S. Korean Business Vies for N. Korea

The Associated Press, March 22, 2000
By Christopher Torchia

INCHON, South Korea (AP) - It's hard to imagine a loftier marketing spin for "Hanmaum," or "One Mind," a new cigarette that blends tobacco from both sides of the divided Korean peninsula.

The plug? Get a dose of solidarity as well as nicotine.

On a dock, South Korean partners in a joint venture with communist North Korea dutifully puffed their product on Wednesday, when the first containers of "One Mind" arrived by ship from the North, where they are made.

"North Koreans and South Koreans feel together when they smoke the same brand," declared Lee Sang-ik, spokesman for the Seoul-based Korea Tobacco and Ginseng Corp.

A yearning for reconciliation - and publicity - is not the only motive behind South Korean firms' pursuit of deals in the North, an often belligerent country where roads and power grids are decrepit, food shortages are rife, payoffs are many and legal guarantees are few.

Though for now South Korean companies are vying for low returns on restricted turf in North Korea, they are looking years, or even decades, ahead to reunification and full access to a country rich in minerals and cheap labor.

Tensions between the two Koreas, which fought a war 50 years ago, could derail the ventures at any time. Yet, at their government's urging, entrepreneurs in the South are struggling for footholds in the North.

"The scale of it all is basically very small," said Aidan Foster-Carter, a Korea expert at Leeds University in Britain. "It's a tiny proportion of South Korea's total trade."

North-South trade reached a record $340 million last year, a 50 percent increase over 1998. More than 100 small- and medium-sized South Korean companies are dealing with the North, according to South Korean President Kim Dae-jung. The South is the North's third-largest trading partner after China and Japan.

Kim is pursuing economic, cultural and other links with a grudging Pyongyang, a policy that could reduce the risk of conflict by fostering North Korea's dependence on the neighbor it vilifies.

By some estimates, the North's economy shrank by one-half or more during the 1990s, after the collapse of trading partners in the Soviet Union and eastern Europe. Deadly famine forced it to appeal for outside food aid.

Hyundai, South Korea's largest conglomerate, runs the flagship venture in the North: a $942 million project that sends cruise ship tours to North Korea's Diamond Mountain, a scenic mountain range just north of the Demilitarized Zone. Hyundai pays $8 million a month to Pyongyang for the tours and is losing money on the venture.

Samsung, another South Korean conglomerate, won approval from Seoul this month for a $727,000 project to develop computer software with a North Korean partner. The troubled Daewoo conglomerate runs a textile factory there.

In February, a South Korean motor company owned by the Unification Church of Rev. Sun Myung Moon inaugurated an auto plant near Pyongyang.

Moon, 80, and Hyundai founder Chung Ju Yung, 84, were born in what is now North Korea. It is unclear whether their successors would pursue their ventures with similar passion.

Labor in North Korea is cheap, but workers long used to a command economy are unaccustomed to the ways of the capitalist South.

"If they discover a problem in the plant, they tend to shy away from it," said Oh Byong-kwon, the South Korean chief of a plant near Diamond Mountain where 60 North Korean workers started bottling water this month.

"If we complain, they smile meekly and say they did not tell us about the problem because they were so sorry," Oh said. His employees are also often called away by North Korean officials for ideological classes or community work.

In the 1990's, the North has made some mild market reforms and opened a free economic zone. Critics, however, view these efforts as halfhearted, a sign of the regime's suspicion of any change that could sabotage its authority.

A trickle of European firms have dealt with Pyongyang. The American Chamber of Commerce in Seoul wants to send a delegation to the North after the partial lifting of U.S. sanctions in September.

But decaying infrastructure will likely deter investment as much as political uncertainty and an antiquated command economy.

One South Korean businessman described how the lights went out while he talked to government officials in a top Pyongyang hotel. The unfazed hosts fetched lanterns and the meeting resumed.

As for "One Mind" cigarettes, most North Koreans will never get a chance to try them: In the North, they will only be sold for U.S. dollars in hotels and other places visited by foreigners.