Peace Initiatives:

A Comprehensive Approach to Northeast Asian Peace and Korean Unification


By Dr. Yang-Taek Lim

Dean and Professor, Economics and Finance College

Hanyang University, Korea




The purpose of this study is to propose a ‘comprehensive solution’ for the Northeast Asian peace and Korean unification, which is designed to find some way out of a possible standstill of the ‘9·19 Beijing Joint Declaration’ in 2005 and the ‘2·13 Joint Agreement’ in 2007, in connection with the ‘five-stage approach’ (peace settlement →economic integration → socio-cultural integration →political integration → military integration), which has been studied by the author (1993, 1995e, 1997, 1999c, 2000, 2001, 2002a, 2005 and 2007) based on the functional integration theory of David Mitrany(1943) and Myron Weiner(1996). In an attempt to pursue Northeast Asian peace and Korean unification, the author recommends the two Koreas and four powers (USA, Japan, China and Russia) to consider the proposed ‘Northeast Asian Peace Treaty’ as well as to construct a ‘South-North Korean Special Economic Zone’ in Changdan County, South Korea (around the DMZ) in separation with the KIC (Kaesong Industrial Complex) in North Korea. Due to its advantage that it is not subject to US's security concern on the KIC and control of exports to North Korea, this SEZ can make a good contribution to economic development of the two Koreas as well as to peace settlement and prosperity in Northeast Asia, such as development of oil and gas wells in Irkutsk and Sakhalin, construction of oil and gas pipelines for the wells, and linkage of traffic network with TKR (Trans Korea Railway), TSR (Trans Siberian Railway) and TCR (Trans China Railway).


Key Words : Comprehensive Policy, Northeast Asian Peace Treaty,

             South and North Korean Special Economic Zone,

             Korean Unification, Kaesong Industrial Complex

JEL Classification: P21, P26, P33



I. Background


The Korean Peninsular has been called a ‘powder magazine’ as shown by the Sino-Japanese War of 1894~1895, the Russia-Japanese War of 1904. 2~1905. 9 and the Korean War of 1950~1953. The Korean Peninsula also has been remained as the unique territory in which Cold War has been continued since Germany was unified on October 03, 1990.

Consequently, nobody would object Northeast Asian Peace and Korean Unification at least in the moral sense. However, there exist ideological conflicts between South and North Koreans as well as among the countries surrounding the Korean Peninsula : USA, China, Japan and Russia.

North Korea launched seven missiles on a trial basis on July 5, 2006, including the long distance missile Daepodong 2, which can theoretically strike the United States. Although the long distance ICBM (Intercontinental Ballistic Missile) exploded 40 seconds after its launch, it still demonstrated its inability to carry a nuclear warhead, and the experiment proved that North Korea can be a menace to the US. The experimental launch was followed by another North Korean nuclear experiment on October 9, 2006. This experiment was performed on a small scale of less than 1 kiloton, however it demonstrated North Korean nuclear capability and proved a partial success of the country’s nuclear program.

At present, North Korea is in violation of the NPT (Nuclear Nonproliferation Treaty), and the IAEA (International Atomic Energy Agency) inspectors were exiled from North Korea long ago. Therefore, it is increasingly possible for North Korea to develop a long range ICBM that can strike the United States. Also, the nuclear experiment of North Korea on October 9, 2006 increases the danger that Japan and China may enter into a nuclear arms race in Northeast Asia.

After a long period of difficulties, the Six-Party Talks adopted the '2·13 Joint Agreement' in 2007 as an initial measure of the ‘9.19 Beijing Joint Declaration’ in 2005. According to the Joint Agreement, North Korea agreed to close and seal the nuclear facility in Yongbyon and report its nuclear programs, while the remaining participants (The US, South Korea, China, Japan and Russia) in the Talks promised to provide energy and economic support for North Korea in return.

In this way, the US has shifted from the ‘Benign Neglect Policy’ and CVID (Complete, Verifiable, and Irreversible Dismantlement) to ‘the Negotiation Strategy’ and ‘the Realistic Approach’ of focusing on ‘easy things first and then difficult ones’ for the freezing of additional nuclear activities and prevention of nuclear proliferation.

What prompted the US into action? Along with the urgent problems such as the Republican Party’s defeat in the mid-term election and continuing Middle East issues, the US seemed to be concerned that delay in the solution of the North Korean nuclear problem might increase the nuclear weapons of North Korea and bring about the situation where North Korea is inevitably recognized to be a ‘de facto’ nuclear-armed nation.

A major goal of the United States in the Six-Party Talks is to halt and verifiably dismantle North Korea’s capability to produce nuclear fuel and nuclear bombs or to proliferate nuclear material or technology to potentially hostile countries or groups.[1] The U.S. strategy to accomplish this is a combination of sticks (sanctions, diplomatic isolation, and name calling) and carrots (promises of aid, diplomatic recognition, and security guarantees) conveyed to North Korea through the Six-Party Talks, bilateral meetings, and occasional media blasts.

In the ‘9·19 Beijing Joint Declaration’ in 2005, North Korea committed to abandoning all its nuclear weapons and existing nuclear programs. Following the "9·19 Joint Declaration", the ‘2·13 Joint Agreement’ in 2007 is an important initial step in that direction. The Joint Agreement commits all six parties (USA, North Korea, South Korea, China, Japan and Russia).

If the Six-Party Talks on the denuclearization of the Korean Peninsula were to progress far enough, the United States could re-establish diplomatic relations with North Korea, lift economic sanctions, and eventually grant the North normal trade relations status. If so, US trade with North Korea could be done on the same basis as trade with most other countries of the world.

As summarized by Figure 1, the current approach is broad in scope, with a comprehensive vision that seeks a lasting solution to the problem by addressing a wide range of economic and security issues. This is a key difference from previous bilateral efforts. It establishes tight timelines for actions that are measured in months, not years. Within 60 days, North Korea will (1) shut down and seal for the purposes of eventual abandonment the Yongbyon nuclear facility; (2) invite back the IAEA(International Atomic Energy Agency) to conduct all necessary monitoring and verifications; and (3) discuss with the other parties a list of all its nuclear programs, including plutonium extracted from used fuel rods, that would be abandoned pursuant to the Joint Statement.

The Six Parties agreed to provide emergency energy assistance to North Korea in the initial phase. The initial shipment of emergency energy assistance equivalent to 50,000 tons of HFO (heavy fuel oil) will commence within the first 60 days of the agreement. The Six Parties also established five working groups to carry out the initial actions and formulate specific plans for the implementation of the September 2005 Joint Declaration -- leading to a denuclearized North Korea and a permanent peace. The working groups are five: (1)Denuclearization of the Korean Peninsula, (2) Normalization of U.S.-North Korea Relations, (3) Normalization of Japan-North Korea Relations, (4) Economy and Energy Cooperation and (5) Northeast Asia Peace and Security Mechanism.

