[Viewpoint]Fair tradeThe Korea-U.S. free trade agreement is awaiting ratification by the legislatures of both countries. However, goods made in the northern part of the Korean Peninsula are not yet a part of it.
Under the international trade order, inter-Korean economic cooperation is considered to be an economic transaction between two countries across their national border.
However, both Koreas have defined inter-Korean trade and economic cooperation as “internal trade” and have maintained a non-tariff policy on it, as set out in the South-North Basic Agreement signed in 1991. Both Koreas think it is necessary to recognize economic transactions within the Korean Peninsula as internal trade.
However, that preferential treatment violates the most-favored-nation principle of the World Trade Organization, which says that if a special favor is granted to one country it should be given automatically to other WTO member countries.
In the past, the level of economic transactions between South and North Korea was negligible on the international trade scale.
Therefore, no other countries raised any objections and no one seemed to pay any attention to it. But the situation changed when the development of the Kaesong Industrial Complex went into full swing.
The development of the Kaesong Industrial Complex is now seen as an industrial cooperation project between South and North Korea that goes beyond simple transactions of goods and services across the border.
Since the goods are manufactured in North Korea, although the funds and technology are provided by the South, and the goods made in Kaesong flow onto the international market, it is only natural that other countries are asking where the Kaesong products actually orginate.
However, we must get recognition from the international community that economic cooperation between South and North Korea is internal trade and does not violate the international economic order if we want both Koreas to gradually develop into an economic community and become a member of the Northeast Asian economic community.
It will be possible if we can get the consent of three quarters of the WTO member countries, but that won’t be easy to do.
An alternative is getting recognition that goods made in North Korea under inter-Korean economic cooperation are made in “outward processing zones” during free trade agreement negotiations with other countries. In this respect, the Korea-U.S. free trade agreement has a special meaning because it will provide the standard for future trade talks.
During the Cold War era, in order to get recognition that economic transactions between East and West Germany were internal trade under international law, East and West Germany both applied Article 53 of the military administration act of the Allied Forces. Under that law, the Allied Forces put both Germanys under a single economic zone which handled the transactions of goods and payments between the two sides. West Germany maintained the position that internal trade among the German people should be considered an exception to international trade laws.
As a result, the Berlin Agreement signed by East and West Germany in 1951 was recognized as an international agreement that did not violate the General Agreement on Tariffs and Trade.
Despite an 18-year-long history, on the other hand, inter-Korean economic cooperation has not yet secured a status recognized by international law under the World Trade Organization.
The economic partnership between East and West Germany contributed to the breaking down of the walls of the Cold War. Inter-Korean economic cooperation needs to get proper recognition as internal trade and as a catalyst for the establishment of peace on the Korean Peninsula.
In this sense, the section of the Korea-U.S. free trade agreement that recognizes “outward processing zones” is an important provision. The success of not only the Kaesong Industrial Complex, but also special economic zones that will be developed in North Korea in the future, depends on it.
After the ratification of the free trade agreement, we must prepare a thorough follow-up plan so the Kaesong Industrial Complex will be selected as one of “the outward processing zones.”
*The writer is a professor of North Korean studies at Unification Education Center. Translation by the JoongAng Daily staff.
by Kwon Young-kyung