A Comprehensive Approach to Northeast Asian Peace and Korean Unification
By Dr. Yang-Taek Lim
Dean and Professor, Economics and Finance College
Hanyang University, Korea
The purpose of this study is to propose a
‘comprehensive solution’ for the Northeast Asian peace and Korean unification,
which is designed to find some way out of a possible standstill of the ‘9·19
Beijing Joint Declaration’ in 2005 and the ‘2·13 Joint Agreement’ in 2007, in
connection with the ‘five-stage approach’ (peace settlement →economic
integration → socio-cultural integration →political integration
→ military integration), which has been studied by the author (1993,
1995e, 1997, 1999c, 2000, 2001, 2002a, 2005 and 2007) based on the functional
integration theory of David Mitrany(1943) and Myron Weiner(1996). In an attempt
to pursue Northeast Asian peace and Korean unification, the author recommends
the two Koreas and four powers (USA, Japan, China and Russia) to
consider the proposed ‘Northeast Asian Peace Treaty’ as well as to construct a
‘South-North Korean Special Economic Zone’ in Changdan County, South
Korea (around the DMZ) in separation with the KIC (Kaesong Industrial
Complex) in North Korea. Due to its advantage that it is not subject to
US's security concern on the KIC and control of exports to North Korea, this
SEZ can make a good contribution to economic development of the two Koreas as
well as to peace settlement and prosperity in Northeast Asia, such as
development of oil and gas wells in Irkutsk and Sakhalin, construction of oil
and gas pipelines for the wells, and linkage of traffic network with TKR (Trans
Korea Railway), TSR (Trans Siberian Railway) and TCR (Trans China
Key Words : Comprehensive Policy, Northeast
Asian Peace Treaty,
and North Korean Special Economic Zone,
JEL Classification: P21, P26, P33
The Korean Peninsular has been called a
‘powder magazine’ as shown by the Sino-Japanese War of 1894~1895, the
Russia-Japanese War of 1904. 2~1905. 9 and the Korean War of 1950~1953. The Korean Peninsula
also has been remained as the unique territory in which Cold War has been
continued since Germany
was unified on October 03, 1990.
Consequently, nobody would object Northeast
Asian Peace and Korean Unification at least in the moral sense. However, there
exist ideological conflicts between South and North Koreans as well as among
the countries surrounding the Korean Peninsula : USA,
China, Japan and Russia.
North Korea launched seven missiles on a trial basis on July 5, 2006,
including the long distance missile Daepodong 2, which can theoretically strike
the United States.
Although the long distance ICBM (Intercontinental Ballistic Missile)
exploded 40 seconds after its launch, it still demonstrated its inability to
carry a nuclear warhead, and the experiment proved that North Korea can be a menace to the US. The
experimental launch was followed by another North Korean nuclear experiment on
October 9, 2006. This experiment was performed on a small scale of less than 1
kiloton, however it demonstrated North Korean nuclear capability and proved a
partial success of the country’s nuclear program.
At present, North Korea
is in violation of the NPT (Nuclear Nonproliferation Treaty), and the
IAEA (International Atomic Energy Agency) inspectors were exiled from North Korea
long ago. Therefore, it is increasingly possible for North
Korea to develop a long range ICBM that can strike the United States.
Also, the nuclear experiment of North Korea
on October 9, 2006 increases the danger that Japan
and China may enter into a
nuclear arms race in Northeast Asia.
After a long period of difficulties, the
Six-Party Talks adopted the '2·13 Joint Agreement' in 2007 as an initial
measure of the ‘9.19 Beijing
Joint Declaration’ in 2005. According to the Joint Agreement, North Korea
agreed to close and seal the nuclear facility in Yongbyon and report its
nuclear programs, while the remaining participants (The US, South
Korea, China, Japan and Russia) in the Talks promised to provide energy and economic
support for North Korea in return.
In this way, the US has shifted from the ‘Benign
Neglect Policy’ and CVID (Complete, Verifiable, and Irreversible Dismantlement)
to ‘the Negotiation Strategy’ and ‘the Realistic Approach’ of
focusing on ‘easy things first and then difficult ones’ for the freezing
of additional nuclear activities and prevention of nuclear proliferation.
What prompted the US into action? Along with the
urgent problems such as the Republican Party’s defeat in the mid-term election
and continuing Middle East issues, the US seemed to be concerned that delay in
the solution of the North Korean nuclear problem might increase the nuclear
weapons of North Korea and bring about the situation where North Korea is
inevitably recognized to be a ‘de facto’ nuclear-armed nation.
A major goal of the United
States in the Six-Party Talks is to halt and verifiably
dismantle North Korea’s
capability to produce nuclear fuel and nuclear bombs or to proliferate nuclear
material or technology to potentially hostile countries or groups. The U.S. strategy to accomplish this is a
combination of sticks (sanctions, diplomatic isolation, and name calling)
and carrots (promises of aid, diplomatic recognition, and security
guarantees) conveyed to North
Korea through the Six-Party Talks, bilateral meetings,
and occasional media blasts.
In the ‘9·19 Beijing
Joint Declaration’ in 2005, North
Korea committed to abandoning all its
nuclear weapons and existing nuclear programs. Following the "9·19 Joint
Declaration", the ‘2·13 Joint Agreement’ in 2007 is an important initial
step in that direction. The Joint Agreement commits all six parties (USA, North
Korea, South Korea,
China, Japan and Russia).
If the Six-Party Talks on the denuclearization
of the Korean Peninsula
were to progress far enough, the United States
could re-establish diplomatic relations with North Korea, lift economic
sanctions, and eventually grant the North normal trade relations status. If so,
US trade with North Korea
could be done on the same basis as trade with most other countries of the
As summarized by Figure 1, the current
approach is broad in scope, with a comprehensive vision that seeks a lasting
solution to the problem by addressing a wide range of economic and security
issues. This is a key difference from previous bilateral efforts. It
establishes tight timelines for actions that are measured in months, not years.
Within 60 days, North Korea will (1) shut down and seal for the purposes of
eventual abandonment the Yongbyon nuclear facility; (2) invite back the IAEA(International
Atomic Energy Agency) to conduct all necessary monitoring and
verifications; and (3) discuss with the other parties a list of all its nuclear
programs, including plutonium extracted from used fuel rods, that would be
abandoned pursuant to the Joint Statement.
