JPRI Working Paper No. 119 (September 2013)
Northeast Asian Economic Cooperation in Perspective: The Future Has Never Been Brighter
By David Arase


It is easy to become pessimistic about Northeast Asian economic cooperation if one follows the news day-by-day. Progress has been slow, and disappointing setbacks are always sensationalized in the news media, especially those concerning the DPRK. This makes it difficult to believe that major progress in Northeast Asian cooperation is possible. However, I believe that taking a longer-term perspective on recent events will permit us to see that there really has been considerable progress in advancing conditions that favor Northeast Asian economic cooperation. This makes it possible to assert that, after a year of leadership transitions in 2012, the prospects for further progress have never been better than today.

To see this point, I will compare the present situation to what existed at other moments of opportunity in Northeast Asian economic cooperation. Each of these past moments was the result of certain hopeful developments, but in the end they produced disappointment. The reasons why can tell us what the obstacles to success have been, and how today some fundamental conditions have changed to favor Northeast Asian cooperation. Accordingly, we will discuss the end of the cold war; the rise of trans-local cooperation (i.e., international cooperation between provincial- and municipal-level sub-national authorities, or SNAs) in the mid-1990s; and developments since the year of 2000.

The End of the Cold War

The end of the cold war began with Gorbachev’s perestroika and “new thinking” in foreign relations. This created conditions for the ROK’s successful Nordpolitik, which led to the normalization of relations with China and the Soviet Union. This not only gained US approval, but it also opened up profitable direct trade and investment relations between the ROK on the one hand, and China and the Soviet Union on the other. This greatly improved regional economic cooperation as well as strategic stability in Northeast Asia by making it unlikely that the DPRK could get any kind of assistance or backing from China or the Soviet Union to attack the ROK. Encouraged by the success of Nordpolitik, in 1990, ROK president Roh Tae-woo proposed a six-party Consultative Conference for Peace in Northeast Asia and, in 1991, U.S. Secretary of State James Baker called for a two-plus-four mechanism to settle remaining tensions in the Korean peninsula.

With a prospect of normalized regional relations in view, the UNDP approved the Tumen River Area Development Programme (TRADP) in 1991 (after receiving strong Chinese encouragement). The original TRADP plan was a 20-year, $20 billion project that would turn the mouth of the Tumen River (where the borders of Russia, China, and North Korea intersect) into a major international transportation, trading, and manufacturing center in Northeast Asia.

These grand strategic and economic proposals for action were born out of post-cold war optimism that Northeast Asian multilateralism could open up a new era of cooperation and prosperity. However, overlooked was the fact that North Korea was unable and unwilling to cooperate in the proposed frameworks.

Stumbling blocks

First, due to longstanding political and ideological principles that cast the ROK as a puppet regime of the US, the DPRK would not accept the ROK as a legitimate negotiating partner over the future of the Korean peninsula. It sought to negotiate only with the US. Meanwhile, the US would not recognize the DPRK until it accepted the ROK as an equal. This firm DPRK position led it to reject the Roh and Baker proposals.

Second, the DPRK suddenly lost critically important fraternal military and economic aid from China and the Soviet Union at the end of the cold war. This imperiled its economic stability and military security. The DPRK was unwilling to negotiate its future from such a position of weakness, which it hoped would only be temporary. It therefore preferred diplomatic stalemate to engagement at this time.

Third, its total command economy was not able to interact with global capitalism, nor could it match the ROK’s economic dynamism. The DPRK risked chaos and collapse were the structural economic reforms to address these problems even attempted. That is because at this time the DPRK lacked knowledge of the fundamental principles, institutions, and processes of global capitalism. So it favored economic autarky over active cooperation and liberalization even if this meant great suffering by its population.

Finally, the DPRK regime itself could lose legitimacy were open and normal political, economic, and cultural relations with the ROK and other neighboring nations suddenly attempted. Therefore, it preferred overall isolation.

