Economic Interdependence and Security on the Korean Peninsula: The Impact of North Korean Special Economic Zones

Abstract

Given North Korea’s desire to maintain nuclear weapons—and barring its unexpected collapse—how can the US and its allies establish and maintain a peaceful Northeast Asia? Current US policy alternatives do not offer an effective means for removing North Korean nuclear weapons without creating many more serious problems that jeopardize a stable future for Northeast Asia. However, by engaging in foreign direct investment (FDI) through North Korea’s special economic zones, the United States and other nations can engage North Koreans at all levels of society and build a future environment of cooperation and stability. Such a long-term engagement policy will prove more successful than isolation, sanctions, or military force, and will bolster regional actors’ efforts to develop additional stability-inducing policies.     

Direct foreign investment and the Yellow Sea Rim

The article investigates the possibility and problems of direct foreign investment (DFI) in the Yellow Sea Rim. After reviewing the global trends in DFI and major policy issues, the article discusses the perspectives of DFI in the region. It examines the markets for the products made by foreign subsidiaries and joint ventures as well as relocation of industries from South Korea and Japan. By reviewing Japanese experience in operating joint ventures and subsidiaries in China, the article discusses difficulty in managing subsidiaries in the centrally planned economy. A probable consequence of increased DFI will be an expansion of emigration of Chinese citizens to Korea and Japan.     

The future of coastal development in the Yellow Sea Rimlands

With its strategic location in East Asia, the Yellow Sea Rim is becoming an important economic region, where the socialist economies of China and North Korea and the market economies of Japan and South Korea interact and exchange for their mutual benefit. In light of the recent rapprochement among Northeast Asian countries, the article describes the emerging pattern of development in the Yellow Sea Rim. It assesses the potential gains of opening up the region by assuming a complete or partial removal of political barriers. Anticipating the future of cooperative regional development in the Yellow Sea Rimlands, the article discusses regional strategies and key issues involved in cooperation, in particular between China and South Korea.     

Trends in North Korean foreign policy

North Korea’s foreign policy track record in the post-cold war era is mixed. Most notable setbacks are the diplomatic normalization between the Soviet Union (now Russia) and South Korea; the reversal of its UN policy that paved the way for the simultaneous admission of the two Korean states to the world organization; and the diplomatic normalization between China and South Korea. On the credit side of Pyongyang’s diplomatic ledger are changes in its relations with Tokyo and Washington. While tangible results have yet to materialize, particularly in North Korea-Japan relations, the groundwork has nonetheless been laid for significant improvement. North Korea’s suspected nuclear weapons development program has played a major role in the unfolding of its relations with the United States. Conceptually, North Korean foreign policy can be explained in terms of its quest for three interrelated goals: security, legitimacy, and development. In the post-cold war era security appears to have emerged as the most important of the three goals. North Korea is at a crossroads. The choices it makes in foreign policy will determine not only the direction of its domestic policy but, ultimately, the survival of the regime itself. The external players in Seoul, Washington, Tokyo, Beijing, Moscow, and Vienna (the IAEA) have varying degrees of leverage over Pyongyang’s policy as well.     

The Korean experience in FDI and Sino-Korean relations

The possibility of regional cooperation in the Yellow Sea Rim (YSR) area has been discussed since the early 1980s. In recent years, Korean outbound foreign direct investment (FDI) has increased rapidly and it will be growing much further. In the new phase of the global economy and the post-cold war political environment, Korean firms consider the socialist countries, especially China, to be attractive new partners for trade and investment projects. Foreign investment contributed to economic growth in developing countries. In the early stage of industrialization in the 1970s, the share of foreign firms amounted to about one-tenth of the total manufacturing employment in Korea. Similarly, outbound Korean FDI could also play an important role in the industrialization of the LDCs in Southeast Asia and China. A case study of a Korean multinational corporation reveals that the direct employment effect of Korea’s FDI is extensive in terms of money invested. In spite of the complementarity in economic structure and the phase of development between Korea and China, the prospect of Korea’s outbound FDI is not all clear. However, one can safely assume that the unit scale of FDI projects will increase. Unlike in the past, the large Korean corporations are now preparing more than a few fair-sized projects in China. The positive impact of those FDI will be significant. The YSR cooperation, if successful, could create efficient economic cooperation based on complementarity between Korea and China. The Korean outbound FDI would pave a road to such regional cooperation. This article is the revised version of a paper prepared for the International Conference on Regional Development in the Yellow Sea Rimlands, held February 18–21, 1991. The conference was cosponsored by the Korea Research Institute for Human Settlements, the State Science and Technology Commission of China, and the East-West Center of Honolulu, Hawaii.     

