Legal Problems of the Two Koreas
in the WTO Structure
Dongwook Lee*
1)
Contents
Ⅰ. Introduction
Ⅱ. The Current Problems of the Two Koreas in
connection with the WTO
Ⅲ. Advantage of Admitting North Korea in the
WTO
Ⅳ. Disadvantage of Having North Korea in the
WTO
Ⅴ. Conclusion
Abstract
Almost about half a century after the ceasefire of the Korean War in 1950, the
two Koreas are trying to help each other in a meaningful way toward mutual cooperation
and compensation. But the mutually favorable treatment can generate legal problems.
For example, both Koreas treated their trade as domestic trade rather than international
trade without applying any tariff. This is an outright breach of the WTO rules under
* JD expected in 2005, Washington University School of Law LL.M, Washington University School
of Law (2003); LL.M, International Economic Law, Korea University (2002); B.A., Chungnam National
University, South Korea (1988). The author is a former senior analyst of Chinese economy at Korea
Center for International Finance, a de facto government organization established by the Ministry of
Finance and the Bank of Korea in Seoul, Korea.
The author is deeply indebted to Professor Andrea L. Charters of Washington University School of
Law, MO, U.S.A. for her helpful insights, suggestions, advice, and encouragement without which this
article would not have been possible. Because of the fast changes in both Koreas' economic, legal,
and political situation over the last few years, some shortcomings and omissions may remain. The
author wishes to accept full responsibility for the facts and views expressed herein.
137
Asia Law Review
138
[Vol. 2 : 137∼158
the equal treatment principle of the most favored nation (MFN) clause, especially for
South Korea. South Korea attaches a “made in (South) Korea label” for the North
Korean products manufactured in Kaesong, in a breach of the WTO rules of origin.
To solve such legal conflicts, admitting North Korea into the WTO structure and having
the two Koreas sign a free trade agreement (FTA) would be a best possible alternative.
I. Introduction
During the Korean War, the two Koreas fought fiercely from 1950 to 1953.1)
“Although the two Koreas signed an Armistice Agreement, they technically remain in
a state of war.”2) Korea has been divided for more than half a century since the
war.
After the war, North Korea remained a hermit kingdom, secluding itself into its
own self-reliance ideology3) based on a one-person dictatorship. On the other hand,
South Korea went the opposite way, focusing on economic development, trying
to cherish democracy, and developing relationships with the big economies like
the United States, Japan, and the European Union. According to the Constitutions
of both Koreas, each regarded the other party as a terrorist or rebel group rather than
as a sovereign nation.4)
With the end of the cold war, however, changes started to take place between the
two Koreas.5) See generallyJessica Bentley Martine,Book Annotation,voiding the
1) See generally Max Hastings, THE KOREAN WAR, Simon & Schuster; Reprint edition (October 15,
1998)
2) Stephen Kong, The Right of Innocent Passage: A Case Study on Two Koreas, MINNESOTA JOURNAL
OF GLOBAL TRADE, 11 MNJGT 373 (Summer 2002).
3) Patricia Goedde, North Korea: Legal Perspectives and Analyses Essays: Law “of Our Own Style”: The
Evolution and Challenges of the North Korean Legal System, FORDAM INTERNATIONAL LAW
JOURNAL, 27 FDMILJ 1265 (April 2004)
4) See Chin Kim, Recent Developments in the Constitutions of Asian Marxist-Socialist States, CASE
WESTERN RESERVE JOURNAL OF INTERNATIONAL LAW, 13 Case W. Res. J. Int'l L. 483 (1981);
The Constitution of the Republic of Korea [South Korea] is available at
http://www.ccourt.go.kr/english/welcome01.htm and the Constitution of the Democratic People’s
Republic of Korea [North Korea] is available at http://confinder.richmond.edu/local_nkorea.html
5) See generally Jessica Bentley Martinez, Book Annotations, Avoiding the Apocalpse: The Future of
the Two Koreas by Marcus Noland, Washington DC, Institute for International Economics, 2000. PP.
2005]
Legal Problems of the Two Koreas in the WTO Structure
139
Apocalpse: The Future ofth Two Koreas by Marcus Noland,ashington DC, Institute for
International Economic, 2000. PP. XVI NEW YORK UNIVERSITY JOURNAL OF
INTERNATIONAL LAW AND POLITICS,33 NYUJILP 63 (winter 2001) “ In early
1988, the South Korean government announced a departure from its former
approach as a part of its new policy of engagement, to separate business from politics”6)
under the so-called Sunshine Policy. “The Sunshine Policy is [the South] Korea's North
Korea policies aimed at achieving peace on the Korean Peninsula through reconciliation
and cooperation with the North. It is not a simple appeasement policy in that it pursues
peace on the basis of a strong security stance.”7) Both Koreas started to favorably
recognize each other according to the mutual agreements that were culminated by the
summit talks in June 2000.8) “The meeting between Kim, Jong Il, the leader of [North
Korea], and Kim, Dae Jung, president of South Korea, which took place in Pyongyang
during June 2000, was the most important event on the Korean peninsula in the last
half century.”9)Yizhou Wang, supra Thanks to the characteristics such as homogeneous
ethnic composition, common culture, and language, the economic relationship and the
exchange of personnel between two Koreas smoothly and rapidly developed. “Once a
staunch proponent of communism and national self-reliance, North Korea has devalued
its currency 70-fold, allowed prices and wages to be determined by markets, partially
eliminated rationing, and announced the creation of a Chinese-style special economic
zone (SEZ) open to foreign investment. This arrangement is radically different from
traditional North Korean socialism.”10)
XVI, NEW YORK UNIVERSITY JOURNAL OF INTERNATIONAL LAW AND POLITICS, 33
NYUJILP 635 (winter 2001)
6) McFarland
Publishing
Co.,
Inter-Korean
Economic
Relations,
available
at
http://www.mcfarlandpub.com/excerpts/0-7864-1741-2.Chapter6.pdf
7) Federation of American Scientist, Newsletter, Aug. 12, 1999, The Government of the People's Sunshine
