Getting A Capitalist Foot In The North Korean Door

The Oct. 21 deal between the U.S. and North Korea aimed at defusing Pyongyang's nuclear threat doesn't require the North to dismantle its key facilities until 2000. That's why critics say the U.S., South Korea, and Japan are giving away more than $4 billion for nothing.

What the deal could do, however, is set the stage for the North to begin a Chinese-style economic opening while still technically at war. The U.S. is betting that such a step-by-step opening will give the North incentives to alter its bellicose behavior and eventually reunify with the South. So it will soon start providing oil and upgrading phone links. South Korea, Japan, and the U.S. will also begin setting up the Korea Energy Development Organization to pay for two new light-water reactors the North will get under the deal.

Seoul is expected to pay about 50% of the $4 billion. Japan will pick up a still undetermined percentage, in addition to paying perhaps billions of dollars in war reparations. South Korea will take the lead in constructing the reactors, which will be similar to its Ulchin units 3 and 4.

NEW ATTITUDE. The first key test will come when the North decides whether to let South Korean and other foreign engineers in to select the construction site and, later, build the plants. Seoul estimates about 1,000 South Korean engineers and skilled workers will have to go north and about the same number of North Korean technicians will have to come south for training. Those exchanges should build confidence on both sides, says Yeon Ha-Cheong, president of the Korea Institute of Health & Social Affairs. That could help the country's new leader, Kim Jong Il, overcome resistance from his own military, analysts in Seoul say.

There are already hints of a new North Korean attitude. South Korean business sources say northern state companies with offices in Beijing have begun to court them. In particular, the North wants Hyundai to push ahead with a tourism-development plan at sacred Diamond Mountain inside the North, the sources say. Hyundai and other conglomerates expect Seoul to authorize a limited number of direct links soon.

Pyongyang also has initiated fresh contacts with European executives, who are eager to invest in the Rajin-Sonbong free-trade zone. In this northern zone near the Tumen River, foreigners "can take all profits out of the country, build factories, and expand there as they wish," says a North Korean diplomat at the U.N. "It will be quite free for them." The North has set up the zone hundreds of miles from its main population centers to minimize the foreign influence on its 21 million people. That's the crucial gamble Kim is taking, and one he may not fully understand. "Just as in China, you can't keep people out of these zones," says Selig S. Harrison of the Carnegie Endowment for International Peace in Washington. "Over the years, it will spread awareness to other parts of North Korea."

In terms of trade, the U.N. diplomat says British and French companies are interested in exporting gold, zinc, and lead from the North, while the Japanese want to buy marine products. The more cautious Japanese, however, are "still watching what is happening between the U.S. and us," the diplomat says.

Despite these hints, no one wants an opening to proceed so fast that it destabilizes Kim. There is already the possibility that Kim's apparent illness could remove him from decision-making. Many "minefields" remain ahead, warns a Japanese official. But ironically, the U.S., Japan, and South Korea now have a vested interest in helping a North Korean dictator manage a controlled opening of his economy.

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