Recent Korean Economic Policies and Republic of Korea - Democratic People's Republic of Korea Economic Relations

PART 1: A BRIEF HISTORY OF KOREA'S ECONOMIC DEVELOPMENT

Liberalisation, Korean War and Economic Stagnation

Under Japanese colonial rule from 1910 to 1945, the Korean economy achieved
substantial industrial growth and structural change. However, this contributed
little to the economy after liberation because Korean participation in
manufacturing firms' ownership, management and skilled workforce was very
limited. Immediately after liberation in 1945, the economy suffered severe
economic dislocation and stagnation due to the North/South partition of the
country, its severance from the Japan economic bloc, and an inability to run
most of the productive facilities. The division of the peninsula was
disastrous to the South, since most power generation and mineral production
and a large proportion of heavy and chemical industrial production was located
in the North. The partition led to the Korean War (1950-53), which resulted in
about 1.5 million civilian casualties and destroyed more than 40 per cent of
industrial facilities. After the war, the Korean economy largely depended on
foreign aid, principally from the USA.

The first president Syngman Rhee (1948-60) gave little priority to economic
development beyond the war damage reconstruction. This approach was partly
because he believed Korea would soon be reunited with the North. Donors and
Government were concerned about ensuring the population's survival by
providing basic consumption goods.¹ Foreign aid financed more than 70 per cent of the country's imports and the
trade regime was very restrictive. Domestic industries were protected through
a complicated system of multiple overvalued exchange rates, high tariffs and
quantitative import restrictions. Import substitution industries developed in
consumer goods such as processed food, textiles, cement and fertiliser.

Export Led Take-off in the 1960s

After a military coup in 1961, General Park Chung-hee took power promising
to liberate Koreans from poverty. His government launched Korea's First
Five-Year Economic Development Plan (1962-66) embodying an export-oriented
development strategy. This was very appropriate for a small economy lacking in
natural resources but abundant in labour that could easily produce simple,
labour-intensive manufactured goods for overseas markets.

To implement this strategy, the Government established a strong central
planning agency, the Economic Planning Board, and institutional arrangements
to mobilise available resources. The Government strengthened the tax base and
raised official interest rates to make the real rates positive, eliminating
the large fiscal deficit and substantially increasing the nation's financial
savings. The Government encouraged foreign capital borrowing by providing
repayment guarantees for foreign lenders to domestic business firms. It did
not permit foreign direct investment because the population associated it with
Japanese colonialism.

The government adopted a uniform exchange rate system that saw the Korean
won devalue by nearly 100 per cent. To further promote exports, the Government
provided incentives, including subsidised short term export credit, tariff
rebates on imported raw materials used for export production, and direct
subsidies and tax reductions/exemptions for export industries. It also
established free trade zones, simplified customs procedures and provided
overseas marketing support services via the Korea Trade Promotion Corporation.

During the 1960s, the international environment was highly favourable to
Korean manufactured exports' growth, with world trade expanding at
unprecedented rates. The results of the outward-looking development strategy
surpassed all expectations. Between 1962 and 1971, annual economic growth
averaged about 8 per cent and exports increased by approximately 40 per cent
per year.

Government Led Industrialisation in the 1970s

By the late 1970s, the Korean economy was suffering from serious internal
and external macroeconomic imbalances. Inflation had accelerated and the
second oil price shock was a heavy blow to the balance of payments, which was
deteriorating due to weak exports and burgeoning imports. Competition from
other newly industrialising and developing economies seriously threatened
Korea's continued export-led growth.

However, apart from the 1979 oil price rise, the severe deterioration in
the balance of payments and Korea's foreign indebtedness in 1980 was mainly
caused by the Government's heavy and chemical industries promotion policy.
This policy was designed to develop an local defence industry and upgrade
Korea's export structure using tax, credit, interest rate and trade policies
to promote iron and steel, non-ferrous metal, shipbuilding, general machinery,
chemical, electronics and other heavy and chemical industries.

Korea's trade policy also protected favoured industries by limiting the
import of competing goods and allocating credit through the banking system on
concessional terms. In 1974, the Government established the National
Investment Fund to mobilise public employee pension funds and a substantial
share of bank funds to finance large scale heavy and chemical industry
investment projects. Because these funds proved insufficient, the Government
directed the previously nationalised commercial banks to make loans to 'strategic'
industries on a preferential basis. During the latter half of the 1970s, the
share of policy loans in domestic credit extended by deposit money banks rose
steadily from 40 per cent to 50 per cent.

