Towards a northeast asian security community implications for koreas growth and economic development

The Political Economy of the Asia Pacific

Series Editor
Vinod K. Aggarwal

For further volumes:
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Bernhard Seliger · Werner Pascha
Editors

Towards a Northeast Asian
Security Community
Implications for Korea’s Growth
and Economic Development

123


Editors
Bernhard Seliger
Hanns Seidel Foundation
Seoul Office
140-886 Seoul, Republic of Korea


Werner Pascha
Department of Business Studies
The Institute of East Asian Studies
of Duisburg-Essen University
47048 Duisburg, Germany

ISSN 1866-6507
e-ISSN 1866-6515
ISBN 978-1-4419-9656-5
e-ISBN 978-1-4419-9657-2
DOI 10.1007/978-1-4419-9657-2
Springer New York Dordrecht Heidelberg London
Library of Congress Control Number: 2011930810
© Springer Science+Business Media, LLC 2011
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Acknowledgements

This work was supported by the Academy of Korean Studies Grant, which is
funded by the Korean Government (MOEHRD, Basic Research Promotion Fund).
AKS-2007-CB-2002

v

Contents

1 Introduction: Towards a Northeast Asian Security
Community and the Role of North Korean Negotiation Tactics . . .
Bernhard Seliger and Werner Pascha
Part I

Prospects for a Northeast Asia Security Framework

2 From a Fault Line to a Catalyst: An Emerging Korean
Confederation and the Contour of a Northeast Asian
Security Community? . . . . . . . . . . . . . . . . . . . . . . . . .
Key-young Son
3 Envisioning a Northeast Security Framework: The Korean
Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Snyder
4 Korea as a Focal Point of the Security Concerns
of Northeast Asia: A Geopolitical and Historical
Perspective of the Present Scenario . . . . . . . . . . . . . . . . . .
Brahm Swaroop Agrawal
Part II

1

13

27

39

Features of a “Peace Dividend”

5 The Unification Mythology and Reality of the North–South
Divide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andrei Lankov
6 Features of a Peace Dividend for the Two Koreas . . . . . . . . . .
Paul Chamberlin
7 Peace Dividend and Regional Stability on the Korean
Peninsula: Focusing on the South–North Korea
Cooperation Fund Allocation . . . . . . . . . . . . . . . . . . . . .
B. Jeong

63
73

99

vii


viii

Contents

Part III

Implications for North Korea’s Economy

8 A Peace Dividend for North Korea? The Political Economy

of Military Spending, Conflict Resolution, and Reform . . . . . . .
Bernhard Seliger

129

9 Implications for the North Korean Economy of Moving
Toward New Modalities for Northeast Asian Security . . . . . . . .
Bradley O. Babson

149

10

Financial Cooperation with North Korea: Modalities and Risks . .
Stephan Haggard and Marcus Noland

11

Inter-Korean Cooperation in Special Economic Zones:
Developments and Perspectives . . . . . . . . . . . . . . . . . . . .
Ralph Michael Wrobel

Part IV
12

13

14

15

161

175

Implications for South Korea’s Economy

Toward a Northeast Asian Security Community:
Implications for South Korea’s Economic Growth . . . . . . . . . .
Deok Ryong Yoon

189

The Development of a Northeast Asian Security
and Economic Community . . . . . . . . . . . . . . . . . . . . . . .
Soon Paik

207

Fractured Strategic Alliance, Restructured Economic
Cooperation: Korea at the Helm of the Emerging Northeast
Asian Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jitendra Uttam

217

An Institutional Approach to Peace and Prosperity:
Toward a Korean Fisheries Community . . . . . . . . . . . . . . .
Martyn de Bruyn and Sangmin Bae

239

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

259


Contributors

Brahm Swaroop Agrawal M.L.B. Government College, Jiwaji University,
Gwalior, India,
Bradley O. Babson John’s Hopkins School of Advanced International Studies,
US-Korea Institute, Washington, DC, USA,
Sangmin Bae Northeastern Illinois University, Chicago, IL, USA,
Martyn de Bruyn Northeastern Illinois University, Chicago, IL, USA,

Paul Chamberlin Independent Scholar,
Stephan Haggard Graduate School of International Relations and Pacific
Studies, University of California, San Diego, CA, USA,
B. Jeong Graduate School of Public and International Affairs, University
of Pittsburgh, Pittsburgh, PA, USA,
Andrei Lankov Kookmin University, Seoul, South Korea,
Marcus Noland Peterson Institute for International Economics, Senior Fellow at
the East-West Center, Washington, DC, USA,
Soon Paik U.S. Department of Labor-Bureau of Labor Statistics, Washington,
DC, USA; Washington Baptist University, Annandale, VA, USA,

Werner Pascha Department of Business Studies, The Institute of East Asian
Studies of Duisburg-Essen University, 47048 Duisburg, Germany,

Bernhard Seliger Hanns Seidel Foundation, Seoul Office, 140-886 Seoul,
Republic of South Korea,
Scott Snyder Center for U.S.-Korea Policy, The Asia Foundation, Washington,
DC, USA,

ix


x

Contributors

Key-young Son Tohoku University, Sendai, Japan,
Jitendra Uttam Korean studies at the Centre for East Asian Studies, School
of International Studies, Jawaharlal Nehru University, New Delhi, India,

Ralph Michael Wrobel Faculty of Economics, West Saxon University of Applied
Sciences, 08066 Zwickau, Germany,
Deok Ryong Yoon Korean Institute for International Economic Policy, Seoul,
Korea,


