This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• On July 1, South Korea announced its plans to foster more businesses in the hydrogen industry over the next 20 years. This new roll out comes as part of the country’s larger efforts to reach net zero emissions by 2050.
• The Moon administration has promoted the use of hydrogen as the main source of energy for power generations, vehicles, and battery cells.
• At present, the government aims to make hydrogen more accessible for local firms and consumers by building new production facilities in Busan, Daejeon, and three other cities.

Implications: Similar to South Korea’s previous economic transitions, the public sector is playing a critical role in moving industries from fossil fuels to alternative energy sources. If Seoul is successful in building a carbon-neutral economy, it would present a model for policymakers elsewhere who are looking to establish a more sustainable future. The latest plan from South Korea more firmly marries the transformation of its national energy system with the establishment of a new growth engine that will generate both exports and employment.

Context: In 2013, South Korean car manufacturer Hyundai launched the first commercially produced hydrogen fuel cell electronic vehicles (FCEVs). Most recently, South Korea hosted the world’s first hydrogen mobility energy show, thus further cementing its status as a hydrogen frontrunner. More than 100 companies and research institutions from 11 different countries participated in the inaugural event and discussed ways to boost hydrogen-related businesses.

Korea View was edited by Yong Kwon with the help of James Constant, Sonia Kim, and Ingyeong Park.

Picture from flickr user francoisjouffroy

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• South Korea decided to expand the operational area of its anti-piracy unit already deployed in the Gulf of Aden to cover Hormuz Strait, without joining the U.S.-led International Maritime Security Construct (IMSC).
• The U.S. Government welcomed Seoul’s decision to expand operations to the Persian Gulf.
• Iran has expressed “concern” about the troop deployment, but also noted that it “understands South Korea’s decision.”
• There was some domestic push back; however, according to polls, 51.9 percent of South Korean support the troop deployment.

Implications: The South Korean government’s decision to dispatch troops to the Strait of Hormuz exemplifies South Korean idea of “balanced” diplomacy – accommodating different demands of surrounding powers while also avoiding any direct conflicts. South Korea partially conformed to the American request by expanding the Cheonghae Unit’s operational zone, but minimizing the risk of directly provoking Iran by not joining the IMSC.

The government also bypassed the difficulty of getting domestic approval for overseas troop deployment by framing it as an “extension” of the existing operation, rather than commencing a new mission. According to the law, the government needs parliamentary approval for overseas troop deployment. However, such consent is unnecessary for expanding the operation zone of a deployed unit.

Context: South Korea has managed to achieve a relatively successful balancing act between the demands of its most important ally and a potentially important future trade partner. South Korea was the 4th largest exporter to Iran in 2011. After the conclusion of the 2015 Iran nuclear deal, Korean exports to Iran grew from $6.1 billion to $12 billion in 2017. South Korea also imported approximately 230,000 barrels per day from Iran in 2011. The reimposition of U.S. sanctions on Iran in 2018 suspended this deep commercial relationship, but Seoul likely hopes for a speedy resolution of the tensions and the lifting of sanctions to reengage the growing consumer market in Iran.

Korea View was edited by Yong Kwon with the help of Gordon Henning, Soojin Hwang, Hyungim Jang, and Ingyeong Park.

Image originally appeared on a Korea Herald article from March 12, 2019

By Emanuel Pastreich

The difficulties in promoting cooperation between Seoul, Tokyo, and Washington, D.C. in response to the rising technological and economic strength of China has been the hot topic of discussion in the United States. The standard answer is to attribute the difficulties to historical issues that have created an emotional gap between these two allies of the United States.

Although the resentment of Koreans regarding the events of the pre-war period are real, and they do occasionally create major obstacles, it is far from certain that they are the primary cause of the divergent views. It is entirely natural that South Korea, Japan, and the United States have divergent geopolitical interests. It is also clear that all three countries are riven domestically by ideological schisms that make a “NATO of Asia” difficult, if not impossible.

The push for collaboration has focused largely on military and security, with China postulated as a potential threat that must be countered through deterrence. Although this perspective has become commonplace in Washington, D.C., it is far from the consensus among experts on security in the United States, let alone in South Korea and Japan. If anything, concerns about nuclear war, climate change, the unprecedented concentration of wealth, and the negative impact of artificial intelligence and automation on human society dwarf any security threat from China, or from North Korea.

Thus, it is no surprise that there is no consensus on forging deeper military ties centered on potential threats from North Korea and China in the three countries.

In addition, we must ask ourselves whether future conflicts will follow familiar patterns. The rapid evolution of new technologies, from 3D printing to micro drones, to next-generation artificial intelligence assures us of a future in which powerful destructive tools will be available to small groups at the same time that internet-based links bring together similar groups around the world for like purposes. Such developments could make many current weapons systems obsolete from the start.

Technological change has also encouraged deep fragmentation within nation-states, at home and abroad.  Simply raising military budgets, or preaching about our alliances, is not going to make us safer. We need to understand the nature of emerging threats that go beyond the schemata we have used previously to define security, and make sure that citizens in all three countries are properly informed.

Whether we are talking about preventing nuclear war, climate catastrophe, or hybrid conflicts at the national, regional and international levels, we need to use our creativity.

Cooperation between the United States, South Korea, and Japan in the security realm, either traditional or non-traditional, can be extremely positive, but it must be the result of a rigorous and robust discussion between the three countries on science, technology, the environment, policy and strategy as well. That discussion will not only assure us that we are spending the tax dollars of citizens on responses to security threats that are up to date and effective, but will also create a broad consensus among the citizens and experts involved in this discussion at every level that will help to avoid misunderstandings in the future.

The economic and technological integration between these three nations is considerable and offers paths for effective cooperation to address emerging challenges.

Rather than force through military-military cooperation which does not grow naturally out of a broader discussion, the three countries need to broaden and deepen cooperation in fields that deeply inform security, but which are not strictly military.

Education

There is tremendous potential for cooperation in education between the United States, South Korea, and Japan which should be pursued in a systematic manner. For example, we can create sister relations between elementary schools, middle schools and high schools at the local level in all three countries that will be the foundations for deep exchanges. Internet-based learning can serve as an opportunity for students in the three countries to meet up with each other on-line, engage in common projects and learn about each other’s neighborhoods, regions and countries.

If those exchanges are carried on long-term, they may evolve into lifetime relationships that will bring the three countries together.

Whether it is American, Korean and Japanese first-graders making presentations about their neighborhoods for each other, or community college students discussing with their peers how we should respond to the threat of nuclear war or the fragmentation of society, these opportunities for direct collaboration in education would be immensely valuable in building lasting ties.

