South Korea Eager to Open Business With the North : Asia: Enthusiasm sweeps through community after a Washington-Pyongyang agreement eased tensions.

SEOUL —  There may well be no stranger place on earth to try to do business than North Korea, ruled by the world’s last surviving Stalinist regime.

While other Communist governments have collapsed or embraced a significant degree of market economics, the hard-line rulers in Pyongyang still exert rigid control over social and economic life. Few foreigners are allowed in, and they are closely monitored.

Nevertheless, enthusiasm for doing business with the north is sweeping through South Korea’s business community in the wake of a Washington-Pyongyang agreement last month that eased tensions over the north’s apparent efforts to build nuclear bombs. Under the agreement, North Korea is to give up its ability to produce plutonium in return for economic aid and diplomatic links with Washington.

Even members of the American Chamber of Commerce in Seoul have begun thinking seriously about opportunities in the north, despite U.S. laws that currently bar Americans from business dealings there.

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“There’s a wave of enthusiasm running through our chamber,” said James H. Riddle, chamber president. “That . . . is local management. When you get back to headquarters in Chicago (they may say): ‘Huh, what? North Korea? Are you kidding me? Get this kid outta here. He’s mad. Better transfer him out of Seoul. He’s been there too long.’ ”

The obstacles to significant levels of South Korean investment in the north remain huge, and barriers are even greater for U.S. business.

But there is also a powerful economic logic to expanded ties between the prosperous south, with its 44 million people, and the much poorer north, with a population of 22 million.

And uniting South Korea--already the world’s 12th-largest economy with a 1993 gross domestic product of $329 billion--with the north could create a new East Asian powerhouse.

Cooperation would benefit both sides, said Park Soon Seo, general manager for planning at Ssangyong Corp. “We have capital and some technology to provide to them, and they still have enough available land for factories, and manpower. Once we unite . . . we will have a powerful synergy effect.”

During a brief period of Korean detente in 1991 and 1992, the two sides pledged to open direct trade and investment, and some South Koreans visited the north. But Seoul banned such visits last year when tensions erupted over Pyongyang’s nuclear program.

South Korean President Kim Young Sam lifted the ban after last month’s Washington-Pyongyang accord, saying it was time for the two Koreas to cooperate “to establish an economic community.”

Pyongyang’s first response was a nasty propaganda snarl. “The proposal of the traitor was . . . a camouflage for concealing the dark designs of the puppets for national division and total confrontation,” the north’s official Korean Central News Agency declared.

But southerners dismissed this as typical Pyongyang rhetoric.

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A Samsung Corp. official, who spoke on condition he not be identified by name, said the company has kept in touch with Pyongyang developments through a “messenger” of Korean ethnicity but foreign citizenship, who visits the north every month. Samsung recently received an invitation to send a high-level company delegation to the north before the end of this year, and plans to do so, the Samsung official said.

Few in Seoul believe that the north can maintain the rigidity of its system for more than a few more years. Battered by a cut-off in Russian aid, the north’s economy--15 times smaller than the south’s economy--has been shrinking for four years.

Many here think that the government of Kim Jong Il, son and designated successor to the late President Kim Il Sung, can avoid collapse only by embracing Chinese-style economic reforms that would open up the country.

“The north will be a favorite hunting ground for South Korean chaebols (huge business conglomerates), and American companies will be playing follower,” Riddle predicted.

A senior U.S. official who visited Seoul this month with Secretary of State Warren Christopher said that an eventual easing of restrictions on U.S. economic ties with North Korea “is part of the general goal” of the recent Washington-Pyongyang agreement.

“But there’s no set game plan,” added the official.

South Korean firms already conduct indirect trade with the north, worth $232 million in the first eight months of this year, up from $25 million in 1990. Financial arrangements are handled through intermediaries in third countries. Ships must fly third-country flags, but after sailing from South Korean ports into international waters, they head directly to North Korea.

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“We supply some raw materials to North Korea, and we let them make things, and we buy it back again and sell to other countries,” he explained. “We found that the quality made by North Korea was acceptable. The labor cost is cheaper than in South Korea, and we are using the same language, and geographically we have no problem at all for transportation.”

Yet Ssangyong’s partners remain mysterious to the southern firm. “We call it ‘blind business,’ ” Park said. “We don’t know who makes our products for us. . . . If one day the middleman disappears, then the business disappears.”

While South Koreans are interested in the relatively developed Pyongyang area--only 120 miles northwest of Seoul--North Korea’s main interest is in attracting investment to a special economic zone now under construction near its northeastern border with China and Russia.

This area includes the small cities of Najin and Sonbong but lacks the electric power, telecommunications, transport and other infrastructure needed for modern business activities. It has only two main attractions: its remoteness from North Korea’s population centers and its proximity to China and Russia.

The idea of attracting foreign investment to a lonely corner of the world’s most isolated nation may seem absurd. Yet business people and analysts in South Korea take the Najin-Sonbong zone quite seriously because they believe that North Korea is desperate for development and while imposing restrictions, will make the areas attractive to foreign investors.

North Korea “will set up these special economic zones one by one,” Yoo Jung Ho, a Korea Development Institute scholar, predicted. “They’ll try to get foreign currency and some economic development. But they’ll try to maintain the politics and the society and all the rest as usual in the rest of the country.”

Under this scenario, Yoo acknowledged, South Korean and other foreign investment may help prolong the dictatorship by throwing it an economic lifeline.

On the other hand, fear of the disruption in the south should the North Korean government suddenly collapse is a factor encouraging big corporations to consider investing in the north.

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Ssangyong hopes to expand from its current trade in shoes and jackets to joint-venture manufacturing and fishing, Park said.

But major progress will take time, Park said.

“I’m living maybe 50 kilometers (31 miles) from North Korea,” he said. “Geographically, it’s very close, but it’s very far away in reality. As businessmen, we still think it’s not a logical place to invest a big amount of money, but as a big company, we can take a risk with a small amount of money. The South Korean government is ready. Now the ball is in the North Korean court. We have to wait to see how they respond.”