Tag Archive | "Middle East"

As Chinese Tourists Continue to Drop, Korea Turns to the Middle East

By Jenna Gibson

As several KEI analyses have shown, South Korea’s tourism industry  has been one of the main casualties of China’s economic retaliation over deployment of the THAAD missile defense system. New estimates from the Korea Tourism Organization show that China’s retaliation could cost Korea up to 5 million tourists this year, five times as many as when the MERS outbreak significantly dampened tourism in early 2015.

In June 2017, Korea saw a 36 percent drop in tourist entries, due in large part to a 66.4 percent decrease in Chinese visitors compared to June 2016. At that time, Chinese tourists made up 48.8 percent of all entries into Korea – a figure that’s now down to 25.7 percent.

But the numbers also reveal some good news that illuminate an important avenue for future growth in Korea’s tourism industry. While Chinese visitors continued to drop, the number of tourists from the Middle East have jumped significantly, recording a 71 percent increase from June 2016 to June 2017.

And, perhaps more importantly, tourists from the Middle East spend significantly more during their time in Korea than those from other areas, according to a study by the Korea Culture and Tourism Institute. Their recent survey of tourists in Korea showed that Middle Eastern visitors spent an average of $2,593 each during their trip, followed by Chinese tourists at $2,059 each. The average for all visitors to Korea is significantly lower, at $1,625.

In order to cash in on this growing market, the Korean government and the tourism industry are focusing on providing more services for Middle Eastern tourists, including a push to increase the number of halal certified restaurants around the country. Just this month, 117 more restaurants received their halal certification, bringing the total to 252. In addition, many popular tourist attractions have added prayer rooms for their Muslim visitors, including Nami Island, Lotte World, and Coex Mall, as well as Incheon International Airport and Busan’s Gimhae International Airport.

MENA tourism graphic-01

Part of the drive for more tourists from the Middle East choosing to visit Korea is the explosive popularity of Hallyu across the region. Take Iran, for example. There, fascination with Korean culture started back in the mid-2000s, when the historical drama ‘Dae Jang Geum’ was broadcast on state TV and garnered 86 percent ratings nationwide. In a 2017 report of the most popular shows on Netflix around the world, Iran was only one of two non-Asian countries to put a Korean drama (2012’s Love Rain) on the top of their queues.

In June, CJ E&M, Korea’s largest media company, said it will be opening a Turkish unit to increase its presence in Turkey, where locals can’t seem to get enough Korean cultural content. Considering that the filming sites of many popular Korean dramas have become popular tourist destinations, this increase in the popularity of Korean TV shows could lead to overseas fans travelling to Korea to see the spot where their favorite drama couple fell in love.

With the Korean tourism industry continuing to focus on enticing Middle Eastern visitors as well as tourists from all parts of the world, there is certainly an opening to offset some of the losses from the drop in Chinese tourism over the last year or so. But there is still a long way to go – even with the huge increase in visitors, Middle Eastern tourists still only make up around 1 percent of entries into Korea.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Image from yadem.hayseed’s photostream on flickr Creative Commons.

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Hallyu Sets its Sights on the Middle East

By Jenna Gibson

At the end of May, Korea’s largest media company announced it would be opening a Turkish unit to help create and promote local content for the Turkish market. They already have plans to film Turkish versions of popular Korean movies, and hope to move forward with more Korean-Turkish co-productions in the future.

CJ E&M is a Hallyu powerhouse, owning the music-oriented TV channel Mnet as well as popular cable channel tvN, responsible for several smash-hit dramas including 2016’s “Goblin.” With this move to increase its presence in Turkey, CJ is hoping to make new inroads for the Korean Wave in the Middle East.

Although the main markets for Korean pop culture abroad are still in East and Southeast Asia, the phenomenon has put down roots around the world, including in the Middle East. In Iran, for example, fascination with Korean culture started back in the mid-2000s, when the historical drama “Dae Jang Geum” was broadcast on state TV and garnered 86 percent ratings nationwide. In fact, in a 2017 report of the most popular shows on Netflix around the world, Iran was only one of two non-Asian countries to put a Korean drama (2012’s Love Rain) on the top of their queues.

Meanwhile, last year the United Arab Emirates became the first non-Asian country to host a KCON event after the United States. KCON, a music festival/cultural experience featuring some of the biggest k-pop stars as well as demonstrations of Korean food, beauty products, and more, drew more than 8,000 fans to its Abu Dhabi stop.

Scholars have speculated that one of the reasons Hallyu is so popular in the Middle East is because although some of the specifics are different, Korean dramas tend to focus on values that conservative audiences in the Middle East find relatable. According to one study of female fans of Korean pop culture in Iran, “Reflecting traditional family values, Korean culture is deemed ‘a filter for Western values’ in Iran.” The study dug further into online fan communities across the Middle East, showing that love of Korean pop culture allowed women to share a sense of community with fellow Hallyu fans. “The uni-culture cyberspace community of fandom has given Middle Eastern women confidence and a strong sense of group identity, sometimes for the first time.”

But the Hallyu movement is not just about giving fans a place to enjoy catchy dances or dramatic love stories. For the Korean companies that create Hallyu content and sponsor overseas events like KCON, it’s about getting fans to buy Korean.

“We see that there are a lot of business potential in many areas that are influenced by Korean culture, such as the beauty, IT and SOC markets,” Sul-joon Ahn, President of Music Division at CJ E&M, told Dubai News after the KCON event.

