May 16, 2011

May 16, 2011 | Commentary on North Korea

KORUS Won't Help North Korea

After years of delay, the South Korea-U.S. free trade agreement (KORUS) is rushing toward bipartisan Congressional approval. The Obama administration will formally submit it to Congress this month, and many previously fierce opponents have now jumped onboard as advocates.

But die-hard trade protectionists are still using red herrings and scare tactics to stoke opposition. The latest salvo includes allegations that North Korean goods would freely enter the U.S. market via the Kaesong industrial zone, a business venture 10 miles north of the demilitarized zone. 

KORUS critics also claim the agreement with indirectly subsidize North Korean leader Kim Jong-il and allow South Korean exports to contain — up to 65 percent — North Korean-made components.

These assertions are wrong. KORUS can never override long standing U.S. rules that prohibit the import of North Korean products. U.S. sanctions against North Korea always trump KORUS…no exceptions.

To clarify existing rules, President Obama approved anew executive order in April that flatly declares “the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea is prohibited.” The document also applies to North Korean parts, components, or labor incorporated into products made in other countries, including South Korea.

U.S. sanctions against North Korea place the allowable percentage of Kaesong content in South Korean goods at zero. These sanctions could be removed only if Pyongyang became as pure as an angel by abandoning nuclear weapons, ceasing to violate UN resolutions, and forsaking all the other illegal activities that characterize its existence. 

The KORUS agreement specifically allows Washington to maintain any existing measure against North Korean imports. For example, the Essential Security Exception clause states KORUS does not “preclude a Party from applying measures that it considers necessary for…the protection of its own essential security,” such as sanctions or restrictions on imports. 

Contrary to protectionists’ claims of “vague text” and “evading Congressional questions,” U.S. officials have repeatedly explained the situation to Congress. Bush administration U.S. Trade Representative Susan Schwab affirmed in a letter to Congress that “‘goods made in the Kaesong Industrial Complex are not eligible for FTA tariff preferences.”

Obama administration Deputy U.S. Trade Representative Demetrios Marantis testified last month that “goods produced in Kaesong do not receive any benefits under the US-Korea trade agreement. Any change to how Kaesong is treated under the agreement would require Congress to pass and the president to sign legislation. So there is nothing in this agreement that provides any benefits to Kaesong.”

Kaesong opened in 2004 amidst grandiose predictions of a meteoric expansion. The reality has been dismal and the future does not look good. Cheap labor has proved unable to compensate for North Korean resistance to capitalism and economic reform, frequent production stoppages, and security risks.

Currently, no South Korean conglomerates are involved in Kaesong, and most of the small and medium businesses have yet to turn a profit. All of the “North Korea” products produced at Kaesong consist of South Korean raw materials and components driven north for final assembly, then returned to South Korea.

There is little South Korean economic incentive, corporate advocacy, or political interest in expanding Kaesong — particularly after the north’s two deadly attacks on the south last year.

The KORUS FTA, which would increase U.S. exports by an estimated $10-11 billion annually and generate at least 70,000 new U.S. jobs It’s tragic that pact is being attacked over a struggling South-North Korea joint industrial zone that nets Pyongyang $50 million annually and isn’t even subject to the agreement.  That’s not just a case of throwing the baby out with the bath water, but throwing out the entire family.

Congress should reject trade protectionists’ blatantly false assertions. The current KORUS FTA text and existing U.S. laws are sufficient to prevent the import of North Korean goods into the United States.

Congress has already dithered over this agreement for four years.  That has cost our nation $40 billion in potential exports. Meanwhile, the world has moved forward.

Korea will continue to open its market — with or without KORUS approval.  But if Congress rejects KORUS, only foreign competitors will benefit. It’s time for Congress to remember that the American national bird is the eagle and not the ostrich.

Bruce Klingner is a senior research fellow in The Heritage Foundation’s Center for Asian Studies.

About the Author

Bruce Klingner Senior Research Fellow, Northeast Asia
Asian Studies Center

First appeared in The Hill