Playing the nuclear card

For all these reasons, the DPRK could not positively respond to ROK, Chinese, and US multilateral cooperation proposals. Instead, it believed it needed isolation to preserve its internal stability and regime survival. Moreover, a strategically weakened and oil import-dependent DPRK sought to improve its position by playing the “nuclear card.” Its top priority became to develop a nuclear energy option, as well as a cheap nuclear deterrent capability. This led to the plutonium reactor start up at Yongbyon in 1990-91. However, this move only dashed hopes for a new era of post-cold war cooperation, and deepened the DPRK’s isolation from the West. This attempt to develop nuclear weapons would make it more difficult than ever for the DPRK to normalize relations with the ROK and the US.

Thus, the DPRK’s grave insecurity and weaknesses led to its decision to play the nuclear card. This not only stopped the active development of regional cooperation at the level of national governments; it also led to heightened tension and a risk of war in 1994. A contemplated US military operation to destroy the DPRK’s nuclear development activities was headed off at the last minute by former President Jimmy Carter’s visit to Pyongyang. This personal diplomacy led to the 1994 Geneva Framework Agreement that offered the DPRK two light water uranium power plants (providing 500,000 tons of heavy fuel oil annually until these plants came on line) in exchange for termination of plutonium-based nuclear research and development.

The Framework Agreement set an important precedent because it implicitly signified that all parties recognized the paramount importance of geopolitical stability as well as the legitimacy of the DPRK’s need for energy and regime survival. On this basis the Framework Agreement constituted a significant case of cooperation involving the DPRK, the US, the ROK, Japan, and others. But this cooperation was meant to avoid a lose-lose outcome. It headed off war and improved prospects for DPRK regime survival, but it did not resolve the cold war legacy of DPRK-ROK political hostility dividing the Korean peninsula. Until such time as this inter-Korean conflict could be resolved, the strategic situation would remain unstable, and opportunities for positive cooperation toward welfare enhancing win-win outcomes agreed by the two Koreas and surrounding four major powers would be difficult to identify.

Mid-1990s: The Rise of Trans-local Economic Cooperation

The demise of the original TRADP concept

The unresolved political conflict negatively affected the TRADP, which was designed to engage national governments in cooperation. The original TRADP concept, which called for $20 billion (presumably provided by Japan and the ROK) and a multinational (joint China-Russia-North Korea) authority to administer and operate a large tri-border development zone, exceeded what was politically feasible for the DPRK to attempt. With the DPRK unable and unwilling to make the requisite concessions, Bejing, Seoul, Tokyo, Russia, (and the US) remained passive. Having reached this impasse by the time it was formally inaugurated in 1995, there was a general loss of interest in TRADP at the level of national policy making.

After the Framework Agreement was concluded and the DPRK’s continuing isolationism was confirmed, Beijing, Moscow, and Tokyo were mainly interested in preserving regional stability. These national governments had nothing against opening up small-scale border trade opportunities so long as they remained consistent with the preservation of strategic stability, but such gains were too small to attract their active interest. Seoul alone gave more active support to opening local border trade opportunities with the DPRK because it saw significant benefits coming out of this process.

The rise of translocalism

Nevertheless, the mid-1990s became a period of modest positive regional cooperation due to the initiative of Northeast Asian sub-national governments and authorities. Aiding this was the fact that the end of the cold war created a convergence of political, economic, and technological trends that produced the borderless global economy. The adoption of economic and political reform policies by most nations (including China, Russia, the ROK, and Japan) gave SNAs around the world new freedom (and responsibility) to advance their own development, raise their own revenues, and look for foreign cooperation partners. Together with the greater global availability of credit and the spread of new technological innovations that made international communication, travel and trade both cheap and easy, these converging developments empowered and encouraged SNAs to plan their own international cooperation policies.

Northeast Asian SNAs in the mid-1990s took the lead in advancing positive regional cooperation because the available gains of cooperation were mostly in the area of border trade liberalization and facilitation. These gains were too small and localized to warrant national level initiative, but the benefits of more cross-border trade and investment were large and specific enough to motivate SNA initiative. Moreover, SNAs do not have the direct responsibility to manage national security. Their primary concern is the promotion of local economic and social welfare using any means at their disposal within boundaries set by the central government.