The Six Parties agreed to provide emergency
energy assistance to North
Korea in the initial phase. The initial shipment
of emergency energy assistance equivalent to 50,000 tons of HFO (heavy fuel
oil) will commence within the first 60 days of the agreement. The Six
Parties also established five working groups to carry out the initial actions
and formulate specific plans for the implementation of the September 2005 Joint
Declaration -- leading to a denuclearized North Korea and a permanent peace.
The working groups are five: (1)Denuclearization of the Korean Peninsula, (2)
Normalization of U.S.-North Korea Relations, (3) Normalization of Japan-North
Korea Relations, (4) Economy and Energy Cooperation and (5) Northeast Asia
Peace and Security Mechanism.
The details of the economic, energy and
humanitarian assistance (up to the equivalent of 1 million tons of HFO)
will be determined through consultations and assessments in the Economy and
Energy Cooperation working group and will be commensurate with the steps which
North Korea takes to fulfill its commitments, building on the commitment of the
Six Parties in the Joint Agreement to take "Action for Action.".
An important aspect of the ‘2·13 Joint
Agreement’ is that it begins to lay out a path to complete denuclearization,
not just a temporary shutdown of the reactor at Yongbyon. Under the Agreement
North Korea will discuss in the first 60 days a list of its nuclear programs
that would be abandoned pursuant to the ‘9·19 Joint Statement’ in 2005. North Korea is
well aware that it remains under Chapter VII UN sanctions. Today, UNSCR 1718
remains in effect, and North
Korea understands that the international
community will continue to fully and effectively implement the resolution. North Korea
continues to face a basic strategic choice. There are political and material
incentives on offer to North
Korea, but it must fully denuclearize to
realize the full benefits of those incentives. North Korea understands that it
must abide by its commitments to receive these benefits.
[Figure 1] A Framework for Northeast Asian
Peace and Korean Unification
Background of agreement on North Korean
North Korea-USA Berlin
talks (January 16-18, 2007), the 9·19 Beijing
Joint Declaration in 2005 by the participants in the six-party talks
(agreement of speech vs. speech') and the 2·13 Joint Agreement in 2007(action
USA : Shift toward realistic view because
of defeat in mid-term election and Middle East
– Benign Neglect Policy →
negotiation strategy, (CVID: Complete, Verifiable, Irreversible
Dismantlement) → ‘easy things first and then difficult things’
Korea : Pursuit of economic benefits
– Construction of strong military state
and achievement of system unity through nuclear experiment
China : Active arbitrator to expand
influence in the Northeast Asia
South Korea : Suggestion of joint
Significances of the
2·13 Joint Agreement
Establishment of initial-phase action
1) Higher effectiveness of drive and
binding power than the Geneva Agreement (October 21, 1994)
– Specified differentiated compensation and concrete fulfillment
deadline for each stage from ‘freezing through closing and sealing to
disenablement and CVID.
– Adopted the principles of equivalence, concurrent fulfillment,
equality and equity
2) Materialized and institutionalized
the discussion agenda by establishing five working groups
Organized working groups for nuclear-free Korean peninsula, Northeast Asian
peace and security, cooperation in economy and energy, normalized North
Korea-USA relationship and normalized North Korea-Japan relationship
Effects on the Relationship between the
Restoration of South-North Korean
relationship and vitalization of economic collaboration are expected.
1) Successful regularization of the
meeting of dispersed families and South-North Korean minister-level talks
2) Government’s supportive economic
collaboration projects and private-sector economic cooperation are expected
to be expanded.
3) Modernization of Nampo Harbor,
railway renovations and SOC expansion
Some tasks for the peace in the Korean
Construction of the base for
establishing peace in the Korean peninsula and South-North Korean economic
Korea : Fulfillment of the agreement on nuclear issue and
efforts for improvement human rights, etc.
– Creation of the environment for attraction of foreign capitals
through continuous reform and liberalization and amendment of laws and
Korea : Through national cooperation (South-North Korean talk)
and international collaboration (six-party talks)
– Development of South-North Korean relations from conflictive and
competitive ones to collaborative coexistence ones
– Construction of ‘South-North Korean mutual development regime’
through development of sustainable collaboration model
USA and China : Support of North Korea's
change through fulfillment of the agreement on nuclear issue and provision of
incentives for North Korean reform and liberalization
– USA supports
normalized relationship with North Korea
and North Korea’s
having a seat in international organizations as a regional stabilizer
– China plays a role of active arbitrator as a
presidential country of the six-party talks and a country responsible for the
division between the two Koreas.
Meanwhile, there are positive moves in the
Bush administration toward Pyongyang.
On September 24, 2007, U.S. Secretary of State Condoleezza Rice hinted that North Korea could be dropped from a U.S. terrorism
backlist. In an interview with Reuters, she indicated that the U.S. may not necessarily link North Korea's
removal from the list with the resolution of the Japanese abduction issue. It
goes without saying that North
Korea's de-listing is dependent on how
sincere the country is in taking steps to scrap its nuclear weapons programs.
North Korea is expected to make substantial progress in
the Six-Party negotiations scheduled for September 27-30, 2005 in Beijing to move forward
with the 2nd stage of denuclearization. The North shut down its main nuclear
reactor in Yongbyon in early July 2007 and promised to disable its nuclear
facilities by the end of the year. The U.S.,
and other Six-Party nations have positively assessed the North's nuclear
disarmament. It's time for the North to make good on its commitments to enjoy
energy aid and potential diplomatic incentives as well as to establish a peace
regime on the Korean
However, some questions may be asked: Will it
be possible for North Korea
to undertake the freezing, closing and sealing, disablement and CVID (Complete,
Verifiable, Irreversible Dismantlement) of its nuclear weapons? When and
how will the North Korean nuclear weapons be dismantled completely?
The author is very unfortunately skeptical of
the possibility that North
Korea will give up its nuclear weapons at
the level of CVID
because many challenges should be met to set the stage for disablement and
CVID. The rationale of the author’s skepticism on North Korea’s abandonment of
its nuclear weapons underlies that the ‘2·13 Joint Agreement’ in 2007 has
differences in its interpretations among the Six-Party Talks and no mention of
current nuclear weapons and HEU (highly enriched uranium) has been
integrated into this Agreement. In particular, CVID requires the closing of
current nuclear facilities and disposal of extracted plutonium and nuclear
weapons. Additionally, the problems such as export of nuclear materials and HEU
should be discussed and solved later.
