NORTH KOREA NEWSLETTER NO. 304 (March 13, 2014)

INTER-KOREAN RELATIONS

Unified Korea would become world's 8th largest economy by 2050: think tank

SEOUL (Yonhap) -- If North and South Korea were to unify within the next year, Korea would have the eighth largest economy in the world by 2050 with a per capita income exceeding that of Japan, a report by a local think tank claimed on March 11.

According to Hyundai Research Institute (HRI), one of South Korea's largest research institutions, unification would generate new growth engines and create a sizable domestic market that would make the country less reliant on overseas markets.

"The increase in population and market would make it possible to deal effectively with the drop in economic growth potential and the country's weakness to external economic developments," said Hong Soon-jick, head of the HRI's unification economy center.

He said if unification took place, the combined population would reach 74 million, with the gross domestic product (GDP) topping US$1.64 trillion in 2015.

The senior researcher estimated the GDP would grow to $2.07 trillion in 2020 and $3.28 trillion 10 years later. He said if the country is able to capitalize on the opportunities created by unification, Korea should be able to surpass the GDP of Germany and Britain in 2040, and become No. 8 in the world by 2050, with its GDP hitting 6.56 trillion won.

In his assessment, announced at a symposium hosted by a local business lobby group called the Federation of Korean Industries, Hong said that if unification took place next year, the per capita income would dip to $22,000, but should recover in due course to reach $28,000 in 2020. Last year's per capita income was $24,000.

The HRI researcher predicted that the per capita income could move up to $66,000 by 2040, and surge to $86,000 in 2050, which will likely be bigger than comparable figures for Britain, France and Japan.

He then said that while the need to upgrade North Korea's dilapidated social overhead capital may fuel social tensions, the overall benefits to a unified country far outweigh the costs.

The expert predicted that even in the short term, a unified Korea would have considerable natural resources that could be tapped to fuel growth, while cutting back on defense spending would create funds that could be used in other areas.

Seoul currently spends 2.9 percent of its GDP on defense that could be cut gradually to 1.4 percent in 2027, which is on par with what Germany spends to maintain a credible defense posture at present.

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Koreas to hold 1st arbitration body meeting at Kaesong park

SEOUL (Yonhap) -- A joint panel on arbitration at an inter-Korean factory park in North Korea plans to hold its first meeting this week to discuss detailed rules of operation, an official here said on March 11.

The planned meeting of the Commercial Arbitration Committee of the Kaesong Industrial Complex is scheduled to take place on March 13 in the namesake border city, according to an official of South Korea's Ministry of Unification.

Back in 2000, the two countries adopted an agreement on arbitrating possible legal disputes at the industrial park. They then agreed last year to set up the panel and exchanged lists of five board members from each side.

"This week's meeting is expected to be a starting point for the two Koreas to come up with useful tools on how to operate the committee so as to effectively settle diverse legal disputes, much like a court," the ministry official said.

South and North Korea will appoint 30 mediators each, and some of them will form a judging panel to deal with individual cases, he added.

The committee meeting is the latest in a series of inter-Korean efforts to further boost the factory zone home to 123 small South Korean companies that employ around 52,000 North Korean employees.

As the last remaining symbol of inter-Korean economic cooperation, the Kaesong complex has served as a major revenue source for the cash-strapped communist country.

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Inter-Korean factory park recovers to pre-halt level

SEOUL (Yonhap) -- Operations at the inter-Korean industrial complex in the North Korean border city of Kaesong have almost recovered to their level before the park came to a sudden halt early last year, data showed on March 9.

The Kaesong Industrial Complex was shut down in early April 2013 after the North pulled out all of its workers at 123 South Korean firms. It reopened in September after Pyongyang agreed not to repeat such a suspension.

According to the data compiled by Seoul's Ministry of Unification, the output of the firms in the park totaled US$352.9 million in December, slightly lower than the $364.2 million posted a year earlier.

Around 52,000 North Korean employees worked there as of the end of last year, compared to some 53,000 people in March 2013, the ministry said, adding that all South Korean companies, except one, had normal operations as of last week.

Trade volume between the two Koreas in January also reached some 94 percent of that recorded in the same month a year earlier at $168.87 million, the data showed.

In accordance with the so-called May 24 sanctions South Korea imposed on the North for its sinking of one of its warships in the Yellow Sea in 2010, economic exchanges unrelated to the park are banned.

"We've seen some progress in the inter-Korean agreement to strive to boost the park by focusing on the three issues of launching Internet services, simplifying the customs process, and making South Koreans' access to the park easier," a ministry official said.

As the last remaining symbol of inter-Korean economic cooperation, the Kaesong complex has served as a major revenue source for the cash-strapped communist country.