The China model of Korean reunification

Like Germany's reunification, essentially the annexation of East Germany by West Germany, Korean reunification looms as most likely, ultimately and largely entailing South Korea's annexation of North Korea. The awesome cost borne by West Germany for reunification has been instructive to South Korea, particularly in recognition that the material and ideological gaps between North and South Korea are far greater than those which existed between East and West Germany. A possible solution to the negative implications of cataclysmic reunificationmay rest in gradual reunification of the Koreas, with an interim industrialization of North Korea by South Korea, based on the model of the economic development zones in southeastern China; hence, the “China Model”. In such a scenario the investors in North Korea's gradual industrialization would be (primarily) the huge conglomerate South Korean corporations chaebol which seek cheaper labor pools abroad. Investment by such corporations, in cooperation with the South Korean government, and possibly supplemented by western and Japanese capital investment, would presumably raise levels of productivity and the standard of living in the economically and agriculturally ravished North. The North-South gaps would thus be gradually reduced as would the financial and other burdens South Korea would otherwise have to bear for cataclysmic reunification.     

Assessment of the Second US-North Korea Summit and the Future Course of North Korea’s Denuclearization

The second US-North Korea Summit, held on February 27-28, 2019, concluded without an agreement, contrary to most expectations. This article discusses the difference in the positions of the US and North Korea regarding negotiations for denuclearization and identifies the movements of the US, North Korea, and South Korea since the Hanoi summit. It concludes with recommendations for the course of action Japan should take toward promoting peace and prosperity in Northeast Asia.     

Future dynamics in Sino-Korea relations

This article argues that the basic interests of the major actors involved in the Korean problem converge on the cross-recognition and “two Koreas” formula. Seoul’s diplomatic normalization with Moscow, and North Korea’s ongoing negotiations with Tokyo, testify to this trend. Because of its sensitivity to North Korea’s dilemma and carefully measured policy, China has succeeded in sustaining North Korea’s trust while improving its ties with South Korea. Shaken by the changes in the international system and threatened by the rapidly growing economic capability of the South, North Korea’s overall foreign policy objective is shifting from unifocation to accepting the existing status quo, a movement toward a direction that China has been advising. A mostly likely breakthrough to the stalemate in Korea will come from the Pyongyang-Tokyo bilateral relations. Ironically, when the South feels more confident than ever before about the possibility of unification under its terms, the rest of world is moving toward the cross recognition it has advocated. Whether the two Koreas with over-lapping diplomatic relations with all four major powers surrounding the peninsula will be able to achieve the unification that all Korean people desire will largely depend on how the regimes manage inter-Korean relations in coming years.     

The transition in the political economy of South Korean development

This article analyzes the current transition in the political economy of South Korea in the context of political democratization and economic development. Because South Korea can be regarded as a case in which successful economic growth preceded political democratization, the article reviews the advantage and the disadvantage of late industrialization and its limitations. It discusses rising conflicts of interest among economic agents, labor disputes, and the erosion of international competitiveness. The article also reviews the sociopolitical reform program advanced by the new administration and its ramifications for the economic prospects. The article concludes that the Korean economy will continue to grow but not as fast as it had grown in the past and that the new political environment will play a critical role in determining the characteristics of capitalism in South Korea. The success of future economic development will depend on the stability of the political system and the national capacity to resolve conflict of interests.     

The North Korea Problem: Perspectives on the Nuclear Debate,Economic Reforms and Beyond

ABSTRACT

Despite a plethora of research on North Korea, understanding and managing the challenges posed by the country have long been complicated with no simple solution to put an end to this decades-long security and economic predicament on the Korean Peninsula. With the potential for international conflict, attention must be given to the converging messages emerging from the scholarly works reviewed in this article: Glyn Ford, Talking to North Korea: Ending the Nuclear Standoff, Van Jackson, On the Brink: Trump, Kim, and the Threat of Nuclear War and William Overholt’s collection North Korea: Peace? Nuclear War? These works speak to the need to: take seriously the risk of nuclear war; consider the connectedness of the North’s decades-long security and economic reform dilemmas; and to acknowledge that the mistrust that is deeply rooted on all sides must be mitigated to bring peace. These books are published at a critical juncture of increased tensions following a highly publicised but remarkably short-lived effort at a breakthrough on the Korean nuclear issue, Pyongyang’s rapidly evolving security posture and its perennial domestic challenges. Each of these volumes provides valuable insights on these challenges for North Korea and internationally.     