Moreover, we should acknowledge that Kim
Jong-il’s regime will never be satisfied only with economic, energy and
humanitarian assistance at the sacrifice of its ‘unique’ method (nuclear
weapons) for its survival. It is also true that the remaining Six-Party
Talks will never be satisfied only with North Korea’s closing and revealing
of the nuclear facilities in Yongbyon and report on its nuclear programs.
If it is true, under what conditions North Korea
might be willing to abandon its nuclear weapons? The only route that the two
Korean governments and other powers can choose is not the 'South African road'
but rather the 'Libyan road'. Under
the assumption that this view is correct, the author insists that the Chinese
prime minister, Hu Jintao, must negotiate with Kim Jong-il to induce him to
give up North Korea’s nuclear program just as Tony Blair succeeded in
persuading Muammar al-Qaddafi to abandon the Libyan nuclear program. However,
different thoughts exist between the UK
and between Muammar al-Qadafi and Kim Jong-il.
Under the previously-described background, the
purpose of this study is to propose a ‘comprehensive solution’ for the
Northeast Asian peace and Korean unification, which is described in detail by
the author's proposal of 'Northeast Asian Peace Treaty' for the two Koreas and the
four big powers.
II. The Kaesong
North-South Korean Industrial Complex
The author has initially proposed South-North
Korean SEZ (special economic zone) in Changdan County
around the DMZ (demilitarized zone) in the South Korean territory. In
contrast to it, Hyundai Asan and the Korea Land Corporation (both from South
Korea) have been developing and managing the KIC (Kaesong Industrial
Complex) which is an industrial park located about 160 miles southeast of
Pyongyang and 43 miles north of Seoul just across the DMZ in the North, as shown
by Figure 2.
[Figure 2] Location of the proposed
South-North Korean SEZ
County and the KIC
Source : Kaesong
Industrial District Management Committee (www.kidmac.com).
In this Chapter, the author would like to
discuss over some issues of KIC in relation to the US
such as (1) US's security
concern on the KIC, (2) US's
control of exports to North
Korea, and (3) South Korea-US FTA in
connection with the KIC.
1. The Development of the KIC
The KIC sits at the hub of spreading
concentric sets of economic and geopolitical interests and concerns. At its
narrowest sense, the KIC is a business venture in which participants are
seeking profits and business advantages. On the South Korean side, the KIC
provides small-and-medium-sized companies with a manufacturing platform and
opportunity to access low-cost labor without having to go overseas to establish
subsidiaries or to outsource the assembly of their products to China or other
markets. On the North Korean side, the KIC provides jobs for workers who can
earn relatively higher wages without crossing their borders illegally or
working under contract in labor-scarce countries such as those in the Russian
Far East or in Middle Eastern countries.
At a somewhat wider set of interests, the KIC
provides a channel for reapproachment between North
Korea and South
Korea. The KIC developed partly from the
South Korean "Sunshine Policy" of economic engagement with the North.
It can be viewed as a confidence-building measure between the two Koreas whose
hostility toward each other has lingered since the 1950-1953 Korean War. As has
been the case with the extensive economic interchange between China and Taiwan, the KIC may provide a
bridge for communication and a catalyst for cultural interaction, and it can
create stakeholders in each other’s economies with a shared interest in
stability, liberalization, and increased communication across the DMZ.
South Korea also aims to become a hub of East Asia. In order to accomplish this, it would like to
be connected to China, Russia, and to Europe via railways that pass
through North Korea.
As part of the KIC project, North and South Korea have reconnected a
railroad line connecting the north and south and have conducted a test run on
it. In terms of logistics, a shipment by rail from South
Korea via Kaesong to Hamburg, Germany
would take about 27 days by ship, 10 days via the Trans-Siberian Railway, and 7
days via the Trans-China Railway.
Table 1 shows the first three phases of
the master plan for the project. The first phase encompasses 800 acres with as
many as 300 South Korean firms operating in the KIC. At the end of phase 3, the
plan calls for as much as 4,800 acres in the industrial zone with as many as
1,500 firms employing 350,000 North Korean workers and producing $ 16 billion
worth of products per year. It also includes 2,200 acres in a supporting zone
with residential facilities (dorms), commercial establishments (hotels,
restaurants, offices and conference rooms), and tourist facilities (golf
course, peace park and theme park). The Master Plan also includes an
Expansion Zone of 1,600 acres for industrial use and 4,000 acres for support.
This would be used after Phase 3 and would accommodate additional 500
companies, 150,000 employees, and estimated production of $ 4 billion per year.
Counting the expansion zone, the grand totals for the Master Plan would be
6,400 acres for the Industrial Zone (10 square miles), 6,200 acres for
the Supporting Zone, 2,000 companies, 500,000 workers, and $ 20 billion per
year in products. The industrial and supporting zones together cover an area
roughly one-fifth the size of Washington
<Table 1> Hyundai’s First Three Phases
of the Master Plan for the KIC
Total Land at Completion of Stage
800 acres in Industrial
City as a Supporting
2,000 acres in Industrial Zone 800 acres in Supporting
4,800 acres in Industrial Zone 1,600 acres in Supporting Zon
Total ROK Firms at Completion of Stage
Korea Workers at Completion of Stage
Source : ROK, Ministry of Unification.
The KIC aims to attract South Korean companies, particularly
small-and-medium-sized enterprises, seeking lower labor and other costs for
their manufactured products as an alternative to establishing subsidiaries in China or other
As of mid-2006, 1,800 companies had applied for entry into the KIC
and had requested 5,112 acres. Of these 1,800 companies, 365 were in mechanical
manufactures (auto parts, bolts, etc.), 298 in garments, 261 in textiles, 198
in electronics, and 112 in chemical materials (rubber, plastic, etc.). Other
products to be manufactured include shoes, bags, toys, accessories, and other
South Korean companies operating in the KIC receive certain
incentives from the South Korean government and have certain rights as
determined by negotiated agreements with North Korea. The KIC is a duty-free
zone, with no restrictions on the use of foreign currency or credit cards and
no visa required for entry or exit. Property and inheritance rights are
ensured. South Korean law breakers in the KIC are not to go on trial in the
North. The corporate tax rate is 10 to 14% with an exemption for the first five
years after generating profits and a 50% reduction for the ensuing three years.