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S. Korea 'not considering' gov't aid to N. Korea

SEOUL (Yonhap) -- South Korea is not considering providing aid to North Korea, an official said on March 9, in the latest sign of caution from Seoul amid lingering tensions on the Korean Peninsula.

"We are not considering aid either through the government or international organizations," unification ministry spokesman Kim Eui-do said in a regular briefing.

His comments came days after North Korea fired short-range missiles and rockets over the sea off its eastern coast in apparent anger over South Korea-U.S. joint military drills that Pyongyang claims are a rehearsal for an invasion.

The South Korean government gave 2.45 million tons of rice to North Korea between 1995 and 2010, and 2.55 million tons of fertilizer between 1999 and 2007, according to the unification ministry, which handles inter-Korean affairs.

Last year, South Korea provided aid worth US$12.3 million to North Korean infants and children through the U.N. Children's Fund and the World Health Organization.

South Korea has suspended food and fertilizer aid to the North in recent years, though it has allowed private aid agencies to ship humanitarian assistance to help vulnerable children and women in the North.

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Inter-Korean tour earnings not subject to U.N. sanctions: gov't

SEOUL (Yonhap) -- Cash earnings from an inter-Korean tour project would not be subject to United Nations sanctions on North Korea, Seoul's unification ministry said on March 7 , amid growing expectations for its resumption.

The U.N. Security Council last year adopted two resolutions against Pyongyang following its nuclear rocket tests, banning bulk cash couriers to the country, a frequently used method to move illicit funds into the nation slapped with several economic sanctions.

The sanctions are aimed at blocking the illicit money from being funneled into the country for use in the development and proliferation of its nuclear weapons program.

Questions have risen whether North Korea's earnings from a joint inter-Korean tourism project in the North's eastern mountain region would violate the resolution banning the transfer of bundles of cash to the wayward country.

"In the ministry's understanding, (bulk cash banning) is aimed at curbing attempts to transfer illicit funds through hand-carrying with the purpose of circumventing bank trading," the ministry said in a written response to independent lawmaker Park Joo-sun's questionnaire regarding the Kumgang tour program and the U.N. sanctions.

Also asked whether the bulk cash restriction applies to commercial transactions over the banking system, the ministry said, "Given the purpose of bulk cash banning in the UNSC resolutions, normal dealings through the banking system are not relevant in our understanding."

   The U.N. has not detected any violations of bulk cash banning so far, while the Kumgang tour program has not been discussed as a possible violation, according to the ministry's response to the lawmaker.

The ministry's stated stance cleared some legal doubts cast over the prospect of the two Koreas' resuming talks to reopen the long-suspended joint program.

South Korean firms, including industrial conglomerate Hyundai Asan Corp., which used to operate the tour program and resort facilities around the North Korean mountain, used the banking system for their business dealings.

The two countries started the symbolic inter-Korean economic cooperation project amid a growing reconciliatory mood on the peninsula in 1998. But the tour program came to a sudden halt in late 2008 when a South Korean tourist was shot dead by a North Korea soldier guarding a restricted area.

Pyongyang has since repeatedly called for the resumption of the cash-cow business, with Seoul demanding that the North should first guarantee the security of South Korean tourists before the program could resume.

Amid recent warming of inter-Korean relations, as shown in recent family reunions hosting and high-level cross-border contact, the possibility of a Kumgang tour resumption has become a frequently discussed topic here.

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Park urges N. Korea to give up nuclear program

SEOUL (Yonhap) -- South Korean President Park Geun-hye urged North Korea on March 6 to give up its nuclear program, saying denuclearization will pave the way for greater economic cooperation and ultimately unification between the two divided states.

"The decisive obstacle to economic cooperation between the South and the North is North Korea's nuclear program," Park said during a joint commissioning ceremony for graduating military cadets at the Gyeryongdae military headquarters in central South Korea.

Park also said Pyongyang should understand it is impossible for the regime to pursue nuclear weapons development and economic development at the same time. Should Pyongyang take serious steps toward denuclearization, the South and the international community will work for the North's economic development, she said.

"I urge North Korea to make a sincere decision to lay down its nuclear program as early as possible so that we can move together toward the road to peace and unification," she said.

In late February, North Korea test-fired barrages of short-range ballistic missiles in an apparent protest against the ongoing annual joint military exercises between the South and the United States that Pyongyang has denounced as a rehearsal for invasion.

Park said that the military should maintain strong readiness to make the North unable to even think of making provocations, and sternly punish the communist nation if it does, she said.

Park said the South will beef up capabilities to defend itself against the North's nuclear and missile threats while at the same time strengthening the combined defense system with the United States.

"It is our historic duty and mission to lay the groundwork for free and peaceful unification," Park said. "We can open the door for unification only when our military is true to its original duty of defending the country and the people no matter what happens in inter-Korean relations and the security situation."

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