Made in Pyongyang

In October 2008, the Bush Administration removed North Korea, according to some proliferation experts erroneously, from the state sponsors of terrorism list. Now a Republican House of Representatives is considering a trade agreement (KORUS FTA) that may give the North Koreans a way to avoid U.S. sanctions on goods from the communist state. The legislation needs plugging.

The U.S. maintains an economic embargo on North Korea that prohibits the imports of goods and services of North Korean origin. Unless you secure U.S. authorization, rare, North Korean goods are not going to enter the United States. Why? The North Koreans are bad seeds. The regime is up there with the Iranian radical Islamist mullahs, the Castro brothers in Havana, and Hugo Chavez in Caracas. Terrorism and making nuclear weapons is one of the regime’s favored past times.

Kaesŏng is located in North Korea, just six miles from the demilitarized zone (DMZ).

South Korea on the other hand is a good ally and has earned the free trade agreement; however, there seems to be a pesky clause in the current draft that would operate to weaken U.S. sanctions on the Pyongyang thugocracy. I will briefly summarize the problem; however, if this is so, and it is appears as it is, the South Korean lobby should acknowledge and correct it.

Despite tensions between these Cold War-era rivals, the Koreans on both sides of the 38th parallel work together in an area called the Kaesŏng Industrial Region (see map). North Korean workers, more like slaves, work for a pittance of what their South Korean cousins get paid for similar work. Under the KORUS FTA, goods made in this region may qualify for preferential trade treatment and evade U.S. sanctions.

Democratic California Congressman Brad Sherman has been leading the charge to amend the KORUS FTA. Why the heck there is not a bipartisan effort on this issue is odd. Rep. Sherman is not on any ideological fringe. He is also the the Ranking Member on the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade, with a strong record on anti-terrorism and non-proliferation matters.

Rep. Sherman’s common sense argument is sound. If the agreement allows North Korean goods to enter the U.S. market, or would allow U.S. companies to trade in these good even if they are not going to physically enter the U.S. market, then the KORUS FTA needs fixing. Last month, Sherman published a good op-ed in the Los Angeles Times that explains most of this.

According to Rep. Sherman, the South Koreans are lobbying hard to make certain that all Kaesŏng-made products receive duty free treatment under U.S. law. That would be contrary to U.S. sanctions laws and regulations. It would be a gravy train for the cash-strapped north as well as other sanctioned regimes, such as Iran, that will use Kaesŏng as a sanctions-evading tool. From a legal practitioners note, it will create some interest legal issues for U.S. companies and foreign subsidiaries.

The powerful House Committee on Ways and Means is considering the measure. Not sure what has happened with the Republicans on this issue as there is not one that I could find who is taking a public stand on it. Regardless, folks up there on the Hill and in the Obama Administration should take a closer look at Rep. Sherman’s concerns and plug the loophole. If the South Koreans get upset, well, the agreement can wait.

 

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