The South Korean government (through its Inter-Korea
Cooperation Fund) offered the companies that established their operations
in the KIC (in the pilot project and first phase) loans with low
interest rates equal to those applied to public works projects. These loans
totaled about $40 million as of the end of 2005. Out of the first 26 firms
to either begin operations or contemplate beginning operations in the near
term, 25 of them applied for loans from the Inter-Korea Cooperation Fund. South Korea also provides political
risk insurance that will cover financial losses up to 90% of a company’s
investment in the KIC up to five billion South Korean won (approximately $ 5.4
million). Under a South Korean law passed in April 2007, South Korean
small-and-medium-sized firms operating in the KIC are eligible for state
subsidies and other benefits equal to their counterparts at home.
Of the $374 million initial cost for the first stage, $223 million
was to be provided by the South Korean government. The supporting
infrastructure is gradually being built. In December 2006, the Korea Electric
Power Corporation connected North Korea
and South Korea
by a 100,000 kilowatt power-transmission line and in June 2007 began
transmission of high-voltage electricity for use by the companies in the KIC.
This was in addition to low-voltage electricity that had been in use since
In May 2007, the two countries conducted a trial run of two railroads, one of
them connects the Kaesong area with South Korea. Meanwhile, Kaesong is connected to South Korea by a road that has more
than 100 vehicles per day passing through the checkpoints.
As shown in Table 2, by the end of 2006, 15 companies had begun operations in Kaesong and were
employing 11,000 North Korean workers. By May 2007, a total of 15,139 North
Koreans were employed in the complex. Tenant firms were employing 12,539 North
Korean workers, while additional 2,179 were engaged in construction in the
complex, and 421 were working in managing the complex. A total of 773 South
Korean staff worked in the KIC.
2> Number of Firms and Workers in the KIC
No. of South Korean Manufacturing Firms
Approx. No. of North Korean Workers
Approx. No. of South Korean Workers
Sources : ROK, Ministry of
Unification(2006); Key Statistics KIC(2007).
By June 2007, 23 companies (including the
Korea Land Corporation and Hyundai Asan’s Kaesong Head Office) were operating
in the KIC and more were preparing to start operations. The additional
companies intended to produce apparel, bags, shoes, and paragliders.
As shown in Table 3, in 2006, the KIC-produced
goods totaled $ 73.7 million, up from $ 14.9 million worth in 2005. Production
in 2007 is roughly double that in 2006. As of the end of May 2007, 42.1% of the
cumulative production total had been in textiles, 26.1% in metals and
machinery, 18.2% in electronic products, and 13.5% in chemical products.
<Table 3> Production by Category in the KIC
Metals and Machinery
Electric and Eclectronic Products
Source : ROK, Ministry of Unification(2007).
Currently, all products made in the KIC are shipped to South Korea for
sale there or for export after clearing customs in the ROK. The primary export
destinations are China and Russia. Other
than labor, land, and site construction materials, there now is no local
procurement of inputs into the manufacturing processes in the KIC nor are
products manufactured in the KIC sold in North Korean markets. Most companies
there use labor-intensive manufacturing processes with raw materials and
intermediate goods from South Korea
shipped to Kaesong
for final assembly. As the KIC is expanded, however, companies could procure
some of their manufacturing inputs locally.
The KIC provides small-and-medium-sized companies access to labor
costs lower than those in China
or Vietnam, a workforce that
speaks the same language, and proximity to large markets in South Korea.
Some companies appear to be using production in Kaesong
to replace that in China, South Korea, or
elsewhere, but others may be using government-subsidized loans and political
risk insurance to invest in politically popular projects.
The long list of companies that have applied to enter the KIC,
however, indicates that investments there are likely seen as profitable for
most businesses. It also should be noted that an estimated 40% of the small-and-medium-sized
South Korean companies that established operations in China have not
been successful there. Many have withdrawn from that market. The KIC is viewed
as essential for survival by some of these companies.
2. Issues raised by the US in relation to the KIC
The KIC has raised some issues with U.S. policy makers. These include
financial benefits for Pyongyang, the control of
U.S. exports to North Korea,
and the KIC in the Korea-US FTA.
U.S.’s Security Concern on the KIC
A key aspect of the KIC for U.S. interests is how much the
North Korean government derives in hard currency from the project, including
leasing fees and its share of the wages of North Korean workers. This is so
because the financial revenues yielded from the KIC has the potential to
contribute to North Korea’s
military (including its missile and nuclear program).
The wages of North Korean workers are paid in dollars (or other
hard currency other than South Korean won) first to the Central Special
Direct General Bureau, a North Korean government agency.
The wages of North Korean workers are first paid in hard currency
(dollars) to the Central Special Direct General Bureau, a North Korean
government agency that deducts for certain items before paying the North Korean
workers in won or in chits to be exchanged for food and necessities. If the government
collects about $ 22.50 per month (in social insurance taxes plus the
socio-cultural fee) for each of the 12,446
workers at the KIC in March 2007, its monthly take from wages would amount to
approximately $ 280,000 per month or $ 3,360,000 over a year (although the
socio-cultural fee reportedly goes to the Kaesong city, not the central
In addition, there are land lease fees and other payments to the
North Korean government. When the project was initiated, Hyundai Asan paid North Korea $ 12 million for a 50-year lease on
the entire Kaesong
site. Hyundai Asan and the Korea Land Co. also purchase sand and gravel and
other raw materials from North Korea
for use in site development at Kaesong. Companies in the KIC also
pay North Korea’s
job reference agency (recruiting agency) a commission of $ 17 per
Under an agreement on taxation, businesses in the KIC are subject
to a 10% to 14% corporate income tax, but the tax has an exemption for five
years after first generating profits and a 50% deduction for the ensuing three
years. This compares favorably to corporate tax rates in South Korea (12% to 28%), China (15%), and in Vietnam (10% to 15%). In 2007, the South Korean
companies in Kaesong had not been operating long
enough there to have to pay corporate income taxes to North Korea.
In 2004, the Hyundai Research Institute estimated that North Korea
could receive $ 9.55 billion in economic gains over the course of nine years if
the KIC were to be developed fully and operated successfully. This would
include $ 4.6 billion in foreign currency earnings with $700 million derived
directly from the operation of the KIC, $2.5 billion from sales of raw materials
and other industrial products, and $1.4 billion from corporate taxes. Considering that in
international trade in goods in 2005, North Korea exported $1.8 billion
and imported $3.6 billion, the estimated total gains of $9.55 billion over nine
years associated with the KIC would be quite significant, provided it
progresses according to plan.
