By Nicholas Hamisevicz

The fear that North Korea’s suspension of activities at the Kaesong Industrial Complex would have broader implications began to materialize last week when Daewha Fuel Pump Industrial Ltd. announced it failed to deliver parts in time to its Indian customer. Other companies are beginning to publicize their setbacks as well. The economic challenges for businesses like Daewha from the suspension of operations at Kaesong could have spillover effects for future investments in Kaesong and South Korea’s trade negotiation strategy. Moreover, the announcement from Daewha puts another South Korea – India economic connection into the spotlight. President Park Geun-hye and the businesses involved in Kaesong need to have patience, luck, and some business acumen in order to regain confidence from investors, economic benefits for customers, and opportunities for expansion when Kaesong is reopened.

The announcement from Daewha about its inability to maintain a steady supply to a customer was the fear of many supporters of the Kaesong operation. Without the ability to constantly supply customers, the strategic and economic advantages for Kaesong begin to dwindle for many Korean companies.

As one of the last remaining inter-Korean connections, Kaesong also helped provide an avenue for South Korea to communicate with North Korea as well as try to lay the groundwork for peaceful unification. However, with Daewha’s loss and troubles beginning to emerge with other companies, the opportunities available in Kaesong have again been questioned.

A part of those strategic and economic advantages were the potential future opportunities. Because of Kaesong’s previous success, some experts recommended that South Korea build more complexes like Kaesong. The Park Geun-hye administration also had plans to try to internationalize Kaesong and attract firms from other countries to set up in the industrial zone. Recent events will be an impediment for that goal. To revive the potential for expansion at the complex the Park administration will need a combination of good public relations (PR) and economic successes to ease the concerns of investors once Kaesong is up and running again.

Further potentially complicated by the work stoppage and the Daewha news is South Korea’s trade negotiation strategy to include language allowing for goods from Kaesong to be part of their trade deals. Future partners are now likely more aware of the political risks of increasing access to goods from Kaesong. One potential outcome from could be countries asking for language similar to the KORUS FTA that points to the development of specific conditions on the Korean peninsula before access for goods from Kaesong would be granted [Annex 22B]. This may require South Korean negotiators to repackage how they convince their counterparts to allow clauses potentially permitting goods produced in Kaesong to be included in their bilateral trade deals.

The news from Daewha was also tough PR for South Korea-India relations. Economics has been a major avenue for the two countries to work together. However, the cancellation of the partnership provides another example of an economic opportunity being damaged by political difficulties. While the Daewha example is on a much smaller economic scale than POSCO’s investment in Odisha, India, both illustrate politics affecting economic interaction between South Korea and India.

Moreover, India and South Korea are trying to reach their stated goal of $40 billion in total trade by 2015. Yet two way trade was still just below $19 billion in 2012. Even though Daewha claimed the deal was less than one percent of its sales last year, misfortunes of this nature also hold back the expanding economic relationship.

North Korea’s threats and initial suspension of the Kaesong Industrial Complex raised questions about the ability of companies to complete their orders and the future of investment opportunities in Kaesong. Unfortunately, a couple of weeks into the suspension, the impact is becoming real and damaging economic interactions beyond South Korea. These setbacks have only heighted the scrutiny of the consequences of operating in Kaesong, making it more difficult for the Park Geun-hye administration to attract investors to the complex, support the businesses there, and create opportunities for expanding the strategic and economic possibilities of Kaesong.

Nicholas Hamisevicz is the Director of Research and Academic Affairs for the Korea Economic Institute. The views represented here are his own.

Photo from Korea Economic Institute of America.

By Troy Stangarone

As often happens with North Korea, there have recently been suggestions that the regime may be interested in engaging in economic reforms. The latest hopes spring from the appointment of Pak Pong-ju, a noted economic reformer, as prime minister and the replacement of most ministers of industry with officials believed to have been part of a task force established by Kim Jong-un to revive the economy. In conjunction with the appointments, Pyongyang announced a dual track policy of building the economy while also enhancing its nuclear weapons program. However, it would be premature to assume that these are true signs of a potential economic opening.

For years, the Chinese have been encouraging the North Koreans to follow their path to reform with little success. After the passing of Kim Jong-il, there were hopes that Kim Jong-un would embrace reform. Shortly after taking power, he remarked that North Koreans should “never have to tighten their belts again” and later that fall told a delegation from China that he was focused on “developing the economy and improving people’s livelihoods.”

However, in contrast to North Korea’s pledges to conduct this past December’s satellite launch and their third nuclear test, there has been relatively little follow through on the economic side. Over last summer and fall, expectations built that North Korea would engage in limited industrial and agricultural reforms. When North Korea announced that it would convene its parliament last September, there were hopes that it would announce economic reforms designed to introduce incentives for producers to increase   production and allowed select factories more say in what they produced and how. If successful, the reforms would be spread to the whole economy.

At the same time, North Korea mooted the possibility of agricultural reforms. A small number of farms would be allowed to sell portions of their harvest in markets. If successful, the experiment would be spread to the rest of the agricultural sector. However, the test cases did not take place, as harvests disappointed and feeding the military was seen as a priority. At best those reforms have been put off, if not shelved completely.

The prospects for current reforms also look doubtful. Shortly after announcing its new economic policy and shuffling cabinet officials, North Korea proceeded to close the border with South Korea and prevent the flow of goods and people into the Kaesong Industrial Complex.  While the tactic is not new, it is also not the step of a regime that takes economic development seriously.

Further complicating the situation at Kaesong, North Korea announced that it “will temporarily suspend the operations in the zone and examine the issue of whether it will allow its existence or close it.” This additional action, if North Korea follows through, is unprecedented. The current border closing had already forced at least 13 South Korean businesses to suspend operations, and if North Korea follows through and removes its workers, the other 110 companies located in the industrial zone would also have to suspend operations.

While all of the South Korean businesses operating in Kaesong face short term losses, North Korea’s actions could also impact the long term prospects of the industrial zone and its own economic reform measures. Businesses, especially the foreign investment that would be needed revive the North Korean economy; require stability and assurances that their access to goods and services will not be cut off at the whim of the government.