Flawed Mediation and a Compelling Mission: Chinese Diplomacy in the Six-Party Talks to Denuclearise North Korea

This paper examines China’s role in the Six-Party Talks, a multilateral initiative with the aim of denuclearising North Korea. As North Korea’s behaviour has become increasingly provocative, evidenced by the Cheonan and Yeonpyeong Incidents and the newly unveiled uranium enrichment plant at Yeonbyon, China’s indecision in dealing with the deteriorating situation has dramatically undermined Beijing’s ability to continue successfully to play the leading mediator role. Yet if China fails to take decisive action now, the consequences could be dire. Further deterioration in North Korea’s behaviour could trigger a nuclear arms race, severely hamper regional economic development and even create a geopolitical split in East Asia, leading to a confrontation between the US, South Korea and Japan acting together on one side, and China, Russia and North Korea aligned on the other. The factors that have prevented China from making further progress in the diplomatic process are many and various and this paper will reveal the complexity of the North Korean issue for China. Foreign academics and policy makers have tended to attribute China’s indecision over North Korea to China putting its own security interests first. But this is far too simplistic a picture of the complex relationship that China has with North Korea. There are a host of factors at work that need to be taken into account to understand the present impasse in the diplomatic process. These factors include China’s emotional ties to North Korea and empathy with its position as the weakest party in the Talks, the conflicting attitudes within the Chinese government itself towards the North, and the competing interests and lack of trust between the different stakeholders. It seems that for the foreseeable future, the North Korean issue will continue to plague Chinese foreign policy until all the parties involved act as a collaborative body to reach a consensus on how to resolve the situation.     

Future of North Korea at Dead End

Since Chairman Kim Jong-il's reported stroke in August 2008, the stability or instability of the North Korean system has come under the spotlight. North Korea's one-man ruling communist and state-planned economic system will constantly come under pressure at home and abroad for change. For now, North Korea withstands the pressure for change with a strong state mechanism. If Pyongyang continues to allow its systemic rigidity to hinder opportunities for adjustment and change, then the deepening internal contradictions, the people's growing discontent, and increasing discord with the external environment may push the North Korean system to a critical breaking point. As the uncertainties shrouding the North Korean regime and system steadily increase, it has become urgent to accurately analyze and assess the present and the future of North Korea. While preparing for an uncertain future of North Korea, it is also necessary that the members of the Six-Party Talks exercise more efforts to generate genuine and positive changes in North Korea.     

NORTH KOREA’S PERSPECTIVES IN ITS ARGUMENT FOR A PEACE TREATY

In recent years, North Korea’s military provocations have been making the headlines. Beyond its harsh actions and remarks, North Korea persistently mentions ‘peace’ through a demand for a ‘peace treaty’. This may sound paradoxical. However, the origin of the North Korean argument for a peace treaty dates back to the Korean War (1950–53). Since then, North Korea has continued to raise the issue of a peace treaty in a consistent manner and the arguments have displayed similar logic and terminology throughout. It is this consistency and similarity that this article examines: through reviewing North Korea’s original texts, this article attempts to undercover North Korea's perspectives reflected in its argument for a peace treaty.     

Pseudo Change: China’s Strategic Calculations and Policy Toward North Korea after Pyongyang’s 4th Nuclear Test

After North Korea conducted its fourth nuclear test in January 2016, China’s response was stern enough for certain China analysts to posit that the Middle Kingdom’s approach to its Cold War ally was changing. In reality, however, China’s imports from North Korea, especially coal, a crucial mineral for the North’s income but banned by United Nations (UN) Resolution 2270, did not decrease. Politically, China also strived to maintain mutual relations with North Korea. Based on its strategic and other cost-benefit calculations, Beijing needs to maintain economic and political ties with Pyongyang and thus has no incentive to seriously observe the U.N. resolution. In this context, China is expected to virtually repeat the gestures it made in the past in dealing with the North. Under these circumstances, sanctioning North Korea through China is not considered a viable option in tackling the nuclear issue; rather, the USA and South Korea should change their policy approach toward this problem.     

Russian Energy and the Korean Peninsula

The recent agreements concerning North Korea’s nuclear program raise possibilities for providing North Korea with energy (oil and gas) to compensate for the termination of its nuclear program and of integrating it more broadly into the Northeast Asian economy. Russia has long wanted to play the role of provider of oil and gas to North Korea and these agreements open up new opportunities for it to do so. However, serious obstacles in the nature of North Korea’s precarious economic situation and its consequences, international rivalries in Northeast Asia, and Russia’s own energy policies present serious obstacles to the realization of Russia’s ambitions as regards North Korea and as energy provider to Northeast Asia as a whole.     

