Kaesong Industrial Complex (KIC)
Concerns have been raised regarding the possibility of importing products made in the KIC to the United States and avoiding the high tariffs imposed on other North Korean products. Some also argue that the passage of the United States-Korea Free Trade Agreement (KORUS FTA) will result in a surge of North Korean imports. These concerns are misplaced.
- The Kaesong Industrial Complex is a collaborative economic development zone between South and North Korea, located in North Korea, six miles north of the DMZ. Although it is located in North Korea and employs an estimated 42,000 North Korean workers, the complex was developed by the South Korean businesses.
- The purpose of this initiative is to support the stability in the Korean Peninsula by guiding North Korea to liberalize and reform its economy. The KIC may also serve as a channel through which the North Korean people may learn about the market economy.
- The U.S. has taken a similar approach in the Middle East by allowing products made in Qualifying Industrial Zones (QIZs) in Egypt and Jordan access to the U.S. market. It was envisioned in the U.S.-Israel FTA of 1985 and approved by U.S. Congress in 1996.
Concerns have been expressed that products made in the KIC might be marked as made in South Korea, then shipped to the U.S. or that they might be combined with other products in South Korea, then sent to the U.S.
- Most products made in the KIC are destined for markets in Asia and Eastern Europe. Korean companies that do business in the KIC purposefully isolate all KIC products and do not allow them to be shipped to the U.S. One reason is that no Korean company wants to run the risk of losing access to the American market because they violated the U.S. embargo on North Korea. The approval of the FTA won’t change that.
- The KORUS FTA will introduce one of the most effective customs enforcement measures the U.S. has ever agreed to in an FTA, including unannounced visits to Korean textile and apparel producers and denying entry for effective goods. This will effectively help prevent any fraudulent declaration of origin.
Some interested parties have expressed concern that the approval of the KORUS FTA, would grant duty free or reduced tariff access to products made at the KIC in the U.S. market. However,
- The KORUS FTA does not grant products made in the KIC with immediate duty free access to the U.S. The agreement provides for a future opportunity to expand the FTA to include products made in the KIC if, and only if, both the U.S. and South Korean governments agree by unified consent.
- Under the KORUS FTA, stringent criteria must be met before products from the KIC may be considered for market access, including but not limited to:
- Progress towards denuclearization of the Korean Peninsula;
- The impact of the area on intra-Korean relations;
- The environmental standards, labor standards and practices, wage practices and business and management practices prevailing in the area, with due reference to the situation prevailing elsewhere in the local economy and the relevant international norms.
- Furthermore, the agreement specifically provides each government’s responsibility to seek legislative approval for any amendment to the FTA that would allow products from the KIC to access the U.S. market.