Prior to the announcement on Kaesong, there had been speculation in the South Korean press there were divisions within the regime on what steps to take next, with the press reporting that the military was strongly pushing for Kaesong to be closed, while the party supported maintaining the complex. Even if this is not the case, Pyongyang’s actions at Kaesong cast doubt on the prospects of there being a consensus to move towards reviving the economy in North Korea.

Additionally, Pyongyang’s unfriendly business policies do not just extend to South Korea. While North Korea has an investment law in place, it does not always apply even to its allies. Last fall the Chinese firm Xiyang Group went public with its story of being cheated out of a $37.1 million investment in North Korea. It claims that it is but one of dozens of Chinese firms that have experienced similar problems. Efforts at developing an industrial complex similar to Kaesong along the Chinese border have also been slow moving.

If North Korea is to take substantive steps to revive its economy and move towards normal economic growth, it will have to move beyond taking arbitrary and capricious actions. It will need to move towards the rule of law, which at the same time would constrain the power of the current regime. This would allow markets to take hold, for which the regime would have to commit to refraining from actions such as the 2009 currency reform that was designed reign in the markets and reduce the profits made by traders. The regime will also need to accept the development of alternative centers of power as lower and mid-level functionaries in the regime, and over time those not associated with the regime, acquire wealth and influence through their business ventures. This would also require Pyongyang to move beyond its tactics of using escalating tensions to illicit aid and concessions from other nations.

Under Kim Jong-il, these were steps the regime was unwilling to take for fear of suffering the same fate as the communist regimes of Eastern Europe and there were few signs of the regime being voluntarily willing to loosen its hold on the country. During periods of famine and when the public distribution system would break down the regime would tolerate the emergence of markets, but it also would push to scale them back as circumstances changed. It is unclear if Kim Jong-un and his advisors view the situation the same, but the pattern to date is much like his father’s, military strength is favored over economic reform.

If the regime is still reticent to undertake economic reforms, the recent move by Pyongyang to again stress the importance of reviving the economy may be a tactical move. Having previously written into its constitution that it is a nuclear weapons state and recently announced that its nuclear weapons are the “nation’s life” and will not be traded for “billions of dollars,” North Korea needs a means through which to deescalate the current crisis and a path for future talks with the United States, South Korea and others. If its nuclear weapons are truly off of the table, Pyongyang needs a basis for future negotiations. By restarting its nuclear facilities and offering the prospect of economic reform, North Korea may be trying to establish a baseline for future talks where it offers the prospect of a reformed economy for the price of its nuclear facilities, but not its weapons.

In light of North Korea’s past failures to follow through with real economic reform measures, the recent announcements by Pyongyang should be viewed more as a tactical move than a shift in policy. Rather than hope that North Korea has turned a corner on reform, a more prudent course would be to determine if North Korea follows through on proposed reforms and adjust accordingly. Unfortunately, the actions at Kaesong do not make this look likely. However, if Pyongyang were to implement genuine economic reform measures, the United States and South Korea should be prepared to take actions that would reinforce those reforms.

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

The U.S.-Korea Free Trade Agreement, or KORUS FTA, has now been in effect for one year and, as with any agreement, it is natural to reflect on what the FTA has achieved. As the largest U.S. FTA in more than two decades, and one of the few with a major developed economy, the KORUS FTA holds the promise to make significant trade gains for both the United States and Korea. Beyond the prospect for increased trade, the agreement has helped to ease trade by improving transparence and customs procedures for exporters, while further opening up the Korean market to U.S. service exporters.

The early results for trade in goods which saw an immediate tariff elimination or reduction from the KORUS FTA have been positive. Through the first ten months (the most recent data available) exports of U.S. products that have seen tariff reductions are up 2.2 percent.  For example, sales of U.S. autos are up nearly 50 percent, while exports of U.S. agricultural products have seen strong growth with sales of products such as oranges up more than 30 percent and almonds nearly 60 percent. However, products that did not immediately benefit from the KORUS FTA saw a decrease in exports to Korea by nearly 17 percent as economic growth in Korea slowed in 2012. This helps explain the increase in the overall U.S. trade deficit with Korea, along with the still sluggish global economy.

At the same time, the United States has done well on the services and investment side of the ledger. Exports of U.S. services to Korea are up more than 10 percent, while Korean investment into the United States over the first three quarters of 2012 was $4.8 billion, nearly $3 billion more than U.S. investment into Korea.

With growth in Korea slowing down due to a broader slowdown in the global economy, it is impressive that U.S. exports have continued to grow at a modest rate. However, it is important to keep in mind that first year data for any agreement is inconclusive as the results are highly susceptible to short term economic conditions. A better gauge of the agreement’s success will come in the years ahead when the agreement will be more fully in effect and data is less susceptible to short term factors such as global economic slowdowns or fluctuations in companies purchasing.

To learn more about how to utilize the agreement go to the United States Trade Representative’s KORUS FTA page or visit U.S.-Korea Connect.

Watch the recorded video of the event here:

Photo from Scott Hess’ photostream on flickr Creative Commons.

This week’s Highlighted Trend features the visualization of a dramatic trend occurring in South Korea’s balance of trade with its partners over the last thirty years.

KITA data reveals that over time, South Korea is undergoing an increasing level of trade polarization (i.e. greater degrees of trade imbalances) vis- à-vis its trading partners.  China and Japan are the most extreme examples of this phenomenon with significantly more goods being exported to China than is imported, and vice versa for Japan.

A deeper look reveals the same trend (though less dramatic) with traditionally smaller trading partners beginning in the early 1990s, which gradually increases into the 2000s.  Also, notice the impact of economic crises on South Korea’s trade balances in 1998 and 2008 and their subsequent effects.  As KEI analyst Troy Stangarone points out, crises may serve to amplify and accelerate certain trade trends given the sudden and dramatic devaluations of the Won that occur as a result of the crises. Finally, this graph also highlights the one-sidedness of South Korea’s trade with the Middle East whose exports to Korea are uniformly non-renewable natural resources, namely petroleum and natural gas products.

