On February 10, 2016, the South Korean government announced the closure of the Gaeseong Industrial Complex, a symbol of its engagement policy and inter-Korean rapprochement.The move was part of its proactive, unilateral sanctions against North Korea’s fourth nuclear test in January and rocket launch in February. Pyongyang reciprocated by expelling South Korean personnel working in the industrial complex and declaring it a military control zone. Although the May 24, 2010 measure following the sinking of the Cheonan naval vessel significantly restricted inter-Korea exchanges and cooperation, the Seoul government spared the Gaeseong complex. With its closure, however, inter-Korean economic relations came to a complete halt, and no immediate signs of revival of Seoul’s economic engagement with the North can be detected. This chapter aims at understanding the rise and decline of this engagement with North Korea by comparing the progressive decade of Kim Dae-jung (KDJ) and Roh Moo-hyun (RMH) with the conservative era of Lee Myung-bak (LMB) and Park Geun-hye (PGH). It also looks to the future of inter-Korean relations by examining three plausible scenarios of economic engagement. Section one presents a brief overview of the genesis of Seoul’s economic engagement strategy in the early 1990s, section two examines this engagement during the progressive decade (1998-2007), and section three analyzes that of the conservative era (2008-2015). They are followed by a discussion of three possible outlooks on the future of Seoul’s economic engagement with Pyongyang.
ECONOMIC ENGAGEMENT WITH NORTH KOREA: GENESIS & BASIC STRATEGY
Inter-Korean economic relations were thoroughly frozen during the period of the Cold War. Exchanges and cooperation including trade and investment were not allowed. Even a simple personal contact with North Koreans was seen as a violation of the Anti-communist Law and the National Security Law. A major thaw came with the advent of the Roh Tae-woo (RTW) government (1988-1993), which pursued Nordpolitik. A South Korean version of Willy Brandt’s Ostpolitik, it first sought diplomatic normalization with communist bloc countries and then attempted to pursue engagement with North Korea. The shift away from the past defensive posture was a reflection partly of a changing international security environment signaling the end of the Cold War and partly of Seoul’s confidence in economic and military standing and national pride gained through the successful implementation of the 1988 Seoul Olympics. Nordpolitik was successful. The RTW government normalized diplomatic ties with communist countries, first with Hungary in 1989, then Poland and Yugoslavia in 1989, then Czechoslovakia, Bulgaria, Mongolia, Romania, and the Soviet Union in 1990, and finally China in 1992. Along with the diplomatic offensive toward communist countries, the Roh government undertook an equally proactive engagement policy with North Korea. In the July 7 declaration of 1988, RTW affirmed that South Korea no longer regarded North Korea as a target of confrontation and competition and that North Korea is an integral part of the Korean national community as well as a “benign partner” with which to achieve common prosperity. The declaration allowed inter-Korean trade, which was previously banned, and treated it as intra-national, not inter-state, trade. Moreover, Roh sought balanced economic development with the North, while pledging not to obstruct North Korea’s non-military trade with South Korea’s allies and friendly nations Roh’s July 7th Declaration was a milestone in inter-Korean relations in general and inter- Korean economic relations in particular. Following it, his government initiated a series of official talks with North Korea, resulting in the historic Basic Agreement on Non-aggression, Reconciliation, and Exchange and Cooperation in 1991. The Basic Agreement laid the foundation for new principles for confidence-building measures modeled after the Helsinki Final Act of 1975. In addition, the RTW government adopted the principle of separation of economics and politics, significantly fostering inter-Korean economic relations. The volume of trade rose from zero to a cumulative total of $1.25 billion in 1989-97, and humanitarian assistance to the North also considerably increased. President Kim Young-sam (KYS) also pledged to continue the engagement policy with the North. In his inaugural speech on February 25, 1993, KYS proposed a summit with Kim Il-sung, stating that “no allies can be better than a nation.”5 After tensions followed by the first North Korean nuclear crisis, Kim Il-sung accepted KYS’s proposal. The two agreed to hold the summit during July 25-27, 1994, but it was aborted as Kim Il-sung passed away on July 8. North Korea’s political uncertainty in the wake of Kim’s death strained inter-Korean relations, affecting trade. In 1995, the amount of inter-Korean trade was $287 million, about 2.2. percent of Pyongyang’s total trade volume. Most trade involved South Korea’s imports of minerals, agricultural, and fishery goods. Seoul’s investment in North Korea was restricted, and South Korean firms simply assembled finished goods by bringing raw materials, intermediate goods, and capital goods into North Korea and re-imported them. In addition, North Korea was not ready to induce South Korean investments institutionally.
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http://www.keia.org/sites/default/files/publications/joint_us-korea_2016_-_sk_econ_engagment.pdf