Archive for the ‘Foreign direct investment’ Category

The economic side of the Moon-Kim summit

Friday, September 21st, 2018

By Benjamin Katzeff Silberstein

The economic aspect has been continuously front-and-center throughout the Moon-Kim summit in Pyongyang (September 19–20). From a diplomatic standpoint, this is not all that surprising. Moon and Kim are pursuing what appears to be a rather classical Sunshine 2.0 pattern, with roughly the same contents as the predecessor. As Yonhap reports:

Earlier in the day, the leaders of South and North Korea agreed to work together for balanced economic development on the Korean Peninsula.

South Korean President Moon Jae-in and North Korean leader Kim Jong-un agreed to break ground on a joint project to connect railways and roads across their border this year and vowed diverse cooperative projects to deepen their friendly ties and foster a reconciliatory mood.

The agreements were reached during summit talks held in Pyongyang between Moon and Kim.

“We will prepare for (inter-Korean economic cooperation) in a calm and orderly manner,” Finance Minister Kim Dong-yeon said in a meeting with reporters here.

“But inter-Korean economic projects can gather speed if circumstances improve,” he said.

The minister said any inter-Korean economic projects should need support from the international community, and there are still many things to be done in advance.

The latest agreement came months after the leaders reached a deal during their April summit to modernize and eventually connect rail and road systems across their divided border.

Field surveys have been carried out to examine the state of some sections of the North’s rail and road networks, but the process has not moved fast enough, apparently due to stringent sanctions imposed on the North for its nuclear program.

Railways and infrastructure are both less politically touchy than outright trade, and potentially mutually beneficial, even though the south will carry the economic burden:

“The South and the North agreed to explore practical measures aimed at increasing exchange and cooperation and seeking balanced development,” read a joint statement they signed after the summit.

“The two agreed to hold a ground-breaking ceremony this year for connecting railways and roads running along their eastern and western coasts,” it also stated.

The decision came months after the leaders reached a deal during their April summit to modernize and eventually connect rail and road systems across their divided border. The Seoul government has set aside nearly 300 billion won for next year to carry out those projects.

Field surveys have been carried out to examine the state of some sections of the North’s rail and road networks, but the process has not been fast enough, apparently because of global sanctions on the North.

The second point of the Pyongyang Declaration promises more economic cooperation for “balanced” growth, and vows to reopen projects such as the Kumgangsan tourism zone, and the Kaesong Industrial Park, according to Moon, “when conditions allow“. Here’s an English-language full-text version of the declaration. A particularly interesting but understudied point is 2.3, on ecological cooperation.

Kim Jong-un’s forestry interest has been a recurring theme throughout his tenure, and as this blog has covered, he’s spoken about the problems associated with excessive tree-felling – the root cause of which is North Korea’s planning failures of the 1990s – in more honest terms than his father did. At the very least, there’s been strong hints of both pragmatism and understanding of North Korea’s structural problems in the way that Kim has talked about the forestry issue (and many others too for that matter). Indeed, the Korea Forest Service chief accompanied Moon to Pyongyang, and he hopes to get to work soon following the summit:

“Forests surrounding populous urban areas were heavily destroyed, but forests in less populated regions were well-preserved,” Kim Jae-hyun said in a meeting with reporters at a government complex in Daejeon. “I saw enough hope.”

He was speaking after accompanying South Korean President Moon Jae-in’s visit to North Korea from Tuesday to Thursday.

As the first step, Kim said the Korea Forest Service will explore ways to create tree nurseries in much-destroyed regions.

“The North Korean side wants large-scale tree nurseries, but it would be more practical to start with small nurseries in regions suffering from deforestation the most,” he said.

In regard to disease and insect control efforts, the official said the use of machinery could be limited as the North is under U.N. sanctions for its missile and nuclear tests, while pesticides are allowed.

“I think (the disease and insect control measures) should start immediately to build trust between the two Koreas,” he said.

The forest expert said his North Korea visit as part of the official entourage showed Moon’s “willingness” to pursue inter-Korean cooperation in the forest sector.

“Looking down from an airplane along the western coastline, North Korea’s forests were very impressive,” Kim said. “There were few trees on hills near Pyongyang, while trees were well-maintained on the way from Sunan Airport to Baekhwawon guesthouse.”