The disproportionate incentives given to heavy and chemical industries,
together with over optimistic assumptions regarding world trade prospects led
to excessive investment in heavy industry. The credit expansion associated
with the heavy industry drive also produced high inflation and large current
account deficits. Financial savings became unattractive since real interest
rates were low, and more profitable sectors like light manufacturing and small
and medium enterprises were starved of resources and credit. Moreover, because
of these projects' huge capital requirement, many were simply 'granted'
to large business groups, concentrating economic power among chaebol.

Economic Liberalisation since the 1980s

By the late 1970s, 20 per cent inflation was making economic growth
unsustainable. In mid 1979, to tackle the inflation problem, the Government
adopted a comprehensive stabilisation package including restrictive fiscal and
monetary policies and reduced investment in heavy industries. However, before
these measures were fully implemented the second oil price shock hit the

economy, seriously exposing Korea's macroeconomic imbalances. As with the
1997-98 crisis, after a domestic investment boom producing many inefficient
projects, an unfavourable external shock exacerbated the problem of investment
inefficiency. With an overvalued exchange rate, fixed to the US dollar from
1975-79 despite a large disparity between the two countries' inflation rates,
real exports declined in 1979 and the current account deficit widened.

In early 1980, Korea substantially depreciated the exchange rate and
adopted a flexible exchange rate system. This improved export competitiveness,
and from 1982, the current account deficits fell. Government gave top priority
to fighting inflation with a restrictive macroeconomic policy, reducing
consumer price inflation from 25 per cent during 1980-81 to 7 per cent in 1982
and below 3 per cent during 1983-87.

After the 1980 crisis, Korean policy-makers recognised the need for trade
and financial reforms and the realignment of industrial incentives.

The Early 1990s – Continuing Liberalisation, Deteriorating
Competitiveness

Emphasis on liberalisation continued in the 1990s. In 1993, the new Kim
Young Sam Government reduced government guidance and increased private sector
initiatives to drive growth. It identified the fiscal system, the financial
sector, and administrative regulations as the major areas needing
institutional reform.

Realignment of Industrial Incentives

In the early 1980s, the promotion of 'strategic' industries with
preferential credit and tax treatments gave way to a more indirect and
functional support for industries. The Industrial Development Law of 1986,
which replaced existing individual industry promotion laws, defined how
government might intervene to rationalise industries when market failures
occurred.

Government would continue to intervene in industrial sectors whose
international competitiveness was vital to the economy, but where investment
would be inadequate if left to the market. In these sectors, the Government
planned to encourage specialisation through indirect incentives designed to
promote technological advancement. Government also could intervene in sectors
with declining industries by assisting with their phasing out. Rationalisation
packages included subsidised credit for upgrading capital equipment, mergers,
entry barriers and long term supply contracts. The 1986 law designated nine
industries for intervention, including favoured industries such as
automobiles, diesel engines, heavy electrical equipment and heavy
construction, and declining industries such as textiles, footwear,
ferro-alloys, dyeing and fertiliser production.

Trade Liberalisation

With the completion of the five-year import liberalisation program in 1988,
the ratio of imports liberalised rose to over 95 per cent, from 80 per cent in
1983. In the subsequent import liberalisation plan for 1990-97, quantitative
restrictions were lifted except for several significant agricultural products,
including beef and rice. The average nominal tariff rate fell from 24 per cent
in 1983 to 13 per cent in 1989 and 8 per cent in 1994. By 1994, tariffs on
industrial products had fallen to around 6 per cent through annual cuts, while
those on agricultural products were around 17 per cent. However, approval and
inspection procedures on many specific imports still require excessive
documentation and cause delays. The Government is streamlining these laws to
conform to international standards, even though they remain a source of trade
friction. The Import Diversification Program designed to discriminate against
Japanese imports is an important trade barrier. Services industries remained
highly protected until the recent crisis.

Financial Liberalisation

Between 1981 and 1983, the Government divested its equity shares in all
nationwide city banks, transferring ownership to private hands. Lower entry
barriers into financial markets has helped in establishing new nationwide city
banks, commercial banks specialising in small and medium sized firms, and many
non-bank financial institutions. The relative share of policy loans declined
as the government reduced the operation of the National Investment Fund. In
1984, the Government started interest rate reform, allowing financial
intermediaries to determine their own lending rates within a specified range,
according to the creditworthiness of the borrowers.

Reforms in the 1990s mainly focused on relaxing regulations on the business
scope and operation of financial intermediaries, and on foreign exchange and
overseas capital transactions. The Government implemented a four-stage
interest rate deregulation plan between 1991 and 1996. The burden of providing
policy loans by commercial banks also was reduced, as specialised
government-owned banks progressively took over this responsibility.
Nevertheless, the behaviour of privatised nationwide commercial banks changed
little as the Government continued to intervene in the bank operations.

