Disclaimer: The following English version of the Trade Insurance Act is for reference purposes only. The Korean language version shall be binding and enforceable on all parties at all times. In no event shall Korea Trade Insurance Corporation (K-sure) be held responsible for any discrepancy between the Korean version and the current version translated into the English language. TRADE INSURANCE ACT Enacted on December 31, 1968 Amended on January 1, 1970 December 30, 1972 December 31, 1976 December 5, 1978 March 27, 1981 March 6, 1993 August 5, 1993 August 3, 1994 December 13, 1997 May 24, 1999 December 28, 1999 September 29, 2003 December 31, 2004 January 3, 2007 December 27, 2007 February 29, 2008 April 1, 2009 April 5, 2010 March 23, 2013 April 5, 2013 1
CHAPTER I. GENERAL PROVISIONS Article 1 (Purpose) The purpose of this Act is to promote trade and overseas investment of Korea in order to enhance the national competitiveness and contribute to the development of the national economy by efficiently operating the trade insurance system covering the risks arising in relation to trade or other cross-border transactions of Korean enterprises. Article 2 (Definitions) As used for the purposes of this Act, the following terms have the meanings set forth below: (i) Trade means import and export as defined in Article 2(1) of the Foreign Trade Act; provided, however, that for the purposes of this Act import includes only resources and products important for national economy. (ii) Other cross-border transaction means any of the following transactions: A. Overseas investments; B. Transactions to secure overseas resources; and C. Any transaction that Korea Trade Insurance Corporation ( K-SURE ), an organization established pursuant to Article 37 of this Act, deems to be expected to create a basis for export, earn foreign currencies or otherwise promote trade through trade insurance or export credit guarantee. Article 3 (Types of Trade Insurance) K-SURE shall determine the types of trade insurance, subject to the approval of the Minister of Trade, Industry and Energy. Article 3-2 (Co-insurance and Reinsurance) If K-SURE deems necessary for the purpose of efficient operation of the trade insurance business and adequate spread of risks, it may underwrite a co-insurance or reinsurance policy. Article 4 (Insurance Premium Rate) K-SURE shall decide trade insurance premium rates of trade insurance policies, taking into account the balance between the revenues and expenses arising in connection with the trade insurance business, subject to the approval of the Minister of Trade, Industry and Energy. 2
Article 5 (Termination of Insurance Policy, Etc.) If the policyholder or the insured of a trade insurance policy violates this Act or a decree enacted pursuant to this Act, K-SURE may take any of the following actions: (i) To refuse to pay the insurance proceeds payable under the applicable insurance policy; (ii) To withdraw, in whole or in part, the insurance proceeds which has been paid under the applicable insurance policy; and (iii) To cancel or terminate the applicable insurance policy Article 5-2 (Payment of Insurance Proceeds, Etc.) If the losses covered under an insurance policy or a credit guarantee incur, K-SURE shall pay the insurance proceeds or guaranty payment pursuant to the claim filed under the applicable insurance policy or credit guarantee. Article 5-3 (Subrogation, Etc.) (1) If K-SURE has paid the insurance proceeds pursuant to an insurance policy, it may subrogate, in whole or in part, the rights to the underlying assets of the insurance or the rights held by the policyholder or the insured against third parties. (2) The policyholder or the insured under a trade insurance policy who has received the insurance proceeds shall endeavor to collect the relevant claims in accordance with the trade insurance policy. Article 6 (Limitation on Establishment of Insurance Relationship) (1) K-SURE may elect not to consummate the trade insurance relationship toward the future set out in an executed tentative trade insurance policy if it deems that the risks arising from trade or other cross-border activities have been increased or it is otherwise necessary for the purposes of the operation of the trade insurance business. (2) If K-SURE may not take the action set out in paragraph (1) without prior notice to the policyholder. Article 7 (Prevention of Adverse Selection in Covered Losses) If K-SURE deems necessary to prevent adverse selection with respect to the covered losses by the policyholder or the insured under a trade insurance policy, it may take any of the following actions: (i) To limit the insurance period; and 3