Science

We cannot discuss the future of security unless our discussion is grounded in science. We must encourage the use of the scientific method in all three countries at every level, from discussions among friends up to the formulation of national policy.

Towards this end, we must promote long-term collaboration in scientific research between the three countries which is combined with a broader effort to promote scientific thinking in society as a whole.

There are projects in scientific research that involve researchers in the three nations already, as well as other nations. It would be possible to focus government funding on collaborative research between the three countries for long-term research projects on critical issues that would tie the three together in a stable and predictable manner and promote broader cooperation.

The joint research in biology and bioengineering between Professor Heiwan Lee of Hanyang University and Hara Masahiko of RIKEN that was active from 2010 to 2016 is a model for how joint collaboration can be conducted between Japan and South Korea. Bringing in an American institutional partner to that project would have made it even stronger.

But science is not just about research. It is critical that we invest heavily in increasing the understanding of science among citizens in the three countries and international cooperation in civic education is another critical field. Town Hall forums that encourage a scientific analysis of the challenges facing human society can be planned that link together citizens from the three countries and that provide, through translation, opportunities for deeper exchanges. Shared best practices between the United States, South Korea, and Japan, for example, could be valuable.

Technology and policy

Existing networks for cooperation for the development of technology and for the formulation of policy between the three countries can be enhanced and brought to focus on the needs of society, rather than financial profit.

For example, the development of the technology for next-generation electric batteries, solar cells, or wind-powered generators that will be in the public domain could be undertaken by the three countries. So also, programs for the development of new policies to implement those resilient technologies at the local level could be developed through cooperation between the three countries. The sharing of best practices could be done in the form of sister city/sister state relations, thereby encouraging collaboration between citizens.

The arts and the humanities

Cooperation in the performing arts, film, painting, sculpture, and writing could be a critical means of drawing the three countries together and creating a consensus on current issues. What we think about security in the United States, South Korea, and Japan will be determined by how “security” is represented and discussed. Security is ultimately a cultural, and not a technological, issue. Therefore the humanities are not secondary fields to policy and technology, but rather they are the front line where philosophy, morality, and methods of representation intersect.

The three countries can cooperate in making films that address the concerns of youth, the threat of climate change, the growing inequity in our society and numerous other topics. Providing reliable funding for such efforts can help artists and intellectuals from the three countries to join forces in efforts to create works of art that help citizens to conceive of current threats like climate change and nuclear war and that offer new directions for international collaboration between citizens for security.

Cultural exchanges can do much to deepen current discussions between the three countries. If we include creative activities like writing and music into otherwise dry and formalized discussions about security and trade, we can create an environment in which innovative approaches are possible and a more honest debate conceivable.

I have attended many meetings between high-level figures from government, industry, and research in which the conversation never went beyond the most superficial greetings. Such overly formalized meetings are tremendous loss because often the experts assembled represented a treasure of expertise.

Just having a chance to listen to a musical performance together, or create a work of art together, can transform such meetings into something remarkably positive. The arts and humanities can contribute not only to helping citizens to understand the challenges of our age, but also in facilitating a discourse between policymakers that goes beyond the rituals of state and gives real gravitas to the exchange.

Conclusion

The goal of enhancing cooperation between the United States, South Korea and Japan in the field of security is worthy. Achieving that goal will be a complex process. Identifying what exactly security will mean in the 21^st century, and how we can cooperate in our response is a task that will require the three countries to cooperate closely at all levels, from kindergarten to advanced research laboratories, for the long term. Before we start signing any narrow military and intelligence agreements, let us make sure that we have worked together closely as citizens, experts and policy makers to understand scientifically the current challenges and to respond in a constructive and effective manner.

Emanuel Pastreich is the President of The Asia Institute and a Non-Resident Fellow at the Korea Economic Institute. The views expressed here are his own. 

Image from the U.S. State Department flickr account.

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• At the UN Climate Action Summit in New York, President Moon announced his plan to double Seoul’s funding of the Green Climate Fund and host an international climate summit in South Korea.
• The government’s recently released data showed that greenhouse gas emissions reached a record high in 2017.
• South Korea’s coal consumption increased by 2.4% in 2018, the only country to do so among OECD members.

Implications: While President Moon’s pledge at the UN was consistent with his broader effort to reduce South Korea’s carbon emissions, Seoul faces the challenge of building a greener economy without nuclear power or whole-hearted private sector support. As a result of Moon’s domestic pledge to phase out nuclear energy, the Korean utility operators had no choice but to rely more heavily on coal and LNG in the past two years.

Meanwhile, South Korean firms like Doosan, Samsung, and Hyundai have won lucrative bids to build coal-fired plants in Southeast Asia. In fact, South Korea is the second-largest investor in the global coal-financing market. These realities hold up Korea’s push to become a principal player in the struggle against climate change.

Context: Following the 2011 nuclear accident at Fukushima, activists began calling on the government to phase out nuclear power plants from South Korea. A 2012 scandal that revealed flaws in these plants’ safety protocols further exacerbated public anxiety around nuclear energy. Finally, a series of small earthquakes in 2016 reintroduced fears that an analogous accident to Fukushima could occur in South Korea. Cognizant of this pushback, the government pivoted its investment focus to renewable energy – but this is not expected to substitute coal output in the near future.

Korea View was edited by Yong Kwon with the help of Soojin Hwang, Hyoshin Kim, and Rachel Kirsch.

Picture from IAEA’s flickr account

By Troy Stangarone

Since Japan’s decision at the beginning of July to place national security restrictions on three chemical components critical for the production of semiconductors and display screens much of the focus has been on the South Korea’s dependence on Japan for certain critical technologies. But South Korea’s petroleum supplies also have significant exposure to Middle Eastern geopolitics in the proxy war between Iran and Saudi Arabia.

For the last four years, Yemen has been caught in a civil war where Saudi Arabia has backed the nominal government while Iran has supported the Houthi rebels. At times the conflict has spilled over into Saudi Arabia as the Houthi respond to Saudi strikes in Yemen, but in their latest strike the Houthi damaged two critical oil facilities in Saudi Arabia.

The attacks have knocked out about half of Saudi Arabia’s production capacity, which accounts for 5 percent of global oil supplies. Early estimates are that it could take weeks to restore production to full capacity.

In initial trading after the attack, the price of crude jumped 20 percent to over $70 a barrel before falling to around $66 a barrel, the highest single day increase since Iraq’s invasion of Kuwait in 1990. Some analysts expect prices could rise to $100 per barrel.

While U.S. shale gas might be able to replace some of the supply, it may be of limited help outside of the United States. It would take 90-180 days to drill new wells and the infrastructure may not be in place to get the shale gas to overseas markets.

