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[Seri column]A business footing with the North

Published: 14 Feb. 2008, 21:31

It appears the administration of President-elect Lee Myung-bak will make reunification of the Korean Peninsula a lower priority than his liberal predecessors did in the last 10 years. However, the issue has become an integral facet of Korean identity and is unlikely to be completely ignored. Specifically, four areas of concern need to be addressed during Lee’s five-year term.
First, dialogue with the North simply needs to be maintained. After his election, Lee said he would not shy away from criticizing North Korea’s authoritarian regime, sparking speculation that a wholesale policy review would occur regarding North Korea. That would call into question the so-called Sunshine Policy of engagement and the economic cooperation of the past decade. Critics have complained the South has given too much economic assistance to Pyongyang without adequate progress on the North’s nuclear disarmament.
Still, the Sunshine Policy has opened communications with Pyongyang and broadened inter-Korean relations. Meeting North Korean citizens and visiting Pyongyang are not considered completely out of the question. Yet, the South is clearly reluctant. We must conquer those worries. Now is as good a time as ever to take the all-important step. Otherwise, it is highly likely that the North will simply close the door again, as both sides have done so many times before.
Second, the new administration should ensure that inter-Korean economic cooperation projects are pursued in a more rational manner. Simply put, place the horse before the cart.
At present, the two Koreas are discussing ways to improve logistics, communications and customs clearances in the Kaeseong Industrial Complex, the special zone in the North close to the demilitarized zone. After years of economic cooperation, these types of issues should have already been resolved.
The South should not deal with the North as an exceptional case any longer because this will not help develop business. Currently, the North handles inter-Korean economic collaboration solely through the National Economic Cooperation Federation. Any business with the North’s firms is allowed only through the NECF, which is truly unfair. This is not how the North approaches business with other nations, including China.
Third, the new administration will have to encourage active discussions on reunification. Korean society has become very careful not to use the word “reunification.” This may be because reunification is largely understood to be absorption, which provokes opposition from Pyongyang and raises concerns about the cost of uniting with the barren North Korean economy. Nonetheless, the North seems eager for a unified Korea. To date, reunification has centered on how the financial cost should be shared. Given that the South’s economy is more than 100 times bigger than the North’s, reunification costs would undoubtedly be a tremendous burden to South Koreans. On the other hand, some believe the cost of remaining separated is far more expensive than unification. In fact, both structures are almost equal.
South Korea should leverage Pyongyang’s desire for reunification by broaching the idea of the North bearing a bigger share of the cost. To do so, the South should put aside the specific cost accounting for now and help North Koreans achieve an annual per capita income of $3,000 in a decade. At the same time, the South’s economy will need to grow to $30,000 or even $40,000 in per-capita income.
With inter-Korean trade topping $1.5 billion, economic collaboration is too profitable for the North to ignore. The Lee administration will need to focus on institutional strategies and develop a forward-looking relationship. The arrangement will need to protect the interests of South Korean companies engaged in economic cooperation projects. A close economic partnership agreement between South and North Korea, riding the global boom in free trade agreements, is among the approaches that could be considered. It would promote institutional changes in the North.
Finally, the Lee administration will need to be ready to recalibrate policies in light of internal changes in the North. Pyongyang authorities now are trying to contain free markets that sprang up in the wake of the 1990s downfall of the Soviet bloc and natural disasters. Hardli-ners want to prevent the spread of the free markets, to keep them from encroaching on the central government’s control oversupply. This will become even more important if the budding improvements in U.S.-North Korean relations result in U.S. capital inflows. But rather than stifle the free markets in the North, a better approach would be to take advantage of their popularity and collect taxes.
Repression of the embryonic markets would worsen living conditions of ordinary North Koreans, especially those who do not benefit from either the state’s planned economy or the market. They are the very people who should be helped by humanitarian assistance. In response, capitalist-minded South Korea will have to be careful not to inadvertently give Pyongyang authorities any reason to move their economy any further in the wrong direction.

*The writer is a research fellow at Samsung Economic Research Institute (www.seriworld.org). Inquiries on this article should be addressed to yongsueng.dong@samsung.com.

by Dong Yong-sueng