Asia Times: PYONGYANG WATCH Getting down to business


	November 15, 2000	atimes.com

The Koreas

PYONGYANG WATCH
Getting down to business
By Aidan Foster-Carter

After a bumpy month when Pyongyang kept postponing meetings, inter-Korean dialogue looks to be back on track. On November 11, working-level negotiators from North and South Korea signed a provisional agreement in Pyongyang on mutual economic cooperation.

Formal approval awaits higher-level ministerial talks on November 27, with ratification by the two parliaments to follow. But four basic points, essential if inter-Korean business is to take off, seem to have been sorted out. The two sides have agreed to guarantee each others' investments, avoid double taxation, create a mechanism for direct financial transactions, and set up a body to resolve disputes.

The hope is that this will encourage South Korean firms to go North. The few who have already done so - above all Hyundai, with its cruise tours to Mt Kumgang and its planned industrial estate at Kaesong - have other agendas. Chung Ju-yung, Hyundai's North-born founder, wants to do his bit for unification.

So, of all people, does Rev Sun-myung Moon of Unification Church fame. Once jailed in North Korea and a staunch anti-communist, Moon later made his peace with Kim Il-sung. Pipped by Hyundai to the Kumgang concession, the Moonies have started Pyonghwa Motor, a car repair business at Nampo on the northwest coast. A second phase will assemble Fiats from kits, on a scale too small to be economically viable.

First with a factory was in fact Daewoo in the mid-1990s, making bags and shirts (including for Pierre Cardin) near Nampo. What they didn't make, alas, was money. Southern managers had to go the long way round via Beijing, if they were let in at all. Unable to train Northern workers in the South, Daewoo had to do so expensively in China. Payments were a perennial headache. The factory now stands idle.

The new North-South agreement is meant to prevent all that, or at least some of it. Direct settlement is a key need, to avoid the hassle and expense of payments via third-country currencies and banks. How it will be effected is not yet clear. Different reports suggest dollars will be used - or a new "superwon" as a notional unit of account. Either way, fixing an appropriate exchange rate may prove a hurdle. On tax, 10 percent at most will be levied on royalty, dividend and interest income - with exemptions fo artistes.

The other two items boil down to trust, which on past form may be in short supply. Although politics has spared South Koreans this fate hitherto, the North has a long and ugly history of playing outsiders for suckers. Ever since the 1970s it has persistently reneged on debts to more than 100 Western banks and governments, and ignored an order to pay by the International Court of Arbitration. With interest - and including even larger debts to the old USSR - Pyongyang owes more than US$10 billion, never to be repaid.

South Koreans must hope the North has turned over a new leaf - or will treat its kith and kin better. But here again, precedent is discouraging. In the 1980s, when Pyongyang first passed a foreign investment law, the sole takers were Koreans with pro-North sympathies living in Japan. A few thrived, making the DPRK a major source of cheap suits for Japanese department stores. Yet one leading investor finally quit in disgust, after too many of his consignments were diverted to Hong Kong - because someone offered a few dollars more.

Not that Seoul is starting from scratch. An inter-Korean economic agreement inked in 1985 was never implemented, but trade quietly began two years later. Last year's total of $330 million was chicken feed for the South - but made it the North's third biggest partner, after China and Japan. Increasingly common is processing on commission (POC), where Southern firms send materials - and sometimes machinery - for Northern factories to make into finished goods, which then head South again for sale or export.

Starting with simple stuff like garments, POC now extends to TVs and computers. Recently Seoul's Commerce Ministry sent a safety certification inspector to one such factory in Pyongyang, and plans to make a habit of it. Pragmatic cooperation on this level augurs well for the future. Another instance is a recent cigarette joint venture, Hanmaum ("one mind") - known to Seoul wags as "unity in cancer".

One good sign, paradoxically, is that reaching the deal was a struggle: three days of marathon sessions, including six hours arguing over a single sentence. The North walked out once; the South complained that a shared language was harder than drafting in English. Yet this means they're serious.

And so they should be. When Hyundai's Chung first went North in 1989, two other Asian foes were also taking their first cautious steps toward doing business. A decade later, Taiwanese firms have at least $30 billion invested in China, giving a major boost to both economies. In Korea, enmity proved too strong, and a decade of investment was lost. They can ill afford, in all senses, to wait any longer.

(Special to Asia Times Online)

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