Pundits Speculate About the Effects of Korea-China FTA

      January 12, 2012 12:41

      Feverish speculation continued this week among pundits about the effects of South Korea's mooted free trade agreement with China, especially on North Korea. One expert, Han Byung-jin of Keimyung University said, "External factors have little impact on internal policies in North Korea, but the psychological impact [of the FTA] would be huge."

      China is in effect North Korea's sole ally, and the North depends heavily on Beijing for food and supplies and such trade as the economic basket case is able to conduct.

      If China forges closer business ties with South Korea, it could put pressure on the North Korean regime to conduct economic reforms or face even greater isolation. The collapse of Communism in Eastern Europe led to a rough patch for North Korea in the 1990s.

      The FTA could play a role in goading North Korea to open up its economy, some experts say -- not least because products from the joint Korean Kaesong industrial complex could be included in tariff-free trade with China. That would make Kaesong an attractive place to manufacture goods, because labor is much cheaper than in South Korea.

      Choi Jin-wook at the Korea Institute for National Unification said, "If China decides to include products made in Kaesong Industrial Complex, which the Korea-U.S. FTA doesn't do, then the joint manufacturing zone could get a strong boost leading to increased South Korean investments in North Korea and play a role in getting the North to open up."

      The FTA could even become an alternative route for South Korean investment to North Korea. Some pundits speculate that some South Korean businesses would then be able to invest in North Korea from China without meeting any other legal requirements, because that is much easier than investing from South Korea.

      A government official said, "Depending on the results of negotiations, South Korean companies could get the same treatment as Chinese businesses under the FTA, which would open up wider possibilities to invest in and trade with North Korea."

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