Korean firms warm to cross-border trade

Korean firms warm to cross-border trade

By Ahn Mi-Young

SEOUL (DPA): North and South Korea may still technically be at war, but this has not stopped legions of companies from conducting a brisk and growing trade across the chilly political divide.

While hostile armies of more than one million troops each have continued their face-off across the 38th parallel ever since the 1953 truce, small traders and multinational firms have ignored the politics and got down to business.

The two Koreas have still not signed a peace treaty, but bilateral trade has grown to an accumulated US$1.44 billion since the first tentative links were formed in 1988, according to the South Korean Ministry of National Unification.

Since then, capitalist South Korea has become communist North Korea's third-largest trading partner, after China and Japan. Even as the two countries exchanged harsh words over an alleged North Korean armed submarine crew captured and killed in the South, trade increased by more than a quarter between the first seven months of 1996 and the corresponding period this year, to more than $182 million.

In 1988, the first small and medium-sized South Korean manufacturers established trade links with the North after Seoul publicly pledged tolerance of low-profile trade with Pyongyang. Since then, corporate giants like Daewoo, Samsung and Hyundai have joined the fray and now make up 80 percent of inter-Korean trade.

Many of the early deals were arranged by middlemen from Hong Kong, China and Japan. But since then "South Korean businessmen have opened various channels of connection with North Korea," said an expert.

North Korea's major drawcard remains its cheap but skilled labor. Workers in one of the world's last remaining communist dictatorships are paid as little as $80 per month, compared to between $65 and $230 in China.

Typically, southern firms send raw materials to northern garment factories, or electronic components to assembly plants. The finished products are then shipped back from North Korea's western Nampo port to Inchon in the South by chartered third- country vessels.

"We are content with production skills at our North Korean factories," said one southern garment maker. "North Korean-made products are favorably received by South Korean consumers, especially in the middle-to-low end segment."

Between April and June this year, 77 vessels carrying more than 100,000 tons of North Korean-made goods -- mostly textiles, garments and metal products -- arrived in southern ports, according to Seoul trade figures. In the same three-month-period, 27 ships carrying some 75,000 tons of goods traveled the other way.

Almost a decade after it started, cross-border trade may soon increase substantially.

Since August, hundreds of engineers have started work on the KEDO project to build two light nuclear reactors at Shinpo in North Korea.

By the year 2000, up to 1,000 South Korean engineers will supervise 7,000 North Korean workers there, according to the southern state utility Korea Electric Power Corp (KEPCO).

Currently, Daewoo is the only South Korean company that runs its own factory in Pyongyang, but this also may change soon. Earlier this year, the Electronic Industry Association of Korea sent a fact-finding mission to North Korea.

Seoul has also given the go-ahead to five companies to do business with North Korea -- including the state-owned Korea Land Corporation, LG Corp., Samchully Bicycle and Daesang Super Express.

North Korea claims that more than 300 companies already operate in its "free trade zone" at Rajin and Sunbong, with most investment coming from Koreans living in Japan, China and the United States.

Samsung, too, wants to set up shop in Rajin or Sunbong and open a telecommunications center. And the Korea Land Cooperation even plans a large pilot industrial estate on the site.

A South Korean official hinted Seoul is keen to make money from its northern cousins, even while the icy ideological battle continues and the DMZ (Demilitarized Zone) remains an ugly scar across the Korean peninsula.

"Given the strategic value of inter-Korean exchanges, we would take a case-by-case flexible approach," he said diplomatically. An industrial insider put it more bluntly. "Business is business," he said. "Politics should be cut out of it."