Content area
Full Text
1 Introduction
Free economic and trade areas (FETA) have gained popularity as an economic growth pole in many developing and transition countries (Farole, 2011; Jayanthakumaran, 2003). The most successful application of the FETA as the window and bridge for stimulating economic growth and structural transformation is the creation of special economic zones in China (Yeung, Lee and Kee, 2009; Liu et al., 2007; Cheng and Kwan, 2000). It looks as if this development concept will continue to diffuse in the less developed and transformation countries (Makabenta, 2002). North Korea is not an exception: the persistent serious economic difficulties and poverty in this country have been increasingly forcing the ruling regime to adopt the Chinese-style open-door policy. With the so-called Free Economic Trade Zone Law in 19841, North Korea attempted to create special economic zones which provide generous tax incentives and other privileges to foreign manufacturing firms (Lim and Lim, 2006; Kim, 2005; Lee, 2004). However, North Korean experience with its first Najin-Sonbong FETA established in 1991 has been rather disappointing (Lim 2005; Park, 2004a; Lee, 2002; Peng, 2002).
In November 2002 North Korea's Supreme People's Assembly Committee declared Kaesong as a zone which guarantees preferential economic activities and enacted the Law of Kaesong Industrial District which was amended and supplemented by decree No. 3715 of the Standing Committee of the North Korean Supreme People's Assembly on 24 April 2003 (Yoon, 2007). In fact, this Kaesong Industrial Complex (KIC) project - the establishment of the second FETA in North Korea - was initiated at the North/South summit meeting in 2000 and this project is widely acknowledged as the embodiment of South Korea's 'sunshine policy' towards the North (Snyder, 2005; Levin and Han, 2002; Nam, 2001).2 More precisely the KIC is an administrative zone in North Korea with special economic legal status, in which relatively strong economic autonomy is provided and special business consideration is given to investments of South Korean firms (Kim, 2005; Nam, 2001). This symbolically important FETA is located 10 km north of the Korean demilitarised zone with direct road and rail access to South Korea, and only 60 km from Seoul. In the context of the sunshine policy South Korea has long been pursuing an expansion of inter-Korean economic cooperation and the creation...