List of Figures

6.1
6.2
7.1
7.2
7.3
7.4

7.5
7.6
7.7
8.1
11.1
12.1
12.2
12.3

12.4
12.5
12.6

North Korea at night . . . . . . . . . . . . . . . . . . . . . . . . .
Rates of economic growth for North and South Korea . . . . . . .
Regional comparison of military spending (Unit: million USD) . .
Military expenditure of United States and countries in East
Asia (Unit: million USD) . . . . . . . . . . . . . . . . . . . . . .
Research framework: The transition process in triangle
domain and the role of the peace dividend on the Korean Peninsula
Stages of peace stabilization and research focus . . . . . . . . . .
South–North Korea Cooperation Fund appropriated and allocated .
Trend of the South–North Korea Cooperation Fund allocation . . .
Trend of humanitarian assistance by the South Korean
government, nongovernmental, and international organizations . .
The triangle facing North Korea . . . . . . . . . . . . . . . . . .
North Korean Special Economic Zones . . . . . . . . . . . . . . .
ROK: Country credit rating by Moody’s . . . . . . . . . . . . . .
Survey on North Korea’s influence in decision making
to invest in Korea . . . . . . . . . . . . . . . . . . . . . . . . . .

CDS Korea (five year) (2001/9 ∼ 2007/12). CDS (Credit
Default Swap) Premium for governmental bond for foreign
currency with five year maturity . . . . . . . . . . . . . . . . . .
Premium for governmental bond in US dollar due 2013
(2003/5 ∼ 2007/12) . . . . . . . . . . . . . . . . . . . . . . . . .
Railway connection between TKR, TSR, and TCR . . . . . . . .
Eurasian railway network . . . . . . . . . . . . . . . . . . . . . .

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xi


List of Tables

6.1
6.2
6.3
6.4
6.5
6.6
7.1
7.2
7.3
7.4
7.5
7.6
7.7

7.8
8.1
8.2
8.3
8.4
11.1
11.2
12.1
12.2
12.3
12.4
12.5
15.1

ROK & DPRK fertility rates. Note: Replacement is 2.1 . .

ROK & DPRK lifespans . . . . . . . . . . . . . . . . . .
Median ages – ROK, DPRK, USA . . . . . . . . . . . . .
Total ROK population . . . . . . . . . . . . . . . . . . .
Estimated military Spending as a percentage of GDP . . .
Selected ROK and DPRK military resources
(As of December 2006) . . . . . . . . . . . . . . . . . . .
Comparison of military expenditures by country . . . . . .
Trends of military expenditure by country (Unit: U.S.
Million Dollars) . . . . . . . . . . . . . . . . . . . . . . .
South–North Korea Cooperation Fund implemented
for projects of nongovernmental or private organizations .
Military expenditure by region (Unit: U.S. Million Dollars)
South–North Korean Cooperation Fund added by year
(Unit: 0.1 Billion S. Korean Won) . . . . . . . . . . . . .
South–North Korea Cooperation Fund allocation trend
(Unit: 0.1 Billion South Korean Won) . . . . . . . . . . .
Trend of humanitarian assistance by South Korean
government/nongovernmental/international organizations
(Unit: 0.1 Billion S. Korean Won) . . . . . . . . . . . . .
Expenditure of South–North Korea Cooperation Fund
(Unit: 0.1 Billion S. Korean Won) . . . . . . . . . . . . .
Reduction of military forces in Germany, 1989–2010 . . .
Military spending, selected countries . . . . . . . . . . . .
Active-duty military personnel, selected countries, 200 . .
Military spending, selected countries and world . . . . . .
Total Mount Kumgang tourists per year . . . . . . . . . .
Kaesong Industrial Complex master plan (as of 2006) . . .
Reconnected sections of inter-Korean roads and railways .
Possible routes of gas pipelines . . . . . . . . . . . . . .
Gaeseong Industrial Complex . . . . . . . . . . . . . . .

State of main mineral resource possession . . . . . . . . .
Estimates of unification costs . . . . . . . . . . . . . . . .
Inter-Korean dialogue on maritime affairs and fisheries . .

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88

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103

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118

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120

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121

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122

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123

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177
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196
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201
252

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xiii


Chapter 1

Introduction: Towards a Northeast Asian
Security Community and the Role
of North Korean Negotiation Tactics
Bernhard Seliger and Werner Pascha

The spectacular rise of the South Korean economy in the past half century has
been duly highlighted as one of the most successful cases of economic development
worldwide. The rise of the hard-hit Korean economy after the crisis of 1997/1998,
and its resilience in the current economic crisis that started in 2008, have added to
the well-deserved admiration for the “miracle on the Han river.” However, among
the factors curbing South Korea’s economic growth perspectives has been, from the
very beginning of its rise, the coexistence of the difficult brother, the Democratic
People’s Republic of Korea (“North Korea”). While during the Cold War this coexistence had to be accepted as inevitable, after the end of the Cold War, there were
hopes this obstacle to further growth could be overcome, either through the collapse
and absorption of North Korea into South Korea, or through enhanced cooperation
with North Korea, which would gradually decrease its threat potential and support
peaceful relations.
However, neither the first nor the second solution has become a reality yet. While
North Korea survived the collapse of communist regimes elsewhere around the
world, it suffered from a period of tremendous hardship for its people, resulting
in widespread famine. At the same time, its external stance was alternating between
unprecedented rapprochement – for instance, it participated in two summit meetings with South Korea and it allowed the establishment of the Kaesong Industrial
Complex – and unprecedented levels of aggressiveness with the development of

long-range ballistic missiles and nuclear devices, among others. Addressing the
North Korea threat was no longer a national issue; it had become an international
one. Multilateral talks to improve the situation, the four-party talks and later sixparty talks, came into existence as ad hoc measures to cope with the nuclear crisis.
The idea of a Northeast Asian security community was born.
There are five major reasons why the North Korea issue became a multilateral
issue: First, drawing up a reliable, enforceable and verifiable security arrangement
goes beyond the capabilities of North Korea and, more importantly, South Korea.

