International Cooperation and the Logistics Market in Northeast Asia: Problems and Prospects for North Korea

IntroductionThe North-South Korean economic cooperation has been expanding since it was made official in 1988. The amount of trade between the two Koreas has increased from $18,724 in 1989 to $190 million in 2009. The sustained development of the two Koreas' economic cooperation is a result of efforts by not only the private sector but also the public sector, academia, nongovernmental organizations (NGOs), and the Korean public. This cooperation represents more than just practical results from economic cooperation between the two Koreas; it is a barometer by which the possibility of Korean unification may be gauged.The North-South Korean economic cooperation started off by trading restricted items and by the consignment processing of manufacturing industries, and in 2002, a joint Korean industrial park, the Gaeseong Industrial Complex, was established in North Korea. For South Korea, Gaeseong is an opportunity to utilize North Korea's low-wage workers, which would enhance the competitiveness of South Korean companies. On the other hand, North Korea could achieve much-needed economic growth by attracting South Korea's investment in the North's special economic zones (SEZs). At present, 116 companies have moved to the Gaeseong SEZ, employing 40,000 North Korean workers. The accumulated production volume between January 2005 and November 2009 was $729 million, and the exports were $120 million. The Gaeseong SEZ is planning to include 2,000 companies with 350,000 workers and is targeting an annual production volume of $16 billion.Previous studies on the North-South Korean economic cooperation have approached the topic mainly in the context of domestic and foreign policies, not in the business context.1 That is, previous studies have generally regarded well-organized business models and management ability as exogenous variables. Based on this assumption, an examination of the North-South Korean economic cooperation in the business context should yield a deeper understanding of the project's sustainability. Further, such an approach may induce higher levels of participation in the project by all sectors of Korean society.This paper examines how the North-South Korean economic cooperation and firms in North Korea could achieve success. In addition, the paper illustrates a profitdriven North-South business model and provides applicable cases for each model. The paper also determines the types of firms that would most likely succeed for each of the four SEZs and discusses the practical implications.North-South Korean Economic Cooperation Business ModelsThis paper classifies the business types of the two Koreas by using productive combinations of economic resources. The neoclassical school looks at labor, capital, and natural resources, among others, as main economic resources.2 Today, such resources also include production and technology/management know-how. These added factors are essential in explaining not only the issue of trade but also the phenomenon of foreign direct investment.3 As stated above, the North-South Korean economic cooperation has developed from consignment processing to direct investment, which would be difficult to explain only through the natural resources indicated by the neoclassical school.4In this regard, this paper assumes four economic resources-natural resources, labor, technology/management know-how, and capital-as the factors in the classification of North and South Korea's business types and stages of business development. Although hundreds of combinations could be made from the four economic resources because of duplicate use, classifying every possible model is not practical in the real-world context. Therefore, only seven types of businesses are discussed.The first business type is the Indirect Manufacturing Model, which combines North Korean labor with South Korean capital. The second type is the Direct Manufacturing Model, which combines North Korean labor with South Korean technology/management know-how. …

The construction and development of the special economic zones in North Korea has been an arduous process. As a result, the special economic zones did not develop as quickly as expected and not to mention the objective that the special economic zones should lead the whole of North Korea along the road to comprehensive reform and opening up. The reasons lie in that: The special economic zones in North Korea are too conservative with a single form and they stressed sovereignty too much during the process of cooperation with outside parties; the special economic zones are restrained due to the low levels of opening up and their self-driven spirit; the policies of the special economic zones are not stable and there the market economy is underdeveloped; the development of the whole country has not coincided with that of the special economic zones. North Korea has initiated a new decision and plan for the construction of economic development zones in recent years; however, the development of the special economic zones may still face many unknown factors.

