Close Kaesong, Then Pass the FTA

I’m a fan of the Heritage Foundation’s Bruce Klingner, consider him a friend, and can’t remember the last time I disagreed with him about anything, but when he writes, using unusually strong language, that the U.S.-South Korea Free Trade Agreement won’t help North Korea, I continue to harbor doubts.

First, North Korea has become adept at selling its products under false labels.

Second, some South Koreans — including some who could end up governing South Korea after the 2013 elections — would be happy to help their North Korean business partners obfuscate the origins of their wares as “Made in Korea.” And if Kaesong-made material is cut and sewn in the South, the truth of the matter may not be entirely clear. A close reading of the country-of-origin rules for textiles, for example, makes plain that there are plenty of ways to get around the rules without resorting to outright fraud. Klingner cites an executive order that’s supposed to prohibit this, yes, but who would effectively police the prohibition?

Finally, who is to say that a second-term President Obama or a future President Chung will remain faithful to the positions their governments take today, after Congress gives them what they want?

For any of those reasons, Kaesong products invite mislabeling. Who can say with confidence that either the U.S. or South Korean governments can ensure us that Kaesong’s leakage into the U.S. market won’t be significant? It matters for some important reasons. Because the workers at Kaesong are afforded all of the labor rights of draft animals, imports from Kaesong would violate both international labor standards and the Tariff Act of 1930. Nor should the United States wish to join South Korea in dumping cash into Kim Jong Il’s coffers, thus violating the letter and spirit of U.N. resolutions that were designed, in large part, to protect South Korea’s security. Indeed, South Korea’s own conduct with respect to Kaesong puts it in a poor position to criticize China’s financial support for Kim Jong Il.

In principle, the FTA is a good thing for both Korea and the United States both economically and diplomatically. I also like the idea of supporting President Lee for behaving like a statesman and an adult. Anyone who is even minimally observant of U.S.-South Korean relations can see the South’s utter monomania about getting the FTA passed. I can see why South Korea would like to see the FTA passed in time for it to impact the South Korean economy in time for the 2013 elections. So why does South Korea still wear the Kaesong albatross? Kaesong inexplicably continues to grow, but the only one turning a profit is Kim Jong Il, thanks to continued subsidies from the South Korean government. Kaesong certainly hasn’t delivered on its promises of reforming North Korea or reducing tensions. On the other hand, the risk of Kaesong’s toxic plume seeping into the stream of FTA commerce hands a legitimate issue to FTA opponents, some of whom would rather talk about Kaesong’s utter lack of labor rights and the very real possibility that it’s funding Kim Jong Il’s WMD programs than their own parochial protectionist motives (here, I distinguish Rep. Brad Sherman, who has long been genuinely concerned about North Korean proliferation).

Is this such a hard choice for the South Korean government? It wouldn’t be if the U.S. told South Korea that it can have free trade with North Korea or the United States, but not both. That’s exactly the deal that President Obama should make with Congress, and then offer to President Lee.