In fact, South Korea has been trying to create a “Second Middle East Boom,” focused on boosting industries like construction, infrastructure and energy. By capitalizing on the popularity of Hallyu, this push for increased Korean presence in the region can expand to include consumer goods and creative content.

CJ E&M’s expansion into the Turkish market could signal a new era of Hallyu, one that focuses on localization and domestic buy-in to boost the continued success of Korean pop culture around the world.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Image from Republic of Korea’s photostream on flickr Creative Commons.

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Deepening South Korea’s Relations with the Middle East

This is the sixth in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United StatesChina, Japan, Russia, the European UnionASEANAfrica, and Latin America

By Juho Choi

The active relationship between South Korea and the Middle East Area is relatively young. Since South Korea established its government after the Korean War, most exchanges with Middle East nations had been based on oil and overseas construction. While there is significant geographic distance and cultural differences, the relationship has evolved significantly in recent years.

Korea’s active economic ties with the Middle East go back many years as Korean companies have often looked to the region for construction projects. However, ties have grown closer in the 21st century. As oil prices soared, many oil-supplying nations needed additional oil-related facilities and social infrastructure.

Middle East Blog Table

Out of the top 10 countries where Korea has construction work, 6 are in the Middle East including the top 4 countries. Under the two former presidents (Lee Myung Bak and Park Geun Hye), ties with Middle East nations were significantly expanded. Both presidents toured the Middle East and signed hundreds of memorandum of understanding (MOU) in various fields. In fact, some of them led to contracts such as plant building and operation contracts, including ones in the UAE for a $20 billion deal to build four nuclear power plants and $49.4 billion contract to operate the plants over 60 years.

Lifting sanctions on Iran also helped Korea’s economy advance and brought hundreds of millions of dollars in contracts. Daelim Industrial landed a $2 billion deal with the Esfahan Oil Refining Company and Hyundai Heavy Industries clinched a $700 million deal to build 10 ships for Iran’s state-owned shipping companies. Also, Turkey, which is called a brother nation in Korea, signed a $3 billion contract with SK E&C to construct the world’s longest suspension bridge.

In addition to economic ties, cultural exchanges have dramatically increased. According to Korea Customs statistics, Korean confectionery exports to UAE and Saudi Arabia have risen 60.8 percent and 141.8 percent, respectively, compared with 2011. The popularity of Hallyu (K-Wave) is also remarkable. Starting with the success of ‘Dae Jang Geum’ which recorded a 90 percent rating in Iran, many Korean TV shows have aired successfully in the Middle East. The growing popularity of K-pop is also considerable. The first music and culture convention ‘KCON Abu Dhabi 2016’ was a huge success with 8,000 fans and many idol groups have had concerts in the Middle East. State level effort also has continued to share cultural value in depth. Two Korean Cultural Center are running in the Egypt and Abu Dhabi and different events has been offered by Korean embassies around the Middle East.

This K-Wave trend has led to a boost in tourism. According to the Korea Tourism Organization (KTO), the number of tourists from the Middle East has soared over the past few years. In 2016, nearly 200,000 tourists from the Middle East visited South Korea, double the number of tourists in 2011.

Beyond cultural exchange, South Korea has also contributed to keeping peace in the Middle East. The Cheong-hae naval unit has been deployed for international maritime security and to counter the spread of terrorism. They also carried out an operation called ‘Dawn of Gulf of Aden’ which was successfully rescued 21 crew members of a Korean ship hijacked by Somali pirates. In addition to the Cheong-hae unit, the Dong-Myung unit has been engaged in rebuilding in Lebanon and the Ake unit has helped to train soldiers of the Persian Gulf state in UAE.

However, several obstacles such as fluctuating oil prices, unstable regional security, cultural, and religious difference still remain. In particular, armed conflict and unstable political situations in the Middle East need worldwide cooperation and focus to move forward. Considering Korea’s growing interest in the regions, it’s possible to play an important role by cooperating with Middle East nations in depth. According to Korea Institute for International Economic Policy (KIEP), many oil-supplying nations are promoting economic diversification for falling oil prices, it will lead to increased investment in non-oil based industries such as medical care, tourism, finance and others. South Korea has mainly enhanced its business tie with Middle East in construction and resource related industries. South Korea is also endeavoring to follow this diversification especially medical care. However, Korea should diversify investment in accordance with this phenomenon and prepare the post-oil era with the Middle East to greet the real ‘Second Middle East Boom’

Juho Choi is an intern at the Korea Economic Institute of America and a student of the Dong-A University in Busan. The views expressed here are the author’s alone.

Photo from Gordon’s photostream on flickr Creative Commons.

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Unfriending North Korea…With South Korea’s Help

By Jenna Gibson

On June 16, Uganda officially kicked North Korea to the curb, asking approximately 60 DPRK troops and state security officials to leave the country. Uganda was playing host to the North Koreans as part of a military exchange program – the UN recently reported that the North Koreans were providing police training to their Ugandan counterparts, including lessons on the use of AK-47s and pistols.

Why kick them all out now? It may be yet another sign that South Korean President Park Geun-Hye’s so-called Summit Diplomacy is working.

According to 38 North, South Korea described President Park’s recent international trips as “part of diplomatic efforts to enlist the international community to the effort to bring about change in North Korea on all fronts.”

Uganda is a perfect example of the strategy’s success. Ugandan President Yoweri Museveni first promised to cut military ties with the DPRK after his summit meeting with President Park. During her visit to Uganda, which was the first visit by a South Korean president to the African nation since 1963, President Park also signed 10 agreements to cooperate on defense, health, rural development and communications technology.

