‘Gaeseong complex to promote N.K. reform, cut unification costs’

WASHINGTON (Yonhap News) ― The South Korean-invested industrial complex in North Korea will eventually help promote economic and political reform in the reclusive communist state and reduce the unification cost for South Korea, a U.S. congressional report said.

The Congressional Research Service report dated March 17 that was written by specialists Dick Nanto and Mark Manyin dismissed concerns over revenues being diverted to the North’s nuclear programs.

“Anything that increases revenue to the Pyongyang regime has the potential to contribute to the DPRK’s military, including its missile and nuclear programs,” the report said. “It is likely, however, that the DPRK’s nuclear program has assured funding from the government. Also, given Kim Jong-il’s ‘military first’ policy, the North Korean military has top priority in the allocation of scarce economic resources.” DPRK is the acronym for North Korea’s official name, the Democratic People’s Republic of Korea.

The joint industrial park in the North’s border town of Gaeseong has been a focal point after North Korea’s torpedo attack on a South Korean warship and shelling of a South Korean frontline island last year. A total of 50 people were killed in the two attacks.

South Korean President Lee Myung-bak, however, continued the Gaeseong Industrial Complex even after the North’s unprecedented provocations, although he severed all other economic ties with North Korea. Pyongyang also did not take any action to shut down the complex, the source of tens of millions of dollars for the cash-strapped North annually.

Over 150 South Korean firms currently employ about 47,000 North Korean workers in the KIC, established in 2004 under former liberal South Korean President Roh Moo-hyun, who sought active engagement of North Korea.

South Korean employers say they are satisfied with the quality and labor costs of North Korean employees compared with laborers in China and Southeast Asian nations, although they complain about on-and-off political instability adversely affecting the operations of the industrial park.

“Even after the North Korean nuclear tests in 2006, South Korea continued the KIC operations,” the report said. “North Korea’s provocations in 2010 did not result in the closing of the complex.

The KIC could be a centerpiece if Lee enacts his ‘Grand Bargain’ under which South Korea would provide massive development assistance if North Korea dismantles its nuclear program.”

The grand bargain, which President Lee proposed in 2009, envisions a package deal in which members of the six-nation talks provide Pyongyang with security guarantees, massive economic aid and other incentives in return for a complete deal that does not necessitate further negotiations for the North’s nuclear dismantlement.

A six-party deal, signed in 2005 by the two Koreas, the U.S., China, Japan and Russia, meanwhile, calls for reciprocal action in a step-by-step approach for the North’s denuclearization.

The six-party process has been in limbo for more than two years due to U.N. sanctions on North Korea for its nuclear and missile tests and Pyongyang’s provocations last year.

Lee proposed in August last year a new tax to fund the eventual reunification of the Korean Peninsula, divided since the end of World War II, calling for North Korea’s denuclearization and an integrated economy before reunification.

Most analysts believe it would cost more than $1 trillion to rehabilitate the impoverished North Korean economy over the coming decades.

“The South Korean goal with respect to North Korea not only includes the denuclearization of the Korean Peninsula, but eventual reunification and reconstruction of the DPRK’s economy,” the CRS report said. “A major South Korean concern is the potential cost of reunification either in the form of a flood of economic emigrants to the South or in actual budgetary outlays to help rebuild the North’s civilian economy. The high cost to West Germany of the integration of East Germany after the fall of the Berlin Wall has provided little comfort to the policymakers in Seoul.”

Germany is still suffering from a high unemployment rate and other economic problems in the area of former East Germany, although two decades have passed since the German reunification.

A reunified Korea would have more economic pain than Germany due to greater economic disparities between the two Koreas than the Germanies, experts say.

The congressional report said the Gaeseong industrial park will also help North Koreans get trained on the market economy so the North could eventually join the global market economy.

“The KIC exposed average North Koreans to modern business methods and to the accoutrement of Western industrial society,” it said. “The KIC potentially could play a significant role as a demonstration project to educate North Koreans on the workings of a market-based economy.”

The report hopes that the KIC will help the North follow China’s suit.

“If the project continues to develop and the DPRK opens other free trade zones, something akin to the economic reforms in China or the economic transformation that is now occurring in Vietnam could occur in North Korea,” it said. “This could weaken the hold by Pyongyang on the daily lives of citizens and bring the country more into the globalized world. Such economic liberalization also could reduce pressures on North Korea to engage in illicit trade in order to cover its trade deficit and diminish the need for Pyongyang to saber rattle in order to divert attention from its domestic problems.”