ⓒ YONHAP News

Continually warming relations between South and North Korea are raising hope for bilateral economic cooperation. The inter-Korean summit, the third of its kind this year, was held in Pyongyang last month, followed by a meeting between South Korean and American leaders. Following this series of high-profile talks, expectations are running high for inter-Korean economic cooperation. Here’s economic commentator Chung Chul-jin to explain what South Korean President Moon Jae-in and North Korean leader Kim Jong-un agreed upon in the economic realm during their Pyongyang summit. 

The Pyongyang Declaration addresses military and denuclearization issues, of course. But it also contains details about potential economic projects between the South and the North. The key is to build social overhead capital, including railways and roads, and to resume the joint operation of the Gaeseong Industrial Complex and South Korean tours to Mt. Geumgang in North Korea. The two sides will discuss ways to establish a special economic zone along the western coast and a special tourism zone along the eastern coast on the Korean Peninsula. For this project, it is necessary to connect cross-border railways and roads. 

The Pyongyang Joint Declaration, announced on September 20, shows the two leaders’ strong commitment to economic cooperation. Moon and Kim promised to restart the Gaeseong Industrial Park business and the Mt. Geumgang tour program, if certain conditions are met. It is the first time that they have officially agreed to resume the two suspended projects, albeit conditionally. The two Koreas may also be able to carry out large-scale economic projects on the western and the eastern part of the peninsula. 

To start with, South and North Korea will work on the connection of severed railways and roads in their own territories, since this work is not subject to international sanctions banning investment in and joint ventures with North Korea. The reconnection is expected to be a first step toward linking the “economic artery” of the divided peninsula.

South Korea will first work on a railway in the eastern part and a road in the western part in its own territory. To be more specific, it may start restoring the severed section between Gangneung and Jejin on the eastern Donghae rail line, and the road that follows the Gyeongui line on the western side. The cross-border road linking Musan in the South with North Korea’s Gaeseong is less than 12 kilometers. South Korea could repair the road in its own section first and continue with the work later, if possible. The connection of the Donghae railway and the Gyeongui road on the South Korean side is expected to cost 2 billion US dollars and 460 million dollars, respectively. 

If international sanctions on North Korea are eased at some point in the future, this may allow South Korea to hire North Korean laborers and conduct financial transactions with the North, as well as resume the joint factory park project in Gaeseong and tours at Mt. Geumgang. Then, the two sides may possibly work on specific ways to develop a special economic zone in the west, where the Gaeseong Industrial Park lies, and a special tourism zone in the east, where Mt. Geumgang is located. And if North Korea-U.S. relations improve enough, the latter may choose to ease sanctions that ban the export of strategic materials to North Korea, further expanding inter-Korean economic cooperation. 

Some South Korean companies have explored economic projects with North Korea in the past. Samsung planned on creating an industrial complex focusing on electronics in the North in 2000, when the first-ever inter-Korean summit was held, under the instruction of then-Samsung Group Chairman Lee Kun-hee. It seems the company had several investment plans, including those related to color television and phones, until 2010. LG Group actually produced TV sets in the form of processing-on-commission until 2009. 

LG Uplus, a telecommunications and mobile phone operator, is also said to be drawing attention as a potential investor in North Korea. It is understandable, as the development of railways and roads would be followed by the establishment of telecommunications and electricity networks. Not only LG Uplus, but other South Korean telecommunication companies, including SK Telecom, will have their eyes on North Korea, as discussions are underway on the creation of relevant networks and even a so-called smart city in the communist state. 

Leaders of South Korea’s top four companies, including Samsung Electronics Vice Chairman Lee Jae-yong, and SK Group Chairman Chey Tae-won, accompanied President Moon to Pyongyang last month. After their North Korea visit, the top executives hinted at the possibility of engaging in economic cooperation with the North. 

Hyundai Group, which pioneered modern economic cooperation with North Korea, is drawing a blueprint for the establishment of electricity and telecommunications facilities in the North, in addition to its Mt. Geumgang tour business. Meanwhile, South Korean steelmakers, including POSCO, are weighing on the possibility of developing resources in North Korea and investing in relevant facilities. In particular, South Korean firms boasting advanced information and communication technology will be able to secure a new growth engine when inter-Korean relations improve, as North Korean leader Kim Jong-un expressed hope to develop his country into a science and technology powerhouse. 

Over the next five years, inter-Korean economic cooperation is expected to create 130-thousand jobs and add an additional 0.81 percentage points to South Korea’s gross domestic product per year. The Gaeseong Industrial Park, in particular, is estimated to generate over 160 trillion won or about 145 billion dollars over the next 30 years.

While South Korea is grappling with low birthrates and a shrinking working-age population, North Korea can still provide low wage workers. South Korea can seek out a new growth engine through the connection of inter-Korean railways and roads, which is expected to create a significant synergy effect for cross-border economic exchanges.

South and North Korea can make a new leap forward together if they push for economic cooperation in good faith. The South Korea economy is plagued by sluggish demand and investment as well as declining birthrates and an aging workforce. But economic cooperation with North Korea may revitalize the South Korean economy. North Korea, for its part, needs to secure outside capital and technology to grow its economy.

Indeed, an inter-Korean market would represent a collective 80 million people. With the combination of North Korea’s labor and resources with South Korea’s capital and technology, manufacturing, industry, information, and telecommunications sectors can expand significantly. But these visions will be possible only when international sanctions on North Korea are eased or lifted. 

Lifting international sanctions on North Korea is essential. The U.N. Security Council and the U.S. will ease their sanctions against the North, little by little, only if and when they see substantial progress in North Korea’s denuclearization. All those plans and ideas about inter-Korean economic cooperation will end up being a mere report, as long as the sanctions remain in place. 

Some argue that the Mt. Geumgang tour program has nothing to do with the sanction measures. But in the course of carrying out the tour business, South Korea should send money to the North, that is, engage in financial transactions with the North. This is a key part in sanctions against North Korea. Similarly, for Seoul, the Gaeseong Industrial Park is a joint venture with Pyongyang—something that is prohibited under the U.N. sanctions. That’s why business cannot resume at present. For the future of inter-Korean economic cooperation, the strict economic sanctions should be eased in some way. 

The international community, led by the U.S., believes that denuclearization measures should precede inter-Korean economic cooperation. With these concerns in mind, President Moon stressed North Korea’s efforts toward denuclearization and appealed to the international community to support economic cooperation between South and North Korea during his speech at the U.N. General Assembly on September 26. 

On the occasion of the U.N. meeting, denuclearization talks between North Korea and the U.S. seem to be picking up momentum. The future of inter-Korean economic cooperation hangs on the progress of these negotiations