While South Korea has long invested in development aid in sub-Saharan Africa, the timing of this visit and Uganda’s subsequent split with Pyongyang is noteworthy, in part because it is hardly the first country that has recently given preference to Seoul after a visit from the Korean president.

In fact, Park’s 2016 itinerary almost reads like the most recent UN General Assembly vote on North Korean human rights. Uganda – abstain. Ethiopia – abstain. Kenya – abstain. Iran – no. It seems clear that President Park’s administration is focusing on those who still support North Korea, whether actively or by staying silent.

Take Iran, for example. In one of the most high-profile diplomatic moves of her administration, Park recently travelled to Tehran for the first bilateral summit between South Korea and Iran since the two countries established diplomatic relations in 1962.

Iran has long been seen as a friend to North Korea, purchasing arms and backing the Kim regime in the international sphere. In 2002, U.S. President George W. Bush famously linked the two as part of the “axis of evil,” along with Iraq. To see Iranian President Hassan Rouhani stand next to a South Korean President and declare his opposition to nuclear development on the Korean peninsula is no less than a sea change.

 In a recent KEI podcast that examined the historic trip, Iran expert Alex Vatanka clearly saw an opportunity for South Korea to make inroads with Iran.

“Much of what Iran has done in recent years in terms of outreach to certain countries around the world was driven by an almost ideological desire to as they would put it, challenge the global system,” Vatanka said. “Rouhani is very different. This Iranian president’s view, and why he was elected in 2013, is those countries are great, but they actually have nothing to offer us. They can’t contribute to the most important thing we are trying to fix, which is the Iranian economy.”

South Korea, in contrast, has much to offer Iran economically. In fact, Park Geun-hye left Tehran with promises to triple trade between the two countries from $6 billion to $18 billion annually. Using this leverage to her advantage, Park has been able to turn a former DPRK ally away from Pyongyang.

Across the world, the pattern may be repeating itself again in Cuba. Earlier this month, Foreign Minister Yun Byung-se visited Havana, despite a lack of formal ties between the two countries. Cuba has long supported its fellow communist country, making this visit particularly key for Seoul. “For an exceptionally long 75 minutes, our talks were very friendly, serious and candid,” Yun told South Korean reporters after the meeting. “We had a broad exchange of views on bilateral, regional and global issues.”

This strategy is hardly limited to high-level visits, though. Seoul has announced they will provide $1.5 billion in development assistance to Vietnam from 2016-2020, for example. And the South Korean administration has been working to turn Myanmar away from the North with infrastructure projects and trade deals since the country began opening to the international community in 2011.

These moves have not gone unnoticed in Pyongyang. In response to Park’s recent trip, the DPRK sent Kim Yong Nam, the country’s nominal head of state, to Africa as well. There, he met with leaders from nine countries, including Chad, Gabon, Congo, Burundi and Mali. Another high-level official visited Vietnam and Laos in June.

“Pyongyang tries to maintain positive relations where it can, with countries less closely tied with its rivals,” John Grisafi, NK News director of intelligence, said in a recent NK News article. If South Korea can continue to narrow the list of countries willing to side with Pyongyang, they may be able to successfully remove what remains of North Korea’s room to maneuver in the international sphere.

And it seems like that’s exactly what Seoul is doing. It’s too soon to tell how widespread and long-lasting these shifts will be. But for now, it seems North Korea’s isolation may finally be cemented, allowing sanctions to take their full effect.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Korea.net’s photostream on flickr Creative Commons.

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The Republic of Korea and Israel at 68

By Mark Tokola

The Republic of Korea and the State of Israel have a lot in common: both were founded in 1948, both had to fight for their early existence, both have succeeded despite a lack of natural resources, both are lively democracies, and both are among America’s closest allies.  On May 14th, the anniversary of Israel’s declaration of statehood, it is worth noting the developing relationship between the two countries.  Along with the historic parallels, Korea and Israel continue to share characteristics that draw them together: both continue to live with significant threats to their security, both emphasize the importance of education and technical prowess, and their standards of living are similar with per capita GDPs exceeding $25,000.  Despite the geographic distance between them, it is unsurprising that Korea and Israel are looking towards negotiating a Free Trade Agreement.  On January 6, 2016, the Korean Ministry of Trade, Commerce and Economy held a public meeting in Seoul of over 100 government and industry officials to discuss the potential benefits and economic impact of an FTA with Israel.

Relations between Korea and Israel did not have the smoothest of starts.  In 1950, at the outbreak of the Korean War, the United Nations Security Council called on member states to assist in the defense of South Korea.  Israel, which had joined the UN in 1949, held a debate in its parliament, the Knesset, regarding how to respond to the appeal.  The Knesset debate actually turned on the question of which Korea Israel should support.  Left-wing parties in the Knesset argued that Israel’s sympathy should be with their Socialist brethren in North Korea rather than with the Western-oriented, capitalist, South.  In the end, the government of Israel decided to support South Korea and sent food and medicine, but not troops, to South Korea.  Israelis today point to the Korean War debate in the Knesset as a turning point in Israel’s foreign policy, the moment when a decision was taken to ally with the democratic West.

In the decades following the Korean War, South Korea’s relations with Israel were marginal until 1992 when Korea opened its embassy in Tel Aviv and Israel opened its embassy in Seoul.  If that sounds late in history, it is worth remembering that the Republic of Korea only attained United Nations membership in 1991.