Despite the Houthi taking responsibility for the attack, the United States has suggested that the strike pattern on the Saudi facility suggests that the attacks came from Iran rather than Yemen. It has indicated that it is considering a retaliatory strike. Saudi Arabia has also suggested that Iranian weaponry was used in the attack, while a strategist for Iran’s Revolutionary Guard has also suggested that the Houthi likely were not capable of undertaking this attack, perhaps adding a degree of credibility to U.S. assertions.

Disruption of Middle Eastern oil supplies has implications for South Korea. Nearly 45 percent of South Korea’s energy consumption is petroleum based and more than 70 percent of those supplies come from inside the Strait of Hormuz. Nearly 30 percent of South Korea’s imports of crude petroleum come from Saudi Arabia.

In the short-to-medium term South Korea should not feel much effect. Some 90 percent of South Korea’s oil imports from Saudi Arabia are under long-term contracts and Saudi Arabia has indicated that it will release oil from its 27 days of reserves to maintain exports. Saudi Arabia has also strategically placed reserves in countries such as the Netherlands, Egypt and Japan, protecting them from potential additional attacks. South Korea which also has 90 days of reserves has indicated that it will release them, if necessary. However, if there were more significant disruptions S-Oil Corp., which imports most of its crude from Saudi Arabia, would be the major South Korean firm to feel an effect.

Regardless of whether Iran or the Houthi are responsible for the attack, there is an increasing danger for South Korean supply lines should the conflict escalate from either further Houthi attacks on Saudi facilities or the escalation of a conflict with Iran.  The Houthi have already suggested that further strikes could be in the works, while an attack by the United States or Saudi Arabia against Iran could further endanger oil supplies in the region.

Until South Korea is able to further diversify its suppliers and shift to other energy sources, its economy is vulnerable to the increasingly unstable geopolitics of the Middle East.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the authors alone.

Graphics by Juni Kim, Program Officer at the Korea Economic Institute of America.

Photo by lawepw on WikiCommons.

By Kyle Ferrier

Following President Trump’s decision to re-impose sanctions on Iran last May, the White House announced last week it will not be extending waivers on sanctions to countries importing Iranian oil. South Korea is one of only eight countries to be have been granted a waiver, which took effect as U.S. secondary sanctions went into force in early November and are now set to expire on May 2. Faced with this inevitability – though it may have come sooner than anticipated – Seoul’s efforts to diversify oil imports so far already suggest U.S. oil producers will play a key role in making up for the blockage of Iranian imports.

Demand for oil in South Korea has been growing in recent years, all of which must be met with imports. Total crude oil imports grew over from $44.3 billion in 2016 to $80.3 billion in 2018, making South Korea the fifth largest oil importing country last year. This demand has continued into 2019 – the volume of oil imports for the first three months this year is higher than it was during the same period last year.

Before the U.S. withdrawal from the Joint Comprehensive Plan of Action last spring, Iran was South Korea’s third largest source of oil. In 2017, Iran’s $7.5 billion in crude oil exports to South Korea were only behind Saudi Arabia’s $17 billion and Kuwait’s $8.3 billion. However, from September to December, 2018, Seoul cut off oil from Iran in response to Trump’s decision to reintroduce sanctions on Tehran. As a result, Iranian exports to South Korea last year only totaled $3.9 billion, dropping it down to the eighth largest provider of oil to South Korea.

Seoul has reopened the spigot since January, but the flow of Iranian oil has been relatively modest. From January to March, South Korea imported $1.2 billion in oil from Iran. The April imports will likely provide the final figure for the year, but, even with numbers suggesting a last big push before the May deadline, it seems unlikely to come close to last year’s total.

During the period of Iran’s diminishing exports, no other county among the largest exporters of oil to South Korea gained as much as the United States. The $4.5 billion in U.S. oil exports to South Korea last year was a 520% jump from 2017. The numbers for 2019 continue to be promising as the $1.8 billion in U.S. oil exports through March already represents an over 360% increase from the same period last year.

U.S. Secretary of State Mike Pompeo’s remarks that the U.S., Saudi Arabia, and the U.A.E will help to offset the losses from Iranian trade further provides reason to be bullish on U.S. oil exports to South Korea, but there also limitations.

Iranian and American crude oil are not perfect substitutes. There are some American sources that produce oil similar to that from Iran, but at a much lower rate. These may also be needed for more domestic consumption in the U.S. in the face of limited oil supply from Mexico and Canada and the now completely cut off supply from Venezuela after new sanctions enacted in in January. That many South Korean refineries are set up to specifically process Iranian oil will also add to the cost of the adjustment.

Still, the growing demand for oil in South Korea and the removal of a major competitor from the field – irrespective of the politics behind the decision – bodes well for American producers, now churning out more oil than any country thanks to the Shale Revolution.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Enrico Strocchi’s photostream on flickr Creative Commons.

By Mark Tokola, Phil Eskeland, Troy Stangarone, Kyle Ferrier, Juni Kim, Yong Kwon, and Sang Kim

2018 was a year of dramatic change on the Korean Peninsula. The prospect of war that seemed to growth with each North Korean nuclear or missile test receded as North Korea, the United States, and South Korea moved towards diplomacy which culminated in the historic summit meeting between U.S. President Donald Trump and North Korean Chairman Kim Jong-un in Singapore.

While the move towards diplomacy with North Korea was the top story of 2018, the year also saw South Korea successfully host the 2018 Winter Olympics, South Korean President Moon Jae-in move more directly towards implementing his income lead growth strategy, and K-pop take another significant step towards breaking out in the United States.

As we move into 2019, some of the big questions facing the Korean Peninsula will center around whether real progress can be made with North Korea now that we are beyond the initial stages of diplomacy and what that means for inter-Korean relations. Other key issues for 2019 will be how the U.S.-China trade war plays out and the implications for South Korea, as well as whether income lead growth will be able to overcome some of the initial implementation challenges it has faced.

With that in mind, here are 10 issues related to North Korea, South Korean politics, and U.S.-Korea relations to follow that will have an impact on the Korean peninsula in the year ahead:

Whether a Peace Process Can Develop

It is generally believed that the denuclearization of North Korea will be accompanied by a “peace process” (or peace regime, or peace declaration, or end-of-war declaration – there are many terms being tossed around) but what this would actually mean or whether it would come before or after an agreement on denuclearization is unclear.  The “peace process” may come in pieces.  There is nothing to prevent North and South Korea from declaring on their own that peace has come to the peninsula.  Similarly, the United States and North Korea could issue a joint statement saying that have no hostile intent towards one another.  If such statements can promote denuclearization or decrease tensions, well and good.  The devilish details would be in what concrete steps if any would accompany a declaration of peace.