Policy
toward
North
Korea
and
Plans
for
Implementation,
available
at
http://www.fas.org/news/skorea/1999/990412-sunshine.htm
8) For details, see Yizhou Wang, The Historic Summit in the Korean Peninsula: Good Signs of a Safer
Region,
World
Economy
&
China,
Number
2,
2001,
available
at
http://www.iwep.org.cn/wec/English/articles/2001_02/wangyizhou.htm; Dong, Yong-seung, After the
Summit: The Future of Inter-Korean Economic Cooperation, EAST ASIA REVIEW, vol 13, no.20,
summer 2001, pp.75-96, available at http://www.ieas.or.kr/vol13_2/13_2_5.pdf
9) Yizhou Wang, supra
10) Harpal Sandhu, A Doomed Reform: North Korea Flirts with the Free Market, HARVARD
INTERNATIONAL REVIEW, March 22, 2003, available at http://hir.harvard.edu/articles/?id=1093
140
Asia Law Review
[Vol. 2 : 137∼158
Both Koreas have regarded mutual trade as ‘intra-Korean,’ or domestic, trade rather
than as international trade. South Korea, for example, did not apply any tariffs for
imported North Korean products. North Korea, as well, did not apply any tariffs to
South Korean products. With the rapid development of the economic relationship
between the two Koreas, problems started to emerge. Despite the mutually favorable
treatment to each other and the respective Constitutional arguments, the two Koreas
remain two separate independent sovereigns in the eyes of outsiders and according to
the rules and regulations of the World Trade Organization (WTO).11) It is more so
because “the situation on the Korean peninsula is of the utmost international sensitivity
and consequence.”12) Can the legal problems of the two Koreas be solved in
the WTO structure?13) What would be a possible solution to the legal stalemate
of the two Koreas in the WTO structure?
This article analyzes the legal problems challenging the two Koreas in the WTO
structure. Part I introduces this article with a brief sketch of the background. Part
II discusses the current problems of keeping North Korea out of the WTO and
allowing South Korea in the WTO structure. Part III analyzes the advantages
of admitting North Korea into the WTO system. Part IV analyzes the possible
arguments against barring North Korea from the WTO system. Part V concludes
this article with policy suggestions.
Ⅱ. The Current Problems of the Two Koreas in connection
with the WTO
During the early days, the total volume of intra-Korean trade was under $20 million.
In the beginning of the intra-Korean trade, it did not catch anybody’s attention,
11) See the official website of the WTO at http://www.wto.org/
12) Jessica Bentley Martinez, ibid.
13) This author was first inspired for the issue of intra-Korean trade under the WTO mechanism by Professor
Nohyoung Park, School of Law, Korea University, Seoul, Korea, while the author was attending Korea
Univ. Graduate School of Legal Studies from March, 2000 to July, 2002.
2005]
Legal Problems of the Two Koreas in the WTO Structure
141
Intra- Korean trade volume
800.0
m n U$
700.0
724.0
641.7
600.0
500.0
425.1 402.9
400.0
300.0
287.3
200.0
111.2
100.0
0.0
18.7
1989
173.4 186.5 194.5
252.0
333.4
308.3
221.9
year
13.4
1990 1991 1992
1993 1994
1995 1996 1997
1998 1999
2000 2001 2002
2003
(source: Ministry of Unification, South Korea, www.unikorea.go.kr)
since the trading volume was so minimal. “However, with the establishment of
relevant rules and regulations, including the [Intra]-Korean Trade and Cooperation
Act in August 1990, the trade volume exceeded $100 million.”14) But as of
December, 2003, the annual economic trade between two nations already reached
724 million U.S. Dollars.15) “Up to now, more than 540,000 South Korean people
have visited [North Korea]. Moreover, 10 rounds of intra-Korean ministerial talks
and five rounds of intra-Korean economic meetings have been held [.]”16) In
addition, “the two countries symbolically laid two sects of railway tracks to re-link
inter-Korean railways, which had been divided since the Korean War
(1950-1953).”17) As the size of intra-Korean trade grows, however, there is a
growing concern that it would become problematic according to the WTO rules
and regulations.
According to Clause 1, Article I of The General Agreement on Tariffs and Trade
(GATT 1947), South Korea, a WTO member state, is supposed to extend the
non-tariff policy, which has been applied to North Korean imports, to the other
14) (South Korean) Ministry of Unification, ibid.
15) Korea
Trade
Organization,
Intra-Korean
Trade
by
Year,
available
at
http://www.kotra.or.kr/main/trade/nk/static/sub01.jsp
16) Xinhua News Agency, Inter-Korean Ties Develop Rapidly Since 2000 Summit, June 15, 2003, available
at http://www.china.org.cn/english/international/67056.htm
17) Xinhua News Agency, ibid.
Asia Law Review
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[Vol. 2 : 137∼158
WTO members as well.
With respect to customs duties and charges of any kind imposed on or in
connection with importation or exportation or imposed on the international transfer
of payments for imports or exports, and with respect to the method of levying such
duties and charges, and with respect to all rules and formalities in connection with
importation and exportation, and with respect to all matters referred to in paragraphs
2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any
contracting party to any product originating in or destined for any other country shall
be accorded immediately and unconditionally to the like product originating in or
destined for the territories of all other contracting parties [my italics for emphasis].18)
According to GATT 1947, it is an outright breach of WTO rules if South Korea
does not apply the principles of most-favored nation [MFN] treatment and of
non-discrimination “immediately and unconditionally”19) to the other WTO members.
On the other hand, North Korea does not have to follow the WTO rules, since it is
not a member state of the WTO.
[Map of North Korea]
(source: MSNBC)
18) WTO, Clause 1, Article I:?General Most-Favoured-Nation Treatment, Part I, GATT 1947, Legal Texts:
GATT 1947, available at http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm
19) WTO, ibid.