So, by the mid-1990s provincial and municipal governments across Northeast Asia were actively searching for regional trade and development opportunities to improve their local economies. They reached out to their foreign counterparts to build networks of translocalism, i.e., international cooperation between SNAs. This boom in translocalism created interest in such subregional multilateral cooperation concepts as Japan Sea Rim (or East Sea Rim) cooperation and Yellow Sea Rim cooperation. Participants initiated quite a number of research programs, conference processes, sister-city and sister-province relationships, and exchange relationships to activate the potential for Northeast Asian trade and investment growth.

In order to participate in trans-localism, the DPRK used an experimental sub-national authority originally set up in 1991 to participate in the TRADP, i.e., the Rajin-Sonbong Foreign Trade and Economic Zone (re-named Rason in 2004). The original TRADP secretariat was downsized and turned into a vehicle to promote trans-localism. Significant progress was made in starting smaller border trade and investment promotion initiatives financed and managed primarily by SNAs (e.g., Hunchun City, Yanbian Prefecture, and Jilin Province in the Tumen river region).

In other parts of Northeast Asia, such as the Sino-Russian border, the Japan Sea Rim, and the Yellow Sea rim, trans-localism also played an important role in activating growth and development. Aside from creating new trans-local partnerships, trade infrastructure, and transportation links, many productive new cooperation proposals and long term visions of the region’s development were generated. The hope was that trans-local cooperation could build trust, promote learning, and induce national governments to redefine their interests to become supportive of larger scale Northeast Asian cooperation.

However, after making initial easy gains, trans-localism quickly reached its limits because the policy-making authority and budgets of SNAs are so limited. For example, the DPRK showed some willingness to open the port of Rajin to give Northeast China access to ocean commerce, but the Rajin-Sonbong SEZ lacked the authority, as well as the financial and technical expertise, to carry out this idea on its own. And in the mid-1990s, neither Russian nor Chinese local cooperation partners had resources to contribute. This case and others showed that only national governments controlled the policy authority and scale of resources necessary to revolutionize the nature of Northeast Asian economic cooperation.

Thus, at the end of the 1990s, the DPRK remained a central obstacle to Northeast Asian cooperation. It was a kind of “black hole” that absorbed assistance and offers of cooperation but gave back nothing substantive enough to change the policies of other national governments. In fact, it even tested a new longer-range ballistic missile capability in 1998 that only raised the level of strategic concern. Meanwhile, Beijing and the three provinces in Dongbei remained preoccupied with state-owned enterprise (SOE) reform and lacked the policy flexibility and the fiscal resources to create “public goods” in Northeast Asian cooperation even in cases where the benefit to China alone would justify the effort (e.g., upgrading access to and port facilities in Rajin). Therefore, Northeast Asian cooperation surrounding North Korea remained localized, small-scale, uncoordinated, and inherently unable to resolve geopolitical contradictions.

The New Millennium Year

The year 2000 saw hopeful developments in DPRK relations with the ROK and the US that created certain hopes and visions of a new era in Northeast Asian cooperation. Kim Dae Jung was elected President of the ROK in 1997 and inaugurated the “Sunshine Policy” of granting unilateral economic aid, promoting people-to-people contacts, and working out confidence-building measures with the DPRK in hope of reducing tension and building political trust in inter-Korean relations. This policy had the support of the Clinton Administration.

The most noteworthy achievement of the Sunshine Policy was the North-South Summit of June 2000 when Kim Dae Jung met DPRK President Kim Jong Il in Pyongyang. The symbolism of this meeting implied that mutual non-recognition was no longer de facto policy, and that the DPRK might be willing to negotiate directly with the ROK to resolve the abnormal situation on the Korean peninsula. This was a significant development in DPRK policy thinking.

