Koreas bridge the trade gap

["Ulhas Joglekar" <uvj@xxxxxxxxxxxx>]

Business Standard

Last updated 0100 hrs IST, Friday, May 04, 2001

ASIA FILE
Koreas bridge the trade gap
Since South Korean president Kim Dae-Jung's historic visit to the North in
June 2000, the two neighbours have come closer, says Barun Roy
Sometime in May, colour TVs and home appliances assembled in North Korea
will go on sale in Seoul, marking another significant step in the evolving
détente between the two former enemies. South Korea's LG Electronics, which
has been using North Korea as a production base since 1996, will market
15,000 TVs assembled in the demilitarised zone (DMZ), each year.
Samsung's annual offering will be 20,000 TVs, 1,20,000 cassette recorders,
and 2,40,000 telephones produced in its North Korean facilities.
Also in May, South Korea will begin to ship to the North something that
Pyongyang badly needs to save its agriculture - 200,000 tonnes of
fertiliser, worth $52 million. Last year, 500,000 tonnes of South Korean
grain and 300,000 tonnes of farm chemicals had been sent in a gesture of
goodwill. Seoul is now considering buying Chinese coal through North Korea.
Since South Korean president Kim Dae-Jung's historic visit to the North in
June 2000, the two neighbours have come closer. An inter-Korean economic
pact has been signed to guarantee each other's investments, resolve double
taxation issues, allow direct financial transactions through designated
local banks and establish a mechanism to settle potential trade disputes.
Private phone lines between Seoul and Pyongyang are in service. Family
reunion and exchange visits haven't stopped since the first emotional
encounters that followed the June 2000 summit.
In the first quarter of this year, the inter-Korean commission trade which
is still small but is growing, reached $13.8 million. Both North and South
Korea participate actively in the commission - while South Korean companies
provide material and know-how, their northern counterparts provide labour.
Also, the North Korean Parliament passed a bill that will boost
processing-based trade.
Moreover, the two sides have decided that they don't need to burn down trees
and bushes within the 4-km-wide DMZ any more. This was done routinely
earlier since it helped the two to keep an eye on each other's movements.
And after a brief suspension, work on North-South railway and road links has
resumed,
However, it's still to early to say whether these developments will add up
to unification. But there's nothing so far to suggest that the June 2000
summit was a flash in the pan. The North Korean leader, Kim Jong-Il, is
planning to visit the South later this year. His countrymen had felt greatly
encouraged when, after a recent surprise visit to Shanghai, he called on
them to embrace "new thinking".
This should particularly please Hyundai, the South Korean conglomerate,
whose much-hyped tours to Mt. Kumgang, a scenic spot on the east coast just
north of the DMZ, are in trouble. Hyundai has an exclusive 30-year right to
develop the area and operate tours in return for a fixed royalty payable in
US dollars.
The royalty is $12 million a month until 2005, when the amount will be
renegotiated. On the strength of this contract, Hyundai has already invested
$110 million to build tour facilities and plans to spend $250 million more
on a 1,000-room seaside hotel, a 45-hole golf course, and a ski slope.
But its earlier projections have gone wrong. Though hundreds of thousands of
South Koreans have visited Mt. Kumgang since the tours began in November
1998, the numbers still aren't big enough.
Having lost some $391 million in the venture as of end-2000, Hyundai is
worried and is desperately seeking to renegotiate the terms of the royalty.
But it's not giving up. It's convinced that Pyongyang can't go back on
détente and that a land route to Mt. Kumgang, in addition to sea cruises,
could save the project.
Hyundai is also not giving up on its other major North Korean project, an
industrial complex near Kaesong conceived as an export base for
labour-intensive industries like footwear, fabrics and electronics. It could
develop into a special economic zone and a springboard for investments from
the South.

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