[Viewpoint]A new deal

The pattern of economic exchanges between South and North Korea is changing. Last Saturday, the inter-Korean exchange and cooperation consultation office of South Korea concluded a detailed agreement with the national economic cooperation association of North Korea. Both sides agreed, in Kaesong, North Korea, to cooperate in developing light industry and natural resources.
It was a barter deal. The South agreed to provide the North with $80 million worth of raw material for light industry on credit, while the North will provide natural resources to the South. The first shipment of 500 tons of polyester short staples will depart Incheon for North Korea’s Nampo Port on July 25. A group of South Korean engineers are also scheduled to give on-the-spot technology training to their North Korean counterparts at light industrial factories in North Korea on Aug. 7.
Both sides also agreed that North Korea will pay back 3 percent of the $80 million to South Korea this year in natural resources, including zinc and magnesia clincer.
The remaining 97 percent will be a loan with an annual interest of 1 percent. It will be repayable in installments for 10 years with a five-year grace period.
The South Korean government is talking very highly about the agreement, calling it a new form of economic cooperation.
There is a reason for the government to say so. In the past, the inter-Korean economic cooperation was confined to a stereotypical exchange ― economic assistance from the South and political rewards from the North.
There is an understanding between the South and the North that rice will be sent North in return for Pyongyang’s cooperation in arranging the reunion of separated family members.
In addition, a supply of fertilizer will be shipped to the North in return for the annual resumption of inter-Korean dialogue.
The agreement to exchange goods is a new position for the South Korean government because it is an economic reward in return for a loan.
Although the North asked the South to supply raw materials for light industry, the South linked the North’s demand to the provision of natural resources.
The successful conclusion of that deal shows that the South Korean government has developed a new formula for inter-Korean economic cooperation.
North Korea also had a reason to accept the South’s demand. Starting this year, North Korea has started to emphasize the need to solve the economic problems of its residents. Most slogans on the buildings in Pyongyang are also focused on the solutions to economic problems.
When the North is able to get raw material for its light industry, it can not only let its idle factories run, but also supply daily necessities such as clothes, shoes and soap to its residents.
On the other hand, North Korean authorities are still able to restrain the market system’s expansion into North Korea’s economy.
Currently, most daily products consumed in North Korea come through China’s black market.
That’s because North Korean factories have been sitting idle from a shortage of electricity and raw materials.
As a result, the power of the market has gradually gotten bigger while the power of the government has weakened.
North Korean authorities have not been able to implement an effective economic policy. The North has reacted positively this time to the deal due to its internal need to revive its light industry.
The deal, born out of mutual economic needs, is something that should have been done.
In the past, the government has promoted inter-Korean economic cooperation in two ways. One was in providing assistance on humanitarian grounds; the other was in economic aid to achieve the South’s political goals.
In the case of the agreement on the economic deal, however, I think South Korea should have scrutinized and carefully appraised the economic losses and gains from the deal.
The terms and conditions for the repayment of remaining 97 percent of the loan are still obscure.
The following processes should have taken place first: The economic value of North Korea’s natural resources should have been valued; a study should have commenced to determine whether a separate investment in the development of mineral resources is needed and the value of the economic resources should been specified in the agreement.
That’s all part of the regular give and take in economic exchanges.
If those things don’t occur, it is difficult to call it a new formula.
In order to turn the agreement into a sustainable inter-Korean formula, we need to take following measures.
First, the government must publicize the details of North Korea’s repayments. Since the barter trade between the South and the North is financed by taxpayer money, the repayment processes should be made transparent.
Second, the transactions should be carried out in a fair and objective manner. If the development of natural resources in North Korea has no economic value, the government must look for other means of repayment. During negotiations about an alternative repayment plan, the possibility exists that the South and the North could turn their backs on each other.
However, both sides will be able to build a new level of confidence in each other to make a successful deal.
That is the new formula for economic cooperation.

*The writer is the head of the North Korean research team at the Samsung Economic Research Institute. Translation by the JoongAng Daily staff.

by Dong Yong-seung