This was followed by the visit to Pyongyang of US Secretary of State Madeleine Albright in October 2000 where she met Kim Jong Il. Albright and Kim confirmed the implementation of the Framework Agreement and reached an informal agreement in principle to curb the DPRK’s long-range missile development program and accept US troop presence in the ROK as part of a path to normalized US-DPRK relations. The formal agreement was to be sealed by a visit to Pyongyang by President Bill Clinton. The agreement to normalize relations implied that the DPRK would have economic sanctions against it lifted and that it would have no grounds to fear a US or US-backed attempt to destroy or destabilize it. However, time ran out on the Clinton Administration before the Clinton visit could be arranged.

After the agreements reached at these two high level meetings, the region could envision a formula for long-term stability and the DPRK could look forward to regime survival. These basic preconditions for the DPRK’s participation in win-win multilateral regional cooperation had been missing since the end of the cold war, and the DPRK seemed willing to reconcile with the ROK, and concede its nuclear missiles as well as a continuing US troop presence in the ROK, if given suitable guarantees.

Strategic Reversal, 2001-2010

However, the US presidential election of November 2000 saw George W. Bush defeat Al Gore, and the new Bush Administration in early 2001 clearly rejected Kim Dae Jung’s Sunshine Policy and reversed the DPRK policy of the Clinton Administration. Thus, the hopeful events of 2000 were quickly overtaken by reversals in 2001. When the Bush Administration signaled it would renege on the Framework Agreement in 2002, the DPRK openly restarted its nuclear weapons development program in early 2003 and continued its long-range missile development efforts. These developments seemingly undid the progress made under the Geneva Framework Agreement and the Sunshine Policy of Kim Dae Jung.

At this very tense juncture, Beijing stepped in to host multilateral talks between representatives of the DPRK, ROK, US, China, Japan, and Russia. Viewed in this light, the Six-Party talks play a function like that of the Geneva Framework Agreement after the DPRK started up its Yongbyon reactor in 1991. Like the Framework Agreement, the Six Party Talks manage the risk of a lose-lose outcome from an unstable strategic situation. Instability and war avoidance is itself a worthy goal. But the Six-Party Talks do not have a positive, win-win agenda of advancing mutually beneficial cooperation.

The inauguration of Lee Myung Bak as President of the ROK in 2008 ended the Sunshine Policy. Lee’s hardline policy of “conditional engagement” meant reduced aid and increased military-strategic cooperation with the US. This suggested that Lee did not see the DPRK as a trustworthy negotiating partner. Thus, the fundamental geopolitical situation returned to what existed in 1991-93, i.e., an isolated and nuclearizing DPRK faced a hostile ROK and US. The low point in strategic stability came in 2010 with the sinking of Cheonan in March and the DPRK artillery bombardment of Yeonpyeong Island in November during a large US-ROK military exercise. After the Cheonan incident, Lee called on the international community to economically quarantine the DPRK.

A New DPRK Stance Toward Cooperation?

However, the DPRK response to a return to political stalemate after 2008 differed in some important respects from its response the stalemate following the end of the cold war. One key difference was that the DPRK after 2008 actively pursued international economic cooperation. Years of experience with translocal cooperation had taught it that limited economic opening to the outside world could be successfully managed. Moreover, the DPRK had become dependent on foreign sources of revenue in order to pay for crucial imports. Another key difference was that 20 years after the end of the cold war, China and Russia had the economic interest and financial capacity to initiate economic cooperation ventures with the DPRK. Finally, Kim Jong Il became seriously ill in 2008 and this created pressure to set the DPRK on a sustainable long-term course before he passed away and power was inherited by his young and inexperienced son Kim Jong Un.

In August 2008 the DPRK gave the Dalian Chuangli Group a 10-year lease on a pier in the port of Rajin. The deal required Chuangli to invest in port improvements and pave the dirt road from Wonjon-ri on the Tumen River crossing to Rajin port. The required financial investment was too large for Chuangli to manage. However, Jilin province stepped in to announce the Chang-Ji-Tu development plan in November 2009. This provided the financing that Chuangli lacked, and in 2010 Chuangli extended its lease for an additional 10 years.