(ii) To limit the time when relevant insurance liability begins to incur. Article 7-2 (Operation of Blanket Insurance) If K-SURE deems necessary to spread risks effectively or standardize insurance premiums, it may issue blanket insurance policies per products, manufacturers, associations, financial institutions or importing countries. Article 8 (Underwriting Limit) (1) In each year, the Minister of Trade, Industry and Energy shall set the limit for the total underwriting amount for trade insurance policies (including, for the purposes of this Article 8, export credit guarantees and import credit guarantees for export product raw materials under Article 53(1)(ii) and part- and material-reliability insurance policies under Article 53(2)); provided, however, that the Minister of Trade, Industry and Energy shall separately set, within the foregoing limit for the total underwriting amount, the limit for the underwriting amount for trade insurance policies with respect to mid- to long-term deferred-payment export transactions with a payment period exceeding two years. (2) With respect to certain insurance policies under Article 53(1)(i), notwithstanding paragraph (1) above, the Minister of Trade, Industry and Energy may elect not to set any limit for the underwriting amount for such insurance policies if they are forward-type insurance policies based on profits and losses from export or other criteria, covering foreign exchange risks. (3) In each year, to facilitate the operation of the trade insurance business, the Minister of Trade, Industry and Energy may separately set a reserve limit for the underwriting amount for trade insurance policies, in addition to the limit set out in paragraph (1) above. (4) When setting a total underwriting limit pursuant to paragraph (1) above or a reserve limit pursuant to paragraph (3) above, the Minister of Trade, Industry and Energy shall submit such limits to the Cabinet meeting for review and obtain the prior approval of the National Assembly after deliberation at the Cabinet meeting. Article 8-2 [Deleted on August 3, 1994] Article 8-3 (Preferential Treatment of Small- and Medium-Sized Companies) In order to support trade or other cross-border transactions of small- and medium-sized companies, 4
K-SURE may provide preferential treatments in terms of insurance premium rates or insurance proceeds payment periods, among others, to any of the following persons: (i) A small- or medium-sized company as defined in Article 2 of the Framework Act on Small and Medium Enterprises; and (ii) A trade agent serving a small- or medium-sized company set out in sub-paragraph (i) above which is designated in the Enforcement Decree of this Act. Articles 9 through 29-15 [Deleted on August 3, 1994] CHAPTER VII. TRADE INSURANCE FUND Article 30 (Establishment of Trade Insurance Fund) A trade insurance fund (the Fund ) is to be established to efficiently achieve the purposes of the trade insurance business. Article 31 (Sources of Fund) (1) The sources of the Fund will be as follows: (i) Contributions from the government and other persons; and (ii) Other resources designated in the Enforcement Decree of this Act. (2) In each fiscal year, the government shall appropriate the contributions set out in subparagraph (1)(i) above in such fiscal year s expenditure budget; provided that the amount of the contributions will be within the scope of the government budget for such fiscal year. Article 32 (Management of Fund) K-SURE shall manage the Fund. Article 33 (Management of Fund) The Fund will be managed through any of the following ways; provided, however, that the purchase of securities set out in subparagraph (iv) will not be taken without the approval of the Minister of Trade, Industry and Energy: (i) Deposits to financial institutions; (ii) Purchase of government bonds, local government bonds or securities listed on securities exchange; (iii) Purchase of securities issued or guaranteed for payment by financial institutions or entities established under special statutes; 5
(iv) Purchase of securities other than those set out in subparagraphs (ii) or (iii) above; and (v) Any other ways that the Minister of Trade, Industry and Energy determines after consultation with the Minister of Strategy and Finance. Article 34 (Borrowing against Fund) (1) If K-SURE deems necessary to pay insurance proceeds, it may borrow money or take bridge financing at the expense of the Fund, with the prior approval of the Minister of Trade, Industry and Energy. (2) Any bridge financing set out in paragraph (1) above will be required to be repaid within the applicable fiscal year. Article 34-2 (Issuance of Bonds, Etc.) (1) If K-SURE deems necessary to make insurance proceeds payment or subrogation payment, it may issue a trade insurance fund bonds (for the purposes of this Article 34-2, Bonds ) at the expense of the Fund with the approval of the Minister of Trade, Industry and Energy. (2) The Minister of Trade, Industry and Energy shall consult the Minister of Strategy and Finance before approving issuance of Bonds. (3) The government may guarantee the payment of the principal of, and interest accrued on, Bonds. (4) The period of the statute of limitations for a Bond s principal is five years from the maturity of the Bond, and the period of the statute of limitations for such Bond s interest is two years from the maturity of the Bond. (5) Any matters necessary for issuance of Bonds, which are not set out in paragraphs (1) through (4) above, will be set out in the Enforcement Decree of this Act. Article 35 (Income and Expenses of Fund) (1) The income of the Fund will consist of the sources set out in Article 31(1) above, insurance premiums, amounts collected with respect to claims, interest, and other income arising in connection with the management of the Fund, and income otherwise arising in connection with the business of K-SURE. (2) The expenses of the Fund will consist of insurance proceeds, interest, K-SURE s operating expenses and other expenses relating to the management of the Fund. 6
