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Unpublished Paper
Are the Outward Processing Provisions in the South Korean Free Trade Agreements Consistent with the Law of the World Trade Organization?
ExpressO (2013)
  • Pierce Lee, Mr.
Abstract

In recent years, the Republic of Korea (South Korea) has entered into many free trade agreements (FTAs) containing so-called outward processing provisions (OP provisions) that extend the benefit of duty-free trade to the products manufactured or processed in the Kaesong Industrial Complex (KIC). The KIC is an outward processing zone (OPZ) in the People’s Democratic Republic of Korea (North Korea) where South Korean companies are allowed to establish manufacturing plants and employ North Korean labor. Outward processing (OP) refers to temporary exportation of goods for additional processing. As “temporary” indicates, the finished goods are always imported back toSouth Koreafor domestic consumption or permanent exportation. Currently,South Koreadoes not impose any tariff on North Korean products because the South Korean government regards inter-Korean trade as “trade within a nation.” Other countries, however, do not consider the twoKoreasas one customs territory and treatKaesongproducts as North Korean goods. This is detrimental to the exporters ofKaesongproducts becauseNorth Koreais not a member of the World Trade Organization (WTO) and, thus, its products are not entitled to most-favored nation (MFN) rates of duty. The OP provisions are the South Korean government’s answer to this dilemma. However,South Korea’s FTA partners may be found in violation of the MFN principle when they apply the OP provisions to exempt or reduce tariffs onKaesongproducts. This article will therefore analyze the possibility of a successful violation complaint against South Korea’s FTA partners on the grounds that the South Korean OP provisions are discriminatory. This analysis will then lead to the conclusion that the OP provisions may amount to a violation of the MFN principle for which an Article XXIV defense is unavailable.

Keywords
  • Kaesong Industrial Complex,
  • Korea,
  • South Korea,
  • North Korea,
  • Outward Processing,
  • WTO,
  • Rules of Origin,
  • GATT Article XXIV,
  • Free Trade Agreement
Publication Date
April 30, 2013
Citation Information
Pierce Lee. "Are the Outward Processing Provisions in the South Korean Free Trade Agreements Consistent with the Law of the World Trade Organization?" ExpressO (2013)
Available at: http://works.bepress.com/pierce_lee/2/