TED Case Studies

Tumen River Project



     CASE NUMBER:        247
     CASE MNEMONIC:      TUMEN
     CASE NAME:          Tumen River Plan

A.   IDENTIFICATION

1.   The issue

The Tumen River Area Development Project (TRADP) is an ambitious
project by China, North Korea, South Korea, Russia, Mongolia, and
Japan to create a free-trade zone in Northeast Asia.  The TRADP is
being touted as the "future Rotterdam" for Northeast Asia.  The
involved countries and the United Nations Development Project
(UNDP) envision a 20 year project, costing over $30 billion, which
will transform the Tumen River area into the transportation and
trading hub for Northeast Asia.  The goal is to make the area into
a free economic zone for trade to prosper and attract investment
into the area.  There are a number of problems associated with this
development project.  First, the countries involved are long-time
adversaries and the agreement could actually lead to further
instability in the region if there is significant disagreement on
issues.  Second, and more importantly, there are a number of
environmental concerns with the development of the region.  Much of
the area is fragile wetlands and some of the areas affected by
TRADP comprise unique ecosystems and are currently protected as
nature reserves.  The hinterland of the TRADP area is also rich in
natural resources and there is a major concern about the extraction
of these resources.       

2.   Description

The Tumen River, a sleepy, and until recently, largely forgotten
waterway in Northeast Asia, has been thrust into the limelight by
radical changes in regional economics and politics.  The Tumen runs
from the Sea of Japan to several hundred miles into Manchuria, and
is bounded at various points by China, Russia, and North Korea. 
Should full port and expanded rail facilities be developed along
the Tumen, traders would have a far shorter and cheaper route from
the Far East to the markets of Europe than existing overland rail
lines or the current sea route that runs from the port of Dalian
around the Korean Peninsula and through the Sea of Japan.  Perhaps
more important, the river's development potential holds out the
hope of a cooperative, rather than hostile, relationship in the
21st century among the nations of Northeast Asia -- the three
countries along the river, plus Japan, South Korea, and Mongolia.

The idea of  a special development project for the Tumen region
first surfaced in 1989 in academic papers in Hawaiižs East-West
Center, as a possible means of forming a Northeast Asian economic
cooperation bloc.  The scheme gathered momentum in a series of
regional conferences held in Changchun, Jilin Province in 1991. 
UNDP became interested in the concept and in July 1991 convened a
meeting in Ulan Bator of representatives from Mongolia, China, and
the two Koreas.  Since then the idea has taken on a life of its
own.  Russia and Japan have been brought into the discussion by the
UNDP about the feasibility of joint development of the Tumen Delta. 

Under the promotional hands of the TRADP staff, an ambitious plan
has emerged to convert an  area - from the Chinese town of Yanji to
the Sea of Japan, and from Chongjin in North Korea to Vladivostok
in Russia - into a $30 billion trade and transport complex with 11
separate harbors, three international airports, and an inland port
rail hub.  However, the border countries do not have the financial
capability to undertake such an effort, therefore most of the
funding for the project has to come from outside private investors
and foreign assistance agencies.

There are actually three levels of development that can be
distinguished.  First, is the Tumen River Economic Zone (TREZ), a
roughly 1000 sq. km free district, including China's Hunchen, North
Korea's Najin, and Russia's Psyet.  This zone is located at the
mouth of the river and constitutes the core of the project.  At the
second level, farther away from the ocean is the Tumen Economic
development Area, with about 10,000 square kilometers , consisting
of a hoof-shaped plain, it is bounded by China's Yanji, Russia's
Vladivostock, and North Korea's Chongjin.  The third level of
cooperation refers to an expanded region called the Northeast Asia
Regional Development  Area occupying 370,000 sq. km of the river
valley and beyond, binding the border provinces of the three
countries together.    

