down and take strict action against those who disrupt market order and drive up consumer prices by abusing the tariff-quota benefit."
kwonhl@heraldcorp.com