2019 may well see announcements of peace on the Korean Peninsula.  It would seem like an irresistible flourish to mark Kim Jong-un’s visit to Seoul, or to give an appearance of progress for a second Trump-Kim Summit.  But, watch for the details.  Would a declaration of peace be accompanied by a road map towards denuclearization? A normalization of relations with liaison offices being established in Washington and Pyongyang?  A more wide-ranging commitment by North Korea to restrain its belligerent behavior beyond denuclearization, such as in cyber or other weapons systems?  Would there be a move towards formally ending the Korean War by winding up the armistice? Thinking through what a peace process would mean reveals that there are big issues beyond denuclearization.

Will the United States Lift Sanctions on North Korea?

In his New Year’s Day address, Kim Jong-un called for the United States to lift sanctions if it wants the process of dismantling North Korea’s nuclear weapons to go forward. In the past, the Trump administration has said that North Korea would have to dismantle or substantially dismantle its weapons programs before sanctions relief would be possible. With progress with North Korea stalled, one of the key questions for the Trump administration will be whether it sticks to its stance or accommodates North Korea’s push for sanctions relief.

If the Trump administration decided to move forward on sanctions relief there are four general ways it could look to pursue to move the talks forward and demonstrate good faith. The first area would be to support inter-Korean engagement. Here the administration could support further sanctions waivers to allow inter-Korean economic projects to advance. At the United Nations, the administration could support removing one or more specific sanctions that have been placed on North Korea. Another, more likely option at the UN, would be for the administration to pursue time-limited waivers of sanctions that are contingent on progress by North Korea in dismantling its nuclear programs. The final option would be for the administration to waive one or more specific U.S. sanctions where it has the authority to provide a national interest waiver.

Burden Sharing and the U.S.-Korea Military Relationship

As part of his professed “America First” values, U.S. President Donald Trump has repeatedly criticized South Korea, and other U.S. allies, for what he views as an unfair defense burden to America for stationing U.S. troops. The U.S. has maintained a military presence in South Korea since the Korean War in the 1950s and South Korea currently hosts 28,500 American troops, the third largest number of troops stationed in a foreign country after Japan and Germany. Ten rounds of negotiations occurred throughout 2018 between U.S. and South Korean officials to renew the Special Measures Agreement, a 2014 burden sharing deal that is set to expire at the end of 2018. The latest round failed to reach a deal over demands from the U.S. for South Korea to greatly increase its contribution and has prompted fresh concerns over the U.S.’s commitment to the alliance. Without a new deal in place, Korean workers at U.S. military bases in South Korea are in danger of being put on leave in the New Year. If left unresolved, the ongoing debate over cost-sharing could greatly hinder future U.S.-ROK relations.

The Future of THAAD in South Korea

China’s protest of the deployment of Terminal High Altitude Area Defense (THAAD) batteries, which were provided by the U.S. military, in South Korea in 2017 led to a political and economic row between the two countries. A resulting Chinese ban on tourism to South Korea and South Korean goods eventually gave way to an agreement late last year to normalize trade relations. Although trade and tourism numbers have started to rebound in 2018 after dramatic decreases in 2017, negative repercussions still remain, though the exact cost of the sanctions are hard to definitively quantify South Korea has likely lost more than $13 billion from the decline in tourism alone. In particular, the Korean conglomerate Lotte, which provided the land for THAAD deployment, has suffered from the after-effects of China’s sanctions with its stores in China shuttering due to lost business.

For 2019, it will be worth watching if the numbers continue to recover and how South Korean businesses adapt to the potential risks of dealing with a volatile Chinese market. For Lotte’s part, the company has actively courted Southeast Asian markets to make up for Chinese losses. It will also be worth watching if THAAD becomes part of talks with North Korea or the expected results of a South Korean environmental impact study affect its deployment.

U.S.-Korea Trade Relations – Section 232 Investigation

The past year has seen great progress in ameliorating initial uncertainties:  exports of U.S. goods and services to Korea increased 10 percent; the bilateral trade deficit declined by 43 percent; and agreements were reached and ratified to modify the Korea-U.S. Free Trade Agreement (KORUS FTA) and to limit Korean steel exports to the United States.

Nonetheless, there is still one looming threat – the possible imposition of U.S. tariffs as high as 25 percent on imported motor vehicles and parts from South Korea.  The Commerce Department has until February 17, 2019, to release the results of its Section 232 investigation into the national security implications of imported autos and parts.  If the report concludes that these products are a threat to U.S. national security, the President has until May 17, 2019, to make a final decision on tariffs.  However, because Korea and the U.S. concluded their negotiations on KORUS and steel two months before the Commerce Department launched this investigation, other major auto producers – Canada, Mexico, Japan, and the European Union – received reprieves or waivers on higher tariffs during their trade talks with the United States.  No decision has yet been made to exempt South Korea from higher tariffs even though Korea imposes zero tariffs on motor vehicles imported from the United States; the revisions to KORUS made several changes benefiting U.S. automakers, including a 20-year extension of the 25 percent U.S. tariff on imported pick-up trucks; and the value of U.S. imports of motor vehicles and parts from Korea has steadily declined since 2015.  Imposing a 25 percent tariff on imported cars and parts would also add approximately 10 percent to the production cost of Korean name-plated cars assembled in Georgia and Alabama, making their vehicles less affordable to the American public, resulting in a significant reduction in employment at both their manufacturing facilities and their dealerships.

Compounding the issue is the frustration that President Trump expressed on November 28^th regarding the recent announcement of the closure of four GM plants in the U.S. that make auto parts and smaller vehicles.  The President tweeted, “the countries that send us cars have taken advantage of the U.S. for decades,” reflecting a fundamental worldview that he has believed for over 30 years.  Trump added, “if we [imposed a 25 percent tariff on] cars coming in, many more cars would be built here.”  Because Korea still exports some cars to the U.S. that compete against GM, the threat of a higher tariff could be used to pressure Korean car manufacturers to move even more production to the United States.  President Trump also desires that Korea pay much more to continue stationing U.S. troops on the Korean peninsula.  He could use the threat of higher car tariffs as another pressure point on South Korea.  Unless Korea is granted an exemption on the auto tariffs, much of the goodwill in the bilateral trade relationship that has been generated over the past year will quickly dissipate because it will be perceived as bad faith in terms of moving the goalposts in bilateral trade negotiations.

