Dreaming of Siberian pipeline

By Ahn Choong-yong

Distinguished Professor, Graduate School of International Studies, Chung-Ang University

A vast horizon of birch trees, uncultivated hilly green fields and winding rivers stretched endlessly before me while I traveled on the Siberian railway from Vladivostok to Irkutsk in August. My three nights and four days in Siberia ended up becoming one of my most memorable summer quasi-vacations.

I was there to attend a seminar organized by the Hankyoreh Peace Foundation themed “From Donghae City (a coastal city in eastern Korea’s Gangwon Province) to Baikal Lake.” I felt privileged to join the program, as I had long hoped to take a trans-Siberian railway trip.

Far East Siberia is an undisputed treasure of untapped oil, gas and timber resources, with very little human settlement. Indeed, Siberia’s very existence illustrates why factor endowments are one of the most important variables regarding a country or region’s economic profile and growth potential.

The Russian Far East’s factor endowments are the opposite of Korea’s, as our country has a dense population of inhabitants but few natural resources. Viewed from the East Sea route, the two regions are immediate neighbors.

I have always believed in the functional integration of East Asia beyond ASEAN plus China, Japan and Korea’s formal framework, as we saw in the development of the Chiangmai Initiative as a self-help financial support program through multilateral currency swaps after the humiliating Asian financial crisis in 1997/98.

Given the area’s factor endowments and geographical proximity, Northeast Asia’s functional integration must be extended to include the Russian Far East, North Korea, Mongolia and Taiwan.

The gravity model of international trade tells us that countries geographically closer to one another tend to trade much more with each other than countries far away. However, since World War II and the Cold War, Northeast Asia’s integration has been critically hampered by North Korea’s staunch closed-door policy and nuclear threats.

How can we ensure functional integration in Northeast Asia? The concept of “natural economic territory” convincingly describes the inborn complementariness of adjacent regions along the Tumen River bordering the northern region of the Korean peninsula, China’s Jilin Province and the Russian Far East.

The concept was coined by Professor Robert Scalapino at the University of California at Berkeley almost two decades ago to emphasize the inborn linkages and connectivity of adjacent regions to ensure cross-border inter-regional development and co-prosperity.

The diverse factor endowments of the two Koreas, Russia and China would produce tremendous win-win results once connected by pipelines, railways and roads, which have been disconnected for so long by political and ideological differences. China and Russia are now competitively opening their economies and wish to be integrated actively into the world economy. Russia is scheduled to host its first APEC Summit in November of 2012 in Vladivostok and eager to develop Far East Siberia, where I saw an impressive suspension bridge under construction for the building of a summit venue.

Sadly enough, North Korea is the only country turning a blind eye to the globalization and integration initiatives of its former socialist allies. Recently, North Korea illegally confiscated Hyundai’s invested assets in a jointly run resort complex in Mt. Geumgang.

However, one bit of good news for major stakeholders in Northeast Asia’s natural economic territory is that Russia completed a 1,400km gas pipeline stretching from Sakhalin to Vladivostok in early September, and Russia and North Korea agreed to build a transnational gas pipeline connecting Russia and the two Koreas.

Who will be its immediate, significant and nearby customer? Needless to say, South Korea, which relies on mostly imported energy resources, especially from the Middle East. Through this gas pipeline, Russia can develop a depressed Siberia compared to Europe Russia and North Korea can collect transmission fees and make use of natural gas as well.

Once Russia and South Korea can ensure, perhaps through Russia’s ownership of North Korea’s portion of the pipeline, that the North will fulfill its judiciary obligation and not disrupt the flow of natural gas from Russia into South Korea as a security threat, the academics’ concept ― the dream ― of natural economic territory in Northeast Asia could become a reality.

The author is also Chairman, the Regulatory Reform Committee and Foreign Investment Ombudsman: cyahn@cau.ac.kr