Obstacles to trade with N. Korea remain

By Jean H. Lee

SEOUL, South Korea (AP): In consumer-hungry South Korea, awash with cellular phones and designer labels from around the world, North Korean products are few -- a flask of rice wine here, a pack of cigarettes there.

South Korean companies hope that will change in the wake of last week's summit in Pyongyang, where leaders from the South's business community met with their North Korean counterparts to discuss expanding economic cooperation between the longtime foes.

But economists in Seoul doubt a real rise in inter-Korean trade will occur soon, given the vagueness of the accord -- which only promised better economic cooperation -- and the tremendous obstacles to doing business with North Korea.

They include rules preventing travel or phone calls from the South to the North, strict government regulations on all imports and exports, no direct shipping, railway or road links between the two countries, and high tariffs. The currency used in the North, one of the world's poorest countries, is not accepted in most markets.

"Without an accord protecting investment, avoiding double taxation and opening railways or highways, private firms will hesitate to enter the North," Jo Dong-ho, director of North Korean economic studies at the Korea Development Institute, said last Thursday.

The two countries' economic histories have taken widely divergent paths since the peninsula was divided 55 years ago.

After a burst of economic activity just after the 1950-1953 Korean War, the North saw its economy shrink by half during the 1990s. Trade last year stood at US$1.48 billion.

The South, by contrast, had $263.3 billion in trade in 1999 with countries around the world.

In 1991, several years after some South Korean firms began trading through third countries, the two Koreas established their first basic trade agreement.

In 1998, Hyundai founder Chung Ju-yung, whose birthplace is in the North, launched the most ambitious South Korean investment project there: tours to Diamond Mountain. Driven more by nostalgia than the prospect of a windfall, the tours have been losing money.

Still, LG Electronics unveiled its newest TV set last month, a color model assembled in the North but sold only in the South. Samsung announced it would begin manufacturing televisions and telephones in the North. And last Thursday, Dongwon Industry began importing spring water from the North.

Last year, inter-Korea trade reached a high of $340 million, a nearly 50 percent increase from 1998. But most was humanitarian aid, fertilizers and minerals; only $190 million was from commodities, Jo said.

The communist North simply does not possess the infrastructure to accommodate big business, economists said. Labor in North Korea also costs more than in the many other Asian countries, and shipping goods out of the North is exorbitant, Jo said.

There is no competitive market in the North, a country closed to most foreigners, and the North Koreans have little money to spend. Most North Koreans do not comprehend business concepts basic to capitalism, economists say.

Still, proposals for inter-Korean projects abound, including a free-trade center at Panmunjom in the Demilitarized Zone and an industrial complex that would link North Korean labor with South Korean technology.

To encourage trade, the South's Unification Ministry has set aside nearly $4.4 million for joint projects, including funding for companies interested in setting up factories in the North. Textile, clothing and footwear companies have the best chance of success, the ministry says.

But at the summit last Wednesday, the South's nine-member business delegation, led by officials from South Korea's four largest conglomerates, accomplished little more than presenting their wish list to six representatives from the North: a Joint Economic Committee to establish investment guarantees, intellectual property protections, and taxation and payment agreements.