The details of the economic, energy and humanitarian assistance (up to the equivalent of 1 million tons of HFO) will be determined through consultations and assessments in the Economy and Energy Cooperation working group and will be commensurate with the steps which North Korea takes to fulfill its commitments, building on the commitment of the Six Parties in the Joint Agreement to take "Action for Action.".

An important aspect of the ‘2·13 Joint Agreement’ is that it begins to lay out a path to complete denuclearization, not just a temporary shutdown of the reactor at Yongbyon. Under the Agreement North Korea will discuss in the first 60 days a list of its nuclear programs that would be abandoned pursuant to the ‘9·19 Joint Statement’ in 2005. North Korea is well aware that it remains under Chapter VII UN sanctions. Today, UNSCR 1718 remains in effect, and North Korea understands that the international community will continue to fully and effectively implement the resolution. North Korea continues to face a basic strategic choice. There are political and material incentives on offer to North Korea, but it must fully denuclearize to realize the full benefits of those incentives. North Korea understands that it must abide by its commitments to receive these benefits.


[Figure 1] A Framework for Northeast Asian Peace and Korean Unification

Background of agreement on North Korean nuclear issue


North Korea-USA Berlin talks (January 16-18, 2007), the 9·19 Beijing Joint Declaration in 2005 by the participants in the six-party talks (agreement of speech vs. speech') and the 2·13 Joint Agreement in 2007(action vs. action)










USA : Shift toward realistic view because of defeat in mid-term election and Middle East issues

– Benign Neglect Policy → negotiation strategy, (CVID: Complete, Verifiable, Irreversible Dismantlement) → ‘easy things first and then difficult things’

North Korea : Pursuit of economic benefits

– Construction of strong military state and achievement of system unity through nuclear experiment

China : Active arbitrator to expand influence in the Northeast Asia

South Korea : Suggestion of joint inclusive approach

Significances of the

2·13 Joint Agreement


Establishment of initial-phase action plan











1) Higher effectiveness of drive and binding power than the Geneva Agreement (October 21, 1994)

  – Specified differentiated compensation and concrete fulfillment deadline for each stage from ‘freezing through closing and sealing to disenablement and CVID.

  – Adopted the principles of equivalence, concurrent fulfillment, equality and equity

2) Materialized and institutionalized the discussion agenda by establishing five working groups

  – Organized working groups for nuclear-free Korean peninsula, Northeast Asian peace and security, cooperation in economy and energy, normalized North Korea-USA relationship and normalized North Korea-Japan relationship

Effects on the Relationship between the two Koreas


Restoration of South-North Korean relationship and vitalization of economic collaboration are expected.






1) Successful regularization of the meeting of dispersed families and South-North Korean minister-level talks

2) Government’s supportive economic collaboration projects and private-sector economic cooperation are expected to be expanded.

3) Modernization of Nampo Harbor, railway renovations and SOC expansion

Some tasks for the peace in the Korean peninsula


Construction of the base for establishing peace in the Korean peninsula and South-North Korean economic community


North Korea : Fulfillment of the agreement on nuclear issue and efforts for improvement human rights, etc.

  – Creation of the environment for attraction of foreign capitals through continuous reform and liberalization and amendment of laws and regulations

South Korea : Through national cooperation (South-North Korean talk) and international collaboration (six-party talks)

  – Development of South-North Korean relations from conflictive and competitive ones to collaborative coexistence ones

  – Construction of ‘South-North Korean mutual development regime’ through development of sustainable collaboration model

USA and China : Support of North Korea's change through fulfillment of the agreement on nuclear issue and provision of incentives for North Korean reform and liberalization

  USA supports normalized relationship with North Korea and North Korea’s having a seat in international organizations as a regional stabilizer

  China plays a role of active arbitrator as a presidential country of the six-party talks and a country responsible for the division between the two Koreas.

Meanwhile, there are positive moves in the Bush administration toward Pyongyang. On September 24, 2007, U.S. Secretary of State Condoleezza Rice hinted that North Korea could be dropped from a U.S. terrorism backlist. In an interview with Reuters, she indicated that the U.S. may not necessarily link North Korea's removal from the list with the resolution of the Japanese abduction issue. It goes without saying that North Korea's de-listing is dependent on how sincere the country is in taking steps to scrap its nuclear weapons programs.

North Korea is expected to make substantial progress in the Six-Party negotiations scheduled for September 27-30, 2005 in Beijing to move forward with the 2nd stage of denuclearization. The North shut down its main nuclear reactor in Yongbyon in early July 2007 and promised to disable its nuclear facilities by the end of the year. The U.S., South Korea, and other Six-Party nations have positively assessed the North's nuclear disarmament. It's time for the North to make good on its commitments to enjoy energy aid and potential diplomatic incentives as well as to establish a peace regime on the Korean Peninsula.

However, some questions may be asked: Will it be possible for North Korea to undertake the freezing, closing and sealing, disablement and CVID (Complete, Verifiable, Irreversible Dismantlement) of its nuclear weapons? When and how will the North Korean nuclear weapons be dismantled completely?

The author is very unfortunately skeptical of the possibility that North Korea will give up its nuclear weapons at the level of CVID[2] because many challenges should be met to set the stage for disablement and CVID. The rationale of the author’s skepticism on North Korea’s abandonment of its nuclear weapons underlies that the ‘2·13 Joint Agreement’ in 2007 has differences in its interpretations among the Six-Party Talks and no mention of current nuclear weapons and HEU (highly enriched uranium) has been integrated into this Agreement. In particular, CVID requires the closing of current nuclear facilities and disposal of extracted plutonium and nuclear weapons. Additionally, the problems such as export of nuclear materials and HEU should be discussed and solved later.

Moreover, we should acknowledge that Kim Jong-il’s regime will never be satisfied only with economic, energy and humanitarian assistance at the sacrifice of its ‘unique’ method (nuclear weapons) for its survival. It is also true that the remaining Six-Party Talks will never be satisfied only with North Korea’s closing and revealing of the nuclear facilities in Yongbyon and report on its nuclear programs.

If it is true, under what conditions North Korea might be willing to abandon its nuclear weapons? The only route that the two Korean governments and other powers can choose is not the 'South African road' but rather the 'Libyan road'.[3] Under the assumption that this view is correct, the author insists that the Chinese prime minister, Hu Jintao, must negotiate with Kim Jong-il to induce him to give up North Korea’s nuclear program just as Tony Blair succeeded in persuading Muammar al-Qaddafi to abandon the Libyan nuclear program. However, different thoughts exist between the UK and China, and between Muammar al-Qadafi and Kim Jong-il.

Under the previously-described background, the purpose of this study is to propose a ‘comprehensive solution’ for the Northeast Asian peace and Korean unification, which is described in detail by the author's proposal of 'Northeast Asian Peace Treaty' for the two Koreas and the four big powers.


II. The Kaesong North-South Korean Industrial Complex


The author has initially proposed South-North Korean SEZ (special economic zone) in Changdan County around the DMZ (demilitarized zone) in the South Korean territory.[4] In contrast to it, Hyundai Asan and the Korea Land Corporation (both from South Korea) have been developing and managing the KIC (Kaesong Industrial Complex) which is an industrial park located about 160 miles southeast of Pyongyang and 43 miles north of Seoul just across the DMZ in the North, as shown by Figure 2.