The U.S.-China Trade Conflict

On the surface, tension in U.S.-China trade relations does not appear to affect South Korea too much because South Korea’s economy is more aligned with the United States.  However, because China is now Korea’s largest trading partner, South Korea could be caught in the undertow of the churn in U.S.-China friction.  Some Korean brand consumer electronic products are assembled in China and subsequently exported to the United States, which now has to be re-thought in light of the threat of U.S. tariffs as high as 25 percent on Chinese exports.  Other products assembled in China also contain significant Korean content.  For example, the screen on the new Apple iPhone XS is made by either Samsung or LG.  The Korean stock market frequently gyrates at any movement in U.S.-China trade talks – up when negotiations progress and down when discussions stall.  The two sides have given themselves until March 1, 2019, to conclude a successful agreement.

However, many of the irritants in the U.S.-China trade relationship are deep and foundational problems to the Chinese economy and most likely cannot be cured in less than three months.  If an agreement is reached that just makes marginal changes on the edges, such as a commitment by China to purchase more U.S. products or lowering the tariff on imported autos, then the U.S., and by extension, Korea, will continue to face long-term economic challenges from China.  If the U.S. acts in concert with other nations that have similar concerns about unfair and trade-illegal Chinese practices, then multilateral action can spark necessary reform to China’s economy.  However, if the talks break down and the U.S. continues to act alone by imposing more and more tariffs irrespective of how it affects constituencies in the U.S. or other nations like Korea, China will ironically gain the moral high ground as the defender of free trade and unnecessarily delay the market-oriented changes the free world needs to see take place in China.

U.S.-Korea Cooperation in the Indo-Pacific

The “Free and Open Indo-Pacific Strategy,” first introduced over a year ago, now underlies Washington’s approach to the region. South Korea has yet to officially join the strategy nor is it likely to in 2019 due to concerns in Seoul that it could be interpreted as “containing” China or even forcing its hand to choose between Beijing and Washington. However, the overlapping goals between the Indo-Pacific Strategy and the Moon administration’s “New Southern Policy” provide new opportunities for both the U.S. and South Korea to work together beyond the Peninsula.

Both visions focus on increasing engagement with South and Southeast Asia on many of the same key issues based on the same core values, albeit in different ways. The clearest means to bridge the two is through infrastructure projects. The U.S. is looking to mobilize large, high-standard loans and the quality and cooperative nature of South Korean loans, Seoul’s efforts to direct more development assistance to ASEAN countries and India, and the competitiveness of Korean firms in building modern infrastructure make South Korea an ideal partner in achieving this goal. In 2019, look for Seoul and Washington to cooperate on infrastructure projects in the region as well as highlight their joint efforts.

Improving the Environment in South Korea

Although air pollution arose as an issue during the 2017 presidential election, leading candidates at the time focused largely on expanding dialogue with China and remained quiet on domestic sources of this public health threat. The issue returned with a vengeance this past November when extreme levels of ultrafine dust forced Seoul to restrict the number of vehicles on the road and construction. This comes at a particularly awkward time for the Moon administration, which responded to public concerns following the 2011 Fukushima Daiichi disaster by promising to phase out nuclear power in Korea.

Absent nuclear power, cleaner energy could be drawn from natural gas, which South Korea has been importing in increasing amount – particularly from the United States. However, this exposes Korea to geopolitical issues and market volatility. The Moon government is also making a big push to increase renewable energy capacity.

At this juncture, South Korea may consider looking to Taiwan – voters there rejected the phase-out policy in a referendum this year. With nuclear energy satisfying both clean air and energy security, this issue is poised to be revisited by both the government and the public in 2019.

South Korea’s Income Lead Growth/Job Creation

The state of the economy remains the biggest source of concern for South Koreans. After taking several months to get up and running, the first full year of the Moon administration’s income-led growth agenda has fallen short of its ambitious goals. Responding to his falling approval rating in light of underwhelming initial results that have increasingly become a major issue of public debate, President Moon has devoted more government resources to his economic agenda this year. However, the key question for 2019 is will this be enough to win back public support and reinvigorate the economy?

Moon’s income-led growth strategy is a novel approach to resolving the stubborn structural issues in the economy, but this also means it is largely unproven. The IMF and OECD support the agenda’s increased social spending, particularly given the government’s fiscal space, but these policies must also start creating jobs and bolstering growth to be sustainable. Even if the agenda is on the right path, the window to push it through may be closing. More interest rate hikes by the Federal Reserve and the prospect of worsening trade tensions between China and the U.S., both of which have already impacted the economy, could make it harder for Moon’s agenda to find more success this year.

The #MeToo Movement and Women’s Right 

Heightened advocacy for women’s rights was a global trend in 2018. In South Korea, the #MeToo movement gained momentum with women stepping forward with allegations of sexual harassment and violence against high-profile figures, including presidential-hopeful Ahn Hee-jung, poet Ko Un, and award-winning movie director Kim Ki-duk. However, advocates faced obstacles ranging from a relatively lenient legal code to deeply-entrenched social attitudes. Providing further proof of the current society’s antipathy to women’s concerns, the brave actions of women who came out publicly with testimonies of abuse – despite receiving international attention – resulted in very few prosecutions.

Korean women last year also confronted a proliferation of hidden cameras, which prompted protests demanding stronger punishment for trafficking of digital material that was filmed without consent. In response, the government has so-far announced tougher punishments for trafficking of these materials and announced plans to better police online sex crimes and remove illegal footage from the internet more swiftly. These will go hand-in-hand with broader protections such as extensions to the statute of limitations in sexual abuse cases and measures that would allow victims of harassment and abuse to report these crimes anonymously.

Notwithstanding, many advocates recognize that strengthening the legal system is a necessary but insufficient means to achieve true social change. With many women’s rights organizations now mobilized in the wake of the scandals in 2018, open debates about how cultural attitudes will be reformed will likely intensify in 2019.

Bonus Issue: Will Kim Jong-un Go to Seoul?

At their summit meeting in Pyongyang, Kim Jong-un agreed to Moon Jae-in’s proposal that he visit Seoul before 2018 ended. Kim never took that trip, but in his recent letter to Moon he expressed a desire to meet with Moon frequently in 2019 and “a strong determination to visit Seoul while watching future situation.” Whether Kim makes that trip will be one issue that many will be watching in 2019.

It is not surprising that Kim did not meet with Moon in Seoul in 2018. With progress in talks with the United States stalled and his meeting with Trump postponed until early 2019, there would have been little that Kim could have achieved in Seoul. Any trip to Seoul in 2019 will likely be dependent on how Kim’s next meeting with Trump goes and whether there is any historical progress Kim can make in Seoul. He will likely want to achieve more that than act of a North Korean leader visiting Seoul for the trip to go forward.