B. Seliger (B)
Hanns Seidel Foundation, Seoul Office, 140-886 Seoul, Republic of South Korea
e-mail:
B. Seliger, W. Pascha (eds.), Towards a Northeast Asian Security Community,
The Political Economy of the Asia Pacific, DOI 10.1007/978-1-4419-9657-2_1,
C Springer Science+Business Media, LLC 2011

1


2

B. Seliger and W. Pascha

Second, almost all conceivable arrangements would involve guarantees or economic
support measures that would also be beyond the means and power available to the
two Koreas. Third, solving the North Korea issue in whatever way would have
serious implications for the strategic interests of a number of major powers, including the United States and China. It would be naïve to assume that these powers
would simply accept any bilateral solution; whatever it may be, so it is meaningful to include them in a transparent, effective way from the start. Fourth, the 1953
armistice has left North and South Korea in a formal state of war. North Korea in
particular does not accept the South as a sovereign state. While this formal dispute may not be one of substantial significance, it would and indeed does make
non-multilateral frameworks extremely difficult and volatile. Fifth and finally, apart

from the costs that might have to be borne, any solution might also create an upside
potential not only for North and South Korea, the so-called “Peace Dividend,”
but also for other economies, particularly those in the Northeast Asian region.
For instance, resource availability, transport infrastructure, and energy disposability would be very much affected if North Korea were put on the “economic map”
of the region once again. A security framework for the Northeast Asian region thus
creates considerable positive and negative externalities for other countries, making
a multilateral framework desirable and unavoidable at the same time.
Would and should this multilateral framework be a regional or a more encompassing, possibly global one? As most of the external economies are realized on
the regional level – treating the United States as a “regional” power in this context – it is more or less that the security framework should be a regional one as well.
While it cannot be denied that other countries do face some external economies, the
marginal advantages of including them in the discussions would probably be offset
by the diseconomies of having more actors at the negotiating table. Moreover, only
the regional powers are able to play a meaningful role in the core security-related
topics, because only they possess the military means to project that influence to the
Northeast Asian region in a decisive way.
However, it is one of the main arguments of this book that the global community or other regions of the world may not only have a legitimate interest in what
is happening in Northeast Asia, but that they may have something to contribute.
First, precisely because they have less military clout and vested self-interest, such
external players may be more acceptable as go-betweens. Second, they may have
some expertise or experience to contribute to solving the security disputes of the
region. Europe’s experience with overcoming the deeply entrenched resentments
caused by the two World Wars, its use of humanitarian action in international diplomacy and the widespread involvement of non-state players immediately comes to
mind in this context. Against this background, on October 15, 2008, an outstanding group of scholars and policy-makers from Korea, the United States, and Europe
came together at the Korea Economic Institute in Washington, DC, to discuss the
ways “Towards a Northeast Asian Security Community? Implications for Korea’s
Growth and Economic Development.” The revised papers debated during this conference form the core of this conference volume, enriched by some later outside
contributions.


1

Introduction: Towards a Northeast Asian Security Community and the Role . . .

3

When discussing the possibilities of a security framework or, in an institutionalized form, security community, in Northeast Asia, it is important not to fall
into the trap of wishful thinking, which so often has characterized approaches to
North Korea as well as other isolated countries and resulted in disappointment. At
least, this was the point of departure of all the open-minded discussions during the
Washington workshop. It appeared that a key point for any progress toward a security framework for the Northeast Asian region has to rest on an understanding of how
North Korea enters such negotiations and accompanying processes. Therefore, as a
reminder of Northeast Asian realities, this introduction provides a short overview of
North Korean negotiation tactics guided by century-old Korean adages.1

Ni jukgo nae jukja (You Die! I Die!)
Nothing can describe the relations between North and South Korea better than this
expression frequently heard in standoff situations. North Korea, for a long time, had
an army perceived to be better equipped, trained, and motivated than the forces of its
Southern counterpart, which, due to American involvement, had a great advantage
because of its access to the most advanced warfare technologies. The decline of
the North Korean economy after the collapse of the Soviet Union and the end of
economic aid also brought a deterioration of the North Korean army, which was
able to concentrate and specialize in certain fields (as the steady increase of special
troops in comparison to the general army shows). In particular, the leadership found
a powerful, though ambiguous weapon, namely the nuclear devices that it developed
throughout the 1990s and 2000s, which were complemented by the development of
ballistic missiles of medium and long range.
To be able to use these new weapons as a credible deterrent against outside forces
as well as a possible tool for the extortion of economic aid, a credible threat to
actually use the weapons had to be communicated. This, to a considerable extent,

explains the otherwise almost inexplicable outburst of violence at times, when North
Korea at the same time pursues obvious tactics of negotiations and rapprochement,
like in the early phase of President Barack Obama’s administration, when a nuclear
test clearly alienated the new US administration. “You die! I die!” implies that North
Korea is willing to use force, possibly even risking self-destruction, with so much
credibility that no one dares to challenge its claim.

