hankyoreh

near Panmunjom. (by Lee Jeong-ah

By Kim Gyu-won, staff writer 　

South Korea and China have agreed to designate the Kaesong Industrial Complex an outward processing zone (OPZ). The agreement was made shortly before the two countries’ trade ministers declared the opening of negotiations for a South Korea-China free trade agreement (FTA).

China has shown a forward-thinking approach on the issue, which had led observers to predict a positive impact on future OPZ negotiations with the European Union and United States. Such recognition would mean that items produced with raw materials or parts sent to Kaesong by South Korean businesses would be acknowledged as South Korean in origin.

OPZs were fourth on the agenda as the two countries declared FTA negotiations open at a trade ministers’ meeting Wednesday in Beijing. Speaking at a press conference, South Korean trade minister Park Tae-ho said an agreement had been reached to assign preferential tariff status to items produced in OPZs designated by the two sides.

“Once the agreement goes into effect, it will offer wide opportunities for businesspeople and contribute to peace on the Korean Peninsula,” Park said in what amounted to a declaration that the two countries would be recognizing OPZs in a future FTA.

The Kaesong Industrial Complex is not recognized as an OPZ in South Korea’s FTAs with either the EU or the US. Korean Peninsula OPZ committees are scheduled to be formed to discuss the acknowledgment question for those FTAs in July 2012 and March 2013, respectively.

Washington is believed to be set against acknowledging Kaesong as an OPZ, meaning Seoul could use Beijing’s favorable stance as leverage in its negotiations with the US.

Unification Ministry spokesman Kim Hyeong-seok said, “If China does recognize [Kaesong as an OPZ] first, it may also serve as a good foundation in negotiations with the European Union or United States.”

At the same time, analysts are also raising the possibility that OPZ discussions for the FTA may extend beyond Kaesong to include other North Korean development zones, namely Hwanggumpyong and Rajin-Sonbong. Both are situated on the Chinese border, and Pyongyang has made great effort to attract Chinese investment in them, going so far as to enact special legislation.

University of North Korean Studies professor Yang Mu-jin said, “In view of its relations with North Korea, China may try to strike a balance with Kaesong by expanding the OPZ areas.”

Please direct questions or comments to [englishhani@hani.co.kr]