Article 36 (Handling of Profits and Losses) (1) Any profits arising after settlement of the Fund shall be reserved in full. (2) Any losses arising after settlement of the Fund shall be offset using the reserves set out in paragraph (1) above, and if there is any shortfall remaining after such offset as such reserves are insufficient to cover the losses, the government shall pay to cover such shortfall. CHAPTER VIII. KOREA TRADE INSURANCE CORPORATION Article 37 (Establishment) K-SURE is to be established to engage in the trade insurance business pursuant to this Act. Article 38 (Legal Entity) K-SURE will be a legal entity. Article 39 (Articles of Incorporation) (1) The Articles of Incorporation of K-SURE shall include the following matters of K-SURE: (i) Purpose; (ii) Name; (iii) Offices; (iv) Operation of the Management Committee and the Board of Directors; (v) Executive officers and employees; (vi) Business and business execution; (vii) Accounting; (viii) Notification methods; (ix) Amendment to the Articles of Incorporation; and (x) Establishment, amendment and repeal of internal regulations and rules. (2) K-SURE shall obtain the prior approval of the Minister of Trade, Industry and Energy to amend the Articles of Incorporation. Article 40 (Registration) (1) K-SURE shall be incorporated by registering its incorporation with the governmental registry office having jurisdiction over its head office. 7
(2) The matters which should be registered are as follows in connection with the registration of incorporation pursuant to paragraph (1) above, and the application for the registration shall accompany a copy of the Articles of Incorporation of K-SURE and a copy of the approval for the establishment of incorporation of the Minister of Trade, Industry and Energy: (i) Purpose; (ii) Name; (iii) Head office; (iv) Names and addresses of executive officers; and (v) Notification methods. (3) The matters relating to the registration of incorporation of K-SURE and other matters relating to registration will be set out in the Enforcement Decree of this Act. Article 41 (Prohibition of Use of Similar Name) A person other than K-SURE shall be prohibited from using the name of Korea Trade Insurance Corporation or similar names. Article 42 (Incorporation of Civil Code) Matters relating to K-SURE which are not stipulated in this Act and the Act on the Management of Public Institutions shall be governed by the provisions relating to incorporated foundations in the Civil Code. Article 43 (Management Committee) (1) A Management Committee shall be set up within K-SURE. (2) The Management Committee shall deliberate on and resolve the matters related to the trade insurance programs/products, insurance premium rates, and others matters designated in the Enforcement Decree of this Act. (3) The matters relating to the organization and operation of the Management Committee shall be set out in the Enforcement Decree of this Act. Article 44 (Executive Officers) (1) K-SURE shall have at most 13 directors, one of which will be the president, and one statutory auditor. (2) The directors will be classified into standing and non-standing directors. 8
Article 45 (Term of Executive Officers) (1) The term of the office of a director who is the president shall be three years, and the term of the office of the other directors and the statutory auditor shall be two years. (2) The term of the office of a director may be renewed for one year periods. Article 46 (Duties of Executive Officers) (1) The president shall represent K-SURE, oversee the overall affairs of K-SURE, and be held responsible for the business performance of K-SURE during his/her term. (2) If the president is unable to perform his/her duties due to unavoidable circumstances, one of the other standing directors, designated pursuant to the Articles of Incorporation, shall serve as an acting president, and if there is no standing director or no standing director is able to serve the duties of the president, an executive officer designated pursuant to the Articles of Incorporation shall serve as an acting president. (3) The statutory auditor shall audit the overall business and accounting affairs of K-SURE. Article 47 (Disqualification of Executive Officer) None of the following persons may serve as an executive officer of K-SURE: (i) A person who is not a Korean citizen; (ii) A person to whom any subparagraph of Article 33 of the State Public Officials Act is applicable; and (iii) A person who was dismissed within the past three years pursuant to Articles 22(1), 31(6), 35(2) or (3), 36(2) or 48(4) or (8) of the Act on the Management of Public Institutions. Article 48 (Guaranteed Term of Executive Officer) An executive officer of K-SURE shall not be dismissed involuntarily except due to any of the following reasons: (i) A violation of this Act or a decree enacted pursuant to this Act or the Articles of Incorporation of K-SURE; (ii) An intentional or negligent act resulting in losses to K-SURE; (iii) Psychological or physical impairment rendering the applicable executive officer very difficult or unable to serve his/her duties; (iv) Application of subparagraphs (i) or (ii) of Article 47 above; and 9