With respect to the balance of trade, South Korea increasingly imports far more of these resources from its Middle Eastern partners than it exports, particular from Saudi Arabia, Qatar, and Kuwait.  (For a deeper analysis of South Korea’s trade with the Middle East, see this report by Alon Levkowitz: The ROK and the Middle East: Economics, Diplomacy, and Security)

Photo from kenjonbro’s photostream on flickr Creatiive Commons.

By Sarah K. Yun

Both the United States and China went through leadership transitions in November. In the United States  President Barack Obama was reelected, while China announced a new era under General Secretary Xi Jiping.  With both countries future leadership now decided, what are the implications for Korea as the U.S. and China consolidate their respective leaderships and policy towards Asia?

The key takeaway from the U.S. election is that the United States will continue its strategy of rebalancing toward Asia.  This is less surprising given the re-elected Obama administration’s commitment to continue the rebalancing towards Asia.  Beginning in the fall of 2011, the Obama administration indicated the United States’ determination to play a larger role in the Asia-Pacific region militarily, economically, and politically.  In line with this position the U.S. renewed its commitment towards allies such as South Korea, Japan and the Philippines, and strengthened relationships with other partners such as Vietnam, Indonesia, and India.

Militarily, the U.S. cooperated with South Korea and Japan on missile defense technologies, while announcing new deployments or rotations of troops in Australia and Singapore.  At the same time, the U.S. continues to work to strengthen its commitment to South Korea and Japan, encourage Australia to take more active role in regional security, and renew security ties with the Philippines, while laying the foundations to solidify strategic relationship with Vietnam and India.

Economically, the U.S. recognizes that the fastest growing economies of the world are in the Asia-Pacific region. Consequently, the U.S. concluded the Korea-U.S. Free Trade Agreement while actively participating in the Trans-Pacific Partnership Agreement negotiations.  Furthermore, President Obama and Secretary Clinton have in unprecedented fashion attended consecutive regional forums including APEC, the ASEAN Regional Forum, and the EAS.

Recognizing that diplomacy requires more than agreements and public pronouncements, the rebalancing also implies the crucial need for trust-building in the region. To that end, President Obama’s first trip abroad after his reelection was to Southeast Asia to meet ASEAN leaders on November 18. His trip is a recognition that the center of gravity for U.S. foreign policy has shifted to the Asia-Pacific region.  Overall, the U.S. has been actively and comprehensively engaged in the region on a variety of issues both bilaterally and multilaterally.

While the United States pursues its policy of rebalancing, any policy change from China towards the region remains to be seen.  The Asia-Pacific is undoubtedly important to China as the country sees itself as the leader of the region to which they belong and centers its own policy around the need for a peaceful region to facilitate China’s own continued development.

China’s policy towards Asia is not as defined as the U.S. rebalancing strategy, leading neighbors to wonder what its intentions are. Many are concerned at China’s recent assertive posture related to maritime and territorial issues. However, the reality is that an assessment of China’s foreign policy under Xi may be too early at this point.  Although Xi became the General Secretary of the Community Party of China, he will not become president until the National People’s Congress in March 2013.  Furthermore, key foreign affairs officials have not been appointed yet, such as the director of Central Foreign Affairs Office, foreign minister, and the head of the CCP’s International Liaison Department. The best indication of Xi’s foreign policy may be Hu Jintao’s opening report at the 18^th CPC National Congress where Xi was appointed the successor. It was declared that China was to become a maritime power to exploit marine resources, develop its marine economy, protect marine ecological environment, and resolutely safeguard China’s maritime rights and interests.  For the most part, however, the emphasis was on domestic politics, perhaps indicating that foreign policy will be largely reactive in the initial years under Xi.

In the backdrop of Xi Jinping’s leadership transition is China’s recent aggressive stance on maritime issues against Japan and Southeast Asia.  Recently, an Op-Ed in the state-run People’s Daily, stated that “China’s stance of maintaining peaceful development does not mean it gives up its right to protect national interests” and that China will “protect national sovereignty, safety and developmental interest and will never surrender to any external pressure”. The territorial dispute with Japan will likely be one of Xi Jinping’s top foreign policy priorities in 2013 in order to prevent any domestic dissatisfaction and instability. At the same time, China’s policy stance towards North Korea has remained largely consistent as it has urged all relevant parties to take a “prudent and moderate” response to North Korea’s missile launch.

On the economic front, China remains invested in international trade and economic development as its domestic economy depends on the global market. On September 22 during the China-ASEAN Expo, Xi pledged to advance China-ASEAN relations and FTA development, showing China’s emphasis on economic tools for diplomacy in the region despite intense maritime disputes.  Trade volume between China and ASEAN countries amounted to $362.8 billion in 2011, with a trade volume target of $500 billion by 2013.

All in all, there are signs of both continuity in China’s foreign policy as well as signs of a more assertive China. However, China’s policy also indicates a fragmentation between security and economic interests.  Priority goes to economic development and stability, then regional security.  Even maritime disputes have a strong economic interests regarding shipping lanes.  While China was on the course to develop a comprehensive Asia policy amidst the wars in the Middle East, the U.S. initiated its comprehensive rebalancing towards Asia, which threw a curveball into China’s plans.  China is realizing the need to increasingly get involved in multilateral channels such as the G-20, BRICs, and other Asia related multilateral forums.

As the two major powers navigate in the Asia-Pacific region to establish their respective leadership positions, what is the role that Korea can play?  U.S. policy towards Asia and the Korean Peninsula is more predictable, which eliminates many of the potential surprise elements.  The U.S.-Korea alliance has been coined the lynchpin of regional security, leaving little room for ambiguity in the U.S. rebalancing vis-à-vis Korea.  China, on the other hand, may require more management for Korea.  Although the initial phase of Xi’s foreign policy will likely be dominated by domestic issues such as economic slowdown and anti-corruption, bilateral issues such as Chinese fishermen in Korean waters and Korea-China Free Trade Agreement will need careful navigation.