What has propelled the Tumen River dream along for the past two
years, besides the sheer determination of its promoters, are the
rapid changes in the political climate of the post-Cold War era. 
China, Russia, and North Korea are all keenly aware of the vast
natural wealth of an area that many consider the worldžs last land
resource frontier.  The hinterland beyond the Tumen contains rich
reserves of oil, minerals, coal, timber, and abundant farmland. 
These resources were the cause of hundreds of years of fierce and
bloody competition among Japan, China, and Russia.  The area around
the Tumen Delta itself, with an abundance of fresh water and cheap,
flat land, seems an ideal base from which to exploit these riches. 
Cooperative development, unthinkable in the past, has become
conceivable since the collapse of the Soviet Union, the mending of
Sino-Russian relations, and the new found development zeal of
China, Russia and North Korea.  The enormous potential of the
regional market also has played a significant role in the
development of the area.  The regional market encompasses nearly
300 million people, has a collective GNP of almost $3 trillion, and
accounts for nearly one-third of world trade.  

Although great progress has been made in some of these
relationships - especially the normalization of South Korea's ties
with China and Russia - political differences among the players
dampen widespread enthusiasm about the success of the Tumen River
project.  North and South Korea are still at loggerheads over some
fundamental issues and relations between the two remain unstable. 
At the same time, North Korea, while expressing keen interest in
developing its side of the Tumen River into a special economic
zone, has voiced objection to any economic activity which would
imply a surrender of sovereignty over its territory.  Another major
potential problem is the lack of agreement about the overall goals
of the Tumen River development. 

In short, the development projects of the Tumen River basin for
East Asian economies has been described as economically very
attractive and yet politically extremely complicated.  Until the
region's political walls come down , the Tumen area seems destined
to have a hard time luring capital and multilateral cooperation
remains a hollow slogan.  The biggest barrier is North Korea and
its intransigence about the nuclear issue and other agreements. 
Pyongyang claims to want foreign investment  but on its own terms. 
Only the South Koreans seem willing to pay the price, but the on-
off relations between the two Koreas and the instability of the
Nuclear face-off  have blocked investment for now.  Japan's
reluctance to fund infrastructure project's in Russia until it
settles its claim on the Kurile  Islands also acts as a brake on
regional development.  There is also the fear of economic and
political domination by Japan and China over the project and
consequently over other parts of the other members internal
development.  There is an extremely long legacy of animosity in the
region, especially with Japanese colonization,  that make the
political barriers very difficult to break.

Each country that is involved has a different reason for wanting to
join the Tumen project.   First, China, which initiated the idea of 
joint Tumen development in 1989, is driven primarily by the need to
boost its northeast quadrant, whose development and economic
prosperity has not kept pace with southern coastal regions. 
China's other main concern is the border issue of trying to have
access to a port in the northeast.  There is a 15 km corridor that
separates the Chinese border from the ocean and recovering the
Chinese right for navigation through the Tumen agreement is a
priority.

Russia, which seems less enthusiastic than the other governments
about the project, still seems interested by the prospects of
solving one of its oldest problems: how to finance and build the
infrastructure and technology base to get Siberia's vast mineral
riches out of the ground and to the global market.  

North Korea, in contrast, seeks the broader goal of breaking the
economic isolation it has suffered since the collapse of most of
its communist allies.  Pyongyang officials remain highly
enthusiastic about the potential of Tumen River development to
boost the country's struggling regional trade, help modernize its
rapidly deteriorating economy, and launch a tourism industry to
generate desperately needed foreign exchange.  

In South Korea, where natural resources are in short supply, there
is growing interest in developing the mineral and energy resources
of the Russian Far East.  Also, with South Korean labor-intensive
industries facing severe manpower shortages, there is a coincident
interest in transferring equipment, technology and funds to China
and North Korea.   

Japan is in search of new markets to foster outside of Japan,
particularly with the rising cost of production and labor inside of
Japan.  The Tumen Delta is also in a perfect location to develop a
part of Japan that is relatively undeveloped.  A distance of 850km
separates the port of Niigata in Japan from the Tumen Delta, this
provides a potential 'shortcut' to the potentially lucrative
Chinese market as well as a transhipment center for goods destined
for Europe.  If Tumen was developed, it would have a significant
impact on the western coastal region of Japan.

As for Mongolia, adjusting to a dramatically changed political
environment after the dissolution of the Soviet Union, it has
become evident that this landlocked country also wants to
participate, not wishing to be excluded from the "Tumen club."  
Rather, Mongolia plans to export raw materials and other products
via the proposed Tumen harbor.

