Economic Engagement with North Korea: Moving Beyond Kaesong

At the present time, negotiations between the United States and North Korea remain stalled, as the summit in Hanoi ended with no agreement signed between the parties. For proponents of economic engagement between North and South Korea, this is bleak news. The two Koreas are eager to move on to concrete action, and, not least, economic exchange. At the moment, discussions mainly center around four areas related to economic matters: infrastructure, forestry, tourism, and, not least, reopening the Kaesong Industrial Complex (KIC), closed by the South Korean Park Geun-hye administration in 2016 after North Korea's rocket test in early February that year (Yonhap News 2018b, 2018c, 2018d, 2018e). Out of these, KIC is the largest in scale and most concrete flagship project of inter-Korean cooperation. The KIC is an industrial park sitting at North Korea's southern border, where—when it operated—South Korean firms employed North Korean labor in their factories. As a special economic zone, it is an area where the laws and regulations of regular North Korean territory do not apply in full. Instead, a set of separate regulations, designed to allow for different conditions of employment and capital ownership conditions, apply.¹ It is both symbolically and practically important. In the first sense, marrying South Korean capital with North Korean labor is a form of unification in its own right. In the second, too, it is economically rational. North Korea has an abundance of cheap labor, and South Korea has lots of capital to invest. The Pyongyang Declaration, signed by South Korean president Moon Jae-in and North Korean leader Kim Jong-un on September 19, 2018, states that "the two sides" will "pursue substantial measures to further advance exchanges and cooperation based on the spirit of mutual benefit and shared prosperity" (Democratic People's Republic of Korea and Republic of Korea 2018, para. 2.2). With this promise in mind, reopening Kaesong is a logical goal, at least in theory.

The problem, however, is that advocates of economic engagement with North Korea motivate their policy and strategy with claims that go far beyond economics. Proponents of such engagement rarely limit their arguments to what makes financial sense, but often make greater claims about the impact that trade and investment in North Korea, through projects such as the KIC, can have for social and systemic change inside North Korea itself. In short, many regard the KIC as a crucial way of starting the process of "greater unification" of North and South Korea, through one "small unification" (Kim 2015a, 5). Through a limited, special economic zone (SEZ) such as the KIC, the capitalist form of production can be introduced in North Korea at a slow but steady pace, the idea goes, hopefully leading to broader reforms and institutional changes in its economic system. Another oft-cited rationale is that through human connections forged between North and South Korean workers and personnel, the otherwise closed-off North Korean population can learn more about the living standards and social system of South Korea, and the outside world as a whole. As one author argued in 2017, for example, through the KIC "steady interaction with South Koreans exposed the North Korean people to the artifacts of southern wealth, which shook their faith in the communist system" (Park 2017).

Given its very model, however, it is questionable whether the KIC can reach these goals. As the KIC is an SEZ, whatever institutional change happens there, it is designed to be kept behind closed doors. I argue that the KIC is unlikely to have the socially and economically transformative impact that its proponents wish to see. Much of the criticism against the KIC in recent years focuses on whether or not its proceeds have gone toward financing North Korea's weapons programs (Kim 2016; Jack Kim 2017). A much more important question is whether the complex, the way it is set up, holds the potential to spur broader systemic change in North Korea, as its advocates often claim. The zone's first few years in operation gave a solid indication of its limits...