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Research institute recommends inter-Korean trade agreement

The Hankyoreh | 8 August 2007

Research institute recommends inter-Korean trade agreement

CEPA could lead to changes in the North and greater unity between the two countries

A private think-tank claims that South and North Korea should work on signing a free trade pact to prompt changes in the communist country and eventually achieve consolidation of the two divided Koreas.

“With the future for a breakthrough in the nuclear crisis looking bright, a free trade pact between South and North Korea could usher in a new era of inter-Korean economic cooperation,” the Samsung Economic Research Institute (SERI) said in a report published recently. “To prompt changes in the North and achieve unity, the two should sign a CEPA,” he said, referring to a Closer Economic Partnership Arrangement.

SERI explained that since a free trade agreement is usually signed between two independent countries, the term is not appropriate for South and North Korea. A Closer Economic Partnership Arrangement is a type of free trade agreement and similar to that which was signed between China and Hong Kong in 2003.

In the CEPA between China and Hong Kong, the two sides agreed to expand the trade of goods and services, which helped the latter to post an annual growth rate of 5-8 percent, reversing the economic slowdown it suffered between 1998 and 2003. The trade pact also helped the two accelerate the move toward economic consolidation.

Trade between South and North Korea grew more than five-fold over the past decade but the inter-Korean economic changes were mostly non-commercial with the former providing aid to the latter. Commercial trade also centered on textiles and other low-end products, failing to prompt considerable change in the North’s economy.

SERI said that the key lies in how to persuade the North, adding that the signing of a CEPA is not impossible considering that the two paved the way for an economic pact in the Basic Agreement, which was signed in 1991 and outlines measures for improved inter-Korean relations, eventually leading to peaceful reunification.

“If the U.S. eases sanctions on the North, it will lead to an expansion of inter-Korean economic cooperation, and open the way for the communist country to join the World Trade Organization,” Lim Soo-ho, a chief SERI researcher, said. “In that case, other countries could claim that South and North Korea had violated their most-favored-nation treatment since the two would have engaged in non-tariff trades under the Basic Agreement. With the CEPA, we could avoid it.”

 source: Hankyoreh