[Figure 2] Location of the proposed South-North Korean SEZ

in Changdan County and the KIC

Source : Kaesong Industrial District Management Committee (

In this Chapter, the author would like to discuss over some issues of KIC in relation to the US such as (1) US's security concern on the KIC, (2) US's control of exports to North Korea, and (3) South Korea-US FTA in connection with the KIC.


1. The Development of the KIC


The KIC sits at the hub of spreading concentric sets of economic and geopolitical interests and concerns. At its narrowest sense, the KIC is a business venture in which participants are seeking profits and business advantages. On the South Korean side, the KIC provides small-and-medium-sized companies with a manufacturing platform and opportunity to access low-cost labor without having to go overseas to establish subsidiaries or to outsource the assembly of their products to China or other markets. On the North Korean side, the KIC provides jobs for workers who can earn relatively higher wages without crossing their borders illegally or working under contract in labor-scarce countries such as those in the Russian Far East or in Middle Eastern countries.

At a somewhat wider set of interests, the KIC provides a channel for reapproachment between North Korea and South Korea. The KIC developed partly from the South Korean "Sunshine Policy" of economic engagement with the North. It can be viewed as a confidence-building measure between the two Koreas whose hostility toward each other has lingered since the 1950-1953 Korean War. As has been the case with the extensive economic interchange between China and Taiwan, the KIC may provide a bridge for communication and a catalyst for cultural interaction, and it can create stakeholders in each other’s economies with a shared interest in stability, liberalization, and increased communication across the DMZ.

South Korea also aims to become a hub of East Asia. In order to accomplish this, it would like to be connected to China, Russia, and to Europe via railways that pass through North Korea. As part of the KIC project, North and South Korea have reconnected a railroad line connecting the north and south and have conducted a test run on it. In terms of logistics, a shipment by rail from South Korea via Kaesong to Hamburg, Germany would take about 27 days by ship, 10 days via the Trans-Siberian Railway, and 7 days via the Trans-China Railway.[5]

Table 1 shows the first three phases of the master plan for the project. The first phase encompasses 800 acres with as many as 300 South Korean firms operating in the KIC. At the end of phase 3, the plan calls for as much as 4,800 acres in the industrial zone with as many as 1,500 firms employing 350,000 North Korean workers and producing $ 16 billion worth of products per year. It also includes 2,200 acres in a supporting zone with residential facilities (dorms), commercial establishments (hotels, restaurants, offices and conference rooms), and tourist facilities (golf course, peace park and theme park). The Master Plan also includes an Expansion Zone of 1,600 acres for industrial use and 4,000 acres for support. This would be used after Phase 3 and would accommodate additional 500 companies, 150,000 employees, and estimated production of $ 4 billion per year. Counting the expansion zone, the grand totals for the Master Plan would be 6,400 acres for the Industrial Zone (10 square miles), 6,200 acres for the Supporting Zone, 2,000 companies, 500,000 workers, and $ 20 billion per year in products. The industrial and supporting zones together cover an area roughly one-fifth the size of Washington DC.


<Table 1> Hyundai’s First Three Phases of the Master Plan for the KIC


Phase 1


Phase 2


Phase 3


Total Land at Completion of Stage

800 acres in Industrial Zone Kaesong City as a Supporting Zone

2,000 acres in Industrial Zone 800 acres in Supporting Zone

4,800 acres in Industrial  Zone 1,600 acres in Supporting Zon

Total ROK Firms at Completion of Stage




Total North Korea Workers at Completion of Stage




Source : ROK, Ministry of Unification.


The KIC aims to attract South Korean companies, particularly small-and-medium-sized enterprises, seeking lower labor and other costs for their manufactured products as an alternative to establishing subsidiaries in China or other low-wage markets.

As of mid-2006, 1,800 companies had applied for entry into the KIC and had requested 5,112 acres. Of these 1,800 companies, 365 were in mechanical manufactures (auto parts, bolts, etc.), 298 in garments, 261 in textiles, 198 in electronics, and 112 in chemical materials (rubber, plastic, etc.). Other products to be manufactured include shoes, bags, toys, accessories, and other products.[6]

South Korean companies operating in the KIC receive certain incentives from the South Korean government and have certain rights as determined by negotiated agreements with North Korea. The KIC is a duty-free zone, with no restrictions on the use of foreign currency or credit cards and no visa required for entry or exit. Property and inheritance rights are ensured. South Korean law breakers in the KIC are not to go on trial in the North. The corporate tax rate is 10 to 14% with an exemption for the first five years after generating profits and a 50% reduction for the ensuing three years.

The South Korean government (through its Inter-Korea Cooperation Fund) offered the companies that established their operations in the KIC (in the pilot project and first phase) loans with low interest rates equal to those applied to public works projects. These loans totaled about $40 million as of the end of 2005.[7] Out of the first 26 firms to either begin operations or contemplate beginning operations in the near term, 25 of them applied for loans from the Inter-Korea Cooperation Fund.[8] South Korea also provides political risk insurance that will cover financial losses up to 90% of a company’s investment in the KIC up to five billion South Korean won (approximately $ 5.4 million). Under a South Korean law passed in April 2007, South Korean small-and-medium-sized firms operating in the KIC are eligible for state subsidies and other benefits equal to their counterparts at home.[9]

Of the $374 million initial cost for the first stage, $223 million was to be provided by the South Korean government. The supporting infrastructure is gradually being built. In December 2006, the Korea Electric Power Corporation connected North Korea and South Korea by a 100,000 kilowatt power-transmission line and in June 2007 began transmission of high-voltage electricity for use by the companies in the KIC. This was in addition to low-voltage electricity that had been in use since March 2005.[10] In May 2007, the two countries conducted a trial run of two railroads, one of them connects the Kaesong area with South Korea.[11] Meanwhile, Kaesong is connected to South Korea by a road that has more than 100 vehicles per day passing through the checkpoints.[12]

As shown in Table 2, by the end of 2006, 15 companies[13] had begun operations in Kaesong and were employing 11,000 North Korean workers. By May 2007, a total of 15,139 North Koreans were employed in the complex. Tenant firms were employing 12,539 North Korean workers, while additional 2,179 were engaged in construction in the complex, and 421 were working in managing the complex. A total of 773 South Korean staff worked in the KIC.[14]


<Table 2> Number of Firms and Workers in the KIC


End 2005

End 2006

No. of South Korean Manufacturing Firms



Approx. No. of North Korean Workers



Approx. No. of South Korean Workers



Sources : ROK, Ministry of Unification(2006); Key Statistics KIC(2007).


