N.Korean Business Zones to Be Included in FTA with China
The government apparently wants to include the Rajin-Sonbong and Hwanggumpyong special economic zones as external manufacturing regions in free trade talks with China, it emerged on Thursday. Seoul would give the same tariff benefits to products manufactured in the two areas that were given to goods made in the Kaesong Industrial Complex in the South Korea-ASEAN FTA that went into effect in 2007.
That would allow three-way trade between South Korea, China and certain regions of North Korea.
A government source said, “The Korea-China FTA has the special characteristic of forging a kind of economic alliance with China, which in turn has close ties to North Korea, and must be therefore be pursued with the possible improvements in inter-Korean relations in mind.”
Source: Chosun Ilbo
As the article says, I think this would be good from the standpoint of attracting Chinese (and, I would hope, other foreign investment) into North Korea’s Special Economic Zones. However, I have some qualms against including North Korea in South Korea’s free trade agreements today as it would set an easy precedent for including North Korea in South Korea’s FTA given any kind of greater reconciliation/cooperation or economic integration between the two Koreas. Besides the usual concerns (see here, here, and here), which led the US not to include products made in Kaesong in the KORUS FTA, I am especially concerned that in the case of economic reform in North Korea those free trade agreements are not tailored to North Korea’s specific situation(s) (i.e. designed for South Korea) and that this will have negative impacts on the the nascent North Korean reform economy in whatever shape or form it may take.
That is not to say that I am against eventual free trade between North Korea and her neighbors. Eventually for the country to move forward, foreign investment is critical. Although often portrayed in black and white, free trade should be viewed (like most everything else in the universe) as neither fully positive or negative. In reality it is a series of trade-offs that can be very advantageous to a country’s economy and development if that country is prepared. Off course, like any system, there is still winners and losers, yet most people adapt and can cope with a readjustments, but only if they have the tools, stability, and security to do so. North Korean society most certainly is not ready at this point. According to the Korea Times article, NK Doctors Flock to Gaesong Factory, the relatively small Kaesong project already has had some effect on North Korean society (although I suspect it could also be domestic nepotism at work).
Including North Korea or “South Korean” North Korean made products in free trade agreements today will not have any positive benefits for North Korean people and grandfathering North Korea in to South Korea free trade agreements in the future would no doubt have large scale negative impacts on North Korean society. I one day hope to see North Korea involved in free trade agreements, but I am glad the US did not include Kaesong products in the KORUS FTA at this time. In the future, I hope North Korea’s neighbors, especially China, the US, Japan, and Russia tailor trade agreements to meet the specific conditions of North Korea’s economy and society, and not the desires of South Korean business to increase their profit margins.
Here, I am not so naive to believe that foreign businesses are somehow more humane than South Korean ones- but I do believe that their distance from the Korean question (i.e. they are not Korean) will make the exchange of cheap labor for foreign investment more equitable, especially psychologically, and they can serve as a balance to South Korean influence. In any version of North Korea’s reform economy, exploitation either by domestic or foreign entities, is inevitable, but we should strive to ensure that its effects can be minimized and the North Korean people have enough opportunity, choice, security, and stability in their society to move beyond being a source of cheap labor.