2005]
Legal Problems of the Two Koreas in the WTO Structure
143
South Korea’s preferential treatment of North Korean products related with trade
became more problematic when South Korea signed a free trade agreement (FTA) with
Singapore. According to the Nov 29, 2004 Joint Declaration of Korea-Singapore FTA,
the agreement contained one very interesting provision that “products made in the North
Korean Kaesong20) industrial complex will receive the same preferential treatment as
products from South Korea.”21) “During negotiations with Singapore, the [South] Korean
government pushed for products made in Kaesong Industrial Park (a special economic
zone in North Korea for South Korean investors, which is located only about 40 miles
away from Seoul, the capital of South Korea) to be labeled ‘Made in Republic of Korea
(briefly ‘ROK,’ South Korea)’ and eventually gained agreement from Singapore. So
South Korean corporations are able to set up production lines in North Korea, produce
there, ‘import’ them back to South Korea, stick a ‘Made in ROK’ label, and then export
them to Singapore with no tariff.”22) Needless to say, this is a great boon to North
Korea, as North Korean products will be exported under the changed label of ‘made
in ROK (South Korea)’ without any tariffs being applied not only to Singapore, but
also to ASEAN [ASSOCIATION OF SOUTHEAST ASIAN NATIONS]23) member
states. As one of the richest nation in the ASEAN, Singapore has led other
ASEAN member states in policy making24) and now by the signing of the
Singapore-Korea FTA, South Korea is extending its favoritism to North Korea
to the whole ASEAN member states which include nearly 500 million population
s.25) South Korea’s preferential treatment of the products for those from Kaesong
20) Depending on news media, this romanization can be transliterated “Kaeseong,” “Kaesung,” “Gaesung,”
“Gaeseong” or “Gaesong.”
21) Vikash Yadav, Singapore-Korea: Free Trade Agreement, Dec. 01, 2004, available at
http://www.aucegypt.edu/faculty/vyadav/ipe/2004/12/singapore-korea-free-trade-agreement.html
22) KOPA, Korea-Singapore FTA ? Bridge to Southeast Asian Markets, Cornerstone for Services
Liberalization, Dec. 02, 2004, available at http://antiwto.jinbo.net/bbs/view.php?id=issue_eng&no=14
23) For details about ASEAN, see the website of ASEAN, available at http://www.aseansec.org/64.htm
The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok
by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and
Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar
on 23 July 1997, and Cambodia on April 30, 1999.
24) S Tiwari, Legal Implications of the Asean Free Trade Area, SINGAPORE JOURNAL OF LEGAL
STUDIES, 1994 SINGJLS 218, July 1994.
25) See ASEAN webpage, available at http://www.aseansec.org/64.htm The ASEAN region has a population
of about 500 million, a total area of 4.5 million square kilometers, a combined gross domestic product
Asia Law Review
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[Vol. 2 : 137∼158
Special Economic Zone, North Korea, is also an issue of rules of origin under
the WTO.
The Rules of Origin Agreement requires WTO members to ensure that their rules
of origin are transparent; that they do not have restricting, distorting or disruptive effects
on international trade; that they are administered in a consistent, uniform, impartial
and reasonable manner; and that they are based on a positive standard.26)
Because South Korea showed such a beneficial treatment to North Korean products,
the member states of the WTO showed strong concern and dissatisfaction with South
Korea. Japan, which is currently negotiating with South Korea for the FTA agreement,
for example, is expected to find the demand [to accept North Korean products produced
by South Korea-invested corporations in Kaesong, North Korea, as “made in ROK
products too difficult to accept, however, as Japan is considering imposing economic
sanctions on Pyongyang due to a lack of progress on the abduction issue.27)
But the reluctant dissatisfaction was generally outspoken until the most recent
brinkmanship of North Korea, especially because making such an expression of
dissatisfaction can be interpreted as interfereence with reunification dreams28)
of the people of both Koreas. For example, when “the U.S. government
[d]emanded the Korean government regulate the speed of development of the
industrial complex in the North Korean border town of Kaesong expressing
worries that North Korea might use ‘strategic facilities’ for military purposes,”29)
many Koreans when the news burst out that “Vice President Dick Cheney met
of US$737 billion, and a total trade of US$ 720 billion.
26) WTO, Rules of Origin: Made in ... Where?, available at
http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm#origin
27) The Asahi Shimbun, FTA with Seoul hindered by goods made in North, Feb.1, 2005, available at
http://www.asahi.com/english/world/TKY200502010190.html
28) See generally Young-sun Ji, Conflicting Visions for Korean Reunification, Weatherhead Center for
International
Affairs,
Harvard
University,
June
2001,
available
at
http://www.wcfia.harvard.edu/fellows/papers00-01/ji.pdf; Center for Strategic and International Studies,
Great
Power
Interests
in
Korean
Reunification,
Oct.
1998,
available
at
http://www.csis.org/polmil/KoreaGPInterests.pdf
29) Park Chung-a, US Blocking Kaesong Development Project, THE KOREA TIMES, Aug.20, 2004,
available
at
http://times.hankooki.com/cgi-bin/hkiprn.cgi?pa=/lpage/biz/200408/kt200408201743
0211900.htm&ur=times.hankooki.com&fo=print_kt.htm
2005]
Legal Problems of the Two Koreas in the WTO Structure
145
South Korea's foreign minister and pressed him not to reward the North by
pursuing trade deals with the country - a point on which the United States and
South Korea have increasingly been divided. [M]r. Cheney specifically urged
the South not to fill a North Korean request for hundreds of thousands of tons
of fertilizer, saying that the nations trying to disarm the North had to take a
common approach if they hoped to force its president, ‘Kim Jong Il,’ to choose
between nuclear arms and deeper isolation.”30) Now the problem of intra-Korean
trade has become an issue of multi-lateral and global parties.