Baejjaera! (You Can Slash Open My Belly)
When someone grabs and swallows a contested piece of (rice-) cake, the only possibility to take it back from him is to slash open his belly. Is the opponent willing
to resort to this and thus raise the stakes to a level that will make the opponent back
1 All

of the following Korean proverbs were taken from Choe and Torchia (2002).


4

B. Seliger and W. Pascha

down? Developing nuclear and ballistic weapons plus carrying out smaller provocations on the ground also enhances the first-mover advantage in provocations: When
holding an employee of Hyundai Asan in Kaesong for alleged derogatory comments
on the leader or shooting a tourist in Kumgang Mountain resort, or when heightening tensions in the West Sea (the Yellow Sea), North Korea can be confident that
the surrounding powers, in particular South Korea, and also the United States and
Japan, will be very careful and restricted by the nature of their democratic governments in order not let the conflicts escalate. The first mover, North Korea, can almost
always gain something through provocations. The relatively lower value of human
life, being it national citizens or people from a different nation, also supports a daring approach by North Korea, since such audacity cannot be matched by an equally
daring democratic government.

Mule ppajinnom guhaejuni bottari naenora handa
(When I Saved Him from Drowning, He Criticized Me

for Not Saving His Baggage As Well)
The North Korean negotiation history is full of examples of it accepting international
aid, such as during the time of the Cold War from the Soviet Union and China, and
since the mid-1990s from the international community, while, at the same time,
distancing itself from the donations and criticizing them as too small. This tactics is
partly a result of the wish to remain independent from any aid donor. It is moreover
instrumental in the internal debate about autarky of the country, and it also raises
the possibility of a race-for-aid among donors willing to increase their donations to
outmatch the seemingly insufficient aid from other donors criticized by North Korea.
The latest example for such a technique was the response to the South Korean offer
of corn aid in the autumn of 2009, which was at the same time accepted by North
Korea, but ridiculed as too little and niggardly.

Mot meokneun gam, jjilreona bonda
(Poking Holes in Persimmons That He Cannot Eat)
While North Korea is not as completely independent from the outside world as
it makes its citizens believe and would like to make the international community
believe, it is much less dependent on achieving tangible economic results for its citizens than the neighboring countries. For a long time after the Korean War, when
the economic conditions in North Korea were improving due to reconstruction by
forced savings and external aid rather rapidly, North Korea hoped to be permanently
richer and more attractive than South Korea. Since the mid-1970s, this illusion has
faded and in the 1990s, the catastrophic results of isolationism, failed central planning, and aid dependence became fully exposed during a major famine, called the
“Arduous March” in North Korea. However, North Korea did not concede its loss in


1

Introduction: Towards a Northeast Asian Security Community and the Role . . .

5

the ideological battle, but simply changed the battle ground: From around the year
2000, it argued that economic development in the South, which by now had become
well-known through channels like visitors to and from China or smuggled DVDs
from the South, was bought at the price of tainting the racially and politically pure
Korean people with the evil influences of foreign countries. Thereby, it took up old
prejudices against foreign involvement dating back centuries.

Gaemiga jeongjanamu geondeurinda
(It’s Like Ants Trying to Topple an Oak Tree)
Poverty and famine notwithstanding, North Korea sees itself as a pillar of stability
in a world full of enemies. The lesson learned from the collapse of Eastern Europe
and of the Soviet Union in the late 1980s is that all kinds of compromise – under
the slogans of peaceful coexistence and gradual rapprochement – ultimately lead
to the downfall, not the stability, of authoritarian regimes. Therefore, North Korea
ridicules its enemies as ants trying to topple an oak tree. Still, its leadership also has
the vigilance of someone fearing that one day the tree might succumb to the outside
attacks. This results in a hardened stance, not so much for ideological reasons, which
are almost completely absent from North Korea’s diplomacy, but rather for the fear
of inviting cracks in the pillar on which North Korea stands.
This short overview of North Korean negotiation tactics and considerations
shows that North Korea has a certain interest in sustaining tensions with its neighboring states and can even gain from this. The history of the last two decades shows
how well poverty and aggressiveness were used to secure aid from very unlikely
sources, like food aid from the United States, which, for a long time, has been one
of the most important donors. Along with food aid from the United States, North
Korea has received generous unspecified monetary transfers from South Korean
governments trying to avoid the collapse of North’s government. Nevertheless,
the unbending stance regarding cooperation, the unending military and diplomatic
provocations, plus the repetition of tactics to get rewards for issues already agreed
upon and paid several times in the framework of the six-party talks leads to a certain

fatigue of donors, negotiation partners, and even allies. In South Korea, in particular
the step-by-step increase of tensions by North Korea during the presidency of Lee
Myung-Bak eventually led to a strategic answer.

Yubimuhwan (Be Prepared and You Won’t Have a Crisis)
It is not clear how much this proverb reflects the reality of the recent position of
the South Korean government toward North Korea, let alone, whether this reflects a
more sobering disposition in South Korea at large whose opposition parties certainly diverge from the government view in important respects. However, there
is by now a widespread caution in all proposals put forward by North Korea or


6

B. Seliger and W. Pascha

by international negotiators when promoting improved relations between the two
Koreas. Such caution is certainly comprehensible, since it allows a realistic appraisal
of cooperation possibilities. However, there is a danger that relations could rapidly
deteriorate to another state of affairs more appropriately circumscribed by the last
proverb cited here.