Mountains near Yalu River on the North Korean border with China were denuded, but Mount Paekdu showed off all colors of beautiful trees, he said.

Moon and Kim aren’t the only ones who have talked about economic cooperation. The mayor for Busan, South Korea’s second most populated city, for example, has announced projects that his city will spearhead. Yonhap again:

Busan’s envisioned projects, unveiled in time for President Moon Jae-in’s historic visit to North Korea, call for boosting the city’s cooperation with the North in the fields of fisheries trade and processing, modernization of fishing vessels and equipment, shipbuilding, exhibitions and conventions and smart city technology, the city said.

The city will push to invite North Korean filmmakers and actors to the Busan International Film Festival and hold an inter-Korean film festival.

Nikkei Asian Review also reports that the Moon government has put pressure on Samsung and its head, Lee Jae-yong, to present a large-scale investment plan for North Korea. Samsung has manufactured TV:s in North Korea before, but this time around, the company hasn’t appeared as eager as its other chaebol-counterparts to draft up implementable blueprints for investments up north. Politically, it makes sense. Samsung’s PR hasn’t exactly been superb as of late, with the arrest and later release from prison of its CEO relating to corruption charges tied to the Choi Soon-sil/Park Geun-hye-scandal.

South Korea’s main steelmaker Posco is also hoping for opportunities following the summit:

The executive was part of the business delegation that accompanied President Moon Jae-in on his trip to North Korea earlier this week. Choi and other businessmen discussed various inter-Korean economic cooperation projects that can be pursued going forward if conditions are right.

“It will be a big opportunity not only for POSCO but for the steel industry as a whole,” Choi said. “I think POSCO will be able to find chances for growth.”

The company recently created a new task force to prepare for potential business opportunities in North Korea. POSCO Daewoo, POSCO Engineering & Construction Co. and POSCO Chemtech Co. are participating in the task force.

The steelmaker said it wants to play a key role in railroad and other infrastructure projects in line with the changes in the geopolitical environment in Northeast Asia.

My five cents on what all this entails for the North Korean economy:

Of course, as of yet, nothing. Most of the plans and visions are routinely accompanied by the caveat “when conditions allow”. The infrastructure plans may be able to go ahead even with sanctions in place, at least the rhetoric from the Moon administration, and the timetable for breaking ground on the railway connections before this year is over, seems to suggest so. I’m no expert on the judicial side of the sanctions, but it’s hard to imagine that this will be fully uncontroversial from that standpoint.

In any case, North Korea is in dire need of infrastructure improvements and if they are extensive enough, they should hopefully not just connect South and North Korea with Russia and China for cheaper freight, but also make domestic goods transportation simpler and more efficient, with positive impacts for the markets and private manufacturing in the country.

On re-opening Kaesong, things are a bit more complicated. In its nature, Kaesong is a manufacturing zone mostly cut off from the rest of North Korea. Sure, the incomes of the workers did enter the North Korean economy, and arguably, the fact that South Korean consumer goods could to some extent enter North Korean markets through Kaesong spurred competition for more high-quality goods on the North Korean market as well. But Kaesong is hardly the only, and perhaps not even the main route through which such products enter the country. These are also pretty weak arguments when you look at the entire economic picture.

The problem with Kaesong isn’t so much what it was/is/will be, but the missed opportunities. The hope with special economic zones tends to be that institutional frameworks that are tried there first can later spill over into the rest of the country. In the case of North Korea, the arrangement made pretty sure that that didn’t happen, at least from what we can tell. Had inputs been sourced from North Korea, that could also have spurred wider economic growth, at least in some regions. In theory, there are lots of opportunities for synergy and cooperation between South Korean companies and smaller North Korean ones, not just the state. If the goal is economic development in North Korea more broadly, and not just economic profit on the southern side and incomes for the north, there are lots of models that carry far greater potential.