Ⅲ. Advantage of Admitting North Korea in the WTO
1. North Korea and Policy Choices
Faced with the aforementioned complicated legal and economic issues of the two
Koreas and South Korea’s extension of preferential treatment of North Korean products
to the ASEAN, we need to answer one fundamental question: “How to deal with North
Korea?”31)
Among the many possible theories that might help explain the best choice for the
two Koreas in legal and policy aspects is game theory.32) “Game theory is the
study of the ways in which {strategic interactions} among {rational players}
produce {outcomes} with respect to the {preferences} (or {utilities}) of those
players, none of which might have been intended by any of them.”33) It is this
author’s belief that “recent developments in game theory, especially by Tucker's
30) JAMES BROOKE and DAVID E. SANGER, Japan Urges North Korea to Rejoin Disarmament Talks,
THE NEW YORK TIMES, February 12, 2005, available at http://www.nytimes.com/2005/02/12/
international/asia/12korea.html
31) James T. Laney and Jason T. Shaplen, How to deal with North Korea, Foreign Affairs, March/April
2003,
available
at
http://www.foreignaffairs.org/20030301faessay10336/james-t-laney-jason-tshaplen/how-to-deal-with-north-korea.html
32) See generally Douglas G. Baird, Robert H. Gertner and Randal C. Picker, the Game Theory and
the Law, Cambridge, Mass.: Harvard University Press (1998)
33) Stanford University, Game Theory, available at http://plato.stanford.edu/entries/game-theory/
Asia Law Review
146
[Vol. 2 : 137∼158
invention of the Prisoners' Dilemma example”34) could be a useful tool to explain the
issue of the two Koreas. Let’s look at a table which can explain the interactive
relationship between North Korea and South Korea.
Intra-Korean Relationship Game Model
North Korea: cooperation
North Korea: non cooperation
South Korea: compensation
Situtation 1 (O)
Situation 2 (∆1)
South Korea: on-compensation
Situation 3 (∆2)
Situation 4 (X)
In situation 1(O), both Koreas maintain peaceful coexistence through North Korea’s
cooperation and South Korea’s compensation eventually leading to prosperity. In
situation 2((∆1), South Korea keeps giving compensation to North Korea despite
lukewarm cooperation from North Korea. This dynamic cannot last long, since it favors
only one party at the expense of the other party. Under the Sunshine policy (initiated
by the South Korean President Kim, Daejung’s period [Feb.1998-Feb.2003]), this
situation did not in fact last long. In situation 3(∆2), South Korea does not compensate
while North Korea tries to cooperate and eventually tries to get assistance to get out
of the economic crisis. This phenomenon occurred for a short time during the Asian
financial crisis when South Korea experienced serious credit crunch problems. In
situation 4(X), South Korea does not want to compensate while North Korea also does
not want to cooperate. This is a worst case scenario. This dynamic had been maintained
on the Korean peninsula since the end of the Korean war up until 1998 when the South
Korean government decided to depart from its former approach as a part of its new
policy of engagement, to separate business from politics. Mutual hostility could develop
into a war at anytime. “[If we] explore the possibility of structuring North and South
Korean interactions to induce North Koreans to reveal their preferences, [i]n game theory
jargon, [and] if South Korea has some capacity to shape those conditions, it can
effectively settle the on-going policy dispute over North Korea.”35) In addition, the big
34) Roger McCain, Prisoner’s Dilemma, available at http://william-king.www.drexel.edu/top/eco/game/
dilemma.html
35) Jongryn Mo, Domestic Politics and the Future of North Korea Policy in South Korea, March 3-4,
2000 conference, Sigur Center for Asian Studies Elliott School of International Affairs George
Washington University, available at http://www.gwu.edu/~eastasia/events/trilat-00/mo-00.htm
2005]
Legal Problems of the Two Koreas in the WTO Structure
147
difference between the world in game theory and the real world is that the rational
player can keep talking to each other for the better direction in the latter case. Now
both Koreas seem to be on the right track of situation 1, since they have successfully
increased their trade volume and personnel exchange in a mutual cooperation and
compensation. For the two Koreas themselves, the Sunshine policy was the best choice
by which South Korea compensates North Korea so that North Korea will be able to
come out of its economic stalemate and starvation. At the same time South Korea is
able to maintain its prosperity, freedom, and democracy, without too much fear of North
Korea’s aggressions.
If we make a slight modification to the Intra-Korean Relationship Game Model
and replace South Korea with the international community including the United States,
the result is similar. We rather get essentially the same result.
International Community-North Korean Relationship Game Model
North Korea: cooperation
North Korea: non cooperation
International community:
compensation
Situtation 1 (O)
Situation 2 (∆1)
International community:
non-compensation
Situation 3 (∆2)
Situation 4 (X)
In situation 1(O), North Korea and international community maintain peaceful
mutual coexistence through North Korea’s cooperation and the guarantee of international
community for the North Koreans. In situation 2((∆1), the international community
keeps giving compensation to North Korea despite the deceptive cooperation from North
Korea. This cannot last long, since this situation gives the impression to the world that
the international community is being cheated. In situation 3(∆2), the international
community does not compensate while North Korea tries to cooperate and eventually
tries to get out of its economic muddle. In situation 4(X), the international community
does not compensate North Korea. Instead, the global community joins efforts to retrict
North Korea and even attempts to destroy North Korea while North Korea keeps
developing nuclear weapons and rejects any cooperation with the global community.
In this worst–case scenario, some big cities in East Asia, for example, Seoul,
Asia Law Review
148
[Vol. 2 : 137∼158
Pyongyang, and Tokyo might become another Hiroshima or Nagasaki.36) Even some
cities of the United States may be attacked by North Korean missiles.37) No
doubt that the U.S. and its allies will witness a huge number of war casualities.
Therefore, even in the International Community-North Korean Relationship Game
Model, situation 1 is the most desirable one. The only concern we do have is
we will have to make sure “[North Korea’s] belligerent behavior should not
obscure other dramatic conciliatory steps North Korea has taken in recent
years--steps suggesting that, even now, a solution lies within reach. The trick
is to craft a plan that does not reward the North for its misdeeds. In such a
plan, all major outside powers should guarantee the security of the entire Korean
Peninsula
first.