Michingaeneun mongdungyiga jegyeok
(You Should Deal with a Mad Dog with a Bat)
If relations reach a point in which there is simply an exchange of threats and
“pinpricks,” discussing the possibilities of a security community becomes simply
meaningless – at least for the time being. Tensions in the West Sea in 2009 and
2010 have the danger to push relations to such a point. Considering this imminent
danger, the analytical issue turns considerably more humble: What incentives – provided by a multilateral framework – can prevent North Korea from acting in a way
that results in South Korea freezing toward any further rapprochement? In this context, it is important to see that North Korea is often described as “irrational” in
its international negotiations. It is certainly true that North Korea suffers from a

tremendous shortage of qualified diplomats and does occasionally seem disoriented.
(Here, we cannot discuss the issue any further whether North Korea can be seen
as a single actor, epitomized in the person of the leader Kim Jong-Il, or whether
different centers of policy-making, including the armed forces, would have to be
considered.) Still, “irrationality” is not a meaningful category for describing the
policy at large. Simply, North Korea uses a different yardstick for foreign policy
success (or national interest). North Korea is less focused on peace and security in
a traditional sense (increasing the GDP or national welfare), which are the typical
benchmarks used by democratic states and often, implicitly, by scholars to measure
a country’s success. Rather, North Korea measures success by its ability to signal
firm leadership, and to survive as a coherent regime. Given this background, a discussion of the chances for a security community or security framework for Northeast
Asia might be considerably restricted in its options, but much more realistic in its
outcomes.
The chapters of this volume address four topics. The first part explores the
prospects for a Northeast Asian Security Community. The second part focuses on
the economic implications. Parts III and IV discuss North Korea and South Korea,
respectively. More specifically, the first part of this volume looks into the prospects
for a Northeast Asian security framework. Key-Young Son in his contribution points
out that a Northeast Asian security framework, different for example from the security environment shaped in Europe during the Cold War, is based on intraregional
issues, such as territorial and historical issues and the ability of the region to cope
with nationalist fervor, rather than on an alliance to counter external threats.
Such a security framework could evolve from the current balance of power in
Northeast Asia. It might include the closer cooperation of the two Koreas leading
to a confederation, and Son is cautiously optimistic about this, citing the gradual


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Introduction: Towards a Northeast Asian Security Community and the Role . . .

7

reduction of tension and joint projects between the two Koreas. Scott Snyder starts
his paper with the observation that Northeast Asia, in security terms, remains
“under-institutionalized.” He then discusses the possible ways toward security cooperation in Northeast Asia. Ironically, North Korea, the country most contributing to
regional conflicts, also could become the biggest promoter of multilateral security
cooperation in the region, and this could emerge from the six-party talks. Brahm
Swaroop Agrawal reviews the history of Korea’s security challenges and its answer,
seclusion. In his opinion the strategic criticality of the Peninsula for its neighbors
is a reason for the still unresolved conflict, more than the nuclear capability of
North Korea itself, since dominant powers of the region do not want to loosen their
grip on it.
Will security cooperation and the possibility of peace in Northeast Asia benefit
the economy of the region, and in particular, Korea’s? This question is raised in
the second part of the volume, which discusses features of a “peace dividend” for
Northeast Asia. Andrei Lankov takes a sobering view on the issue of a peace dividend, doubting a gradual convergence of North Korea with the South and pointing
out that a potential collapse of North Korea will leave South Korea with no other
option than to accept the burden of unification, under whatever circumstances at
the time. He proposes a confederation-cum-immigration control, real estate sales
control, and land reform in North Korea, a general amnesty as well as affirmative
action for North Koreans as measures to cope with the economic and social effects
of unification on South Korean terms. Paul Chamberlin views the issue of a peace
dividend for the two coexisting Korean states and points out that it will be much
easier for South Korea to realize the peace dividend than for North Korea. Absent
major systemic reform, North Korea will not be able to absorb a peace dividend. For
example, reductions of the military personnel only make sense if the inflow into the
labor market can be used productively. Bok-Gyo Jeong looks into the interaction of
government, nongovernmental organizations, and private companies to understand
the possibility of change toward more peaceful relations between the two Koreas.
In particular, he focuses on the role of the South–North Korea Cooperation Fund,

established by the South Korean government to support cooperation projects.
The third part of the volume deals with the implications of a possible Northeast
Asian Security Community for the North Korean economy. Bernhard Seliger warns
that the concept of a “peace dividend,” which became popular during the final years
of the Cold War, and refers to the possible long-term benefits of lower military
spending, is not entirely applicable to North Korea. The reason is that from a political economy point of view, “military first” policy and military spending should
not be seen as entirely related to the external security threat for North Korea, but
are equally dominated by domestic policy considerations, in particular regime survival. In this sense, the hope for a peace dividend might be premature, as long
as the fundamental use of security crisis for regime survival in North Korea does
not cease.
Bradley O. Babson points out that, despite the formidable obstacles that still
persist, the prospect that a Northeast Asia Security Community might provide a
stable, long-term foundation for peace and prosperity in this critically important


