Will Kaesong break the KORUS FTA?

Democratic electoral victories may turn Congress against free trade, but liberalization wasn’t going very far anyway, says Dan Drezner. While I agree that Doha is stalled and the FTAA has all but disappeared, I was surprised that Drezner considers the South Korea-US deal to be “a dead letter” due to the Kaesong complex.

It’s been evident from the beginning that the US Congress wouldn’t accept products from Kaesong and that the South Koreans would likely have to give in on that issue. Now, North Korea’s recent nuclear test has increased the geopolitical importance of achieving a trade deal, and South Korea’s ambassador to the US recently signalled flexibility on Kaesong:

Mr Lee hinted that South Korea could show new flexibility over Kaesong, its industrial park in North Korea. Although South Korea suspended humanitarian aid to the North after missile tests in July, critics say it has continued to pump cash into the regime through Kaesong.

“Because of North Korea’s missile tests and nuclear test the situation has become much more aggravated,” he said. “When we started these negotiations we wanted to include it [Kaesong] in the FTA but as time goes by we have noticed that the atmosphere has been shifting rather negatively against this idea.

“We know that,” he added. “That is why we are squeezing our wisdom to find some way out.” [FT]

So Kaesong isn’t an intractable barrier, it’s just one of many differences plaguing the negotiations. One of the largest hurdles is rice, which has made me skeptical of the deal’s chances for a while.