RPI’s proposal for an incremental Bilateral Free Trade Agreement (BFTA), starting with the agricultural sector, appears to be complementary to the approach which we understand was taken in the recent policy review by the Biden Administration. The new feature of the Biden Administration’s approach lies between the strategic patience approach of former President Obama, and the summit-focused approach of President Trump. The US administration is proposing an incremental approach to denuclearisation of the Korean peninsula. This is to be developed through working level talks between the US and North Korea. The problem, of course, is how this can get started.
The RPI suggestion shown on our website is that, first of all, there would be talks between North and South Korea about their willingness to engage in an incremental BFTA, the first phase of which would be trade in products associated with the agricultural sector. Estimates indicate that North Korea’s agricultural export potential, including products from the fisheries, horticulture and forestry subsectors, would exceed $0.5 billion a year initially, and could grow significantly from that level. South Korea would export to that value improved seeds, fertilisers, pesticides, agricultural equipment, small-scale tractors, crop storage equipment, materials for greenhouses, and similar products to meet the input requirements of North Korean farmers. This would both increase South Korea’s agricultural and manufactured product exports, and also greatly increase North Korea’s agricultural productivity.
The second step would be for North and South Korea together to approach the US to discuss what initiatives they might take in order to ensure its support for the incremental exemptions to UN sanctions which would be necessary for phase 1 of BFTA to go ahead. This incremental approach to sanctions exemptions in a Track Two process would balance, facilitate and complement the process to which the Biden Administration is committed of a Track One process for the incremental denuclearisation of the peninsula. The initial economic exchange could grow in due course to include social exchange, as trust develops.
Some might argue that the US could give a number of alternative economic incentives to North Korea to engage in working level talks? These might include sanctions exemptions to enable opening up of the Kaesong industrial complex, or to open up the Wonsan–Mount Kumgang International Tourist Zone, then to enable opening up international trade in selected products like coal, or to enable labour remittances from North Korean workers going abroad to work. All of these would provide revenue in hard currencies to the North Korean government which could potentially be used for the purchase of materials or equipment required for development of nuclear weapons. They are all, therefore, likely to be resisted by the US.
In contrast, RPI has proposed use of an SDR-type currency for an incremental BFTA, which we have termed the inter-Korean won. This currency arrangement is also described in a paper on the RPI website. This would not provide the North Korean government with hard currency, although there would still be opportunity for the government to collect local currency from farmers and traders through the tax system to boost government revenue.
In addition to this currency argument, none of these other incentive options has such obvious multiplier effects for modernisation of the whole of the North Korean economy as would occur if there was a substantial increase in agricultural production and exports. Further phases of the BFTA, extending exports from North Korea of other products such as minerals and textiles in return for exports from South Korea of machinery to modernise infrastructure and the energy sector, would have additional multiple knock-on effects to the rest of the economy, including the mining sector, the consumer goods sector, the construction sector and the service sector.
It would enable North Korea to achieve the modernisation of its whole economy which Kim Jong Un has been promising to his people, and to which he is clearly totally committed. Of course, these incremental increases in the BFTA would have to be matched by further incremental steps towards denuclearisation to obtain the necessary further sanctions exemptions.
It would be difficult for a State actor to facilitate such a Track Two process because any State would inevitably come with its own history and interests; it would thus be likely to find it hard to be seen as a truly neutral catalyst and facilitator. RPI as a small non-state actor would be well placed to play such a role.
There is a potential win here for all parties – North and South Korea as well as the US and the international community. Perhaps an incremental BFTA, starting with the agricultural sector, is an idea whose time has come.
[The various RPI proposals mentioned in this note can be found in the resources section of the
RPI website.]