Korea, like other countries in the region, does not want to be forced to choose between the U.S. and China.  Both the United States and China are important to Korea in different ways and the realities of their respective Asia policies may lead Korea to actively engage diplomatically with both powers.  Therefore, Korea can play a mediating role to support the U.S., Korea’s most important ally, and China, Korea’s largest trading partner, to work together on key issues.  This may include North Korea and Iran’s nuclear problems, disaster relief in region, and assisting China to mature its market capital structures and move towards a knowledge-based economy. Some of the seesaw dynamics between the U.S. and China may change after the South Korean presidential elections in December.  Regardless of who becomes the new South Korean president, the reality is that both the U.S. and China are important partners to Korea.  As a middle power, Korea can play an important and unique role the Asia policies of the U.S. and China.

Sarah K. Yun is the Director of Public Affairs and Regional Issues for the Korea Economic Institute. The views expressed here are her own. 

Photo from U.S. Pacific Fleet’s photostream on flickr Creative Commons.

By Seongjin James Ahn

Over the last two decades the United States and South Korea have had a dynamic bilateral trade relationship.  Together they have reached impressive achievements in trade growth, but have also weathered through economic crises, experienced contractions in global demand, and had their fair share of disagreements. Yet in spite of these mutual challenges and disagreements, data shows that the trade relationship has only strengthened with each passing year.

Macro Trade Highlights in Context

According to data by the U.S. Census Bureau, in the last eight years Korea has consistently remained the U.S.’s 7^th largest trading partner and is on track to remain so this year.  Over this period, the small nation of just 50 million people and a GDP of about $1.5 trillion has managed to exceed countries with much larger populations and economies in trade with the United States, including France, Italy, and Brazil.  At times analysts draw attention to the fact that the large U.S.-Korea trade relationship is not evenly balanced, but the figures indicate that between 2004 and 2011, U.S. exports to Korea expanded by about $17.2 billion, which also consistently placed Korea as a top 7^th destination for American goods just behind Germany over this period.  So far in 2012, Korea is ranked 7^th across the board in trade in goods with the U.S. (i.e. imports, exports, total).

In light of all the global trade rankings and superlatives that are often cited to underscore the positive economic relationship shared between two countries, it is easy to overlook how impressive U.S.-Korea trade figures truly are.  To put it into context, for example: Germany, an export-driven economy like South Korea, has a GDP of about $3.6 trillion in size and is a destination for about 3.3 percent of all U.S. exported goods.  Korea, on the other hand, has an economy approximately a third of the size of Germany’s and yet is still a destination for about 3 percent of U.S. exports.  For a country like Korea, which is relatively smaller in almost every regard when compared to the U.S.’s other top trading partners (i.e. Canada, China, Mexico, Japan, etc.), it has quite a weighty trade relationship with the U.S. that is still only growing.

Three Attributes of U.S.-Korea Trade Growth

A deeper analysis of U.S. state-by-state trade with Korea reveals three important aspects of the growth in bilateral trade.

(See the embedded Dashboard. When a U.S. state is selected on the map, export and import trends can be viewed over the last four or five years.  Additionally, the state’s top 3 export and import categories for 2011 can be viewed.)

First, the growth in U.S.-Korea trade is balanced throughout most of the fifty states.  In other words, the impressive trade growth figures are not attributed to just a handful U.S. states, but rather it is an overall trend throughout the country. For example, in terms of U.S exported goods to Korea, the majority of states – with the exception of eight – increased exports between 2007 and 2011.  In some cases, states even doubled the value of goods exported to Korea.  Louisiana, for instance, increased exports from $921 million in 2007 to about $2.1 billion in 2011.  Georgia, Idaho, West Virginia, and half a dozen others also doubled exports to Korea, while Maryland nearly tripled exports to Korea. The intra-state balanced growth strongly suggests that the expansion of a state’s trade with Korea usually does not mean a decrease in trade with Korea for another state.

Second, the growth in trade is consistent.  Over past five years, state-by-state data shows that with each successive year (with the exception of 2009 during the global financial crisis) there were steady increases in the value of goods trade with Korea.  With the KORUS FTA now entered into force, trade can be expected to expand further as tariff elimination schedules take effect over the next few years.

It is important to note here that in 2012 trade has been sluggish and even decreased due to the euro crisis and overall contractions in global demand. However, a recent report by the Korea Customs Service  reflects data which indicates that the KORUS FTA has helped to partially offset the negative effects of the global economic slowdown. The report showed that in the first 6 months of KORUS FTA entering into force, year-on-year exports of beneficiary items for both countries actually expanded, although marginally for the U.S.  On-year trade in non-beneficiary items for both countries, however, contracted.

The third aspect of U.S.-Korea trade which is attracting the attention of some analysts is the balance of trade in goods.  Each year as trade in both exports and imports expand, Korea’s exports appear to be increasing at a faster rate.  In 2011, for instance, Korea’s trade surplus with the U.S. was roughly $13.1 billion (or 13 percent of total bilateral trade), whereas a year earlier it was $10.1 billion (or 11.5 percent of total trade.) However, when compared to other U.S. top trading partners (i.e. China, Germany, and Japan) Korea’s trade with the U.S. is relatively balanced.  In 2011, the U.S. had a trade deficit of 59 percent of total bilateral trade with China, 33 percent with Germany, and 32 percent with Japan; figures that more than triple U.S. trade with Korea.

Additionally, as the KORUS FTA settles in further and the global economy recovers, the U.S. has new opportunities to grow its side of the economic relationship with Korea. According to information collected by U.S.-Korea Connect, American businesses – both large and small, and across a range of industries and states in the U.S. – look forward to benefiting from trade and investments with Korea by taking advantage of new consumer markets in Korea.

Despite the internal, external, and bilateral challenges that have existed for the U.S.-Korea trade relationship, data shows that trade between the two partners has not failed to grow.  Even now as the global economy struggles to recover, bilateral trade has maintained some level of resilience.  Looking ahead, it will be interesting to see the course of the trade relationship that KORUS FTA will facilitate between the two countries.

