North and South Korean Economic Ventures
For almost four decades following the June 1950 outbreak of the Korean War, commercial contacts between the Republic of Korea (ROK, or South Korea) and the Democratic People's Republic of Korea (DPRK, or North Korea) were essentially nonexistent—in fact, purchase of North Korean merchandise was a punishable offense under South Korean security laws. But in October 1988, as part of his strategy of Nordpolitik, ROK president Roh Tae Woo unilaterally sanctioned the exchange of commodities between South and North. The following month, the first legal inter-Korean commercial transaction was effected: an import into Pusan of 40 kilograms of North Korean clams (routed via Japan). Though the two states remained (and still remain) formally at war, inter-Korean trade thereby commenced.
According to statistics compiled by the ROK's Ministry of Unification, the cumulative turnover for inter-Korean economic transactions between early 1989 and year-end 2000 exceeded $2.5 billion. Official numbers on inter-Korean trade must be used with some care, however. Seoul maintains that its commerce with the North is domestic rather than international in nature, and thus the ROK does not tabulate that trade in accordance with conventional international trade schema.
By Seoul's reckoning, inter-Korean economic transactions have included nearly $500 million in officially designated "noncommercial exchanges": concessional resource transfers from Seoul to Pyongyang for purposes both humanitarian (e.g., food and medicine for famine relief) and political (e.g., heavy fuel oil and components for light-water nuclear reactors under terms of the October 1994 Washington-Pyongyang "Agreed Framework"). Of the roughly $2 billion in ostensibly commercial transactions, the great preponderance (about $1.6 billion) constituted South Korean purchases of North Korean goods: principally, metals (gold, zinc, iron, copper, lead) and agricultural products, and, increasingly, "processing on commission" work for textiles and electronics. (The latter trade, which entails North Korean import, assembly, and re-export of semifinished South Korean wares on consignment, registered a cumulative total of about $500 million for the years 1992–2000.)
Though the absolute volumes of goods and services exchanged between the two Koreas to date remain rather modest, they figure prominently in Pyongyang's overall trade profile, owing to the DPRK's relatively limited exposure to international trade and finance. Depending upon exactly how one counts, South Korea is currently either North Korea's thirdlargest trade partner, or possibly even its second largest (after only China).
Up to now, South Korea's chaebol (familycontrolled business conglomerates) have been the major actors attempting to stimulate North–South commerce. In late 1998, the Hyundai chaebol signed an unprecedented six-year, $932-million deal with Pyongyang for permission to ferry South Korean tourists to North Korea's scenic Kumgang Mountain region. This landmark venture, however, was a financial disaster: by early 2001, the Hyundai subsidiary responsible for the project announced it could not continue to meet its scheduled payments to the DPRK.
In sharp contradistinction to the cross-Strait trade in divided China (which has generally been quite lucrative for Taiwanese entrepreneurs operating in China), doing business with the North has so far apparently been unprofitable for most South Korean concerns. The problems encountered by South Korean companies have been both practical (such as the pervasive lack of familiarity in the DPRK with standard market procedures) and ideological (such as Pyongyang's professed determination to shield its socialist society against capitalist "cultural and ideological infiltration"). In November 2000, following the historic June 2000 Pyongyang summit between ROK president Kim Dae Jung and DPRK National Defense Commission chairman Kim Jong Il, North and South Korea initialed four sets of agreements to facilitate inter-Korean business (on investment protection, prevention of double taxation, clearing settlement, and dispute settlement procedures). If actually implemented, such measures would be a step toward a more attractive inter-Korean "business climate."
In theory, increased economic integration could offer great benefits to both Koreas—and could facilitate the transition to an ultimate reunification. As of midyear 2001, South Korean chaebol were drafting ambitious plans for mammoth inter-Korean ventures; Hyundai, for example, had signed an agreement to develop a 3.3-million-square-meter industrial complex near the DPRK city of Kaesong. Whether these plans will remain on paper only or, alternatively, will presage a further upswing of North–South ventures remains to be seen, but it seems safe to predict that the future of inter-Korean commerce will be strongly influenced by the degree to which Pyongyang acquiesces in the creation of a more attractive business environment within the DPRK.
Further Reading
Eberstadt, Nicholas. (2000) "Prospects for Inter-Korean Economic Cooperation in the 'Sunshine' Era." Korea and World Affairs 24, 4: 537–572.
Hwang, Eui-gak. (1993) The Korean Economies: A Comparison of North and South. New York: Oxford University Press.
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