SOUTH KOREA: A REALLY TOUGH PLACE TO DO BUSINESS

SOUTH KOREA: A REALLY TOUGH PLACE TO DO BUSINESS

U.S. citizens Michael Fay and Harry Wu are two well-known recipients of Asia's harsh standards of law enforcement, but U.S. exporters should take note of a less-publicized case in South Korea.

Korean-born Yong Chu Yi is a U.S. citizen there, heading up Korean sales for Computer Associates, a U.S. company that is the second-largest software publisher in the world behind Microsoft.Mr. Yi is now on trial in Seoul and faces a prison term of up to 10 years. Unlike Mr. Fay, who was flogged in Singapore for vandalism, or Mr. Wu, who was arrested in China for espionage, Mr. Yi's crime, according to South Korean authorities, is trying to evade customs duties.

Representatives of Computer Associates say Mr. Yi is an innocent victim of a problem that makes South Korea among the toughest markets to break into in all of Asia - a pattern of bureaucratic harassment, based on nonexistent or ever-changing rules manipulated to discourage imports. Still, Korea's imports of U.S. goods, especially those items that the Koreans want and need, continue to increase.

The stories are legion, and most are not disputed. Koreans who buy U.S.-made cars are much more likely to be subjected to tax audits for purchasing a "luxury" item. American candy makers, meat and produce shippers have been confronted with endless, inexplicable delays that leave their products to spoil before clearing customs.

U.S officials have spent so much time running down these harassment complaints that they are finally thinking about how to deal with them as a new category of trade barrier.

"It is a major issue between the two countries," said one senior U.S. official. "We have raised it as major issue before and we continue to do so."

While the evidence may be overwhelming that a company has been singled out for harassment, U.S. officials say that proving this is extremely difficult. The issue could well come up during South Korean President Kim Young Sam's Washington visit, which ends today.

Chang Ryul Lee, executive director of the government-sponsored Korean Trade Promotion Center in New York, said Korean exporters faced many of the same problems in the United States and elsewhere that U.S. executives have faced in South Korea. He insisted that there is no pattern of harassment.

Computer Associates had been making slow and steady progress in South Korea since entering the market six years ago, filling a vacuum there for large- scale software for mainframe computers, mostly used by businesses for inventory control and complex calculations.

As in all other countries it exports to, the company had been exporting master editions of its different programs on magnetic tape and customizing them for Korean customers. As in the United States, Europe, Japan and other major markets, Computer Associates paid normal import duties - 8 percent in Korea - on the magnetic tape but was not charged for the expensive programming contained on that tape.

The reason most countries do not attempt to charge duties based on the value of computer software is that it will eventually lead the exporter to transmit the programming data by telephone or satellite.

South Korea had never issued written rules on how to calculate duties for software, but then a year ago Korean officials descended on Computer Associates office, seizing records and Mr. Yi.

Customs officials later issued what they claimed were previously unknown regulations justifying the policy shift.

Charged with evading more than $1 million in import taxes, Mr. Yi has been inching though the Korean justice system, and has made it though two of four hearings that will take place before his trial. His plight has reportedly attracted the interest of lawmakers from his home state of California. Meanwhile, Computer Associates has halted marketing of new products in South Korea.

Another exporter nightmare in South Korea has been suffered by Virginia- based Mars Inc., which has been trying to establish its chocolate bars and candy in South Korea for years.

Correspondence since 1992 among the company, the U.S. government and Korean authorities, tells the story of how Mars has labored to have its products, widely sold almost everywhere else in the world, in South Korea.

Mars suffered a common hurdle for U.S. exporters - Korea's demand that its labeling standards be different from most others in the world. At first, candy bars with peanuts or other additives could not be called chocolate - different

from international norms.

Then when Mars agreed to Korean demands for labeling changes, Korean officials moved the goal posts again and demanded that each candy bar be labeled with the words "chocolate category."

In the midst of a marketing push in South Korea, five containers of Mars products were seized by Korean Customs and held for four months.

They were released only after Mars agreed to relabel every candy bar - more than 1.5 million items - increasing importing costs by 25 percent.

In the latest twist, seven Mars containers were seized in May because Mars had changed addresses and packages had been labeled with the old address. On Wednesday, Korean officials told Mars that it would drop this latest investigation.