Tumen River project running into problems

Tumen River project running into problems

Mark J. Valencia examines the potential of the only existing
multilateral inter-governmental institution for economic
cooperation in Northeast Asia.

The United Nation's Development Program's much-touted Tumen
River Area Development Project (TRADP) has run into problems and
skeptics are pronouncing it dead in the water, if not dead all
together. The hope was that economic cooperation would break down
political barriers that have made the region a flash point for
decades. But Russian and Chinese reservations at the July 1994
meeting of the Program Management Committee in Moscow derailed
the previously agreed Tumen River Area Development Corporation.

The Corporation was to be run by the three riparian countries
to lease land and attract foreign investment. And on Oct. 31, the
UNDP closed its New York office having exhausted its US$3.5
million budget. The role of the UNDP has now been reduced to a
liaison office in Beijing. Although talks and studies in the
riparian countries continue, the key question being raised is
whether the TRADP idea and process can survive without an
implementing mechanism to drive it forward.

However, these doomsayers ignore the fact that the fundamental
driving forces for development of that area remain and, indeed,
are long-term trends. The original concept was to combine
Japanese and South Korean capital, know-how and technology with
cheap Chinese and North Korean labor to exploit and process
natural resources from the Russian Far East and Mongolia. China
still wants to develop its economically-backward northeast and to
regain access to the sea either through a Tumen River port or by
leasing facilities at warm water ports in Russia and North Korea.
Mongolia continues to seek trade as well as investment in its
mineral rich east from its Asian neighbors, and also needs access
to the sea, particularly for exports of raw materials.

North Korea is proceeding with development of its
Rajin/Sonbong Special Economic Zone (SEZ) and wishes to use the
Tumen River project as a vehicle to attract and perhaps help
guarantee foreign investment. As evidence of its commitment, it
has approved the concept of land leasing. Indeed, North Korea is
greatly disappointed that the corporation idea has been stalled.

South Korea has an abiding special interest in China's Yanbian
area with its roughly two million ethnic Koreans, and wishes to
use the project as well as direct investment in China's North
Korean border area as a means for cooperation and confidence-
building with North Korea. Indeed it hopes the project will help
persuade North Korea to shift slowly to an open-door policy.

South Korea's motives are also economic. Low fixed costs and
cheap Korean-speaking labor can combine to produce value-added
consumer goods for South Korea as well as an eventual market for
South Korean products. Kim Young-Sam's Nov. 7, 1994, declaration
liberalizing South Korean investment in North Korea is a positive
initial step to promote direct investment in the Rajin-Sonbong
SEZ. Although North Korea responded critically to President Kim's
move, it did invite representatives to visit the North. South
Korean companies have already begun planning for such investment.
The Korea Maritime and Port Administration has applied to the
Ministry of Science and Technology to develop ports in the zone.
And Samsung plans to invest in the Hunchun-Rajin/Sonbong rail
link and to finance the development of Rajin port. These projects
represent the first direct South Korean investment in the North,
although the risk is being hedged by investing through a Chinese
company.

Russia remains mired in its own economic difficulties and is
concerned that the project will compete with its existing sea
ports and ground transportation facilities. Moreover its
constitution does not yet allow foreigners to lease land. And
there is some concern that the project would harm its coastal
wetland environment as well as attract hordes of Chinese and
North Korean immigrants. Nevertheless, Russia realizes that the
future of its Far East is in trade and investment with its Asian
neighbors. Thus it wants to see how the Tumen project and the
Russian Far East will fit in a broader Regional Development
Strategy before fully backing the project.

In keeping with Russia's concern, the original somewhat narrow
TRADP has now been supplanted by a large vision encompassing the
area between Hunchun, Chongjin and Nakhodka, and is focused on
more modest objectives. Long-term and large-scale projects such
as building 11 specialized harbors and a rail hub have been put
aside in favor of improving existing ports and conducting small-
scale projects as quickly as possible. Such practical
cooperation, which consists more of coordinating the existing
infrastructure efforts of the riparian countries, is more
realistic at this stage.

Although the TRADP dream has been blurred and blunted, there
have been considerable achievements to date. The Tumen River
project is the only existing multilateral inter-governmental
institution for economic cooperation in Northeast Asia.
The area has gone from a forbidden no-man's land to one of
relatively easy access. Border trade, particularly between Russia
and China, has greatly expanded. There has been incremental
growth throughout the area. The Phase II TRADP agreement has been
signed and the emphasis has been changed to a regional
development strategy.

A Trilateral Coordination Committee has been established to
continue the TRADP. Rail links are being built between China and
North Korea, and China and Russia. Japan has started to provide
official assistance to the Russian Far East. Three free economic
zones have been established -- Hunchun, Rajin/Sonbong and
Nakhodka. Trade and investment missions to the area are being
sponsored by Unido. There has also been some progress in
harmonization of regulations among the three riparian countries
and some degree of joint planning. In general, political barriers
have been lowered and confidence has risen.

A recent region-wide meeting of the non-governmental Northeast
Asia Economic Forum in Niigata, Japan, suggested some possible
next steps for the TRADP. One way around the sticky questions of
national sovereignty would be for each of the nations to
establish Tumen River Development Authorities. These authorities
could then be linked by a broader Tumen River Management
Authority comprised of both the riparian countries and regional
investor countries. This authority would facilitate, promote and
coordinate development plans, regulations and activities in the
area. This would serve to minimize bureaucracy and the lack of
accountability which plague many developing countries. Another
important facility would be a Tumen River International
Commercial Bank. This would be an innovative interim solution to
short-term needs for liquidity as well as a lubricant in day-to-
day exchanges of goods and services, imports and exports.

It is clear that the short-term future of the TRADP will be
the separate development of individual zones. But when regional
demand for regional cooperation reaches a certain threshold, the
remaining impediments to trade and investment will melt away.
Indeed, the area is almost certain to eventually become a
commercial transportation and telecommunications crossroads.

In the meantime, the Northeast Asia Economic Forum based in
Hawaii and chaired by Lee-Jay Cho might provide a neutral non-
governmental locus of discussions to bridge the gap between
concept and official inter-governmental implementation.

Mark J Valencia is a Senior Fellow at the East-West Center,
Hawaii, U.S.A..