Pearls and Irritations

South Korea presented its master plan for North Korean economic cooperation to the public last week, laying forth a roadmap not only for economic development north of the Demilitarized Zone, but also for regional economic integration in Northeast Asia – and beyond.  

But while its authors insist that the building of prosperity and the creation of a peace regime on the flash point peninsula are mutually reinforcing, the implementation of the plan is reliant upon global politics – with Washington holding the whip hand.

The “New Economic Map Initiative” was presented by Director General for Inter-Korean Exchange and Cooperation Lee Joo-tae of the Ministry of Unification at the Korea Global Forum 2018 – sponsored by the ministry in central Seoul.

The plan was first announced in August 2015, and was presented to North Korean leader Kim Jong-un by South Korean president Moon Jae-in, on a USB, during their summit in Panmunjom in April.

The plan’s aims are multi-fold, Lee noted. Economic cooperation can contribute to the resolution of the North Korean nuclear crisis, Lee  noted, by creating “a virtuous circle of peace and prosperity.”

This includes laying “a foundation for economic unification,” for expanding the South Korean economy northward into Eurasia and securing a new growth engine for the Southern economy, which is now stuck in a middle-income trap and challenged by slowing growth and a fast-aging society.

But not everyone is exuberant. Citigroup, in a report obtained by Asia Times, suggested that even if the infra developments were implemented over a one-year time scale, they would only contribute to increasing the South Korean economy by 0.4%

Three belts to link North, South and Eurasia

Seoul’s plan calls for phased implementation and active cooperation with regional economies – China, Russia and Japan.  It also synchs with North Korea’s economic objectives, based around its 2016-2020 five- year plan, its 26 special economic zones and its plans to realize socialism.

The South Korean masterplan is based around three “economic belts.”

The first, on the west of the peninsula, the “Yellow Sea Industry/Logistics Belt,” would create industrial cooperation in special economic zones, linked by a north-south logistics net of road and rail lines running through the key cities of Seoul, Pyongyang and Shinuiju on the North Korea-China border, and then, into China.

The second, on the more rugged eastern side of the peninsula, the “Pan-East Sea Energy/Resource Belt,” would build infrastructure – LNG pipelines and rail lines – linking both Koreas to the Russian Far East.

The third, the “DMZ Peace Belt,” across the waist of the peninsula, calls for converting the undeveloped, four-kilometer wide Demilitarized Zone into a cooperative space for ecological, environmental and tourist development. It would also include a “Maritime Peace Zone” to obviate naval clashes.

Lee admitted it would be a long-term and expensive process, requiring massive investments in training personal in the North and improving investment conditions.

Given the delicate political situation on the Korean peninsula, and given the huge capital requirements, the plan would need to be implemented in cooperation with other players beyond Korea, said Lim Eul-chul, a professor at Kyungnam University and  a policy adviser to the Ministry of Unification.

“The ultimate goal is to create a single economic zone through the construction of infrastructure, system reform, civilian exchange,” he noted.

Regional integration

The process would require the involvement of global economic institutions, which “significantly contributed to promoting the openness and reform of China, Vietnam and East European countries’ regime shift,” Lim stated.

He proposed a step-by-step process starting with humanitarian aid, leading to development cooperation and then full-fledged economic cooperation. While the initial stages would need to be underwritten by governments and global financial institutions, the private sector could also become major partners, he anticipated.

“Capacity building and knowledge sharing,” would be critical, he said. While he anticipated significant support from Chinese-led bodies such as the Asian International Investment Bank and the Belt and Road initiative, he also proposed the formation of a specialized Northeast Asian Development Bank to oversee and raise financing for a process that is expected to cost, at the minimum, US$50 billion in only the first year.

While Northeast Asia encompasses such major global economies as China, Japan and South Korea, there is no free trade area for the region analogous to the European Union or the North American Free Trade Area. Lim suggested that the re-integration of North Korea into the region’s economies would realize “the goals of creating and promoting a new economic community based on a new peace order on the Korean Peninsula.”

Cho Bong-hyun, the director of South Korea’s Industrial Bank of Korea Economic Research Institute, said the map, if implemented, could create 20,000 jobs per year in North Korea.

Experts at the forum were cautiously positive, but also pointed out the immense challenges that lay ahead.

China, Russia, USA: Competing interests

Alexander Federovskiy, who heads Pacific Studies at the Russian Academy of Sciences, noted that North Korea’s opacity – it has not released economic data since the early 1970s, for example – is hugely problematic. “We don’t even know what the population is,” he said.

