Promotion Strategy and Economic Effect of an Inter-Korean CEPA

Abstract

This study examines the necessity and possibility of an inter-Korean FTA in order to expand inter-Korean economic cooperation and economic integration between the two Koreas. In the meantime, inter-Korean economic cooperation has been free of tariffs (zero tariffs) since 1992 in accordance with the principle of "domestic transaction," and has been tolerated by the international community. However, as the scale of inter-Korean economic cooperation increases and economic integration is discussed in a fuller context, it is expected to become inevitable for the international community to raise the issue of trade practices. Also in the long run, if North Korea joins the WTO, there is the possibility of a complaint being lodged against South Korea, a member of the WTO, by WTO member countries. In this paper, we propose a Closer Economic Partnership Arrangement (CEPA) as a new development model of inter-Korean economic cooperation that will secure international legal legitimacy and contribute to economic change in North Korea. According to this study, it would be desirable to conclude the CEPA between the two Koreas in the form of an inter-agency arrangement rather than an intergovernmental agreement. Also, given the dynamics of the relationship between North and South Korea, it is important for the two Koreas to secure the "irreversibility" of agreements reached by defining as much detail as possible during the initial negotiations.

Keywords: FTA, CEPA, inter-Korean economic cooperation