KOREA FOCUS

I. Introduction

The situation on the Korean peninsula significantly improved in 2007 with progress on the North Korean nuclear question and the second inter-Korean summit, which outlined broader bilateral cooperation. The agreement in the six-party talks on February 13 concerning the disabling of North Korean nuclear facilities and the declaration of all nuclear assets of the North provided a foundation to reduce tensions and establish a peace regime on the peninsula. Relations between the United States and North Korea and those between the two Koreas have thus improved markedly.

Similarly, the South-North Summit Declaration signed in Pyongyang on October 4, 2007, is a roadmap to developing inter-Korean cooperation and achieving peace and co-prosperity. It is the basis of a low-stage economic community encompassing the two Koreas. The mechanism for the implementation of the summit agreement has been strengthened with the regularization of prime ministers' talks and the joint economic committee meetings. Conditions have now been created for broadening cooperation from the current trade of commodities and three joint projects ― the Kaesong (Gaeseong) Industrial Complex, restoration of the Gyeongeui railway and the Mt. Kumgang tourism.

This paper will review the recent changes in the environment of economic cooperation between the South and the North and suggest a desirable direction for future development of cooperative relations. The changes in circumstances will be separately analyzed from political and diplomatic perspectives and the economic perspective reflected in the inter-Korean summit declaration. Future prospects will be examined in connection with the North Korean nuclear issue and inter-Korean agreements that followed the 2007 summit talks.

II. Changes Following the Summit Declaration

1. Changes in the Non-economic Environment

Economic cooperation between South and North Korea has been seriously affected by non-economic factors because of the special relationship between the two Koreas and the geopolitical characteristics of the Korean peninsula. Especially, it should be noted that the North Korean nuclear problem, a major variable in economic cooperation, is more of an international issue rather than an inter-Korean question. Therefore, it is necessary to observe the recent progress in the six-party talks and the changes in the situations on and around the Korean peninsula. Internal and external changes taking place in North Korea will also be studied.

First, the North Korean nuclear problem has visibly moved toward a solution with the February 13 agreement. The deal followed settlement of the Banco Delta Asia issue - release of the funds frozen in the Macau-based bank which was suspected of laundering money for North Korea - and the subsequent disablement of North Korean nuclear facilities. In November, a U.S. team of experts participated in the removal of nuclear fuel rods from the 5-megawatt reactor in Yongbyon, raising hopes for smooth implementation of the second-stage denuclearization process.

The progress in the nuclear talks is favorably affecting relations between North Korea and the United States, and the new Yasuo Fukuda administration in Japan is turning more flexible toward the North. With the prolonged U.S. military presence in Iraq, Washington's approach to Pyongyang switched from confrontation to dialogue to help expedite the settlement of the North Korean nuclear issue in the final year of the Bush administration. Unofficial contacts also are under way between Japan and North Korea as they move toward normalizing their relations.

North Korea, for its part, is showing meaningful changes in its internal and external policies of late. In a recent high-level personnel reshuffle, which revealed a generational shift, younger officials were assigned to important positions, including those responsible for inter-Korean affairs, the economy, diplomacy and defense. Great emphasis is given to building a "strong and prosperous nation" and a national rally of intellectuals held on December 1, 2007 designated 2012, the centennial of the birth of Kim Il-sung, as the target year. This is seen as an attempt to free the Kim Jong-il regime from serious economic problems by the auspicious year and achieve considerable strength in ideological armament, military and the economy. The joint editorial of the three major North Korean official newspapers on January 1, 2008, which serves as Kim Jong-il's New Year message, presented economic development and improvement of people's lives as the main goals for the year to match the policy direction.

Following the South-North summit, Pyongyang has stressed "economic reconstruction in coordination with the international community," revealing its willingness to strengthen external relations and adopt openness in pursuit of economic development. Hong Kong-based news weekly Yazhou Zoukan reported that Kim Jong-il indicated his intent to benchmark Vietnam's "Doi Moi" in his talks with Nong Duc Manh, visiting general secretary of the Vietnamese Communist Party, on October 16-18. Kim reportedly accepted the Vietnamese leader's invitation to Hanoi to learn the "valuable experiences" of Vietnam. North Korean Prime Minister Kim Yong-il visited Vietnam, Malaysia, Cambodia and Laos between October 26 and November 7 to see the development models in Southeast Asian countries and the North's minister of external trade made a tour of Cuba and Chile around that time. These activities may be regarded as evidence of an open attitude toward economic development.

Radio Free Asia (RFA) reported on November 20 that Kim Myong-gil, deputy chief of North Korea's mission to the United Nations, said on November16: "We know well that we have to change. We do not use the term 'reform' but we want to go abreast with changes of the world through technological exchanges with world nations." Kim was reported to have made these remarks at a reception sponsored by the U.S. Foreign Policy Council and the Korea Society for Pyongyang's delegation to a North Korea-U.S. financial meeting. North Korea made brisk contacts with the outside world following the February 13 agreement. There were more than 100 cases of international contacts during the eight months following the agreement, compared to some 60 cases during the preceding eight months. The areas of its recent activities included Africa and Europe while it had previously concentrated in the Asia-Pacific region.