By June 2007, 23 companies (including the Korea Land Corporation and Hyundai Asan’s Kaesong Head Office) were operating in the KIC and more were preparing to start operations. The additional companies intended to produce apparel, bags, shoes, and paragliders.[15]

As shown in Table 3, in 2006, the KIC-produced goods totaled $ 73.7 million, up from $ 14.9 million worth in 2005. Production in 2007 is roughly double that in 2006. As of the end of May 2007, 42.1% of the cumulative production total had been in textiles, 26.1% in metals and machinery, 18.2% in electronic products, and 13.5% in chemical products.


<Table 3> Production by Category in the KIC



Chemical Products

Metals and Machinery

Electric and Eclectronic Products














Jan.~May 2007












Source : ROK, Ministry of Unification(2007).


Currently, all products made in the KIC are shipped to South Korea for sale there or for export after clearing customs in the ROK. The primary export destinations are China and Russia. Other than labor, land, and site construction materials, there now is no local procurement of inputs into the manufacturing processes in the KIC nor are products manufactured in the KIC sold in North Korean markets. Most companies there use labor-intensive manufacturing processes with raw materials and intermediate goods from South Korea shipped to Kaesong for final assembly. As the KIC is expanded, however, companies could procure some of their manufacturing inputs locally.[16]

The KIC provides small-and-medium-sized companies access to labor costs lower than those in China or Vietnam, a workforce that speaks the same language, and proximity to large markets in South Korea. Some companies appear to be using production in Kaesong to replace that in China, South Korea, or elsewhere, but others may be using government-subsidized loans and political risk insurance to invest in politically popular projects.

The long list of companies that have applied to enter the KIC, however, indicates that investments there are likely seen as profitable for most businesses. It also should be noted that an estimated 40% of the small-and-medium-sized South Korean companies that established operations in China have not been successful there. Many have withdrawn from that market. The KIC is viewed as essential for survival by some of these companies.[17]


2. Issues raised by the US in relation to the KIC


The KIC has raised some issues with U.S. policy makers. These include financial benefits for Pyongyang, the control of U.S. exports to North Korea, and the KIC in the Korea-US FTA.


A. U.S.’s Security Concern on the KIC


A key aspect of the KIC for U.S. interests is how much the North Korean government derives in hard currency from the project, including leasing fees and its share of the wages of North Korean workers. This is so because the financial revenues yielded from the KIC has the potential to contribute to North Korea’s military (including its missile and nuclear program).

The wages of North Korean workers are paid in dollars (or other hard currency other than South Korean won) first to the Central Special Direct General Bureau, a North Korean government agency.

The wages of North Korean workers are first paid in hard currency (dollars) to the Central Special Direct General Bureau, a North Korean government agency that deducts for certain items before paying the North Korean workers in won or in chits to be exchanged for food and necessities.[18] If the government collects about $ 22.50 per month (in social insurance taxes plus the socio-cultural fee)[19] for each of the 12,446 workers at the KIC in March 2007, its monthly take from wages would amount to approximately $ 280,000 per month or $ 3,360,000 over a year (although the socio-cultural fee reportedly goes to the Kaesong city, not the central government).

In addition, there are land lease fees and other payments to the North Korean government. When the project was initiated, Hyundai Asan paid North Korea $ 12 million for a 50-year lease on the entire Kaesong site. Hyundai Asan and the Korea Land Co. also purchase sand and gravel and other raw materials from North Korea for use in site development at Kaesong.[20] Companies in the KIC also pay North Korea’s job reference agency (recruiting agency) a commission of $ 17 per employee sent.[21]

Under an agreement on taxation, businesses in the KIC are subject to a 10% to 14% corporate income tax, but the tax has an exemption for five years after first generating profits and a 50% deduction for the ensuing three years. This compares favorably to corporate tax rates in South Korea (12% to 28%), China (15%), and in Vietnam (10% to 15%).[22] In 2007, the South Korean companies in Kaesong had not been operating long enough there to have to pay corporate income taxes to North Korea.

In 2004, the Hyundai Research Institute estimated that North Korea could receive $ 9.55 billion in economic gains over the course of nine years if the KIC were to be developed fully and operated successfully. This would include $ 4.6 billion in foreign currency earnings with $700 million derived directly from the operation of the KIC, $2.5 billion from sales of raw materials and other industrial products, and $1.4 billion from corporate taxes.[23] Considering that in international trade in goods in 2005, North Korea exported $1.8 billion and imported $3.6 billion, the estimated total gains of $9.55 billion over nine years associated with the KIC would be quite significant, provided it progresses according to plan.

Given Kim Jong-il’s "military first" policy, the North Korean military has top priority in the allocation of scarce economic resources. It is not clear how much, if any, income (over that used to pay for expenses related to Kaesong) for Pyongyang from the KIC currently is directed toward North Korea’s military or nuclear program. Since the KIC land formerly was a military base that had to be vacated,[24] some arrangement may have been made to compensate the military for relinquishing a strategically important piece of ground. Even if the income from the KIC does not go directly into military purposes, it may bolster funds for civilian purposes that had been cut because of the budgetary demands of the military. The Kim Jong-Il’s regime, moreover, uses scarce foreign exchange to bolster the loyalty of its inner circle of elites who use it to buy imported luxury goods.

U.N. Security Council resolution 1718 (adopted October 2006) explicitly prohibits any member state from providing funds that go to support North Korea’s nuclear weapons program. The resolution states in Section 8(d) that all Member States shall, in accordance with their respective legal processes, ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of persons or entities engaged in or providing support for North Korea’s programs related to nuclear weapons, other weapons of mass destruction, and ballistic missile related programs.


B. US's Control of Exports to North Korea


The United States maintains a comprehensive economic embargo against North Korea because of its designation as a state sponsor of international terrorism. The Departments of Commerce and the Treasury jointly administer the trade embargo under the Trading With the Enemy Act of 1917 and the Export Administration Act of 1979. The Department of Commerce licenses U.S. exports and re-exports, while The Department of the Treasury grants general and/or specific licenses for financial transactions by U.S. persons with North Korean entities. The Department of Commerce requires a license for the export to North Korea of virtually all commodities, technology, and software, except for technology generally available to the public and gift parcels (not exceeding $400).[25]

In FY2006, the U.S. Bureau of Industry and Security approved two items for export to North Korea. They were glass (fiber optic) transmission items (5A991) worth $213,919 and software (5D992) for $3,600.[26] The transmission items were telecommunications equipment used by Korea Telecom in setting up the communications lines between the two Koreas and into the KIC.[27]

The South Korean government also maintains strict controls over exports to North Korea. The restricted items include machinery and inspection equipment to produce metal and machines, electronics, optics, laser-related equipment, microorganism cultivating devices and chemical product facilities, and sophisticated high-technology equipment and materials. Even the latest versions of personal computers, commonly available in South Korea, are restricted and, if their export is approved, they have to be kept under lock and key in the KIC.[28] New high-technology monitoring systems, including tracking devices, are also being used for items with sensitive dual-use technology.


3. South Korea-US FTA in connection with the KIC


During the negotiations on the Korea-US Free Trade Agreement (hereinafter KORUS FTA), South Korea requested that products exported from the complex be considered to have originated in South Korea in order to qualify for duty-free status under the proposed FTA.