Beyond whether Kim will visit Seoul will be the question of how his visit is received. At the moment, Kim’s image has improved in South Korea with the current diplomacy and 60 percent of South Koreans would have supported the trip if he had taken it in December. One issue to watch from any visit will be whether it builds support for inter-Korean ties among South Koreans or causes them to reassess the current opening with North Korea?

Mark Tokola is the Vice President of the Korea Economic Institute of America, Phil Eskeland is the Executive Director of Operations and Policy, Troy Stangarone is the Senior Director for Congressional Affairs and Trade, Yong Kwon is the Director of Communications, Kyle Ferrier is the Director of Academic Affairs and Research, Sang Kim is the Director of Public Affairs and Intern Coordinator, and Juni Kim is the Program Manager and Executive Assistant. The views expressed here are the authors’ alone.

Image created by Juni Kim.

By William B. Brown

Consider this. In a well developing suburb of Pyongyang, households are no longer able to tap into the electric power grid for their meager, centrally planned, and virtually free allotments of electricity, in theory enough for lights or TV two or three hours a day. Instead, most have purchased small solar power panels, imported from China, to charge their cell phones and produce a little heat for cooking and other household uses.

Such imports soared in 2016 but have fallen victim to Chinese sanctions in the past year.  No battery or storage capability is apparent.  In an emergency, say they have a wedding and guests, they can pass 50,000 won to the local power ministry officer and he will flip the switch for a few hours of un-metered power. Then it flips off.  The 50,000 won is about a year’s official pay for the officer, or any North Korean bureaucrat or state worker, who also are entitled to receive free, but not available electricity, along with other essential rationed goods and services, most importantly food and housing. (Think of the pay as pocket money for a teenager who expects to be provided everything from his/her parents.)  In contrast, for anyone working in the expanding market economy, where money is important and is earned from work done, it might be a few week’s income.   For those lucky enough to earn U.S. dollars by selling or otherwise dealing with people abroad, or with the increasing numbers of North Koreans using foreign money, it is only about $6  at the unofficial but widely prevalent exchange rate.  For more sustained needs of electricity, say pumping water to high rise apartments, or elevators, a private group might form to buy generators and pay top dollar for imported, and now sanctioned, petroleum fuels.  This all according to on-the-spot reporting from a North Korean defectors group in Seoul, through their website, Daily NK, with further analysis by North Korea Econ Watch.

Let’s take another case, also from Daily NK.  One of many new private bath houses in Pyongyang caters to the new class of people with money and who wish to escape poor conditions in public bath houses, but how can it obtain electricity for heating the water and creating the plush environment?  The entrepreneurial owner makes a deal with a nearby widget factory that is on the state five-year plan for essentially free electricity distribution. The factory is likely under-achieving its production goals because of shortages of other inputs, so it has electricity to spare. But neither are the rice rations being delivered.  It sells the power at a negotiated price to the bath house and buys rice in the market place for the workers.  The official who brokers the deal gets a $50 a month bribe for his, perhaps dangerous, illegal work.  The bath house charges a healthy 5,000 won per bath for its services—affordable to people in the private market, and everyone seems happy. The only losers are other state enterprises who don’t get the widgets they had been promised in the plan, but they probably would not have anyway. The bath house uses the properly priced negotiated power much more efficiently than the factory ever did, and GDP rises.

Other than Presidents Moon and Trump, irrational pricing must be among Marshal Kim’s biggest headaches these days as the market economy collides head first with the fixed prices of the planned economy, corrupting officials at every turn and giving people unprecedented freedom. As a Chinese Global Times reporter said in a piece over the weekend, her recent travels in North Korea show a bizarre system of (at least) two prices for everything, this after being charged W5,000 won for a drink with a W140 price sticker (presumably the price for state workers) on it. People are getting rich arbitraging the differences. But, less visible perhaps, many others, and likely the most loyal of the Workers Party cadre, are getting screwed.

The electric power industry is emblematic of these pricing contradictions and may give us some hints at where the overall economy is going—towards full market reform or sinking further into the socialist morass.  State planned and owned with millions of direct consumers, the industry must now compete with street use of solar panels, generators, and old car batteries charging whatever the market will bear, and it must rely on essentially free coal provided by state mines that face the same set of market constraints—probably even more since a mine can secretively export coal at a high price.   It is hardly a sustainable situation, breeding corruption and the slow disintegration of the otherwise orderly society.  But North Korean policy remains very confusing.   A new electric power “law” was promulgated by the power ministry this summer which might, one would think, give guidance on these pricing issues.[i] But there is no mention of pricing and no mention of finance.  Only grand visions for better output and more efficient usage, which in the ministry’s view means as carefully scheduling factory usage so as to prevent black outs and to protect essential industry and public lighting in Pyongyang.  Capacity expansion is to be in renewables, generally hydro and solar cells, but with no details.  Interestingly, a lot of attention is paid to off grid or decentralized production and distribution, in other words private production and use.  And in the 96-page document, no mention is made of nuclear power. Just a few years ago Kim was heralding the construction of a pilot scale light water nuclear power reactor at the Yongbyon nuclear research facility that was going to serve as the model for a big nuclear power drive. That pilot plant has been externally complete for several years—it is supposed to be fueled by the now famous uranium enrichment plant nearby—but nothing seems to be happening.  And President Moon says Kim is willing to shut down the entire complex given the right signals from Trump.

Electricity is given top billing in all North Korean economic development pronouncements and rightfully so. It is the engine of the economy without which modernization will fail.  It’s an old story; as far back as the Japanese colonial era the country built up extensive electric power capacity in hydropower, of which it has large latent resources, and in locally available anthracite fired plants.  Japan built the largest hydropower plant in Asia at Supung, on the Yalu river in 1940 and, with 700 megawatts capacity, it is still the country’s second largest provider.  Stalin stole the generators in 1945 then relented and returned them a few years later. Heavily bombed in the Korean War, East Europeans helped rebuild it. And when Korea was cut in two in 1948, Pyongyang cut the South off from 98 percent of its power sources, leaving Seoul dark. For years the Supung facility split its output between China and North Korea—three turbines producing at 50 cycles for China, three at 60 cycles for Korea, and a seventh turbine switching between the two.  More recently, unconfirmed reports indicate that China is allowing all the power to go to North Korea and power availability thus appears to have improved in northern North Korea, although seasonal hydro trends may be responsible.  The largest power plant in North Korea now is a 1,600 MW coal-fired behemoth built by the Soviets in the 1960s at Pukchang, said to be a near duplicate of Manhattan’s power facility of the early 1900s, inefficiently devouring huge quantities of coal mined nearby by political prison labor. Many smaller hydro and thermal plants, all built prior to the 1980s, fill in to give about 6,000 MW national capacity, essentially unchanged in thirty years.