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Explaining North Korea’s exchange rate stability: it’s all about the companies

Thursday, September 13th, 2018

By Benjamin Katzeff Silberstein and Peter Ward 

The stability of the market exchange rate for won-to-US dollars has been one of the most puzzling features of the economy over the past few years, and particularly so during the so-called period of “maximum pressure” and heavy sanctions by the international community. The market exchange has not once moved out of its ordinary – also remarkably stabile – territory over the past few years, as the following graph shows with clarity:

Won for USD-rates on the markets, 2009–September 2018. Data source: Daily NK. Graph: NK Econ Watch.

Thus far, to my knowledge, there have been two main, potential explanations:

(1) Maximum pressure is not having a meaningful impact on the North Korean economy as a whole. Even though it can’t export coal, minerals or textiles under current sanctions, its main sources for foreign currency revenue, the sanctions aren’t being enforced strictly enough to impact the economy as a whole, and foreign currency keeps flowing into the economy.

This explanation is pretty easy to dismiss offhand, since we know with more or less certainty that North Korea’s exports of these goods have plunged as Chinese sanctions enforcement has been fairly strict since the late summer/early fall of last year, even though it’s waxed and waned as it always does.

(2) The second explanation, most notably put forward by Bill Brown, is that Pyongyang is much better at monetary policy management than they’re given credit for. Chiefly (but not solely) through decreasing the amount of won in circulation, by giving state-owned enterprises (SOEs) smaller loans and credits in won, the government is able to keep the exchange rate stabile.

Speaking with my friend and colleague Peter Ward, a researcher of North Korean economic policy under Kim Jong-un and avid reader of North Korean economics journals, he explained a third possibility, partially in line with the latter hypothesis posed above. Ward visited North Korea twice in the past year, and was able to confirm many of the economic policy developments he had first detected in the literature from Pyongyang.

In short, Ward’s explanation is as follows: the main holders and users of foreign exchange in North Korea are not individual citizens, but state-owned enterprises, which legally (since 2013) use foreign exchange in transactions amongst themselves. The quantities of foreign exchange held by SOEs make them, and not the foreign currency markets that individual citizens access and use, the main determinant of the market exchange rate for foreign currency. Therefore, most of the foreign currency in circulation has been there for several years, not entering or exiting monetary circulation.

I asked Ward to share some of his thoughts with the readers of North Korean Economy Watch. Below is a brief Q&A of sorts.

Benjamin Katzeff Silberstein (BKS): first, when did this practice of SOEs trading in foreign currency become common and legally permissive?

Peter Ward (PW): probably around early 2013. This is when the “policy to make domestic production and exports one” came into force. The idea is to align domestic input prices for manufacturing, and consumer goods prices, with prevailing prices on international markets. This is literally what North Korean economics literature says that they aim to do, despite ostensibly being a socialist system in theory.

BKS: How is the FX-market price in North Korea determined? And where do the FX-market for SOEs and that for private citizens intersect?

PW: We don’t know, but one could imagine that there are major foreign exchange markets in North Korea – regional markets, both markets on the ground, so to speak, and between enterprises within regions. How does the center know the prevailing price? The regional price department of the regional People’s Committee price office and market management office (they may either be separate or the same) probably simply calls the local People’s Committee, who supposedly gathers this information from the local market management offices. At any rate, there’s reporting of the prevailing local exchange rate throughout the system.

Major enterprises will also know how much their inputs costs in foreign exchange, and a sense of how much their products would sell for on the world market. In that way, they’re able to assess the costs of their inputs in the world market (or at least China), and know how much they need to charge to make a profit or break even.

The market for individual citizens and SOEs intersect at several levels. SOEs likely source much of their inputs from wholesale markets, and from domestic private traders. They also obtain some of their foreign exchange from loans from private individuals. Private citizens can legally lend money to SOEs, but investments in SOEs by private citizens also happen, though they’re technically not legal, and both these investments and loans probably happen quite often in foreign exchange.

So the market price equilibrium happens through all these conduits, and as on any market, it is determined by countless instances of bargaining between traders, SOEs, and to a proportionally smaller extent, private citizens.

BKS: so where is the FX coming from, to begin with?

PW: if most inter-enterprise contracts and transactions are denominated in foreign currency, they’d be insulated from any sudden, exogenous trade shocks, such as sanctions. They’re still trading amongst themselves with whatever FX-holdings they have. For all intents and purposes, foreign currency inside North Korea is the principal legal tender – that’s what’s likely used for all major transactions inside the country, so exogenous shocks such as sanctions, from the outside, don’t necessarily impact the market price for foreign currency inside the country.

