Koreas unveil blueprint for ambitious economic cooperation projects

September 19, 2018

SEOUL, Sept. 19 (Yonhap) — South and North Korea on Wednesday unveiled a potential blueprint for forging joint special economic zones on the divided Korean Peninsula as their leaders move to clear the biggest hurdle to expanding economic cooperation.

The cross-border projects have gone nowhere in recent years due largely to tightened international sanctions on North Korea over its nuclear and missile programs.

On Wednesday, North Korean leader Kim Jong-un announced his willingness to take additional steps towards eventual denuclearization at a summit with South Korean President Moon Jae-in. If the North follows through on the latest pledge, all barriers to forging closer ties between the two Koreas will be removed.

Kim agreed to dismantle his country’s missile engine testing facility and launch pad in Dongchang-ri on the country’s northwest coast. He said the North can permanently dismantle the Yongbyon nuclear facility in return for unspecified corresponding measures from the United States.

North Korea has repeatedly sought a declaration of the end of the 1950-53 Korean War and the lifting of sanctions.

The two Koreas agreed to resume their joint factory park in the North’s western border town of Kaesong and a tour program to Mount Kumgang, North Korea’s scenic mountain on the east coast, as soon as “conditions are met.”

The Federation of Korean Industries, which speaks for South Korea’s large businesses, said the summit agreement provided a new impetus for co-prosperity on the Korean Peninsula.

South Korean President Moon Jae-in (L) and North Korean leader Kim Jong-un shake hands after holding a joint press conference at the North's state guesthouse Paekhwawon in Pyongyang on Sept. 19, 2018, to announce the outcome of their bilateral summit there. (Joint Press Corps-Yonhap)

South Korean President Moon Jae-in (L) and North Korean leader Kim Jong-un shake hands after holding a joint press conference at the North’s state guesthouse Paekhwawon in Pyongyang on Sept. 19, 2018, to announce the outcome of their bilateral summit there. (Joint Press Corps-Yonhap)

South and North Korea did not elaborate on what they meant by conditions, but they appear to refer to sanctions relief and U.S. endorsement for inter-Korean economic projects in return for progress on denuclearization.

U.S. President Donald Trump hailed the outcome of the summit in a positive initial reaction.

“Kim Jong Un has agreed to allow Nuclear inspections, subject to final negotiations, and to permanently dismantle a test site and launch pad in the presence of international experts,” he tweeted.

North Korea has been under tightened U.N. sanctions, as well as separate U.S. sanctions, over its nuclear tests and its long-range rocket launches, meaning that South Korea cannot move forward alone to jump-start the joint factory park and the tour program. The U.N. sanctions effectively ban, among other things, transfers of bulk cash to Pyongyang.

The tour program — launched in 1998 — had been a symbol of reconciliation between the two divided countries, as well as a key cash cow for the North.

South Korea has suspended tours since July 2008 after a South Korean female tourist was shot dead by a North Korean guard near the resort.

In 2016, South Korea also pulled the plug on the sprawling factory park in Kaesong to punish North Korea for its fourth nuclear test and a long-range rocket launch.

The North has since carried out two more nuclear tests before putting a moratorium on its nuclear and missile tests amid ongoing diplomacy with the U.S. aimed at ending its nuclear programs.

South Korea’s Hyundai Group, which was a key partner in the tour program as well as at the joint factory park, expressed its gratitude over the summit agreement and hopes that conditions will be created for the normalization of the two projects.

The summit agreement also brought much-needed relief to a task force that speaks for 123 South Korean firms that operated factories in Kaesong, saying that “we hope that South and North Korea can quickly resume the Kaesong Industrial Complex, a symbol of peace and prosperity.”

A possible resumption of the factory park and the tour program could give a boost to the two Korea’s ambitious plan to establish special economic zones on the east and west coasts.

Still, the two sides did not give further details on special economic zones.

In 2007, then-South Korean President Roh Moo-hyun and then-North Korean leader Kim Jong-il held a summit and agreed to establish a special peace and cooperation zone in the West Sea for joint fishing, though no progress was made.

The two Koreas have long been at odds over their disputed western sea border — the site of bloody skirmishes between their navies in the past.

Moon served as Roh’s chief of staff, and North Korean leader Kim Jong-il died in 2011 and was succeeded by his son, Kim Jong-un.

Victor Cha, a former director for Asian affairs on the White House National Security Council, said financing inter-Korean cooperation projects will likely occur through international financial institutions like the World Bank.

“The reality is that they are not going to move forward unless the United States moves forward, and the United States is not gonna move forward until there is progress on denuclearization,” he said.

On Tuesday, Samsung Electronics Vice Chairman Lee Jae-yong and other South Korean business leaders met with North Korean Deputy Prime Minister Ri Ryong-nam in Pyongyang.

Lee’s conspicuous presence in Pyongyang is a clear reminder that North Korea wants to attract South Korean investment for the development of the world’s most isolated economy.

Lee is the de facto leader of Samsung Group, whose flagship unit is Samsung Electronics Co., the maker of Galaxy smartphones.

North Korea’s gross domestic product, calculated as power purchasing parity, was estimated at US$40 billion in 2015, according to the CIA Factbook, a fifth of Samsung Electronics’s annual sales in 2017, which reached $213 billion.

Lee Seong-hyon, director of the Center for Chinese Studies at Sejong Institute, an independent think tank near Seoul, said Moon sent a clear signal to Kim that South Korean business leaders will be ready to help North Korea’s economy if North Korea denuclearizes.

“I don’t think they are there to make any business deal that will be a violation of the UN sanctions,” Lee said. “In addition, future South Korean economic engagement with North Korea will lessen Pyongyang’s overdependence on China.”