Since 1992, trade between Israel and Korea has grown from around $600 million in 1998 to over $2 billion in 2015.  Samsung and LG have opened research facilities in Israel and the “Korea Israel Research and Development Foundation,” founded in 2001 to support joint research and development projects between Israeli and Korean companies, has supported over 130 joint projects.  It is not all about technology, since 2006 Israeli audiences have had the pleasure of watching Korean TV dramas.

In 2009, Korea and Israel agreed to conduct a joint feasibility study on concluding a Korea-Israeli Free Trade Agreement, the latest step of which was the January 6 Seoul meeting described above.  The Korean Ministry of Trade, Commerce, and Economy has assessed that the FTA would have a positive effect on Korea’s gross domestic product and consumer welfare.  The Ministry specifically highlighted that Korean agriculture would benefit from benchmarking Israel’s agricultural policies, which have adapted to environmental challenges.  The Korea-Israel FTA might take a while, given that Korea is currently conducting eleven FTA negotiations.  The potential Korea-Israel FTA is in the category of “FTAs under consideration,” but it is in good company.  The other three FTAs in that category are with MERCOSUR, Central America, and Malaysia.

But, FTAs aren’t everything and even while waiting there is potential for more bilateral trade and investment between Korea and Israel.  One indication of that is the Bloomberg Innovation Index which ranks Korea number one in the world, with Israel in an impressive fifth place, just ahead of the United States.  On the index of “Postsecondary Education,” Korea is number one, while Israel is number four.  An on the ranking of “Research and Development,” Korea is number one, while Israel in number two.  These are two countries that are not only similar, but clearly doing something right.  It would be surprising if their relationship did not flourish.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo from Dave Lichterman’s photostream on flickr Creative Commons.

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The Beginning of a New South Korea-Iran Relationship?

By Troy Stangarone

On May 1, South Korean President Park Geun-hye will travel to Iran for a three-day summit with the newly emerging regional power. Her visit will represent the first summit meeting between Iran and South Korea since the two nations established relations in 1962. However, while relations with Iran hold significant promise with the removal of economic sanctions, they also have the potential to be extremely complex.

The summit meeting comes shortly after the implementation of an agreement between Iran and the P5+Germany to place limits on Iran’s nuclear program in exchange for the removal of international sanctions that had cut off Iran’s access to international markets through financial, maritime insurance, and secondary sanctions.

For Asian, European, and in the future, American investors, Iran represents an appealing economic opportunity. With the world’s fourth largest oil reserves and largest reserves of LNG, coupled with a population of 80 million that is largely under the age of 30, Iran holds significant economic potential as both an energy producer and consumer market.

The Economic Promise of Improved Relations with Iran

For South Korea, Iran holds significant economic potential. The impact of the oil embargo on Iran and its removal from the SWIFT financial system has severely cut into trade between South Korea and Iran. Trade between South Korea and Iran had reached a high of $17.4 billion in 2011, the year before the EU oil embargo went into effect. Since that time, bilateral trade has declined by 65.5 percent to $6.1 billion in 2015.

SK-Iran Trade Graph

From 2011 to 2015, the value of oil imports from Iran declined from $9.4 billion to $2.2 billion. This was due to both a drop in the price of Dubai crude, which was around $100 a barrel in 2011 but had dropped into the $40 range by 2015, and a drop in the overall volume of imports which fell by 54 percent.

SK-Iran Petrolium Graph

However, trade with Iran was not only impacted in terms of petroleum imports, but South Korea also saw its exports to Iran decline by 39 percent over the same period. In 2011 South Korea was exporting over $235 million in refrigerators and $270 million in vehicles and even more in vehicle parts to Iran. By 2015, sales of refrigerators were down significantly, but sales of vehicles had shot up to more than $372 million after having been well below $100 million in the period of 2012-2014.

As Iran’s economy revives and its young consumer base sees increases in wages, South Korean consumer goods from cars, to smartphones, to televisions, to durable goods such as refrigerators are well placed to make significant gains.

Beyond consumer goods, Iran holds promise for helping to meet Seoul’s energy needs. South Korea lacks domestic petroleum reserves and is therefore dependent upon imports for its energy needs, for which petroleum based products account for nearly 40 percent of energy consumption.

South Korea can benefit from an enhanced energy partnership with Tehran in multiple ways. First, Iran can serve as another significant source for South Korea’s energy needs and if energy exports only return to pre-2012 levels we should expect to see South Korea’s imports of Iranian petroleum to at least double. Second, South Korea stands to benefit from investment projects in Iran’s energy industry, and the South Korean construction industry stands to benefit from Iran’s economic revival more broadly. Iran is expected to engage in $186 billion in construction projects between now and 2020. This boom in projects comes at a time when the Korean construction industry is struggling abroad.  Lastly, as Iran looks to increase its exports of oil, South Korea’s shipping industry hopes to benefit from Iranian efforts to modernize its tanker fleet.

While there is significant promise in new economic ties with Iran for South Korea. Expectations should also be tempered. During the recent sanction period, trade between the two countries could only be settled through won-based accounts in Seoul. Because the financial institution involved in those transactions, Woori Bank, has U.S. dollar denominated accounts it found its access to the U.S. financial system at risk had its won transactions with Iran been in violation of sanctions. With sanctions now removed, however, European firms have seen slow progress in arranging deals with Iran due to the reluctance of banks to finance transactions with Iran due to new U.S. sanctions on Iran’s missile program. South Korean firms may run into similar difficulties.