BKS: Is it likely, in your view and judging from your observations in North Korea, that the government maintains a price ceiling on the market exchange rate?

PW: Yes, it is. The government maintains price ceilings on a range of commodities, at least that’s what people inside the country say. They probably have an informal peg to the RMB, since China is their principal trade partner. It looks like it, but we don’t know for sure if they do. One possibility is that have significant cash reserves of RMB…

BKS: is it possible that China is simply helping North Korea keep the won stabile, by simply funneling RMB in?

PW: that’s certainly a possibility. The North Korean government keep a very close eye on the exchange rate, both in terms of physical cash in circulation and deposits in bank accounts, which SOEs have – both domestic and foreign currency bank accounts. They’ll keep a tight control over domestic currency-denominated loans to SOEs – that’s certainly one way of doing it. State banks will probably be encouraged to denominate such loans in foreign currency.

The government can also keep a pretty tight rope around money in circulation, since enterprises now have their own individual accounting system. The central government isn’t constantly borrowing money from the central bank to pump into SOEs, so the amount of money created by the central bank to lend to SOEs has gone down a lot.

That, at least partially, explains how the government manages to keep domestic currency circulation down. It doesn’t look like they’re printing much money overall, I saw bills from the pre-2009 currency re-denomination being used as late as July this year. And the highest denomination of North Korean won in circulation is the 5,000 won note, which has a market value of around 60 US cents, hardly appropriate for anything more groceries.

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Russia rejects new sanctions on North Korea

Friday, August 10th, 2018

Benjamin Katzeff Silberstein

Full comment here by the Russian Foreign Ministry:

Russia has blocked the US application to the UN Security Council Sanctions Committee on North Korea (1718) on introducing international sanctions against one individual and several legal entities, including the Russian commercial bank Agrosoyuz that are allegedly involved in illegal activities that are violating the sanctions regime against that country.

The US-presented evidence in support of this proposal is totally unconvincing.  We cannot accept the pressure exerted by the US delegation in the UN Security Council and its subsidiary bodies, which has already become a norm. By means of an artificially tightened deadline, it is trying to push through its own decisions without taking into account the opinion of the other members. The Americans are also obviously trying to use the prestige of UN Security Council Committee 1718 for justifying similar unilateral restrictions that they have just introduced under far-fetched pretexts.

Far from improving the atmosphere of Russia-US relations, the new US sanctions contradict the logic of easing tension around the DPRK. Clearly, Washington is trying to keep Pyongyang under maximum pressure as long as possible, in effect, up to the completion of the denuclearisation process. This policy is destructive for settling the issues of the Korean Peninsula and evokes extreme resentment.

Source:

Comment by the Information and Press Department on the US application to the UN Security Council Sanctions Committee on North Korea (1718) on expanding sanctions
Information and Press Department of the Ministry of Foreign Affairs of Russia
2018-08-10

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Seoul says reopening Kaesong will wait till sanctions are lifted

Friday, August 3rd, 2018

Benjamin Katzeff Silberstein

Korea Herald:

“The government’s stance remains unchanged when it comes to the issue of the resumption of the Kaesong Industrial Complex,” Lee Eugene, a deputy spokesperson of the unification ministry, told reporters during a regular press briefing.

“The stance has not been changed either that things will be considered in line with progress in denuclearization efforts and within the frame of sanctions,” she added. “From a broad perspective, it would be desirable to push for its resumption after the lifting of the sanctions.”

Opened in 2004, the industrial park in the North’s border town of Kaesong was hailed as a key symbol of economic cooperation between the rival Koreas as it combined South Korean capital and technology with cheap labor from North Korea. The Seoul government, however, halted its operation in 2016 in retaliation for Pyongyang’s missile and nuclear provocations.

The North has recently ramped up its call for the South to reopen the industrial park amid a thaw in relations, but the US.