Meanwhile, in 2010 the DPRK leased another pier in ice-free Rajin port to Russia for 50 years. The Russians signed a 1.4 billion Euro investment agreement to upgrade infrastructure connecting the pier to Russia. Looking to the future, the idea is to extend Sakhalin gas and oil pipelines there, as well as to establish rail connectivity to Pusan port in the ROK allowing direct container traffic between Europe and East Asia.

To seal these deals, Kim Jong Il took extended tours of Northeast China and met with Chinese President Hu Jintao twice in 2010 and twice in 2011. Kim also met with Russian President Vladimir Medvedev in 2011 to sign a trans-Korea gas pipeline agreement. Significantly, these deals were concluded after Lee Myung Bak’s call to economically quarantine the DPRK to punish it for the sinking of the Cheonan.

What these deals personally overseen by Kim Jong Il in 2008-2011 indicate is a long term DPRK strategy to permit limited domestic economic liberalization and carefully controlled transit trade through the DPRK. This stance is quite different from what we saw in 1991 when the DPRK virtually turned its back to the world and suffered a great economic reversal. Moreover, these deals show that China and Russia have expanded interests and capacities in regional cooperation, and are willing and able to provide “regional public goods” that allow the DPRK to “free ride” to some extent. Nevertheless, dependence on Russian and Chinese assistance also gives these countries additional leverage over the DPRK.

Recent Developments

At the end of 2012, the DPRK began a series of provocations designed to establish young Kim Jon Un’s authority and test the resolve of new leaders in foreign capitals, especially new ROK President Park Geun Hye. The DPRK fired a long-range missile in December 2012 just before the ROK presidential election, and in February 2013 it conducted its third nuclear test. In March the DPRK nullified the non-aggression agreements between the North and South. In April it withdrew North Korean workers from the Kaesong Joint Industrial Complex, and threatened to test another ballistic missile on its April 15 national holiday. However, Park and the other leaders dealing with North Korea offered no rewards for such behavior. Instead, UN Security Council Resolution 2094 containing new financial sanctions against the DPRK was passed with Chinese and Russian support on March 7, 2013.

New prospects for progress?

Then, in June the DPRK took a different approach and called for discussions with the ROK to reopen the Kaesong Industrial Complex (KIC). The discussions were concluded successfully in August with an agreement that breaks new ground in areas of shared governance (through a KIC Joint Committee) and policy innovations intended to enlarge the impact of the KIC, e.g., the accommodation of foreign investors and the development of more forward and backward linkages with the DPRK economy. This willingness to break new ground and expand cooperation suggests that both sides can agree to overlook recent tensions and, at the start of a new era of stability, “reset” their relations after a year of leadership transitions in 2012.

This new positive development in inter-Korean relations logically leads toward additional negotiations, rather than new confrontations. After UNSC Resolution 2094, the DPRK may now understand that, on the one hand, no one will reward it for bad behavior. On the other hand, the new ROK and US administrations do not seem to be looking for an excuse to attack it. Instead, it would appear that the ROK is willing to be forward-looking and negotiate with the DPRK on the basis of mutual respect and mutual benefit. Moreover, in past behavior the DPRK has indicated (in 1994 and in 2000) that it will trade its destabilizing weapons programs if it is assured of security and normalized relations that will permit the regime to survive.

The year 2012 saw leadership changes in the DPRK, ROK, China, Russia, and Japan. In the US, President Obama won re-election. This means the next few years will see policy continuity on all sides. New DPRK President Kim Jong Un appears to continue the strategy of regime survival laid down by his father, (i.e., ensuring DPRK sovereignty even at risk of war, supporting regional stability if this permits DRPK survival, and cautiously expanding economic cooperation). Policy continuity also seems to be the case in China and Russia (i.e., no war and no DPRK collapse).

The new ROK President Park Geun Hye is conservative, but she seems somewhat different from her predecessor. Like Lee Myung Bak, she is unwilling to give in to blackmail, but she seems not to positively seek DPRK regime collapse, and she appears willing to engage the DPRK in negotiation if the prospect of benefit is realistic. She also seems willing to coordinate closely with China and Russia regarding DPRK relations. The same could be said of the Obama Administration’s approach to the DPRK. Thus, the policies of the Bush and Lee administrations that undid the progress made in 1994 and 2000 have been replaced by more moderate, pragmatic, and collaborative policies under Park and Obama. This suggests that the preconditions that produced the agreements of 1994 and 2000 may again exist. As there was in 1994, there should be an opportunity today for concerned parties to negotiate a way to freeze the DPRK’s nuclear weapons programs based on a shared desire for geopolitical stability as well as recognition of the DPRK’s need for energy and regime survival.