South Korea’s Security Interests in the Middle East

As South Korea’s economic relationship with Iran develops, there is also a security dimension for Seoul to consider. In 2015, more than 80 percent of its petroleum imports came through the Strait of Hormuz. As imports from Iran increase, Seoul’s dependence on the Middle East for petroleum will likely only rise.

Dependence on the Middle East for energy imports creates risks for the South Korean economy. In the past, Iran has threatened to mine the Strait of Hormuz, an action which would put South Korea’s energy lifeline at risk. As a result, Seoul has a strong interest in peace and stability in the region. However, Iran continues to support groups such as Hamas and Hezbollah, and is engaged in a competition with Saudi Arabia for regional influence. Some have expressed concerns that an economically stronger Iran could further destabilize the region.

The North Korean Dimension

While South Korea playing a greater role in encouraging stability in the Middle East is an important dimension to the security portion of President Park’s trip, the more direct security interest for South Korea is Iran’s relationship with North Korea, which President Park is expect to raise with Ayatollah Ali Khamenei if they are able to meet.

As South Korea and the international community try to isolate North Korea, encouraging Tehran to distance itself from Pyongyang will be an important part of the trip. Iran and North Korea are known to have shared technology on missile development, and there has long been concern that they might be sharing information on their nuclear programs as well.

Beyond the nuclear and missile programs, Tehran may, if only indirectly, be supporting the North Korean regime. Iran and its proxy Hezbollah have been providing arms and financial support for the Assad regime in Syria. In 2013, Turkey seized gas masks, arms, and munitions from North Korea bound for Syria. Under the new UN sanctions, all arms purchase from North Korea are prohibited and South Korea should encourage Iran to push its allies to enforce the sanctions on Pyongyang.

Seoul’s outreach to Iran could be the beginning of a fruitful new relationship for South Korea and Iran. The initiative holds significant economic potential for South Korea, and the prospect to gain additional influence with a key partner of North Korea. Tehran stands to gain significantly from increased trade and investment with South Korea as it seeks to upgrade its infrastructure, boost its economy, and improve the life of its people. However, North Korea holds the potential to be a sticking point in any new relationship, and as long as Iran maintains cooperation with Pyongyang there is also the potential for it to be an increasingly complex relationship.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are his own.

If you are interested in more information on this topic, you can also listen to our podcast on the South Korea-Iran summit with Alex Vatanka of the Middle East Institute at keia.podbean.com.

Photo from peyman abkhezr’s photostream on flickr Creative Commons.

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A Look Back at the Korean Peninsula in 2015

By Troy Stangarone

As we look back at the events that helped to shape the Korean peninsula in 2015, it is also an opportunity to review the events we highlighted on The Peninsula in our annual 10 Issues to Watch For on The Korean Peninsula in 2015 blog and the key events that we did not predict.

Looking back at the 10 issues raised in last year’s blog, all have resonated on the Korean peninsula this year, but not all in the ways we thought they might. On five of the issues, things have largely played out as we expected, while one did not and for four others the outcomes are less clear.

Here’s a brief look back at the 10 issues and what happened:

1.      Dealing with North Korea: Understanding North Korea is never easy and it is only made more difficult by the regime’s continued pursuit of nuclear weapons. One area we highlighted to watch in 2015 was progress on North Korea’s weapons programs and discussion of the deployment of the U.S. Thermal High Altitude Area Defense (THAAD) system in South Korea to protect against the nuclear and missile threat from North Korea. While North Korea took a major step towards developing submarine launched ballistic missiles, which would give it a second strike capability, South Korea has indicated it will not be discussing the deployment of THAAD with the United States. On this issue, our prediction was half right as North Korea has continued developing its weapons programs, but there has been less progress on deploying THAAD, or some other missile defense system than we expected.

2.      Key Summits in 2015: Here we highlighted a series of key summits for the year ahead. While Kim Jong-un ultimately did not go to Russia for the May 9th ceremony commemorating the end of World War II or make any international visits, thus eliminating the prospect of a meeting with South Korean President Park Geun-hye, each of the summits played a key role this year. Japanese Prime Minister Abe Shinzo did make a positive statement on issue of history with the 70th anniversary of the end of World War II approaching, even if it did not meet everyone’s hopes. Trilateral summits among Korea, China, and Japan also resumed. Lastly, Indian Prime Minister Narendra Modi held a bilateral summit meeting with President Park in what could become an important relationship in the future.

3.      Korea-Russia Relations: In 2014, North Korea began courting Russia and our expectation was that greater cooperation would be announced at a meeting between Kim Jong-un and Russian President Vladimir Putin. However, that meeting never happened and cooperation between the two seems to have fizzled. Though, Russia and South Korea did announce efforts to expand relations at the end of the year.

4.      Better Relations Between Korea and Japan: Here our key insight was correct, as the bilateral summit meeting took place between President Park and Prime Minister Abe after Prime Minister Abe had issued his statement on World War II. At the summit meeting, both sides agreed to work on resolving the Comfort Women issue and recently announced that resolution laying the groundwork for improved relations between the two countries.

5.      Constructing Legacies: With President Barack Obama’s term in office coming towards an end, our expectation for 2015 was that he would seek to build on his legacy as president, but not look to North Korea for a potential legacy issue. While President Obama has cemented deals on Iran’s nuclear program and climate change, there has been no progress on North Korea. For President Park, the agreement reached with North Korea in August to reduce tensions seemed to be a way forward, but subsequent talks with North Korea failed to make progress.

