Total Unification Costs Will Amount to 50 to 670 Trillion Won

It was reported that the total costs for reunification between South Korea and North Korea could range from $50 billion (approximately 50 trillion won) up to $670 billion (approximately 670 trillion won).

A recent report entitled, “North Korean Paradoxes: Circumstances, Costs, and Consequences of Korean Unification” that the RAND National Defense Research Institute of the U.S. conducted at the request of the Office of the Secretary of Defense (OSD) showed the above.

Unification Costs-

The report estimated the total costs for unification based on the presumption that North Korea’s economic scale would double in five years after unification with South Korea. In other words, it assumed that an outside capital scale that must be put into in order to keep 14 percent of the North’s economic growth rate per annum as the total costs for unification.

The maximum cost of $670 billion and the minimum cost of $50 billion were calculated on the basis of the presumption that the North’s current economic scale is eight percent and two percent of South Korea’s, respectively. The higher we assume the North’s economic scale to be, the more costs will be required to improve the North’s economic level to double.

This report expected that the actual South Korean financial burden would be a third of the total costs, $17 billion to $223 billion, because it is estimated that countries that have been interested in development of the Korean peninsula, including the U.S., Japan, China, the EU, and international organizations, would share the total costs with one another. The amount of South Korea’s financial burden is equal to 0.9 to 11 percent of its GDP (gross domestic product).

The report pointed out that Germany has spent DM 1.8 trillion (approximately 1,260 trillion won) for 14 years since its unification in 1990.

The report analyzed that the total costs for the unification of the two Koreas would be bigger than the costs for German unification on the grounds that the economic difference between the two Koreas (North’s GDP per capita is equal to six to 12 percent of the South’s) is bigger than that between East Germany and West Germany (East Germany’s GDP per capita was equal to 25 to 33 percent of West Germany’s), and the proportion of their populations (South to North: two to one; West Germany to East Germany: four to one).

The report, however, mentioned, “If the North’s munitions industry, which is highly developed, is reorganized into the construction industry effectively, the total costs for unification will be reduced.”

Unification Scenarios-

This report proposed the possibility of three methods for unification: Although unlikely, a form of federation between the two Koreas could appear due to the North’s economic liberalization; after running out of outside support, the North’s military authorities cooperate with the South’s government and lead reunification efforts which end in the South’s absorption of the North; and reunification through a military clash between the two Koreas.

The report forecasted that Korea after unification would abandon weapons of mass destruction (WMD) possessed by North due to pressure from China and the U.S., its biggest trade partners. It expected the possibility that as North’s threat vanishes, the number of USFK personnel would decrease considerably as well.

This report suggested that the total numbers of the two Koreas’ military forces should be cut down from the current 1,700,000 to 400,000 in order to reduce total unification costs.

Seung-RyunKim srkim@donga.com