As an outgrowth of the oil embargo on Japan during the WWII era as northern Korean was industrializing, North Korean industry ran on electricity, not oil. With no petroleum resources, and its own proclivity toward self-reliance, North Korea has remained largely an electric economy. Rural electrification came early as did electrified railroads. Even agricultural machinery, irrigation pumps and threshing machines, run on electricity as much as possible.  Heavy industry, chemical and especially metals industry are large consumers.  Problems began in the early 1980s, when, as South Korea’s nuclear power industry ramped up, Kim Iisung decided North Korea also needed nuclear power, coincidental with its drive for nuclear weapons.  Rather than expand or even maintain thermal and hydro power, and improve transmission systems, Pyongyang has pumped tens of billions of dollars into nuclear power technology.  Three decades later, the investments have yielded no electricity production, and, apparently, none is in the pipeline.  Ever obsolete hydro and coal fired plants now strain to provide the country’s minimal needs.

Interestingly, some reports suggest that the UN coal embargo may be helping Pyongyang’s electricity supply, since coal not shipped to China is available for use in the city’s two power plants.  This may be the case, but its hard to figure how the coal mines are being paid; likely they are not and are thus closing down production.  China may be helping; as with Supung, there are rumors circulating that China supplied new equipment to one of the plants this summer, likely in violation of its own UN sanctions.

So, what can we expect?  A rational move would be to sharply raise prices for everyone, forcing state enterprises to use power more efficiently and enabling the industry to build new capacity.  North Korea has long charged Chinese buyers—a small amount of power is exported from Yalu river plants, and an even smaller amount is imported—about 4 cents a kilowatt hour, only a little lower than worldwide wholesale prices and a hundred times or more than it charges its own consumers.  And it pays a high 11 cents per kilowatt hour for imports.  Street prices for battery and solar power are likely far higher.  A good indication of possible change is an order that residences purchase electric power meters so that electricity can be charged by volume used, like everywhere else in the world, but citizens are complaining about the cost and claim there will still be no supply.  A Japanese journalist has reported that a survey is being undertaken in northern provinces that would raise the price to residences to 10,000 won a month, a price they say they would willingly pay (assuming they are in the private not state economy) if supply is reliable.[ii]  Rumors and wild information fly in the current confused atmosphere, with everyone trying to figure out how they might profit or avoid losses. For example, on September 8, a big Chinese supplier of solar panels, Hunan Gongchuan Photovolcaic, reportedly signed a strategic cooperation agreement with a North Korean state company, Kuwo’lbong Group, to provide an astonishing $3 billion in solar cells to North Korea over the next five years, enough to provide 2,500 MW of power, representing a 50 percent increase in North Korea’s installed total power capacity.  There was no word on financing or how the firm would deal with UN sanctions—the firm has a major U.S. partner.  A pipe-dream, no doubt, similar to many such projects down the years.  But Kim needs to do something soon or those 40-story high rises in Pyongyang won’t have pumped water for their bath rooms or electricity for their elevators. That might send the elite into the streets.

Are their opportunities here for U.S. or South Korean investors to aid North Korea, make money, and advance the denuclearization process?  The Hunan Gongchuan project, as odd as it is, might serve as a template, assuming the Chinese investors are demanding to be repaid in real money.  But the key is not big amounts of foreign investment in new plants, and certainly not capital-intensive nuclear power plants; that has occurred too many times in the past with terrible results for all. Instead, a project aimed simply at improving the efficiency of older facilities, combined with new pricing rules that allow a foreign venture to sell the power at say 8 cents a kilowatt hour, and use North Korean coal at $60 a ton, could make money for everyone, eliminating headaches all around.

The Global Times reporter last week was cautiously optimistic, despite the confusion, thinking this was like China in 1978, as Deng’s reforms were just starting.  One concern was that no one she met would utter the key phrase “reform and opening”.  But after so many false hopes, let’s hope she might be right.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. He is retired from the federal government. The views expressed here are the author’s alone.

Photo from Wikipdedia.com.

[i] Minju Joson (Electronic Edition) in Korean 10 Jun 18 – 15 Jul 18

[ii] Osaka Asia Press International in English 21 Sep 18

By Jenna Gibson

This week, Seoul’s residents were in a haze – literally. Dangerously high levels of particulate matter in the air prompted emergency measures from the Seoul city government, including making public transportation free during peak hours and asking residents to leave their cars in park as much as possible.

These policies are triggered based on the amount of PM2.5 in the air, with levels above 50 µg/m³ being considered unsafe. On Thursday morning, though, PM2.5 in Seoul hit 160 µg/m³, more than three times that level. Even before this week’s spike, the OECD announced that South Korea has the worst air quality among its members.

Good morning, Seoul air. I wish you could clean up your act, already. https://t.co/VRv5Ziaimq pic.twitter.com/VBjUEo4geB

— Matt Stiles (@stiles) January 16, 2018

The government’s emergency measures may have had limited success, however – according to Arirang, use of buses and subways increased by only 2.1 percent on Monday, and traffic only dropped 1.8 percent.

This was the first time emergency smog measures have been activated since the government announced their new policies in July 2017. Besides the free subway and bus rides, other measures include implementing an odd-even license plate program, where drivers alternate days they can be on the road depending on the last digit of their license plate, as well as upping environmental standards for industries like construction and heating/cooling.

The public discourse surrounding the pollution issue, however, doesn’t often zero in on these domestic industries as the source of the problem. Instead, many media reports about the air pollution problem mention particulates blowing over from China, picking up pollutants from the large country’s many factories before making its way to Seoul. However, a KEI analysis by Professor Matthew Shapiro suggests it’s more complicated than that: “While it is true that the pollution originates in China and is carried eastward on the trade winds, China is not the sole contributor to this problem. Rather, Korean investments in China and the subsequent exports of goods from firms in China all play a role,” he writes. “This is an urgent problem, requiring the cooperation of both countries to manage what is ultimately a regional pollution issue.”

The government is scrambling to get a handle on the pollution issue now not only because of public health, but also because of concerns with the PyeongChang Olympic Games starting in less than a month. To keep particulate levels low, an old theromoelectric power plant near the Olympic venues has been shut down until June, and the government is planning to deploy sensors around the PyeongChang area to measure pollution in real time.

Soulless Seoul air😷 pic.twitter.com/M18wtWrTVe

— Jihye Lee 이지혜 (@TheJihyeLee) January 17, 2018

Meanwhile, residents are finding ways to cope with the dangerously high pollution rates. After the government announced its first fine dust emergency day on Monday, stock shares of companies that make eye drops and face masks soared. Demand for clothing dryers is also on the rise – although many Koreans still air dry their clothes, concerns about pollution pushed the domestic market for dryers up 474 percent in 2017, according to e-commerce site Auction.