8

B. Seliger and W. Pascha

region is a goal worth pursuing. He argues that from the perspective of maintaining
its national sovereignty and pursing economic development, it would be greatly in
North Korea’s interest to reform its political and economic system to improve productivity and attract foreign capital as well as to build export-oriented economic
relations with all its neighboring countries. A Northeast Asia Regional Security
Cooperation architecture could be designed to provide a crucial underpinning for
such a vision of North Korea’s future; this could support the necessary transition
from an inward-oriented economic system to an outward-oriented one. However,
he admits that it is hard to imagine how a regional security cooperation arrangement could, in fact, succeed unless North Korea is willing to undertake the critical
transformations required to participate and benefit from genuine regionalism.
Stephen Haggard and Marcus Noland look into financial cooperation with North
Korea and discuss how such cooperation can be designed in a way to encourage

long-run change in the North Korean system. All cooperation with North Korea
should be based on the ultimate objectives of moderating North Korean behavior,
encouraging reform, and increasing private financial flows to the country, both in the
form of foreign direct investment and commercial bank lending. Aid should seek to
complement and encourage such private flows, not provide a substitute for them.
They point out that a multilateral approach to aid for North Korea, feasible in a
multilateral Northeast Asian Security Community, can cope better with the moral
hazard problems inherent in a purely bilateral approach to relations with North
Korea.
Ralph Michael Wrobel studies the inter-Korean cooperation in special economic
zones and takes a critical stance toward the now-defunct Mount Kumgang Special
Tourism zone, which provided no incentives for change in North Korea. He contrasts this with the Kaesong Industrial Complex, where economic cooperation takes
place and important new skills can be acquired by North Koreans through the joint
venture.
The fourth and final part looks into implications of the concept of a Northeast
Asian Security Community for South Korea’s economy. Deok Ryong Yoon argues
that South Korea’s economy is burdened in multiple ways by the division of the
Korean Peninsula, directly in terms of military spending and the costs of the division, and also through isolation from the Asian continent and by prospective costs
of unification with an economically crippled North Korea. Yoon hopes that a peace
regime on the peninsula may reduce these costs and open new opportunities for
economic growth, using the limited economic potential for South Korea.
Soon Paik analyzes the potential impact a Northeast Asian Security Community
might have by developing scenarios related to how such a regime could evolve and
by discussing its implications for Northeast Asian economic institutions. Jitendra
Uttam also looks at Northeast Asian economic cooperation and the institutional
framework and argues that the current state of strategic disequilibrium in the
region has eroded long-held barriers that have hindered regional economic interaction. Several initiatives have, according to Uttam, a direct correlation with the


1

Introduction: Towards a Northeast Asian Security Community and the Role . . .

9

shifting strategic priorities in the region, including the joint declaration on tripartite cooperation; the Greater Tumen Initiative (GTI), supported by the UNDP; the
Northeast Asia Economic Council; Northeast Asian Energy Community; Chiang
Mai Initiative (CMI); and the Asian Bond Market Initiative (AMBI). With “realists” in retreat, “idealists” have envisioned a freight corridor connecting Europe
and East Asia via a vast trans-Siberian railway network, and “functionalists” see
the connection of enormous resource-rich regions of the Russian Far East with the
resource-poor global manufacturing core that comprises Japan, Korea, and China.
This would put the Korean Peninsula into the center of Northeast Asian economic
cooperation and present enormous benefits to the South Korean economy.
The last chapter by Martyn de Bruyn and Sangmin Bae discusses the role of institutionalized cooperation for trust building among governments. While the six-party
talks and the Kaesong Industrial Complex with its uneven contributions from North
and South Korea (one party provides labor, the other management) are evaluated
as a limited success, de Bruyn and Bae propose cooperation in the field of shipping and fisheries industries, in which both Koreas could build a balanced, equal
partnership. Even modest integration of the nations’ shipping and fisheries sectors
would substantially improve the level of trust between the two sides, while providing essential goods and development to the malnourished North. As the coal and
steel community was only a start for the European Union – clearly implemented
with the greater goals of peace and prosperity in mind – so can the integration of
the fisheries industry provide a similar starting point in the search for equally lofty
goals for the Korean peninsula, the authors hope.
The conference “Towards a Northeast Asian Security Community? Implications
for Korea’s Growth and Economic Development” at the Korea Economic Institute
in Washington, DC, on October 15, 2008, and this volume would not have been possible without the aid of many persons and institutions, all of whom the editors thank
for their contributions. First of all, generous funding and continuous support came
from the Strategic Initiative for Korean Studies of the Academy of Korean Studies
(AKS) and its Director, Dr. Do-Hyun Han. This publication appears as a contribution to the Modern Korean Economy book series funded by the AKS Initiative. The
Korea Economic Institute in Washington, DC, not only hosted the conference but

also helped to prepare the publication of this volume. Thanks go to the president of
KEI, Jack Pritchard, to former Vice President James M. Lister, to Nicole Finnemann,
and others at the institute for making the conference a wonderful event. The editors
Mary Marik and David Kendall helped to bring the texts into a more readable form.
For two years, Sarah Kohls of the Hanns-Seidel-Foundation Korea had been planning, organizing, and arranging for the conference and publication, together with
aid from other staff in Seoul. Last, but not least, all authors and contributors to the
volume made this an exciting and worthwhile endeavor: thank you all.
At the time of finishing the manuscript of this volume, there are new clouds and
doubts regarding inter-Korean cooperation; after the closure of the Kumgangsan
tourism complex and tensions in the West Sea, culminating in the tragic sinking of


10

B. Seliger and W. Pascha

the South Korean corvette Cheonan, a new ice age between the two Koreas seems
possible. Nevertheless and possibly even more than ever, the search for a stable
security framework for Northeast Asia as a precondition for peaceful economic
cooperation and development will go on. We sincerely hope to make a small contribution to the ongoing debate in the chapters of this volume, as part of a much larger
effort to secure peace and development in Northeast Asia.

Reference
Choe, Sang-Hun, Torchia, Christopher (2002). How Koreans Talk. A Collection of Expressions.
Seoul: Unhaengnamu.