2016년 대북제재 이후 북한경제 변화와 신남북협력 방향 (Changes in the North Korean Economy and Guidelines to New Strategies of Inter-Korean Cooperation after UNSCR since 2016)

[ ] asia policy Introduction Nicholas Eberstadt & Richard J. Ellings While many parts of the world have joined in the profound international integration that has occurred in the postwar era, the Democratic People’s Republic of Korea (DPRK) has maintained a distinctly—perhaps uniquely—bellicose and autarkic international posture since its founding in 1948. Pyongyang’s discordant approach to “international security” was most recently illustrated earlier this summer. As the United States was celebrating the Fourth of July, the DPRK launched seven missiles (including an inter-continental ballistic missile) into the Sea of Japan—a calculated and deliberately menacing violation of both international law and previous official commitments. Pyongyang then ostentatiously spurned Chinese emissaries sent to manage the incident, prompting Beijing to support—for the first time—the United Nations Security Council condemnation of, and sanctions against, North Korea’s missile program. If anything, North Korea’s international behavior is perhaps more distant from evolving international security norms today than ever before. Contemporary North Korean security policy is marked by a hypermilitarization of society and economy under the banner of songun chongchi (military-first politics); hallmarks of the policy include maintenance and augmentation of chemical and biological weapon capabilities, ballistic missile development, relentless overt and covert nuclear weapons development programs, a confrontational approach to international diplomacy, and a stance toward unification that suggests the complete absorption of South Korea would be the only acceptable outcome. There is a grim logic at work here: Pyongyang routinely extracts resources from neighboring states and the international community through this careful, methodical recourse to “security crisis.” NorthKorea’saggressiveandpredatoryexternalbearingisaninternational dilemma that continues to defy easy resolution. Though the central issues in Whether or not the sanctions are voluntary or legally binding is, however, a question open to interpretation. Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute for Public Policy Research and is Senior Advisor to The National Bureau of Asian Research. He can be reached at . Richard J. Ellings is President and Co-Founder of The National Bureau of Asian Research. He is also Affiliate Professor of International Studies at the Henry M. Jackson School of International Studies, University of Washington. He can be reached at . [ ] bold switchover • special roundtable the ongoing North Korean drama are strategic and political, there is also an economic aspect to the problem: until Pyongyang develops viable alternative sources of state finance, the DPRK will continue to rely upon international military extortion to bankroll state survival. While having “exported” strategic insecurity, North Korea has at the same time also “imported” economic failure. Among the economies of East Asia, the DPRK economy alone has suffered prolonged economic retrogression since the end of the Cold War. For example, though reported world exports of merchandisemorethantripled(incurrentUSdollars)between1990and2005, DPRK commercial merchandise exports are estimated to have dropped by about one-third. Note that although an urbanized and literate society, North Korea has a level of per capita exports today that is roughly comparable to Haiti’s. In short, North Korea’s confrontational external posture has coincided with the deterioration of its economic self-sufficiency and a declining ability to finance state operations and state survival. Given this close association between the degree of radicalization of North Korea’s security policy and the performance of the country’s domestic economy, the National Bureau of Asian Research (NBR) organized a research project and international conference to examine the economic consequences of two radically different courses that North Korean security policy could follow. The first, more optimistic scenario is one where North Korea would undertake a “bold switchover” by resolving regional security concerns regarding DPRK international behavior and thus opening the way for the international community to anchor this new security environment with substantial economic benefits for North Korea. This scenario is examined in the first two sections of the paper: section one overviews what exactly such a switchover would entail, while section two considers what aid might be available through the international financial community if North Korea were to implement such a positive change to its security behavior. The next section examines the likely outcomes of a second—and much more pessimistic— scenario: a North Korean nuclear breakout, commencing with the...

