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DEFENSE ACQUISITION PROGRAM ACT

Act No. 7845, Jan. 2, 2006

Amended by Act No. 8486, May 25, 2007

Act No. 8852, Feb. 29, 2008

CHAPTER GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to prescribe necessary matters for the exe- cution of defense acquisition programs, such as the improvement of de- fense capability, advancement of the defense industry, procurement of munitions, etc. in order to establish a foundation for self-reliant national defense.

Article 2 (Basic Principles)

The basic principles of this Act are to protect the life and property of the people in safety by expanding the systems for and capacity of defense acquisition programs for the purposes of national security, and to realize self-reliant national defense by securing transparency, speciality and effi- ciency in executing defense acquisition programs while increasing the com- petitiveness of the defense industry.

Article 3 (Definition)

The definition of terms used in this Act shall be as follows:

1. The term "project for improvement of defense capability" means the purchasing, research and development, new development, improvement of performance, etc. of weapons systems for the purpose of sharpening military force, and the installation, etc. of facilities accompanying them;

2. The term "munitions" means the materials acquired to be used and administered by the Ministry of Defense and military units or organ- izations under the direct control of the Ministry, or army, navy and air force (hereinafter referred to as "each service"), which is classified into weapons systems and nonweapon systems;

3. The term "weapons systems" means the integration of weapons that DEFENSE ACQUISITION PROGRAM ACT

show fighting capability in the battlefield, such as guided weapons, aircraft, naval vessels, etc., and all sorts of elements, such as equip- ment, parts, facilities, software, etc. necessary for the operation thereof, which are prescribed by Presidential Decree;

4. The term "non-weapon system" means all sorts of elements, such as equipment, parts, facilities, software, other materials, etc. other than a weapon system;

5. The term "acquisition" means procurement of munitions by purchasing (including lease; hereinafter the same shall apply) or procurement through research, development and manufacture;

6. The term "offset trade" means trade where a condition of reciprocal service, such as transfer of relevant knowledge, technology, etc., the overseas export of domestic weapons, equipment, parts, etc. is at- tached when purchasing weapons, equipment, etc. from abroad;

7. The term "defense materials" means materials designated pursuant to the provisions of Article 34 from among the munitions;

8. The term "defense industry" means the manufacture or research and development of defense materials;

9. The term "defense contractor" means an enterprise that manufac- tures defense materials, so designated pursuant to the provisions of Article 35;

10. The term "specialized research institute" means an organization entrusted by the Administrator of the Defense Acquisition Program Administration with the research and development, testing and mea- surement of defense materials, the manufacture and authorization of machinery and tools for defense materials, and the development of software relating to the business analysis of defense contractors or the defense industry; and

11. The term "defense industry facilities" means land and fixtures (includ- ing equipment and instruments) thereon, which are provided for the research and development or manufacture of defense materials by defense contractors or specialized research institutes. Article 4 (Relationship with Other Acts)

Except for cases expressly provided for in other Acts regarding defense acquisition programs, the provisions of this Act shall apply. Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 3 -

CHAPTER TRANSPARENCY AND

SPECIALIZATION IN

EXECUTION OF DEFENSE

AQUISITION PROGRAMS

Article 5 (Real-Name Policy System and Information Disclosure) (1) With regard to the conclusion or execution of major policies on de- fense acquisition programs, the Minister of National Defense and the Administrator of the Defense Acquisition Program Administration shall implement the real-name policy system that records and preserves the matters, such as the post, rank, name and opinion of the participants in the determination or implementation of major policies, all types of plans and reports, the details of discussions and conclusions of the meet- ings, public hearings, etc.

(2) In promoting defense acquisition programs, the Minister of National Defense and the Administrator of the Defense Acquisition Program Administration shall disclose information on procedures and details of decision making. In this case, the Official Information Disclosure Act shall apply to the information disclosure.

(3) Matters necessary for the methods, etc. of implementation of the real-name policy system pursuant to the provisions of paragraph (1) shall be prescribed by Presidential Decree.

Article 6 (Integrity Pledge System and Ombudsman System) (1) In order to enhance transparency and fairness in the execution of defense acquisition programs, the Minister of National Defense and the Administrator of the Defense Acquisition Program Administration shall cause the persons listed in the following subparagraphs to submit pledge of integrity under the conditions as prescribed by Presidential Decree:

1. Public officials assigned to the Defense Acquisition Program Admin- istration;

2. Members of the Defense Acquisition Program Promotion Committee and subcommittees pursuant to the provisions of Articles 9 and 10;

3. Officers and staff of the Agency for Defense Development (hereinafter referred to as the Agency for Defense Development) pursuant to the provisions of the Agency for Defense Development Act and the Agency for Defense Technology and Quality Assurance pursuant to the pro- DEFENSE ACQUISITION PROGRAM ACT

visions of Article 32; and

4. The representative, officers and staff of the following enterprises or research institutes, who participate in the relevant defense acquisi- tion programs:

(a) Defense contractors;

(b) Enterprises involved in the defense industry other than defense contractors (hereinafter referred to as a "general enterprise"); (c) Specialized research institutes; and

(d) Research institutes (hereinafter referred to a "general research institute") that have not been entrusted by the Administrator of the Defense Acquisition Program Administration pursuant to the provisions of subparagraph 10 of Article 3.

(2) The pledge of integrity pursuant to the provisions of paragraph (1) shall contain the matters in the following subparagraphs:

1. Matters regarding prohibition, etc. of demands for, promises of, giving and receiving of valuables, entertainment, etc.;

2. Matters regarding prohibition, etc. of supply of specific information on defense acquisition programs; and

3. Other matters prescribed by Presidential Decree to enhance the trans- parency and fairness of defense acquisition programs. (3) Where a person who has been entrusted as a member of the Defense Acquisition Program Promotion Committee pursuant to the provisions of Article 9 (4) fails to comply with the terms of the pledge of integrity, the Minister of National Defense shall relieve him of such entrustment. (4) In order to enhance transparency and fairness in the execution of defense acquisition programs, the Administrator of the Defense Acquisi- tion Program Administration may operate an ombudsman system which can investigate matters of civil appeal raised in the course of execution of defense acquisition programs, rectify such matters or make a request for inspections, etc.

(5) Matters, such as qualifications of an ombudsman, etc. necessary for the operation of the ombudsman system pursuant to the provisions of paragraph (4) shall be prescribed by Presidential Decree. Article 7 (System of Qualifications for Position) (1) In order to enhance efficiency and professionalism in executing de- fense acquisition programs, the Administrator of the Defense Acquisition Program Administration shall appoint persons with the corresponding Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 5 -

qualifications to positions particularly deemed to require expertise. (2) The extent of position, standards for qualifications and other neces- sary matters pursuant to the provisions of paragraph (1) shall be pre- scribed by Presidential Decree.

Article 8 (Research of Legal Issues, etc. regarding Defense Acquisition Programs)

In order to prevent conduct that may inflict financial loss on the State in the execution of defense acquisition programs and for the smooth ex- ecution of defense acquisition programs, the Administrator of the Defense Acquisition Program Administration shall promote the matters pre- scribed by Presidential Decree following advanced legal research by legal experts, etc.

Article 9 (Defense Acquisition Program Promotion Committee) (1) In order to deliberate upon and coordinate major policies, management of financial resources, etc. for the promotion of defense acquisition pro- grams, the Defense Acquisition Program Promotion Committee shall be placed under the control of the Minister of National Defense (hereinafter referred to as the "Committee").

(2) The Committee shall deliberate upon and coordinate the following matters:

1. Matters regarding major policies and plans relating to defense ac- quisition programs;

2. Matters regarding the formulation of medium-term plans in the fields of projects for the improvement of defense capability pursuant to the provisions of Article 13 (2);

3. Matters regarding the formulation of budgets for projects for the improvement of defense capability pursuant to the provisions of Ar- ticle 14 (1);

4. Matters regarding the decision of method of promotion of the project for improvement of defense capability pursuant to the provisions of Article 17;

5. Matters regarding the conclusion of types of weapons systems, equip- ment, etc. to be purchased;

6. Matters regarding offset trade pursuant to the provisions of Article 20;

7. Matters regarding the analysis, evaluation and utilization of the re- sults thereof pursuant to the provisions of Articles 23 and 24; DEFENSE ACQUISITION PROGRAM ACT

8. Matters regarding the standardization of munitions and quality assur- ance pursuant to the provisions of Articles 26 and 28;

9. Matters regarding contracts for the procurement of munitions;

10. Matters regarding the formulation of medium- and long-term policies on the advancement of national defense science and technology pursuant to the provisions of Article 30;

11. Matters regarding the formulation of basic plans for fostering the de- fense industry pursuant to the provisions of Article 33;

12. Matters regarding the designation of defense materials (hereinafter referred to as the "defense materials") and defense contractors pursuant to the provisions of Articles 34 and 35;

13. Matters regarding the coordination of projects and request for mea- sures pursuant to the provisions of Article 36; and

14. Other matters that the Minister of National Defense and the Administrator of the Defense Acquisition Program Administration recog- nize as requiring deliberation and coordination.

