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Volume 12 Number 3 Automn 2000 Building a New Silk
Road: Park Yong-ahn Introduction Plans for direct inter-Korean transportation links and regular overland transit are underway after an agreement to reconnect the Seoul-Shinuiju Railway Line, a result of the Inter-Korean Summit last June 15. Up to now, marine transport has been the sole means for the exchange of goods between the two Koreas. However, with the increase of exchange and cooperation between Seoul and Pyongyang, it is becoming more and more necessary to expand transportation means to include road and railway transport. Overland transit is not only an efficient method of transporting personnel and goods but is also very cost effective, therefore contributing greatly to reduced transaction costs for economic exchanges between the two Koreas. When introduced, inter-Korean overland transit will effectively link key transport facilities such as Pusan Port, Kwangyang Port and Inchon International Airport with the South and North Korean railways, roads and waterways. Furthermore, by attracting cargo from the Chinese Northeast region, Mongolia, Russia and European countries, Korea will be able to successfully position itself as Northeast Asia's logistics and distribution hub. This article presents a possible scenario for
inter-Korean overland transit based on current the South and North Korean
laws and it reviews potential ways to simplify cargo passage by improving
the logistics system. Inter-Korean Overland Transit Options
Review of Railroad Transportation North Korea's major transportation networks are centered around railways.1) As of 1996, 93% of the freight transport in North Korea was by rail, a significant contrast to South Korea's 9%.2) North Korea's main railroads are the Seoul-Shinuiju line (Kaesong-Sariwon-Pyongyang-Shinuiju), the Wonsan-Rajin line (Wonsan-Hungnam-Chongjin-Rajin), Pyongyang-Wonsan line and four international lines linking Shinuiju-Dandong, Namyang-Tumen, Manpo-Jiahn, and Tumen River-Khasan. The Namyang-Tumen line, part of the railway route connecting Chongjin, Namyang, Tumen and Yanji, operates freight trains between North Korea and China and therefore is a critical pathway for Chinese transit cargo passing through Chongjin Port.3)Considering distance (see Table 1), safety and interconnection links railroad transport has many advantages. Furthermore, it can be realized without making major changes to the two Korea's current freight transport laws and regulations. Railways between South and North Korea can be
reconnected in four ways. First, the railways can simply be connected, and
operation and management left to the authorities of the two Koreas.
Second, the two Koreas can establish a joint agreement on railway
operations and jointly manage inter-Korean railways with a pool of
locomotives and freight cars. Third, a single railroad transport company
can be established with investment from both Koreas, leaving railway
operations to a joint investment company. Fourth, railroad transport
between South Korea and North Korea, China, Russia and Mongolia can be
linked through an international transport agreement.
In the first option, a major station is designated as a transit station between South and North Korea to reconnect freight cars to the corresponding country's locomotive. (Figure 1). The process will be as follows. A South Korean train reaches the North Korean border ¡æ the train is processed through immigration and customs ¡æ the train enters the North Korea's transit station ¡æ customs clearance ¡æ delivers freight ¡æ a confirmatory note is issued ¡æ the freight car is separated from the South Korean locomotive ¡æ a North Korean locomotive is dispatched after trains are scheduled by destination ¡æ a North Korean engineer checks the freight ¡æ the North Korean train departs ¡æ the South Korean locomotive is scheduled for departure ¡æ the train departs for South Korea. In the second option, the two Koreas must reach an
agreement on railway operation plans. (Figure 2). In this case, freight
trains must be operated according to a joint timetable to guarantee
planned railway service and safety. Joint operating regulations shall
cover all areas involved in railroad operation including train stations,
facilities, routes, locomotives, freight cars, information management,
signal systems and settlement of fares.4) In the case of South Korea, a
railroad transport information network, the Korean Railroad Operating
Information System (KROIS) would be used to communicate electronic
documents with the appropriate agencies and companies, meaning that
information networks must also be integrated in advance.5) The third
option of establishing a single railroad transport company between the two
Koreas can be viewed as the most promising long-term option considering
that railroad transport of personnel and freight are handled separately in
most advanced countries. In this case, the railroad transport company will
utilize the South and North Korea's existing railways while effectively
dealing with the trade of goods between the two Koreas and within the
Northeast Asian region. A railroad transport company would be more
effective in accommodating international transport and will also be able
to act as a single entity when negotiating with foreign railway
authorities. As was the condition in the second option, a set of
regulations on the joint operation would be applied to all related areas.