Making Sense of North Korea: Pyongyang and Comparative Communism

Abstract

Highly repressive, heavily militarized, strongly resistant to reform, and ruled by a dynastic dictatorship that adheres to a hybrid ideology, North Korea might be “the strangest political system in existence.” While distinctive, North Korea is an orthodox communist party-state best classified as an eroding totalitarian regime. Although weakening, Pyongyang remains durable and could survive for many more years. Absent “regime change,” North Korea is unlikely to demilitarize—including relinquishing its nuclear program—and will continue to reject thoroughgoing economic reform, cling to ideology for legitimacy, and make every effort to engineer a successful dynastic succession.     

Understanding the Hermit Kingdom As It Is and As It Is Becoming: The Past,Present and Future of North Korea

North Korea, a Cold War remnant in East Asia, has long been treated as an impenetrable mystery and an excruciatingly difficult subject to comprehend given its closed system, under which it has maintained its isolation even from its closest allies and neighbours. The idiosyncrasies that revolve around North Korea do pose challenges for understanding the country through the “conventional wisdom.” Nonetheless, as acknowledged by the scholarly works reviewed in this article, the regime in Pyongyang must be dealt with as it is and as it is becoming so as to better understand both the challenges and opportunities for the country. The difficult task for the United States (US) and its allies in East Asia, however, is to be pragmatic in terms of dealing with the regime in Pyongyang and to project strength in a way that promotes long-term regional and global peace as well as the betterment of people in the country. The books reviewed are Charles Armstrong, Tyranny of the Weak: North Korea and the World, 1950?1992, Andrei Lankov, The Real North Korea: Life and Politics in the Failed Stalinist Utopia and the collection edited by Kyung-ae Park and Scott Snyder, North Korea in Transition: Politics, Economy, and Society.     

韩日FTA之研究

世界经济正处于地区合作的时代.为了能动地应对世界经济环境的变化,缔结地区贸易协定并同主要贸易国建立更加亲密无间的关系已成为推进全球化和本国经济制度现代化的一种手段.本文以现在韩国政府正在全方位推进的韩日FTA为研究对象,探讨韩国政府有关的政策方向和战略,研究韩日两国间FTA的推进方向.     

“National Emergency” in India

This article challenges a popular assumption that Korea has been refining and perfecting the Japanese foreign direct investment model. In the case of Korea, the pattern of overseas expansion of smaller companies is quite unlike that for smaller Japanese companies. In the former case, the move overseas is quite independent and related to the needs of the individual concern or entrepreneur while the latter usually moved offshore in tandem with larger companies and as part of their sub-contracting networks. Given this premise, major mechanisms behind the successful development of Japanese FDI in comparison with those of Korea will be examined. These include a) the role of the trading companies (sogo shosha), b) the role of the small and medium-sized firms, and c) the patterns of institutional linkages between government and business in the progress of FDI. This cross-examination demonstrates that Korea's trajectory and its dynamics are different from those of Japan, thus Korea's future cannot be predicted by simply looking at Japan.     

The Japan-Soviet far east trade relationship: A case of the cautious buyer and the overconfident seller

Given Japan’s resource scarcity, the eastern Soviet Union’s wealth of natural resources and dire need for large infusions of investment capital and technology, and the close distance between the two, one would believe that trade between the two countries would be quite sizable. However, the converse is the case, with each country providing no more than 2 percent of the other’s foreign trade. To explain this phenomenon, it is necessary to explore the intrinsic and self-imposed obstacles to expanded Japanese-USSR trade. It turns out that both countries do not pursue trade for mutual advantage but rather seek an entirely different set of ulterior zero-sum motives. The article discusses what would appear to be a natural “fit” between the two countries’ needs and abilities, explores the extensive joint Siberian development projects of the 1960s and 1970s to explain the undesired side effects of Japanese-Soviet trade, details Japanese and Soviet business, government, and economist arguments for and against expanded economic relations, explains the maldevelopment of a resource-extractive versus commodity-producing eastern USSR as a product of climate, labor shortages, investment policies, and a Stalinist-planned system, outlines Japanese desires to accrue political advantages from its trade with the Soviet Union, and predicts the inability of Gorbachev’s economic reforms to truly expand Japanese-Soviet trade at a low cost to its larger geopolitical concerns. Although continuing private Japanese efforts are being made to work out joint venture deals with the USSR (thus belying the notion of a completely consensus-unified “Japan, Inc.”), they are still anomalies. Ultimately, if expanded trade ties are to occur (and indeed it is this article’s contention that they must for the USSR to survive as a superpower), then they must be made on Japan’s terms.