(3) The Committee shall consist of 20 members or less including a Chair- man. In this case, two persons falling under paragraph (4) 4 and 5 re- spectively shall be included.

(4) The Minister of National Defense shall be the Chairman of the Com- mittee, the Administrator of the Defense Acquisition Program Adminis- tration shall be the Vice Chairman and the persons falling under the fol- lowing subparagraphs shall be the members:

1. A person who is prescribed by Presidential Decree from among the public officials of assistant ministerial or director general level, or gen- erals in the Ministry of National Defense, the Agency for the Defense Acquisition Program Administration, the Joint Chiefs of Staff or each service;

2. A person who is commissioned by the Minister of National Defense from among the persons, recommended by the head of the agency where they belong, being the public officials of assistant ministerial or director general level in the Ministry of Education, Science and Technology, the Ministry of Knowledge Economy, or the Ministry of Strategy and Finance;

3. The President of the Agency for Defense Development and the Pres- ident of the Agency for Defense Technology and Quality Assurance re- ferred to in Article 32;

4. A person who is entrusted by the Minister of National Defense from among the persons recommended by the relevant standing committee of the National Assembly; and

5. A person who is entrusted by the Minister of National Defense from among the persons, recommended by the Administrator of the Defense Acquisition Program Administration, who have abundant expertise and experience in defense acquisition programs, or who have learnin`g and a good reputation.

(5) Matters necessary for the composition and operation of the Commit- tee, terms of office of its members, etc. shall be prescribed by Presidential Decree.

Article 10 (Subcommittees and Specialized Members) (1) In order to efficiently execute the business of the Committee, sub- committees shall be established for each field.

(2) Where the Committee deems it necessary, the Committee may further deliberate upon and coordinate the matters deliberated upon and coor- dinated by the subcommittees, which were delegated by the Committee or prescribed by Presidential Decree as concerning the subcommittees. (3) The Chairman of the Committee may entrust specialized members who have expertise and experience in defense acquisition programs to seek advice on the major matters of deliberation by the Committee and sub- committees.

(4) The specialized members may attend and speak at the Committee and subcommittees, and may submit written opinions to the Committee, if necessary.

(5) Matters necessary for the composition and operation of subcom- mittees, terms of office of the specialized members, etc. shall be prescribed by Presidential Decree.

CHAPTER PROJECT FOR IMPROVEMENT

OF DEFENSE CAPABILITY

SECTION 1 Principles for Execution of Projects for Improvement of Defense Capability

Article 11 (Basic Principles for Execution of Project for Improvement of Defense Capability)

DEFENSE ACQUISITION PROGRAM ACT

Where the Administrator of the Defense Acquisition Program Adminis- tration executes projects for the improvement of defense capability, he shall observe the principles in the following subparagraphs:

1. The research and development, and promotion of localization of weapons systems for the accomplishment of self-reliant national de- fense through the development of national defense science and technology;

2. The promotion of demonstrating maximum defense capability by acquiring weapons systems with optimal performance, as required by each service;

3. Devising a stable comprehensive plan for the assistance of ordi- nances for the efficient operation of weapons systems;

4. Securing transparency and specialization at all stages of the ad- vancement of projects for the improvement of defense capability;

5. The promotion of mutually organic supplementation and development of national science and technology and national defense science and technology; and

6. The establishment of systems for international cooperation to enhance the efficiency of research and development pursuant to the provi- sions of Article 18.

Article 12 (Comprehensive Project Administration System) (1) Where it is necessary for the efficient execution of projects for the improvement of defense capability, the Administrator of the Defense Acquisition Program Administration shall implement a comprehensive project administration system that administers all procedures of a unit project by having the person who administers a unit project comprehen- sively organize the specialized manpower by function, such as formula- tion of plans, drawing up of budgets, decisions on types of weapons, negotiation, administration of contracts, administration of quality as- surance, administration of technology, etc.

(2) Matters necessary for the method of operation, procedures, etc. of the comprehensive project administration system pursuant to the pro- visions of paragraph (1) shall be decided by the Administrator of the Defense Acquisition Program Administration.

SECTION 2 Medium-Term National Defense Plan

and Budget

(1) The Minister of National Defense shall draw up a medium-term plan (hereinafter referred to as the "medium-term national defense plan") with the approval of the President regarding projects for the improvement of defense capability, ordinary operation, etc. for the rational building of military force.

(2) The medium-term plan regarding projects for the improvement of defense capability within the medium-term national defense plan shall be drawn up by the Administrator of the Defense Acquisition Program Administration under the guidance of the Minister of National Defense, and shall be submitted to the Minister of National Defense, and the Min- ister of National Defense shall place it through the deliberation and co- ordination of the Committee in advance. In this case, the order of priority in the requirement for the weapons systems, operation plan of national finance, etc. shall be considered.

(3) Matters regarding the drawing up of medium-term plan for projects for the improvement of defense capability pursuant to the provisions of paragraph (2) shall be prescribed by Presidential Decree. Article 14 (Drawing-up and Execution of Budget)

(1) The Administrator of the Defense Acquisition Program Administra- tion shall draw up a budget for projects for the improvement of defense capability on the basis of the medium-term national defense plan and the Minister of National Defense's guidance for drawing up budgets, and report it to the Minister of National Defense.

(2) The Administrator of the Defense Acquisition Program Administra- tion shall draw up a plan for the implementation of the budget and an operation plan for the efficient implementation and administration of the budget in the field of a particular project for the improvement of de- fense capability.

(3) Matters necessary for the drawing-up and implementation of the budget pursuant to the provisions of paragraphs (1) and (2) shall be prescribed by Presidential Decree.

SECTION 3 Decisions on Requirements and

Corrections

Article 15 (Decisions on Requirements)

DEFENSE ACQUISITION PROGRAM ACT

(1) The Minister of National Defense shall decide upon the requirements for weapons systems, etc. for projects for the improvement of defense capability in accordance with the proposal by the Chairman of the Joint Chiefs of Staff after the deliberation of the Joint Chiefs of Staff. (2) The Minister of National Defense shall organize the manpower, exe- cuting the business relating to decisions on the requirements pursuant to the provisions of paragraph (1), well-balanced among the services so that the decision on the requirements may be made objectively and rationally.

(3) The procedures, etc. for decisions on the requirements pursuant to the provisions of paragraph (1) shall be prescribed by Presidential Decree. Article 16 (Correction of Requirements)

(1) The Minister of National Defense may correct the requirements of weapons systems, etc. which have been decided pursuant to the provi- sions of Article 15 (1). In this case, the Chairman of the Joint Chiefs of Staff may propose the correction of requirements to the Minister of National Defense.

(2) Where the requirements for weapons systems, etc. are corrected pur- suant to the provisions of paragraph (1), the provisions of Article 15 (1) shall apply mutatis mutandis: Provided, That this shall not apply to cases where such insignificant matters as prescribed by Presidential De- cree are corrected.

SECTION 4 Execution of Projects for Improvement

of Defense Capability

Article 17 (Methods, etc. of. Promotion of Project for Improvement of Defense Capability)

(1) Where the requirement for weapons systems, etc. for the projects for improvement of defense capability pursuant to the provisions of Article 15 (1) are decided, the Administrator of the Defense Acquisition Program Administration shall decide the methods of promotion of projects for the improvement of defense capability after prior research that has investi- gated and analyzed the possibility of research and development, timing of requirements and required quantities, level of national defense science and technology, the effect of fostering the defense industry, technological Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 11 -

and economic feasibility, effectiveness compared to expense, etc. relating to the relevant weapons systems: Provided, That this shall not apply where there is an urgent requirement for weapons systems, etc. for proj- ects for the improvement of defense capability in time of war, disaster, overseas deployment of armed forces, etc.

(2) Where it is needed in conducting the prior research pursuant to the provisions of paragraph (1), the opinions of the Agency for Defense Development, each service, the relevant Ministry, etc. shall be reflected. (3) The methods of promotion of projects for the improvement of defense capability pursuant to the provisions of paragraph (1) shall be executed by classifying them into research and development, and purchasing. Article 18 (Research and Development)

(1) The Administrator of the Defense Acquisition Program Administration shall research and develop, and secure the core technology necessary for the research and development of weapons systems pursuant to the pro- visions of Article 17 (3).

(2) For the efficient implementation of the budget and effective strength- ening of military force in executing the research and development, the Administrator of the Defense Acquisition Program Administration shall promote the research and development of strategically valuable weapons and the core technology pursuant to the provisions of paragraph (1) in the first instance.

(3) Where the Government bears all or part of the expenses necessary for the research and development of weapons systems and core technol- ogy, the Administrator of the Defense Acquisition Program Administra- tion may select an institute to be in charge of the research and develop- ment, and promote the research and development.

(4) Where the Administrator of the Defense Acquisition Program Ad- ministration conducts the research and development of weapons systems and core technology, he may entrust research or manufacture of proto- types to defense contractors, general enterprises, specialized research institutes or general research institutes by specifying the items, methods, scale of research or prototypes, and other necessary matters. (5) Where the Administrator of the Defense Acquisition Program Ad- ministration has entrusted research and manufacture of protypes, he shall pay the research expenses or prototype manufacturing cost. DEFENSE ACQUISITION PROGRAM ACT

(6) Matters necessary for the procedures, etc. of research and develop- ment of weapons systems and core technology shall be prescribed by Ordinance of the Ministry of National Defense.

