A bilateral free trade deal between two Koreas
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By Michael Schluter, Jeremy Ive
Michael Schluter
We should never give up on the hope for long-term peace, and even eventual unification of the Korean Peninsula, even though it might be easy to do so. Indeed, there are a number of reasons for believing that this is just the time to look for a major move forward. More importantly, as we outline below, there is a way to overcome the obvious obstacles in the path to achieve this.
What exactly are we proposing? An incremental Bilateral Free Trade Agreement (BFTA) between South Korea and North Korea, initially for trade in agricultural products, but then extending step-by-step to other sectors over a period of 10 years. The goal would be to further intra-Korean cooperation and relieve humanitarian hardship in North Korea without the need for aid. For agricultural trade, sanctions exceptions would be needed to enable North Korea to export fish and marine products ($200m), nuts and forestry products ($150m) and products of lesser but still significant value including ginseng, beer, high quality water, and kimchi. North Korea would likely import from South Korea's agricultural machinery such as small tractors and other agricultural equipment, fertilizers (phosphates and potash), insecticides/pesticides among others. North Korea could even buy rice from South Korea in any future state of emergency.
Jeremy Ive
What are the obstacles to such a trade agreement? The most obvious are the political will in both North Korea and South Korea to engage in such an agreement, and the U.N. and other international sanctions. The latter could be overcome in return for North Korea indicating a willingness for step-by-step, verified denuclearization in return for incremental sanctions exemptions on bilateral trade. The terms of such a deal would be subject to negotiations between North Korea and the U.S.
The U.S. has recently clarified its willingness to talk to North Korea about anything, at any time, and anywhere; presumably, this would cover negotiations around incremental sanctions exemptions in return for incremental denuclearization. Indeed, the U.S. might welcome not only the initial conversation but the prospect of an annual conversation as North Korea and South Korea request to expand the trade agreement beyond the agricultural sector to others, such as textiles and mineral resources in exchange for energy and transport equipment.
U.S. support is even more likely if North Korea and South Korea agreed to use an SDR-type currency arrangement (see
), which would in effect be using local currencies for trade settlement facilitated by the two countries' respective central banks, as no hard-currency would be involved.
From a wider strategic standpoint, China would likely welcome this contribution to a more politically stable North Korea, increased trade opportunities and better transport links across the peninsula, as well as steps toward the denuclearization of North Korea. Japan would welcome the reduced threat from North Korea, and the opportunity to trade with North Korea in the future. For the U.S., stronger relationships between North Korea and South Korea would offer the prospect of long-term peace on the peninsula, as well as finding at last a way forward toward tackling denuclearization.
What would be the benefits to North Korea? On the basis of what Kim Jong-un, general secretary of the Workers' Party, has repeatedly promised to his people, such an agreement would help with modernizing the economy. This step-by-step proposal for expanded trade with North Korea would give a practical roadmap for modernization of the whole economy. Starting with the agricultural sector, growth of agricultural incomes would generate demand for locally produced textiles and other consumer goods, and local construction with multiplier effects across the whole economy. It would also help to stabilize inflation.
What would be the benefits for South Korea? The BFTA would create the opportunity to build a relationship with North Korea based not on humanitarian aid but on mutual respect and to mutual benefit. It opens up future possibilities not only for trade but for economic and even social convergence through the exchange not only of goods but also of professional and civil servants across different sectors of public life. This could possibly even contribute to a future vision where the Korean peninsula could be a multi-connected neutral state, like Switzerland in Europe, rather than the DMZ becoming the “Berlin Wall” of a new Cold War between the U.S. and China.
How can the process be kick-started? We believe that one way would be for the South Korean government to indicate to North Korea that it is interested in exploring this possibility, and for the U.S. saying that it would be willing to negotiate sanctions exemptions for a BFTA in return for step-by-step denuclearization. Is not this the moment for both North Korea and South Korea to “seize the day,” as all parties have an urgent interest to make it happen?
Dr. Michael Schluter is an economist and is President and CEO of Relational Peacebuilding Initiatives (www.relationalpeacebuilding.org) and Dr. Jeremy Ive is RPI's senior advisor. They have worked together on a number of high-level peace initiatives in Africa and Eastern Europe since 1986. Further details of these proposals can be found on the RPI website.