This
will
remove
Pyongyang's
excuse
for
nuclear
proliferation--and break the deadlock on the world's last Cold War frontier”38)
Now that we do have a firm belief that compensating North Korea for its cooperation
is the best choice for South Korea and the international community, we need to
see why it is a good idea to start with helping North Korea be admitted to the
WTO.
2) North Korea and Other International Economic Organizations.
North Korea has made several attempts to become a member of international
36) The U.S. dropped the atomic bombs over Hiroshima City on August 6, 1945 and the city of Hiroshima
was reduced to ashes. Again by the U.S. bombing of Nakasaki city on August 9th, 1945, about 70,000
people were killed by the intensive blast and radiation. For details, see Hiroshima and Nagasaki, 1945,
available at http://pegasus.phys.saga-u.ac.jp/peace1e.html; Hilary K. Josephs, The Remedy of Apology
in Comparative and International Law: Self-healing and Reconciliatioin, EMORY INTERNATIONAL
LAW REVIEW, 18 EMORYILR 53 (2004)
37) The December 2001 US National Intelligence Estimates (NIE) projected that a two-stage TD-2 missile
of North Korea could deliver a several-hundred-kg payload up to 10,000 km-sufficient to strike Alaska,
Hawaii, and parts of the continental United States. It further projected that including a third stage
could increase the range to 15,000 km, which would allow it reach all of North America. David
C. Wright, Assessment of the North Korean Missile Threat, Nautilus Institute, March 18, 2003, available
at http://www.nautilus.org/fora/security/0320A_%20Wright.html
38) James T. Laney and Jason T. Shaplen, How to deal with North Korea, Foreign Affairs, March/April
2003, available at http://www.foreignaffairs.org/20030301faessay10336/james-t-laney-jason-t-shaplen/
how-to-deal-with-north-korea.html
2005]
Legal Problems of the Two Koreas in the WTO Structure
149
economic organizations. But strangely enough, officially at least, North Korea has
never attempted to become a member of the WTO.39) North Korea applied in
April 1997 for the membership of Asian Development Bank and was denied by
the U.S.A and Japan.40) In June 1997, North Korea again unofficially contacted the
International Monetary Fund (IMF) and the IMF dispatched a fact-finding team to North
Korea in September, 1997. In February 1998, the World Bank also sent envoys to North
Korea to tap the possibility of providing financial aid.41) The big hurdle for North
Korea’s efforts to attract aid may be North Korea itself. North Korea has continued
developing weapons of mass destruction.42) North Korea’s development of weapons
of mass destruction is likely a barrier to joining the international financial and economic
institutions. The bigger problem is that North Korea failed to develop a better relationship
with the super powers, especially the United States, the gate keeper of the international
organizations. North Korea has become listed as a terrorist nation a part of “the axis
of evil,”43) and one of the “outposts of tyranny”44)“ by the U.S., the key decision-maker
of most of the international organizations, especially those international economic
organizations.45)
39) This author searched almost all the news article related with North Korea and the WTO to see whether
North Korea attempted for the entry into the WTO, available in English, Korean, Chinese, and Japanese,
but to no avail.
40) James T. Laney and Jason T. Shaplen, Id.
41) For detailed discussion about North Korea and international financial organizations, see Zang Hyungsoo
and Park Younggon, Methods of Multilateral Global Cooperation for the Reconstruction of North
Korean Economy, SEGYE GYEONGJE (World Economy), Korea Institute for International Economic
Policy, Seoul, Korea, May 2000, available in Korean at http://www.kiep.go.kr/cres/cres.nsf/webview3/
E3C 376352E8D1DB849256D36002012CC/$file/00-5-3.pdf
42) For details, see Sharon A. Squassoni, Weapons of Mass Destruction: Trade between North Korea
and Pakistan, Washington D.C.; Congressional Research Service, ( CRS Report RL 31900), May 7,
2003, available at http://www.fas.org/spp/starwars/crs/RL31900.pdf ; Kim Hyong-soo Ed., NORTH
KOREA’S WEAPONS OF MASS DESTRUCTION: PROBLEM AND PROSPECTS, Hollym
Publishing, Seoul, Korea (2004); Anthony H. Cordesman, Weapons of Mass Destruction and North
Korea, Washington D.C., Center for Strategic and International Studies, Feb. 2001.
43) “President Bush’s State of Union Address [Jan 29th, 2002], ibid.;
44) “ To be sure, in our world, there remain outposts of tyranny, and America stands with oppressed
people on every continent, in Cuba, and Burma, and North Korea, and Iran, and Belarus, and
Zimbabwe.” Condoleeza Rice [Jan19th, 2005], available at http://news.bbc.co.uk/1/hi/world/
americas/4186241.stm
45) See generally Theodore P. Seto, The Morality of Terrorism, LOYOLA OF LOS ANGELES LAW
REVIEW, 35 LYLALR 1227 (2002)
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[Vol. 2 : 137∼158
3. Benefits of the WTO
Let’s think about why the WTO is one of the best international economic
organizations for North Korea.
First of all, the WTO is more flexible about its membership when compared with
the United Nations (UN)46) or any other international organizations. “The WTO
Agreement, in line with its predecessor GATT, already provides membership for
both states and separate customs territories, while the United Nations Charter
limits its membership to sovereign states only.”47) One of the examples that best
shows the flexibility of the WTO is Taiwan’s admission.
Although the Constitution of the People’s Republic of China (China) clearly states
in its preamble that “Taiwan is part of the sacred territory of the People's Republic
of China,”48) Taiwan could join the WTO almost simultaneously with China. This is
the first time in the history of the WTO that a country with two different political
systems--communism and democracy--was permitted.49) This precedent could be
useful for the two Koreas.
“In the WTO case, Taiwan has taken advantage of the flexibility of the WTO
Agreement to create a particular place for itself, and the world's trading nations
also responded with a pragmatic compromise to produce a win-win outcome.