IntroductionThe KIC is emerging as a matter of interest both domestically and internationally-displaying characteristics of being North Korea's national development project to resolve its economic troubles after the Rajin-Sunbong and Sinuiju special economic zone projects fell through. North Korea can use the KIC as a testing ground for possible economic reform that could eventually lead to the complete liberalization of North Korea's economy, and also as a strategic means of easing military tensions between the two Koreas.It is essential for North Korea to open up its doors for its long-term survival. Leaders in Pyongyang deem that a limited opening of the North Korean economy through the establishment of special economic zones is the best plan of action for regime preservation and economic rehabilitation. However, the KIC's potential for success has to be assessed in a more prudent manner. First, North Korea is unable to procure enough funds to autonomously establish the infrastructure necessary to maintain foreign capital in the special economic zone. Second, the country's limited domestic market provides very few incentives to attract foreign investors. Third, the related industries are underdeveloped, making production costs relatively high for potential investors. Fourth, there is a lack of skilled workers who understand the market economy and who are equipped with the latest technology. Finally, there is not enough confidence that North Korea will be able to make the wholesale changes needed or to establish the legal and institutional infrastructure that conforms to international standards. This paper focuses on the issues of attracting foreign investment to the KIC and building a legal and systematic infrastructure that will help maintain this investment. These key indicators can predict the stability and sustainability of the KIC's development henceforth.The North Korean authorities' attitude toward the KIC is very favorable, regardless of how slowly they have met various demands made by South Korea. Most transitional states have been able to experiment with flexible institutional incentives in SEZs, where possible political and economic side effects could be contained within the zones. For example, China's experimentation with liberal market reform was too politically dangerous on a national level, but was possible in SEZs. Based on experience, China began to reform its laws and institutions, creating more diverse SEZs nationwide, such as the Shanghai-Podong Development District, the Weihai Torch High-Tech Industries Development Zone, and free trade zones (Ministry of Justice, 2005).North Korea has also shown deep interest in learning market economics and capitalism from China's model of SEZs. Frequent visits to China's most successful SEZs by North Korean leader Kim Jong Il and the North Korean elite are a good indication that North Korea is benchmarking China. The KIC is a melting pot of capitalism and socialism.The Current State of DevelopmentLaunched full-scale in 2004, the KIC consists of 6,535 acres of land in Kaesong, Panmun-gun, and Jangdan-gun, and 9,803 acres of land in nearby areas. Currently in the first stage, 817 acres of land are being developed for small- to medium-sized labor-intensive businesses. Despite a variety of unfavorable conditions, such as the North Korean nuclear test in 2006 and the subsequent rise of negative public opinion within South Korea, the KIC has been developing steadily as an economic enterprise for the co-prosperity of the two Koreas, grounded on the principle of keeping politics and economics separate. The KIC is expected to gain all the more momentum from two major events. On October 4, 2007, South Korean leader Roh Moo-hyun and North Korean leader Kim Jong Il signed the eight-point Joint Declaration for Advancing Inter-Korean Relations and Peace and Prosperity, after a three-day summit from October 2 to October 4, 2007. The Second Session of the Sixth Round of the Six-Party Talks was held in Beijing, amongst China, Japan, North Korea, Russia, South Korea, and the United States, from September 27 to September 30, 2007. …

The change of president in the Republic of Korea (ROK) brought a new approach towards some foreign policy matters. President Lee Myung-bak set out to restore what he claimed were damaged relations with the United States (US) and Japan, while hoping to avoid offending other countries such as the People's Republic of China (PRC) and Russia. Negotiations with the European Union on a free trade agreement (FTA) continued, with little result. Throughout the year, the PRC continued to play a leading role in keeping the Democratic People's Republic of Korea (DPRK) engaged on the nuclear issue. The abduction issue dominate DPRK-Japan relations. Russia continued to call for moderation in dealing with the DPRK, and to play its part in supplying fuel oil. It also gave some food aid and signed agreements relating to railway rehabilitation in the Rajin area, the site of the DPRK's first special economic zone. Keywords: Democratic People's Republic of Korea (DPRK); DPRK-Japan relation; foreign policy matters; free trade agreement (FTA); Republic of China (PRC); Republic of Korea (ROK)

