| A Country Study: North Korea
Inter-Korean Economic Cooperation
The first inter-Korean exchange of goods occurred in 1988. This development had the potential to significantly alter both North Korea's future economic development and its foreign economic relations. Trade began modestly with the November 21, 1988 arrival of forty kilograms of North Korean clams at the South Korean port of Pusan. A second transaction, in January 1989, involved South Korean imports of North Korean art such as paintings, pottery, woodwork, and industrial artworks. In July 1990, North Korea swallowed its pride and accepted delivery of some 800 tons of South Korean rice collected by Christians through a "Rice of Love" campaign for the poor.
In December 1990, the first contract between a South Korean company and a North Korean company was signed. Doosung Company, a small, little-known trading company in Seoul, signed a direct barter trade contract with Kmgang-san International Trade and Development Company. The contract called for exchanging US$1.3 million worth of goods by the end of February 1992. Doosung was to ship 500 refrigerators and 240 color television sets and to receive North Korean cement, artifacts, and paintings of equal value. A total of 11,243 North Korean works of art worth US$650,000 arrived in Pusan on February 15, 1991, followed shortly thereafter by a shipment of electronic products to North Korea. Before this deal, some 200 North-South transactions-- involving no fewer than 150 South Korean firms and nine North Korean firms--had taken place, but all these transactions had been indirect and had been conducted through brokers in Hong Kong or Japan.
On March 29, 1991, Cheongji Trading Company became the second South Korean trading company to sign a formal barter agreement with Kmgang-san International Trade and Development Company. The two companies agreed to exchange 100,000 tons of rice for 11,000 tons of cement and 30,000 tons of coal. The initial rice shipment of 5,000 tons left Mokp'o in July 1991. Seoul was ready to compensate fully any losses to Cheongji through an inter-Korean cooperation fund established in August 1990. The fund was to provide loans and financial assistance for expenses related to promoting inter-Korean trade and other forms of economic cooperation.
In addition to direct agreements with smaller South Korean firms, North Korea also began to trade with South Korea's conglomerates, or chaebl (see Glossary). Lucky-Goldstar signed a contract in February 1991 with a Chinese broker to ship 30,000 barrels of high sulfur diesel oil to North Korea for US$1.4 million payable in cash. The diesel oil was to be shipped from Yosu, South Korea, to Namp'o, North Korea. Two chaebl, Samsung and Lucky-Goldstar, bought almost 135 kilograms of North Korean gold bullion in 1991 from brokers in Hong Kong. This transaction was South Korea's first purchase of gold from North Korea.
Immediately after the two Koreas were admitted to the United Nations in 1991, South Korean traders, including Samsung and Hyundai, began to increase imports of products from North Korea. Samsung signed a contract to import steel sheets, zinc ingots, farm crops, and yarn; the company planned to pay for the steel sheets by exporting color television sets, sugar, and refrigerators. Another South Korean conglomerate, Ssangyong, imported iron ingots in September 1991 and planned to import more. Hyundai planned to import 1,500 tons of iron ingots in October 1991. Based on South Korean figures, the value of the two-way trade increased from US$23.34 million in 1989, to US$25.61 million in 1990, and to US$190 million in 1991.
One indication of North Korea's readiness to trade with South Korea was the early 1992 report that North Korea had ordered US$800 million to US$1 billion of consumer goods from South Korea to be known as "April 15 goods" in honor of Kim Il Sung's eightieth birthday. These goods, ranging from toothbrushes and clothing to refrigerators and washing machines, were to be sold or handed out to North Koreans as gifts during the birthday celebrations. The South Korean firms were asked not to attach brand names to the goods.
At the beginning of inter-Korean trade, North Korea exported hot-rolled coil, iron and zinc ingots, coal, steel sheets, cement, potatoes, electrolyte copper, Alaskan pollack, dried squid, raw silk, and other products. Textiles, sock looms, electrical appliances, and other goods were imported. A turning point was reached in 1991, when inter-Korean economic cooperation moved beyond commodity trade.
South Korean chaebl, concerned about rising wages in South Korea, are inclined toward joint ventures in laborintensive manufactures such as petroleum and the assembly of electronic products, and appear to be competing with each other in their march toward North Korea. Hyundai's Chung Ju Yung returned from his first visit to North Korea in 1989 with a promise to develop Kmgang-san (Diamond Mountain) as a resort. Although North Korea later reneged on the project, Chung planned to lead a delegation of Hyundai executives to North Korea in 1992. Samsung sent a senior executive in 1991 to discuss opening a branch office in P'yongyang and wanted to explore the feasibility of a US$20-million joint venture with Japanese and Hong Kong partners for a textile and garment plant in Ch'ngjin. A pilot project by the Kolon textiles group is said to be fully operational--socks are produced on machines imported from Seoul under a South Korean supervisor.
In January 1992, Daewoo chairman Kim Woo Choong visited North Korea as the first officially invited South Korean business leader. While in P'yongyang, Kim concluded a joint venture agreement with the North Korean government to establish an industrial park in Namp'o for the exclusive use of Daewoo and other South Korean firms. Daewoo will spend between US$10 million and US$20 million to build the complex; North Korea will provide the labor and land. Consumer goods such as clothes, leather goods, footware, toys, and kitchen utensils will be produced for export to third countries. Daewoo is expected to make a separate agreement involving investment guarantees, shipping arrangements, sales methods, and technology transfer. As the goods are not to be used for internal consumption, it is likely that some kind of compensation trade arrangement was reached whereby Daewoo's payment for its investment will come from selling the finished products in third countries. On February 10, 1992, Seoul announced its approval of Daewoo's joint venture projects in North Korea.
Data as of June 1993
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