Asia and Pacific

Will South and North Korea re-engage in trade as part of stepping closer together?

Monday April 30, 2018 Hillmare Schulze

The world watched an historical event unfold last week, with the leader of North Korea, Kim Jong-Un, becoming the first leader to step across the border into South Korea since the end of the Korean war in 1953. The handshake between the two leaders in no way seals a peace deal, but it may start a process that brings the two Koreas much closer together.


Trade between the two nations have been reduced to a trickle


Based on data published by the Bank of Korea, it shows the trade volume between the two countries dropped by an astounding 87.7 percent year-over-year, from being worth $US 2.7 billion in 2015 to a paltry $US330 million in 2016.


Also, the Kaesong Industrial Zone (KIZ) was one of the prime economic plans designed to further inter-Korean economic cooperation and trade. It opened in 2004, with more than 100 South Korean firms setting up shop in the complex situated in North Korea near the border to the South, employing over 50,000 North Korean workers.  However, it was closed down when both governments withdrew in early 2016 when relations between the Koreas soured over nuclear and missile tests the North conducted in January and February 2016.


“The U.N. sanctions adopted after Kaesong's shutdown would effectively prohibit its reopening, and would make other forms of inter-Korean economic engagement very difficult,” says Daniel Wertz, associate director at the National Committee On North Korea.  It will be interesting to see how South Korea reengages with North Korea, within the current context, to start growing trade relations again.


The economic divide has grown exponentially




This NASA image clearly depicts the economic divide between the two nations, with hardly any lights visible at night in North Korea.  The average person in North Korea consume 739 kilowatts of electricity, whilst in South Korea the average consumption per person is just over 10,000 kilowatt hour of electricity.


South Korean economy thirty times bigger than the North Korean economy


North Korea is a one-party state led by Kim Jong Un that occupies the northern half of the Korean Peninsula and is home to 25 million people. The size of its economy is $US45 billion with GDP per capita of around $US1,800 (CIA Factbook). The military is huge, with an estimated 4 million active personnel and a reserve force of over 7 million.


In contrast, South Korea is a presidential federal republic with a multitude of parties, elections, and human rights. Home to 51 million people, South Korea occupies the southern half of the Korean Peninsula. The size of the economy is $US1.4 trillion with a GDP per capita of around $US27,000 (CIA Factbook). South Korea’s economy grew at a ridiculous rate from the 1970s to well into the 1990s, going from a third world country to a G20 nation within 30 years. It is home to some of the largest tech companies in the world, such as Samsung, and is known is a leader in new technology. It also has a very large military, with an active force of 630,000 and a reserve force of 2.3 million.