Article 19 (Purchasing)

(1) The Administrator of the Defense Acquisition Program Administra- tion shall purchase domestically manufactured munitions in the first instance: Provided, That he may purchase the munitions manufactured in foreign countries where it is difficult to purchase them domestically. (2) Where it is necessary for the efficient execution of purchasing busi- ness, the Administrator of the Defense Acquisition Program Administra- tion may cause the civilian specialists prescribed by Presidential Decree, such as the persons, etc. to be recommended by the Committee, who have a track record of working in the field of international contracting, to participate in the purchase procedures.

(3) Matters necessary for the purchase procedures, etc. for the promotion of projects for the improvement of defense capability shall be prescribed by Presidential Decree.

Article 20 (Offset Trade)

(1) Where the Administrator of the Defense Acquisition Program Ad- ministration purchases munitions from abroad pursuant to the provisions of Article 19 (1), the promotion of offset trade for a unit project worth more than the amount prescribed by Presidential Decree shall be the principle.

(2) Where the Administrator of the Defense Acquisition Program Ad- ministration selects technology, etc. that can be secured through offset trade, he shall have it linked with medium- and long-term policies on the advancement of national defense science and technology pursuant to the provisions of Article 30 (1) and the action plan. (3) Where the Administrator of the Defense Acquisition Program Ad- ministration intends to promote offset trade, he shall satisfy the condition falling under any of the following subparagraphs:

1. Securing of the technology necessary for projects for the improvement of defense capability;

2. Securing of logistic support capability for the purchase of weapons systems;

manufactured in the country of the contracting party;

4. The export of munitions, such as defense materials, etc.; or

5. Securing of maintenance materials for the weapons systems from the country of the contracting party.

Article 21 (Testing and Evaluation)

(1) Where the Administrator of the Defense Acquisition Program Ad- ministration intends to research and develop, or purchase weapons sys- tems, or research and develop the core technology pursuant to the pro- visions of Article 18 (1), he shall simultaneously draw up a plan for testing and evaluation of the relevant weapons systems and core technology, such as the standards, items, methods, timing, etc. of testing and evaluation. (2) Each service and each organization (referring to the Agency for Defense Development, defense contractors, general enterprises, specialized re- search institutes and general research institutes; hereafter in this Ar- ticle the same shall apply) shall perform the testing and evaluation of the weapons systems and core technology in accordance with the plan for testing and evaluation pursuant to the provisions of paragraph (1). In this case, the outcomes of testing and evaluation shall be notified to the Administrator of the Defense Acquisition Program Administration. (3) Where it is necessary to enhance the professionalism and transpar- ency of testing and evaluation, the Administrator of the Defense Acqui- sition Program Administration may cause the civilian specialists to participate in the testing and evaluation at the recommendation of the Committee.

(4) The Administrator of the Defense Acquisition Program Administra- tion shall judge whether the weapons systems and core technology satisfy the standards, etc. of testing and evaluation on the grounds of the result of testing and evaluation that has been notified pursuant to the provi- sions of paragraph (2), and report it to the Committee. (5) Matters necessary for the formulation of plans for testing and eval- uation pursuant to the provisions of paragraph (1) shall be prescribed by Presidential Decree.

Article 22 (Improvement of Performance)

(1) In order to enhance the performance and quality of the weapons sys- tems in operation or in the manufacturing process, the Administrator of the Defense Acquisition Program Administration may promote the im- DEFENSE ACQUISITION PROGRAM ACT

provement of performance.

(2) Where the surroundings of operation of weapons systems change sub- stantially or the important operation performance of the weapons sys- tems changes notwithstanding the provisions of paragraph (1), the im- provement of performance shall be promoted in accordance with the procedures for decisions on requirements pursuant to the provisions of Article 15.

(3) Matters necessary for the procedures for promotion, etc. of improve- ment of performance pursuant to the provisions of paragraph (1) shall be prescribed by Ordinance of the Ministry of National Defense. SECTION 5 Analysis and Evaluation

Article 23 (Conduct of Analysis and Evaluation)

(1) In order to seek rational decision making and to use the financial resources effectively in executing the projects for improvement of defense capability, the system of analysis and evaluation of projects for the improvement of defense capability shall be established and the analysis and evaluation shall be conducted accordingly: Provided, That the anal- ysis and evaluation of research and development within the projects for improvement of defense capability shall be pursuant to the provisions of Article 12 of the Framework Act on Science and Technology. (2) The Administrator of the Defense Acquisition Program Administra- tion shall analyze and evaluate the following matters:

1. The analysis and evaluation necessary for the formulation of a medium-term plan, formulation of a budget, etc. in the field of proj- ects for the improvement of defense capability before implementation of the budget of the project concerned;

2. The analysis and evaluation of interim outcomes, etc. of the project in the course of implementation of the budget of the relevant project; and

3. The analysis and evaluation of the outcomes of conducting the proj- ect after the completion of implementation of budget of the relevant project.

(3) The Minister of National Defense shall conduct the analysis and evaluation of the proposal of requirements of projects for the improve- ment of defense capability, making the deployed weapons systems the Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 15 -

fighting capability, etc. besides those prescribed in the subparagraphs of paragraph (2). In this case, he may cause the Chairman of the Joint Chiefs of Staff or Chief of Staff of each service to conduct them. (4) The Minister of National Defense and the Administrator of the De- fense Acquisition Program Administration may cause the civilian special- ists to participate in the analysis and evaluation if necessary to enhance the credibility of the analysis and evaluation.

(5) The methods, procedures, etc. of analysis and evaluation pursuant to the provisions of paragraphs (2) through (4) shall be prescribed by Ordinance of the Ministry of National Defense.

Article 24 (Utilization of Outcomes of Analysis and Evaluation) (1) In order to efficiently execute projects for the improvement of defense capability, the Administrator of the Defense Acquisition Program Ad- ministration shall arrange for the outcomes of the analysis and evalua- tion pursuant to the provisions of Article 23 (2) 1 and 2 to be utilized in the decision making of each phase of promotion of the relevant project for the improvement of defense capability.

(2) The Administrator of the Defense Acquisition Program Administra- tion shall arrange for the outcomes of the analysis and evaluation pur- suant to the provisions of Article 23 (2) 3 to be utilized in the decision making for the relevant project for improvement of defense capability. (3) The Minister of National Defense shall arrange for the outcomes of the analysis and evaluation pursuant to the provisions of Article 23 (3) to be utilized in the decisions, etc. on requirements of the project for improvement of defense capability, and may request the Administrator of the Defense Acquisition Program Administration for re-analysis and evaluation of or corrective measures against the outcomes of the analysis and evaluation pursuant to the provisions of Article 23 (2) if necessary in consideration of the surroundings of operations of the armed force, technological changes, etc.

CHAPTER PROCUREMENT AND QUALITY

ASSURANCE

Article 25 (Planning and Methods of Procurement)

(1) The Administrator of the Defense Acquisition Program Administra- DEFENSE ACQUISITION PROGRAM ACT

tion shall formulate a procurement plan for munitions in accordance with the guidance of the Minister of National Defense, and procure munitions accordingly.

(2) In order to efficiently implement the defense budget, the Defense Acquisition Program Administration shall procure munitions en bloc: Provided, That each service may procure directly, or request the Public Procurement Service to make purchases as prescribed by Presidential Decree.

Article 26 (Standardization)

(1) In order to efficiently acquire munitions, the Administrator of the Defense Acquisition Program Administration shall formulate a plan for the standardization of munitions with the aim of efficient acquisition of munitions. In this case, the Korean Industrial Standard under Article 12 of the Industrial Standardization Act shall be reflected on the mat- ters to the extent applicable. (2) The Administrator of the Defense Acquisition Program Administra- tion shall designate or revoke standard articles in accordance with the plan formulated pursuant to the provisions of paragraph (1), and formu- late, amend or abolish the standards for munitions, and administer munitions by distinguishing their physical or functional characteristics. (3) Matters necessary for the designation or revocation of standard ar- ticles in accordance with paragraph (2), and the formulation, amendment or abolition of standards for munitions, and their administration in ac- cordance with the physical or functional characteristics of munitions shall be prescribed by Presidential Decree.

Article 27 (Munitions Inventory Information)

(1) The Administrator of the Defense Acquisition Program Administra- tion shall administer the munitions inventory information by classifying the munitions in accordance with the standardization pursuant to the provisions of Article 26, by designating names and stock numbers, and by logging their characteristics, etc.

(2) The Administrator of the Defense Acquisition Program Administra- tion shall formulate and execute a plan for the administration and utili- zation of information on inventory of munitions pursuant to the provisions of paragraph (1), and endeavor to engage in the international exchange of munitions inventory information.

Article 28 (Quality Assurance)

(1) The Administrator of the Defense Acquisition Program Administra- tion shall formulate and execute a plan for quality assurance including a program for amendment and supplementation to overcome inadequacies in accordance with the examination of the quality of the munitions to verify whether they conform to the initial requirements of the user at each stage of research and development, and purchasing. (2) The concrete methods, etc. regarding quality assurance at each stage pursuant to the provisions of paragraph (1) shall be prescribed by Ordi- nance of the Ministry of National Defense.

