The proposed amendment to the Public Notice on Trade of Strategic Items (the "Public Notice"), announced by the Ministry of Trade, Industry and Energy ("MOTIE") on June 28, 2024, underwent a public opinion collection process until July 18, 2024 and was officially promulgated on September 5, 2024 (the "Amended Notice"). On the same day, the MOTIE also announced the Guidelines on Administrative Sanctions for Violators of Strategic Items Regulations and Other Export Controls (amended as of August 21, 2024; the "Amended Guidelines"), which mainly focus on strengthening administrative sanctions for intentional violations, such as circumventions, aimed at evading export controls. 

Both the Amended Notice and the Amended Guidelines came into effect on September 9, 2024. An overview of these regulations is as follows.

1. Amendment to the Public Notice on Trade of Strategic Items – Expansion of Items Subject to the Catch-All License Requirement

In the Amended Notice, 243 items that could potentially be diverted for military use, including metal cutting machines and sensors, have been added to the list of items subject to the catch-all license requirement for export to Russia or Belarus, increasing the total to 1,402 items.

Export of the newly added items will be subject to a policy of denial upon the enforcement of the Amended Notice on September 9, 2024. However, an application for a catch-all export license for any of these items may be eligible for an exceptional case-by-case review, provided that the transaction meets certain conditions. These conditions include executing the relevant agreement before the enforcement date of the Amended Notice (i.e., by September 8, 2024) or exporting to an overseas subsidiary of a Korean company or to a company incorporated in a partner country, such as the U.S., Canada, the U.K., certain EU countries, Japan, and Australia (i.e., "Ga" Area under Annex 6 of the Amended Notice). Upon successful review, the export may be permitted (Annex 24 of the Amended Notice).

The newly added 243 items have been classified based on HS codes (No. 1160 through No. 1402). The following table lists these items along with examples.

2. Amendment to the Guidelines on Administrative Sanctions for Violators of Strategic Items Regulations and Other Export Controls – Clarification of the Criteria for Administrative Actions to Prevent Intentional Circumvention and Strengthening of Penalties for Intentional Violations

The Amended Guidelines introduce explicit restrictions on import, transit, transshipment, and brokerage to prevent intentional circumvention as types of export control measures for strategic items (Article 3, Subparagraph 1 of the Amended Guidelines). Previously, administrative sanctions were determined based on the export value, the intentionality of the act in question (i.e., whether the act is simple negligence or carelessness), and whether the act is an action hindering international peace. Under the Amended Guidelines, sanctions will now be determined based on the export value and the number of violations (e.g., unlicensed export) committed in the past five years, while taking account of aggravating and mitigating factors (Annexes 1 and 2 of the Amended Guidelines).

Under the Amended Guidelines, two specific aggravating factors for administrative sanctions are identified:  intentionality of the violation and hindrance of international peace. The presence of either factor allows for escalating sanctions by one level, even if there are equal numbers of aggravating and extenuating factors (Annex 2 of the Amended Guidelines). This change appears to be aimed at providing a legal basis for the recent joint efforts between the MOTIE and the Korean Security Agency of Trade and Industry to strengthen enforcement and sanctions against circumventing exports to Russia and other sanctioned countries.

Additionally, the Amended Guidelines set forth specific requirements for exceptions to export restrictions. In the case of a first violation where the total export value of strategic items and other prohibited goods is less than USD 1,000 and there is no intent to violate the export restrictions, the case may be settled without imposing any administrative sanctions, providing a basis for a more lenient administrative disposition. Furthermore, if there is a need to confirm relevant facts, it is now possible to postpone administrative sanctions until after the prosecution's indictment or the court's final judgment (Article 7, Paragraphs (1) and (3) of the Amended Guidelines).

The Amended Guidelines also allow for heavier administrative sanctions for failing to meet the conditions for a conditional license under Article 19-6, Paragraph (1) of the Foreign Trade Act by aggregating the export value related to such failures (Annex 1 of the Amended Guidelines). On the other hand, the guidelines establish a legal basis for mandating an educational session for those who fail to meet such conditions due to simple negligence or carelessness (Article 4, Subparagraph (4) of the Amended Guidelines).

Under the transitional provisions of the Amended Guidelines, these guidelines apply to (i) cases identified after the effective date (i.e., September 9, 2024) and (ii) cases identified before September 9, 2024, but for which a final administrative disposition has not yet been issued as of that date. As an exception, however, for cases identified before September 9, 2024, if the application of the Amended Guidelines would result in a disposition more disadvantageous for the violator than the application of the previous guidelines, the latter may apply (Article 11 of the Amended Guidelines).

The Public Notice has been amended three times this year to expand the list of items subject to the catch-all license requirement in light of the increasingly stringent export controls across the international community. Simultaneously, the standards for imposing administrative sanctions on violations aimed at evading export controls (e.g., strategic items restrictions and catch-all license requirement) are being strengthened. Competent authorities are also intensifying crackdowns and investigations to detect circumvention. Therefore, companies engaged in the export of strategic items and/or items subject to the catch-all license requirement are recommended to inspect the specifications and HS codes of their export items in advance to determine if such items fall under the existing and expanded lists of controlled items. They should also verify the end-users and end-uses of their exports to prevent potential violations, such as unlicensed exports and circumventions through third countries. As the Amended Guidelines provide a basis for lighter administrative penalties for minor violations, if the companies identify any minor violations during their review, they may consider voluntarily reporting such violations to mitigate administrative sanctions.