Sunshine In The Dmz

The notion that peace might break out between the Koreas suddenly looks less farfetched. The Bush administration's about-face on talks with Pyongyang has revived the effort to negotiate away the North's nuclear arsenal. Last week a U.S.-led team started disabling the Yongbyon nuclear reactor—a step toward the plant's dismantlement and a full inventory of the North's nuclear materials and equipment, to be disposed of later. Meanwhile the North is pursuing a charm offensive: in September it established diplomatic ties with the Dominican Republic, Guatemala and the United Arab Emirates; on a trip to Vietnam in October, North Korea's prime minister made surprisingly positive noises about Hanoi's Chinese-style reform program. Most concretely, the summit last month in Pyongyang between southern President Roh Moo Hyun and northern leader Kim Jong Il gave a boost to growing trade between the former blood rivals. The leaders agreed to a series of grand projects: expanded rail links across the demilitarized zone, port facilities in the northern city of Haeju, shipbuilding projects and the opening of direct flights between the South and Mount Paektu, by legend the original source of the Korean people.

Tensions had been falling since the late 1990s, when South Korean President Kim Dae Jung broke the cold-war ice by declaring a new "Sunshine Policy" of partnership rather than confrontation. Nearly 2 million southerners have visited the North over the past decade, compared with 2,400 in the previous 45 years. Officials from the two Koreas now meet regularly. As routine replaces perpetual alarm, trade between the Koreas rose 23 percent in the first 10 months of this year to $1.44 billion, compared with the same period in 2006. Now the summit agreements promise to bring relations even closer to normal by opening up new areas of the North to a broader array of South Korean firms.

Early on, the Sunshine Policy created opportunities for big southern conglomerates, particularly Hyundai, in carefully sealed enclaves in the North, such as the Mount Kumgang resort area. But in 2005, the two sides opened the Kaesong Industrial Complex, just north of the DMZ, where small and medium-size southern firms set up factories. The number of participating southern firms has since doubled to 30, now employing 15,000 workers. They will churn out $150 million worth of clothes, watches and light industrial goods this year. Seoul envisions those numbers rising to hundreds of companies employing 500,000 northerners by 2010. The rebuilt port at Haeju will open a new maritime route to the South for its own industrial complex that will be built with the South's help.

These ties are creating a sense of Korean solidarity in the face of global competition, and help allay fears that South Korea is being "sandwiched" by low-wage China and high-tech Japan. The monthly wage in Kaesong is $62, far lower than for comparable workers in Vietnam ($70) or China ($180). Moreover, Kaesong workers speak Korean, investors there get tax breaks from Seoul and factories are an hour's drive to Seoul (though border checks slow the trip considerably). So far, most goods made in Kaesong are for export, but southerners like Park Chong Hwa see a future for sales to the North. In June his firm, Advanced Imaging Lab, delivered a $700,000 MRI machine to the North, which now has just two of them. Park says a nation of 23 million people like North Korea needs at least 200 MRI machines, presenting "a huge business opportunity" if the North gets its economic act together.

Opening the DMZ further will be crucial. A key to the summit projects is the rail link across the DMZ, which could open as early as this year, and will reconnect South Korea by rail to the Asian mainland for the first time since the Korean War. Seoul estimates it now takes 35 days to ship a 20-foot cargo container from Busan to Moscow by sea, at a cost of $3,800. By train it would take 10 days and cost $2,800. By linking the trans-Korea, Siberian and China railways, "South Korea can become a logistics hub of East Asia," says Chung Young Soo, at the state-run Korea Trade Promotion Corp.

Not everyone is convinced. Prof. Ryoo Kihl-jae of Seoul's University of North Korean Studies says cash spent on the North will be wasted unless Pyongyang makes fundamental economic reforms, and that much of the excitement about business in the North is driven by political not commercial logic. Yet the deals are popular. In next month's elections for a successor to Roh, whose term is up, the conservative opposition leader Lee Myong Bak is running against Roh's economic mistakes. But he does not count the northern deals among them. Indeed he is promising to continue the Mount Kumkang and Kaeson projects. What remains to be seen is whether Pyongyang can really live up to its side of the bargain.