A Study on Outward Processing Rules and Utilization in Korea’s FTAs

Park， Ji youn; 이효영

doi:10.18107/japs.2015.22.3.002

FTAs are established between negotiating parties to realize economies of scale and maximize the benefits of mutually complementary trade structures through the liberalization of trade and investment. Therefore, allowing non-parties to enjoy the benefits of preferential trade liberalization through the introduction of outward processing rules may be considered as being contrary to the purpose of FTAs. Notwithstanding, outward processing rules have been incorporated in most FTAs, including FTAs established by Singapore and EFTA, and in the case of Korea, all FTAs contain rules on outward processing since the Korea-Singapore FTA. Against this background, this study analyzes the utilization of outward processing rules, especially pertaining to the Gaeseong Industrial Complex (GIC) which, at present, is the only outward processing zone (OPZ) established on the Korean peninsula, and concludes that the utilization rate of the outward processing rules in FTAs is currently 0 percent. The foremost reason lies in the lack of competency of the companies operating in GIC for exporting their products beyond South Korea. Secondly, the products that are allowed under outward processing rules and the products that are manufactured by the companies in GIC do not match, and furthermore, the products manufactured in GIC lack competitiveness in terms of quality of product. Thirdly, the complex outward processing rules also hinder its utilization by companies, and lastly, the current form of outward processing rules that delegate rule-making to the Joint OPZ Committee make the rules vulnerable to the security situation on the Korean peninsula. Based on this analysis, this paper suggests the following for improving the utilization of outward processing rules in the recently signed Korea-China FTA: First, there is need for supportive measures by the government for increasing the utilization of FTA outward processing rules in the GIC; and secondly, further discussions are needed to identify ways to lower logistics costs for promoting global value chains, especially for the outward processing zones that will be established along the borders of China and North Korea.

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* 2021년 이후 발행 논문의 참고문헌은 현재 구축 중입니다.

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