Realistically, offering free rides on the bus or subway is great as a temporary, emergency measure, and can be particularly helpful for those on the lower end of the income spectrum who may be forced to walk in the polluted air if they can’t afford to pay for public transportation. However, not only is it not financially feasible for the Seoul city to offer free rides on a long-term basis, it also does nothing to solve the underlying problem of emissions generated both in Korea and blowing in from abroad.

Although it may take more than a few days of free rides to change people’s habits, clearly the measure didn’t incentivize that many drivers to leave their cars at home for the day. The Korean government, coordinating closely with major cities like Seoul, is going to have to step up their attention to this issue, and find ways to address the root of the problem, whether through domestic or diplomatic efforts.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone. Image taken by Jenna Gibson.

By Hwan Kang

The word “Smart Grid” became popularized when the energy industry thought applying sensors and having comprehensive control over the whole cycle of generating and consuming electricity was a good idea. Some people thought it would be even better if they could do the same with water, coining the term, “Smart Water Grid (SWG).” South Korea is one of the pioneers in this area as it tries to combat the country’s chronic water shortage stress.

South Korea the “Water-Stressed” Nation

South Korea experiences extreme cases of drought and flood each year, which means that the country has too much water and too little water at the same time. More than half of the total precipitation is concentrated during the summer while it becomes dry rest of the year. The country also experiences wide variance in precipitation by the region as well. Some provinces face water shortages even during the monsoon season because the rain comes down in only concentrated areas. What is worse is that yearly variance in precipitation is also big, ranging from 950 mm per year to 1600 mm per year. Such wide unpredictability forces South Korea to formulate a better water management system.

In terms of consumption, South Korea has been facing an increase in water usage along with economic growth over the years, while the available water source remained pretty much steady. Such a gap in supply and demand of water drove the country to deplete its water sources, with 33 percent of total available water presumed to be depleted according to OECD research. Such a state is represented by high level of water stress, placing Korea 50^th out of 167 countries in terms of Water Stress Index, which is just behind severely stressed countries in Middle East and Southeast Asia.

Smart Water Management Initiative by K-water

Instead of staying stressed out about water withdrawal, Korea decided to use internet technology as a solution to build its own SWG. Dubbed as the “Smart Water Management Initiative (SWMI),” the Korean Water Resources Corporation (K-water) revealed its ambitious plan to use the ICT (Information & Communications Technologies) to control the whole cycle of water consumption. Similar to smart electricity grid, the initiative aims to put sensors on every part of the water distribution process to keep track of it on a real-time basis and manage facilities to efficiently recycle the water and re-distribute it.

The purposes of building SWG are to maximize the limited water resources and deal with uncertainties that arise with subsequent draught and flood. K-water expects that the successful operation of the SWG will eventually reduce the need to construct additional dams, leading to much cheaper solutions. The system also plans to communicate with the consumers through an online application by showing them real time information on the quality of water they use and provide assistance if they need it.

The SWG has gone through a trial period in selected regions such as Paju, where it has brought up the percentage of residents who drink tap water to 19.3 percent from 1 percent, improving confidence in the safety of the water, with an 80.7 percent satisfaction rate. In case of Seosan, a region which suffered from water leakage, the system was able to bring up the flow rate up to 90 percent from 60 percent, saving a significant amount of water and money. SWG is widely expanding its area with applications pending for Naju, the Korean Airforce, and Sejong city.

Growing Global Smart Water Management Market and Pioneering Korea

Water management is now considered as a prospective market with water shortages looming as a major problem in the future. According to the OECD, the water management for urban areas will become increasingly important because 86 percent of the OECD population will live in cities, while demand for water will increase by 55 percent by 2050. What is worse is that urban areas are more susceptible to pollution as well as environmental disasters, which calls for preventative water management plans. According to Ecolab, water management is also becoming an important part of corporate strategies by the companies, too. As the cost of acquiring necessary water rises, they are looking for ways to stably supply water for their industries. Such combined demand is becoming more realistic as industries are investing more in the smart water management market, pushing the market to grow on the average of 17.2 percent every year.

Amid all these changes, it is not surprising that Korea is not the only one trying to develop SWG. In fact, United States was the first country to coin the term with the launch of the Smart Water Grid Initiative back in 2009. Germany, France, Israel and Singapore are also developing their own methods of managing water with ICT either from their need to control water related disasters or recycle it for re-use. IBM is leading the management market as a private company by providing software called IBM Intelligent Water for rivers such as the Hudson River and the Amazon River and in countries such as Amsterdam and Ireland.

Korea is striving to acquire a position in the global market and is in fact showing some progress. Along with its future plans to expand its SWG program domestically, it has signed several memorandums of understanding (MOU) with the Asian Development Bank (ADB), Jordan and Vietnam, where they all suffer from severe water shortages. In the case of the ADB, K-water has promised to send its SWG experts to four South Asian countries and provide the necessary education and assistance to fix the developing nations’ inefficient water supply systems. For Jordan, on the other hand, the SWG developed by K-water will consist of desalination plants that will filter the sea water from the Dead Sea. Lastly, the MOU with Vietnam is about managing the drinking water in the country which is a fast growing market in the region. In addition to various forms of SWG cooperation, Korea is planning to hold the 2017 Smart Water Grid International Conference, which has been held annually in Incheon.

Problems

Although the Korean Smart water management initiative looks promising, it is not without its problems. The OECD report on enhancing water use efficiency in Korea lists the problems comprehensively. A major flaw in these endeavors is the funds for these projects. Currently, K-water depends heavily on government funding rather than its own revenue for their operation, which was half of its total spending of 17.9 trillion Korean won (15.9 billion USD) in 2013. The report also points out that the K-water spends less efforts on improving the water distribution efficiency on the demand side by adjusting the fee for the consumers.

K-water also needs to work harder to raise the awareness of its initiative, both with the public and elites. K-water may have announced MOUs with other countries in the media, but it is not enough to demonstrate to the public the potential and how successful SWG development is. Fora project requiring significant investments, there is little information on the progress of the initiative other than from K-water sites and foreign reports written in English. In terms of elites or academics who want to develop the SWG further in Korea, there are academic societies dedicated to researching the SWG in Korea specifically. However, they do not seem to be updating publications or events in a timely manner to support interest. For K-water to really go for the global market it needs to work on how to build domestic support, so it will have a firm footing from which to pursue the initiative with stable funding and acknowledgement.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Image from Changjin Lee’s photostream on flickr Creative Commons.