Article source:
Seoul says reopening of Kaesong complex should wait until sanctions lifted
Korea Herald/Yonhap
2018-08-03

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Seoul needs sanctions exemptions, official says

Monday, July 23rd, 2018

Benjamin Katzeff Silberstein

If anyone ever doubted that the US and South Korea are not in lockstep on sanctions…The question is how hard Seoul is pushing behind the scenes, and how hard it is prepared to push. Joongang:

A South Korean delegation that traveled to New York over the past weekend said Seoul needed to be exempted from some international sanctions against the North to implement the Panmunjom Declaration.

The remarks came on the same day that U.S. Secretary of State Mike Pompeo reiterated that sanctions against Pyongyang will remain in place until the North fully denuclearizes.

The rare show of discrepancy between the allies came at an unusually sensitive time between the South and North, after North Korean media excruciated South Korean authorities for what it said was kowtowing to the U.S. on inter-Korean issues.

A local official said Pyongyang appeared to be fed up with Seoul’s reluctance to help the regime wiggle out of sanctions.

South Korea’s official stance has been to support sanctions on the North until the country gives up its nuclear weapons, but from time to time officials have expressed a hope to seek exemptions, especially to work out the cross-border projects that South Korean President Moon Jae-in agreed to with North Korean leader Kim Jong-un during their first summit on April 27.

Last Friday in New York, a high-level South Korean official who spoke on the condition of anonymity decided to convey that hope to reporters – just as Pompeo highlighted in a different news conference that all UN member-states unanimously agreed to fully enforce sanctions on the North. The official was part of a delegation led by South Korean Foreign Affairs Minister Kang Kyung-wha, who traveled to New York to co-host a briefing session with Pompeo on peninsular issues for representatives of the UN Security Council.

Soon after the briefing, the official told South Korean correspondents in New York that the South Korean government “needed” some exemption from international sanctions on the North to implement the Panmunjom Declaration, adding that it was asking the international community to grant that exemption as it was leading the North through dialogue and cooperation.

Full article:
Seoul needs sanctions exemption, official says
Jung Hyo-Sik, Yoo Jee-Hye, and Lee Seung-Eun
Joongang Daily
2018-07-23

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US government issues North Korea sanctions advisory

Monday, July 23rd, 2018

Benjamin Katzeff Silberstein

A new advisory was issued today by several US government department, focusing on risks that companies run throughout their supply chains, where North Korean labor may have been involved without said companies knowing. NK News:

The publication of the advisory notice comes three days after U.S. Secretary of State Mike Pompeo visited the UN Security Council (UNSC), where he called for the strict maintenance of sanctions against the DPRK amid current diplomatic engagement.

The purpose of the advisory is to “highlight sanctions evasions tactics used by North Korea that could expose businesses – including manufacturers, buyers, and service providers – to sanctions compliance risks under U.S. and/or United Nations sanctions authorities,” it reads.

“Businesses should be aware of deceptive practices employed by North Korea in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chains,” it added.

The U.S. Department of State, the Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Department of Homeland Security’s (DHS) co-authored the advisory.

The notice identifies what the government deemed as two primary risks to businesses, which are the “inadvertent sourcing of goods, services, or technology from North Korea” and “the presence of North Korean citizens or nationals in companies’ supply chains, whose labor generates revenue for the North Korean government.”

Full article:
U.S. government issues North Korea sanctions enforcement advisory
Hamish Macdonald
NK News
2018-07-23

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WSJ on South Korean firms planning for business opportunities in North Korea

Monday, July 23rd, 2018

Benjamin Katzeff Silberstein 

WSJ:

After months of rapprochement—including summit meetingsbetween North Korean leader Kim Jong Un and South Korean President Moon Jae-in, and one between Mr. Kim and President Donald Trump —hopes are rising for more open access to North Korea, a country of 25 million people with vast mineral reserves and lots of cheap labor.

Samsung C&T Corp . , the de facto holding company of South Korea’s biggest and best-known conglomerate, created a North Korea task force in May, staffed by an executive and three managers.

Samsung’s construction arm, which has built some of the world’s tallest skyscrapers and is building subway lines in Singapore and Riyadh, Saudi Arabia, sees opportunity in the North as economic growth slows in the South.