Article 29 (Quality Control)

(1) The Administrator of the Defense Acquisition Program Administration shall, after consultation with the Minister of Knowledge Economy, establish standards for responsible management, or resource control, etc. by defense contractors or specialized research institutes to assure quality in the manu- facture of defense materials. (2) Defense contractors or specialized research institutes shall take meas- ures necessary for the quality control of defense materials in accordance with the standards pursuant to the provisions of paragraph (1). (3) Where it is necessary for the research and development, purchase and manufacture of defense materials, the Minister of Knowledge Economy and the Administrator of the Defense Acquisition Program Administration may, after consultation among themselves, receive reports from the defense contractors or specialized research institutes, or dispatch relevant public officials to the facilities of the defense industry (hereinafter referred to as "defense industry facilities") or other necessary places to provide in- structions on quality control or technology.

(4) The relevant public officials, etc. dispatched pursuant to the provi- sions of paragraph (3) may request the defense contractors or the man- agers of specialized research institutes to take necessary measures for the quality control, etc. of defense materials.

CHAPTER ADVANCEMENT OF NATIONAL

DEFENSE SCIENCE AND

TECHNOLOGY

Article 30 (Formulation and Execution of Policy on Advancement of National Defense Science and Technology)

DEFENSE ACQUISITION PROGRAM ACT

(1) The Minister of National Defense shall formulate medium- and long-term policies on the advancement of national defense science and technology, and the Administrator of the Defense Acquisition Program Administration shall formulate and execute an action plan thereof. In this case, the matters prescribed by Presidential Decree shall be deliberated upon by the National Science and Technology Committee pursuant to the provisions of Article 9 of the Framework Act on Science and Technology. (2) Matters necessary for the formulation of medium- and long-term poli- cies and action plans shall be prescribed by Presidential Decree. Article 31 (Advancement of Information on National Defense Science and Technology)

(1) The Administrator of the Defense Acquisition Program Administration shall systematically integrate and administer the information relating to national defense science and technology in the following subparagraphs:

1. Technological information secured through research and development;

2. Technological information introduced from abroad for the manufacture of major defense materials;

3. Technological information transferred from foreign contracting party through offset trade;

4. Technological information researched and developed through co- operation with industrial education institutes, research institutes, enterprises, etc. pursuant to the provisions of subparagraph 2 of Article 2 of the Promotion of Industrial Education and Industry- Academic Cooperation Act;

5. Information on the list of industrial property rights, such as patent rights, utility model rights, specifications books, design drawings, etc.; and

6. Other information on national defense science and technology data collected by the Government domestically and abroad. (2) For the information on national defense science and technology ad- ministered pursuant to the provisions of paragraph (1), besides that recognized as difficult to reveal due to military purposes, the Adminis- trator of the Defense Acquisition Program Administration shall arrange for it to be administered and distributed in accordance with the policy on the administration and distribution of national awareness of science and technology pursuant to the Framework Act on Science and Technology. Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 19 -

(3) Each service and the government-invested research institutes may transfer, with or without consideration, the national defense science and technology in their possession to the relevant domestic enterprises, institutes, etc. with the approval of the Administrator of the Defense Acquisition Program Administration.

(4) Every three years, the Administrator of the Defense Acquisition Pro- gram Administration shall conduct an inspection of the present status of technology for each weapon system in its possession, and a comparison of national technological level with those of major advanced countries. Article 32 (Agency for Defense Technology and Quality Assurance) (1) The Agency for Defense Technology and Quality Assurance shall be established in order to efficiently conduct the business of securing, distribution, administration, quality assurance, etc. of information re- garding national defense science and technology, and weapons systems. (2) The Agency for Defense Technology and Quality Assurance shall be established as a juristic person.

(3) The Agency for Defense Technology and Quality Assurance shall come into being by registering the incorporation thereof. (4) The articles of incorporation shall contain the matters in the follow- ing subparagraphs:

1. Purpose;

2. Name;

3. The location of its principal office;

4. Matters regarding business and finance;

5. Matters regarding officers;

6. Matters regarding the board of directors;

7. Matters regarding the amendment of the articles of incorporation; and

8. Matters regarding its dissolution. (5) Where the Agency for Defense Technology and Quality Assurance intends to draft or amend the articles of incorporation, it shall obtain the authorization of the Administrator of the Defense Acquisition Program Administration. In this case, the Administrator of the Defense Acqui- sition Program Administration shall obtain approval from the Minster of National Defense before granting authorization.

(6) The Agency for Defense Technology and Quality Assurance shall con- duct the following businesses:

technology, and investigation and analysis of national defense science and technology;

2. Business assistance in the investigation, analysis, evaluation of proj- ects for the improvement of defense capability;

3. Assistance in the designation of executing organizations for conducting core technology development projects, evaluation of performance out- comes, etc.;

4. The integrated administration of information on national defense sci- ence and technology and weapons systems;

5. Business assistance in the quality assurance of munitions, quality control of defense materials, etc. and the relevant business entrusted by the Administrator of the Defense Acquisition Program Admin- istration;

6. Technological assistance in the standardization of munitions requested in the course of execution of defense acquisition programs, testing and evaluation, etc.;

7. Technological assistance in projects for national defense cooperation, such as the localization of parts production, etc. promoted in coopera- tion with the central administrative agencies and local governments;

8. Matters regarding the collection and supply of information on export prices and import prices of munitions; and

9. Other matters prescribed by Presidential Decree with regard to the administration, etc. of national defense science and technology. (7) The Government shall contribute the expenses necessary for the es- tablishment and operation of the Agency for Defense Technology and Quality Assurance.

(8) Matters necessary for the operation, supervision, etc. of the Agency for Defense Technology and Quality Assurance shall be prescribed by Presidential Decree.

(9) The provisions in the Civil Act regarding incorporated foundations shall apply to the matters regarding the Agency for Defense Technology and Quality Assurance for matters that are not prescribed in this Act. CHAPTER FOSTERING OF DEFENSE

INDUSTRY

Article 33 (Formulation of Basic Plan for Fostering Defense Industry) DEFENSE ACQUISITION PROGRAM ACT

(1) In order to rationally assist and foster the defense industry, the Administrator of the Defense Acquisition Program Administration shall formulate a Basic Plan for fostering the defense industry (hereinafter re- ferred to as the "Basic Plan").

(2) The Basic Plan shall include the matters in the following subpara- graphs:

1. Matters regarding the basic policy for fostering the defense industry;

2. Matters regarding the rationalization of manufacturing facilities of the defense industry;

3. Matters regarding the research and development, and purchase of de- fense materials;

4. Matters regarding promotion of the localization of defense materials production;

5. Matters regarding the determination of manufacturing capacity of de- fense materials;

6. Matters regarding the development of manpower and technological level relating to the defense industry;

7. Matters regarding the international cooperation of the defense in dustry and exports; and

8. Other matters that the Administrator of the Defense Acquisition Program Administration recognizes as necessary for fostering the de- fense industry.

(3) Matters necessary for the formulation of the Basic Plan shall be pre- scribed by Presidential Decree.

Article 34 (Designation of Defense Materials)

(1) The Administrator of the Defense Acquisition Program Administration may, after consultation with the Minister of Knowledge Economy, designate materials classified as weapons systems as defense materials, which are necessary for the securing of stable source of procurement, strict quality assurance, etc.: Provided, That materials that are not classified as weapons systems but prescribed by Presidential Decree may be designated as defense materials. (2) Defense materials shall be designated by classifying them into either major defense materials or general defense materials. (3) The classification into either major defense materials or general de- fense materials pursuant to the provisions of paragraph (2), and other Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 22 -

matters necessary for the designation of defense materials shall be pre- scribed by Presidential Decree.

Article 35 (Designation, etc. of Defense Contractors) (1) Those who intend to manufacture defense materials shall obtain desig- nation as defense contractors from the Minister of Knowledge Economy after meeting the standards for facilities, the requirements of security, etc. that are prescribed by Presidential Decree. In this case, the Minister of Knowledge Economy shall consult in advance with the Administrator of the Defense Acquisition Program Administration regarding the desig- nation of defense contractors. (2) Where the Minister of Knowledge Economy designates a defense con- tractor pursuant to the provisions of paragraph (1), the Minister shall designate by classifying the contractor as either a major defense contractor or general defense contractor. Enterprises which manufacture the defense materials falling under any of the following subparagraphs shall be major defense contractors, and enterprises that manufacture other defense materi- als shall be general defense contractors:

1. Firearms and other fire power weapons;

2. Guided weapons;

3. Aircraft;

4. Vessels;

5. Ammunition;

6. Tanks, armored vehicles and other mobile combat equipment;

7. Radars, identification friend or foe, and other communication and elec- tronic equipment;

8. Night observation devices and other optical or thermal imaging devices;

9. Combat engineering equipment;

10. Chemical, biological and radiological warfare equipment;

11. Command and control systems; or

12. Other materials that the Administrator of the Defense Acquisition Program Administration designates as recognized to be important for military strategy or tactical operations.

