Economic implications of the 2007 inter-Korean summit
Saturday, 17 November 2007
By Lim Young-Rok
Vice Finance Minister
Through the inter-Korean summit, South and North Korea seized an opportunity to drastically develop their relations in the fields of politics, economy, society and culture.
Among other things, summit agreements on economic cooperation projects laid the groundwork to upgrade inter-Korean economic cooperation by one notch.
The two leaders were able to reconfirm their will to settle peace on the Korean Peninsula and denuclearize the region through the 2007 South-North Korean Summit held in Pyongyang from Oct. 2 to 4. The two sides agreed to expand inter-Korean economic cooperation under the principle of pursuing co-prosperity on the basis of peace, promoting projects that can substantially benefit one another. This means that inter-Korean economic links, which had focused on exchanges and cooperation, will proceed in a comprehensive, systematic and continual manner, thus moving to develop inter-Korean economic cooperation into an inter-Korean economic community.
The centerpiece of the summit outcome is the agreement to establish the "Yellow Sea peace cooperation zone," a plan that will help bring about peace and prosperity in Haeju and its surrounding region.
The project includes the designation of a joint fishing area and a peace zone in the Yellow Sea, building a special economic zone and using the port city of Haeju, permission for civilian vessels to use a sea route to Haeju, and joint use of the Hangang estuary. The Yellow Sea peace cooperation zone project is expected to help the two Koreas form a positive cycle of peace and mutual prosperity by seeking to resolve military issues like the controversy surrounding the Northern Limit Line from the viewpoint of mutual economic benefits.
In addition, this summit contributed to diversifying inter-Korean economic cooperation, which had been made mainly in light industries, to the areas of shipbuilding, agriculture, medical services, environmental protectionism, advanced scientific technologies, and development of natural resources.
It also served as an occasion to expand South Korea's outposts for inter-Korean economic cooperation from the Gaescong Industrial Complex and Geumgangsan resort to Haeju, Anbyeon, Nampo, and Baekdusan.
The summit also provided a chance for the two Koreas to resolve the obstacles to inter-Korean cooperation such as issues of communication, cross-border passage, customs clearance procedures, and a security guarantee.
Another summit achievement is that South and North Korea agreed to upgrade the status of the existing inter-Korean Economic Cooperation Promotion Committee to the Joint Committee for Inter-Korean Economic Cooperation to be headed by deputy prime minister-level officials. This elevation will help the two Koreas gain more binding force in implementing the agreed upon measures.
Economic Benefits
(1) South Korea
The two leaders' commitment to bringing about peace and denuclearization and the measure to create a peace cooperation zone in the Yellow Sea, a region where the possibility of accidental clashes between the two Koreas still exists, are expected to help reduce the region's geopolitical risks.
Domestically, we expect the investment sentiment to improve and the nation's sovereign ratings to be upgraded in the long term, helping boost foreign direct investment.
Through the expansion of the special economic zone, the construction of shipbuilding facilities and natural resource development, the summit agreement is also expected to create more investment opportunities arising from new development -- combining the South's advanced technologies and the North's ample natural and human resources. This may provide the Korean economy a needed boost in its competition with Japan and China. For instance, the new shipbuilding complex to be built in North Korea may help overcrowded South Korean shipyards speed up completion of backlogged orders and help counter China's competitive advantage of low-cost labour.
We expect the summit agreements to progress smoothly without major hurdles. The expansion of special economic zones, the Baekdusan tourism project and the joint shipbuilding complex are all projects that civilians can initiate on a commercial basis. The South Korean Government will support the construction of infrastructure in the North to facilitate private sector investments.
In the case of the first-phase project to build the Gaeseong Industrial Complex, state companies could retrieve their investments in land development, power and communications facilities through the sale of developed lots and collection of electricity and telecommunication charges.
Taking into account Gaeseong's example, we expect that the cost of building the Haeju special economic zone and the second-phase of the Gaeseong project will not be very large. We do not need to be too worried about the financial burden given that infrastructure investments are usually spread out over an extended period of time, and state budgeting on the project is controlled by the National Assembly.
2) North Korea and Northeast Asia
North Korea clearly expressed its willingness to denuclearize the Korean Peninsula at the inter-Korean summit. We believe that this may secure North Korea more chances to communicate with the international community. In particular, if economic cooperation is activated, it is expected that North Korea will have more job creation, an expansion of job training and a boost in exports, all of which will help its sagging economy, which recorded negative growth in 2006.
This summit will promote peace not only on the peninsula, but also in the larger Northeast Asian region, possibly reducing the military and political tension in the region.
Future Plans
The South Korean Government plans to implement the summit agreements related to the economy by holding a prime minister-level meeting between the two Koreas in November, as well as deputy prime minister-level economic cooperation committee talks. To support these plans, the Government is operating a committee to follow up on summit agreements and will seek public opinion through a civilian advisory panel composing industry experts and executives of companies investing in the North.
The Ministry of Finance and Economy is actively supporting the Government's efforts to implement the summit agreements and plans to explore new areas in which South and North Korea can do businesses together. In addition, the ministry will hold meetings with economic associations for close cooperation in promoting inter-Korean business projects.
In the meantime, business circles, including the Korea Chamber of Commerce and Industry, will launch a consultation body in November that will exclusively handle inter-Korean economic cooperation. Also, it plans to organise an investor team to visit North Korea within the year.
Concluding Remarks
The two leaders' agreement included details for promoting inter-Korean business projects that will provide the South investment opportunities and the North a chance for economic revival. To make these projects successful, participation by the private sector and administrative support by the governments of the South and the North are urgently needed. These efforts will help lay the groundwork for the development of inter-Korean relations into a South-North economic community.
