Feasibility of FTA between South and North Korea : Through Analysis of Intra- State Trades and North Korea's Economic Reformation Scheme

Abstract

After World War 􀸋, West Germany started internal trade with East Germany, and through intra-German trade, the two Germanys could accomplish unification based on continuous human exchange and economic integration. Recently, China has also completed free trade level agreements (ECFA and CEPA) with Taiwan and city states, Hong Kong and Macau. China and Taiwan have made a stronger economic foundation and unification circumstance through the agreement. The trade of divided nations such as Korea, Germany and China usually started from private level transactions in the beginning, and it developed to internal level, later to international level trade. In 1992, South and North Korea agreed on internal trade through the Inter-Korean Basic Agreement. Recently, South Korea also received recognition for Gaeseong products as outward processing goods through free trade negotiations. Thus, it may be said that the two Koreas have already laid a firm foundation for a South and North Korea FTA. However, in order to achieve FTA level trade between the two Koreas, the internal trade of both Koreas needs to be legally recognized from the international society and trade organizations such as the WTO. Above all, sincere attention and intention of North Korea to international and free trade would be one of the most indispensable factors. This paper tries to prove that, through the existence of various international economic activities of North Korea such as a Special Economic Zone and investment law, North Korea can join substantive economic co-operation with South Korea in the near future. This paper also shows that a South and North Korea FTA is a possible mission considering the North's intention to opening and reformation if South Korea encourages cooperation properly. Simultaneously, a South and North Korea FTA is not only the most adequate alternative to resolve the economic dependence of North Korea on China, but also preparation to confront the diplomatic relationship between Japan and DPRK. This set up of a two-Korea FTA would eventually make an indispensable foundation of unification of the two Koreas