(3) Where the change in substance of the governance of management of a defense contractor because of transaction and public sale, or merger and acquisition, or other reasons is expected and it falls under the standards DEFENSE ACQUISITION PROGRAM ACT

prescribed by Presidential Decree, those who intend to gain a controlling interest in the management of the relevant defense contractor shall submit relevant documents to the Minister of Knowledge Economy as prescribed by Presidential Decree and obtain his prior approval: Provided, That this shall not apply where permission from the Minister of Knowledge Economy has been obtained pursuant to the provisions of Article 6 (3) through (6) of the Foreign Investment Promotion Act.

(4) Where the Minister of Knowledge Economy intends to grant approval pursuant to the provisions of the main sentence of paragraph (3), the Minister shall consult with the Administrator of the Defense Acquisition Program Administration in advance. (5) Matters necessary for the designation pursuant to the paragraphs (1) and (2) shall be prescribed by Presidential Decree. Article 36 (Coordination, etc. of Businesses)

(1) Where it is apprehended that the efficiency of the defense industry will be damaged considerably because a large enterprise (hereinafter re- ferred to as a "large enterprise"), which is related with the defense industry, pursuant to the provisions of subparagraph 2 of Article 2 of the Act on the Protection of the Business Sphere of Small and Medium Enterprises and Promotion of Their Cooperation merges and takes over a small or medium enterprise (hereinafter referred to as a "small or medium enter- prise") pursuant to the provisions of subparagraph 1 of Article 2 of the same Act, or by the interlocking investments of defense contractors, the Administrator of the Defense Acquisition Program Administration may, after consultation with the Minister of Knowledge Economy, coordinate the business between large enterprises and small or medium enterprises or the business between defense contractors.

(2) Where the Administrator of the Defense Acquisition Program Admini- stration coordinates businesses pursuant to the provisions of paragraph (1), he may recommend the matters of the following subparagraphs after the deliberation of the Committee:

1. To large enterprises, the postponement of takeover, commencement or expansion of business for a period within the extent of two years, or a reduction of the items and manufacturing quantity, manufacturing Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 24 -

facilities, etc.; and

2. To defense contractors, the coordination of the timing or scale of invest- ment or restriction of interlocking investments.

(3) Where the Administrator of the Defense Acquisition Program Administration deems that a large enterprise has performed an act of unfair trade pursuant to the provisions of Article 23 (1) of the Monopoly Regulation and Fair Trade Act, after the deliberation of the Committee, the Administrator may notify the Minister of Knowledge Economy thereof and request the Fair Trade Commission to take necessary measures pursuant to the provisions of Articles 24 and 24-2 of the same Act. In this case, the Fair Trade Commission shall take the necessary measures without delay.

(4) Where the Administrator of the Defense Acquisition Program Administration intends to request the business coordination and measures pursuant to the provisions of paragraphs (1) and (3), he shall inquire into the relevant facts and report the outcome to the Committee. (5) Where the large enterprise or defense contractor fails to perform the recommended matters without justifiable grounds, contrary to the recom- mendations of the Administrator of the Defense Acquisition Program Administration pursuant to the provisions of paragraph (2), the Admini- strator of the Defense Acquisition Program Administration may officially announce the terms thereof, and order the large enterprise or defense contractor to perform them if he has not performed the recommended mat- ters even after the elapsing of three months from the official announcement. (6) Where the Administrator of the Defense Acquisition Program Admini- stration intends to coordinate businesses pursuant to the provisions of paragraph (1), he may recommend the relevant large enterprise or defense contractor to temporarily suspend the takeover, commencement, expansion or investment of the relevant business until after the deliberation of the Committee.

(7) Matters necessary for the inquiry into the facts, the details, methods, procedures, etc. of official announcement pursuant to the provisions of paragraphs (4) and (5) shall be prescribed by Presidential Decree. Article 37 (Protection and Fostering)

(1) Defense contractors shall be guaranteed the manufacture and procure- ment of defense materials by the Government.

DEFENSE ACQUISITION PROGRAM ACT

(2) The Government shall provide priority to defense contractors who manufacture major defense materials when assisting in the following matters:

1. The entrustment of research and manufacture of prototypes pur- suant to the provisions of Article 18 (5);

2. The loan of funds pursuant to the provisions of Article 38; and

3. Other matters prescribed by Presidential Decree for the protection and fostering of defense contractors.

Article 38 (Loans)

Where necessary for the fostering of the defense industry, the Govern- ment may loan funds falling under any of the following subparagraphs in relation to defense conductors: Provided, That the funds falling under subparagraph 3 may be loaned to a general enterprise:

1. Funds necessary for the installation, transfer, replacement, supple- mentation, or expansion of defense facilities;

2. Funds necessary for the purchase and reserve of raw materials;

3. Development fund for the localization of defense materials and other munitions;

4. Funds necessary for the export of defense materials;

5. Funds necessary for the development of core technology and parts;

6. Funds necessary for the maintenance of research and development, and idle facilities; or

7. Other funds necessary for the operation of defense contractor. Article 39 (Grants, etc. of Subsidies)

(1) Where it is recognized as necessary for the fostering of the defense industry, the Administrator of the Defense Acquisition Program Ad- ministration may assist defense contractors or specialized research institutes with all or a part of the expenses incurred for the matters in the following subparagraphs within the extent of its budget:

1. The purchase or installation of instruments used exclusively for the defense industry;

2. Research and development or the introduction of technology;

3. The quality inspection of munitions or quality control of defense materials; and

4. Other matters prescribed by Presidential Decree for the fostering of the defense industry.

(2) Defense contractors or specialized research institutes shall not trans- fer, exchange or loan the assets which have been purchased, or whose utility has been increased, by means of subsidies pursuant to the provi- sions of paragraph (1) without the approval of the Administrator of the Defense Acquisition Program Administration.

Article 40 (Treatment, etc. of Technical Manpower) (1) The Administrator of the Defense Acquisition Program Administration may grant bounty, etc. within the extent of budget as prescribed by Presidential Decree to the technical manpower engaged in the Agency for Defense Development, the Agency for Defense Technology and Quality Assurance, defense contractors, specialized research institutes, military repair units (including military maintenance depots) or military pro- curement units, or those who have researched and developed excellent defense materials or related core technology.

(2) Defense contractors or specialized research institutes shall employ technical manpower and ensure the smooth manufacture or supply of prototypes.

Article 41 (Assistance to Defense Industry)

For the purposes of research and development, or the manufacture of defense materials, the Defense Acquisition Program Administration, each service, the Agency for Defense Development, the Agency for Defense Technology and Quality Assurance and military repair units may give technical assistance or assistance in manufacturing to defense contrac- tors or specialized research institutes at the expense of the defense contractors or specialized research institutes.

Article 42 (Establishment of Associations, etc.)

(1) For the purpose of sound development of the defense industry, defense contractors, general enterprises, specialized research institutes, general research institutes and defense well-informed business-related com- munities, etc. may establish associations or organizations as prescribed by Presidential Decree.

(2) The associations or organizations established pursuant to the pro- visions of paragraph (1) shall be juristic persons. (3) Those who intend to establish an association or organization pursuant to the provisions of paragraph (1) shall obtain permission from the Ad- ministrator of the Defense Acquisition Program Administration. DEFENSE ACQUISITION PROGRAM ACT

(4) Regarding the associations or organizations pursuant to the provi- sions of paragraphs (1) and (2), the provisions relating to private cor- poration in the Civil Act shall apply mutatis mutandis to matters not provided for in this Act.

(5) Matters necessary for the functioning, supervision, etc. of associations or organizations pursuant to the provisions of paragraph (1) shall be prescribed by Presidential Decree.

Article 43 (Designation of Guarantee Organizations) (1) In order to reduce the financial burden of defense contractors, etc. and to allow the defense contractors, etc. to make convenient use of the guarantee organization conveniently, the Administrator of the Defense Acquisition Program Administration may designate an organization (hereinafter referred to as a "guarantee organization") that performs guarantee business pursuant to the provisions of any subparagraphs in paragraph (2) relating to defense business.

(2) The extent of guarantee business of a guarantee organization shall be as listed in the following subparagraphs:

1. Payment guarantees against loans of fund pursuant to the provisions of Article 38;

2. Payment guarantees of security for bids and contract deposits against the procurement and research of defense materials and manufacture of prototypes, and payment guarantees against warranty deeds pur- suant to the provisions of Article 46 (1);

3. Payment guarantees against retainers and part payments pursuant to the provisions of Article 46 (2);

4. Payment guarantees against government issue pursuant to the provisions of Article 24 of the Act on the Management of Military Supplies;

5. Loan guarantees against funds necessary for reserving raw materials pursuant to the provisions of Article 55; and

6. Other guarantees necessary for defense contractors, etc. to conduct defense business.

(3) Matters necessary for the requirements for designation, methods of designation, procedures of designation, etc. of guarantee organizations shall be prescribed by Presidential Decree.