Asked about the possibilities – which have been discussed for nearly two decades – of linking South Korea to Russia with pipelines and rail lines running through North Korea – he asked: “Who will control it? What is the legal system in North Korea? North Korea has lost reality. “

He advised that projects start on a small scale so there can be a “small success story” before larger projects are executed. “Help them organize their statistics,” Federovskiy  suggested. “For them it’s all secret – but surrounding countries have very good data.”

Another Russian expert, Tamara Troyakovam, who heads the Department of International Studies at Far Eastern Federal University in Vladivoskok, noted that the South Korean and Russian economies are complimentary, but long-debated moves to link the countries via North Korea have not reached fruition.

“We have had a lot of declarations, but we do not have the financial background,” as the Russian Far East lacks manpower and investment, she said.  She admitted that “Russia has no plan to provide substantive economic support to North Korea” due to past history. “We promoted big projects with North Korea, but North Korea nuclear programs left those business at the planning stage,” she said.

Nor are Americans likely to take the lead. Jean Lee, the director of the Hyundai  Motor Foundation Center for Korean History and Public Policy at the Woodrow Wilson Center, warned that a travel ban now prevents Americans from even entering North Korea. “When it comes to US investment, we have a long timeline,” she said. “I think we will see other countries forge ahead.”

Lee – an ex-reporter who opened Associated Press’ bureau in Pyongyang – also warned of the difficulties North Koreans face in doing business with outsiders.

“Though enticing economically, [foreign investment] potentially represents foreign influence, and they are not going to be comfortable with that,” she said. One answer is SEZs. “They can use special economic zones to test out economic principles without a taint of the general population.”

Chinese experts were more upbeat. Zhang Huizhi, director of the Institute of North Korea and South Korea at Jilin University, suggested that North Koreans in Rajin-Sonbong – the only one of North Korea’s 27 Special Economic Zones to receive significant investment, from Russian and Chinese sources – had better economic mindsets than those in other parts of the country.

She suggested that with South Korea being capitalist, and constitutionally obliged to seek reunification, “North Korea could be suspicious.” In this situation, China had a mentoring role to play.  “China went through the process of opening and reform, and there is one-party rule in China,” she said. “I think North Korea should benchmark that.”

Still, with friction between Beijing and Pyongyang apparent in recent years, she added: “I think North Korea does not want to be too reliant upon any one country … it is now determined to diversify.”

What about sanctions?

Chinese participants favored an easing. “Since UN Security Council resolutions were directly related to missile tests, so long as Pyongyang stops those tests, and destroys missile test sites, it will cultivate conditions for the international community to lift sanctions related to those tests,” said Chen Dongxiao, president of the Shanghai Institute for International Studies. “China would be willing to initiate [an easing of sanctions].”

Japanese experts were more cautious, fearing policy fissures among surrounding countries. “We must ensure that [economic cooperation] does not have a negative impact on denuclearization,” warned Atsushi Ijuin of the Japanese Center for Economic Research. “Related countries should consult on the conditions and timing of economic cooperation.”

Woodrow Wilson’s Lee reinforced that message: If South Korea actively engaged with North Korea, it could have strategic implications, she said: “I have some serious concern about what kind of strain that will put on the [South Korea-US] alliance.”

While there are gray areas which could allow implementation of some measures under the current sanctions regime – such as humanitarian aid, development assistance and human resources training – for any plan to proceed on a significant scale it would require an easing of sanctions. “Frankly, we don’t have any breakthrough to escape international sanctions, so [for the time being] we can only do research,” Lim admitted. “We are seriously considering humanitarian assistance, but we have to consider what the US says.”

With the US armed with a veto in the UN Security Council, sanctions cannot be lifted without Washington’s say-so. While Beijing and Moscow could arguably turn a blind eye to sanctions enforcement, that is not feasible for Seoul or Tokyo, which both depend upon bilateral security alliances with Washington.

And the costs are tremendous. A report from Citigroup estimates that it would require US$63 billion just to rebuild the North’s transport and infrastructure nets – railways, roads, airports, sea ports, power plants, mines, refineries and gas pipelines.

Still, Lim hoped that an easing of sanctions might be feasible once – or rather, if – a denuclearization process gets underway. If Washington could overcome its distaste for a phased process of eased sanctions and disarmament, the latter process could be accelerated, he advised. “That would provide further incentives for North Korea to denuclearize.”

But he admitted that – for now – that is not on the table. For Seoul’s grand plan to take affect, “Denuclearization is a precondition,” Lim said.