Relaxation of Administrative Regulations

The 1993-97 Five-Year Plan for the New Economy stressed relaxing business
activity regulations and changing the attitudes of government officials toward
public service. It anticipated lowering entry barriers and removing other
restrictions on competition in traditionally over-protected industries like
alcoholic beverages, oil refining, transport, construction and finance.
However, these efforts failed to deal effectively with vested interests,
including those of bureaucrats, so were largely unsuccessful in enhancing
market competition.

PART 2: DPRK-ROK Economic relations

Over the medium to long term, possible political developments on the Korean
peninsula are difficult to predict and data about the actual situation in the
Democratic People's Republic of Korea, DPRK, is unreliable. As analysts
cannot agree on the likely future of the DPRK (Smith, 1997) reasonable
scenarios need to be assessed.

Current Economic Situation in the DPRK Economy

DPRK economic indicators showed that by 1996, the economy had shrunk to
less than 50 per cent of its 1992 level. The DPRK's 1996 per capita income
was around US$480, less than one-twentieth of the ROK's (Tables 1, 4 and 5).²

Table 1: ROK Economy Dwarfs DPRK, Basic Economic Data for the DPRK and ROK, 1996

	DPRK	ROK
GDP	US$10.6 billion	US$480 billion
GDP per capita	US$480	US$10 550
Annual GDP growth (91-96)	-10 per cent	7.3 per cent
Area	120 410 square kilometres	99 016 square kilometres
Population	22 million	45.5 million
Population density	200 people per square kilometre	460 people per square kilometre

Source: International Monetary Fund, 1997, 'Republic of Korea - Standby Arrangement, Letter of Intent', www.imf.org

While the DPRK regime maintains consecutive years of severe flooding
account for poor agricultural performance,³ the central planning system has failed and communal agriculture has sapped
farmers' motivation, preserved antiquated and inefficient farming practices
and limited access to seeds, fertiliser and fuel. Agricultural production in
1996 reportedly shrunk to less than half its 1993 level. Without fundamental
reforms, foreign aid inflows cannot cure these problems. The DPRK has never
been self sufficient in agriculture due to these shortcomings and a shortage
of arable land, but in the past, Soviet, Eastern bloc and Chinese aid as well
as international food purchases filled the gap.

Apart from the fundamental structural weakness of a Stalinist central
planning system, the main short term reason for the DPRK's recent decline is
the collapse of the Soviet bloc in 1989, which ended aid and trade from its
communist allies. Russia and other former Eastern bloc countries have
relinquished their major trading partner status to China and Japan, which now
account for more than half of DPRK trade flows (Table 2).

Between 1990 and 1997, the DPRK's trade fell from US$4.7 billion to
US$2.2 billion, less than 1 per cent of ROK's trade flows. According to Bank
of Korea estimates, since 1990 the DPRK has experienced chronic trade deficits
between US$370 million and $800 million per year, excluding intra-Korean
trade. These trade deficits contributed to the DPRK's accumulated external
debt, which increased from US$6.78 billion in 1989 to around US$12 billion in
1997.⁴ Foreign exchange shortages severely
restrict the availability of primary and intermediate inputs the DPRK needs
and cause falling output. Meanwhile, the DPRK has enjoyed trade surpluses with
ROK averaging US$140 million per year over the past five years (Table 3).

Economic Policy Options

The DPRK's foreign exchange shortage and other economic problems limit
its policy options. It no longer can continue its policy of self-reliance and
needs foreign aid to survive. DPRK authorities appear to recognise the country's
desperate needs.⁵ The DPRK made its first
ever request for food aid in May 1998 during the Geneva Roundtable on
Agricultural Development.⁶

Table 2: Soviet Bloc Countries Now Minor Trade Partners, The DPRK's Top 10 Export and Import Markets in 1997 (US$ '000, Per cent)

Rank	Top 10 export markets			Rank	Top 10 import markets
	Economy	DPRK exports	Per cent of total		Economy	DPRK imports	Per cent of total
1	Japan	310 484	34	1	China	534 680	42
2	Hong Kong	180 700	20	2	Japan	178 804	14
3	China	121 610	13	3	Yemen	88 000	7
4	India	69 495	8	4	Russia	66 860	5
5	Germany	43 337	5	5	India	43 502	3
6	Bangladesh	36 120	4	6	Germany	42 839	3
7	France	26 275	3	7	UK	40 617	3
8	Russia	16 970	2	8	Hong Kong	32 053	3
9	Thailand	10 356	1	9	Singapore	31 666	3
10	Spain	9 698	1	10	Thailand	24 037	2
Total exports to top 10		825 045	91	Total imports from top 10		1 083 058	85
Total exports		904 601	100	Total imports		1 272 253	100

Note: The DPRK's trade with ROK is not included in the figures; the DPRK-ROK trade is considered as internal domestic trade and thus no tariffs are applied.