Given Kim Jong-il’s "military first" policy, the North
Korean military has top priority in the allocation of scarce economic
resources. It is not clear how much, if any, income (over that used to pay for
expenses related to Kaesong) for Pyongyang from the KIC currently is directed toward North Korea’s
military or nuclear program. Since the KIC land formerly was a military base
that had to be vacated, some arrangement may have
been made to compensate the military for relinquishing a strategically
important piece of ground. Even if the income from the KIC does not go directly
into military purposes, it may bolster funds for civilian purposes that had
been cut because of the budgetary demands of the military. The Kim Jong-Il’s
regime, moreover, uses scarce foreign exchange to bolster the loyalty of its
inner circle of elites who use it to buy imported luxury goods.
U.N. Security Council resolution 1718 (adopted October 2006)
explicitly prohibits any member state from providing funds that go to support North Korea’s
nuclear weapons program. The resolution states in Section 8(d) that all Member
States shall, in accordance with their respective legal processes, ensure that any
funds, financial assets or economic resources are prevented from being made
available by their nationals or by any persons or entities within their
territories, to or for the benefit of persons or entities engaged in or
providing support for North Korea’s programs related to nuclear weapons, other
weapons of mass destruction, and ballistic missile related programs.
Control of Exports to North
The United States
maintains a comprehensive economic embargo against North Korea because of its
designation as a state sponsor of international terrorism. The Departments of
Commerce and the Treasury jointly administer the trade embargo under the
Trading With the Enemy Act of 1917 and the Export Administration Act of 1979.
The Department of Commerce licenses U.S.
exports and re-exports, while The Department of the Treasury grants general
and/or specific licenses for financial transactions by U.S. persons
with North Korean entities. The Department of Commerce requires a license for
the export to North Korea
of virtually all commodities, technology, and software, except for technology
generally available to the public and gift parcels (not exceeding $400).
In FY2006, the U.S. Bureau of Industry and Security approved two
items for export to North
Korea. They were glass (fiber optic)
transmission items (5A991) worth $213,919 and software (5D992) for $3,600. The transmission items
were telecommunications equipment used by Korea Telecom in setting up the
communications lines between the two Koreas and into the KIC.
The South Korean government also maintains strict controls over
exports to North Korea.
The restricted items include machinery and inspection equipment to produce
metal and machines, electronics, optics, laser-related equipment, microorganism
cultivating devices and chemical product facilities, and sophisticated
high-technology equipment and materials. Even the latest versions of personal
computers, commonly available in South Korea, are restricted and, if
their export is approved, they have to be kept under lock and key in the KIC. New high-technology
monitoring systems, including tracking devices, are also being used for items
with sensitive dual-use technology.
3. South Korea-US FTA in connection with the KIC
During the negotiations on the Korea-US Free Trade Agreement
(hereinafter KORUS FTA), South Korea requested that products exported from the
complex be considered to have originated in South Korea in order to qualify for
duty-free status under the proposed FTA.
Under the South Korea-ASEAN FTA, for example, preferential tariffs
are applied to 100 items manufactured in the KIC. The Korea-Singapore and
Korea-EFTA (European Free Trade Association) FTA agreements also include
products from the KIC. Singapore accepts 88.6% of the traded products
from the KIC as long as no products are directly exported from North Korea.
The Korean FTA with EFTA limits coverage to 2.9% of the total trade and only
for those exports that have first been brought into the South Korean territory
and which have 60% of the total materials cost as South Korean. In the current
negotiations between South Korea
and the European Union, Seoul
has similarly requested products from the KIC be covered by the proposed FTA.
In 2006, the European Union (15 nations) imported $185.7 million worth of goods
from North Korea.
Switzerland imported $0.8
million and Singapore
For the United States,
however, from the beginning of the FTA negotiations with South Korea, the U.S.
position was that only products originating in South Korea would be included. At a
U.S. House International Relations Committee hearing on July 20, 2006,
Assistant U.S. Trade Representative Karan Bhatia indicated that the proposed
FTA would not cover goods made in a free-trade zone in North Korea.
The text of the KORUS FTA (signed by representatives of each
government on July 01, 2007 but not yet approved by Congress) does not
provide for duty-free entry into the United States for products made in
the KIC. The Office of the U.S. Trade Representative has been clear that the
Agreement does not include goods from the KIC. However, Annex 22-B to the
proposed FTA provides for a Committee on Outward Processing Zones (OPZ) on the Korean Peninsula
to be formed and to designate zones, such as the KIC, to receive preferential
treatment under the FTA. Such a designation apparently would require
legislative approval by both countries.
This Committee on OPZ is to meet annually to consider identifying
geographical areas that may be designated as OPZs and whose products could
qualify as goods originating in South
Korea. The Committee on OPZ would establish
criteria to be met to include but not be limited to "progress toward
denuclearization of the Korean Peninsula; the impact of the outward processing
zones on intra-Korean relations; and the environmental standards, labor
standards and practices, wage practices and business and management practices
prevailing in the outward processing zone with due reference to the situation
prevailing elsewhere in the local economy and the relevant international norms."
Decisions reached by the unified consent of the committee are to be recommended
to the Parties to the Agreement which shall be responsible for seeking "legislative
approval for any amendments to the Agreement with respect to outward processing
However, without such development, South Korea’s request to treat
products made in the KIC (Kaesong Industrial Complex) as South Korean in
origin would seem to be impossible. Meanwhile, South Korean companies exporting
the KIC products will likely continue to avoid the U.S.
market rather than face economic sanctions and high U.S. tariffs. Moreover, South Korea is likely to press the United States
to change its KIC policy. This could be a source of future U.S.-ROK tension even
if the KORUS (Korea-US) FTA is passed.
A question has arisen with respect to language in Annex 22-B
pertaining to labor standards and practices in the KIC with due reference to
the "situation prevailing elsewhere in the local economy and the
relevant international norms." Is the local economy in this case that
of North Korea or that of South Korea, and can products from the KIC be
produced under conditions contrary to ILO (International Labor Organization)
agreements that lay out basic international standards or worker rights yet
still be recommended by the OPZ Committee to be included under the FTA?
Another issue raised by the KORUS FTA is whether intermediate
products made in the KIC can enter the United
States under the provisions of the FTA if they are
incorporated into products that are manufactured in South
Korea and that qualify as originating in South Korea.
The same concern exists with respect to products made in China or
elsewhere if they have North Korean inputs. Currently, goods of North Korean
origin may not be imported into the United States either directly or
through third countries, without prior notification to and approval of the
Office of Foreign Assets Control of the Department of the Treasury.