(1) Where it is recognized as necessary for the promotion of the exports of defense materials and national defense science and technology, the Administrator of the Defense Acquisition Program Administration may, with the approval of the Minister of National Defense, take necessary measures for the promotion of investment in the defense industry, expan- sion of export markets, etc. as prescribed by Presidential Decree. (2) Where it is recognized as necessary for the promotion of exports pursuant to the provisions of paragraph (1), the Administrator of the Defense Acquisition Program Administration may provide the persons falling under any of the following subparagraphs with the financial assistance, or material or human assistance within the extent of the budget as prescribed by Presidential Decree:

1. Persons who engage in the business of consultation, guidance, public relations, exhibition, training, arbitration, etc. in connection with the promotion of exports;

2. Persons who conduct exhibitions or operate exhibition centers relating to defense materials, or who send defense materials to domestic or oversea exhibition; or

3. Persons who promote international cooperation for the export of de- fense materials.

(3) Where it is necessary to advance the business of export promotion pursuant to the provisions of paragraphs (1) and (2), the Administrator of the Defense Acquisition Program Administration may dispatch public officials under his control to the countries of major export markets for export cooperation.

Article 45 (Transfer, or Lease, etc. of State Assets) (1) The Government may sell, or lease with or without considerations the miscellaneous assets and goods (including munitions; hereinafter the same shall apply) from among the State assets to defense contractors by means of free contract notwithstanding the State Properties Act, and may grant permission for the use of administrative assets from among the State assets without consideration as prescribed by Presidential Decree notwithstanding the State Properties Act.

(2) Where it is necessary for the manufacture, and research and manu- facture of defense materials, and the manufacture of prototypes of de- fense materials, the Government may lease or transfer, with or without DEFENSE ACQUISITION PROGRAM ACT

consideration, necessary specialized equipment, or goods to defense con- tractors or specialized research institutes as prescribed by Presidential Decree notwithstanding the Commodity Management Act. (3) Defense contractors or specialized research institutes shall not use State assets or goods for purposes other than permitted purposes, which have been transferred, leased or granted permission for use pursuant to the provisions of paragraph (1) or (2).

(4) Where defense contractors request for transfer, loan or permission for use of defense facilities or defense materials held by the State for the purpose of export, the Government may transfer, lease or grant the permission of use of the defense facilities or defense materials with or without consideration, or exchange defense materials held by defense contractors as far as there is no obstruction to military operations or the maintenance of war capability notwithstanding the provisions of other Acts or subordinate statutes.

(5) When there is difference between the prices of defense facilities or defense materials that are exchanged pursuant to the provisions of paragraph (4), the difference shall be settled in cash. (6) Matters necessary for the transfer, lease, permission for use, exchange, etc. of defense facilities or defense materials shall be prescribed by Presidential Decree.

Article 46 (Special Cases, etc. of Contract)

(1) Where the Government procures the repair parts that are essential to the management of defense materials and weapons systems, or entrusts research or manufacture of prototypes (including research services re- lating thereto) pursuant to the provisions of Article 18 (5), the Government may conclude a short-term, long-term, fixed or approximation contract. In this case, the kinds, terms, scope of contracts, and other necessary matters shall be prescribed by Presidential Decree, notwithstanding the provisions of the Act on Contracts to which the State is a Party or other relevant Acts or subordinate statutes.

(2) Where the payment of retainers and part payments is needed when a contract pursuant to the provisions of paragraph (1) is concluded, the retainers and part payments may be paid within the extent provided for in the budget of the relevant year. In this case, the retainers or part payments paid over shall not be used for any purpose other than the Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 30 -

implementation of the relevant contract.

(3) Where a contract pursuant to the provisions of paragraph (1) is con- cluded, the standards and methods of cost accounting, and the payment standards, payment methods and payment procedures for retainers and part payments pursuant to the provisions of paragraph (2) shall be pre- scribed by Ordinance of the Ministry of National Defense. In this case, the Minister of National Defense shall consult with the Minister of Strategy and Finance in advance. (4) Regarding the retainers and part payments to be paid over where a long-term contract is concluded pursuant to the provisions of para- graph (1), the settlement may be postponed until the last delivery of con- tract materials, notwithstanding the provisions of the Act on Contracts to which the State is a Party or other relevant Acts or subordinate statutes. Article 47 (Reasons for Disqualification from Designation as Defense Contractor)

Anyone who falls under any of the following subparagraphs shall not be designated as a defense contractor:

1. Where the officer (including spouse and direct ascendant or descen- dant) of a defense contractor, whose designation has been revoked pur- suant to the provisions of Article 48 (1), is an officer of another defense contractor that seeks to be designated before the elapsing of three years since such revocation; or

2. Where a defense contractor seeks to be designated at the same place with the same facilities before the elapse of six months since the revoca- tion of designation as a defense contractor pursuant to the provisions of Article 48 (1).

Article 48 (Revocation, etc. of Designation)

(1) Where a defense contractor falls under any of the following subpara- graphs, the Minister of Knowledge Economy may revoke such designation after consultation with the Administrator of the Defense Acquisition Program Administration:

1. Where the representative and officer of a defense contractor have vi- olated the provisions of pledge of integrity pursuant to the provisions of Article 6;

2. Where it has failed to meet the standards for facilities and require- ments for security pursuant to the provisions of Article 35 (1); DEFENSE ACQUISITION PROGRAM ACT

3. Where it has not obtained approval pursuant to the provisions of Ar- ticle 35 (3);

4. Where it has rejected, avoided or failed to perform the contract for supply of defense materials to the Government without justifiable grounds;

5. Where it has not executed an order for performance pursuant to the provisions of Article 36 (5);

6. Where it has obtained a loan of funds pursuant to the provisions of Article 38 by fraudulent or other unlawful means, or used funds for other purposes;

7. Where it has obtained subsidies pursuant to the provisions of Article 39 (1) by fraudulent or other unlawful means, or used subsidies for other purposes;

8. Where it has disposed of the assets without obtaining approval pur- suant to the provisions of Article 39 (2);

9. Where it has used State assets or goods for other purposes in violation of the provisions of Article 45 (3);

10. Where it has not performed the order of disposition necessary for the replacement, supplementation, expansion or relocation of facilities pur- suant to the provisions of Article 49 (1);

11. Where it has violated an order pursuant to the provisions of Article 53 (1);

12. Where it has concluded a contract of supply by furnishing the Govern- ment with false or other unlawful cost data; or

13. Where it has requested the revocation of designation as defense con- tractor from the Minister of Knowledge Economy along with the relevant documents as it has become incapable of conducting normal business due to nonpayment, bankruptcy or other unavoidable operational reasons.

(2) Where a defense contractor falls under any of paragraph (1) 1 through 12, the Administrator of the Defense Acquisition Program Administration may request the Minister of Knowledge Economy to revoke its designation.

(3) Where defense materials fall under any of the following subpara- graphs, the Administrator of the Defense Acquisition Program Admini- stration may revoke the designation after consultation with the Minister Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 32 -

of Knowledge Economy:

1. Where it is recognized that it can be procured from two or more enter- prises and the quality shall be guaranteed;

2. Where there is no requirement for such materials from the military, or the system equipment has been deleted;

3. Where military secrets are no longer requested pursuant to the provi- sions of Article 2 of the Military Secret Protection Act as the grade of classification has lowered; or

4. Where the revocation of designation of defense materials is necessary, or there is no need to keep the designation of such defense materials following research and development, change, cancellation of purchase, etc.

(4) Where a guarantee organization is engaged in business other than as stipulated in its articles of incorporation, or performs an act in viola- tion of the conditions of designation, the Administrator of the Defense Acquisition Program Administration may revoke its designation as a guaran- tee organization.

(5) Where the Minister of Knowledge Economy or the Administrator of the Defense Acquisition Program Administration intends to revoke desig- nation of a defense contractor or guarantee organization pursuant to the provisions of paragraphs (1) and (4), he shall hold a hearing.

(6) Matters necessary for the procedures, etc. of revocation of designa- tion pursuant to the provisions of paragraphs (1), (3) and (4) shall be prescribed by Presidential Decree.

CHAPTER SUPPLEMENTARY

PROVISIONS

Article 49 (Replacement, Supplementation, Expansion or Relocation of Facilities)

(1) Where there arises a dire need for national defense in time of war, disaster or other emergency equivalent thereto, the Minister of Knowledge Economy may, at the request of the Administrator of the Defense Acquisition Program Administration, order the operator of a defense enterprise to take measures necessary for the replacement, supplementation, expansion or relocation of the facilities directly provided for the manufacture of defense DEFENSE ACQUISITION PROGRAM ACT

materials. (2) The Minister of Knowledge Economy shall compensate for any loss arising from the replacement, supplementation, expansion or relocation of the facilities due to an order pursuant to the provisions of para- graph (1). (3) The person who has succeeded to the business, which has the facilities with the order for replacement, supplementation, expansion or relocation pursuant to the provisions of paragraph (1), shall succeed to the rights and obligations in paragraphs (1) and (2) accompanying the order. Article 50 (Strict Observance of Secret)

No person who falls under any of the following subparagraphs shall di- vulge or appropriate any secrets he has become aware of in the course of performing his duty regarding a defense acquisition program:

1. A person who has or has had the post falling under the provisions of Article 6 (1) 1 and 2;

2. A person who has been entrusted with the duty of ombudsman pur- suant to the provisions of Article 6 (5);

3. A person who is or has been a representative, officer or staff at the Agency for Defense Technology and Quality Assurance, a defense con- tractor, general enterprise, specialized research institute or general research institute; or

4. A person who is or has been engaged in the business of the manu- facture and research of defense materials at the Agency for Defense Technology and Quality Assurance, a defense contractor, general enter- prise, specialized research institute or general research institute. Article 51 (Consultation, etc. on Manufacture and Sales Contracts for Defense Material)

Where a government agency or a person other than a government agency needs defense materials for the purposes of maintaining national security, keeping lookout, research, testing or inspection, etc., it may purchase them after concluding a contract of manufacture and purchase with a defense contractor. In this case, the government agency shall consult with the Administrator of the Defense Acquisition Program Administration, and the person other than the government agency shall obtain approval from the Administrator of the Defense Acquisition Program Administration upon recommendation by the head of the relevant central administrative agency.

