[Column] Can Kaesong be used as leverage?

Im Seong Hun, Professor of Konkuk University

These days there is a lot of debate as to whether or not to halt the Gaeseong (Kaesong) Industrial Complex and the Mt. Geumgang (Kumgang) tourism projects, as a way to pressure North Korea in response to its test of a nuclear bomb; the debate is between government agencies and not just members of the general public. One side wants to use these projects as leverage, and the other wants to continue with them and keep moving along with the government’s policy of engagement. You wonder, however, whether calling both of those enterprises off as a form of sanctions would work as leverage.

The South Korean government and private sector have invested W190 billion in Gaeseong and W250 billion in Mt. Geumgang. Aside from what the North has received for land development and usage, North Korean workers have also received W6 billion in wages at Gaeseong and W20 billion at Mt. Geumgang. South Korea could lose W440 billion if things were to stop, and it would never recover that money if both enterprises were stopped permanently. What the North would not be getting is an annual average of W8 billion in wages from Gaeseong and about W12 billion in tourism revenue from Mt. Geumgang.

Losing W440 billion would of course not be the worst of it. We could forever lose the basis and chance to build toward future reunification, an opportunity that did not come easily. Inter-Korean economic cooperation is a typical example of a joint venture. The key to successful joint ventures is sustained mutual trust. Unless we are going to completely call off, as of today, all cross-border economic cooperation, including Gaeseong and Mt. Geumgang, and if we have even the slightest intention of continuing with both projects once the North Korean nuclear issue is resolved, then neither should be called off. Rather, this is exactly the time to demonstrate to current investors and potential future Korean and international investors that non-commercial risks are not going to cause a cessation of cross-border economic ties.

It is tomorrow, and not today, that we will see Gaeseong and Mt. Geumgang be used as leverage for reunification. This "lever" will lose its effectiveness if it can be moved by the weight of either just the North or South. Both locations are unique spaces for a trial run of the integration of our economic systems ahead of reunification. The business models that grow out of this cooperation will contribute in a large way to reducing the eventual cost of the unification enterprise. Certainly, we need to consider all means possible to prevent the Korean peninsula from being put at risk because of nuclear weapons, but we should not be so foolish as to become so bewildered by the domestic and international political aspects of things that we lose the means and potential for reunification.

Thomas Friedman, in his book "The World is Flat," notes that no two countries that have McDonalds restaurants have ever gone to war. He then predicts that states with the Dell computer’s "global sourcing" system will never go to war, either. The thinking is that entrepreneurs, worried about political instability hurting their businesses, try to convince politicians and government functionaries to reduce the risks of conflict. That’s what cross-Korean economic cooperation has to be like in order to have it work as leverage aimed at reunification. It would be a great misfortune for the Korean people to halt both investment projects right now in the name of "leverage". It would be like cutting open a chicken to get the egg.