The article discusses the possible prospects for re-establishing economic and political cooperation between Russia and Democratic People’s Republic of Korea (DPRK) in the current geopolitical situation. Despite the development of advanced cooperation between the USSR and the DPRK in historical retrospect, the change of the political regime in Russia led to a complete rupture of economic ties. In the new geopolitical reality and the challenge of Russia’s policy of "turning to the East", it is noteworthy that DPRK takes a radical pro-Russian position on the conflict in Ukraine, which can serve a basis for re-establishing political and economic relations between two countries. However, the prospects for the development of large- scale cooperation between the Russian Federation and the DPRK at the moment seem rather vague, since the North Korean economy remains isolated, the country’s borders are still closed and the country is under UN sanctions pressure and a wide range of bilateral restrictive measures from Western countries for a long time, which blocks almost all forms of economic cooperation. The DPRK’s adaptation to restrictions and the development of mechanisms to circumvent sanctions by creating the necessary financial and logistics infrastructure allow the country to generate income and purchase the necessary goods and resources. It is concluded that with the final loss of Western markets, the importance of DPRK as a trading partner for Russia may increase.

This paper examines the implications of North Korea’s Special Economic Zone (SEZ) strategy since the early 1990s in terms of the shifts in both North Korea’s economic system and geopolitical order on the Korean peninsula. Specifically, it analyzes the shifts in North Korea’s SEZ policy in three different aspects—North Korea’s unique territorial logic, stress on decentralization, and comparison with Chinese reform and opening-up. Based upon this analysis, this paper criticizes a linear approach to understand North Korea’s economic transformation from isolation to opening-up, and explores the dynamics of North Korea SEZ strategy in various dimensions. It contends that North Korea’s SEZ strategy is neither an inevitable choice from economic difficulty nor an adoption of Chinese model of reform and opening up. Rather this paper focuses on the geopolitical logic and local development imperatives underlying SEZ strategy.

IntroductionSince the South Korean government dramatically departed in October i988 from its conventional of prohibiting trade or economic cooperation with North Korea, a low level of economic cooperation began on a small scale and con - tingent basis by private firms. However, it accelerated more rapidly during the early 1990s, under the Agreement on Reconciliation, Non-aggression, and Exchanges and Cooperation between South and North Korea, which was enforced on February 1992 after their joint entry into the United Nations.Unfortunately, during the mid-1990s, economic cooperation between these two parties has been hampered primarily because of structural di∂erences in their economic and political systems. Another reason for lack of progress is that North Korea's policies limited its role in economic cooperation to private companies and avoided government-level communication with South Korea, which is indispensable for easing tensions and finding the solution for identifiable problems.However, the sunshine policy introduced by the Kim Dae Jung government created a more propitious environment for mutual cooperation between the two parties and successfully induced a new breakthrough in South-North relations. Since the South-North Joint Declaration on June i5, 2000, during the historic inter-Korean summit and the follow-up agreement on a variety of inter-Korean economic issues, the level of economic cooperation reached a new turning point, thereby resulting in a drastic change in South-North Korean relations since then (Table i).Special Economic Zones: The Major Playground for Economic CooperationMore recently, North Korea added three Special Economic Zones (SEZ) to the established Rajin-Sonbong area to accelerate the economic cooperation between the two parties and to spur more foreign investment in North Korea. In particular, the newly promulgated law for Kae-sung Industrial District explicitly allowed investment from the South for the first time. The prospects of the Kae-sung Zone are particularly more promising than any other Zones for a number of reasons. First, both parties have been working diligently for the last couple of years to develop a clear and detailed road map for this special district. Second, more than i00 firms from South Korea have displayed their clear intention to make some kind of investment in this district. Third, the close proximity of this district to Seoul will ease various logistical problems and take advantage of a high quality infrastructure, something not always present in the rest of North Korea.The establishment of four special economic zones has been considered one of the most significant signs of the North Korean's willingness to experiment with a new open-door policy. The prime motivation for this experiment is to promote the inflow of foreign investment, technology, and management know-how. However, this experiment, long-term, is to obtain the indirect experience of a market-oriented economy in a controlled environment and to pass these experiences gradually on to the rest of the country, thus avoiding major political repercussions.Special Economic Zones is a term describing designated legal and geographic areas in which commercial activities, including manufacturing, exporting, processing, banking, and assembly, take place between local and foreign companies under the special conditions that provide a variety of incentives that are not available in other parts of the country. More importantly, an investment environment has to be developed that is considerably more liberal than elsewhere in the North. Additionally, foreign firms would be given high level of autonomy in managing operations, face minimal controls in capital and goods movement, and be allowed to export and import freely whenever it is needed. Two considerations seemed to motivate the North Korean decision to establish the SEZs. First, the opening of these SEZs is understood to be the first major step in the North Korean overall open-door and practices. …