Source: Bank of Korea, 1997 and previous years.

In February 1997, the DPRK officially applied for membership of the Asian
Development Bank. The DPRK also invited an IMF fact finding team to visit the
DPRK in September 1997 and World Bank mission in February 1998. The missions
were 'mutual first acquaintances' for fact finding and providing
information about the IMF and World Bank, and bringing the DPRK closer to the
international community.⁷ In September
1997, the ROK Government indicated that it would support the DPRK's
admission to international financial institutions.

Table 3: DPRK Trade with ROK (Customs Cleared Basis; $US '000)

Year	Amount	DPRK to ROK		Amount	ROK to DPRK		Amount	Total
		POC Basis(a)	Per cent		POC basis	Per cent		POCbasis (a)	Per cent
1989	18 655	-	-	69	-	-	18 724	-	-
1990	12 278	-	-	1 187	-	-	13 465	-	-
1991	105 722	-	-	5 547	-	-	111 269	-	-
1992	162 863	638	0	10 563	200	1.9	173 426	838	1
1993	178 166	2 985	2	8 425	4 023	47.8	186 591	7 008	4
1994	176 298	14 321	8	18 248	11 342	62.2	194 546	25 663	13
1995	222 855	21 174	10	64 435	24 718	38.4	287 290	45 892	16
1996	182 399	36 238	20	69 638	38 164	54.8	252 037	74 402	30
1997	193 069	42 894	22	115 269	36 175	31.4	308 338	79 069	26
Total	1 252 305	118 250	9	293 381	114 622	39.1	1 545 686	232 872	15
98.1-8	52 313	24 373	47	63 933	20 693	32.4	116 245	45 336	39

Note: a is processing on commission, POC.

Source: National Unification Board, ROK, Intra-Korean Trade and Cooperation, 1998 and previous years (in Korean).

Status and Potential for DPRK-ROK Economic Cooperation

The DPRK's third largest export market is the ROK; however, DPRK exports
to the ROK are only 0.1 per cent of ROK imports. In 1997, intra-Korean trade
peaked at US$308 million, with imports increasing 66 per cent over 1996.⁸ Implementing the Light Water Reactor Project and boosting DPRK imports from
ROK food aid mainly account for the increase (Table 3) However, ROK's
economic crisis has depressed intra-Korean trade; in the first eight months of
1998 intra-Korean trade fell back to 1996 figures. In 1998, the DPRK is likely
to experience a trade deficit with ROK, the first time since intra-Korean
trade began in 1989. This trend is likely to persist until the ROK recovers
from the recession.⁹

ROK firms first invested in the DPRK in 1994, after the ROK Government
significantly loosened restrictions on ROK companies' activities in the
DPRK. Since then, the ROK Government has approved various investment projects
in the DPRK. By August 1998, 36 firms had 'cooperation partner' status and
12 firms had 'cooperation project' status to start businesses. In
addition, ROK chaebols are discussing investment opportunities with DPRK
authorities.¹⁰ However, by the end –of
September 1998, only Daewoo had significantly invested.¹¹

The ROK's Unification Policy

Despite the pessimistic short term prospects, economic cooperation between
the ROK and DPRK is likely to recover and even accelerate in the medium to
long term. This optimistic prediction is based partly on the current ROK
administration's policy towards the DPRK. The Kim Dae-jung administration
prefers to gradually integrate economically before integrating politically,
and has a new constructive engagement policy for dealing with the DPRK. It
separates politics from economics, marking a major policy change from the
approach of previous governments.

President Kim Dae-jung also hopes the private sector will promote economic
cooperation, reconciliation and confidence building. In April 1998, the ROK
Government liberalised and relaxed the 'Measures for Revitalisation of
Intra-Korean Economic Cooperation' originally announced in November 1994.¹² Subsequently, the ROK Government approved 'cooperation partner' status to
three Hyundai Group subsidiaries for the Kumkang Mountain Tour project. The
Hyundai Group has agreed to pay the DPRK Government more than US$9 billion
over the next six years.¹³ The project
allows ROK tourists to tour Kumkang Mountain in the DPRK, one of the most
beautiful attractions in the whole peninsula. Tourist visits began in November
1998, laying the groundwork for improved inter-Korean economic cooperation.