The environmental concern for the development of the region is also
a major factor.  Although far from organized and working in unison,
many environmentalist groups have come forward about the danger of
developing the area.  The Tumen area delta is comprised of fragile
wetlands that serve as critical habitat for birds and wildlife. 
Rare species of wildlife are at risk of extinction.  The 30 Far
Eastern Leopards left in the wild depend on the habitat located
barely 150 kilometers from the Tumen River delta in Russia.  Tumen
area development is certain to drastically reduce and degrade this
critical habitat.  UNDP is also portraying TRADP as a conduit for
the regionžs previously inaccessible timber, oil, gas, and coal. 
Trading through the Tumen area will undoubtedly lead to new
pressures to overexploit natural resources, despite the assertions
by many of the local scientists that the fragile environment of
these regions may collapse under the assault of such large-scale
extraction.  

The resources of the area are immense and varied.  The Russian area
has large reserves of oil, coal, and gas as well as vast mineral
reserves of gold, tin, diamonds, iron, phosphate, copper and
molybdenum.  China also has oil and coal reserves along with such
minerals as iron, magnesium, magnesite, molybdenum, and manganese. 
Mongolia contributes large amounts of coal reserves and North Korea
has large ores of tungsten, graphite, gold, barite mica, and iron. 
In addition to the above resources, land and fresh water resources
are considerable.  There are extensive forests, great prairies,
wild animals, and plants. 

The greatest pressures may be brought to bear on oil, natural gas,
and forest resources found in Siberia and the Russian Far East. 
Siberian forests, covering 2.3 million square miles, are
increasingly threatened by foreign and domestic exploitation. 
These northern taiga forest ecosystems are exceedingly fragile and
regenerate extremely slow.  Development of the Tumen as envisioned
by the UNDP, would speed up the deforestation and degradation of
the worldžs largest remaining forests.

UNDP officials acknowledge that the effects of the increased trade
and development brought on by the Tumen River Project will probably
harm the environment but they claim that it is a function of the
local governments to institute environmental protection
regulations.  Most of the countries involved, especially China,
want the UNDP to take on the role of overseeing environmental
protection but the UNDP wants to confine its responsibilities to
organizing international agreements, intergovernmental relations,
joint economic development, and questions of authority and
sovereignty in the region.

The TRADP's importance is extraordinary because of historical
reasons.  The Sea of Japan has served as not only a channel for the
flow of culture, people, and goods, but it has also been the center
of military rivalries.  The political tensions among some of these
nations has thwarted any cooperative programs.  In fact, the Sea of
Japan coastal area has economically lagged considering its
strategic location.  The Tumen stretches 516 kilometers through
North Korea and ends at the Sea of Japan.  In 1860, China lost
access to the Sea of Japan because of the provisions of the Peking
treaty with Russia.  The Chinese are therefore, anxious to regain
access to the area.  
      The Tumen River Program has not gained very much interest in
the United States for several reasons.  First, the location of the
project is quite unusual.  North Korea has expanded its economic
zone hoping for promote investment, but without United States
participation, investment in the region is moving slowly.  United
State's investors are not able to invest in the North Korean region
according the US law, because of poor diplomatic relations.  The
restrictions not only limit US investors, but also the recent
tensions with North Korea's nuclear weapons create unwanted
tension.  Investors are more likely to invest in a worry-free area
where they do not have to contend with the instability of the
country.

Second, Russia is also in disarray right now.  The political
situation in Russia is first priority of government leaders. 
Although the Tumen River Program would be economically beneficial,
many other diplomatic issues are demanding their attention. 
Furthermore, Moscow is the main mecca for relations, and the Tumen
River area is far from policy makers.  Russia is not as active in
this part of their country, so it has not gained much attention. 
According to Matthew Nimitz, special counsel to the UN for the
Tumen River Program, railways are currently being built, but the
development is not heavily publicized.  It has been agreed by China
to invest more than $100 million for the railway system creating a
Trans-Siberian railroad.    