III. A Comprehensive Policy for Northeast Asian Peace and Korean
Before presenting a comprehensive policy for Northeast Asian peace
and Korean unification, the author would like to introduce the recent '10․4 Joint Declaration' of Inter-Korean Summits as its background and
to point out the related issues, both political and economic.
1. The ‘10·4 Joint Declaration’ of Inter-Korean Summits
On October 4, 2007, South Korean President Roh Moo-hyun and North
Korean leader Kim Jong-il signed a declaration for advancement of South-North
Korean relations, peace and prosperity, wrapping up Roh's three-day visit to
the North. The declaration is composed of eight-point agreements. These
agreements are summarized in Table 4.
<Table 4> Summary of the ‘10·4 Joint Declaration’ of Inter-Korean
① Work to end the Korean War
cease-fire and press for a meeting of the other countries that signed the
1953 armistice ― the United States
―on a peace treaty.
② Cooperate to end military
hostilities, ease tensions and ensure peace on the peninsula.
③ Establish a common fishing zone
around the disputed Yellow Sea border.
④ Smoothly implement agreements
from international talks on North
Korea’s nuclear weapons programs to
resolve the issue.
⑤ Promote and expand economic
⑥ Open cargo railway service to
an already established joint industrial zone in North
Korea’s border city of Kaesong.
⑦ Build cooperative shipbuilding
⑧ Open an air route for South Koreans to North
Korea’s tallest peak, Mount Paektu.
Send joint cheering squads to the 2008 Beijing Olympics via rail.
In the political and military areas, the above Declaration
envisages declaring the Korean War over and seeking a summit of the four
parties involved to make that happen, holding frequent inter-Korean summits to
discuss pending issues, holding inter-Korean prime ministers' talks in Seoul
and inter-Korean defense ministers' talks in Pyongyang in November 2007, and
establishing a special "peace and cooperation zone" in the West Sea
and a joint fisheries zone.
Instead, the two leaders focused on economic cooperation and
exchanges in the form of concrete aid to the North. They also agreed to restore
the Kaesong-Sinuiju Railway and the Kaesong-Pyongyang Highway, start Mt. Baekdu
tourism projects, open direct flights from Seoul to Mt. Baekdu. They are to let
a joint support party for the 2008 Beijing Olympics travel along the
cross-border Gyeongui Railway, establish cooperative complexes for shipbuilding
in Anbyeon and Nampo, open freight railway services between Munsan and
Bongdong, and jointly use the Han River
However, there are some issues in the ‘10․4 Joint Declaration' of Inter-Korean Summits. There are as follows
First, the '10․4 Joint Declaration' of Inter-Korean Summits in 2007 committed the
to quickly finishing the first-stage construction of the KIC and to initiate
the second-phase. The complex, which already has more than 20 South Korean
firms and employs about 15,000 North Korean workers, is being built in three
stages under an agreement signed at the first summit between leaders of the two
countries in 2000. Moreover, the North’s Kim Jong-il and President Roh Moo-hyun
also agreed to create a "special peace and cooperation zone in the Yellow Sea" encompassing Haeju. It will include the
creation of a joint fishing zone and the utilization of Haeju Harbor.
The Hyundai Research Institute said in a report that the
second-phase construction in the KIC will cost the South $2.5 billion while the
enlargement of Haeju
Harbor will cost $300
million. The report said Seoul will also spend
up to $1.5 billion on repairing the railway between Kaesong
and $300 million for improvements on the Kaesong-Pyongyang highway (JoongAng
Daily, October 06, 2007).
On other economic agreements, the Hyundai Institute report said
the construction of cooperative shipbuilding complexes in Anbyon and Nampo will
cost the South $200 million. Another $2.4 billion will be needed for the
development of a leisure facility on Mount
Paektu and agricultural
projects in the North.
Even a rough estimate of the budget required is nearly impossible
at this stage. It is unclear how the funds for these projects are to be raised.
With only two months left prior to the Korean presidential election (December
19, 2007), it will be difficult for the incumbent government to make a start on
any of the projects.
Secondly, there is no reference to the process of unification or a
promise to abolish the National Security Law. The '10․4 Joint Declaration' simply says the two sides agreed to "overhaul
their respective legislative and institutional apparatuses in a bid to develop inter-Korean
relations in a reunification-oriented direction."
As for the issue of redrawing the NLL(Northern Limit Line), the de
facto sea border in the West Sea, the two sides agreed their defense ministers
will meet to discuss creating a joint fishing area in the West Sea.
The fact that it mentions no specifics shows how hard the two sides tried to
avoid reaching any agreement that might cause public controversy.
The two leaders agreed to push for a summit somewhere on the Korean Peninsula
of the parties to the Korean War - including the U.S.
-- to declare the Korean War over and to replace the armistice system that
still officially halts hostilities with a peace treaty. They also agreed to
hold inter-Korean summits "frequently" to discuss pending issues.
With regard to the nuclear problem, the two leaders agreed "to
work together to implement the Sept. 19, 2005 statement of principles and the
Feb. 13, 2007 agreement achieved at the Six-Party Talks." The document
includes no separate declaration of intent from North Korea to denuclearize and
dismantle its nuclear facilities. South Korean President Roh Moo-hyun made no
mention of the North Korean nuclear issue during his stay in Pyongyang.
2. Proposal of 'Northeast Asian Peace Treaty'
In conjunction with the issues that have been pointed out above,
the author urges Washington and Pyongyang to accept and execute the author’s
proposal of 'Northeast Asian Peace Treaty' which includes ‘A Comprehension
Policy for Northeast Asian Peace and South-North Korean Unification : ‘Big
Think, Big Act’ on North Korean Nuclear Issue’, which are summarized in
<Table 5> Proposal of ‘Northeast Asian Peace Treaty’
1. Considering deep distrust between Washington and
Pyongyang, USA shall announce in the UN Congress or Security Council (as
well as in the six-party talks) that :
○ USA shall respect mutual
sovereignty and peaceful coexistence (not just non-aggression) and
declares officially that it will guarantee the continuation of North Korean
shall provide financial support (beyond simple lifting of financial sanctions)
for economic development in North
Korea ; and
○ USA shall acknowledge the
production in Kaesong Industrial Complex of being intra-trade in the ‘South
Korea-North Korea Economic Community’ (as was the case before united
Germany under GATT), and shall allow products from the complex to be
exported to USA in the form of ‘normal trade relationship’ (so that the
products made in North Korea including the Kaeseong Industrial Complex can
avoid the high tariff specified in ‘column 2’ of US Export Administration
Regulation in 1979).