Unfortunately, these positive elements have yet to be seen with regard to entering
the United Nations.”50) Even if we consider Taiwan as an independent sovereign
state, the WTO is flexible enough to independently allow its membership to Hong
46) For details about the United Nations, see its website, available at www.un.org.
47) Jau-Yuan HWANG, If the WTO Can, Why Not the United Nations?, Aug 29,2001, available at
http://www.roc-taiwan.org/atlanta/press/20010829/2001082902.html
48) The Constitution of the People’s Republic of China, available at http://english.people.com.cn/
constitution/ constitution.html
49) For details about the legal issues of China and Taiwan in the WTO, see Qingjiang Kong, Cross-Taiwan
Straight Relations: What are the Legitimate Expectations from the WTO? MINNESOTA JOURNAL
OF GLOBAL TRADE,14 MNJGT 91 (Winter 2004); Qingjiang Kong, Can the WTO Dispute Settlement
Mechanism Resolve Trade Disputes between China and Taiwan? JOURNAL OF INTERNATINONAL
ECONOMIC LAW, 5 JINTECL 747 (September 2002)
50) Jan-Yuan Hwang, ibid.
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Legal Problems of the Two Koreas in the WTO Structure
151
Kong51) and Macao,52) although these two members of the WTO are under
Chinese sovereignty, but with different economic and political systems.
Now China is reportedly pushing for setting up a Chinese FTA with Hong Kong
and Macao. Especially with Hong Kong, China signed a Closer Economic
Partnership Arrangement (CEPA). Although there is no reference to CEPA in
the WTO legal texts, CEPA is regarded as “a free trade agreement between Hong
Kong and China and it is China’s first FTA to be effective as of January 1st, 2004.”53)
Under the CEPA, products from Hong Kong will be exempt from tariffs on the mainland
[China] and 17 of the [Hong Kong's] service sectors will gain wider access to the
mainland [China].54) In January 2002, former Vice-Premier Qian Qichen invited
Taiwan to talks on establishing a mechanism for cross-Straits co-operation on
economic issues. And [on July 18th, 2003,] Wang Zaixi, deputy director of the
Taiwan Affairs Office of the State Council, formally proposed a pact similar
to a free trade agreement to boost economic ties between the mainland and
Taiwan.55) In order not to be left out in this regional cooperation agreement
among the Chinese and to enjoy its economic benefits, Taiwan also shows strong
interest in becoming a member of the Chinese FTA.56)
Since the WTO provides membership for both states and separate customs territories,
North Korea’s accession to the WTO would not create any conflict with South
Korea’s legal system, which defines North Korea as a terrorist or rebel group
rather than a sovereign state,57) nor North Korea’s legal system, which is ruled
51) Hong Kong, China has been a WTO member since January1, 1995. For details, see
http://www.wto.org/english/thewto_e/countries_e/hong_kong_china_e.htm#top
52) Macao, China has been a WTO member since January 1, 1995. For details, see
http://www.wto.org/english/thewto_e/countries_e/macao_china_e.htm
53) For details about the CEPA, see the website of Hong Kong Trade Council, available at
http://www.hktrader.net/common/CEPAonePager.pdf
54) Wei Wang, CEPA: A Lawful Free Trade Agreement under "One Country, Two Customs Territoris?”
LAW OF BUSINESS REVIEW OF AMERICAS, 10 LBUSRAM 647 (summer 2004)
55) The People’s Daily, China's Mainland-Taiwan Trade Agreement Proposed, July 20, 2003, available
at http://english.people.com.cn/200307/20/eng20030720_120652.shtml
56) China Daily (Hong Kong Edition), CEPA Will Benefit Mainland, HK, Macao and Taiwan Economies,
Dec.2, 2003, available at http://www.chinadaily.com.cn/en/doc/2003-12/02/content_286549.htm.
57) For example, there is a heated debate within South Korea about National Security Law which refers
Asia Law Review
152
[Vol. 2 : 137∼158
under the North Korean Worker’s Party Charter, which has “the supreme goal
of the communization of the entire Korean peninsula.”58)
Second, the WTO permits the scheme of free trade agreement/free trade area
[FTA] among its members as an exception to the general principle of the MFN
which regulates that any WTO members shall extend equal treatment to the other
members.
[C]ountries setting up a FTA are allowed to use different rules of origin for
products traded under their free trade agreement. The agreement establishes a
harmonization work program, based upon a set of principles, including making rules
of origin objective, understandable and predictable.59)
Bilateral FTAs, for example, Korea-Singapore FTA and multilateral FTA such as
North American Free Trade Agreement [NAFTA] are good examples of the
exception to the WTO’s MFN principle. After making North Korea a member
of the WTO first, South Korea can keep extending the non-tariff policy for North
Korean imported products under the scheme of the FTA between two Koreas,
which is admissible by the WTO standard. Additionally, within this scheme of
FTA, both Koreas will be able to avoid the criticism of other countries regarding
changing the origin of the products made in Kaesong into that of South Korea.
