Are the Outward Processing Provisions in the South Korean Free Trade Agreements Consistent with the Law of the World Trade Organization

In recent years, the Republic of Korea (South Korea) has entered into many free trade agreements (FTAs) that contain special provisions—outward processing (OP) provisions—that extend the benefit of preferential tariff rates to the products manufactured or processed in the Kaesong Industrial Complex (KIC). OP refers to the temporary exportation of goods for additional processing and the KIC is an outward processing zone in the People’s Democratic Republic of Korea (North Korea) where South Korean companies are allowed to establish manufacturing plants and to employ North Korean labor. As “temporary” indicates, the finished goods are always imported back to South Korea for domestic consumption or permanent exportation. Currently, South Korea does 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 two Koreas as one customs territory and treat products that have been processed in the KIC as North Korean goods. This treatment of products that have been processed in the KIC as originating in North Korea harms the exporters of goods processed in the KIC because North Korea is not a member of the World * Pierce Lee is an international trade analyst in the Washington, D.C. office of Crowell & Moring LLP. He received his B.A. and J.D. from the University of British Columbia and his LL.M. from Georgetown University Law Center. He is admitted to the bar in British Columbia, Canada and New York State. For further information on the author’s background, please see http://www.piercelee.com. The views expressed in this article are the author’s own and do not reflect the views of Crowell & Moring LLP. The author wishes to thank Professor Richard Diamond for supervising the research project that lead to this article. All errors, however, are the author’s own. The author wishes to thank Seungwhan, Malsun, and Thomas for their love and support. † This article builds substantially on one of the author’s previously published articles. In that article, the author first articulates the problems associated with the country-oforigin determination of the Kaesong products in relation to the WTO. See Pierce Lee, Rules of Origin and the Kaesong Industrial Complex: South Korea’s Uphill Battle Against the Principle of Territoriality, 39 N.C. J. Int’l L. & Com. Reg. 1 (2013).

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