Full article here:
Companies See Glimmers of Opportunity in North Korea
Jonathan Cheng
Wall Street Journal
2018-07-23

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Reopening Kaesong key to cooperation, says ROK gov’t official

Friday, July 13th, 2018

Benjamin Katzeff Silberstein

A South Korean official (albeit one specifically representing the interests of the zone) calls re-opening Kaesong a “first step” towards resumed inter-Korean economic cooperation. Yonhap:

A South Korean official in charge of promoting investments in North Korea’s Kaesong Industrial Complex said Friday that the reopening of the now-suspended industrial park in the North’s border town will be a first step towards resuming inter-Korean economic cooperation.

Addressing a unification symposium in Seoul, Kim Jin-hyang, chairman of the Kaesong Industrial District Foundation, said the operation of the Kaesong complex has to be restarted as quickly as possible.

“Inter-Korean economic cooperation cannot be discussed without the Kaesong Industrial Complex,” said Kim, who doubles as chief of the Kaesong Industrial District Management Committee.

The government of former President Park Geun-hye abruptly announced the closure of the Kaesong park on Feb. 10, 2016, in retaliation for the North’s fourth nuclear weapons test and long-range missile launch.

Kim dismissed the abrupt closure of the complex as a “completely failed policy,” saying, “The decision was a grave disaster that shut down peace, economy and security altogether. North Korea was never dealt a blow when the Kaesong park was closed.”

“The Kaesong complex was not a special favor to the North. It was intended to support the South Korean economy stuck in a low-growth trap,” he said.

Kim noted that the Kaesong park is also very symbolic in terms of security and peace, arguing that the mix of about 60,000 South and North Korean workers in a single location can deter tensions and guarantee peace.

He stressed that South Korea should now join Singapore, Russia and China in preparing for large-scale investments in North Korea following its successive summit talks with the United States and South Korea to enhance the peace mood on the Korean Peninsula.

Article source:
Reopening of Kaesong Industrial Complex key to inter-Korean cooperation: official
Yonhap News
2018-07-13

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North Korean-Chinese efforts at scaling back sanctions

Tuesday, July 3rd, 2018

Benjamin Katzeff Silberstein

The following is from Mainichi Shimbun on a North Korean economic delegation trip to China, where it supposedly met with Chinese foreign ministry officials to discuss economic cooperation. Since I don’t read Japanese, I’ve pasted what google translate generated, mostly for my own record-keeping…

[Beijing / Urushima Koji] China has activated diplomatic offensives toward easing sanctions against North Korea. At the end of June, at the end of June, a draft statement for the media to seek relief of sanctions on the UN Security Council was distributed to the Security Council with Russia. At the working-level level in the mid-day and the morning, North Korea’s Kim Bong-tae and foreign minister of foreign affairs have accepted the visit and it seems that they are discussing economic support with a view to easing sanctions due to denuclearization.

According to a source in the middle of the morning, Mr. Kim arrived at Pyongyang airport from Pyongyang this morning. Mr. Kim is said to have been in China, who has led the economic delegation to visit. China’s Ministry of Foreign Affairs Mr. Rikuo avoided confirming the visiting information at a regular press conference the same afternoon, but on the other hand, “While the middle morning is a friendly neighboring country, each level, normal in each field We are maintaining a regular visit. ”

Following the US-North Korea summit meeting in Singapore, China is expected to ease sanctions ahead of the United States and it is believed that it is aimed at advancing negotiations with the US with trade friction etc. advantageously by placing North Korea on the side.

 In the mid-day border zone, there were projects that could support economic assistance to North Korea in the form of technical cooperation even before the easing of sanctions, and negotiation at the worker level was necessary. The Chinese government will maintain normal interaction and cooperation with Korea (North Korea) on the premise that it does not violate international obligations (such as the Security Council sanctions) “(Mr. Shuo Qi · so = = Deputy Press Bureau Director of the Ministry of Foreign Affairs) and It’s a posture.

North Korea’s Kim Jung-eun, the chairman of the Korean Workers’ Party, visited a cosmetic factory in Shinwigu, North Pyongan Province, which borders the mid-day border. Prior to this, he is showing a willingness to emphasize the redevelopment of the mid-North Korean border, such as visiting the area around the economic zones in the same way that it had jointly developed with China.

