Korean President Lee Myung-bak on Sunday proposed a three-stage reunification with the Democratic People’s Republic of Korea (DPRK), and called for developing new relationship with Japan.

Lee made the remarks at the celebration of the country’s 65th National Liberation Day, or 65th anniversary of Korea’s independence from Japan’s 1910-45 colonial rule.

Lee said that the current inter-Korean ties demand a new paradigm, and it is “imperative that the two sides choose coexistence instead of confrontation, progress instead of stagnation.”

He proposed that Seoul and Pyongyang should build an inter- Korean “peace community” first to assure security and harmony on the Korean Peninsula, then work for an “economic community” for a comprehensive exchange and mutual prosperity. And after this, the two sides can establish a genuine “national community”, Lee said.

Lee said “it’s time for discussing substantive measures for the reunification of the two Koreas, such as a unification tax.”

The country needs to consider the “unification tax” to prepare for the huge financial burden in case the two Koreas realize the reunification, Lee said.

According to a study by a parliamentary committee, Seoul is expected to bear about 1.3 trillion U.S. dollars cost if the “two Koreas” are reunited, local media said.

However, Lee stressed that “what the most important thing at present is the denuclearization of the Korean Peninsula.”

On Seoul’s relations with Tokyo, Lee positively assessed Japanese Prime Minister Naoto Kan’s apology for Japan’s 1910-45 colonial rule of the Korean Peninsula earlier this week, calling it a “step forward”.

However, Lee said there still remain unresolved tasks and the two countries should take concrete measures to forge a new relationship for another 100 years.

This year also marks the 100th anniversary of Japan’s forcible annexation of the Korean Peninsula.

Regarding domestic policy in the country, Lee called for the building of a “fair society” by establishing “an ethical infrastructure”.

To meet the goal, the government will further carry out the policy focuses on centrist pragmatism and enhancing services for ordinary people, Lee said.

Lee also urged the National Assembly to start discussions on political reforms including the revision of the Constitution and changes in the electoral systems.

Lee’s speech is widely viewed as an outline for his policy as he enters the second half of his five-year term in late this month.