Background

 In late the 1980s, with the end of Cold War, South Korean President Roh Tae Woo began seeking diplomatic ties with China, the USSR, and East European communist countries --  North Korea’s allies. Although these new bilateral relationships had the potential to further isolate North Korea, Roh’s “Nordpolitik” policy, initiated in 1988, also included a thaw in inter-Korean affairs: promoting economic relations with the North.

 One year later, Chung Ju Yung, founder of giant Hyundai Group and a refugee himself from the North, was granted permission to visit Pyongyang to discuss economic cooperation, including Mt. Kumgang tourism.[1] With over 12,000 sparkling peaks, Mt. Kumgang or ‘Diamond Mountain’ is considered the most beautiful mountain on the Korean Peninsula.[2] North of the 38^th Parallel, Mt. Kumkang became inaccessible to South Koreans after the peninsula was divided into two nations. Chung anticipated a pent-up desire in the South to visit Mt. Kumgang.

 However, the talks did not go far. The nuclear crisis in the early 1990s and Pyongyang’s withdrawal from the Nuclear Non-Proliferation Treaty (NPT) cooled down not only détente between two Koreas, but also the tourism project, which was suspended until the “Sunshine Policy” under the Kim Dae-jung government.

 Mt. Kumgang Tourism and “Sunshine Policy”

 Kim Dae-jung government’s “Sunshine Policy” in 1998 was a turning point in relations between the two Koreas, since Kim proposed reconciling with the North as a partner. Under these circumstances, Chung Ju Yung visited the North again in 1998, this time crossing the Demilitarized Zone (DMZ) with 500 cattle.[3] After returning from the North, Chung submitted a plan for a $ 96 million inter-Korean economic project, which was approved by the ROK government. On October 29, 1998, Hyundai and North Korea's Asia-Pacific Peace Committee (APPC) signed an agreement on the Mt. Kumgang tourism project. The first cruise ship left for Kumgang Mountain on November 18, 1998.

 For the Kim Dae-jung administration, Kumgang tourism was a logical cornerstone of its “Sunshine Policy,” which aimed not only to promote inter-Korean economic relations, but also to expand people-to-people exchanges and promote peaceful reconciliation. Hyundai, with its business expertise in the South and personal connections in the North, was the perfect partner. The South Korean government provided both legal and financial support, as described below.

 Mt. Kumgang Tourism: Balance Sheets and Financial Meltdown

 The contract signed by Chung Ju Yung in 1998 promised the North monthly payments of $12 million through February 2005 for a total of $942 million, regardless of the number of tourists. This was on top of the $308 million paid for the development rights and the $104 million cost of building the facilities. Under these terms over 350,000 tourists would have to visit annually for the project to begin making a profit.  For the first two years, the number of travelers was high, as Koreans born in the North and some Koreans born in the South, who were curious about North Korea, visited the mountain -- 148,074, in 1999 and 213,009 in 2000. However, the number declined dramatically to 57,879 in 2001.

 As the financial success of the tourism project became questionable, the ROK government provided a financial boost. For example, when payment to the North was delayed in February 2001 because the profit from the tours was insufficient, the ROK government provided a subsidy. Then, from April 4, 2002 to December 31, 2002, the ROK government provided subsidies of 70% for students and 60% for other tourists. By the end of 2002, the government had spent 216 billion won (about USD 8 million) for 57,218 Mt. Kumkang visitors.[4] The government also asked the Korean National Tourism Organization (KNTO) to help shore up the project,[5] allocating 900 billion won (about $77million) from the Inter-Korean Cooperation Fund in June 2001 to KNTO for investment in Kumgang tourism. 

 Also, the terms of payment were renegotiated. In June 2001, the agreement changed from a monthly lump-sum to a per-tourist payment, thereby creating an incentive on the DPRK side to increase the number of tourists.[6] However, even with this change and ROK government support, by the end of 2002, only 555,000 tourists total had visited, and the project continued to founder. The cost of the trip was a major obstacle to financial sustainability. The sea route was expensive, about 600,000 won ($500) per person for an overnight trip, the equivalent of four nights and five days travel to South Asia. Initially there were no accommodations, and travelers had to return to the ship at night.

 Hyundai’s huge deficit[7] was rooted in structural problems, which could not be sustainably resolved by South Korean government subsidies. Hyundai and the Kim Dae Jung administration hadn’t accurately calculated the level of South Korean interest in visiting North Korea in a purely tourist capacity, the disincentive created by the high cost, nor the negative impact of the lack of a security guarantee. Pyongyang’s extreme attempts to protect its people from influence of tourists from the South, which required strict security control in the mountain resort, diminished the attractiveness of visiting. Detention of a tourist in 1999 for a short conversation with North Korean guide further decreased interest in visiting, and stirred criticism in South Korea.