Article 52 (Collection and Use of Technology Royalties) (1) The Administrator of the Defense Acquisition Program Administration may conclude contracts for the use of relevant technology with persons who intend to use the outcomes of research and development, and collect technology royalties from those who use it.

(2) The technology royalties collected pursuant to the provisions of par- agraph (1) shall be used for the following purposes:

1. Reinvestment in research and development;

2. Expenses of registration of intellectual property rights regarding na- tional defense science and technology and the administration thereof;

3. Bounty pursuant to the provisions of Article 40 (1); and

4. Operational expenses of organizations which researched and developed the relevant national defense science and technology. (3) Matters necessary for the calculation, methods of collection and procedures for collection, etc. of technology royalties pursuant to the provisions of paragraph (1) shall be decided and announced by the Administrator of the Defense Acquisition Program Administration. Article 53 (Special Precedents regarding Manufacture of Military Fire- arms, Swords, Explosives, etc.)

(1) Regarding firearms, swords, explosives, etc., the Administrator of the Defense Acquisition Program Administration shall permit, supervise and issue necessary orders or take necessary measures on the manufacture, import, export, transfer, takeover, possession, use, storage, transporta- tion, scrapping, etc. as prescribed by Presidential Decree, notwithstand- ing the provisions of other Acts or subordinate statutes. (2) Except as provided for in the provisions of paragraph (1), the provi- sions of the Control of Firearms, Swords, Explosives, etc. Act shall apply mutatis mutandis to military firearms, swords, explosives, etc. Article 54 (Orders, etc. for Sale)

(1) Where there arises a dire need for national defense in time of war, disaster or other emergencies equivalent thereto, or the operator of a de- fense enterprise or a person who has defense materials for sale brings about serious danger to national security by refusing to manufacture or sell defense materials, etc. without justifiable grounds, the Administrator of the Defense Acquisition Program Administration may order the operator of the defense enterprise or the person who has defense materials for sale to transfer the defense materials to the Government by fixing the time DEFENSE ACQUISITION PROGRAM ACT

and price of transfer, time and method of payment, and other necessary matters.

(2) Where the Administrator of the Defense Acquisition Program Admin- istration cannot issue an order for transfer pursuant to the provisions of paragraph (1) because he could not ascertain the owner of defense materi- als, he may order the person in possession of the defense materials concerned to deliver over them by fixing the time and price of delivery, time and method of payment, and other necessary matters.

(3) The cost of manufacture, the profits of the enterprise, etc. shall be considered when determining the transfer price pursuant to the provi- sions of paragraph (1).

Article 55 (Reserve of Raw Materials)

(1) Defense contractors shall reserve raw materials for the manufacture of defense materials.

(2) The administration of reserving of raw materials pursuant to the provi- sions of paragraph (1) and other necessary matters shall be prescribed by Presidential Decree.

Article 56 (Suspension and Cessation of Business) Where a defense contractor intends to suspend or cease its business, it shall obtain approval from the Knowledge Economy in advance. In this case, the Minister of Knowledge Economy shall consult with the Adminis- trator of the Defense Acquisition Program Administration.

Article 57 (Control of Exports, etc.)

(1) Anyone who intends to engage in the business of overseas exporting or intermediation (including intermediation between third party coun- tries) of such trade in major defense materials and national defense science and technology shall report to the Administrator of the Defense Acquisi- tion Program Administration as prescribed by Presidential Decree. (2) Where anyone intends to export abroad or intermediate the trade of defense materials and national defense science and technology, he shall obtain permission from the Minster of Knowledge Economy or the Administrator of the Defense Acquisition Program Administration as pre- scribed by Presidential Decree. (3) Anyone who intends to engage in the business negotiations before obtaining export permission of major defense materials, and national de- Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 36 -

fense science and technology shall obtain preliminary approval from the Administrator of the Defense Acquisition Program Administration as prescribed by Ordinance of the Ministry of National Defense. Anyone who intends to participate in international bidding shall obtain approval for participation in international bidding from the Administrator of the De- fense Acquisition Program Administration as prescribed by Ordinance of the Ministry of National Defense.

(4) The Administrator of the Defense Acquisition Program Administration may limit, or order the coordination of exports of major defense materials and national defense science and technology after consultation with the relevant administrative agency as prescribed by Presidential Decree. Article 58 (Recovery of Fraudulent Gains)

Where a defense contractor, general enterprise, specialized research institute or general research institute has made fraudulent gains by submitting data containing false or unlawful cost accounting to the Gov- ernment, the Administrator of the Defense Acquisition Program Ad- ministration shall recover the fraudulent gains, with additional levies equivalent to the fraudulent gains as prescribed by Presidential Decree. Article 59 (Sanction against Violation of Pledge of Integrity) Where a person falling under Article 6 (1) 4 fails to observe the terms of pledge of integrity, the Administrator of the Defense Acquisition Pro- gram Administration may impose sanctions by restricting qualification to participate in bidding for up to one year against the relevant defense contractor, general enterprise, specialized research institute or general research institute as prescribed by Presidential Decree. Article 60 (Legal Fiction, etc. of Public Official) (1) The members of the Committee and members of the subcommittees who are not public officials and the person who has been entrusted as ombudsman pursuant to the provisions of Article 6 (5) shall be deemed public officials in the application of the penal provisions of the Criminal Act and other Acts.

(2) The provisions of Chapter 7, provisions regarding public service, provisions of the State Public Officials Act and the Act on the Establish- ment and Operation of Public Officials' Councils shall apply mutatis mutandis to the officer and staff of the Agency for Defense Technology and Quality Assurance, and they shall be deemed public officials in the DEFENSE ACQUISITION PROGRAM ACT

application of the penal provisions of the Criminal Act and other Acts. Article 61 (Delegation and Entrustment of Authority) (1) The Minister of National Defense may, as prescribed by Presidential Decree, delegate a part of his authority pursuant to the provisions of this Act to the Administrator of the Defense Acquisition Program Administration.

(2) The Administrator of the Defense Acquisition Program Administra- tion may, as prescribed by Presidential Decree, entrust a part of his au- thority pursuant to the provisions of this Act to the President of the Agency for Defense Development and to the President of the Agency for Defense Technology and Quality Assurance.

CHAPTER PENAL PROVISIONS

Article 62 (Penal Provisions)

(1) Any person who has received a loan or subsidy pursuant to the provi- sions of Article 38 or 39 (1) by deceitful or unlawful means, or has used the loan or subsidy for other purposes shall be punished by imprison- ment, with or without prison labor, for not more than ten years, or a fine not exceeding an amount equivalent to ten times the amount of the loan or subsidy.

(2) Any person who has obtained permission pursuant to the provisions of Article 53 or 57 (2) by deceitful or unlawful means, or has performed a relevant act without obtaining permission shall be punished by im- prisonment, with or without prison labor, for not more than ten years, or a fine not exceeding fifty million won.

(3) Any person who has divulged or appropriated secrets that he became aware of in the course of his duty, in violation of the provisions of Ar- ticle 50 shall be punished by imprisonment, with or without prison labor, for not more than five years, or a fine not exceeding thirty million won. (4) Any person who falls under any of the following subparagraphs shall be punished by imprisonment, with or without prison labor, for not more than three years, or a fine not exceeding ten million won:

1. Any person who has transferred, exchanged or loaned assets without approval from the Administrator of the Defense Acquisition Program Administration in violation of the provisions of Article 39 (2); Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 38 -

2. Any person who has used the retainer or part payments for other purposes, which he received pursuant to the provisions of Article 46 (2);

3. Any person who has performed an act in Article 48 (1) 12; or

4. Any person who has violated an order pursuant to the provisions of Article 49 (1), 53 or 54.

(5) Any person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than one year, or a fine not exceeding five million won:

1. Any person who has acquired a substantial controlling interest in management without obtaining approval pursuant to the provisions of main sentence of Article 35 (3);

2. Any person who has used State assets or goods for other purposes in violation of the provisions of Article 45 (3);

3. Any person who has used defense materials for other purposes, which have been purchased by concluding a contract of manufacture and purchase pursuant to the provisions of Article 51; or

4. Any person who has suspended or ceased his business without ap- proval pursuant to the provisions of Article 56.

(6) Any person who falls under any of the following subparagraphs shall be punished by a fine not exceeding five million won:

1. Any person who has not reserved raw materials for the manufacture of defense materials pursuant to the provisions of Article 55 without justifiable grounds; or

2. Any person who has engaged in export business of major defense materials without report pursuant to the provisons of Article 57 (1), or who has reported export business of major defense materials by a fraudulent or unlawful manners.