Special Economic Zones (SEZs) Along the Korean Demilitarised Zone: A Feasible Pathway Towards An Accessible North Korea? The Demilitarised Zone (DMZ) between the Republic of Korea (RoK) and the Democratic People's Republic of Korea (DPRK) is judged to be the last border of the Cold War. Although no peace treaty has been signed after the Korean War, astounding changes in the South-North relations could be observed between the late 1990s and 2010. Although severe provocations of the North finally led to a new stop of a further rapprochement, the unexpected reconciliation process started in 2000 by South Korea not only led to a temporary detente, but also showed spatially manifested results. Two Special Economic Zones, one dedicated to tourism and the other to industrial production, had been established in the DPRK near the DMZ. What is the appropriate interpretation of those diffident cross-border activities which lasted for almost a decade? Were these SEZs really first successful attempts at feasible Korean cross-border cooperation? Summing up all knowledge on North-Korean SEZ policy and the general state doctrine, it seems that real cross-border cooperation could not be an option for the DPRK's current leadership, either before or after South-Korea's adoption of Sunshine Policy.

After World War 􀸋, West Germany started internal trade with East Germany, and through intra-German trade, the two Germanys could accomplish unification based on continuous human exchange and economic integration. Recently, China has also completed free trade level agreements (ECFA and CEPA) with Taiwan and city states, Hong Kong and Macau. China and Taiwan have made a stronger economic foundation and unification circumstance through the agreement. The trade of divided nations such as Korea, Germany and China usually started from private level transactions in the beginning, and it developed to internal level, later to international level trade. In 1992, South and North Korea agreed on internal trade through the Inter-Korean Basic Agreement. Recently, South Korea also received recognition for Gaeseong products as outward processing goods through free trade negotiations. Thus, it may be said that the two Koreas have already laid a firm foundation for a South and North Korea FTA. However, in order to achieve FTA level trade between the two Koreas, the internal trade of both Koreas needs to be legally recognized from the international society and trade organizations such as the WTO. Above all, sincere attention and intention of North Korea to international and free trade would be one of the most indispensable factors. This paper tries to prove that, through the existence of various international economic activities of North Korea such as a Special Economic Zone and investment law, North Korea can join substantive economic co-operation with South Korea in the near future. This paper also shows that a South and North Korea FTA is a possible mission considering the North's intention to opening and reformation if South Korea encourages cooperation properly. Simultaneously, a South and North Korea FTA is not only the most adequate alternative to resolve the economic dependence of North Korea on China, but also preparation to confront the diplomatic relationship between Japan and DPRK. This set up of a two-Korea FTA would eventually make an indispensable foundation of unification of the two Koreas

Economic Opening of the Hermit Kingdom: Current Status and Future Tasks of the New SEZs in North Korea