2. At the same time, North
Korea and USA shall take the following
Korea shall give up its WMD including nuclear weapons
according to ‘the 9·19 Beijing
Joint Declaration’ of 2005 and ‘the 2·13 Joint Agreement’ of 2007 ;.
○ In return, USA shall
delete North Korea from its list of ‘terror supporting countries’ (from
the ‘axis of evil’) in which North Korea was reappointed on April 30,
2007, and shall allow North Korea to have a seat in international financial
organizations (such as IMF, IBRD, IFC, World Bank, etc.) ;
○ Concretely, USA shall remove
North Korea from its 'list of terror supporting countries’ which enables
Washington to stand against international financial organizations’loans to
Pyongyang, shall delete North Korea from the list of countries prohibited
from receiving US aid according to USA’s applicable laws, shall unfreeze
North Korean assets, and shall mitigate or lift trade sanctions (including
the prohibitions specified in the ‘US Trading with the Enemy Act’ of 1953 and
‘US Trade Law’ of 1974) against North Korea; and
○ Accordingly, the above
international financial organizations shall immediately support economic
development of North Korea.
3. In connection with the aforementioned political/military
and economic agreement between USA
and North Korea, the two Koreas shall
take the following measures :
○ South Korea and North Korea
shall recognize each other’s mutual sovereignty, shall make concurrent
declarations of non-aggression against each other for permanent peace on the
Korean Peninsula, and shall try and collaborate, respectively and jointly, to
realize a peaceful unification of the two Koreas under conditions which can
be accepted by the peoples of South Korea and North Korea ;
○ Also, Seoul
and Pyongyang shall sign and announce the
‘Denuclearization Agreement’ just as they declared jointly the
‘denuclearization of the Korean
the facilities reprocessing plutonium and concentrating uranium) on
December 31, 1991. The four powers (USA,
Japan, China and Russia)
surrounding the Korean
immediately to these declarations ;
○ Along with this, as in the case of
united Germany where the
four victorious countries, i.e., USA,
UK, France and USSR,
and East Germany and West Germany signed an agreement ‘regarding
Berlin and whole Germany’
in 1990, the four principal belligerents of USA,
China, South Korea and North Korea shall sign ‘Northeast
Asian Peace Treaty’ replacing the ‘Armistice Agreement’of 1953. The principal
contents of the ‘Northeast Asian Peace Treaty’ are as follows:
• The belligerence between the
concerned countries (South Korea
and North Korea)
shall be officially terminated. Any exercise of military force or any threat
of exercise of military force shall be prohibited. The two Koreas shall
renounce the deployment, manufacturing, possession and control of nuclear,
biological and chemical weapons on the Korean peninsula.
• The two Koreas shall reduce conventional
weapons and use the resulting fiscal benefits for construction of the Kaesong
Industrial Complex, vitalization of South/North Korean economies and
socio-economic integration of both parties.
• The two Koreas shall form and run the
‘Multilateral Security Collaboration Forum in Northeast Asia’as a peace and
security mechanism such as OSCE (Organization for Security and Cooperation
4. Then, the two Koreas
shall sign a ‘Three-Party Agreement on Military CBMs (confidence building
measures) and Deployment of Military Force’. The major contents of this
Agreement are as follows:
○ They shall establish a
‘Military Committee’ specified in the Inter-Korea ‘Basic Agreement’ which was
signed on December 13, 1991 and effective on February 19, 1992 and shall let
it stay in permanent effect. The would-be Committee shall encourage and
monitor the faithful fulfillment of denuclearization, the above military CBMs,
relocation of military force and arms reduction, just as the MAC (Military
Armistice Commission) and NNSC (Neutral Nations Supervisory Commission)
played the roles of monitor and supervisor under the Armistice Agreement of
○ The two Koreas and USA shall check and
implement the military CBMs (such as control of the movement of
large military units and military training, peaceful use of the DMZ, exchange
of military information and personnel, progressive arms reduction including
the dismantlement of WMDs and attack capacities, and verification of the
reduction) related with the ‘Inter-Korean Basic Agreement on
Reconciliation, Nonaggression, Exchanges and Cooperation’, which went into
force in 1992, and the ‘South Korea-North Korea Summit Talks’ held on June
15, 2000 ; and
○ They shall relocate the
military force of both parties (such as tanks, cannons, armored
cars for battle, aircraft for battle, attack-only helicopters, short range
missiles and anti-aircraft defense equipment) to the rear, with bold arms
5. Furthermore, the two Koreas and four powers (USA,
Japan, China and Russia) shall construct a ‘Northeast Asian Peace City’
in Changdan County (around the DMZ) and shall launch and execute some joint
projects for peace and prosperity in Northeast Asia, such as development of
oil and gas wells in Irkutsk and Sakhalin, construction of oil and gas
pipelines for the wells, and linkage of traffic network with TKR (Trans
Korea Railway), TSR (Trans Siberian Railway) and TCR (Trans
China Railway). To this end, the six parties shall establish a ‘Northeast
Asian Development Bank’ to provide financial support for the projects.
This proposal is designed to find some way out of a possible
standstill of ‘the 9·19 Beijing Joint Declaration’ in 2005 and ‘the 2·13 Joint
Agreement’ in 2007, in connection with the ‘five-stage approach’ (peace
settlement → economic integration → socio-cultural integration
→political integration → military integration), which has been
studied by the author (1993, 1995e, 1997, 1999c, 2000, 2001, 2002a, 2005 and
2007). based on the functional integration theory of David Mitrany(1943) and
Advocating a shift from the ‘Sunshine Policy’ to ‘a Comprehension
Policy’for Northeast Asian peace and South-North Korean unification. The author
(2007) has also proposed a new Korean unification policy characterized by PCI
(Peace, Cooperation and Integration), which can remedy the conflictive
relationship of the two Koreas through South/North Korean economic cooperation
and peace settlement on the Korean Peninsula.
The proposed ‘Comprehension Policy’ emphasizes compliance with
three principles: 1) exclusion of absorptive unification ; 2) active pursuit of
peace and cooperation ; and 3) compliance with international norms. Also, the
bases of the policy are : 1) parallel pursuit of peace settlement and economic
cooperation; 2) separation between international politics and economic
cooperation; and 3) compliance with international laws. Finally, the proposed
‘Comprehension Policy’approaches the human rights issue in North Korea in the
following way: 1) dealing with human rights in North Korea from a humanitarian
standpoint; 2) no use of the human rights issue as a tool to change the North
Korean regime; and 3) no linkage with South Korea-North Korea relationship and
the North Korean nuclear issue.