6.      Two Major Moves on Trade: South Korea has had an ambitious free trade agenda  that we expected to continue in 2015 with two major efforts – concluding and implementing an FTA with China and making efforts to join the Trans-Pacific Partnership (TPP). The FTA with China was implemented in December, but while South Korea has continued to express interest in joining TPP, the agreement’s late conclusion has limited Seoul’s ability to join.

7.      A New Nuclear Energy Cooperation Agreement: The United States and South Korea were looking to conclude a new agreement on civilian nuclear cooperation, or 123 agreement, to replace an extension to the 1974 agreement that was set to expire next year. The two sides successfully reached an agreement in June of 2015 and updated agreement is now in effect.

8.      The Diversification of South Korea’s Energy Supplies: South Korea is highly dependent on imported fuel with more than 85 percent of its petroleum imports passing through the Strait of Hormuz. Our expectation was that in 2015 South Korea would begin to diversify those supplies. While there have been efforts to import more condensate from the United States, low petroleum prices have made imports of U.S. LNG less attractive. However, now that Congress has passed legislation allowing for the export of oil, this will be an issue to continue to watch in the years ahead.

9.      Samsung’s Future and Its Frenemy Relationship with Apple: After a loss of market share in key markets such as China and India for its smartphones, as well as falling revenues and profits, 2015 was expected to be an important year for Samsung to reverse its fortunes while managing its beneficial and competitive relationship with Apple. While Samsung saw an increase in profits in the 3rd quarter, it was due to strong results in the semiconductor and display sectors as its smartphone segment continued to face challenges. It relationship with Apple continued to remain complex as Samsung has appealed part of their legal case with Apple to the U.S. Supreme Court, but also been chosen by Apple to supply microprocessors and displays for the iPhone.

10.  Feeling the Effects of Social Change in Korea: This was perhaps our most bold insight for 2015 and in truth one that reflected more long-term trends rather than issues that might specifically come to a head over the past year. As South Korea ages and continues to grow in prosperity, it will face the social changes that come with those trends. The level of social welfare and the definition of what it means to be Korean are issues that will continue to shape South Korea. Some social issues, such as public health, came to the fore in 2015 due to outside events such as the spread of Middle East Repertory Syndrome.

Beyond the issues we expected to see addressed in 2015, other important developments included:

1.      North Korea’s Provocation in the DMZ: On August 4, two South Korean soldiers were maimed after stepping on landmines placed by North Korea in areas of the DMZ that are known to be patrolled by South Korea. This raised tensions along the DMZ as South Korea responded by resuming broadcasts from loudspeakers across the DMZ and North Korea threatened to attack the loudspeakers. The crisis was ultimately resolved as the two sides reached an agreement for North Korea to apologize, South Korea to suspend the broadcasts, and the two sides to arrange for a reunion of separated families.

2.      October Family Reunions: One of the positive outcomes of the August provocation was the two sets of family reunions held in October. The first family reunion saw some 100 South Koreans meet their family members for the first time since the Korean War and another 250 were able to do so during the second reunion.

3.      Agreement on the Comfort Women: While not accepted by all of the Comfort Women, the agreement by Japan to issue an apology and provide compensation was one of the major unforeseen events of 2015.

4.      Middle East Repertory Syndrome (MERS): South Korea faced a medical emergency earlier this year as MERS spread through the country causing the death of 38 individuals and another 16,000 to be quarantined.

5.      The Passing of Kim Young-sam: A former activist for democracy who later became president of South Korea passed away at the age of 87.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Eugene Lim’s photostream on flickr Creative Commons.

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Could Israel’s Iron Dome Protect South Korea?

By Chad 0’Carroll

News emerged today on the Globes.il news website that suggests Israel expects South Korea to be potentially interested in acquiring Iron Dome technology if talks with Daewoo Shipbuilding & Marine Engineering Co. about the purchase of four patrol boats for Israel’s navy prove successful. As conflict in Gaza continues to escalate, news about the repeated success of Israel’s Iron Dome missile defense system in protecting the country from Hamas’ rocket threat continues to make the system more attractive.

With Israeli officials saying that 80-90 percent of attempted intercepts have now succeeded, some are now citing Iron Dome’s record as evidence that Ronald Reagan’s dreams of building a space based missile defense might have been well founded.  And if Iron Dome proves missile defense really works, might South Korea now be looking at a potential defense against the threat of North Korea’s wide ranging projectile arsenal?

Alas, anyone hoping that Iron Dome might be a quick fix to North Korea’s missile threat will unfortunately be mistaken. That’s because the missiles owned by North Korea’s military vary significantly from the type of rockets possessed by the likes of Israeli’s local foes – Hamas and Hezbollah.

Investing huge resources into their development since the early 1970s, North Korea today possesses a large arsenal of SCUD variant ballistic missiles (Hwasong series).  Bringing most of South Korea into range, these missiles provide Pyongyang with a delivery system for kinetic and non-conventional payloads (nuclear, chemical, biological).  Travelling at several times the speed of sound and at extremely high altitude, it not hard to understand why they are difficult to defend against.  Indeed, these characteristics allow North Korea to hit targets extremely quickly and in the event of carrying a non-conventional payload, with potentially extremely deadly results.