Seongjin James Ahn is a Visiting Fellow with the Korea Economic Institute. The views expressed here are his own. 

By Jessica Choi

A few days ago, I went to my friend’s favorite local Japanese sushi bar for the first time, and I noticed that there was bulgogi (Korean beef bbq) on the menu.  My interest was piqued, so I decided to try speaking Korean to the waitress.  Lo and behold, it turns out that the restaurant was owned and operated by a Korean-American family.

As a Korean-American I was amused, because I’ve been to many sushi restaurants in California that are run by Korean-Americans, but I was surprised to come across one in the Washington, D.C. area.  As I chatted with the waitress, she told me her family hopped on the sushi bandwagon, because there has been an explosion in demand for sushi.  I came to discover this local sushi story was part of a global trend that has had effects that go way beyond Japanesethemed restaurants.

According to the United Nations Food and Agriculture Organization (FAO), world per capita consumption of fishery products has nearly doubled between 1961 and 2010.[1]  Asia, as a continent, has the overall highest consumption of seafood.  For insular or coastal countries with high population density such as those in Northeast Asia (China, Japan, the two Koreas, and Taiwan), seafood is a primary source of protein.

China is the world’s largest importer and exporter of fishery products.  Rising disposable income and a growing urban population are contributing to the growing appetite for seafood in China.  In 2010, Chinese imports of fishery products increased by $1.1 billion in just one year.  Japan is the second largest consumer of fishery products, while South Korea and Taiwan do not trail far behind.

With regard to both production and consumption, Northeast Asian countries play a leading role in the international trade of seafood.  Figures from an industry report show that seven of the ten biggest trade routes in the world for fishery products begin or end in Northeast Asia.[2]

The rising demand for fishery products has led to an alarming decline of coastal fisheries, which has been driving fishermen out to international waters far from their homelands.  This has raised the risk of confrontations in disputed international waters, which in turn, has led to the escalation of fishing incidents in recent years that continue to stir diplomatic tensions among countries in the Asia-Pacific region,

The latest episode in a series of maritime disputes occurred this past May, when Chinese crewmen accused of illegally fishing in the Yellow Sea were taken captive by North Korean authorities.  Yes, even allies can hit a rough patch.

A two-month naval standoff between China and the Philippines was triggered in April, when the Philippine Coast Guard came across Chinese fishing vessels in contested waters of the South China Sea.  This illustrates that the “risk of conflict in the South China Sea is significant,” warns Bonnie Glaser, a Senior Fellow at the Center for Strategic and International Studies (CSIS) based in Washington, D.C.

In a separate incident in December 2011, a clash between South Korean authorities and the captain of a Chinese fishing boat took place.  After the Chinese boat was stopped for illegally fishing in South Korea’s exclusive economic zone (EEZ), it resulted in the death of a member of the South Korean Coast Guard.

In September 2010, Japan’s detention of a Chinese fishing captain for colliding into a Japanese Coast Guard vessel led to an intense diplomatic confrontation between China and Japan.

These and other examples highlight the critical problem of illegal fishing as an instigating factor of conflict in the Asia-Pacific region.  While each incident involves different countries and different factual circumstances, a review of the skirmishes as a whole shows that three types of security are threatened by fish stock depletion and clashes over aquatic resources: food security, economic security, and maritime security.

The first thing to remember when thinking about the concept of food security is that when people get hungry, they might become prone to actions that might disrupt the security of a nation or region.  And, because about 4.3 billion people depend on fish for about 15% of their animal protein intake,[3] overfishing could result in a lack of sufficient fish protein, which could leave a lot of people hungry – and angry.

A growing world population combined with income increases will mean more people wanting and needing fish as part of their diets, which will exacerbate the global food security issues even more.  “With such dependency on fish meeting a rapidly growing population, we simply cannot sustain a situation where 87 per cent of global marine fisheries are at or above full exploitation” said Alfred Schumm, Leader of World Wildlife Fund’s (WWF) global Smart Fishing Initiative.

Economic security is also threatened by the situations that have resulted in fishermen’s skirmishes in international waters.  This is because fishery products are important contributors to the economies of the Asia-Pacific region.

East Asia alone produces over 50% of the world’s fishery yields, consisting of 45% of global wild catch, 90% of global aquaculture (farmed seafood), and 60% of global freshwater catch.[4]    However, the FAO’s 2012 annual report on the State of World Fisheries and Aquaculture (SOFIA) estimates that 57% of fishery resources are fully exploited, while 30% are over-exploited.[5]

The report also pointed out the importance of the fisheries and aquaculture industry in providing employment opportunities and in supporting the livelihoods of about 12% of the world’s population.[6]  Some 55 million people around the world depend on this industry for their income.[7]  Further heightening the difficulties facing fishermen is that the trade of illegally caught aquatic resources “disrupt[s] the market and distort competition by putting legitimate fishers and fish farmers at a disadvantage.”  Therefore, higher standards of rules and regulations in conjunction with strict enforcement are necessary for combating overfishing and poaching, which has been a priority concern in many areas of the Asia-Pacific.

Fishing skirmishes can easily escalate into full-blown national disputes, as some of the examples above illustrate.  Many disputes over maritime boundaries in Asia originate from unsettled maritime territorial claims, so the increasingly fierce competition and demand for marine resources has caused an intensification of conflict in the Asia-Pacific region.

Though China’s maritime feuds have headlined global news, such conflicts do not only occur between China and its neighbors, but also amongst other Asian nations.  For example, tensions between Japan and South Korea were renewed after President Lee Myung-bak’s abruptly visited Dokdo/Takeshima (a small group of islets in the East Sea) just last month.  In addition, even ASEAN (Association of Southeast Asian Nations) countries clamor amongst themselves over South China Sea’s islands.  Nevertheless, China seems to have its hands full in terms of ongoing maritime disputes.

Asian countries recognize that small incidents could become major ones, so the diplomatic community is starting to take proactive steps.  For example, after the December 2011 incident between China and South Korea, South Korea invited China and Japan to multilateral discussions to address the problem of illegal fishing before any further incidents made such negotiations more difficult.  However, the negotiations resulted in a non-binding agreement where fishing vessels would voluntarily participate in routine inspections while operating in international waters.