 Triggering Changes in North Korean Law

 The 1999 detention resulted in the South Korean government suspending tourist visits for two months while Hyundai and the North concluded new regulations guaranteeing security for visitors to the mountain.[8]  Deteriorating economic conditions inside North Korea as well as tourism triggered further changes in North Korean laws and practices, beginning with the July 1, 2002 economic reforms that targeted a substantial increase in both prices and wages; a shift in the price-fixing mechanism; changes in the distribution system and other changes intended for the “construction of a strong and prosperous state.”[9] 

 Inter-Korean governmental talks on promoting took place at Mt. Kumgang in September that year.  Subsequently, North Korea designated the mountain as an international tourist zone on November 25 2002, and provided a legal structure for South Koreans and foreign investors to conduct business. Economic and jurisdictional laws were enacted to implement the new plan. [10]

 Revitalization of tourism continued as the two Koreas agreed to open a land route and guarantee security for travelers in its territories in January 2003.[11] The new route decreased the price of a visit, and allowed for different packages from one-day to two-night/three-days. New regulations were adopted to manage the new arrangements, [12] such as regulations on entry and exit, tourist and long-term residence in the Mt. Kumgang tourist zone, and customs on April 29, 2004.[13] Regulations on foreign currency, labor and advertisements were established on May 31, 2004.[14] Tourism increased as result of these changes; the number of tourists rose from 84,727 in 2002 to 345,006 in 2007.

 Mt. Kumgang:  Non-Tourist Purposes

 Mt. Kumgang tourism increased the number of people visiting North Korea and increased inter-Korean trade, as South Korean tourists tend to spend a lot on North Korean goods.[15] From late 1998 through 2008, nearly 1.95 million tourists visited the mountain. Mt. Kumgang has also been the site of various types of inter-Korean dialogues, both non-governmental and governmental. The two Koreas held government level talks in 2001 and 2002 to increase tourism; these were followed by working-level meetings on the reconnection of railroad and roads, and marine transportation cooperation to promote tourism.

 Nine Inter-Korean Red Cross talks have taken place at Mt. Kumgang, with the first one on family reunions taking place shortly after the June 2000 Summit. Subsequently, Mt. Kumgang has been host to most of the reunions for separated family members from the 4^th one in April 2002 through the 16^th in September 2009.[16]  In addition, many inter-Korean activities organized by South Korean NGOs, churches and unions have taken place at Kumgang Mountain. In addition, the Roh Moo-hyun government encouraged a “work-study program for unification of the Korean Peninsula” that took place at Mt. Kumgang. With government funding of about 104 billion won (USD 9 million), 44,478[17] South Korean students and teachers participated between December 3, 2004 and February 26, 2008.  And Mt. Kumgang was the site of the first Inter-Korean athletic meeting in August 14, 2002.[18]

 Criticism of Mt. Kumgang Tourism

South Korean criticism of the Mt. Kumgang tourism project centered first on the lack of fundamental security measures to protect tourists in the Mt. Kumgang resort area. Such criticism intensified in the wake of two major incidents during: detention of a South Korean tourist for about one week in 1999 and the killing of a South Korean tourist in 2008.  As noted above, after the 1999 detention, new measures were introduced that provided more legal protection of tourists visiting the tourist site. However, the 2008 shooting demonstrated that the security guarantees defined in the 2004 laws are insufficient to protect tourists who leave the zone within which the security guarantees are applicable.[19]  

Second, conservative South Koreans are critical of the engagement policy in general and the two inter-Korean economic projects in particular. They believe that cash-payments given to the DPRK have at best stabilized the regime and at worst been used by the North for missile and nuclear weapons development as well as for arms-build up. Particular attention has been focused on the $450 million remitted by the Hyundai group to Pyongyang in early of June, apparently provided in complicity with the Kim Dae-Jung government for the realization of the South-North summit meeting of June 15, 2000.[20]

Where We Are

Although on August 17 2009, Hyundai Group chairwoman, Hyun Jeong-eun visited Kim Jong-il and agreed to resume the suspended tourism of Mt. Kumgang promptly, as of this date, tourism has not resumed since the July 2008 shooting incident.[21] However, South Korean Vice Unification Minister Hong Yang-ho declared that Seoul does not intend to link the nuclear issue to the tourism project; and recent events seem to support this statement.[22] Although the tourism project has not officially been re-opened, other activities are taking place at Kumgang Mountain. For example, the 16^th reunion was held in the reunion center in Kumgang mountain -- for its first time since it was completed in July 2008.[23] And the Inter-Korean Buddhists Joint Ceremony was held at Mt. Kumgang, marking the first Inter-Korean social exchange since the July 11, 2008.[24] The Lee Myung Bak administration said that inter-Korean exchanges would not be affected by a naval clash that took place on November 10. [25]

Kim InSung and Karin Lee

Last Updated November 10, 2009