Review of Truck Transportation The key strength of truck transportation is its ability to meet individual transport needs. However, the capacity of customs clearance terminal would not handle huge amount of freight. Currently, Korea inspects only 10% of passenger luggage through selective screening for foreign goods.6) Considering the current customs clearance rate, serious congestion in truck transport seems inevitable. Furthermore, since most distances between major cities and industrial complexes exceed 300km, significant traffic is expected if trucks become the main means of transportation. Options for inter-Korean truck transportation are the same as for railroad transport. First, roads would be connected, and operation and management would be kept separatly. Second, a joint trucking company would be established and transport trucks would pass on a regular or as-needed basis, through inland terminals in South and North Korea. In this case, inter-Korean transport would include not only transport of freight but also arrival and departure of truck drivers. Third, it would allow free transport of trucks between the two Koreas. This option, however requires fully open exchange between South and North Korea and therefore is possible only when the two Koreas become one nation. Road transport can support railroad transport by enabling door-to-door transport. Before reunification, Germany also applied a
customs clearance procedure to truck transport similar line that of
foreign countries. (Figure 3). A quarantine station, an immigration office
and a customs house were set up to inspect passage of personnel and
freight. Considering such circumstances, the best option would be to
review truck transportation as a supplementary transport means after
railroad transport between the two Koreas is fully implemented and
prompted. (A) Consignment Processing Based on its "Foreign Investment Act," North Korea
classifies foreign investments into three categories; joint-management,
joint-establishment and establishment of a foreign company in the
free-economic trade zone. A joint-management company takes the form of
joint-investment and undertakes consignment processing.7) Consignment
processing is regarded as a promising form of trade utilizing North
Korea's high-skilled force and South Korea's technology and capital. And
it requires frequent exchange of goods and personnel. Since most North
Korean companies up for investment are concentrated in the Pyongyang and
Nampo area, a new overland transportation system would greatly reduce
transaction costs.
The most suitable overland transport method for
consignment processing is by railroad. First, a regular cargo train could
be dispatched between Euiwang Inland Container Depot, in the Seoul-Inchon
area, and North Korea's Nampo station. In this case, the customs clearance
cost and additional costs would be greatly reduced if customs could be
cleared by both Korea's customs agency between the departure station in
the South and the arrival station in the North. Cost savings from using
railroad transportation between Suwon and Nampo would lower transport
costs to a third of that of existing marine transport costs. (Table 2).
(B) Mt. Kumgang Tourism Project The inconvenience for travelers who take the Mt. Kumgang cruise ships is that they all have to arrive at a East Sea port to board the ship. Furthermore, cruise ships cannot effectively respond to emergencies such as passengers who become ill, and it takes a long time to get help. Considering such circumstances, it is vital to have a means of overland transportation. Current problems can be overcome by providing other
means of transportation such as buses and trains to the travelers. The
most suitable means of transportation for the Mt. Kumgang tourism program
is railroad transport. In other words, if trains are used, travelers could
board the train for Mt. Kumgang at a conveniently located station, go
through immigration, cross the North Korean border and tour Mt. Kumgang.
