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Last Updated: Thursday, 28 August, 2003, 09:25 GMT 10:25 UK
Two Koreas boost crossborder trade
Chief North Korean negotiator Pak Chang Ryon, left, and Kim Gwang-lim, South Korea's deputy finance minister
Economics is slowly bringing North and South closer
North and South Korea have signed a landmark agreement to increase direct trade, the latest step in the slow economic thaw between the two enemies.

According to the agreement, made at bilateral talks unrelated to the simultaneous discussions over nuclear capability, South Korean firms will be encouraged to set up in the North.

The town of Kaesong, just north of the border, has been selected as the site of an industrial park, currently being built by South Korea's Hyundai.

The two governments will open a corporate liason office in Kaesong, which will deal with the many southern companies keen to exploit cheap northern labour.

Slowly opening

Cross-border economic contacts have become frequent in recent years.

North and South Korea
But almost all the $270m (172m) in north-south trade so far this year has been conducted through intermediary countries, a formality the new agreement aims to dispose of.

The deal represents another step in the extremely slow economic opening of the stalinist North, which long operated in complete isolation from the world economy.

Over the past three years, Pyongyang has reformed its currency, invited visits from foreign investors, cautiously liberalised some prices and planned various - mainly abortive - schemes along the lines of the Kaesong industrial zone.

Reliance on aid

The motivation in much of this, analysts say, is the desperate economic situation in the north.

Hyundai president Kim Yun-kyu in Kaesong
Business leaders are cordially invited to Kaesong
A series of natural disasters in the 1990s crippled northern agriculture, and the government has done little to put the sector back on its feet.

North Korea - which long rejected outside help - has become increasingly dependent on aid.

This latest agreement concedes to the South the right to oversee the distribution of food aid in the North.


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