On February 16th and 17th of this year, about one hundred officials
from Japan, China, United States, Russia, and South Korea met in
Niigata, Japan, to focus on the $30 billion dollars needed for the
project.  Discussions included a proposal for the Northeast Asian
Bank to finance the project, and how to promote investment from the
private sector.  In addition, North Korea has made some effort in
normalizing relations with the United States.  According to an
article in The Daily Yomiuri, "Pyongyang believes the Tumen River
project is its trump card to pull itself out of isolation from the
international community and to overcome its chronic economic crises
brought about by the collapse of the socialist rule in the Soviet
Union and East Europe".

The Yomiuri Shimbun Correspondent claimed that it is only a matter
of time until Kim Jong Il, Kim Il Sung's successor and son, will
act faster on the Tumen River Project as soon as he feel North
Korea's international relations are more stable.  As other nations
are still investigating the Northeast Asian Bank, North Korea has
already agreed to establish this bank with a Dutch commercial bank
in the special economic zone in the Tumen Delta.  The bank will be
called ING Northeast Asia Bank, and "will be capitalized at 15
million dollars, of which ING will hold a 70% equity share with the
rest held by North Korea".  It is still being debated whether the
bank will also be used to conduct loan services to other countries
involved in the Tumen River Project. 

3.   Related Cases

     NAFTA case
     KORPOLL case
     JAPANAIR case
     SIBERIA case

     Keyword Clusters    
     (1): Forum                    = UNDP
     (2): Bio-geography            = TEMPerate
     (3): Environmental Problem    = MANY

4.   Draft Author: Michael P. Lavallee

B.   LEGAL FILTERS

5.   Discourse and Status:  Agreement and Inprogress

6.   Forum and Scope: Tumen and MULTIlateral

7.   Decision Breadth: 6 (China, Russia, North Korea, South
     Korea, Mongolia, and Japan)

8.   Legal Standing: TREATY

There is no official treaty yet but the UNDP has placed a great
deal of effort in bringing the countries involved into talks.  A
treaty is the direction that the UNDP would like to see process
progress to in the end.  This is not only for economic reasons and
to expand regional and world trade but the UNDP feels that an
economic treaty will bring a great deal of political stability to
this region of historically belligerent neighbors.

C.   GEOGRAPHIC FILTERS

9.   Geography

     a.   Geographic Domain:            Asia
     b.   Geographic Conflict Site:     East Asia 
     c.   Geographic Impact Area:       Tumen

11.  Sub-National Factors: No

11.  Type of Habitat: TEMPerate

D.   TRADE FILTERS

12.  Type of Measure: MANY

13.  Direct vs. Indirect impacts: BOTH

The impact is probably more direct in this case mainly because of
the possibilities of falling barriers in the area of tariffs if the
free trade area does go through.  It would drastically increase
trade because of the potential of the region and the free flow of
goods.

14.  Relation of Trade Measure to Resource Impact

     a.   Directly Related:             Yes Many
     b.   Indirectly Related:           No
     c.   Not Related:                  No
     d.   Related to Process:           Yes Habitat Loss

Many of the products that will be traded are raw materials and
resource based which would cause a significant impact on both the
product and the process through the extraction of the raw
materials.

15.  Trade Product Identification: Many

Some products may include oil, natural gas, coal, various minerals,
and forest resources such as timber.  there is also the potential
of building labor-intensive industries in the area with the vast
pool of labor in China and North Korea.  This could lead to some
manufactured products.   

16.  Economic Data

17.  Degree of Competitive Impact: Medium

If the plan of a free trade area goes through, there will probably
only be a medium competitive impact in the region because of
lowering tariffs and a free movement of goods.  However, the
competition will not be low because of the inequalities in the
region in terms of income and the historical legacies of conflict.

18.  Industry Sector: Many

19.  Exporter and Importer: MANY and MANY

There is a potential in the area for the pattern of importers and
exporters to become very unequal.  North Korea, Russia, and
Mongolia have very little resources to import very much from the
other members and Japan, South Korea, and China want to use the
area mainly for its potential in raw materials.  The collective GNP
of the region in 1992 was almost $3 trillion. 