Under the South Korea-ASEAN FTA, for example, preferential tariffs are applied to 100 items manufactured in the KIC.[29] The Korea-Singapore and Korea-EFTA (European Free Trade Association) FTA agreements also include products from the KIC.[30] Singapore accepts 88.6% of the traded products from the KIC as long as no products are directly exported from North Korea. The Korean FTA with EFTA limits coverage to 2.9% of the total trade and only for those exports that have first been brought into the South Korean territory and which have 60% of the total materials cost as South Korean.[31] In the current negotiations between South Korea and the European Union, Seoul has similarly requested products from the KIC be covered by the proposed FTA. In 2006, the European Union (15 nations) imported $185.7 million worth of goods from North Korea. Switzerland imported $0.8 million and Singapore $6.6 million.

For the United States, however, from the beginning of the FTA negotiations with South Korea, the U.S. position was that only products originating in South Korea would be included. At a U.S. House International Relations Committee hearing on July 20, 2006, Assistant U.S. Trade Representative Karan Bhatia indicated that the proposed FTA would not cover goods made in a free-trade zone in North Korea.

The text of the KORUS FTA (signed by representatives of each government on July 01, 2007 but not yet approved by Congress) does not provide for duty-free entry into the United States for products made in the KIC. The Office of the U.S. Trade Representative has been clear that the Agreement does not include goods from the KIC. However, Annex 22-B to the proposed FTA provides for a Committee on Outward Processing Zones (OPZ) on the Korean Peninsula to be formed and to designate zones, such as the KIC, to receive preferential treatment under the FTA. Such a designation apparently would require legislative approval by both countries.

This Committee on OPZ is to meet annually to consider identifying geographical areas that may be designated as OPZs and whose products could qualify as goods originating in South Korea. The Committee on OPZ would establish criteria to be met to include but not be limited to "progress toward denuclearization of the Korean Peninsula; the impact of the outward processing zones on intra-Korean relations; and the environmental standards, labor standards and practices, wage practices and business and management practices prevailing in the outward processing zone with due reference to the situation prevailing elsewhere in the local economy and the relevant international norms." Decisions reached by the unified consent of the committee are to be recommended to the Parties to the Agreement which shall be responsible for seeking "legislative approval for any amendments to the Agreement with respect to outward processing zones."

However, without such development, South Korea’s request to treat products made in the KIC (Kaesong Industrial Complex) as South Korean in origin would seem to be impossible. Meanwhile, South Korean companies exporting the KIC products will likely continue to avoid the U.S. market rather than face economic sanctions and high U.S. tariffs. Moreover, South Korea is likely to press the United States to change its KIC policy. This could be a source of future U.S.-ROK tension even if the KORUS (Korea-US) FTA is passed.

A question has arisen with respect to language in Annex 22-B pertaining to labor standards and practices in the KIC with due reference to the "situation prevailing elsewhere in the local economy and the relevant international norms." Is the local economy in this case that of North Korea or that of South Korea, and can products from the KIC be produced under conditions contrary to ILO (International Labor Organization) agreements that lay out basic international standards or worker rights yet still be recommended by the OPZ Committee to be included under the FTA?[32]

Another issue raised by the KORUS FTA is whether intermediate products made in the KIC can enter the United States under the provisions of the FTA if they are incorporated into products that are manufactured in South Korea and that qualify as originating in South Korea. The same concern exists with respect to products made in China or elsewhere if they have North Korean inputs. Currently, goods of North Korean origin may not be imported into the United States either directly or through third countries, without prior notification to and approval of the Office of Foreign Assets Control of the Department of the Treasury.[33]


III. A Comprehensive Policy for Northeast Asian Peace and Korean Unification


Before presenting a comprehensive policy for Northeast Asian peace and Korean unification, the author would like to introduce the recent '104 Joint Declaration' of Inter-Korean Summits as its background and to point out the related issues, both political and economic.


1. The ‘10·4 Joint Declaration’ of Inter-Korean Summits


On October 4, 2007, South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il signed a declaration for advancement of South-North Korean relations, peace and prosperity, wrapping up Roh's three-day visit to the North. The declaration is composed of eight-point agreements. These agreements are summarized in Table 4.












<Table 4> Summary of the ‘10·4 Joint Declaration’ of Inter-Korean Summits

① Work to end the Korean War cease-fire and press for a meeting of the other countries that signed the 1953 armistice ― the United States and China ―on a peace treaty.

② Cooperate to end military hostilities, ease tensions and ensure peace on the peninsula.

③ Establish a common fishing zone around the disputed Yellow Sea border.

④ Smoothly implement agreements from international talks on North Korea’s nuclear weapons programs to resolve the issue.

⑤ Promote and expand economic cooperation projects.

⑥ Open cargo railway service to an already established joint industrial zone in North Korea’s border city of Kaesong.

⑦ Build cooperative shipbuilding complexes.

Open an air route for South Koreans to North Korea’s tallest peak, Mount Paektu.

⑨ Send joint cheering squads to the 2008 Beijing Olympics via rail.


In the political and military areas, the above Declaration envisages declaring the Korean War over and seeking a summit of the four parties involved to make that happen, holding frequent inter-Korean summits to discuss pending issues, holding inter-Korean prime ministers' talks in Seoul and inter-Korean defense ministers' talks in Pyongyang in November 2007, and establishing a special "peace and cooperation zone" in the West Sea and a joint fisheries zone.

Instead, the two leaders focused on economic cooperation and exchanges in the form of concrete aid to the North. They also agreed to restore the Kaesong-Sinuiju Railway and the Kaesong-Pyongyang Highway, start Mt. Baekdu tourism projects, open direct flights from Seoul to Mt. Baekdu. They are to let a joint support party for the 2008 Beijing Olympics travel along the cross-border Gyeongui Railway, establish cooperative complexes for shipbuilding in Anbyeon and Nampo, open freight railway services between Munsan and Bongdong, and jointly use the Han River estuary.

However, there are some issues in the ‘104 Joint Declaration' of Inter-Korean Summits. There are as follows :

First, the '104 Joint Declaration' of Inter-Korean Summits in 2007 committed the two Koreas to quickly finishing the first-stage construction of the KIC and to initiate the second-phase. The complex, which already has more than 20 South Korean firms and employs about 15,000 North Korean workers, is being built in three stages under an agreement signed at the first summit between leaders of the two countries in 2000. Moreover, the North’s Kim Jong-il and President Roh Moo-hyun also agreed to create a "special peace and cooperation zone in the Yellow Sea" encompassing Haeju. It will include the creation of a joint fishing zone and the utilization of Haeju Harbor.

The Hyundai Research Institute said in a report that the second-phase construction in the KIC will cost the South $2.5 billion while the enlargement of Haeju Harbor will cost $300 million. The report said Seoul will also spend up to $1.5 billion on repairing the railway between Kaesong and Sinuiju, and $300 million for improvements on the Kaesong-Pyongyang highway (JoongAng Daily, October 06, 2007).

