This study examines the current status of economic cooperation between South and North Korea, and makes specific suggestions for future pilot projects—location, business ypes, and areas for support—in preparation for future full-scale inter-Korean economic cooperation.
Inter-Korean economic exchanges and cooperative projects have mainly been carried out in the form of indirect trade via a third country, and processing on commission under the initiative of the private sector. The scale and scope of these projects are continuously expanding. In order for the government to generate successful pilot inter-Korean economic projects under its initiative, it is necessary to establish an institutional mechanism to secure project investment, build a working relationship with North Korea, and implement symbolic pilot projects that can contribute to the improvement of inter-Korean relations.
This study proposes the following candidate regions for pilot projects: the Najin-Seonbong-Cheongjin Free Economic Trade Zone as declared by the State Administration Council of North Korea in 1991, the Nampo Industrial Complex of light industrial plants or the industrial complex site exclusively for South Korean business, on which the Daewoo Group and North Korea agreed in 1992, the Geumgangsan area, areas near the Military Demarcation Line, Siberia, and the pelagic fishing zones secured by North Korea. Inter-Korean pilot projects are likely to be conducted more easily here than in other areas, as they are the regions where North Korea wants to introduce foreign, including Southern, investment, or the areas that have relatively small influence on the North Korean regime.
Concerning revealed comparative advantage (RCA) index, promising business areas include 50 industries, including clothing and textiles, leather, rubber and footwear, steel and metal products, communication devices, and electric and electronic machines: industries in which both South and North Korea maintain manufacturing capabilities, but the South has a comparative edge. As to the comparative analysis of industrial technology gap, 60 types of industries, including the electronic and electric industry and textile industry are suggested by this study.
Promising areas can also be determined based on demand from both governments. South Korean companies want to invest in North Korea in such areas as electronics, electricity, machinery, metal, chemical, textile and ceramics; while North Korea wants to generate investment worth a total of USD 3.65 billion in 68 areas, including mining, chemical, food and agriculture and fisheries, textile and clothing, machinery, metal, ship-building, footwear, and electric and electronic industry. Taking into account the fields preferred by the two sides, 42 areas are seen promising at this point, which include fields that do not require advanced technologies, including machinery and transportation equipment, the clothing-footwear-bag industry, and the electronics-machinery-chemical industry.
At present, North Korea divides the companies invested in by foreigners into ‘joint operation companies,’ ‘joint venture companies’ and ‘foreign companies.’ Pilot projects with South Korea will take the form of one of these, but it is difficult to predict the type of pilot projects as they are subject to change based on type of business, location, and agreements between the two Koreas. Ideal pilot projects include South Korean companies’ operation in the Najin-Seonbong Free Economic and Trade Zone or the industrial complex exclusively for South Koreans in Nampo, joint fisheries projects, joint development of continental shelves, and joint logging in Siberia. However, these projects require full investigations before implementation as they require consultation with North Koreans.
For the optimal operation of pilot projects, the government may consider offering support in establishing communication and telecommunication networks, such as the routing of coaxial and optical cables, microwave installation, utilization of existing Panmunjeom facilities, and the establishment of temporary post offices. It may also explore ways of supporting transportation, such as the opening of temporary sea routes connecting Incheon and Nampo, and the Busan-Pohang-Donghae-Najin-Seonjin-Cheongjin sea route. Additional measures that can be studied include the support of transportation ships, including traditional cargo ships, semi-containerships, and barge, the recovery of the Gyeongeui Railroad Line in preparation for the construction of the Pyeonghwa Industrial Complex, and the opening of an air route between Gimpo and Sunan for transportation of passengers and emergency supplies. The government may also study ways to establish a counseling office and a customs office inside the South-North Liaison Office at Panmunjeom to offer information, customs and quarantine services.
남북한 시범적 경제협력사업의 추진방안(Proposals on pilot Inter-Korean economic cooperation projects)
|Series Title; No||정책연구시리즈 / 94-01|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|