Lift the May 24 sanctions

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Lift the May 24 sanctions

The imposition of wide-ranging sanctions on North Korea was a measured and justifiable response to North Korea’s sinking of the Cheonan. However, those sanctions have outlived their usefulness and have even had perverse effects. If President Park Geun-hye’s offer of high-level talks is to result in progress, the sanctions will ultimately need to be lifted, and the sooner the better.

To understand the effects of the sanctions, we need to look at the evolution of North-South trade and investment since the early 1990s. So-called general trade included purely commercial transactions, mostly imports from the North, and was followed by the emergence of a modest processing-on-commission business around Pyongyang.

With the onset of the Sunshine Policy, this small commercial trade was dwarfed by large-scale aid in the form of food and fertilizer shipments. These unrequited exports dominated North-South exchanges during most of the Kim Dae-jung and Roh Moo-hyun years, peaking in 2006.

These exchanges were quickly surpassed after 2007 by trade centered on the Kaesong Industrial Complex, as the Lee Myung-bak administration dramatically reduced unconditional aid to the North and the Mount Kumgang project was shuttered. With the sanctions of 2010, the only North-South trade and investment left was through Kaesong. Despite the interruption of Kaesong trade during the five-month standoff of 2013, that trade is now back to its pre-2013 levels.

The effects of this highly politicized pattern of trade is that the North now deals with Southern companies only in a highly protected enclave, effectively subsidized indirectly by South Korean taxpayers. South Korean businesses have no contact with their North Korean counterparts and do not trade with the North Korean economy. Workers are effectively screened and hired by North Korean authorities, and wages are set by fiat. Payment to North Korea is in foreign exchange and Pyongyang skims off an unknown, but almost certainly large, share of the wage bill. Both parties to this agreement have been silent on the issue of labor rights in the zone.

These arrangements probably contribute to the welfare of businesses and workers in the zone, but they certainly do not have the transformative effect that such North-South trade was supposed to bring.

It is time to return to what Kim Dae-jung called “the separation of economics and politics.” Lifting the sanctions would allow South Korean businesses to invest and trade with North Korea, but only if they see the commercial opportunity to do so.

There would be multiple benefits to lifting sanctions. First, the South Korean government would no longer be held responsible in any way for the success - or failure - of commercial ventures with the North. North Korea now blames the outside world for the lack of investment and trade. But my surveys with Marcus Noland of Chinese and South Korean investors suggest the problems are elsewhere: weak infrastructure, weak property rights protection, corruption and a continually changing regulatory environment. Lifting sanctions would force North Korea to address these issues or remain economically sidelined.

Second, separation of economics and politics reduces the opportunity for Pyongyang to play its standard game of blackmail. If the North wants to cut off trade and investment for political reasons - as it did at Kaesong in 2013 - the costs fall entirely on the companies involved - and on the North - not on the South Korean government.

Third, an expansion of the so-called general trade and processing-on-commission activities outside of Kaesong would probably have wider effects on the North Korean economy than investments sheltered in Kaesong. Even investments in Rason are likely to have wider effect, as local officials there have been experimenting with a more market-friendly model. Lifting of sanctions also would allow the Park administration to make progress in its Eurasian strategy of opening transportation corridors through the North.

Fourth, lifting sanctions is superior to the alternatives. It is not clear why the South Korean government should negotiate the reopening of Mount Kumgang in the absence of acknowledgement of the North’s responsibility for the death of a South Korean citizen and public guarantees of citizens’ safety.

Aid also should not be used as a political bargaining chip. If humanitarian aid is needed, it should be given; if not, it should be withheld. Linking aid to political progress or other issues such as family visits defies humanitarian norms. Focusing on commercial relations does not rule out aid, which is particularly in the agricultural sector. Neither does it tie aid in any way to political developments.

Opening commercial ties in the wake of the Commission of Inquiry findings on human rights and the Sony hack may seem ill-timed. But it is time to acknowledge that South Korea’s sanctions have had very little effect on getting North Korea back to the bargaining table. Lifting sanctions is not a concession to the North. It is an invitation to reconsider its failed grand strategy and to open its economy to the tremendous opportunities that lie with deeper North-South integration. The United States cannot lead this process; the initiative needs to come from Seoul.

Madame President, it is time to lift the May 24 sanctions.


*The author is a Lawrence and Sallye Krause distinguished professor at the University of California, San Diego.

by Stephan Haggard

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