(C) The Light Water Reactor Project With the light water reactor project, underway and
scheduled for completion in 2008, goods and personnel are frequently
transported between the two Koreas. In the beginning, goods and personnel
were transported by sea, on the same vessel according to the "Protocol on
Transportation" signed between Korean Peninsula Energy Development
Organization (KEDO) and North Korea in July 1996. Later, however, goods
and personal were transported separately because of the lengthy, technical
and safety-related problems that arose, and procedures were too
complicated. Engineers entered North Korea by flying through China and
goods were transported by sea between Ulsan Port and North Korea's Yanghwa
Port. Furthermore, to resolve problems associated with separate means of
transport, the Korea Electrical Power Corporation (KEPCO) is planning to
deploy high-speed vessels that travel over 40 knots.8) Regardless of plans
for the high-speed ships, the same problems still remain. Therefore, in
order to make fundamental improvements in personnel transport, railroad or
air transport must be considered. If railway transportation is provided,
Mt. Kumgang tours can cross the border in the same train. Overland Transport Passage Procedures The Differences in Customs
Clearance (A) Customs Clearance in South Korea Based on the "Inter-Korean Exchange and Cooperation Act," South Korea exempts customs and taxes on goods related to inter-Korean exchange and cooperation. If not specified in the act, other related laws such as the "Customs Clearance Act" and the "Regulation on the Establishment and Operation of Customs-Free Zones to Foster an International Distribution Base" are applied. In addition, the "Act on Establishment of Free-Trade Zones" and the recently-enacted "Act on the Establishment of Customs-Free Zones" cover issues related to the designation, registration of customs-free zones, entry/exit of goods, taxation and returns. Import/export terms and processes are controlled by the "Foreign Trade Act". The "Act on Establishment of Customs-Free Zones" also states that the objective of the law is to develop the zone into an international distribution center by designating and operating duty-free zones to facilitate and promote international logistics. However, the duty-free zones, unlike those in North Korea, do not set any terms regarding to the entry/exit of ships and crew members. Therefore, it is impossible for foreign crew members to enter customs-free zones without a pass. Foreign goods can also be processed as bonded goods
in designated bonded areas (e.g., designated storage, customs clearance
inspection office), patent bonded areas (e.g., bonded storage, bonded
warehouses, bonded factories, bonded exhibition sites, bonded construction
sites, and bonded retail shops) and bonded complexes. (B) Customs Clearance in North Korea In contrast to South Korea, which has various laws governing the assistance, policy development and execution necessary for exchange and cooperation between the two Koreas, North Korea has no special laws regarding inter-Korean economic exchange and cooperation. In relation to customs clearance, North Korea has the "Customs Clearance Act" and the "Act on Free-Economic Trade Zones." The "Customs Clearance Act" addresses customs clearance processing, customs inspection, tariff imposition and petitions. The "Act on Free-Economic Trade Zones" stipulates the definition, zone authorities, power and duties of managing agencies, the guarantee of terms for economic activities within the zone, tariff imposition, currencies, preferential treatment and dispute settlement. According to North Korea's "Customs Clearance Act," goods can be cleared at locations that have customs houses such as border crossings, trade ports, international airports and international postal agencies. Agencies involved in customs clearance are the customs house, border passage inspection office, national agencies related to quality, sanitation and quarantine stations, animal quarantine station, plant quarantine station and relevant inspection agencies. Meanwhile, the transit of foreign cargo is allowed only at border stations, trade ports, international airports and free-trade ports. However, upon approval from government officials, it is even possible to transit goods that cannot be imported into North Korea. North Korea's free-trade zones are areas designated for preferential trade, transit transportation, export processing, finance and service. Free-trade zones are governed by the Central International Economic Agency (CIEA) and the zone's authorities. The CIEA is responsible for development of the zone and economic management and operation while the zone's authorities are responsible for local operations. Economic activities that are possible within the free-trade zone are storage, warehousing, processing, assembly, disassembly, selection, packaging, repair and transit. In addition, foreign vessels and crew can freely enter/exit trade ports within the free-trade zone and foreigners directly entering the country through the zone can enter/exit without a pass. North Korea also designated Rajin, Sonbong and Chongjin as free-trade ports. Ferry crossing is a requisite in free-trade ports and ships are forced to hoist North Korea's flag from the point of crossing. (C) Customs Clearance on Third Country's Transit FreightIn South Korea, transit of foreign goods is classified into transit between quays, within a quay, within an airport, and between port and airport.9) Such transits require bonded transportation for goods to leave a single bonded area and pass through local customs areas. Transit within a port or airport does not require separate approval and can be processed by simply submitting a bill of loading. Meanwhile, when Chinese freight arriving at Inchon or Pusan port is transported by air from Kimpo International Airport after being locally transported by land, it must go through local customs area and bonded transport must be reported. When North Korean freight is transported to China via the Pusan-Rajin route and land, the freight is unloaded at Rajin port in order to cross into China by truck. Unloading and warehouse management within North Korea is handled by a North Korean company while truck transport within the North is the responsibility of a Chinese direct investment company in North Korea. The Act on Free-Economic Trade Zones enables transit within the zone and free entry/exit of foreign vessels and crew to and from trade ports within the zone. In addition, it enables truck drivers crossing North Korea-China borders to be processed through immigration with a passport. In South Korea, all imports passing through local
customs areas must be registered and are strictly managed by laws and
regulations on foreign goods. However, when foreign goods such as Chinese
goods pass through North Korea, they are treated as shipment within a
free-economic trade zone, and therefore laws and regulations do not apply.