E.   ENVIRONMENT FILTERS

20.  Environmental Problem Type: Habitat Loss

21.  Species Information

The Tumen River delta is a fragile wetlands that serve as critical
habitat for birds and wildlife.  Some areas to be affected by TRADP
comprise unique ecosystems and are currently protected as nature
reserves.  The endangered Far Eastern Leopard could face serious
habitat destruction with the project.  There is also an immense
amount of flora and fauna that will be destroyed and displaced with
the development of the region.  Tigers are also in danger in the
region and will be affected by any changes in the areas ecosystem 

     Name:          MANY
     Type:          MANY
     Diversity:     ?

22.  Impact and Effect: MEDium and REGULatory

23.  Urgency and Lifetime: MEDium and 100s of years

24.  Substitutes:  Manyy

There are so many products that encompass the area that are a
number of possible substitutes.  Some could just be in the area of
greater conservation and others, like fuels, could be in the area
of like products for example.

F.   OTHER FACTORS

25.  Culture:  No

26.  Human Rights:  No

27.  Trans-Boundary Issues:   Yes

This is one of the major issues of the TRADP because each one of
the border countries has to give up a piece of the land for the
development of the area.  A major obstacle is sovereignty and this
issue will only increase with development.  China especially is
concerned with the border issues because it wants to expand its
right of passage to the mouth of the Tumen Delta.  North Korea is
also very sensitive about the border issue for political reasons
and encroachment into its territory.  The historical legacy of each
country in the region trying to capture the natural wealth that
exists in the area creates a surface of suspicion and a tendency to
be very protective of boundaries.  This is one of the major
political obstacles that must be addressed before the project can
continue to completion.

28.  Relevant Literature

"Asia's Strange Bedfellows", by Matthew Nimetz.  Published by The
International Economy, May/June 1992.

Clifford, Mark. "Send Money: North Korea Appeals for Investment in
Free-Trade Zone."  Far Eastern Economic Review, 156 (September 30,
1993): 72.

Clifford, Mark, do Rosario, Louise, and Kaye, Lincoln.  "Trade and
Trade-offs."  Far Eastern Economic Review, 155 (January 16, 1992):
18-19.

"Dutch Bank, N. Korea Agree To Set Up Bank".  Kyodo News Service. 
Japan Economic Newswire.  January 21, 1995.

"Investors See Promise in Northeast Asia Development."  Xinhua News
Agency.  August 18, 1993.

Kawata, Takuji.  (Yomiuri Shimbun Correspondent) "Pyongyang Views
Border Area As Key To Survival".  The Daily Yomiuri.  February 23,1
995. pg. 4.

Kaye, Lincoln.  "Hinterland of Hope."  Far Eastern Economic Review,
155 (January 16, 1992):  16-17.

Kaye, Lincoln.  "Casualty of History."  Far Eastern Economic
Review, 155 (January 16, 1992):    19-20.

Manguno, Joseph, P.  "A New Regional Trade Bloc in Northeast Asia?" 

The China Business Review, 20 (March/April 1993): 6-11.

Rosencranz, Armin, and Gordon, David.  "Tumen River Projects Needs
Tighter reins."  The Christian Science Monitor.  April 19, 1993.

Singh, K.G. "The Environment and the Tumen River Development
Project."  The Christian Science Monitor, Editorial. April 28,
1993.

"Tumen River Delta: Promising Land of Northeast Asia."  Xinhua News
Agency.  May 13, 1993.

"Tumen River Project", by Mark J. Valencia.  East Asian Executive
Reports.  Published by East Asian Executive Reports, Inc.  Volume
14, Number 2; Pg. 9.

"Tumen River Project Needs Tighter Reins", by Armin Rosencranz and
David Gordon.  Published in The Christian Science Monitor, April
19, 1993. 

Yuan, Shuren, Song, Deqing, and Tuan, Chi Hsien.  "Geographical
Position and Resource    Combination of the Tumen River Economic
Growth Triangle,"  Paper presented at the    Sejong Institute,
August 4-5, 1994: 1-19

Zhu, Yuchao.  "Northeast Asian Regional Economic Cooperation: Tumen
River Area Development Project." International Studies Association
Conference: February, 1995.  





Go to Super Page 1/11/97