(v) Dismissal pursuant to Articles 22(1), 31(6), 35(2) or (3), 36(2) or 48(4) or (8) of the Act on the Management of Public Institutions. Article 49 (Board of Directors) (1) The Board of Directors shall be established for the purpose of deliberating and resolving important matters of K-SURE. (2) The Board of Directors shall be consisted of the president and directors of K-SURE, and the chairman of the Board of Directors shall be the president. (3) The chairman of the Board of Directors or not less than one-third of the registered directors may request to convene a meeting of the Board of Directors, and the chairman of the Board of Directors shall preside over such a meeting. (4) A resolution of the Board of Directors shall be adopted by the affirmative votes of a majority of the registered directors. (5) The statutory auditor may attend and make statement in the meetings of the Board of Directors. Article 50 (Appointment and Dismissal of Employees) The president shall appoint and dismiss an employee of K-SURE pursuant to the Articles of Incorporation of K-SURE. Article 51 (Limitation in Holding Concurrent Posts) (1) A standing executive officer or an employee of K-SURE shall not concurrently engage in a business for profit while serving K-SURE his/her post at K-SURE. (2) A standing executive officer or an employee of K-SURE may hold a non-profit job, if, in the case of a standing executive officer, the person having the authority to appoint or nominate the applicable executive officer approves and, in the case of an employee, the president approves. (3) Any person who serves or served as an executive officer or employee of K-sure shall not disclose any confidential information gained through his/her work at K-SURE. Article 52 (Treatment as Government Employees in Penal Application) An executive officer or an employee of K-SURE shall be treated as a government employee for the purposes of application of Articles 129 through 132 of the Criminal Code. 10
Article 53 (Business Activities) (1) K-SURE shall engage in each of the following activities to achieve the purposes of the trade insurance business: (i) Underwriting of trade insurance products (including foreign exchange risk insurance and interest rate risk insurance); (ii) Provision of export credit guarantee and import credit guarantee for the importation of raw materials for export products; (iii) Management and operation of the Fund; (iv) Credit survey and management of credit information; (v) Work incidental to the activities set out in subparagraphs (i) through (iv) above; and (vi) Other work entrusted by the government. (2) As a reliability warranty business, K-SURE may engage in business activities relating to insurance covering the risk of the loss with respect to reliability of parts and materials (for the purposes of this Article 53, Part- and Material-Reliability Insurance ). (3) Notwithstanding Articles 4(2) and 5(1) of the Act on Use and Protection of Credit Information, K-SURE may collect claims pursuant to Article 4(1)(iii) of the Act on Use and Protection of Credit Information if an exporter entrusts the collection claims against foreign persons arising from export transactions (except for those covered by trade insurance) and other cross-border transactions. (4) If any trade insurance product set out in subparagraph (1)(i) which covers interest rate risks, the scope of such insurance product s coverage shall be determined by the Minister of Trade, Industry and Energy after consulting with the Minister of Strategy and Finance. (5) With respect to those trade insurance product set out in subparagraph (1)(i) which covers interest rate risks, K-SURE shall ensure balance between the profits and losses arising from such insurance in the mid and long term, without receiving any financial support from the government. (6) The provisions on trade insurance shall apply to the operation of the business relating to export credit guarantee and import credit guarantee for the importation of raw materials for export products set out in subparagraph (1)(ii) above and Part- and Material-Reliability Insurance set out in paragraph (2) above. 11
Article 53-2 (Delegation) (1) If K-SURE deems necessary to efficiently perform the business activities set out in Articles 53(1) through 53(3), it may delegate part of its business activities to foreign institutions handling trade insurance business. (2) If K-SURE deems necessary to perform the business activities set out in Article 53(1), it may be delegated with part of the trade insurance business of foreign institutions handling trade insurance business. Article 53-3 (Operation Handbook) K-SURE shall prepare an operation handbook setting out the work procedures for the following matters; provided that the adoption and amendment to such handbook requires the approval of the Minister of Trade, Industry and Energy: (i) Matters relating to the execution of trade insurance policies per type; (ii) Matters relating to payment of insurance proceeds and ex-post management thereof; and (iii) Other important matters relating to K-SURE s business activities. Article 53-4 (Negotiations of Collection of Claims against Foreign Persons) (1) If there are uncollected exporters/importers claims arising from trade and other cross-border transactions covered by trade insurance due to country credit