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Several economic agreements coming out of the Park-Putin summit proved more interesting—if less immediately newsworthy--than Putin’s numerous diplomatic faux pas during his day in Seoul (the Chosun Ilbo documents Putin’s numerous schedule changes). They center on the future of Rason and the wider issue of how to structure large-scale economic projects in the North given the substantial political risk and South Korea’s post-Cheonan sanctions regime, the so-called May 24 Measures.
In September, Russia and North Korea announced the re-opening of the 54 kilometer Khasan-Rajin railroad link. The €150m rail project goes all the way back to a 2000 summit between Kim Jong Il and Putin, and was ultimately undertaken by a joint venture between North Korean Railway and Russian Railways; the JV (RasonKonTrans) was technically signed by the Russian railway operator’s business subsidiary RZD Trading and the Port of Rajin, with the Russians holding 70% of the shares. The rail project involved the reconstruction of track, 10 stations, three tunnels and more than 40 bridges.
But the larger prize has always been the dream of a Trans-Korean Main Line reconstruction that would create an Euro-Asian transport corridor cutting delivery times from South Korea and Japan to Europe in half. The so-called “Eastern Line” or “Iron Silk Road” has an estimated price tag of $7-8 billion, and would clearly require a consortium of investors from South Korea, Japan and Europe. In the interim, port improvements at Rason could permit transshipment through the North Korean port to the Russian railway system.
In October at a conference on Global Cooperation in the Era of Eurasia Park unveiled a wider “Eurasia Initiative” that emphasized the gains from linking rail, electricity grids, gas and oil pipelines, and codeveloping China’s shale gas and eastern Siberia’s petroleum and gas; the rail and Rason projects would clearly fit. The Park-Putin summit produced a memorandum of understanding that POSCO, Hyundai Merchant Marine Co. and Korea Railroad Corp. would participate in the modernization of the third port at Rason by purchase of a stake in RasonKonTrans; a final decision on the planned purchase will be made next year. A second agreement—there were six formal MOUs and a dozen other agreements—focused on rail cooperation and promised a closer look at the Iron Silk Road concept.
In the meantime, Chinese investment in Rason is also steaming ahead, with the land route from Hunchun feeding the port operations that the Chinese have secured next door to the Russians; Robert Potter offers a few interesting images from a trip in September, including the casino at the end of a dirt road. Back in September, Asahi Shimbun speculated that the Chinese and Russian port investments are likely to be competitive as much as complementary; this angle has not gotten adequate play.
The MOU with the Russians on Rason raised a quite important policy issue for the Ministry of Foreign Affairs: how to interpret the so-called May 24 measures put in place following the sinking of the Cheonan. These sanctions effectively shut down nearly all North-South trade and investment outside of Kaesong. The MOFA appears to have reached the conclusion that “indirect” investments in a joint venture with the Russians do not violate the sanctions; this interpretation may ultimately be the opening wedge to diluting them formally.
But it should be emphasized that such joint venture structures are also a way of reducing the incredible risks associated with ventures of this scale; Sino-NK offers a downbeat assessment of the likelihood of the Iron Silk Road project going anywhere anytime soon with political risk being a major barrier. As if on cue, the North Koreans are dragging their feet on agreements with respect to Kaesong. Nonetheless, the Park administration appears to be rolling the dice on cooperation with Russia in Rason as a way to get Trustpolitik going again.
