Free trade can bring change to North KoreaSungjoon Cho in The Hill, January 05, 2012
By Sungjoon Cho
The sudden death of the North Korean leader Kim Jong Il has brought a new dimension of uncertainty and anxiety to the Korean peninsula and the adjacent region. In the minds of policymakers from South Korea and other countries lies one critical question: what’s next? It is high time that these countries systematically reexamine their options on (and off) the table. They have to prepare for the long-term. Free trade is one of the cardinal considerations in this big picture.
This year both the South Korean Parliament and the U.S. Congress passed the long-stalled Korean – U.S. FreeTrade Agreement (KORUS FTA). Although this pact is expected to herald an era of mutual prosperity to both countries, little is known as to another potential for a bigger diplomatic-economic success: The KORUS FTA may offer North Korea powerful incentives to behave.
Unbeknownst to many outsiders, both Koreas are quietly conducting a small-scale capitalist experiment within the North Korean territory.
North Korea allows South Korean entrepreneurs to build factories in a specially designated area (Kaesung), hire North Korean workers, and manufacture products in those factories. Markedly, this experiment has been so successful that it even survived the rapid deterioration of inter-Korean relations last year triggered by North Korea’s military provocations.
Interestingly, this promising experiment is silhouetted against a short annex (Annex 22-B) attached to the KORUS FTA titled “outward processing zones (OPZs).” Here ,the FTA embraces the possibility that those products manufactured in one of the special industrial parks (OPZs) make their way to the American market as made-in-Korea, and thus duty free. Granted, the very annex was a matter of concern to some U.S. politicians.
Understand, a ban against North Korea might be undermined by allowing made-in-North Korea products to flow into the United States unchecked. While such concerns are certainly warranted, we should also reflect on why the annex was there in the first place. Importantly, it is not a rain check issued to North Korea. On the contrary, its cardinal goal is to provide North Korea with an irresistible economic and financial inducement to behave. This is why the annex stipulates explicit and strict conditions for this boon, in particular the “denuclearization” of the Korean peninsula.
Skeptics might downplay the whole idea as naive based on the grounds that North Korea would not give up nuclear weapons under any circumstances. True, denuclearization carries an enormous stake for North Korea, yet so does the economic and financial gain from the OPZs.
Importantly, the idea of OPZs seems to have found its time at long last.
First, the ever-worsening economic conditions in North Korea threaten the power base of its transitional, or transitory, regime. North Korea is now desperately looking for an economic breakthrough in the year 2012, which is a self-declared year of prosperity. Second, both the United States and South Korea have recently reopened their diplomatic windows to North Korea. In part, OPZs bestow a great opportunity on the Obama administration to grab another foreign affairs triumph in an election year. Third, even China would desire a stable North Korean with an improved economic situation, especially amid its own power transition next year.
If North Korea behaves and OPZs are activated, the outcome will be ground-breaking. Needless to say, whole new global supply chains will be established in the Korean peninsula as global investors crowd in to take advantage of North Korea’s many attractions, such as cheap land and labor as well as rich raw materials. The winners’ circle will be wide, including not only both Koreas but also the U.S., China, Japan and even Europe.
Over the long haul, the OPZs could act as a “Marshall Plan” for North Korea. The policy can help North Korea rehabilitate its miserable economy by intertwining it with the rest of the world. Peace and prosperity do go hand in hand. Look at Europe. After the Second World War, close economic ties among once warring states has made any new war “immaterial and unthinkable.” The KORUS FTA can facilitate a similar future.
One might reasonably speculate that the year 2012 would be a year of extreme uncertainty, and even chaos, for North Korea. However, one might also recall that many historic achievements were only possible amid contingencies. The death of Kim Jong Il offers one of those history-shaping contingencies.
Sungjoon Cho is visiting professor of Law at Fordham Law School and professor of Law and Norman and Edna Freehling Scholar at IIT Chicago-Kent College of Law. He is advisor on International Affairs and Global Industrial Cooperation for the South Korean Minister of Knowledge Economy. This article represents his personal view.