— Korea Policy Review
Vice Finance Minister
Through the inter-Korean summit, South and North Korea seized an opportunity to drastically develop their relations in the fields of politics, economy, society and culture.
Among other things, summit agreements on economic cooperation projects laid the groundwork to upgrade inter-Korean economic cooperation by one notch.
The two leaders were able to reconfirm their will to settle peace on the Korean Peninsula and denuclearize the region through the 2007 South-North Korean Summit held in Pyongyang from Oct. 2 to 4. The two sides agreed to expand inter-Korean economic cooperation under the principle of pursuing co-prosperity on the basis of peace, promoting projects that can substantially benefit one another. This means that inter-Korean economic links, which had focused on exchanges and cooperation, will proceed in a comprehensive, systematic and continual manner, thus moving to develop inter-Korean economic cooperation into an inter-Korean economic community.
The centerpiece of the summit outcome is the agreement to establish the "Yellow Sea peace cooperation zone," a plan that will help bring about peace and prosperity in Haeju and its surrounding region.
The project includes the designation of a joint fishing area and a peace zone in the Yellow Sea, building a special economic zone and using the port city of Haeju, permission for civilian vessels to use a sea route to Haeju, and joint use of the Hangang estuary. The Yellow Sea peace cooperation zone project is expected to help the two Koreas form a positive cycle of peace and mutual prosperity by seeking to resolve military issues like the controversy surrounding the Northern Limit Line from the viewpoint of mutual economic benefits.
In addition, this summit contributed to diversifying inter-Korean economic cooperation, which had been made mainly in light industries, to the areas of shipbuilding, agriculture, medical services, environmental protectionism, advanced scientific technologies, and development of natural resources.
It also served as an occasion to expand South Korea's outposts for inter-Korean economic cooperation from the Gaescong Industrial Complex and Geumgangsan resort to Haeju, Anbyeon, Nampo, and Baekdusan.
The summit also provided a chance for the two Koreas to resolve the obstacles to inter-Korean cooperation such as issues of communication, cross-border passage, customs clearance procedures, and a security guarantee.
Another summit achievement is that South and North Korea agreed to upgrade the status of the existing inter-Korean Economic Cooperation Promotion Committee to the Joint Committee for Inter-Korean Economic Cooperation to be headed by deputy prime minister-level officials. This elevation will help the two Koreas gain more binding force in implementing the agreed upon measures.
Economic Benefits
(1) South Korea
The two leaders' commitment to bringing about peace and denuclearization and the measure to create a peace cooperation zone in the Yellow Sea, a region where the possibility of accidental clashes between the two Koreas still exists, are expected to help reduce the region's geopolitical risks.
Domestically, we expect the investment sentiment to improve and the nation's sovereign ratings to be upgraded in the long term, helping boost foreign direct investment.
Through the expansion of the special economic zone, the construction of shipbuilding facilities and natural resource development, the summit agreement is also expected to create more investment opportunities arising from new development -- combining the South's advanced technologies and the North's ample natural and human resources. This may provide the Korean economy a needed boost in its competition with Japan and China. For instance, the new shipbuilding complex to be built in North Korea may help overcrowded South Korean shipyards speed up completion of backlogged orders and help counter China's competitive advantage of low-cost labour.
We expect the summit agreements to progress smoothly without major hurdles. The expansion of special economic zones, the Baekdusan tourism project and the joint shipbuilding complex are all projects that civilians can initiate on a commercial basis. The South Korean Government will support the construction of infrastructure in the North to facilitate private sector investments.
In the case of the first-phase project to build the Gaeseong Industrial Complex, state companies could retrieve their investments in land development, power and communications facilities through the sale of developed lots and collection of electricity and telecommunication charges.
Taking into account Gaeseong's example, we expect that the cost of building the Haeju special economic zone and the second-phase of the Gaeseong project will not be very large. We do not need to be too worried about the financial burden given that infrastructure investments are usually spread out over an extended period of time, and state budgeting on the project is controlled by the National Assembly.
2) North Korea and Northeast Asia
North Korea clearly expressed its willingness to denuclearize the Korean Peninsula at the inter-Korean summit. We believe that this may secure North Korea more chances to communicate with the international community. In particular, if economic cooperation is activated, it is expected that North Korea will have more job creation, an expansion of job training and a boost in exports, all of which will help its sagging economy, which recorded negative growth in 2006.
This summit will promote peace not only on the peninsula, but also in the larger Northeast Asian region, possibly reducing the military and political tension in the region.
Future Plans
The South Korean Government plans to implement the summit agreements related to the economy by holding a prime minister-level meeting between the two Koreas in November, as well as deputy prime minister-level economic cooperation committee talks. To support these plans, the Government is operating a committee to follow up on summit agreements and will seek public opinion through a civilian advisory panel composing industry experts and executives of companies investing in the North.
The Ministry of Finance and Economy is actively supporting the Government's efforts to implement the summit agreements and plans to explore new areas in which South and North Korea can do businesses together. In addition, the ministry will hold meetings with economic associations for close cooperation in promoting inter-Korean business projects.
In the meantime, business circles, including the Korea Chamber of Commerce and Industry, will launch a consultation body in November that will exclusively handle inter-Korean economic cooperation. Also, it plans to organise an investor team to visit North Korea within the year.
Concluding Remarks
The two leaders' agreement included details for promoting inter-Korean business projects that will provide the South investment opportunities and the North a chance for economic revival. To make these projects successful, participation by the private sector and administrative support by the governments of the South and the North are urgently needed. These efforts will help lay the groundwork for the development of inter-Korean relations into a South-North economic community.
— Korea Policy Review