On other economic agreements, the Hyundai Institute report said the construction of cooperative shipbuilding complexes in Anbyon and Nampo will cost the South $200 million. Another $2.4 billion will be needed for the development of a leisure facility on Mount Paektu and agricultural projects in the North.

Even a rough estimate of the budget required is nearly impossible at this stage. It is unclear how the funds for these projects are to be raised. With only two months left prior to the Korean presidential election (December 19, 2007), it will be difficult for the incumbent government to make a start on any of the projects.

Secondly, there is no reference to the process of unification or a promise to abolish the National Security Law. The '104 Joint Declaration' simply says the two sides agreed to "overhaul their respective legislative and institutional apparatuses in a bid to develop inter-Korean relations in a reunification-oriented direction."

As for the issue of redrawing the NLL(Northern Limit Line), the de facto sea border in the West Sea, the two sides agreed their defense ministers will meet to discuss creating a joint fishing area in the West Sea. The fact that it mentions no specifics shows how hard the two sides tried to avoid reaching any agreement that might cause public controversy.

The two leaders agreed to push for a summit somewhere on the Korean Peninsula of the parties to the Korean War - including the U.S. and China -- to declare the Korean War over and to replace the armistice system that still officially halts hostilities with a peace treaty. They also agreed to hold inter-Korean summits "frequently" to discuss pending issues.

With regard to the nuclear problem, the two leaders agreed "to work together to implement the Sept. 19, 2005 statement of principles and the Feb. 13, 2007 agreement achieved at the Six-Party Talks." The document includes no separate declaration of intent from North Korea to denuclearize and dismantle its nuclear facilities. South Korean President Roh Moo-hyun made no mention of the North Korean nuclear issue during his stay in Pyongyang.


2. Proposal of 'Northeast Asian Peace Treaty'


In conjunction with the issues that have been pointed out above, the author urges Washington and Pyongyang to accept and execute the author’s proposal of 'Northeast Asian Peace Treaty' which includes ‘A Comprehension Policy for Northeast Asian Peace and South-North Korean Unification : ‘Big Think, Big Act’ on North Korean Nuclear Issue’, which are summarized in Table 5.



<Table 5> Proposal of ‘Northeast Asian Peace Treaty’

1. Considering deep distrust between Washington and Pyongyang, USA shall announce in the UN Congress or Security Council (as well as in the six-party talks) that :


USA shall respect mutual sovereignty and peaceful coexistence (not just non-aggression) and declares officially that it will guarantee the continuation of North Korean regime ;

USA shall provide financial support (beyond simple lifting of financial sanctions) for economic development in North Korea ; and

○ USA shall acknowledge the production in Kaesong Industrial Complex of being intra-trade in the ‘South Korea-North Korea Economic Community’ (as was the case before united Germany under GATT), and shall allow products from the complex to be exported to USA in the form of ‘normal trade relationship’ (so that the products made in North Korea including the Kaeseong Industrial Complex can avoid the high tariff specified in ‘column 2’ of US Export Administration Regulation in 1979).


2. At the same time, North Korea and USA shall take the following measures :


North Korea shall give up its WMD including nuclear weapons according to ‘the 9·19 Beijing Joint Declaration’ of 2005 and ‘the 2·13 Joint Agreement’ of 2007 ;.

In return, USA shall delete North Korea from its list of ‘terror supporting countries’ (from the ‘axis of evil’) in which North Korea was reappointed on April 30, 2007, and shall allow North Korea to have a seat in international financial organizations (such as IMF, IBRD, IFC, World Bank, etc.) ;

○ Concretely, USA shall remove North Korea from its 'list of terror supporting countries’ which enables Washington to stand against international financial organizations’loans to Pyongyang, shall delete North Korea from the list of countries prohibited from receiving US aid according to USA’s applicable laws, shall unfreeze North Korean assets, and shall mitigate or lift trade sanctions (including the prohibitions specified in the ‘US Trading with the Enemy Act’ of 1953 and ‘US Trade Law’ of 1974) against North Korea; and

Accordingly, the above international financial organizations shall immediately support economic development of North Korea.


3. In connection with the aforementioned political/military and economic agreement between USA and North Korea, the two Koreas shall take the following measures :


○ South Korea and North Korea shall recognize each other’s mutual sovereignty, shall make concurrent declarations of non-aggression against each other for permanent peace on the Korean Peninsula, and shall try and collaborate, respectively and jointly, to realize a peaceful unification of the two Koreas under conditions which can be accepted by the peoples of South Korea and North Korea ;



Also, Seoul and Pyongyang shall sign and announce the ‘Denuclearization Agreement’ just as they declared jointly the ‘denuclearization of the Korean Peninsula’ (prohibiting the facilities reprocessing plutonium and concentrating uranium) on December 31, 1991. The four powers (USA, Japan, China and Russia) surrounding the Korean Peninsula agree immediately to these declarations ;

Along with this, as in the case of united Germany where the four victorious countries, i.e., USA, UK, France and USSR, and East Germany and West Germany signed an agreement ‘regarding Berlin and whole Germany’ in 1990, the four principal belligerents of USA, China, South Korea and North Korea shall sign ‘Northeast Asian Peace Treaty’ replacing the ‘Armistice Agreement’of 1953. The principal contents of the ‘Northeast Asian Peace Treaty’ are as follows:

• The belligerence between the concerned countries (South Korea and North Korea) shall be officially terminated. Any exercise of military force or any threat of exercise of military force shall be prohibited. The two Koreas shall renounce the deployment, manufacturing, possession and control of nuclear, biological and chemical weapons on the Korean peninsula.

• The two Koreas shall reduce conventional weapons and use the resulting fiscal benefits for construction of the Kaesong Industrial Complex, vitalization of South/North Korean economies and socio-economic integration of both parties.

• The two Koreas shall form and run the ‘Multilateral Security Collaboration Forum in Northeast Asia’as a peace and security mechanism such as OSCE (Organization for Security and Cooperation in Europe).


4. Then, the two Koreas and USA shall sign a ‘Three-Party Agreement on Military CBMs (confidence building measures) and Deployment of Military Force’. The major contents of this Agreement are as follows:


They shall establish a ‘Military Committee’ specified in the Inter-Korea ‘Basic Agreement’ which was signed on December 13, 1991 and effective on February 19, 1992 and shall let it stay in permanent effect. The would-be Committee shall encourage and monitor the faithful fulfillment of denuclearization, the above military CBMs, relocation of military force and arms reduction, just as the MAC (Military Armistice Commission) and NNSC (Neutral Nations Supervisory Commission) played the roles of monitor and supervisor under the Armistice Agreement of 1953 ;

The two Koreas and USA shall check and implement the military CBMs (such as control of the movement of large military units and military training, peaceful use of the DMZ, exchange of military information and personnel, progressive arms reduction including the dismantlement of WMDs and attack capacities, and verification of the reduction) related with the ‘Inter-Korean Basic Agreement on Reconciliation, Nonaggression, Exchanges and Cooperation’, which went into force in 1992, and the ‘South Korea-North Korea Summit Talks’ held on June 15, 2000 ; and


They shall relocate the military force of both parties (such as tanks, cannons, armored cars for battle, aircraft for battle, attack-only helicopters, short range missiles and anti-aircraft defense equipment) to the rear, with bold arms reduction.


