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."

The two zones mostly benefit from Chinese investment, whereas the Kaesong complex consists of South Korean businesses.

Before announcing the goal of beginning FTA talks with China by the end of this year, South Korean trade officials apparently discussed the North Korean variable. Chung Jin-young at Kyunghee University said at a seminar hosted by the [South] Korea Institute for Economic Policy on Tuesday, "If trust between South Korea and China is strengthened through a bilateral FTA, it will have a positive impact on inter-Korean relations. North Korea could be pressured to reduce its dependence on China and improve inter-Korean relations." 

Some experts want South Korea to join China in developing the Rajin-Sonbong and Hwanggumpyong zones. "The Korea-China FTA signifies economic intervention in North Korean affairs," said Choi Won-mok at Ewha Womans University. "We need to consider two-way, tariff-free trade by taking part in Rajin-Sonbong and Hwanggumpyong."

Choi called for more joint-Korean economic projects apart from the Kaesong Industrial Complex to Rajin-Sonbong and Hwanggumpyong. In that case all Chinese goods produced in those regions could be imported by South Korea, while South Korean products made there could be exported to China.

Seoul believes China would not oppose such a proposal, since it also supports North Korean stability. Another government official said, "China wants North Korea to survive without collapsing. We also need to get North Korea interested in the Korea-China FTA."

With its tattered economy, North Korea may not be too excited about the Korea-China FTA, but Pyongyang could passively support it if it sees potential economic benefits. The government plans to launch FTA talks with China between March and April after gathering public opinion.