With such a high density of the world’s population competing for decreasing resources, international cooperation and engagement will become increasingly important foundations for ensuring regional security.  Governments, fisheries, and ultimately even consumers of seafood products, will need to consider if an agreement without legal force will effectively address the issue at hand.  Such weak agreements lacking strong commitments will only further erode food security and increase the potential for conflict.

Jessica Choi is a master’s degree candidate at American University’s School of International Service and Korea University’s Graduate School of International Studies. The views expressed here are her own.

Photo from WWF France’s photo stream on flickr Creative Commons.

By Sarah K. Yun

As leaders of the Asia-Pacific nations gathered for the 20^th Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Vladivostok, Russia on September 8-9, the ongoing effects of the euro crisis and global financial crisis added urgency to their efforts to increase regional economic growth and give APEC a leading role in the global economy.   With multilateral organizations such as APEC increasing in importance as the international system shifts from the post-Cold War to an increasingly globalized economic and political structure, Korea is taking an active role in the new shift as its national interests align with APEC.

APEC was created in 1989 in response to the growing interdependence in the Asia-Pacific region and as a counterweight to the existing euro-centric multilateral framework. The 21 member economies work towards economic growth through coordinated but non-binding liberalization and deregulation of trade and investment. Interestingly, the concrete proposal for the creation of APEC came from the Korea-Australian leaders’ joint communiqué in 1989. In the succeeding years, the Bogor Declaration of 1994 would further articulate APEC’s vision for free trade and investment in the Asia-Pacific region among developed countries by 2010 and developing countries by 2020. Although APEC has been criticized for being a “talk shop”, it accounts for approximately 40% of the world population, 54% of economic output, and 44% of international trade.

For its part, Korea has been involved in regional efforts to foster intergovernmental regional cooperation since the 1960s when it was the principal sponsor of the Asia Pacific Council, which eventually disbanded. Initially, Korea’s main interest in participating in the regional framework was less about economic benefits than about encouraging political association and integration within the region, which could help to lend legitimacy to Korea after the Japanese occupation, the Cold War, and the Korean War.

By engaging with other small and medium-sized countries, Korea began to gain more leverage in the international system. Since then, Korea has skillfully managed to overcome the reputation of a closed and restrictive market with its robust trade, investment, and green growth policies. Korea has supported APEC’s principle of open regionalism and made significant progress towards the Bogor goals through implementation of the Individual Action plan (IAPs) including the removal of barriers to trade and investment in many areas, policy reforms by amending laws and regulations, and enhanced transparency in its market.

Although this year’s APEC summit began with looming concerns over territorial disputes and regional stability in light of a series of leadership changes in the region, observers generally saw the results as positive. The four main items on the agenda were trade and investment liberalization, strengthening food security, establishing reliable supply chains, and cooperation to foster innovative growth. Some of the tangible outcomes include the renewal of APEC’s commitment to resist all forms of protectionist trade policies and cut tariffs on environment products by 5% by 2015. Member economies also specified a list of 54 environmental products subject to tariff cuts to include solar panels, gas and wind turbines, wastewater treatment technologies, air pollution control technologies, waste treatment technologies, and environmental monitoring and assessment equipment, of which nine categories apply to Korea’s products and services. A consensus was also reached to add no new protectionist policies in the name of green growth, encourage internal infrastructure through public private partnership, strengthen energy and food security.

Korea’s presence in the 2012 APEC was noteworthy for its balance between the economic agenda and political diplomacy. President Lee Myung-bak’s opening remarks during the second session emphasized the need to abolish restrictions on food exports. He urged member economies to stabilize food prices, reduce biofuel production, bolster agricultural production, and enhance transparency in food trade. President Lee also drew attention to Korea’s green growth initiative and robust trade policies.

Alongside Korea’s efforts in the formal APEC sessions, Korea also engaged in active sideline diplomacy. President Lee held official bilateral meetings with Russian President Vladimir Putin, Vietnamese President Truong Tran Sang, and U.S. Secretary of State Hillary Clinton. Lee also held pull-aside meetings with Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda. South Korean Foreign Minister Kim Sung-hwan also held an official meeting with the Thai Foreign Minister Surapong Tovichakchaikul and pull-side meeting with Japanese Foreign Minister Koichiro Gemba. One outcome of the sessions was to diffuse some of the diplomatic and territorial tensions in the region while strengthening economic diplomacy and cooperation. Korean private sector leaders who participated in the APEC CEO Summit also engaged in active economic diplomacy and agreements.

Korea’s work through APEC is part of its larger commitment to the regional integrative process and economic growth. As the framework of regionalism shifts towards the global economic structure and the co-existence of developed and developing countries, Korea can play an important role as a middle power.  APEC is just one example. The two share a desire for the expansion of economic liberalization and efforts to promote sustainable green growth.  This provides Korea with an opportunity to take an increasing role in encouraging APEC members to develop and actualize their own green initiatives in line with APEC’s Green Initiative. President Lee’s visit to Greenland and Norway immediately after the APEC summit is an indication of his policy priorities on green growth and the economic growth of middle powers, which is shared by current opposition presidential candidate. APEC’s framework for regional and multilateral trade is also consistent with Korea’s trade policies. Where APEC lacks formal leadership, Korea can fill an important gap and play a mediating role between developing and developed countries, as well as sub-regions.

Furthermore, Korea can play an important role in APEC through the introduction of innovative programs as a benchmark for other APEC members. An example of this is Korea’s program to help their own SMEs establish branch offices and factories in developing APEC economies, while transferring technology and management tools to their destination. However, the key would be to establish sustainable projects that are not one-time based.

The 2012 APEC Summit in Russia was a success for the host, the organization, and Korea. As APEC enters its third decade of existence and member countries increasingly align their interests with APEC’s mission, Korea will continue to play an important role of providing benchmarks and innovation. Furthermore, Korea can find a leadership niche as a developing and innovation model as APEC begins to shed its reputation as a “talk shop”. Not only would this benefit APEC, but Korea would also benefit as it seeks greater economic liberalization throughout the region.