5. Furthermore, the two Koreas and four powers (USA, Japan, China and Russia) shall construct a ‘Northeast Asian Peace City’ in Changdan County (around the DMZ) and shall launch and execute some joint projects for peace and prosperity in Northeast Asia, such as development of oil and gas wells in Irkutsk and Sakhalin, construction of oil and gas pipelines for the wells, and linkage of traffic network with TKR (Trans Korea Railway), TSR (Trans Siberian Railway) and TCR (Trans China Railway). To this end, the six parties shall establish a ‘Northeast Asian Development Bank’ to provide financial support for the projects.


This proposal is designed to find some way out of a possible standstill of ‘the 9·19 Beijing Joint Declaration’ in 2005 and ‘the 2·13 Joint Agreement’ in 2007, in connection with the ‘five-stage approach’ (peace settlement → economic integration → socio-cultural integration →political integration → military integration), which has been studied by the author (1993, 1995e, 1997, 1999c, 2000, 2001, 2002a, 2005 and 2007). based on the functional integration theory of David Mitrany(1943) and Myron Weiner(1996).

Advocating a shift from the ‘Sunshine Policy’ to ‘a Comprehension Policy’for Northeast Asian peace and South-North Korean unification. The author (2007) has also proposed a new Korean unification policy characterized by PCI (Peace, Cooperation and Integration), which can remedy the conflictive relationship of the two Koreas through South/North Korean economic cooperation and peace settlement on the Korean Peninsula.

The proposed ‘Comprehension Policy’ emphasizes compliance with three principles: 1) exclusion of absorptive unification ; 2) active pursuit of peace and cooperation ; and 3) compliance with international norms. Also, the bases of the policy are : 1) parallel pursuit of peace settlement and economic cooperation; 2) separation between international politics and economic cooperation; and 3) compliance with international laws. Finally, the proposed ‘Comprehension Policy’approaches the human rights issue in North Korea in the following way: 1) dealing with human rights in North Korea from a humanitarian standpoint; 2) no use of the human rights issue as a tool to change the North Korean regime; and 3) no linkage with South Korea-North Korea relationship and the North Korean nuclear issue.

In an attempt to pursue Northeast Asian peace and Korean unification at the same time, the author recommends the two Koreas and four powers (USA, Japan, China and Russia) to consider the proposed ‘Northeast Asian Peace Treaty’ as well as to construct a ‘Northeast Asian Peace City’ in Changdan County (around the DMZ) in separation with the KIC in North Korea and to launch and execute some joint projects for peace and prosperity in Northeast Asia, such as development of oil and gas wells in Irkutsk and Sakhalin, construction of oil and gas pipelines for the wells, and linkage of traffic network with TKR (Trans Korea Railway), TSR (Trans Siberian Railway) and TCR (Trans China Railway).

The proposal above can be considered to be significant in consideration of the facts described below. The ‘2·13 Joint Agreement’ of 2007 in connection with the ‘9·19 Beijing Joint Declaration’ of 2005, which is more binding than the ‘North Korea-USA Geneva Agreed Framework’ of October 21, 1994, mentioned the abandonment of all nuclear weapons and nuclear programs of North Korea, respect of mutual sovereignty, and peaceful coexistence. However, North Korea launched the Daepodong 2 missile on July 5, 2006, and announced nuclear testing on October 9th of the same year. The UN Security Council voted unanimously for the resolution of sanctions against North Korea on October 14, 2006, and the US clamped down on North Korea according to the PSI (Weapons of Mass Destruction Proliferation Security Initiative).

What should be noted is that the US should implement first the above suggestions under the preconditions of respect for the mutual sovereignty and peaceful coexistence with North Korea. In the North Korea-US talks, North Korea has focused on ‘economic support first and nuclear freezing after’, while the US has insisted on ‘freezing of North Korea’s nuclear and biochemical weapons first and then economic support for North Korea’. Even if the US declares the above suggestions first, it has nothing to lose. On the contrary, if North Korea does not accept the US’s suggestions above, it will be blamed by the international community for the resulting continuation of the current highly threatening situation.

It may take a long time for the proposed ‘Northeast Asian Peace Agreement’to be entered into and put into effect. Therefore, for the case that the North Korean nuclear issue stands still in its way, the author presents a solution for the promotion of economic cooperation between the two Koreas: level-up and expansion of the economic cooperation between the two Koreas to the dimension of Northeast Asian economic cooperation, and transformation of the issues on economic cooperation between the two Koreas to those of Northeast Asian economic cooperation. As the four powers around the Korean peninsula jointly launch and execute some Northeast Asian economic cooperation projects, they can allow North Korea to join it, depending on the degree of North Korea’s fulfillment of the Joint Agreement (nuclear freezing → closure/sealing → disablement · CVID). For North Korea’s economic survival, it will have no option other than to actively participate in the project.

In the process, North Korea will realize that it has to seriously consider why China signed the CEPA (Closer Economic Partnership Arrangement) to attract Hong Kong capital in its initial stage of economic development, why China adopted the Act for Favorable Treatment of Chinese People Living In Taiwan and established diplomatic relations with the US (1972), and why Vietnam attracted US capital through its improved relationship with the United States.


IV. Concluding Remarks


Since June 2003 by Hyundai Asan and the Korea Land Corporation (both from South Korea). Currently, about 23 medium-sized South Korean companies are using North Korean labor to manufacture products in Kaesong. The KIC was planned, developed, and financed largely by South Korea, and it has become a symbol of the growing level of engagement between the North and the South.

However, the KIC enters into the U.S. policy debate because: (1) South Korea would like the United States to consider products made in the KIC as South Korean in origin for the purposes of the KORUS FTA; (2) the KIC has become a growing source of foreign exchange for the communist government in Pyongyang, (3) the KIC is part of the strategy by South Korea to ease tensions with North Korea; (4) the KIC is a part of North Korea’s economic reforms (similar to China’s SEZs) that could lead to greater liberalization in the rest of its economy; (5) the KIC raises issues of security, human rights, and working conditions in North Korea; and (6) U.S. government approval is needed for South Korean firms to ship to the KIC certain U.S.-made equipment currently under U.S. export controls. The most important issue with respect to the KIC is whether the United States should support a project that provides revenue to the Kim Jong-il regime in Pyongyang, considering the regime’s nuclear and human rights policies, even though the project seems to be enhancing cooperation between South Korea and North Korea, lowering labor costs for Korean businesses, and providing a possible beachhead for market reforms in North Korea.