Article 63 (Joint Penal Provisions)

Where the representative of a juristic person, or an agent, servant or other employee of a juristic person or individual has performed an act provided for in Article 62 with regard to the affairs of the juristic person or indi- vidual, such juristic person or individual shall be fined pursuant to the provisions of Article 62, in addition to the punishment of the offender. ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation: Provided, DEFENSE ACQUISITION PROGRAM ACT

That the provisions of Article 32 shall enter into force one month after the date of its promulgation.

Article 2 (Repeal of Other Acts)

The Act on Special Measures for Defense Industry shall be repealed. Article 3 (Preparation for Establishment of Agency for Defense Technology and Quality Assurance)

(1) The Administrator of the Defense Acquisition Program Administration shall entrust five or less founding members to administer the affairs of the establishment of the Agency for Defense Technology and Quality Assurance within thirty days from the date of promulgation of this Act. (2) The founding members shall prepare the articles of incorporation of the Agency for Defense Technology and Quality Assurance, obtain ap- proval from the Administrator of the Defense Acquisition Program Ad- ministration, and have its incorporation registered. (3) Where the founding members have finished the registration of in- corporation, they shall promptly hand over business to the President of the Agency for Defense Technology and Quality Assurance, whereupon, they are deemed as having been relieved of the entrustment after so hand- ing over business.

Article 4 (Applicable Precedents concerning Disqualification from Des- ignation as Defense Contractor)

The provisions of Article 47 shall apply starting with the case of revoca- tion of designation as defense contractor first after this Act enters into force.

Article 5 (Transitional Measures concerning Disposition, etc.) Where there are provisions in this Act regarding applications, reports, etc. against the disposition that the administrative agency has executed pursuant to the provisions of the previous Act on Special Measures for the Defense Industry and the administrative agency at the time this Act enters into force, it shall be deemed such disposition, application, report, etc. pursuant to the provisions of this Act when there are provisions pertaining thereto in this Act.

Article 6 (Transitional Measures concerning Specialized and Depart- mentalized Enterprises, etc)

The provisions of the previous Act on Special Measures for the Defense Industry shall apply from the date this Act enters into force until De- cember 31, 2008 to the enterprises and materials specialized and depart- Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 40 -

mentalized pursuant to the provisions of the previous Act on Special Measures for the Defense Industry at the time this Act enters into force. Article 7 (Transitional Measures concerning Fund for Fostering Defense Industry)

(1) The provisions of the previous Act on Special Measures for Defense Industry shall apply from the date this Act enters into force until December 31, 2006 to the Fund for Fostering Defense Industry established pur- suant to the provisions of the previous Act on Special Measures for the Defense Industry at the time this Act enters into force. The authorities of the Minister of National Defense pursuant to the provisions of Article 7-2 (5) of the previous Act on Special Measures for the Defense Industry shall be exercised by the Administrator of the Defense Acquisition Pro- gram Administration.

(2) The assets, claims and liability for the Fund for Fostering Defense Industry pursuant to the provisions of paragraph (1) shall be succeeded by the general account of the State on January 1, 2007. Article 8 (Transitional Measures concerning Designation as Specialized Research Institutes)

Organizations that have been designated as research institutes pursuant to the provisions of the previous Act on Special Measures for the Defense Industry at the time this Act enters into force shall be deemed as having been designated pursuant to this Act.

Article 9 (Transitional Measures concerning Designation of Defense Contractors, etc.)

The enterprises and materials that have been designated as defense contractors and defense materials pursuant to the provisions of the pre- vious Act on Special Measures for the Defense Industry at the time this Act enters into force shall be deemed as having been designated pursuant to this Act.

Article 10 (Transitional Measures concerning Defense Industry Advance- ment Association)

(1) The Defense Industry Advancement Association authorized for estab- lishment pursuant to the previous Act on Special Measures for the De- fense Industry at the time this Act enters into force shall be deemed as having obtained permission for establishment pursuant to the provisions of Article 42.

(2) The Defense Industry Advancement Association pursuant to the DEFENSE ACQUISITION PROGRAM ACT

provisions of paragraph (1) shall be deemed as having been designated as a guarantee organization pursuant to the provisions of Article 43. (3) The businesses that the Defense Industry Advancement Association conducts as proxy pursuant to the provisions of Article 22-3 (7) of the previous Act on Special Measures for the Defense Industry at the time this Act enters into force shall be succeeded by the Administrator of the Defense Acquisition Program Administration.

Article 11 (Transitional Measures concerning Activities by Defense Pro- curement Agency of the Ministry of National Defense and Each Service) The activities conducted by the Defense Procurement Agency of the Min- istry of National Defense and each service in connection with defense project programs, such as testing and evaluation, agreements, etc. before this Act enters into force shall be deemed as having been conducted by the Administrator of the Defense Acquisition Program Administration pursuant to the provisions of this Act.

Article 12 (Transitional Measures concerning Claims, Liabilities, Em- ployees, etc. of Defense Quality Assurance Agency) (1) Claims and liabilities relating to the activities conducted by the Agency for Defense Development in the name of the President of the De- fense Quality Assurance Agency which was under the control of the Agency for Defense Development, and the assets used and administered by the President of the Defense Quality Assurance Agency from among the as- sets of the Agency for Defense Development at the time this Act enters into force shall be succeeded by the Agency for Defense Technology and Quality Assurance.

(2) The employees working at the Defense Quality Assurance Agency at the time of establishment of the Agency for Defense Technology and Quality Assurance shall be succeeded by the Agency for Defense Technology and Quality Assurance at the same time that the Agency for Defense Technology and Quality Assurance is established within the extent of functions, orga- nizations and regular numbers prescribed in the articles of incorporation. (3) The activities belonging to the businesses of the Defense Acquisition Program Administration from among the activities conducted by the Pres- ident of the Defense Quality Assurance Agency before this Act enters into force shall be deemed as having been conducted by the Administrator of the Defense Acquisition Program Administration, and the activities be- longing to the businesses of the Agency for Defense Technology and Quality Assurance shall be deemed as having been conducted by the President Reproduced from Statutes of the Republic of Korea Copyright 1997 by the Korea Legislation Research Institute, Seoul, Korea - 42 -

of the Agency for Defense Technology and Quality Assurance. Article 13 (Transitional Measures concerning Penal Provisions) The application of penal provisions to the violations pursuant to the pre- vious Act on Special Measures for the Defense Industry before this Act enters into force shall be pursuant to the provisons of the same Act. Article 14 (Special Precedents concerning Special Appointments, etc.) (1) For the purpose of efficiently promoting defense acquisition programs and maintaining the continuity of the programs, the civilian military employees who are or have been performing the duties relating to the defense acquisition programs may be specially appointed as public officials belonging to the Defense Acquisition Program Administration by June 30,

2006. In this case, the period of work necessary for the rank expected for appointment may be reduced, notwithstanding the provisions of Ar- ticle 28 (2) 3 of the State Public Officials Act. (2) Those who have been specially employed pursuant to the provisions of paragraph (1) may be exempt from the appointment to probationer notwithstanding the provisions of main sentence of Article 29 (1) of the State Public Officials Act, and may be appointed to a higher rank as prescribed by Presidential Decree, notwithstanding the provisions of Article 40 of the same Act.

(3) Where the salary of the person specially appointed pursuant to the provisions of paragraph (1) is less than the salary before the special appointment, all or a part of the difference in salary may be supplemented as prescribed by Presidential Decree, notwithstanding the provisions of Article 47 (1) of the State Public Officials Act. (4) Where the term of service of a specially appointed civilian military employee, who has been in service (including a term of service as soldier or other public official) for more than thirty years, is calculated for the purposes of conferment of decorations pursuant to the provisions of Ar- ticle 15 of the Awards and Decorations Act, the term of service at the Defense Acquisition Program Administration shall be deemed as having served continuously as a civilian military employee. (5) The qualifications for application, method of examination, etc. in the special appointment pursuant to the provisions of paragraph (1) shall be prescribed by Presidential Decree.

Article 15 (Amendment of Other Acts) Omitted.

Article 16 (Relationship with Other Acts or Subordinate Statutes) DEFENSE ACQUISITION PROGRAM ACT

Where the provisions of the previous Act on Special Measures for the De- fense Industry are cited in other Acts or subordinate statutes at the time this Act enters into force and there are corresponding provisions in this Act, this Act or the relevant provisions of this Act shall be deemed as having been cited in place of the previous provisions. ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force one year after the date of its promulgation. Articles 2 through 10 Omitted.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation. (Proviso Omitted.)

Articles 2 through 7 Omitted.

The Acts and subordinate statutes translated into English herein shall not be construed as having official authority, Ministry of National Defense and the Korea Legislation Research Institute shall bear no legal responsibility for the accuracy of such translation, and in case of any divergence of interpretation of the Korean and English version thereof, the Korean version shall apply

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