Furthermore, considering that shipping companies are held accountable for
unloading accidents and a ferry crossing is mandatory, concentrating goods
in North Korean ports are not suitable. Competition is becoming
increasingly intense with global alliances between international shipping
companies and the introduction of larger vessels, so it is necessary to
concentrate transport volume to a limited number of hubs. Under such
circumstances, the most optimal international transport route utilizing
the Korean peninsula is to pass through port hubs such as Kwanyang or
Pusan Port and then link transport to the Northeast Asian region by
overland transport. Simplifying Customs Clearance in Railroad Transportation If the two Koreas decide to link railroads and
enable transport of a third country's freight, procedures for arrival and
departure must be simplified to promote competitiveness. Inter-Korean
cooperation on railroad transport can be classified into two phases;
transit at a border station and joint railroad transport. (A) Inter-Korean Transit at a Border Station A possible scenario for transit of South Korea's export freight to China at a station near the North Korean border can be developed based on South and North Korea's existing laws and regulations on customs. Before train departure, the stationmaster would report to and receive approval from the local head authority on customs, the chief of the Yeosu customs house (or the chief of the Kwangyang branch office), on train departure at Kwangyang (Pusan Jasungdae quay) port ¡æ train departs ¡æ train arrives at the customs clearance station, Jangchun station ¡æ is processed through customs ¡æ arrives at the immigration office near the South Korean border (or is processed through immigrations at the customs clearance station) ¡æ crosses the border ¡æ arrives at North Korea's border office ¡æ is processed through North Korea's railroad transport management and control ¡æ arrives at North Korea's customs clearance station ¡æis processed through customs and quarantine ¡æ train enters the operation line of North Korea's customs clearance station ¡æ locomotive is separated from the train or the containers and regular freight are transferred ¡æ a North Korean train transports the freight cars to its final destination in China. (Figure 4). Meanwhile in North Korea, the South Korean engine driver rests ¡æ freight cars with cargo headed for South Korea are connected to the locomotive ¡æ enters the North Korean railway ¡æ arrives at North Korea's customs clearance station ¡æ is processed through North Korean customs ¡æ train leaves ¡æ arrives at North Korea's border office ¡æ crosses the border ¡æ arrives at South Korea's immigration office ¡æ arrives at the customs clearance station ¡æJangchun station's stationmaster submits a shipment list to the local customs house chief ¡æ is processed through customs clearance ¡æ enters main railway ¡æ arrives at Kwangyang station. Implementation of such an operation requires some
preconditions. First, to prevent potential congestions at customs
clearance stations, a joint information network for inter-Korean freight
transport must be established. Second, passage permits or identification
cards (ID) must be issued to South and North Korean engine drivers
crossing borders or they should be allowed to freely cross with ordinary
passports. In regard to freight cars, initially they should be separately
managed by each side's railroad authorities, but eventually it will be
more effective to operate them in a joint pool. (B) Joint Operation of Inter-Korean Railways For example, let's assume that a container train is transported from Kwangyang station (Pusan Jasungdae quay) to Dandong, China. If the system requires freight to be transferred at South and North Korea's customs clearance station and China's station, the transport system will have no competitive edge over marine transport. Possible solutions to overcoming such potential problems are to (a) replace only the locomotive with one from the host country at the customs clearance station, (b) the two Koreas jointly deploy locomotives but dispatch Chinese locomotives at China's customs clearance station or (c) dispatch Chinese locomotive and freight cars and transfer cargo. Considering the cost and time required to transport
freight to its final destination in a third country, a transport system
with less transfers and less replacement of locomotives and freight cars
would mean lower cost. For a trans-Korean railroad (TKR) utilizing
inter-Korean railways to effectively position itself as an integrated
international transport route, it will be necessary to establish various
agreements for international cooperation on settlement of fares between
Northeast Asian countries including South and North Korea, China, Russia
and Mongolia, sharing of railroad transport information, railway control
and standardization of signal systems. Overland Transport of Third Country
Transit Freight