U.S. policy options include maintaining the status quo of supporting, but not actively promoting, the KIC. The debate over the KORUS FTA had been focused on labor and other conditions in the KIC, encouraging reforms in the KIC, providing close oversight to the Committee on Outward Processing Zones (if formed), tightening or loosening sanctions and export controls with respect to North Korea, encouraging or prohibiting U.S. companies from doing business in the KIC, placing restrictions on South Korean companies that do business in North Korea, and encouraging other countries to (or not to) include the KIC in their respective FTAs with South Korea.

The United States currently has an embargo on trade with North Korea. Even without the embargo, the United States has not granted North Korea normal trade relations status (most favored nation status), so products made in North Korea currently are assessed the high tariff rates of the 1930s (column two in the U.S. Harmonized Tariff Schedule) when they enter the U.S. market. For example, a woman’s cotton suit (H.S. code 6204.12.00) from South Korea currently is assessed a U.S. tariff of 14.9% while the tariff on a comparable item from North Korea is 90%. Under the proposed KORUS FTA, the tariff on this item for South Korea would be eliminated, but even if it were allowed to be imported from North Korea, its tariff rate would remain at 90%.

However, the author can’t understand why South Korea and the United States have been conflicted by the KIC, especially in connection with the products made in the KIC as South Korean in origin. This is so because their conflict can be easily resolved by the establishment/operation of ‘Northeast Asian Peace City’ in Changdan County around DMZ in the South Korean territory, which has been initially (in 1991) proposed and consistently maintained by the author. In this case, the US would not need to worry about a possibility that any revenue from the above SEZ might inflow into the Kim Jong-il regime for its nuclear weapons and programs. Moreover, the KORUS FTA can support the above SEZ so that the US can make a good contribution to South Korean economic development and even Korean unification.




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[1] On September 25, 2007, U.S. President George W Bush described North Korea, Belarus, Syria, and Iran as "brutal regimes that deny their people fundamental rights,"and called on the international community to join in the mission of democratization of those nations. Especially, the president's speech came after some allegations have it that Syria had received nuclear help from North Korea. Although Pyongyang flatly denied the allegations, some hard-liners were casting a suspicious eye on the North in an apparent bid to keep Washington from cozying up to the Stalinist regime.

[2] Standing alongside the author position is John Hamre (former US deputy secretary of defense under the Clinton Government), the President and CEO of the CSIS (Center for Strategic and International Studies), who states that he is "hopeful but skeptical" in regard to North Korea’s abandonment of their nuclear weapons program (Joongang Daily, April 16, 2007).

[3] For a detailed US Libyan relations, see Katzman (2006).

[4] The author defined role of this SEZ as 'Northeast Asian Peace City' which is similar to 'Danzig' (free city) based on the treaty of Versailles in 1919.

[5] Hyundai Asan(2006).

[6] Hyundai Asan(2006).

[7] Hyundai Asan(2006) ; ROK. Ministry of Unification(2006).

[8] Lim, Eul-chul(2006), p 172.

[9] South Korean Assembly Passes Bill on Inter-Korean Industrial Complex. Yonhap News Agency, April 27, 2007. Reported by BBC Monitoring Asia Pacific.

[10] S. Korea Starts Large-scale Supply of Power to N. Korea’s Kaesong Complex. Yonhap, June 21, 2007.

[11] Trains cross inter-Korean border for first time in over 50 years. Yonhap News Agency, Seoul, May 7, 2007.

[12] Republic of Korea, Ministry of Unification(2007).

[13] According to Republic of Korea, Ministry of Unification(2005), the 15 companies operating in the Pilot Industrial Complex in Kaesong in 2006 and their products include Sonoko Cuisine Ware (kitchenware), SJ Tech (semiconductor component containers), Shinwon (apparel), Samduk Trading (footwear), Bucheon Industrial (wire harness), Taesung Industrial (cosmetics containers), Daewha Fuel Pump (automobile parts), Munchang Co. (apparel), Romanson (watches, jewelry), Hosan Ace (fan coils), Magic Micro (lamp assemblies for LCD monitors), JY Solutec (automobile components and molds), TS Precision Machinery (semiconductor mold components), Yongin Electronics (transformers, coils), and JCCOM (communication components).

[14] Republic of Korea, Ministry of Unification(2007).

[15] Hyundai Asan(2006).

[16] ROK, Ministry of Unification(2006).

[17] Lim, Eul-chul(2006), pp. 68-69.

[18] According to the ROK Ministry of Unification(2006), Article 34 of the Labor Law of the KIC, however, states that wages must be paid directly to employees in cash. North Korea claims that this is not being implemented now because of the lack of foreign exchange centers in the KIC.

[19] The ROK Ministry of Unification has stated that of the $ 57.50 minimum monthly salary, $ 7.50 or 15% of the base pay goes for social insurance (providing for unemployment and occupational hazards). The North Korean government also deducts $ 15 or 30% for a socio-cultural policy fee that goes for rental of state-owned housing, education, medical services, social insurance, and social welfare and reportedly is given to the Kaesong City People’s Committee. According to the ROK Ministry of Unification, the remaining $ 35 is paid to the workers in cash (upwards of 5% in North Korean won) or as chits that can be exchanged for daily supplies (food and necessities) (Ministry of Unification document #uni4101). At the exchange rate of 140 North Korean won per dollar, the $ 35 translates into 4,900 won. Companies provide the workers with a way to verify their wages by having them sign a ledger or provide a pay slip when they receive their pay. A kilogram of rice costs about 44 won if bought from North Korea’s public distribution system but as much as 1,000 won if bought on the open market. The average family consumes about 60 kilograms of rice per month. North Korea Today, No. 38, September 2006. Good Friends: Centre for Peace, Human rights and Refugees, September 27, 2006.

[20] Communication from the Office of Korean Affairs, U.S. Department of State to the Congressional Research Service, June 7, 2007.

[21] Lim, Eul-chul(2006), p 144.

[22] Ibid, pp. 73-74.

[23] Ibid., p 61.

[24] Lim, Eul-chul(2006), p 37.

[25] For information on U.S. export controls, see U.S. Bureau of Industry and Security, Embargoed Countries and Entities (Section 746), Export Control Program Description and Licensing Policy.

[26] Bureau of Industry and Security, U.S. Department of Commerce(2007), p 93.

[27] The export license was approved by the U.S. Export Administration on November 16, 2005 (See Lim, Eul-chul(2006), p 206.)

[28] Ibid, p. 204.

[29] Merchandise FTA with Five ASEAN Countries to Take Effect in June 2007. Yonhap News (Seoul), May 30, 2007.

[30] Channel News Asia(2005) ; The ROK Ministry of Foreign Affairs and Trade(2007).

[31] Lim, Eul-chul(2006), p 189.

[32] See Letter, Rep. Sander Levin, Chair of the House Ways and Means Subcommittee on Trade to Ambassador Susan Schwab, USTR. June 12, 2007.

[33] U.S. Treasury, Office of Foreign Assets Control(2007). See Title 31, Part 500, U.S. Code of Federal Regulations.

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