Part I

Prospects for a Northeast Asia

Security Framework


Chapter 2

From a Fault Line to a Catalyst: An Emerging
Korean Confederation and the Contour
of a Northeast Asian Security Community?
Key-young Son

We have much ado about various scenarios of forming a regional community in East
Asia. So far, many ideas and initiatives were centered on establishing a regional
community bringing together the member states of the Association of Southeast
Asian Nations (ASEAN) and its three Northeast Asian partners – China, Japan, and
South Korea.1 The ASEAN Regional Forum (ARF) has also been in operation as
a regional security dialogue with the participation of 27 countries interested in the
promotion of security in East Asia. Does the ARF have any potential of evolving
into a regional security alliance, such as the North Atlantic Treaty Organization
(NATO)? Why does the idea of forming a security community appear controversial
in East Asia, especially in Northeast Asia? Clearly, one of the stumbling blocks
is the presence of the lingering Cold War-like security landscape in Northeast
Asia, represented by the two divided states of China and Korea.2 In particular,
the Korean divide, described as a major fault line partitioning Northeast Asia into
two blocs, has been the locus of attention at the turn of the twenty-first century
because of North Korea’s development of nuclear and missile programs and the protracted issue of regime survival. Though rare in Northeast Asia’s security landscape,
two ad hoc multinational talks – four-party talks (1997–1998) and six-party talks
(2003–?) – have been convened to address a multitude of problems emanating from
the Korean divide, highlighting a linkage between the Korean issues and regional
security.
Already, economic integration is in full swing amongst Northeast Asian countries

after the end of the Cold War. In contrast, the change of the security landscape has
been painstakingly slow. South Korea’s diplomatic normalization with the Soviet
Union in 1990 and with China in 1992 did not lead to North Korea’s rapprochement
with the United States and Japan. As evidence of the lingering Cold War structure,
1 T.J. Pempel (ed.) (2005) Remapping East Asia: The Constitution of a Region, Ithaca: Cornell
University Press.
2 Samuel S. Kim (ed.) (2003) The International Relations of Northeast Asia, Lanham, MD:
Rowman & Littlefield.

K. Son (B)
Tohoku University, Sendai, Japan
e-mail:
B. Seliger, W. Pascha (eds.), Towards a Northeast Asian Security Community,
The Political Economy of the Asia Pacific, DOI 10.1007/978-1-4419-9657-2_2,
C Springer Science+Business Media, LLC 2011

13


14

K. Son

Japan has been closely aligned with the United States, while China has been a main
political and economic backer of North Korea. South Korea’s future alliance politics
appears precarious despite its current alliance with the United States, while North
Korea and Mongolia have made only ad hoc presence in regional dialogue.
As before, the region’s two strongest states, China and Japan, have been stuck
in a bipolar rivalry, jockeying for a better position in a regional leadership game.
Here, national identities loom large. China, once called the “Middle Kingdom,”

does not identify itself simply as one of the Northeast Asian countries. Being the
world’s third largest country in terms of territorial size after Russia and Canada,
China ranks No. 2 in the world in terms of its gross domestic product only after the
United States.3 Boosted by the population of 1.3 billion and robust growth potential,
China has sought to ensure its “peaceful rise” with multiple engagements with different parts of the world. If China had played a main role in organizing the Shanghai
Cooperation Organization (SCO) to address inter-state issues, such as conflicts on
shared borders, with a group of countries located north and west of it, it is likely to
seek to create a similar security mechanism in Northeast Asia. Like China, Japan
does not want to nurture its identity purely as one of the Northeast Asian states.
Being the world’s No. 3 economic power, Japan once aspired to change its identity from that of an East Asian country to one of the West despite its geographical
fixation in Northeast Asia.4 As evidence that it has recovered from a decade-long
recession at the end of the twentieth century, Japan returned to the world financial
stage in 2008 by taking over parts of major US financial institutions, such as Morgan
Stanley and Lehman Brothers. The US financial troubles, sparked by the subprime
mortgage crisis, showed that Japan’s major financial institutions are equipped with
expertise, as well as the purchasing power, far ahead of such fast-growing economies
as China and India.5 All in all, the identity dynamic of China and Japan has given
them a sense of exceptionality, making it hard for them to cooperate to build a
regional community.
This chapter sheds light on a scenario in which this bipolar rivalry could evolve
into a dynamic three-way system of competition and cooperation in parallel with
the emergence of a Korean confederation.6 This scenario is based on the belief
that it would be virtually impossible to enter into any genuine dialogue to form
a regional security community in Northeast Asia, as long as North Korea persists

3 See the CIA World Factbook at />geos/ch.html
4 Gerrit Gong (1984) “The Standard of ‘Civilisation’ in International Society,” in Hedley Bull and
Adam Watson (eds.) The Expansion of International Society, Oxford: Oxford University Press.
5 New York Times, 24 September 2008.
6 For instance, Sejong Institute identifies 2020 as a year for the formation of a Korean confederation. See Chung Sung-jang (ed.) (2005) Hankukui kukajollyak 2020: Taebuk tongil (South Korea’s

State Strategy 2020: Unification with North Korea), Seoul: Sejong Institute. Carl E. Haselden,
Jr. forecasts that the political settlement on unification could be reached by 2015. See Carl E.
Haselden, Jr. (2002) “The Effects of Korean Unification on the US Military Presence in Northeast
Asia,” Parameters 32: 120–7.


2

From a Fault Line to a Catalyst: An Emerging Korean Confederation . . .