4) WTO Linkage with Other International Economic Organization
In addition to the flexibility mentioned earlier, the WTO has worked hard for more
efficient cooperation with other international organization. “Art VI of The
to North Korea as “one of the anti-State groups whose intentions are to conduct or assist infiltration
of the Government or to cause national disturbances.”-translation from Korea Web Weekly, South
Korea’s National Security Law, available at http://www.hartford-hwp.com/archives/55a/205.html;
Gillian Oak, Fate of National Security Law, THE KOREA TIMES, Feb. 18,2005, available at
http://times.hankooki.com/lpage/opinion/200502/kt2005021819543854060.htm
58) Gillian Oak, Fate of National Security Law, THE KOREA TIMES, Feb. 18,2005, available at
http://times.hankooki.com/lpage/opinion/200502/kt2005021819543854060.htm
59) WTO, Rules of Origin…Made in Where? Available at http://www.wto.org/english/thewto_e/whatis_e/
tif_e/agrm9_e.htm#origin
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Legal Problems of the Two Koreas in the WTO Structure
153
Marrakesh Final Act (agreement for the WTO) provides that the WTO's General
Council shall make appropriate arrangements for effective cooperation with other
intergovernmental organizations that have responsibilities related to those of the
WTO, and this is one of the items on the agenda of the WTO Preparatory
Committee established at Marrakesh.”60) “Despite its establishment as
international organization in 1995, however, the WTO did not maintain sufficient
arrangement with the international financial organizations such as International
Monetary Fund (IMF) and the World Bank.61) Especially during the Asian
Financial Crisis, this deficiency of institutional arrangement drew much attention
when the active roles of the IMF were occasionally viewed to be in conflict
with the obligations of the WTO.”62) To solve such conflicts, the WTO made
separate agreements with the IMF and the World Bank, “recognizing the
increasing linkages between the various aspects of economic policymaking that
fall within the respective mandates of the IMF and the WTO, and the call in
the Marrakesh Agreement for greater coherence among economic policies
internationally”63) and “recognizing the increasing interlinkage between various
aspects of economic policymaking that fall within the respective mandates of
the World Bank and the WTO and the call in Marakesh Agreement for greater
coherence among economic policies internationally.”64)
60) http://www.sunsonline.org/trade/process/towards/10120094.htm
61) For details about the IMF and the World Bank, see respectively http://www.imf.org/　and
www.worldbank.org
62) Dukgeun Ahn, Linkage between International Financial and Trade Institutions: IMF, World Bank, and
WTO, available at http://www.kdischool.ac.kr/download/Faculty_resume/w00-03.pdf
63) Adopted by Decision No. 11381-(96/105), Preamble of Agreement between International Monetary
Organization and the World Trade Organization, November 25, 1996, available at
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11381-(96/105)
64) Dukgeun Ahn, ibid.
154
Asia Law Review
[Vol. 2 : 137∼158
Ⅳ. Disadvantage of Having North Korea in the WTO
Some may argue that the FTA between the two Koreas is meaningless, especially
because of the economic size and scope of North Korea. South Korea’s GDP is about
29 times bigger than North Korea’s65) while West Germany’s GDP was about three
times bigger than East Germany’s at the time of reunification in 1989.66) Because of
this huge economic gap between the two Koreas, some may argue that the suggested
FTA or mini-FTA between the two Koreas is insignificant, merely a South Korean tool
to facilitate the one-sided rescue packages for North Korea. But if we consider the
fact that North Korea is spending about 35-40% of its GDP on the military,67) we can
think of the costs related with the mini-FTA between the two Koreas somewhat
differently. In other words, we can think of the compensation or the one-sided rescue
package that might flow into North Korea as something like an insurance premium
for the rainy days. If North Korea gives up its traditional brinkmanship policy and moves
toward more friendly relationship with South Korea and the international community,
the compensation South Korea (and possibly other countries) might pay would be nothing
when compared with the worst-case scenario of a war. This argument is more persuasive
if we consider the fact that “the two Koreas are technically still at war.”68)
Ⅴ. Conclusion
The two Koreas have not recognized their trade as foreign trade per se and they
65) CIA World Fact book, available at http://www.cia.gov/cia/publications/factbook/geos/kn.html and
http://www.cia.gov/cia/publications/factbook/geos/ks.html.
66) For details about the German reunification, see Hans Werner Sinn, Germany’s Economic Unification:
An Assessment after Ten Years, WORKING PAPER 7586, National Bureau of Economic Research,
March 2000, available at http://www.nber.org/papers/W7586.pdf
67) For details, see Bill Gertz, North Korea Pumps Money into Military, THE WASHINGTON TIMES,
Aug.3, 2004, available at http://washingtontimes.com/national/20040803-122618-7502r.htm; According
to World Military Spending statistics, North Korea and South Korea respectively spent U$ 5 billion
and 14.8 billion in 2002. For details, see http://www.globalissues.org/Geopolitics/
ArmsTrade/Spending.asp
68) Stephen Kong, ibid.
2005]
Legal Problems of the Two Koreas in the WTO Structure
155
have treated the trade as domestic exchange.69) In addition, South Korea signed a FTA
agreement with Singapore with a provision which treats the imported products of
Kaesong, North Korea, as if they were South Korean products. But this would create
an outright breach of the WTO rules, first, about the principles of most favored nation
treatment applicable equally to all the member states and second, about the rules of
origin. In addition, North Korea keeps making troubles with its brinkmanship and nuclear
weapons in the Asia-Pacific region.70)
According the Prisoner’s Dilemma model, it would be the best option to lead North
Korea into peaceful cooperation rather than making the country remain a
belligerent war monger. A peaceful approach could solve the legal issues raised
by the intra-Korea trade in connection with the WTO principles, as well as the
security issues in the Asia-pacific region involving the two Koreas, Japan, and
even the United States.
The WTO membership for North Korea and the creation of a mini-FTA between
the two Koreas would be the best vehicle, without generating any domestic legal
problems of the two Koreas as well. The WTO system is more flexible than
the U.N. about its membership and it allows exception to the MFN and encourage
equal treatment via the scheme of the free trade agreement. In addition, the WTO
has linkage with other international economic organizations such as the IMF and
the World Bank. In order to realize the aims of admitting North Korea into the
WTO structure, solving the intra-Korea trade issues, and creating the mini-FTA
between the two Koreas, the following policy suggestions may be of help.
