Asia's Next Powerhouse: An All But Unified Korea?

On the road to Korean reunification, a funny thing may happen to communist North Korea: It may become a low-wage workshop for South Korean industry. The pattern for such an arrangement has been set elsewhere in Asia. China's Guangdong province is the industrial hinterland for Hong Kong, and Fujian province is rapidly becoming an economic satellite of Taiwan.

In South Korea's new step-by-step strategy for reunification, President Roh Tae-Woo and the South's corporate executives are mapping out such a role for North Korea. The North desperately needs help for its collapsing economy. Eventually, if the plan succeeds, rising living standards in the North will make a merger with the South feasible. But for now, "our basic policy is gradualism," says Kim Hak Joon, Roh's top reunification adviser. Seoul fears that trying to unite an increasingly affluent 43 million South Koreans with their 22 million down-in-the-heels neighbors too soon would create far greater strains than those that have been encountered in Germany's unification.

'CONFIDENCE BUILDING.' The time is ripe for closer North-South ties, however. Moscow, which accounts for half of North Korea's trade, is cutting off subsidies. That leaves the country's 80-year-old dictator, Kim Il Sung, little choice but to look for new partners and start opening his tightly closed regime. China wants to expand economic links with Seoul, not the North. Japan, meanwhile, is sharply curbing ties with North Korea until it allows international inspection of its nuclear facilities.

At a North-South prime ministers' meeting on Oct. 22 in Pyongyang, South Korea is expected to offer to sign a nonaggression declaration. And President Bush's decision to remove short-range U. S. nuclear arms from Korea appears to meet Kim's condition for letting inspectors monitor the North's nuclear installations. Beyond that, North Korea will propose drastic cuts in offensive arms. But Seoul will also insist on "confidence building" measures such as North-South telephone links, expanded trade and exchanges of people, and the opening of representative offices in each other's capitals.

Kim has already allowed some openings, including border crossings by around 800 Koreans in authorized sports, cultural, and political exchanges in the past year. North-South economic links have been expanding, too. Through August, indirect North-South trade, mostly through Hong Kong and China, totaled $124 million, up from $24 million in 1990.

QUICK BENEFITS. What Kim needs most, however, is technology and capital. South Korean executives believe joint-venture investments in the North could start next year. Hyundai Group's honorary chairman, Chung Ju Yung, for example, proposes to set up a ship-repair dock and a plant to build railroad cars at Wonsan.

Such ventures could yield quick benefits, observers say, because North Koreans are disciplined workers despite 45 years of communism. Park Ung Suh, president of Samsung Petrochemical Co., sees such investments leading to a North-South business relationship similar to that of Hong Kong and China. And for North Korea as for China, "once the capitalist virus gets in, they won't be able to stop it," predicts A. James Gregor, a Korea expert at the University of California at Berkeley who recently visited the North.

Even before unification, the result could be a potent new competitive boost for South Korean industry. Longer run, says Keith Nam, an analyst at Jardine Fleming Securities in Seoul, "integrating the resource-rich North with the industrial South would make Korea a formidable regional power." And ending the 40-year threat of military conflict in Korea would remove the biggest source of tension in East Asia. For the entire dynamic region, that could spur yet another surge of growth.