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Seoul Considers Dropping North Korea Sanctions

Ahn Hong-joon, chairman of the South Korean National Assembly's Foreign Affairs and Unification Committee and lawmakers watch North Korean workers during a visit to a factory in the inter-Korean industrial park in Kaesong, North Korea, Oct. 30, 2013.
South Korea says is debating lifting sanctions imposed on North Korea after the 2010 sinking of a South Korean warship. South Korea's opposition argues the trade limits originally aimed at punishing North Korea for sinking the ship are also hurting South Korea.

South Korea's top official on North Korea relations says the government is considering calls to end the punitive sanctions. Known as the “May 24th sanctions,” they ban all trade and investment with the North. The only exception to the sanctions is the joint Kaesong industrial park, where production was allowed but expansion confined.

The trade restrictions were imposed as punishment after public outrage over the 2010 sinking of the Cheonnan, a South Korean warship. Seoul blamed a North Korean submarine for torpedoing the ship, killing 46 sailors on board.

But on Friday South Korea's Unification Minister, Ryoo Kihl-jae, said the government was examining the possibility of lifting the sanctions.

"Public opinion on lifting the May 24th measures is divided. A big decision by the government can be considered but they first need to take a look at the situation," he said.

Ryoo made the comment in testimony to South Korea's lawmaking body, the National Assembly.

Jung Cheong-rae, an opposition Democratic Party representative, called for the trade limits on North Korea to be removed. He told lawmakers the restrictions had cost South Korea's economy billions of dollars in estimated lost trade.

"The May 24th measures have caused almost $9 billion in damage to South Korea's economy while North Korea's damage is measured at $2.25 billion. So, the harm to South Korea is four times larger than that to North Korea," he said.

Jung was citing a report by the private think tank Hyundai Research Institute. The Democratic Party supports trade and engagement with North Korea and was a principle critic of the sanctions.

South Korean businesses say their absence in the North allowed Chinese companies to take over projects that they were forced to abandon.

And while inter-Korean trade fluctuated, China's trade with the North rose to new highs.

Lim Wan-keun is chairman of the Inter-Korea Economic Association. He says South Korean businesses also lost relationships in the North that were difficult to develop because of ongoing tensions.

"North Korea did not have big losses because they can just sell products at low cost and everything goes to China. However, South Korea stopped importing fisheries and agricultural products [from North Korea] so now it buys low quality Chinese products. Those business related to North Korea collapsed, laying off workers and suffering huge losses," he said.

Lim says the two Koreas need to maintain communication channels even if relations are suffering. He says keeping a variety of players involved in dialogue, not just politicians, helps to minimize economic losses and improve relations.

Although South Korea appears to have a larger cost from the sanctions, its economy, measured by gross national income, is 38 times that of North Korea. So, it is much easier for Seoul to absorb the costs of sanctions than Pyongyang.

Although inter-Korean trade dropped by about 10 percent the year after the limits were in place, the Kaesong factory zone helped trade volumes quickly recover.

It is not clear how useful the sanctions have been in shaping North Korea's behavior. Just months after they were imposed Pyongyang shelled a South Korean island, killing four people.

North Korea continues to occasionally threaten attacks on South Korea, develop ballistic missiles, and in February tested its third and largest nuclear device. However in recent months relations have slightly warmed, and their jointly-run Kaesong factory complex was re-opened in September.