Inter-Korean railroad transport (or marine transport) is a possible route for third country's transit freight that would not disrupt South and North Korea's current transport systems. Overland transit of goods is now regulated by the two Korea's customs laws. Therefore, overland transit of cargo from South and North Korea or from a third country shall be possible by enacting laws to deal with passage of a third country's freight through South Korea. South Korea's "Customs Act" stipulates that all trains crossing the border use customs clearance passages and that all arrivals from and departures to foreign countries be reported to and approved by the chief of customs. According to North Korean customs acts, transit of foreign cargo is only possible at border stations, trade ports, international airports, free-economic trade zones and free-trade ports. Three options are possible for inter-Korean railroad transportation. First, establish a station near the South Korean border to enable transport or transit that would not seriously affect North Korea's current economic regime. However, on the negative side, it is difficult to attract foreign freight by simply establishing a border station and there will be less opportunity for inter-Korean economic cooperation. In addition, railroad transportation will simply not be enough to respond to the various freight transport demands in Northeast Asia. Railroad transport requires pre-planning and large volume, so small-volume transport will lead to cost increases and eventually higher logistics costs. Second, designate a free-economic trade zone. In other words, set a free-economic trade zone including a train station and border passage around a North Korean railroad service wire. Such a zone can be used for transport, storage, manufacturing, assembly, processing, transfer, passage, transit of South and North Korean freight as well as that of third countries and will also greatly contribute to inter-Korean economic cooperation. Third, simply designate a border passage. However,
in this case procedures for customs clearance, entry/exit, quarantine as
well as information sharing between the two Koreas will be relatively
complicated. Conclusion Freight between South Korea and North Korea was transported through indirect routes, that is, by way of Japan and China until 1995 when a direct marine route was opened between the two Koreas. Nonetheless, third country ships are still being used due to North Korean restrictions on South Korean vessels docking at a North Korean port. Under such circumstances it is unrealistic to expect economic efficiency in inter-Korean freight transport. Therefore, to improve such situations and realize the goals in the historic "June 15 Joint Declaration" and prepare for the economic unity of Northeast Asia in the 21st century, a inter-Korean transport network including overland and marine transport must be established. An integrated transportation route linking South Korea's ports, airports and North Korea's ports, railroad and roads must to established to respond to transport demands. With increasing exchange and cooperation between the two Koreas and the South Korean government's continuous easing of anti-North Korean regulations, a multi-functional logistics systems is also required to lower logistics costs. Meanwhile, considering the different customs
regulations of the two Koreas, a railroad system should be introduced
first since it is easy to adjust transport plans and to develop operating
plans. The advantage of railroad transport is that the two Koreas can
leverage their existing laws and regulations to build a common
distribution system. And the initially separated operation systems can
gradually be integrated into one joint operation company. To connect the
railroads South and North Korea must agree on the details such as the
operation of locomotives and freight cars, accommodations for train
engineers in North Korea, integration of signal and control systems and
information sharing on freight. Meanwhile, truck and bus transportation
will initially supplement railroad transport. Then, as exchange and
cooperation between the two Koreas increases, and later, trains can be
used as a means of passenger transportation. 1) Oh Jae-hak, "A Basic Scheme for the Development of an Integrated South-North Korean Transport System," Preparing for Reunification: the South-North Korean Transport and Tourism Symposium (Seoul: The Korea Transport Institute, September 1993), pp. 10-12. 2) Han Jong-Kil, "The Impact of Stimulated Inter-Korean Economic Exchange on the Korean Peninsula's Logistics and Distribution." Japan Maritime Research Institute Bulletin, No. 394. April 1999, p. 33. 3) Ibid., p. 34. 4)The Korean National Railroad, "Korean Railroad Operation Information System (KROIS) User's Manual," March 1996, pp. 3-20. 5)The Korean National Railroad IT Planning Team, "Test Preparation Plan for Establishment of OIS," April 1994, p. 1. 6)Jin Hyung-in, Park Yong-ahn, Customs Administation in the 21st Century-Surveillance, (Korea Customs Research Institute, 1997.12), p. 205 7) Cho Myung-chul, Hong Ik-pyo, North Korea's Foreign Investment Promotion Policy and Business Environment (Korea Institute for International Economic Policy, September 1998, p. 47. 8) The Korea Electerical Power Corporation, Selection and Contraction of a Marine Transport Company for the Transport of KEDO's Nuclear Power Plant Construction Personnel (May 1999), p. 4. 9) Jin Hyun-in, Park Yong-ahn, op. cit., p. 174. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||