[Exclusive] Companies That Trusted Government FTA... Became Nokdu Smuggling Offenders

Obtained Customs Authorities' Origin Investigation Letter
Demanding Bank Account Details, Tax Reports, and Accounting Books
Peruvian Companies Complain, "Are They Asking for Trade Secrets Too?"
Illiterate Peruvian Farmers Notified to Submit 'Cultivation Statements'
Experts Call It "Typical Customs Administration Convenience"

The basis for the Korea Customs Service notifying companies importing mung beans from Peru of additional tariffs is 'insufficient proof of origin.' According to the FTA agreement, domestic companies have the obligation to prove the origin, but the customs authorities claim this was not properly fulfilled. It is also known that they examined whether the mung beans, which Peru suddenly exported in large quantities despite low production, might have been smuggled from neighboring countries.

Customs Authorities Requested Local Companies' Trade Secrets for Origin Verification

However, after Asia Economy obtained and reviewed the customs authorities' investigation documents, it was found that the Korea Customs Service's investigation was rather inadequate and administrative convenience prevailed within the public sector. Companies complain that the Customs Service made mistakes from the very beginning. In the first investigation, they did not specify the exact documents to be submitted but only instructed to provide 'documents proving origin.' Since the FTA provisions do not specify which documents must be submitted, the Customs Service created their own standards, which they then used as grounds to immediately start a second investigation.

In the second investigation, a list of documents to be submitted was notified, but the industry consensus is that these materials were practically impossible to obtain. In fact, the 'Origin Verification Notice' that customs authorities requested from Peruvian mung bean collectors, agricultural corporations, and farmers included many items considered trade secrets. Representative examples are the companies' accounting books for the past four years, bank remittance details, and monthly account statements including remittance dates. Particularly, the Customs Service also demanded tax affairs reports, which companies are most sensitive about.

The problem is that Peruvian companies do not comply with these demands. They fear that submitting their accounting and tax data to Korea, their trading partner, could lead to leakage of sales and business information. Even if they refuse the Customs Service's requests, Peruvian companies bear no responsibility. Under FTA principles, the obligation to prove origin lies with the importing company. The Korean government demands it, the Peruvian companies refuse, but the domestic companies end up receiving the tax penalties.

As a result, some private companies, trying to avoid additional tariffs, went to Peru to persuade local companies to provide the data instead of customs authorities, but most attempts failed. One import company official explained, "If a foreign customs office demanded our large companies to submit bank account details or tax reports, would they have submitted them willingly?" He added, "Even after going to Peru personally, explaining the situation and speaking firmly, the response was always, 'Why should we provide such information?'"

A Peruvian farmer is taking out a sack of mung beans he harvested from the mung bean storage warehouse as usual. Photo by Informant Provided

Even Korean Farmers Don't Use It... Having to Obtain 'Statement of Cultivation' from Illiterate Peruvian Farmers

The same applies to the Statement of Cultivation requested from Peruvian farmers. The Statement of Cultivation is a record of when and what varieties were planted and how much was harvested. Another import company official pointed out, "I went to a Peruvian farm to ask personally, but the farmer was working barefoot and could not read or write," adding, "It's like asking someone in Peru who cannot read or write to provide an agricultural diary that even Korean farmers do not keep."

In fact, the Customs Service does not require domestic agricultural companies and farmers to prepare such documents. According to the FTA Q&A collection distributed by the Customs Service's International Cooperation Division and the Korea Customs Association, examples of documents proving Korean rice include 'organic agricultural product certificates' or 'Good Agricultural Practices (GAP) certificates.' There is no explanation that agricultural companies need tax reports or that farmers must write Statements of Cultivation.

The Customs Service insists on these excessive document demands due to suspicion that 'Peru suddenly increased mung bean production.' Peru is not originally a mung bean producing country, so the claim is whether production could have suddenly increased since the duty-free application. In particular, mung bean production surged from 1,717 tons in 2020 to 9,696 tons in 2021. The Customs Service is also known to suspect that mung beans grown in neighboring Bolivia or Brazil might have been smuggled into Peru.

However, local companies dismiss these claims as uninformed about the Peruvian situation. According to local media, Peru is called 'God-given land' due to its excellent soil quality. When blueberry seeds were first introduced in 2007, production was among the lowest worldwide, but within 4-5 years, Peru became the world's top producer. Another import company official argued, "Peruvian farmers who grow rice can plant mung beans on the land where rice was harvested and cultivate them within three months to earn additional income," adding, "The Customs Service has not presented evidence that the suddenly increased mung beans are not Peruvian."

No Evidence of Smuggling Found but Additional Tariffs Maintained... Criticism of 'Administrative Convenience'

The Peruvian government, local officials, and import companies hold the view that the possibility of mung bean smuggling is slim. There is no one attempting smuggling because production is sufficient, and it is geographically impossible. Peru borders Bolivia and Brazil, and smuggling among these three countries occurs through dense jungles or rivers. Consequently, smugglers bring in items with high value per volume such as jewelry, drugs, and cigarettes. To profit from smuggling mung beans, which cost only 1-2 dollars per kilogram, dozens of vehicles would be needed, which is nearly impossible.

There are also voices criticizing the rigid work approach of the Customs Service. A former Customs Service employee said, "The customs authorities are a hierarchical and conservative organization," adding, "Since this case involved failure to prove origin, even going on-site and deciding on additional tariffs, it will not be easy for them to admit flaws in their investigation and administrative methods and revise the results."

Criticism also arises that requiring documents such as remittance details and tax reports to recognize proof itself is an example of 'administrative convenience' in customs administration. Professor Kim Dae-jong of the Department of Business Administration at Sejong University pointed out, "The Customs Service should conduct administration considering companies' positions sufficiently, and obsessing over excessive documents is not right," adding, "Administration for their own convenience is undesirable."

This content was produced with the assistance of AI translation services.