Asia Times: PYONGYANG WATCH: The shipping forecast: choppy waters


	February 15, 2001	atimes.com

The Koreas

PYONGYANG WATCH
The shipping forecast: choppy waters
By Aidan Foster-Carter

This week's column is all at sea (so no change there, I hear you mutter). But this time literally. Pause and reflect a moment on Korea's geography. Yes: a peninsula, surrounded on three sides by water. This maritime aspect looms all the larger, given that the wittily named Demilitarized Zone (DMZ), that hideous scar and barrier sundering this ancient land, remains the most heavily armed frontier on earth.

Hopefully the recent North-South deal on the practicalities of relinking roads and railways will start to change that, along with the proposed Southern export estate at Kaesong just north of the DMZ. But for now, only a very select few get to cross by land through Panmunjom. The Chung clan, of Hyundai fame; former US secretary of state Madeleine Albright's advance party - and that's about it. Even the Dutch and Belgian ambassadors in Seoul, who are now accredited to Pyongyang too, have yet to get the North's permission to go back and forth by the direct route.

Instead, most fly - but few go in a straight line. Direct flights between the two Korean capitals began only last year, for the summit and family reunions. But these are rare exceptions. Everyone else gets sent the long way round, by China. Even the South Korean team that went to Pyongyang last week, to hear the North stamp its little foot and demand cross-border electricity NOW - a technical impossibility, but true red hearts don't worry about mere details - had to go via Shenyang. A glance at the map shows how absurd this is.

What man divides, the sea conjoins. Even in the bad old days, people found a way. The island-studded west coast gave cover for fishermen to make secret contacts, while eastern cliffs let Southern daredevils snatch picnics in Northern bays inaccessible by land. Or so I've been told. Great tales: so crazy, so risky, so Korean, that I believe them - despite one oddity, the almost total absence of "boat people". Most refugees, too, go circuitously via China.

Recent years have brought less hazardous and more prosperous voyages. That largely unsung hero of practical inter-Korean cooperation, the Kedo consortium, charters tankers to load heavy fuel oil at Southern refineries for delivery to northern power stations. Kedo also ships materials and plant from Southern ports up the east coast to its Northern site at Kumho, where it is building - ever so slowly - two nuclear light water reactors (LWRs).

Earlier, across the peninsula, the unbanning of inter-Korean trade in 1988 led in the 1990s to a regular route being reopened on the short run (just 300 kilometers) between Inchon and Nampo - the ports for Seoul and Pyongyang respectively. Starting with third country flagged vessels, this then shifted to a few specialist South Korean carriers. It has been crucial for processing on commission (POC) trade, where Southern firms send material (and sometimes machines) for manufacture in the North and subsequent resale in the south or overseas.

POC may well be the only sensible thing happening in the North Korean economy. Its value last year rose by a third to US$140 million, comprising well over half of total inter-Korean trade of $228 million. Two thirds of POC was in textiles, mostly outsourcing by small firms. But it is expanding into electronics and computers. Major chaebol like Samsung and LG have TVs made in the North, although only on a tiny scale so far.

But the crowning glory of inter-Korean shipping to date has to be Hyundai Asan's cruises to Kumgangsan (Diamond Mountains): a short run up the east coast from Tonghae to Changjon. Since they began in November 1998, these have taken over 350,000 Southern tourists for at least a glimpse of one of the peninsula's more scenic spots. The Kumgang area is turning into a virtual Hyundai fief, amid talk of making it variously a northern Silicon Valley and/or a permanent site for North-South family reunions.

So: plain sailing all round? Not any more. For different reasons, all three of these ventures are now at risk. Last year total inter-Korean cargo fell by 28 percent, from almost 1 million tons in 1999 to barely 700,000, even though the number of shipments rose 21 percent from 1,714 to 2,073. Two factors explain this drop. North Korean mineral exports fell 79 percent, for unknown reasons. And Kedo's oil shipments were down 82 percent, as it struggled to fund its annual commitment of 500,000 tons against Republican opposition in Congress. It will struggle even more now, as Bush and company may well question the consortium's entire raison d'etre - especially the LWRs.

Hyundai is in deep trouble too. Its cruises made history and are helping make peace, but they don't make money. It would need half a million tourists a year, more than twice the current numbers, just to break even. That's because Hyundai agreed to pay $942 million over six years in fees alone, on top of actual business costs. To date Hyundai Asan has spent $624 million, including $156 million to lease ships and $126 million on construction (port facilities, roads, the lot: not one red cent from the North), while earning only $233 million in revenue.

This can't go on. Asan's capital is all but exhausted, and Hyundai group finances are too wobbly for others to rally round like in the old days. So Asan tried to negotiate a temporary halving of its $12 million monthly fee (paid in dollars via Macau). When the North nixed that, Asan took a deep breath and only sent $6 million anyway: gambling that Pyongyang won't want to risk jeopardizing the tours and all they stand for. We'll see. This is one high-stakes poker game.

Harder to comprehend is what's going on at the other side of the peninsula. Since December, the port authorities at Nampo port have been doing their damnedest to sabotage business by refusing entry to South Korean ships - even those carrying aid goods. Last year one aid boat waited a month (cost: $150,000) before giving up and going home. In January the Mingri-ho - bringing 177,000 sets of long underwear, badly needed for the North's worst winter in years - was made to wait a week before it was allowed to unload.

But that's nothing compared to the problems faced by POC. North Korea seems to have some quarrel with Hansong, a small Southern firm handling 95 percent of shipping on the Inchon-Nampo run, as well as with the Mingri-ho's owners, Sun Ace. By contrast, it favors another firm, Ramses Logistics, which only runs irregularly. Seoul's unification ministry says Pyongyang objects to Hansung charging $800 per container. For their part, Southern shippers complain about the North's exorbitant port fees: up to $9,000, double the going rate in China, for much worse facilities. So with 45 percent of containers sent North returning empty, freight charges on this route are inevitably more than double the norm elsewhere for such a short distance.

Whatever its cause, this stand-off threatens ruin not only for shippers - Hansung has lost at least $18 million so far - but also for the POC producers, especially the small fry for whom this trade is their lifeblood. While a Samsung or LG can afford to shrug off the odd delayed consignment of TVs, at least one small firm which had outsourced winter clothing to the North has had to default as a result of non-delivery.

So what is Pyongyang playing at? Haven't North and South Korea signed an agreement on business cooperation? They've been slow to finalize (let alone publish) the text, but by definition it's supposed to stop things like this happening - or to resolve them swiftly. Yet no one seems to be suggesting any kind of formal arbitration. The impasse just drags on.

Meanwhile the North continues to cut off its nose to spite its face. If Kim Jong-il learned more than "Woooo, skyscrapers!" from his Shanghai jaunt, he should whiz down the new motorway to Nampo - built by child labor, of which they're real proud - and give the comrades in the harbor board some of that celebrated on-the-spot guidance. Pronto.

(Special to Asia Times Online)

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