© YONHAP News

In his Liberation Day speech on August 15th, South Korean President Moon Jae-in pledged to establish a “peace economy” with North Korea as a specific means of realizing unification. So why is the South Korean government stressing this particular vision despite North Korea’s missile launches and harsh criticism against Seoul? Here is Cho Han-bum, a senior researcher at the Korea Institute for National Unification, with more. 

South Korea has the challenging task of dealing with Japan’s economic retaliation. A few years ago, South Korea was also hit by China’s economic retaliation following Seoul’s decision to deploy a U.S. missile defense system. President Moon seems to be thinking that a divided Korea and security jitters are detrimental to economic cooperation in East Asia, and that peace and stability in the region will eliminate economic uncertainties and contribute to economic development. 

I think North Korea-U.S. nuclear negotiations and the peace process on the Korean Peninsula have already entered an irreversible stage. Under these circumstances, Moon firmly believes that a peace-driven economy is both the means and goal of building a new Korean Peninsula.

Moon presented the “peace economy” vision earlier this month as a way to overcome Japan’s economic retaliation and reduce Seoul’s economic dependence on Tokyo. Unification Minister Kim Yeon-chul said on Tuesday that the current security conditions in the region underline the need for a peace economy, which could lead to a rosy future for the Korean Peninsula. 

Due to the division of Korea, the logistics network of the Eurasian continent ends at the Military Demarcation Line bisecting the Korean Peninsula, while the transportation and logistics network of the Pacific stops at Busan Port. 

A unified Korea, if realized, will bring about a revolution in the transportation and logistics systems of the economic blocs in Eurasia and the Pacific, with South Korea becoming an economic hub. 

If the two Koreas are unified, China’s Belt and Road Initiative, Russia’s New Eastern Policy and the reconstruction of North Korea might all be merged, turning Korea into one of the world’s largest economies. World-renowned investor Jim Rogers has predicted that South Korea will encounter a new frontier after unification. A unified Korean Peninsula could become a new growth engine for the global economy. 

Statistics Korea estimates that South Korea’s population reached 51.6 million last year. According to the CIA Factbook, North Korea is estimated to have a population of 25.3 million. The combined population of nearly 80 million from the South and the North, against the backdrop of a peace economy, will increase the working-age population and expand the consumer market on the peninsula. The two Koreas, if they become one, will also be able to save costs, including defense expenditures, stemming from the unique and exceptional aspects of a divided country. 

Some research institutes have already predicted how large a unified Korean economy will become. Britain-based economic consultant, the Center for Economics and Business Research, forecast in its World Economic League Table 2019 that a unified Korea at South Korean living standards would have the world’s sixth-largest GDP in the 2030s. Goldman Sachs, a global investment giant, predicted in its 2009 report that the per-capita income of a united Korea would reach 86-thousand US dollars in 2050. 

Above all, a peace economy is expected to promote relations between South and North Korea. 

From last year, North Korea had shown a forward-looking attitude toward the South until its second summit with the U.S. broke down in Hanoi in February. Unlike in the past, the North equally valued its relations with both the U.S. and South Korea. The two Koreas built military trust and expanded bilateral exchanges. Unfortunately, inter-Korean ties have been deadlocked for now, amid a stalemate in denuclearization talks between the North and the U.S. 

Moving beyond the temporary setback, Moon has presented a mid-and long-term roadmap to a peace economy in a broader context, in the belief that North Korea, which is focusing more on its economy now, will eventually respond positively to the vision. 

It seems Moon has put an emphasis on a peace economy, with the long-term future of cross-border ties in mind. The president also probably believes that North Korea has resorted to provocations in a bid to gain the upper hand at a possible third summit with the U.S. and so he hopes to play a mediating role between the two. 

However, North Korea has taken an aggressive stance toward the South. The North fired projectiles into the East Sea on August 16^th and also criticized the South Korean president’s Liberation Day speech. 

Pyongyang’s strong criticism of Seoul shows that it is unhappy about its stalled negotiations with the U.S. That is, the target of North Korea’s attack is the U.S. rather than South Korea. But the North is refraining from directly condemning the U.S. for fear of breaking the dialogue momentum. Apparently, North Korea is seeking to improve its relations with the U.S. first and with South Korea later. As a matter of fact, the North badly needs the South, as leader Kim Jong-un’s economic policy will not work without cooperation from South Korea. Pyongyang has recently vowed not to sit down with Seoul for talks again. But the harsh rhetoric is interpreted as a strategy to resolve problems related to the U.S. first before touching on any inter-Korean issues. 

North Korea appears to have concluded that it cannot handle inter-Korean relations as it wishes without progressing in its ties with the U.S. Even if North Korea-U.S. negotiations proceed, Pyongyang is likely to deal with its relations with Seoul separately. 

What North Korea wants is economic cooperation with the South. Of course, South Korea also hopes to resume cross-border economic projects such as the Mt. Geumgang tour program and the Gaeseong industrial park project. But the North wants them to restart more desperately. Once North Korea-U.S. ties improve, inter-Korean economic cooperation will benefit North Korea in the short term. Progress in North Korea-U.S. denuclearization negotiations will therefore pave the way for inter-Korean economic exchanges to expand considerably. 

The South Korea-U.S. joint military exercise, which drew a strong backlash from North Korea, ended on Tuesday, while U.S. Special Representative for North Korea Stephen Biegun visited South Korea. We are hoping the resumption of North Korea-U.S. dialogue leads to progress in inter-Korean relations and the creation of a peace economy.