2014Du4290 Revocation of Disposition of Imposing customs duties, etc.

1. Cases where a stock company is involved;

2. The Samsung Heavy Metal Exchange;

3. Co., Ltd.; and

4. Belize Co., Ltd.;

1. The head of Seoul Customs Office;

2. The head of Daegu Customs Office;

Seoul High Court Decision 2013Nu8969 Decided January 22, 2014

August 24, 2016

All appeals are dismissed.

The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the grounds of appeal Nos. 3 through 5 and the grounds of appeal Nos. 1 and 2 for the remaining plaintiffs' appeals at the time of Plaintiff Kitty Co., Ltd

A. In accordance with Article 16(1) of the former Act on Special Cases of the Customs Act for the Implementation of Free Trade Agreements (amended by Act No. 918, Jan. 1, 2010; hereinafter “FTA”), the head of a customs office may choose not to apply conventional tariffs to the relevant imported goods in any of the following cases, except as otherwise provided for in the relevant agreement, with respect to the restriction on the application of customs duties on imported goods originating from a Contracting State upon the elimination of customs duties or the annual reduction of the tariff rate (hereinafter “ conventional tariffs”), which shall be imposed on the imported goods originating from a Contracting State in accordance with Article 16(1) of the former Act (amended by Act No. 9918, Jan. 1, 2010; hereinafter “FTA”), and subparagraph 2 of Article 13 provides that “if the customs authority or the head of a customs office fails to respond to a request for the verification of origin to the customs authority of a Contracting State within a period of time prescribed by Ordinance of the Ministry of Strategy and Finance, or information on the implementation of the provisions of Article 9(16).

On the other hand, Article 10.2 of the Free Trade Agreement between the Republic of Korea and the EFTA States (hereinafter referred to as the "FTA") provides that the Annexes and Appendix to the Agreement shall be an integral part of the Agreement. Accordingly, Article 24 of Annex I to the Free Trade Agreement provides that "the customs authority requesting the verification shall receive the results of verification, including the findings and facts, and all the evidentiary documents of the exporter as far as possible" in paragraph (6). Paragraph (7) provides that the customs authority requesting the verification shall have the authority to exclude preferential tariff treatment except for "in exceptional cases" where there is no reply within 10 months from the date of the request for verification or where there is no sufficient information to determine the authenticity of the relevant documents or the origin of the goods.

The purpose of the Free Trade Agreement Customs Act and the instant FTA is to create a free trade zone between the Parties to strengthen the ties and to ensure the creation of new employment opportunities, the enhancement of living standards, and the continuous increase of real income by removing barriers to trade and investment flows between the Parties. To this end, the Free Trade Agreement Customs Act and the instant FTA provide that the customs authority of the importing Party shall apply the conventional tariffs to the import and export of goods originating in the country of origin removed or gradually reduced customs duties, and shall share their roles on the basis of mutual trust between the Parties for verification of origin that meet the applicable requirements. In other words, the customs authority of the importing Party shall, in principle, respect the results of verification conducted by the customs authority of the exporting Party upon request of the customs authority of the importing Party on an origin declaration prepared by the exporter or producer of the importing Party, and, in principle, shall respect the outcome of verification respondeded by the customs authority of the exporting Party, but, if no information sufficient to determine the authenticity of the relevant documents or the origin of the goods is included in replys, the customs authority of the importing Party may, in principle, limit the objective reason for verification and justification.

B. The lower court acknowledged the following facts based on the evidence duly admitted. 1) The Plaintiffs sent the instant gold bars produced by the Switzerland and the Switzerland, a Switzerland company, through foreign exporters (hereinafter referred to as “the Switzerland”), Cambodia, and Pampers (hereinafter referred to as “the instant gold bars”) with the origin declaration attached to the Switzerland, and filed an import declaration by applying the conventional tariff rate of 0% as stipulated in the instant Free Trade Agreement, upon the request of the Defendants to verify the origin of each of the instant gold bars, and the Defendants were not subject to the initial imposition of the Switzerland and Cambodia’s customs authority’s initial origin declaration on the grounds that the gold bars produced by the Switzerland and Cambodia were not originating, and each of the instant gold replies produced by the Switzerland were not subject to the Plaintiff’s final tariff rate of 3 months after the Switzerland reply, which was the Switzerland period.

C. In full view of the foregoing facts and the following circumstances, the lower court determined that the Switzerland customs authority could not be deemed to have committed an exceptional circumstance falling under “in exceptional cases where the application of conventional tariffs pursuant to the Free Trade Agreement cannot be restricted” in that it did not comply with the response period against a request for origin verification regarding each of the instant gold bars or did not provide sufficient information to determine the origin thereof.

