Despite international sanctions that have limited the country’s ability to foster global economic ties, North Korea is quietly expanding partnerships through a burgeoning tourism industry and the development of special economic zones with China and South Korea. Situated on the northeastern tip of the Korean peninsula, the Rason Economic and Trade Zone is trying to attract foreign investors—primarily from China—in order to raise revenue for a poor nation in which one in three children are stunted by malnutrition.
Initially established in 1991, the Rason zone was largely neglected until recently when government delegations from China and North Korea began to promote lucrative investment opportunities there by passing legislation that made it a semi-autonomous region. The status would exempt it from restrictive government controls and regulation. High-level delegations from both sides make frequent visits, including a recent trip by Chang Song Taek, uncle of North Korean leader Kim Jung Eun, in September 2012.
For the past decade, China’s primary economic involvement has involved the reclusive nation’s profitable tourism industry. An estimate by China Daily records that approximately 60,000-70,000 visitors from China crossed the border in 2011. Although typical restrictions on visitors include accompaniment by guides and restricted contact with the local population, Pyongyang has relaxed access for entry by waiving visa requirements for Chinese nationals and allowing the use of the Chinese currency in North Korea.
Scott Snyder, a Senior Fellow for Korean Studies at the Council on Foreign Relations, believes that the significance of these zones are limited stating that, “[the] value of Rason to China is more geoeconomic than geostrategic; the main valuable will be in establishing direct maritime access so as to reduce costs of transport for the northeastern provinces.” He cites the need for more empirical data to address the question of “ whether Rason brings North Korea into the international community or becomes an exception to global standards for doing international business.”
Pyongyang has demonstrated that they would be willing to act out against the wishes of their lone stalwart in the region. Semoon Chang, former head of the Korea-America Economic Association, remains pessimistic about their efforts on economic engagement and states that, “I do not believe North Korea’s economic zones will bring it any closer to the global community. Rason has not had much impact, but Kaesong has been a source of significant economic boost to North Korea. Kaesong did not stop them from torpedoing South Korea’s Navy ship in 2010.”
South Korea has also secured an economic foothold in North Korea by setting up institutions with Pyongyang including the Kaesong Industrial Complex, a trade zone where South Korean companies outsource production to North Korean workers and the Korean International Travel and Sports Company—North Korea’s tourism bureau—allows South Koreans to stay at a vacation resort in Mt. KumKang. The Kaesong Industrial Complex currently hosts 123 companies, growing from the initial 18 in 2005.
According to Hyundai Research Institute’s figures, inter-Korea trade totaled $1.8 billion in 2007 but has sharply declined. A string of provocative military actions and economic aggressions by Pyongyang undermined more vigorous economic co-operation. In particular, the sinking of the Cheonan ship in 2010 and North Korea’s demands for back taxes from South Korean companies operating in Kaesong have been talking points for South Korean officials justifying a decrease of its economic foothold even further in North Korea.
North Korea’s pursuit of bolstering its economic relationship with South Korea has affected the relationships of its southern neighbor’s allies, particularly the U.S. In 2009, progress on the South Korea-U.S. Free Trade Agreement (KOR-US FTA) stalled because of concerns by Washington lawmakers who wanted South Korean manufacturers to discontinue the use of North Korean workers at Kaesong. They also expressed concern about North Korea’s nascent source of revenue contributing to escalating security tensions on the peninsula as workers’ wages could be diverted towards use by the state’s military.
While a 2010 U.S. Congressional Research Report on Kaesong recognizes these issues, it also cites how Kaesong’s role in trade liberalization “could weaken the hold by Pyongyang on the daily lives of citizens and bring the country more into the globalized world”. It also considers how the Kaesong efforts could weaken North Korea’s reliance on illicit trade activities. Vietnam and China are cited as prominent examples of how economic liberalization can transform communist societies.
Huh Moon Young, the Director of North Korean Studies at the Korean Institute for National Unification, also views the economic opening of North Korea as a positive development, writing that “the stabilization of the North Korean economy and adoption of reform and opening policies can contribute … to peace and unification of the Korean Peninsula”. North Korea’s economic reliance on China not only promises “safe installation of the Kim Jong Un regime”, but also has a potential role in laying a “cornerstone for the peaceful unification of the two Koreas and the establishment of an East Asian regional community.”
Dr. Park Yong Soo, an Economics Professor at Korea Maritime University counters this argument, stating that “Swiss-educated Kim Jong-un has consistently shown his firm determination to follow and uphold his late father’s policies and ideologies, e.g. the military-first policy, which is completely opposed to free market ideology. Although many outsiders now expect some positive changes to occur in North Korea under the new leader, I do not believe that will happen.”
Meanwhile, international relief agency groups in North Korea face difficulties in serving the population of a country that has few friends in the global community. In September 2012, the United Nations Development Programme was cleared of charges by the World Intellectual Property Organization that they violated sanctions by exporting U.S. manufactured computer equipment to their offices in Pyongyang.