In contrast to North Korea’s current ballistic missile capability, Israel faces a missile threat of a very different nature.  Although some foreign made rockets within the arsenal of Hamas can travel up to 75km, the majority of its “Grad” type devices have a range of just 20km. Often home-made, these small rockets carry kinetic payloads of between just 5-75kg, meaning their destructive impact is relatively low when compared to WMD carrying ballistic missiles.  And because they are deployed using primitive launching technology, these short-range rockets fly at low speed and low altitude – making them relatively easier to defend against.

Debates have long-swirled in military circles about the utility of ballistic missile defense systems. While some argue that with sufficient infrastructure these systems could theoretically intercept the types of missiles North Korea possesses either at launch or in their final phase, others suggest that much like trying to shoot a bullet with another bullet, this type of threat is almost impossible to defend against.   In contrast, the low-speed and low-altitude characteristics of the rockets that Israel faces mean they are much easier to intercept after launch than a ballistic missile.  Having kicked off the Iron Dome project after the Second Lebanon War of 2006, it is therefore understandable that Israel was able to enjoy the level of success it did in just six years.

But while Iron Dome will be of little use in defending South Korea from North Korea’s ballistic missiles, one area that it could prove useful in is intercepting artillery shells like those used in the bombardment of Yeonpyeong, two years ago. That’s because Iron Dome has a second role beyond intercepting rockets: to counter the flight of 155mm artillery shells and mortar rounds.

As we know, North Korea possesses thousands of artillery units, many of which are positioned strategically along the DMZ.  Although Iron Dome would likely be quickly overwhelmed in the case of a large scale simultaneous artillery attack, it could nevertheless be a potentially useful defense for South Korea against small-scale attacks such as the one witnessed at Yeonpyeong two years ago. This is all the the more true when considering that Iron Dome is able to respond to multiple threats simultaneously – something that would have been useful in intercepting the several artillery units North Korea used to attack the island last year.

Time will tell if South Korea decides to purchase the Iron Dome defense system and it seems that much relies on whether or not Israel is able to buy the naval craft from the ROK that it currently desires.  But whether the extremely expensive price tag will be worth it for South Korea (each battery costs $50 million while the individual missiles between $40,000 to $100,000) to defend against what could be rare small scale attacks is hard to judge – especially when considering the North Korean ballistic threat will remain.

Chad 0’Carroll is the Director of Communications for the Korea Economic Institute. The views expressed here are his own.

Photo from Israel Defense Forces photostream on flickr Creative Commons.

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Korea to Halt Imports of Iranian Oil

By Troy Stangarone

With sanctions by the United States and the European Union continuing to tighten on Iran, Korea has announced that it will halt imports of Iranian oil as of July 1. Korea’s decision makes it the first of Iran’s major export markets, and a key Asian consumer of Iranian oil, to fully cut off its supply of Iranian crude. Korea’s move contrasts with Iran’s other key export markets and could pay dividends to Korea in the future, but does not come without costs.

While the United States recently granted Korea a 180 day waiver from U.S. financial sanctions, the European Union has refused to grant a waiver from its ban on the sale of protection and indemnity insurance (P&I) for shipments of Iranian oil. The EU’s sanctions have proven effective because 90 percent of P&I is handled through European insurers, including 100 percent of Iranian shipments. Without the ability to purchase insurance for their shipments, Hyundai Oilbank and SK Energy would have been unable to insure a tanker’s cargo, its liability after a collision, environmental pollution and the risk of war – a real potential given Iran’s prior threats to seal off the Strait of Hormuz and Israel’s unease with Iran’s nuclear program.

Asian countries are the biggest purchasers of Iranian oil, accounting for 60 percent of Iran’s oil exports. However, in contrast with Korea, the 4th largest purchaser of Iran’s crude oil, Japan, India, and China have all sought ways to get around the EU ban. Japan recently passed a law to provide its importers with sovereign, state based, insurance for their imports,  an option Korea choose not to take. India and China have reached varying deals for Iran to provide insurance and ship the oil.

While Korea imports almost 10 percent of its oil from Iran, it has been preparing for this eventuality. Had it not received a waiver from U.S. sanctions, it would have likely had to take similar steps. Knowing that, Korea has essentially taken three measures to address the crisis. First, it sought to build up its oil reserves.  It stockpiled Iranian oil, increasing imports by 57 percent in April, before declining by 40 percent in May as it worked to secure a waiver from the United States. At the same time, Korea sought out alternatives to Iranian oil during President Lee Myung-bak’s trip to the Middle East in February. The deals struck on that trip have allowed Korea to replace its imports of Iranian crude with other suppliers in the Middle East. According to Reuters:

Shipments from Kuwait in the first five months rose 23.3 percent to 348,493 bpd, while those from Saudi Arabia rose 7.9 percent to 838,678 bpd. Imports from the UAE increased 8.6 percent to 258,263 bpd, the KNOC data showed.

January-May imports from Qatar rose 14.3 percent to 280,829 bpd.

In the short term, Korea has addressed its energy needs in a manner that reduces its risks from the uncertainty surrounding Iran’s nuclear program. It will also have distinguished itself from its competitors in the region by not skirting the sanctions. This will likely not go unnoticed by the United States, the European Union, and numerous Middle Eastern states that have concerns about Iran’s nuclear program. This could benefit Korea through deeper ties with other states in a key region for meeting Korea’s energy needs.