Sarah K. Yun is the Director of Public Affairs and Regional Issues for the Korea Economic Institute. The views expressed here are her own.

Photo from Jonathan Davis’ photo stream on flickr Creative Commons.

By Nicholas Hamisevicz

Jang Song-taek, Vice-Chairman of North Korea’s National Defense Commission and uncle to Kim Jong-un, returned from China after several days of meetings about economic cooperation between the two nations, especially in the Special Economic Zones (SEZs). Jang brought back agreements on further SEZ cooperation and a renewed commitment by both parties to the importance of the China-North Korea relationship. Beyond these agreements, there were no other major announcements about aid or cooperation between the two countries. However, it will be interesting to see if this trip helped lay any groundwork in convincing the outgoing Chinese leadership as well as its incoming leaders that North Korea’s transition is safe and will not damage the stability in the region.

With North Korea having already spent much of its late spring and summer reaching out to nations in Southeast Asia as well as talking to Japan, this trip was watched to gauge the status of China-North Korea relations under the new regime. Jang was sent to China as the head of the DPRK-China Joint Guidance Committee to discuss cooperation in the economic zones of Rason and the Hwanggumpyong and Wihwa Islands. His other meetings in China also focused on investments and cooperation around the economic zones. All told, his delegation consisted of about 50 people, including Ri Chol, an executive officer for North Korea’s Joint Venture and Investment Committee, which is a newly formed government office in North Korea tasked with attracting and regulating foreign investment into the DPRK. Moreover, the Committee has responsibility the Rason SEZ.

Mostly what came out of the DPRK-China Joint Guidance Committee meeting were agreements and understandings on the establishment of management committees, economic and technical cooperation, arrangements for power and energy distribution, and construction plans for the economic zones. The North Korean delegation also visited the Chinese provinces of Jilin and Liaoning for meetings with their respective Provincial Secretaries. The Yatai Group, a Chinese conglomerate out of Changchun in Jilin province, said it would build a construction materials complex in the Rason SEZ.

Interestingly, there are indications the Chinese government would actually prefer working more on the Rason SEZ rather than the Hwanggumpyong and Wihwa Islands economic zones. China initially had some concerns over the laws for these island economic zones, especially regarding double taxation and dispute mechanisms. With recent public headlines surrounding the Xiyang Group, a Chinese company, having major difficulties doing business in North Korea, getting the laws and agreements implemented correctly will be a major task for North Korea to improve economic cooperation with China. Moreover, Hwanggumpyong Island is in a flood zone, and neither North Korea or China have done much infrastructure work to bolster the construction and improvements needed for economic activity. Chinese companies along with probable Chinese government money have recently helped improve some of the infrastructure needed at the Rason port. Access to the port at the Rason SEZ seems more enticing for the development of China’s northeast provinces than to the Hwanggumpyong and Wihwa Islands economic zones, but much of the benefits are dependent on implementation, focus, and action from North Korea.

Despite the announcement from the Yatai Group, there were no big investment or aid deals stemming from the trip. There were a couple of reports suggesting that Jang Song-taek asked the Chinese for a $1 billion loan, yet there is still uncertainty if that request or something similar was made by North Korea or given by China. Moreover, with all of these meetings and discussions on economic cooperation, Wen Jiabao, China’s Premier, did encourage North Korea to use “market mechanisms” during his meeting with Jang.

The appearance of the trip was all economics, but political issues are still lingering between the two countries. The relationship has not been at its tightest this year, with North Korea informing the U.S. about its satellite launch attempt before China, capturing of some Chinese fishermen in May, and supposedly ignoring Chinese offers for Kim Jong-un to visit. Jang did meet with Chinese President Hu Jintao, where the normal pleasantries were made about the long-standing friendship between North Korea and China.

However, Jang did not meet with Xi Jinping or Li Keqiang, the expected next leaders of China. Both of them most likely spent most of their August in Beidaihae, a summer resort where top Chinese Communist Party members discuss who will be the next leaders of China. Given the timing, it is unlikely that they would have been pulled away from leadership transition discussion to meet Jang Song-taek. Early reports also suggest Jang was trying to secure an agreement for Kim Jong-un to visit China next month. If Kim Jong-un really wants to visit China before October, the North Korean leadership would have to really convince China the meeting is worthwhile to take away valuable time from the final preparations for their leadership transitions. Nothing would suggest Kim Jong-un needs to see Hu Jintao or Wen Jiabao before they leave office. Thus, Kim Jong-un visiting China before the transition would mainly be about economic cooperation and showing he can handle North Korea-China relations. It could also possibly be a fear that if he waits until after the transition in China takes place, Xi Jinping and Li Keqiang would rather meet with other leaders first, delaying Kim Jong-un’s visit for an undetermined period and creating some uncertainty of bilateral relations.

The overall goals of Jang’s trip appears to be an attempt to gain more support for projects within the economic zones, maintain strong relations with China, and demonstrate that the transition to Kin Jong-un is safe and will not hinder China’s influence in the region. These agreements might be the next step after the SEZ law developments; however, implementation will likely have to be smoother for North Korea and China to gain from the SEZs advancements. China will continue to help North Korea, and the appearance of greater economic cooperation along the border is fine for China, yet actual progress will still need to be made in order for the new Chinese leadership and the rest of the world to decide if Kim Jong-un’s regime is different from the previous ones.

Nicholas Hamisevicz is the Director of Research and Academic Affairs for the Korea Economic Institute. The views represented here are his own.

Photo from ezioman’s photo stream on flickr creative commons.

By Sarah K. Yun

After the failed April 13 rocket launch, North Korea seemed to be headed towards increased isolation from the international community. The United Nations Security Council tightened the sanctions regime, while the United States canceled the 24,000 metric tons of food aid that had been part of the “Leap Day” Agreement. However, within just a few weeks there were signs of active economic diplomacy by North Korea. While Pyongyang’s diplomatic efforts with Southeast Asia and China are particularly visible, what are the implications of North Korea’s attempts to rekindle old relationships?