15

as a state posing threats to its neighbors.7 In the process of forming a community
in Europe or North America, there has been no state that considers one or more
states in the prospective bloc as an enemy. Beyond this security dimension, North
Korea’s international isolation has created a grid lock hampering transportation and
traffic between the continental and maritime countries in Northeast Asia. This grid
lock has brought about far-reaching economic woes not only to ordinary North
Koreans but also to those in the northeastern provinces of China, which had been
denied opportunities of growth comparable to the other economically bustling parts
of China.8 Therefore, the transformation of North Korea into an open society will
be a blessing to the Northeast Asian countries, facilitating multilevel exchange and
cooperation.
Initially, the emergence of a Korean confederation will touch off a further nationalist or integrationist movement affecting Yanbian Korean Autonomous Prefecture
in northeastern China and Mongolia beyond it, given that their ethnic, cultural
and linguistic affinity could facilitate interactions on various levels.9 Surely, this
development will irritate the Chinese government and provoke Chinese nationalism, raising political tension in the short term. Already, a series of history projects,
sponsored by the Chinese government, provoked nationalist uproars in South Korea
and Mongolia because they aimed to give a revisionist look at the history of China
and its neighboring countries to incorporate the ancient history of the neighboring

countries as part of China’s. Cyberspace in China and South Korea has been abuzz
with the accusations of one another’s alleged nationalist or imperialist ambitions,
occasionally spilling into bilateral diplomatic negotiations. However, the efforts to
address these long-overdue issues between the concerned countries will become
a golden chance to make reality checks on the boundaries of nationalism and to
foster ways to establish a security regime to tackle various interstate issues as a
prelude to the formation of a security community. So far, these bilateral negotiations and regional integrationist moves have been overshadowed by hard security
issues emanating from Cold War-style political tension, such as the North Korean
nuclear crisis.
In this chapter, I am optimistic about the two possibilities: the formation of a
Korean confederation and its positive role in the creation of a Northeast Asian
security community. My arguments sound teleological, but teleology returned to
the discipline of international politics with, for instance, Alexander Wendt arguing
strongly in favor of the establishment of a world state as the final stage of various

7 Myung-lim

Park (2004) “Tongbuka pyonghwagongdongcheui hyongsonggwa chonmang (The
formation and prospects of a peace community in Northeast Asia),” available at http://220.72.
21.30/pub/docu/kr/AG/08/AG082004XBL/AG08-2004-XBL-001.PDF
8 Yanbian University Professor Kim Kang-il attributed economic backwardness in China’s three
northeastern provinces to the Korean division. See Yonhap News, 2 October 2008.
9 The idea of the Korean-Mongolian confederation is already being circulated on various occasions
with seminars on the topic being organized and a maverick South Korean presidential candidate
arguing on a TV program that the Korean–Mongolian unification should come first before an interKorean unity.


16

K. Son

political projects of the human civilization.10 Teleology often marries history, which
is a story of humans and their groupings, who are not just the agents of material
power, but the incarnation of ideas and discourses. Though it is one of the weakest
Northeast Asian states, South Korea has been recently saturated with the idea of
the so-called “greater Korea,” with its film and drama industry increasingly featuring inter-Korean rapprochement and nostalgic renditions of once powerful Korean
kingdoms, which had prospered in the territories of contemporary China and Russia
more than 1,000 years ago, often described as “old lands,” or “lost lands” in a form
of irredentism. The process of forming a Northeast Asian security community will
gain momentum when China and a future Korean confederation institutionalize their
contacts to find a political solution on many pending issues, including this, and
Japan, regarded as a regional “intermediary” for American hegemony, is convinced
it is time to deeply engage with these two historical rivals.11
Given the identities and pending issues affecting the Northeast Asian countries,
an emerging security regime in Northeast Asia will be designed to address primarily intraregional challenges, such as territorial and history issues and accompanying
nationalist fervor, rather than becoming a form of multilateral alliance to counter
external threats.12 This is because the states in Northeast Asia need to alleviate the
negative side of nationalism and control an arms race in parallel with the formation of a Korean confederation and the readjustment of US security commitments
in Northeast Asia. It appears inevitable for the United States to review its “overstretched military commitments” in the wake of its unprecedented financial crisis
affecting its global status, with mounting predictions on hegemonic transition.13
In the face of these external and internal challenges, as well as out of their desire
to maintain economic prosperity and unhampered cultural exchange, I argue that
the Northeast Asian countries would have no option but to create a regional security regime with an “Asian face,” similar to the SCO, rather than NATO or the
Organization for Security and Co-operation in Europe (OSCE). The SCO is a multinational security organization under the twin leadership of China and Russia, but
its refusal to grant the United States an observer status touched off the suspicion
that it might be an anti-Western alliance. However, the Northeast Asian version
of the SCO is likely to take more equal and open approaches to its members and
the outside powers, such as the United States and Russia, because Japan and South
Korea, regarded as pro-Western countries, would work to harmonize both Asian and
Western values in the process of institutionalizing decision-making processes.

The formation of a security regime in this region is likely to result from the successful confluence of the six-party talks and some regional integrationist initiatives,
10 Alexander

Wendt (2003) “Why a World State is Inevitable,” European Journal of International
Relations 9(4): 491–542.
11 Peter J. Katzenstein (2005) A World of Regions: Asia and Europe in the American Imperium,
Ithaca: Cornell University Press, p. 1.
12 For various types of a regional order, see Kim, The International Relations of Northeast
Asia, p. 53.
13 The Observer, 28 September 2008.