No time for economic cooperation

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No time for economic cooperation


Kim Byung-yeon
The author is an economics professor at Seoul National University.

As denuclearization talks between North Korea and the United States remain stalemated, some people say the two Koreas must resume economic cooperation. President Moon Jae-in raised the topic during his New Year’s address and the government expressed a willingness to push for individual tours to North Korea.

I assume the claims are based on the following arguments: One, North Korean leader Kim Jong-un is still firmly willing to give up his nuclear weapons, but if Seoul and Washington miss their chance, denuclearization will go down the drain; Two, the United States — not North Korea — is making denuclearization talks more difficult. The United States has yet to meet the conditions for North Korea to denuclearize. Third, Seoul needs to push Washington to engage in negotiations with Pyongyang by taking the lead in economic cooperation with Pyongyang.

But based on my observation of North Korea over the past two years, the first and second points are not true. In a written interview with a foreign media outlet in 2019, President Moon said Kim expressed his willingness to denuclearize for economic development. Then how can he explain Kim’s strategy at the Hanoi summit and several working-level meetings between North Korea and the United States, and how far-off he acted from complete denuclearization?

It is also a lie to say that the United States caused the stalemated denuclearization talks. In the first U.S.-North summit in Singapore, the two countries agreed to work toward establishing a peace regime on the Korean Peninsula. That means that if North Korea fully denuclearizes, it can establish diplomatic relations with the United States and earn a chance to develop its economy. The United States also offered the North a step-by-step — and simultaneous — denuclearization process. Given such considerations, it is North Korea that is hampering denuclearization talks.

The question of what is more effective to attain North Korean denuclearization — sanctions or economic cooperation — should be assessed with empirical study. The effectiveness of sanctions has been proven, as they forced North Korea to join the talks and offer the demolition of its Yongbyon nuclear facilities. Kim begged the United States to ease sanctions during the Hanoi, Vietnam, summit. Late last year during a plenary meeting of the ruling Workers’ Party, Kim explicitly said that the battle between Pyongyang and Washington has come down to a battle between self-reliance and sanctions.

In contrast, there’s no proof that economic cooperation has a positive impact on denuclearization. To pursue economic engagement with North Korea at a time like this will only undermine the sanctions campaign, help Pyongyang’s self-reliance and raise the odds that denuclearization will fail. It is imperative to drain North Korea’s foreign exchange reserves for denuclearization as soon as possible.

But economic cooperation will only send more foreign cash into the regime. The Achilles’ heel of the North’s economy is a dearth of foreign reserves. Sanctions affect its industry, the market and foreign currency deposit. North Korea can avoid shocks on its industries and markets as long as it manages to get enough food aid from other countries. But its rapidly decreasing foreign reserves — more than $1 billion a year — are a time bomb for the Kim Jong-un regime.

North Korea’s increased earnings from tourism create a big hole in international sanctions. Before the sanctions, its biggest income sources were mineral exports and hard cash wired by North Korean laborers toiling abroad, each of which provided the regime with $800 million and $300 to $400 million a year, respectively. Now, North Korea is expected to earn less than 20 percent of what it used to, even when including smuggles.

As North Korea’s foreign exchange reserves are rapidly depleted, Pyongyang is looking to tourism to turn the tide. A recent study showed 350,000 Chinese visited North Korea in 2019, up 269 percent from 130,000 in 2010. Through those Chinese tours, North Korea raked in $175 million last year. If revenues from South Korean tourists are added to the amount, it will substantially reduce the effect of sanctions, making denuclearization talks even harder.

If the Moon Jae-in administration allows individual tours to North Korea, it may encourage more Chinese to visit its neighbor. Even the slightest sign of rapprochement with North Korea through inter-Korean economic cooperation carries a significant meaning. If Seoul intends to ease sanctions on Pyongyang, Beijing may be tempted to ease more sanctions, asking why a third country has to abide by sanctions when South Korea — a country directly involved in the nuclear issue — is backing down. Corporate-funded, individual tour programs could violate sanctions by the United Nations and the United States.

Seoul’s push for economic cooperation is more groundless than its income-led growth policy. A bad economic policy may temporarily put a damper on our growth rate, but losing a chance to denuclearize a recalcitrant state across the border may not be recovered. And the pursuit of individual tours will only deepen the schisms between South Korea and the United States. Now is the time to apply strict sanctions on North Korea. Instead of walking the lonely path of economic cooperation, South Korea must engage North Korea based on a joint plan with the United States, pursuing cooperative projects in accordance with denuclearization progress.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Jan. 29, Page 31
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