From May to August, North Korea began kicking its diplomatic outreach into high gear. In May, Kim Yong-nam, Chairman of the Presidium of the Supreme People’s Assembly, traveled to Indonesia and Singapore. While no official agreements resulted from the meetings in Singapore, Kim’s meetings with the Indonesian President Susilo Bambang Yudhoyono and Foreign Minister Marty Natalegawa resulted in cooperation in communications, information technology, and economic/trade issues, while increasing the exchange of visits between government officials and journalists. Additionally, on June 1 Indonesia agreed to send $2 million in aid to North Korea.

The following month Cambodian foreign minister Hor Namhong visited North Korea to discuss security issues and bolster bilateral ties, while Kim Yong-il, Secretary and Director of International Affairs of the Korea Workers Party, visited Laos, Vietnam and Myanmar. In return, Lao and Vietnamese government officials visited Pyongyang in July. Also in July, North Korea’s foreign minister Park Ui-chun visited Cambodia to participate in the ASEAN Regional Forum and engage in side meetings mostly focused on trade and investment.

From August 5 to 10, Kim Yong-nam visited Vietnam and Laos to try to yield concrete results from the previous trips. On August 6, President Truong Tan Sang of Vietnam said that the “Vietnam-DPRK relations of friendship will grow stronger in mutual interests amidst the deep concern of the top leaders of the two countries.” Vietnam agreed to donate 5,000 tons of rice to Pyongyang as aid towards North Korea’s recent heavy floods. In Laos, the two countries completed four cooperation agreements to include issues of cultural exchange, information and technology, economic cooperation, education and sports.

Despite the fluctuating trade volume between North Korea and Southeast Asia, what are the incentives for countries to engage with each other at the current juncture? For North Korea, there is a significant need to diversify its trading partners. According to South Korea’s Ministry of Unification, inter-Korean trade decreased from $1.9 billion in 2012 to $1.7 billion in 2011. Even then, the figures are largely dependent on the output from the Kaesong Industrial Complex. On the other hand, while estimates vary, North Korea has become increasingly dependent on trade with China where bilateral trade increased 62.4% from 2010 to 2011. With mounting pressure to diversify its trading partners, Southeast Asia is a viable candidate given its geographical proximity and economic growth. According to the IMF, Myanmar, Singapore, and Thailand were eighth, ninth and eleventh respectively as North Korea’s import partners. While Myanmar, Singapore and Thailand were North Korea’s tenth, fourteenth and fifteenth largest trading partners.

Additionally, there are many lessons that could be learned from the Southeast Asia’s development experience. Singapore could be a model for attracting foreign direct investment and managing special economic zones. As Vietnam’s economy grows, the country could provide an alternative model besides the Chinese development model. Indonesia could be a case study on natural resource management. For the purposes of information gathering and political control, North Korea could benefit from engaging with Laos, Myanmar and Thailand. There are also historical ties in Southeast Asia, which creates a less threatening relationship. Many Southeast Asian countries, such as Indonesia, the Philippines and Singapore, were involved in the Non-Aligned Movement, which influenced North Korea’s foreign policy framework after the Korean War.

Southeast Asia also identified opportunities in engaging with North Korea. As ASEAN tries to take a more active role in the regional security and economic structure, North Korea could become an example of ASEAN’s symbolic politics and global role to create an alternative space for engagement. With China’s continuing rise, North Korea’s diplomatic outreach also represents an opportunity for ASEAN to balance China’s growing role in the region to an extent. Indonesia, as the largest country in the region, may have a vested interest in playing an alternative mediator role, particularly on non-nuclear issues.

Beyond Southeast Asia, there have also been other internal and external developments which may hint at the prospect for further engagement and opening on the part of North Korea. It has been reported that on June 28 Kim Jong-un announced a new development plan which includes the downscaling of work units in cooperative farms, allowing increased autonomy to enterprises and factories, and transferring economic projects from the military to the cabinet. In August, North Korea sent a 50 person delegation to China, including Jang Sung-taek, vice chairman of the National Defense Commission. During the summit, the two sides agreed to actively develop the Rason special economic zone and the Hwanggumpyong/Wihwa Island economic zone. Moreover, North Korea and Japan will hold high-level talks to discuss various issues including the abductee issue.

To be sure, indications of reform should be measured with the realities of North Korea. The Kim Jong-un regime will still want to maintain a considerable amount of market control to balance external engagement. The execution and level of genuine reform, including labor market reform, still remains untested. Furthermore, the Kim regime would have to resolve the inherent conflict between the legacy of juche ideology vis-à-vis reforms and opening to the outside world.

Although many are observing North Korea’s growing diplomatic efforts in the Asia Pacific with much interest, it is too early to assess true reform. However, this could serve as an opportunity for the United States, South Korea and their friends. By introducing non-traditional players such as Indonesia, Vietnam, and Singapore, North Korea’s interests and trading partners could be diversified. This could create additional entry points into the new Kim regime. This model might hold the potential to be employed on projects in developing industries in North Korea, such as technology, communication, infrastructure, education, and culture/entertainment. These efforts could potentially de-couple the technocrats from the Kim royal family. In response to North Korea’s increasing relationship with their northern neighbor, China could serve as a platform for small and medium enterprises to invest in the northeastern provinces to build greater ties with North Korea. Such projects would take place in anticipation of Rason’s rapid development.

Cooperation between the United States, South Korea, Southeast Asia, as well as China, could induce North Korea to undertake economic reform and ultimately reduce tension. On one hand, the changing circumstances in North Korea mean that the U.S. and South Korea’s close coordination is crucial in understanding internal debates and foreign policy developments within the Kim regime. On the other hand, changing the current dynamic in the region with new players and creating incentives for economic development could induce change in the North Korean society.

Sarah K. Yun is the Director of Public Affairs and Regional Issues for the Korea Economic Institute. The views expressed here are her own.

Photo from Mac Coates photo stream on flickr Creative Commons.