risks including insufficient foreign exchange reserves of an obligor s country, K-SURE may negotiate with the applicable foreign governments with respect to the collection of such claims. (2) In the event of negotiation set out in paragraph (1) above, K-SURE may include in such negotiation claims not covered by trade insurance if the creditor of such claims so requests. (3) In negotiating with foreign governments or other foreign institutions, K-SURE may request relevant assistance from relevant administrative agencies, diplomatic establishments abroad, and such other relevant institutions as set out in Article 58(2). Article 54 (Fiscal Year) The fiscal year of K-SURE shall follow the government s fiscal year. Article 55 (Budget and Settlement) K-SURE shall obtain the approval from the Minister of Trade, Industry and Energy for its budget and settlement thereof. 12
Article 56 (Report and Investigation) (1) The policyholder or the insured of a trade insurance policy shall comply with K-SURE s request to report or submit documents with respect to export/import contracts or other matters relating to trade insurance and co-operate with K-SURE s investigation of relevant books and records, documents and export/import cargoes. (2) A person undertaking investigation pursuant to paragraph (1) above shall carry and present a proper identification verifying its authority to the parties concerned. Article 57 (Petition for Objection) (1) Any person who objects to an action taken by K-SURE pursuant to this Act may file a petition with K-SURE within one month from the date such person becomes knowledgeable of such action and within three months from the date such action was taken. (2) K-sure shall review any petition filed pursuant to paragraph (1) above and notify the petitioner of the results of its review within one month from its receipt of such petition. CHAPTER IX. SUPPLEMENTAL PROVISIONS Article 58 (Request for Information Submission and Investigation) (1) K-SURE may request the government, the local governments, the National Pension Service pursuant to the National Pension Act, the National Health Insurance Service pursuant to the National Health Insurance Act, the Korea Workers Compensation and Welfare Service pursuant to the Industrial Accident Compensation Insurance Act, and other public institutions designated by a Enforcement Decree to submit relevant information which is necessary to conduct the business activities set out in Articles 53(1) (not including the activity set out in Article 53(1)(iii)) and (2). (2) K-SURE may request foreign exchange banks, overseas branches of Korea Trade Promotion Corporation (KOTRA), or any other relevant institutions to investigate matters relating to import restrictions, foreign currency restrictions and credit/trade insurance business of overseas trading companies. (3) If K-SURE deems particularly necessary, it may request the Minster of Foreign Affairs or a diplomatic establishment abroad to undertake the investigation set out in paragraph (2) above. 13
(4) Any person or entity requested by K-SURE to submit information or perform investigation shall comply with the request, absent extraordinary circumstances. Article 59 (Guidance and Supervision) Among the business activities of K-SURE, the Minister of Trade, Industry and Energy shall guide and supervise each of the following activities: (i) Activities performed by K-SURE pursuant to Article 53; (ii) Delegation of activities performed pursuant to Article 53-2; and (iii) Negotiation to collect claims against foreign persons pursuant to Article 53-4. Article 60 (Report and Inspection) (1) If the Minister of Trade, Industry and Energy deems necessary, the Minster may require K-SURE to report on the matters relating to its business, accounting and assets or cause an employee of the Ministry of Trade, Industry and Energy to inspect K-SURE s business, assets, books and records, documents, facilities and other objects held by K-SURE. (2) In the event that the Minister of Trade, Industry and Energy discovers any illegal or otherwise inappropriate matters as a result of the investigation set out in paragraph (1) above, the Minister may order K-SURE to take corrective measures, issue a warning or take other necessary remedial actions. CHAPTER X. PENALTY Article 61 (Penalty) Any person who discloses confidential information gained through his/her work at K-SURE in violation of Article 51(3) shall be subject to imprisonment up to two years or a criminal fine up to KRW10 million. Article 62 (Administrative Fines) (1) If any of the following is applicable to any executive officer or employee of K-SURE, such person shall be subject to an administrative fine up to KRW1million: (i) Failure to report or issuance of a false report in violation of Article 60(1); (ii) Refusal, interference or avoidance of inspection set out in Article 60(1); and 14
(iii) Violation of a remedial action made pursuant to Article 60(2). (2) Any executive officer or employee of K-SURE who violates Article 41 shall be subject to an administrative find up to KRW500,000. (3) The administrative fines set out in paragraphs (1) and (2) above shall be imposed and collected by the Minister of Trade, Industry and Energy. ADDENDUM This Act shall become effective six (6) months after its promulgation. 15