INTER-KOREAN RECONCILIATION, ECONOMIC COOPERATION, AND THE ROLE OF MAJOR POWERS (Summary of May 2001 Coference in Shanghai) by Joseph Winder Summary to open up to the South and the rest of the world. They emphasized the importance of a calm external envi- The Shanghai Academy of Social Sciences (SASS) ronment to the process of North-South reconciliation. hosted a conference entitled “Inter-Korean Reconcili- Many of them characterized the current environment ation, Economic Cooperation, and the Role of Major as uncertain, and placed the blame squarely on the Powers” on 9–11 May in Shanghai. The conference United States. A number of speakers criticized the was cosponsored by the Korea Economic Institute of current U.S. policy toward North Korea as well as U.S. America (KEI), the Korea Institute for International policy and actions vis-a-vis Asia more broadly, includ- Economic Policy (KIEP), the Atlantic Council, and the ing plans for a ballistic missile defense program. In United States Institute of Peace. The Korea Founda- the view of many Chinese participants, progress in tion also provided financial support for the conference. North-South reconciliation is dependent on improved relations between North Korea and the United States. The purposes of the conference were to: The U.S. and South Korean participants, on the other hand, expressed the view that improvement in North • Obtain the views and assessments of Chinese schol- Korea’s relations with the United States depends on ars and experts on developments of the Korean Penin- improved North-South relations. There was some sula, discussion of and general support for increased multi- lateral cooperation in dealing with the problems on the • Expose Chinese scholars and experts to U.S. and Peninsula in both the economic and security spheres. Korean views on developments on the Korean Penin- sula, and North Korea • Establish personal contact and links between U.S. The unspoken assumption, which formed the basis for and Korean experts and their Chinese counterparts. the discussion throughout the conference, was that North Korea is the “problem.” One Chinese partici- The conference was attended by a large number of pant said that the problem is how both North and South Chinese scholars and experts from Beijing, Jilin, and Korea adjust to the post-Cold War world. He said South Shanghai. A full list of the participants is included at Korea has done a good job, implying that North Korea the end of this report. has not. While the participants’ views on the best way to address the North Korean “problem” varied, the There was a widespread consensus that the North focus on North Korea did not. Korean economy is in dire straits, that North Korea has not addressed the problems effectively, and that Two of the Chinese participants said that North Korea’s reform is essential. There were differences of view over military capabilities are “exaggerated” and “over- the extent of reform underway in the North. A number stated.” One argued that there is no proof that North of speakers from all countries represented expressed Korea has nuclear weapons, and that the Taepodong the view that North-South reconciliation is primarily test was a failure. in the hands of the two Koreas. There was a recogni- tion that economic cooperation is at the heart of the There was a broad consensus that the North Korean North-South reconciliation process to date and that this economy is in dire straits. One participant suggested process seems to have stalled. Many of the Chinese that the economy is not “bankrupt,” but there was no participants said North Korea is sincere in its efforts disagreement about the seriousness of North Korea’s INTRODUCTION 1 economic difficulties. No one challenged the view that Korea is serious about reform will be when it invites North Korea’s economy is not self-sustaining without the Bank in to do an economic survey. outside assistance. A Chinese expert said that economic reform is being Dr. Yoon Deok-ryong, a Senior Fellow at KIEP, pre- implemented, but it has not yet been linked to politics. sented a paper in which he describes North Korea’s The expert said that the North Koreans’ minds are os- economic problems. He said the collapse of the coop- sified, and they need to study how to integrate theory eration network among socialist countries with the end and practice. The expert said that the relationship of the Cold War led to a decline in North Korea’s capi- between politics and economics is key. Economic dif- tal stock, which in turn triggered a downward spiral ficulties are related to political extremism. They need which persists to this day. The supply of savings—both to accept the fact that economics has its own logic. domestic and foreign—is not large enough to cover the depreciation in the stock of capital in the country. None of the Chinese participants expressed the view Capital has diminished every year, which is the main that North Korea would embrace the Chinese model. cause of North Korea’s continuous negative economic One expert said that North Korea would not adopt the growth. He said North Korea’s economic situation Shanghai model. He said that North Korea would re- seems to fit into what has been called a “poverty trap.” form gradually without using that word. Another A Chinese expert attributed North Korea’s economic expert argued that North Korea would not adopt either problems to bad policies, bad practices, and a bad mind- the Chinese or Russian models. He said that North set. He said that since North Korea gave highest prior- Korea is likely to adopt a very authoritarian model and ity to security concerns, it concentrated on developing base it on the Park Chung-hee regime. heavy industry to the detriment of the economy. North-South Reconciliation Dr. Yoon said North Korea’s immediate needs were to deal with its shortages of food and energy. Beyond that A number of the participants—on both the Chinese and it needs to install new production facilities and to American sides—expressed the view that North-South develop ways to generate hard currency. One Ameri- reconciliation is in the Koreans’ hands. One Chinese can participant suggested that North Korea needs to participant said that the joint actions of the North and devote more resources to building up its human capi- South are the keys to the peace process. One Chinese tal. A Chinese participant suggested that high-tech is expert said that the current efforts at North-South the key to North Korea’s future. reconciliation have a basis in history, and that the meet- ings in 1972 paved the way for last year’s summit. He No one challenged the view that North Korea needs to praised the results of the summit and said both sides reform and open up its economy. One participant are now making policy changes. argued that North Korea is refusing to change its old economic model. He said there has been no sign of Some participants placed the onus for further progress reform in the North in the wake of Kim Jong-il’s visits on the North. One Chinese participant said that the to Shanghai. He said Rajin-Sombong is only a first, key to North-South rapproachement is the actions North halting step (another Chinese expert called it a Korea will take. Another said that the key to North- failure). South reconciliation will be the direction North Korea will take. He noted that South Korea had offered a Several Chinese participants argued that reform is un- “sunshine” policy; now it is up to the North to respond. derway in North Korea. One participant said that al- An American participant said it is ironic that it is only though North Korea’s fundamental problems are still the insistence of the North that keeps the United States there, change is taking place. Another said that the at the center of the process. recent fifth plenary of the fourth National congress instituted some more reforms. One participant argued One Chinese participant said that North-South recon- that North Korea needs to see some concrete benefits ciliation is a historical process that cannot be stopped. from reform if it is to keep up the pace of reform. The Another said that the short-term outlook is not good. World Bank representative said that the sign that North He argued that the Korean peninsula is now caught up 2 THE KOREA ECONOMIC INSTITUTE OF AMERICA in great power tension. One Chinese expert said that Korean economic system and government are currently the process of North-South reconciliation is underway, obstacles to such cooperation. She praised the changes but its progress should not be exaggerated. He pointed the South is making to enhance North-South economic out that reconciliation in the military sphere is the key, cooperation. Another Chinese participant argued that and said there has been very little progress in this area the process of North-South economic cooperation is to date. Another participant said that North Korea is bogging down. buying more weapons from Russia in response to South Korean purchases of arms from the United States. External Environment Economic Cooperation Many of the Chinese participants emphasized the im- portance of the external environment to the process of A Korean participant said that economic relations are North-South reconciliation. One participant said that the main instrument being used to bring the North and a stable relationship among the major powers contrib- South together. He said that, if the policy fails, only uted to the North-South summit.