Conclusion: Building Blocks for the Future?

This discussion has suggested that, in addition to setbacks, important precedents in Northeast Asian cooperation have been achieved since the cold war ended. First, the history of direct North-South dialogue, including two North South summits (in 2000 and 2007), as well as substantive cooperation in tourism development and the Kaesong Industrial Complex, suggest that the DPRK may be willing to accept the ROK as an equal and legitimate negotiating partner. The DPRK’s refusal to deal with the ROK over the future of the peninsula was a fundamental obstacle to progress in the past. But judging from its behavior since 2000, the DPRK’s actual position may be in transition.

Second, shared agreement among concerned parties not to reward DPRK threats and blackmail produced UN Security Council Resolution 2094. Rather than earning it invitations and inducements to attend new international negotiations, the DPRK’s third nuclear test motivated all concerned parties (including China and Russia) to punish it. This is a hopeful precedent. It suggests the exhaustion of an old DPRK strategy of extracting resources from neighbors through threats and extortion. Hereafter, the Six Party Talks must play a crucial role in reinforcing this precedent. If the international community can maintain a united front against DPRK blackmail, it will leave the DPRK only one practical way forward, i.e., negotiated reciprocal concessions with the ROK and other concerned parties that ensure against shared risks, and yield positive gains for all.

Third, the DPRK is no longer the same insecure, isolated, and backward country that it was twenty years ago. In economic terms, it has gained experience and confidence dealing with the global capitalist economy through participation in Northeast Asian translocalism, the KIC, business relations with European countries, as well as through high level business deals negotiated with Seoul, Beijing, and Moscow. Moreover, the cautious, deliberate steps it has taken in developing Rason, Sinuiju, and Kaesong suggest there is a longer-term economic cooperation strategy contemplated. In strategic terms, the DPRK has also gained a greater sense of security and confidence after completing its nuclear tests (while avoiding war). Will it trade away its nuclear weapons? The DPRK regime is rational in a narrow and selfish sense. It will do so if, and only if, it firmly believes that a deal will permanently enhance its security and legitimacy.

Finally, in addition to the military and the KWP, the DPRK regime now relies on the support of a moderately affluent and cosmopolitan class of skilled urban professionals and workers (concentrated in Pyongyang). This class is loyal to the regime and wants to perpetuate its survival, but it expects a lifestyle and level of consumption that will require the DPRK to improve its economic cooperation with the outside world. In other words, over time the balance of interests inside the DPRK is shifting toward policies favoring incremental progress toward normalized relations with the outside world.

If these old precedents and new developments are skillfully utilized in a new era of policy moderation and stability, they could enlarge the scale and scope of positive Northeast Asian cooperation. This is not to say that progress can be assured and automatic. The history of Northeast Asian cooperation is full of disappointments, and so it counsels caution. But in view of accumulated precedents since the end of the cold war; the moderate and pragmatic leaders in all relevant national capitals; and the recent resumption of cooperative North-South interaction, a certain degree of cautious optimism is not unwarranted.

David M. Arase is Professor of International Politics at The Johns Hopkins University-Nanjing University Center for Chinese and American Studies, Nanjing University. He is author or co-author of many acclaimed books, such as Buying Power: The Political Economy of Japanese Foreign Aid (Lynne Rienner) and The US-Japan Alliance: Managing Soft and Hard Power in East Asia (Routledge). This paper was presented at the Northeast Asia Think Tank Forum in Changchun (September 7-8, 2013), co-organized by the Chinese Academy of Social Sciences and The People’s Government of Jilin Province. Please quote only with the author’s permission. Professor Arase can be reached at <> and < >.

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