First of all, North Korea would better learn a lesson from Libya which was given
the green light to the WTO soon after it gave up the development program of
69) For details, see McFarland Publishing Co., Inter-Korean Economic Relations, available at
http://www.mcfarlandpub.com/excerpts/0-7864-1741-2.Chapter6.pdf
70) For details about the legal and policy issues in connection with North Korean nuclear weapons, see
Eric Yong-Joong Lee, The Geneva Agreed Framework and the Optimization of DPRK-US Relationship
for Nuclear Security: A Legal and Policy Analysis, CHINESE JOURNAL OF INTERNATIONAL
LAW, 2 Chinese J. Int'l L. 289, (2003) and Eric Yong-Joong Lee, The Six-Party Talks and the North
Korean Nuclear Dispute Resolution under the IAEA Safeguards Regime, ASIAN PACIFIC LAW &
POLICY JOURNAL, 5 Asian-Pac. L. & Pol'y J. 3 (2004)
Asia Law Review
156
[Vol. 2 : 137∼158
nuclear weapons.71) Libya shows signs of economic rehabilitation in the
international community through the U.S. backing in the WTO. Iran’s application
to open membership talks with the WTO was rejected because of US opposition,
72)
while Syria and Afghanistan are also shut out. The Libyan model, in the words
of Condoleeza Rice, the new U.S. Secretary of State, would be “a path for the
North Koreans that would put them in a more reasonable relationship with the
rest of the world."73) Cambodia is another model for North Korea to look into
if North Korea wants to learn more about what will happen by joining the WTO.74)
Cambodia recently completed the negotiations and received endorsement for its entry
to the WTO. It was certainly “substantial milestones not only for the Cambodian economy
but for all Least Developed Countries that seek to leverage the benefits of trade.”75)
Cambodia, together with the other least developed countries, understand the dear
lesson of past decades:“integration with the world economy works for
development.”76)
Second, South Korea’s initiative to bring about the peace on the Korean Peninsula
through the Sunshine Policy is praiseworthy. But if South Korea does not want to make
the Sunshine policy into “a sunset dilemma,”77) a more multi-dimensional approach
71) For details, see John Zarocostas, Libya gets OK on WTO entry talks, UNITED PRESS
INTERNATIONAL, July 27, 2004, available at http://www.washingtontimes.com/upi-breaking/
20040727-034055-9005r.htm
72) BBC,
Libya
Gets
Go-Ahead
for
WTO
Talks,
July27,
2004,
available
at
http://www.bilaterals.org/article.php3?id_article=311
73) Associate Press, Rice: North Korea Should Return to Nuke Talks, Feb.10, 2005,
http://www.cnn.com/2005/WORLD/europe/02/10/rice.ap/index.html
74) For details about the legal aspects of Cambodia’s WTO accession, see Rebecca Povarchuk, Cambodia’s
WTO Accession: A Strenuous but Necessary Step for a Poor Nation Seeking Prosperity, PACIFIC
RIM LAW AND POLICY JOURNAL, 13 PACRLPJ 645.
75) World
Bank,
Cambodia's
WTO
Accession:
Risks
and
Benefits,
available
at
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CAMBODIA
EXTN/0,,contentMDK:20251732~pagePK:141137~piPK:217854~theSitePK:293856,00.html
76) World Bank, ibid.
77) Dr. John Caruso Jr, Game Theory and Policy of Irrationality, available at
http://koreaweb.ws/pipermail/ksopen_koreaweb.ws/2001-March/000892.html; Strategic Forecasting
LLC, Sunset for South Korea’s Sunshine Policy? March 26,2001, available at
http://199.245.17.152/corpus/terror/www-stratfor-com/asia_commentary_0103261630.htm;
Just as the prisoners’ dilemma in Axelrod’s book(1984) means that if both players are rational, both
will decide to defect, and none of them will gain anything, the sunset dilemma means both Koreas
2005]
Legal Problems of the Two Koreas in the WTO Structure
157
would be desirable. For example, many countries, other than Singapore, may become
reluctant to recognize the North Korean products imported to South Korea as South
Korean products unless there are some incentives for recognition when signing the FTA
agreement with South Korea. South Korea should come up with a better sweetener to
persuade other countries into n that process, it is recommended that South Korea give
more consideration to the traditional allies-- the US, Japan, and the E.U. rather than
being blinded by a sentimental approach based on blood ties to North Korea. South
Korea should make sure the future economic assistance to North Korea be linked with
arms reduction programs and to lead North Korea into an international organization
like the WTO before extending unconditional favors to North Korea. In other words,
South Korea should provide compensation to North Korea within the framework of
the rules and norms of the global community.
Finally, the U.S., as one of the most important gate keepers of the international
economic organizations, should learn to be more tolerant about the membership of those
problematic “rogue states.”78) The U.S. should refrain from making any comments
that may be interpreted as interference into the domestic issues of the two Koreas.
If North Korea suddenly collapses or experiences a hard landing, it might become
a more costlier disaster than leaving North Korea as it is now.79) The primary
goal of the U.S. should lie in preventing North Korea from a collapse and
proposing confidence-building measures, economic aid, and diplomatic
engagement. All of these measures should be calculated to drive North Korea
toward reengagement with the outside world and interdependence with South Korea.80)
Although some in the Bush administration may think the next target is Pyongyang,
once Baghdad is over, it will be difficult to handle North Korea through forces. A peaceful
cannot gain anything. For details about the prisoners’ dilemma, see Axelrod R. M. The Evolution
of Cooperation. BASIC Books, New York, 1984
78) In general, see Noam Chomsky, U.S. Policy: Rogue States, available at http://www.zmag.org/
chomsky/articles/z9804-rogue.html
79) The idea that North Korea’s soft landing is in the best interest of the U.S. is mostly from Thomas
B. Grewe, Forging a Path to Peace and Stability on the Korean Peninsula: Implications and
Recommandation
for
the
U.S.
Foreign
Policy,
March
1999,
available
at
http://www.nps.navy.mil/Research/ThesisWinter99/nsa.pdf
80) Thomas B. Grewe, ibid.
Asia Law Review
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[Vol. 2 : 137∼158
approach to the Korean Peninsula would be the best possible alternative.
The success in bilateral relations with the U.S. will greatly help North Korea become
a member of the WTO and it will save South Korea from becoming a rule-breaking
state of the WTO. In that sense, the economic relationship between the two Koreas
is interlinked not only with the legal issue of the WTO rules and the two Koreas’ domestic
legal issues, but also with the trilateral relationships between South Korea, North Korea,
and the U.S.