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DONG Yong-Sueng

FTA Impact on the Korean Peninsula

DONG Yong-Sueng

Apr. 4, 2007

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The Korea-US free trade agreement reached in Seoul on April 2 is another step in the post-Cold War era of quickened economic and political integration. If ratified by the US Congress and South Korea's National Assembly, the FTA should have a major impact beyond market access. Security conditions on the Korean peninsula would likely be influenced in three ways.

First, the agreement would broaden the US-Korean bilateral alliance. Since the onset of the Cold War, the US-Korean military alliance has existed as a symbolic bastion against communism. After the Cold War ended in the early 1990s, the dynamics underpinning the alliance gradually changed, including the nature of the North Korean threat. The change has become more evident and fundamental with US plans to adjust its overseas posture. Against this backdrop, the KORUS FTA would open up a new and more comprehensive framework for the US-Korean alliance. This would likely deepen bilateral economic interests along with military and security interests.

Second, the pact would change prevailing dynamics in inter-Korean relations. During the FTA negotiations, one of the most sensitive issues was whether goods produced in the Kaesong Industrial Zone, the North-South venture just north of the Demilitarized Zone would be recognized as originating from South Korea. Those goods were excluded from the FTA but the agreement included the creation of a Committee on Outward Processing Zones on the Korean peninsula. That could lead to Kaesong products ultimately being recognized as South Korea-made goods.

Considering the ongoing changes in the US-Korean alliance and the FTA provisions, inter-Korean relations will inevitably undergo fundamental changes. Currently, the main goal of inter-Korean economic relations is to help North Korea through any turbulent economic period and to facilitate cross-border reunions. In the future, however, this one-way assistance from the South to the North may not be possible and the South may have a different view of the North.

Third, the FTA would portend a change in trade relations in Northeast Asia. It would provide an impetus to a Korea-China FTA and Korea-Japan FTA as well as talks on the formation of a Northeast Asia free trade zone. Numerous approaches already are being discussed on a regional trade pact but there is no consensus on what mechanism should be employed.

The three changes will open the door for a post-Cold War transition in the region. Inter-Korean relations will have to factor in the larger context of regional cooperation. In particular, North Korea will need to recognize that forthcoming changes in Northeast Asia make an end to its nuclear brinkmanship and its active participation in regional cooperation a more promising path.

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