However, there are potential costs. Iran has not yet made a statement on Korea’s decision, but Korea does have broader interests in Iran that its decision to halt imports could affect. First, Korea has developed a significant commercial relationship with Iran and it has been becoming an increasingly important market for Korean exports. Over the last decade, Korea has seen its exports to Iran increase from $1.2 billion to $6.0 billion last year. Iran could seek to limit the access of Korean exports to its markets in retaliation. Additionally, should a solution be found to the Iranian nuclear crisis, Korea could find itself less welcome in Iran than Japan, India, and China, all of whom will continue to import Iranian oil.

While the potential for costs exists, Korea has deftly handled a difficult situation. As an energy importer, it has managed to replace most of the oil that it would have lost and ensure that its broader economy will not be impacted by either U.S. or European sanctions on Iran. It also avoided having the state take on additional liabilities by not choosing to supply insurance for Iranian shipments. At the same time, the steps it has taken should also help Korea to deepen its ties with more stable energy suppliers in a volatile region.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute. The views expressed here are his own.

Photo from Daniel Ramirez’s photo stream on flickr Creative Commons.

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A More Complicated Relationship for Korea in the Middle East

By Troy Stangarone

In recent years, the perception of Korea on the global stage has begun to change. This shift is partly a reflection of Korea’s emerging economic stature. While China may get much of the press, decades of economic success have led other developing nations to view Korea as a model for economic development, a role which Korea has begun to embrace.  At the same time, Korea’s own economic growth has seen it become one of the top ten trading nations and an emerging voice in global economic forums such as the G-20.

While Korea’s economic success has brought it a more significant role on the global stage over the last few years, that same success has also expanded Korea’s national interests around the globe. This is perhaps nowhere more evident than in the Middle East, where Korea’s interests and relations are rapidly changing.

While the Middle East has long been a source of energy imports, Korea’s own trade with the region was often limited, though the region was a significant source for construction projects. In the last decade alone, Korean exports to the Middle East have grown from only $7.1 billion in 2001 to $34 billion last year, or nearly two-thirds of Korea’s exports to the United States. At the same time, the Middle East remains a key supplier of energy to power the Korean economy with the region accounting for about 87 percent of Korea’s oil imports and nearly 50 percent of its imports of natural gas.

Korea’s dependence on the Middle East for energy and its success in developing export markets in the region gives Korea a strong interest in peace and stability in the region. At the same time, Korea is seen as a more attractive partner in the Middle East. In a recent interview with the Korea Times, Saudi Arabia’s Ambassador to the Korea said that “The Kingdom pays special attention to its relationship with the Republic of Korea, in recognition of Korea’s leading role in the international community.”

The enhanced standing that Korea is developing in the region was evident on President Lee Myung-bak’s recent trip. Ostensibly about securing commitments for increased oil supplies from the region in anticipation of cooperating in U.S. sanctions efforts towards Iran, President Lee left the region with an agreement to raise Korea’s relationship with Turkey to that of a strategic partnership, the establishment of a high level cooperation committee to handle cooperation between Qatar and Korea on economic and security issues, and an agreement to negotiate a defense cooperation pact with Saudi Arabia, which will send its first military attaché in Asia to Korea.

On the economic side, President Lee also saw benefits. With indications that Korea is preparing to cut its imports of oil from Iran (which accounts for roughly 10 percent of Korea’s oil imports) by upwards of 50 percent, Korea secured a pledge from Saudi Arabia to make the difference in any oil shortage and a new 20 year contract to supply crude oil to Korea.  Qatar also agreed to a 20 year contract to provide Korea with an additional 2 million tons of liquefied natural gas per year.

With the region as a whole undergoing significant political change, Korea’s growing ties with Turkey could also be a strategic benefit to Korea in the long run as many of the transitioning governments in the region look to Ankara as an exemplar of Middle Eastern democracy. To those ends, Korea and Turkey are already in the process of negotiating an FTA that could serve as a broader Middle East export platform for Korea and the two sides also agreed to resume talks on the construction of two nuclear reactors in Turkey. If successful, the talks would represent the second major nuclear contract for Korea after its 2009 deal to build four plants in the United Arab Emirates.

However, despite growing ties to the Middle East, Korea also finds itself more exposed to instability in the region. The current confrontation with Iran has put the majority of Korea’s oil imports at risk should tensions over Iran’s suspected nuclear program break out into conflict, while the tumult of the Arab Spring has impacted Korea’s exports to some of the impacted nations in the region, such as Libya where exports fell from $1.4 billion in 2010 to a mere $181 million in 2011. While not as extreme a drop, even exports to Egypt fell from a high of $2.2 billion to $1.7 billion as a result of the transitions taking place in the region.

Korea has been able to benefit from increasing exports to the Middle East as part of a conscious strategy to diversify its export markets. Beyond the Middle East, Korea has also made increasing inroads into Latin America and Africa and has developed a strategy of using FTAs to ensure that Korea is not dependent upon any one market for its exports. At the same time, while Korea has been pursuing more renewable resources and energy efficiency under its “Green Korea” policies, it has not yet been able to successfully diversify the sources of its energy imports.

In the long run, Korea is likely to benefit substantially from enhanced ties with the Middle East. If new, democratic governments in the region are able to expand the benefits of economic growth to the wider population, Korea would likely benefit from increasing consumer markets in the region. However, as its energy and economic ties to the region increase, Korea will also find itself increasingly caught in the conflicts of the region. So far, Korea has managed to navigate these challenges in the Middle East well, as long as it continues to do so it will likely see its status in the region rise.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute. The views expressed here are his own.

The photo is from the dead pixel’s photo stream on flickr Creative Commons.

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.