1) After the initial reply, the Republic of Korea Customs Service was present at the Switzerland customs authority’s verification process of the Switzerland customs authority, there was no special circumstance to deem otherwise from the initial reply. Moreover, the Geneva Customs Service presented a provisional opinion that the raw materials and finished products of each of the gold bars of this case fall under the same HS tariff classification and failed to meet the origin requirements. As such, it was difficult to expect the Defendants to wait for the additional response of the Switzerland customs authority beyond the response period.

2) The Switzerland and Cambodia filed a lawsuit against the Switzerland customs authority seeking the revocation of the determination of lack of origin filed with the Switzerland Federal Administrative Court, and the Switzerland issued a self-verification at the first instance trial while winning the lawsuit, and then conducted self-verification during the appeal trial, and thus revoked the initial decision and issued the instant final reply. As such, it cannot be deemed that the delay and reversal of the reply by the Switzerland customs authority had a substantial impact on external factors, such as the filing of a lawsuit. 3) If such circumstances were to be seen, the Switzerland customs authority failed to send any objective material other than a reply, even though the detailed explanation and the presentation of documentary evidence that can support the final reply of this case was required, considering that Article 26 of the Free Trade Agreement provides for the confidentiality of the Party regarding the verification of origin and the confidentiality of the Party’s duty of confidentiality, it cannot be justified merely because the Switzerland customs authority did not provide documentary evidence regarding the determination of origin.

4) While producing gold bars using a mixture of originating and non-won mountainous district materials, it seems that the producer of each gold leader of this case was physically contrary to the provisions of Article 11 of Annex I to the Free Trade Agreement, or that the inventory of the materials was not kept or managed separately depending on the country of origin.

D. Examining the above determination by the lower court in light of the above provisions, legal principles, and records, the conclusion of the lower court’s rejection of the assertion that there are exceptional circumstances constituting “in the instant case where the application of conventional tariffs cannot be restricted” with respect to the reply to the verification of the instant case is acceptable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the interpretation of “in exceptional cases” and the requirements for the definition and correction of sufficient information, or by failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

2. The grounds of appeal No. 6 and Article 25 of Annex I to the Free Trade Agreement regarding the remaining plaintiffs' grounds of appeal No. 3 are referred to the Customs and Origin Subcommittee as set out in Article 32 in the event that a dispute between the Parties raised in relation to the verification procedures under Article 24 cannot be settled between the customs authorities of the Parties or raises an objection to the interpretation of this Annex. The Sub-Committee shall submit a report to the Joint Committee, which includes the conclusion.

In this context, the procedures for referral of customs duties and rules of origin set forth in this context shall not directly affect the effect of a private person in light of the content and nature of the rules on dispute resolution between the parties to the agreement, unless otherwise provided in separate domestic laws. Therefore, the private person may not assert the circumstance that the procedures for referral of the subcommittee under the above provisions have not been implemented as an independent ground for revocation of the disposition imposing customs duties.

Even if there is a dispute between the Parties regarding “Exceptional cases” as stipulated in Article 24(7) of Annex I to the instant FTA, the customs authority of the importing Party may, notwithstanding its opinion, exclude preferential tariff treatment or collect unpaid customs duties without referring to the Customs Duties and the Sub-Committee on Origin, ultimately be acceptable in accordance with the aforementioned legal principles. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on Article 25 of Annex I to the instant FTA.

3. As to the grounds of appeal Nos. 1 and 2, and the remaining plaintiffs' grounds of appeal Nos. 4, the gist of the grounds of appeal in this part is that the burden of proving the origin of each gold leader of this case is against the defendants who are the tax authority, and that the origin of each gold leader of this case was Switzerland even according to the evidence submitted by the plaintiffs. However, the court below erred by misapprehending the legal principles as to the burden of proof of taxation requirements, or by erroneously recognizing facts in violation of logical and empirical rules, thereby affecting the conclusion of the judgment.

However, according to the reasoning of the judgment below, the court below presumed that the origin of each gold leader of this case is the Switzerland of each disposition of this case under the premise that the origin of each gold leader of this case can not be deemed as the Switzerland of each disposition of this case. Thus, the ground of appeal on this part is nothing more than that of the court below's assumptive judgment. As seen earlier, the court below's decision that the court below's determination that the gold leader of this case's gold leader of this case's gold bullion of this case's gold bullion of this case's origin was not a circumstance falling under " exceptional cases" under the FTA of this case's FTA of this case'

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin

Chief Justice Park Poe-dae

Justices Park Young-young

Justices Kim Jong-il