In an attempt to pursue Northeast Asian peace and Korean
unification at the same time, the author recommends the two Koreas and four
powers (USA, Japan, China and Russia) to consider the proposed
‘Northeast Asian Peace Treaty’ as well as to construct a ‘Northeast Asian
Peace City’ in Changdan County (around the DMZ) in separation with the KIC
in North Korea and to launch and execute some joint projects for peace and
prosperity in Northeast Asia, such as development of oil and gas wells in
Irkutsk and Sakhalin, construction of oil and gas pipelines for the wells, and
linkage of traffic network with TKR (Trans Korea Railway), TSR (Trans
Siberian Railway) and TCR (Trans China Railway).
The proposal above can be considered to be significant in
consideration of the facts described below. The ‘2·13 Joint Agreement’ of 2007
in connection with the ‘9·19 Beijing Joint Declaration’ of 2005, which is more
binding than the ‘North Korea-USA Geneva Agreed Framework’ of October 21, 1994,
mentioned the abandonment of all nuclear weapons and nuclear programs of North
Korea, respect of mutual sovereignty, and peaceful coexistence. However, North Korea
launched the Daepodong 2 missile on July 5, 2006, and announced nuclear testing
on October 9th of the same year. The UN Security Council voted
unanimously for the resolution of sanctions against North
Korea on October 14, 2006, and the US clamped down on North Korea according to the PSI (Weapons
of Mass Destruction Proliferation Security Initiative).
What should be noted is that the US
should implement first the above suggestions under the preconditions of respect
for the mutual sovereignty and peaceful coexistence with North Korea. In
the North Korea-US talks, North Korea
has focused on ‘economic support first and nuclear freezing after’, while
the US has insisted on
‘freezing of North Korea’s
nuclear and biochemical weapons first and then economic support for North Korea’.
Even if the US
declares the above suggestions first, it has nothing to lose. On the contrary,
if North Korea does not
accept the US’s
suggestions above, it will be blamed by the international community for the
resulting continuation of the current highly threatening situation.
It may take a long time for the proposed ‘Northeast Asian Peace
Agreement’to be entered into and put into effect. Therefore, for the case that
the North Korean nuclear issue stands still in its way, the author presents a
solution for the promotion of economic cooperation between the two Koreas:
level-up and expansion of the economic cooperation between the two Koreas to
the dimension of Northeast Asian economic cooperation, and transformation of
the issues on economic cooperation between the two Koreas to those of Northeast
Asian economic cooperation. As the four powers around the Korean peninsula
jointly launch and execute some Northeast Asian economic cooperation projects,
they can allow North Korea to join it, depending on the degree of North Korea’s
fulfillment of the Joint Agreement (nuclear freezing → closure/sealing
→ disablement · CVID). For North Korea’s economic survival, it
will have no option other than to actively participate in the project.
In the process, North Korea will realize that it has to seriously
consider why China signed the CEPA (Closer Economic Partnership Arrangement)
to attract Hong Kong capital in its initial stage of economic development, why
China adopted the Act for Favorable Treatment of Chinese People Living In
Taiwan and established diplomatic relations with the US (1972), and why Vietnam
attracted US capital through its improved relationship with the United States.
IV. Concluding Remarks
Since June 2003 by Hyundai Asan and the Korea Land Corporation (both
from South Korea).
Currently, about 23 medium-sized South Korean companies are using North Korean
labor to manufacture products in Kaesong.
The KIC was planned, developed, and financed largely by South Korea,
and it has become a symbol of the growing level of engagement between the North
and the South.
However, the KIC enters into the U.S. policy debate because: (1)
South Korea would like the United States to consider products made in the KIC
as South Korean in origin for the purposes of the KORUS FTA; (2) the KIC has
become a growing source of foreign exchange for the communist government in
Pyongyang, (3) the KIC is part of the strategy by South Korea to ease tensions
with North Korea; (4) the KIC is a part of North Korea’s economic reforms
(similar to China’s SEZs) that could lead to greater liberalization in the rest
of its economy; (5) the KIC raises issues of security, human rights, and
working conditions in North Korea; and (6) U.S. government approval is needed
for South Korean firms to ship to the KIC certain U.S.-made equipment currently
under U.S. export controls. The most important issue with respect to the KIC is
whether the United States should support a project that provides revenue to the
Kim Jong-il regime in Pyongyang, considering the regime’s nuclear and human
rights policies, even though the project seems to be enhancing cooperation
between South Korea and North Korea, lowering labor costs for Korean
businesses, and providing a possible beachhead for market reforms in North
U.S. policy options include maintaining the status quo of supporting,
but not actively promoting, the KIC. The debate over the KORUS FTA had been
focused on labor and other conditions in the KIC, encouraging reforms in the
KIC, providing close oversight to the Committee on Outward Processing Zones (if
formed), tightening or loosening sanctions and export controls with respect to
North Korea, encouraging or prohibiting U.S. companies from doing business in
the KIC, placing restrictions on South Korean companies that do business in
North Korea, and encouraging other countries to (or not to) include the KIC in
their respective FTAs with South Korea.
The United States
currently has an embargo on trade with North Korea. Even without the
embargo, the United States has not granted North Korea normal trade relations
status (most favored nation status), so products made in North Korea
currently are assessed the high tariff rates of the 1930s (column two in the
U.S. Harmonized Tariff Schedule) when they enter the U.S. market. For
example, a woman’s cotton suit (H.S. code 6204.12.00) from South Korea currently is assessed a U.S. tariff of 14.9% while the tariff on a
comparable item from North
Korea is 90%. Under the proposed KORUS FTA,
the tariff on this item for South Korea
would be eliminated, but even if it were allowed to be imported from North Korea,
its tariff rate would remain at 90%.
However, the author can’t understand why South Korea and the United States have been conflicted
by the KIC, especially in connection with the products made in the KIC as South
Korean in origin. This is so because their conflict can be easily resolved by
the establishment/operation of ‘Northeast Asian Peace City’ in Changdan
County around DMZ in the South Korean territory, which has been initially (in
1991) proposed and consistently maintained by the author. In this case, the US would not
need to worry about a possibility that any revenue from the above SEZ might
inflow into the Kim Jong-il regime for its nuclear weapons and programs.
Moreover, the KORUS FTA can support the above SEZ so that the US can make a
good contribution to South Korean economic development and even Korean
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