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Economic Analysis

2018.05.10
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Principles of the North-South Economic Cooperation

Perhaps one of the most difficult and complicated puzzles in the political-economic landscape of Korea would be the ways North and South Korea have conducted economic cooperation. It has been difficult as differing iron-clad ideologies have been dividing the peninsula for more than a half century. It has been complicated as many countries of vested interests were involved in the peninsula long before the era of ideological confrontation. At times, the people of the two Koreas felt unity with one another from the bottom of their hearts, and yet, at other times, they became the most vicious of foes to each other. Of course, most of the people living on the peninsula now and then share the same culture, language and rituals. But the political situation and atmosphere on each side have swayed back and forth, from right to left, making true cooperation between the two almost impossible.

Now, everything seems to be changing. The dark and thick cloud of confrontation begins to thaw with the summit talks held in April. Also, there will be the crucial meeting coming up between the U.S. President Donald Trump and North Korea’s Kim Jong-un. It would be very precarious to guess the exact agendas being broached onto the tables, and much more so to predict the outcomes. However, it is evident that every party involved is quite different from the past. The North seems to want a fundamental change in its economic system towards a more open regime. The U.S. seeks to be a daring big-brother to the disobedient, which North Korea knows better than anyone else. Meanwhile, the Moon Administration has become an effective catalyst in forging a peaceful environment in one of the hottest confrontations in the world. Against this backdrop, now may be a wise time in history to design a set of principles for economic cooperation between the two Koreas.

First, the ultimate objective of economic cooperation between the North and South should be based upon the eventual peaceful reunification of the peninsula. Economic cooperation should not simply aim at taking advantage of cheap labor or short term economic gains. It should contribute to building an economic community between the two parties conducive to a peaceful reunification. Therefore, specific projects of economic cooperation should be given careful consideration as to how they are contributing to the ultimate objective. In this regard, cooperative economic projects that are potentially harmful to respective environments should be avoided.

Second, economic cooperation should contribute to reduce economic, social and cultural gaps between the two Koreas that have widened during the last six decades. The reduction in those gaps should be regarded by both parties as one of the most important targets of economic cooperation, and should work for the benefit of both sides. Therefore, cooperation should work over time to converge wages and welfare benefits between the two parties.

Third, economic cooperation should not be hindered by changes in the political landscape surrounding the peninsula. Past experiences have shown ample evidence that changes in administration or personnel on either side have ended up in a sudden halt of ongoing projects. Economic cooperation requires stability and predictability. Even a mere possibility in a policy change could be the most difficult obstacle for successful cooperation. Economic cooperation should be founded upon the firm understanding that everything preset in the beginning would be followed as planned and nothing would change without prior written mutual agreement.

Fourth, economic cooperation between the two parties should be internationally recognized as a transaction within a nation. In particular, the products and services produced, processed or modified between the two parties should be regarded as if done in one nation. By so doing, all of the products produced within the peninsula could be regarded as from a single origin.

Fifth, economic cooperation should be conducted under the full guarantee of economic freedom and autonomy. Economic entities such as firms, corporations and associations taking part in the cooperation between the North and South should be given full economic freedom to make their own decisions and plans regarding wages, marketing, investments and strategy. The more freedom they are given, the greater the benefits of cooperation will be.

The authorities of both sides have a number of alternatives to specifically achieve these principles of economic cooperation. They could first simply agree on revitalizing the Kaesong Industrial Region (KIR), and then gradually expanding it to a much bigger scale. Or they could establish more special industrial regions across the border. In both cases, the two Koreas could agree on inviting third country companies from China, Japan or the U.S. to make the border region an international zone. This would mark the region as a symbol of global peace and harmony. The North and South could expand cooperation efforts to infrastructure development in the North, especially in building highways, irrigation systems and power plants.

Of course, all of these ventures rest critically upon the predication of a complete denuclearization of the North. With all this being said, hopes are high as Mr. Kim Jong-un seems fundamentally different from his predecessors.



By Professor Se Don Shin
Dean, Sookmyung Women’s University
seshin@sm.ac.kr


The above article does not necessarily reflect the views or position of KOTRA.

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