The Evolution of Outward Processing Scheme in Korea’s FTAs: The Case of the Gaeseong Industrial Complex in Korea-ASEAN and Korea-Vietnam FTA

Abstract

South-North Korean trade, also often referred to as inter- or Intra-Korean trade, is politically and diplomatically justifiable but legally controversial. Under the GATT and WTO regime, regardless of kind, a treatment by a Member ‘nation’ to another must immediately and unconditionally be applied to all other Member countries in the equal manner. Because under the South Korean Constitution, North Korea is not identified as a ‘nation’ but a partial territory of the Korean peninsula, all the goods delivered in and out between the two are therefore duty-free – that is to say, no tariff is applied. From the other parts of the world, however, both South and North Korea are the independent Members of the UN, and thus provoke the non-discriminatory treatment irony. South Korea runs the Gaeseong Industrial Complex on North Korean soil, and has constantly included the special consideration for the products manufactured in the Complex and carried into South Korea under the name of outward processing scheme (OPS) in order to label them as originating from South Korea. This paper investigates the changes and developments made within such frame, particularly based upon the present schemes in Korea-ASEAN and Korea-Vietnam FTA, then suggests a more advanced model, which could be considered in Korea’s future FTA negotiations.