The Borderlands

Already in 1998 then South Korean President Kim Dae-Jung had articulated the new “Sunshine Policy ” calling for peaceful coexistence of the two nations, including the prospect of aid and bilateral economic cooperation as well as a long-term unification proposal (Ahrens, 2003, p. 53). The historic summit between Kim Dae-jung and Kim Jong-il in June 2000 gave additional hope for a gradual and peaceful integration of both the Koreas (Kim, 2003, p. 118). Consequently, political contact between the two Koreas evolved and various cooperative projects were initiated. Two Special Economic Zones (SEZs) have been established in North Korea close to the border with the South: the Kaesong Industrial Complex (KIC) and the Mt. Kumgang Resort. These SEZs have to be mentioned as the core of the current Korean economic cooperation (Lim and Lim, 2006, pp. 48–49). In contrast to the two other SEZs in North Korea, the Rajin-Sonbong and the Sinuiju SEZ, these two were quite successful during the “Sunshine” period (2000–2007) and hope is still high. But since the 2008 inauguration of the new administration in South Korea, North–South relations have deteriorated dramatically. The Lee Myung-Bak government tied further cooperation to demonstrable steps toward ending the North’s nuclear weapons program . Previous progress made began to unravel further when the Mount Kumgang Special Tourism Zone was closed in the summer of 2008 after North Korean guards shot and killed a South Korean tourist and after the imprisonment of a South Korean staff member in the Kaesong Industrial Complex by North Korea in the spring of 2009.

IntroductionNorth Korea has recently begun to develop two new projects: the Gaeseong Industrial project (hereafter Gaeseong SEZ) and the Mt. Kumgang tourism project (hereafter Mt. Kumgang SEZ). In terms of their levels of cooperation, partners and functions, these new projects were distinguished from the two earlier SEZs. The Rajin-Sunbong SEZ is a trade-oriented center that includes China, Russia and Japan. The Sinuiju SEZ has focused on the trade-oriented function in order to cooperate with countries in the Yellow Sea rim area including China. In contrast, Gaeseong is envisaged as a production-centered SEZ to attract small and medium-sized South Korean businesses. The Mt. Kumgang SEZ is also cooperating with the Hyundai Asan Corporation of South Korea in the development of an international tourism course.These two new projects were apparently an advanced step toward economic cooperation when compared with the previous level and form of interaction between the two Koreas. The projects have not only contributed to economic exchange, but also have demonstrated the possibility of advancing the two Koreas' political relations. South-North Korean economic cooperation is important in aiding the recovery of cultural and emotional homogeneity as well as promoting reciprocal economic development, development of infrastructure and building a harmonized structure between the two Koreas. Furthermore, such changes in the economic sector could lead to the political stability of North Korea, which, in turn, would contribute to the political and military stability of the entire Korean peninsula.Table 1 summarizes the economical and political effects of two new North Korean SEZs on both North and South Koreas. The effects of the success or failure of the North Korean SEZs will not be confined to the North Korean government; the result will affect the economic and political atmosphere of the entire Korean peninsula and all Northeast Asian countries.Therefore, this paper will address possible routes to success for the North Korean SEZs. The first section provides an analysis of the complicated features of North Korean SEZs. The second section offers an examination of a short-term and longterm development strategy of North Korean SEZs. The concluding section contains a discussion of the most appropriate way to achieve success for the SEZs through close economic cooperation between the two Koreas, with consideration of the eventual establishment of a future commonwealth.The Concept, Developmental Logic, and Type of a North Korean SEZThe Concept of the SEZ in North KoreaAccording to the Dictionary of Economics of North Korea, the Special Economic Zone (Open Zone for Foreigners) is defined as follows (p. 116):China, in 1979, announced some parts of four cities as the special economic zone. The purpose of establishing special economic zones was inducing foreign capital, technology, and management skills as well as increasing foreign trade and foreign currency holdings, accelerating economic development. The Chinese special economic zone is different from the industrial district in capitalist countries. While capitalist countries develop capitalist economies by inducing foreign capital in the industrial district, in the Chinese special economic zone, various economic systems coexist on condition that a socialist economy predominates. Foreign capitalists have the right to possess the means of production, a part of or whole rights of management, the right to employ and discharge workers, and particular privileges and special favors regulated by the Chinese government. However, foreign capitalists have to undertake economic activity in the special economic zone under the supervision and direction of the socialist country.In the same Dictionary of Economics, the so-called industrial district in capitalist countries is defined as follows (p. 176):The origin of the industrial district was the Manchester Industrial District in Britain in the late 19th century and this model has been diffused all around the world after World War I. …