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This autumn, a South Korean travel agency started flying the first regular tour groups to the North's capital. Charging $2,000 a person, the tours put a human face on South Korea's quietly swelling trade and investment ties with its isolated sibling. In the first 10 months of this year, South Korea's trade with North Korea jumped 40 percent. Pushing private enterprise in the Communist North, South Korean companies are now building cars, roads, railroads and a huge industrial park. Washington, in contrast, is tightening the screws on North Korea, believing that economic pain will force it to give up its program to build nuclear bombs. Through satellite surveillance and maritime interdiction, the United States is trying to curb North Korea's exports of missiles and drugs. The external pressure is causing North Korea to miss out on a series of billion-dollar infrastructure projects. On Nov. 14, a multinational consortium led by BP announced in Moscow that it would route a 4,884-kilometer, or 3,035-mile, natural gas pipeline around North Korea. By laying the $17 billion pipeline on the floor of the Yellow Sea, the group seeks to avoid the political and financial risks of a country the White House calls a "rogue state." South Korea, one destination for the Siberian gas, wanted the pipeline to go through North Korea, feeding thermal power plants along the way. This month, another multinational consortium, the Korean Peninsula Energy Development Organization, announced the suspension of a $4.6 billion project to build two nuclear power plants in North Korea. South Korea was the largest investor, spending about $931 million so far for the power project, which was to be a trade-off if North Korea abandoned its nuclear bomb program. Many U.S. analysts say Asia's last bastion of old-fashioned communism is facing collapse. "In our view, it's only a question of time when North Korea collapses because its current economic model is not sustainable," John Chambers, managing director for sovereign ratings at Standard Poor's, said recently. Citing North Korea's nuclear bomb program and its economic backwardness as justification for not raising South Korea's bond rating, Chambers said rebuilding the North could cost the South as much as $1.4 trillion, roughly twice the cost of reunifying Germany. Rebuilding North Korea is expected to fall largely to South Korea because it has the deepest pockets and the greatest interest in a united Korea. But instead of pushing for a collapse, South Korea is quietly pursuing the kind of market-oriented development that could one day ease a transition from communism to capitalism. During the first half of this year, 427 South Korean companies took part in 557 projects producing $340 million in bilateral trade, according to South Korea's Unification Ministry. That figure climbs to $587 million with the addition of South Korean humanitarian aid projects, including two sets of cross-border railroads and roads, an industrial park and a meeting center for divided families. South Korea is now the North's largest foreign investor and, after China, its second-largest trading partner. South Korean companies make shoes, garments, beds and television sets in the North. The southern company Pyeonghwa started the recent group tours of Pyongyang, offering the average South Korean the first opportunity to visit since the Korean War split the country half a century ago. Hyundai Asan, a branch of the Hyundai conglomerate, has offered ferry and bus trips to Mount Geumgang in the North, near the border of the two Koreas. Last year, about 100,000 foreigners visited North Korea, while about 5 million visited South Korea. China accounts for the largest share of visitors to the North, about 35,000 a year. Some are attracted by casinos, which are illegal in China. Some come for "retro tourism" - to get a sense of what their country looked like in the Red Guard days of the 1970's. Visitors increasingly see evidence of a grassroots market economy. This year, large market halls have been built in Pyongyang and in most of the major cities and towns. There, people buy and sell vegetables, grain, shoes, clothes and cosmetics at largely free-floating prices. The markets legalize what was a flourishing black market and make up for the state's inability to maintain its food and clothing rationing system. Increasingly, farm managers choose their crops, and individuals now make money repairing bicycles and renovating apartments, according to Kathi Zellweger of the Catholic charity Caritas, who toured North Korea in September. "Small family-size businesses or cooperatives are now providing services or producing goods hinting at a start of a bottom-up process," Zellweger, who is Swiss, wrote in an account of her tour. Over the past year, North Korea has sent three economic fact-finding missions to Vietnam. Some analysts in Seoul say that Pyongyang is following that nation's slow move to open markets, a controlled shift that allows the Communists to keep power. In North Korea this year, government-run companies won more freedom to invest their foreign-exchange earnings in production. Private groups increasingly are leasing from the state restaurants, hotels and shops. Moving toward a free exchange rate, Pyongyang banks now pay around 900 North Korean won for a U.S. dollar, near the black market rate and far above the fixed rate of 2.10 won to the dollar of 18 months ago. The market economy may have gotten a boost in September with the appointment of Pak Pong Ju as prime minister, a post with power over economic affairs. Last year, as chemical industry minister, Pak led a group of North Koreans on a tour of semiconductor plants in South Korea. Meanwhile, more than 1,300 small and medium-size companies in the South have applied to set up factories in an industrial park that is to be built next year at Kaesong, just over the border, about 65 kilometers north of Seoul. The New York Times Copyright © 2003 The International Herald Tribune |