Source:
North Korea seeks easing sanctions Economic support consultation?
Mainichi Shimbun
2018-07-03

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Two Koreas agree on railway improvements

Wednesday, June 27th, 2018

Benjamin Katzeff Silberstein

AP reports on talks between North and South Korea to improve North Korean railways, including a great overview of current railway systems in the country:

North Korea’s state media on Wednesday acknowledged inter-Korean discussions on “issues arising in reconnecting, updating and using the railways on the east and west coasts,” but did not describe that South Korea would be sending officials and experts to examine the country’s aging rail system.

The agreement Tuesday to start joint inspections of North Korea’s railways on July 24 was apparently as far as the rivals could go at the moment. The vows to upgrade the North’s railways and roads will remain purely aspirational until international sanctions against North Korea are lifted and the South is freed to take material steps.

The talks at the border village of Panmunjom were the latest to discuss ways to carry out peace commitments made by North Korean leader Kim Jong Un and South Korean President Moon Jae-in.

During their April 27 summit, when they issued a vague commitment to denuclearize the Korean Peninsula, Kim and Moon expressed a desire to modernize North Korea’s railways and roads and reconnect them with the South. The Koreas are to hold another meeting on Thursday to discuss roads.

South Korean officials say better transport would greatly improve North Korea’s economy by facilitating trade and tourism. It may also provide the South with cheaper ways to move goods in and out of China and Russia. However, some experts say updating North Korean trains, which creak slowly along rails that were first laid in the early 20th century, would require a massive effort that could take decades and tens of billions of dollars. It might be impossible to embark on such projects unless North Korea denuclearizes, which isn’t a sure thing.

THE WEST SIDE

In their summit, Kim and Moon called for “practical steps” toward the “connection and modernization” of railways and roads between South Korea’s capital, Seoul, and North Korea’s Sinuiju, a port town on its border with China, and also along the peninsula’s “eastern transportation corridor.”

During the meeting on April 27, Kim went against the grain of North Korean propaganda by describing the country’s transport conditions as poor and praising South Korea’s bullet train system, clearly communicating an eagerness to improve his country’s rail networks, according to comments provided by South Korea’s presidential office.

In Tuesday’s meeting, the Koreas agreed to start inspections of the North Korean portion of a railway that once connected Seoul and Sinuiju before moving on to railways in the eastern region.

Japan completed a 499-kilometer (310-mile) railway line connecting Seoul and Sinuiju in 1906, mainly to move soldiers and military supplies, before it annexed the peninsula in 1910. The Gyeongui line was separated in 1945 at the end of World War II, when the peninsula was liberated from Japanese colonial rule but also divided between a U.S.-controlled southern side and a Soviet-controlled north. The peninsula remains in a technical state of war after the 1950-53 Korean War ended in an armistice, not a peace treaty.

The Gyeongui line was temporarily reconnected during a previous era of rapprochement between the rivals in the 2000s. The Koreas in December 2007 began freight services between South Korea’s Munsan Station in Paju and North Korea’s Pongdong Station, which is near the border town of Kaesong. The South used the trains to move construction materials northbound, while clothing and shoes manufactured from a factory park jointly operated by the Koreas in Kaesong were sent southbound.

The line was cut again in November 2008 due to political tensions over North Korea’s nuclear program and the hard-line policies of a new conservative government in Seoul.

___

THE EAST SIDE

Japan during its colonial rule completed a 193-kilometer (120-mile) rail line between North Korea’s Anbyon county and South Korea’s Yangyang along the peninsula’s eastern coast in 1937. The Koreas temporarily reconnected the cross-border part of the line between 2007 and 2008 to move South Korean tourists in and out of the North’s scenic Diamond Mountain resort. However, the project never advanced beyond a trial run before South Korea pulled out in June 2008 amid worsening ties.

South Korea has ambitions to significantly extend the eastern “Donghae” line so that it connects its southernmost port of Busan with North Korea’s northernmost industrial cities of Chongjin and Rajin. Seoul hopes the line will eventually link South Korea with Russia and the trans-Siberian railway. South Korea also hopes to eventually reopen a railway between Seoul and North Korea’s eastern coastal town of Wonsan which ran through the middle of the peninsula.

Article source:
Koreas agree to improve North’s railways, but work must wait
Kim Tong-Hyung
AP News
2018-06-27

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