Financing Korean Unification

Studies on the cost of Korean unification have produced estimates ranging
from US$260 billion to US$3.2 trillion.¹⁴ Most studies assume the DPRK will collapse like East Germany did. Even costs
associated with the most optimistic scenario have alarmed the ROK, already
facing difficulties from the economic crisis. Significantly, most studies do
not attempt to calculate the social and political costs of a DPRK collapse;
instead they focus on handling potential migration from the DPRK to the ROK.

Since German unification, the German Government has spent about 5 to 6 per
cent per year of West German GDP on former East Germany. The relative sizes of
the East and West German economies in 1989 compared with those of the DPRK and
ROK suggest significant unification costs. ROK could have to spend more than
10 per cent of its GDP annually to provide the DPRK with an income transfer
similar to that of West to East Germany.¹⁵ Given the current costs of financial sector restructuring and social welfare
support, a fiscal transfer of this size currently is beyond the means the ROK
Government. Therefore, for reunification to occur in the short term, financial
resources from abroad would be essential.

Australia's Economic Interests in the Korean Peninsula

Crisis in the DPRK, especially leading to a compressed period for
unification, would significantly affect Australia's economic interests in
ROK. A major crisis on the peninsula could damage confidence in the ROK
economy, reducing investment, growth and trade.

However, reunification could afford significant long term benefits for
security and growth of both Korean economies and economic opportunities for
Australia, including supplying minerals, agricultural products and associated
expertise to rebuild and rehabilitate the DPRK's agricultural and industrial base.

Table 4: DPRK Economic Indicators, 1992-96

	1992	1993	1994	1995	1996
GDP Growth (annual per cent change)	…	0.3	-26.3	-17.0	-17.3
Government budget (DPRK Won billion) General government balance Revenue Expenditure	0.3 39.6 39.3	0.4 40.6 40.2	0.2 41.6 41.4	0.1 24.3 24.2	-0.3 20.3 20.6
External debt (US$ billion) Authorities' estimate Outside observers' estimate	… …	… …	… …	… …	3.6 12.0
Exchange rate Won:US dollar (official rate)	2.14	2.14	2.14	2.14	2.14
Memorandum items Food grain production (in million metric tons)	…	…	7.1	3.5	2.5

Source: International Monetary Fund, 1997.

Table 5: Gross Domestic Product of the DPRK, 1992-96

	1992	1993	1994	1995	1996
($US million at DPRK Won 2.15: US$1)
Total Agriculture Industry Construction Other	20 875 7 807 4 551 1 315 7 160	20 935 8 227 4 689 1 256 6 762	15 421 6 431 3 223 910 4 858	12 802 5 223 2 228 819 4 532	10 588 4 775 1 556 508 3 748
(annual percentage change)
Total Agriculture Industry Construction Other		0.3 5.4 3.0 –4.5 –5.6	-26.3 -21.8 -31.3 -27.6 -28.2	-17.0 -18.8 -30.9 -9.9 -6.7	-17.3 -8.6 -30.1 -38.0 -17.3
(per cent of GDP)
Agriculture	37.4	39.3	41.7	40.8	45.1
Industry	21.8	22.4	20.9	17.4	14.7
Construction	6.3	6.0	5.9	6.4	4.8
Other	34.3	32.3	31.5	35.4	35.4

Source: International Monetary Fund, 1997.

REFERENCES

• Bank of Korea, 1998 and previous years, 'Estimates on the DPRK's GDP'
  (in Korean), Seoul.
• International Monetary Fund, 1997, 'Democratic People's Republic of
  Korea – Fact-Finding Report', EBS/97/204, Washington DC.
• Kim, Hakjoon, 1998, 'The Unification Course of the New South and the DPRK
  Governments and the Future of the Korean Peninsula', The Economics of Korean
  Reunification, Vol. 3, No. 1, pp. 35-52, Seoul.
• Kim, Yong-Ho, and Keun, Lee, 1998, 'An Evaluation of Recent U.S. and
  Korean Expert Analyses on the Future of the DPRK,' The Economics of Korean
  Reunification, Vol. 3, No. 1, pp. 116-36, Seoul.
• National Unification Board, 1998 and previous years, 'Intra-Korean Trade
  and Cooperation', (in Korean), Seoul.
• Noland, M., Robinson S., and Scatasta, M., 1997, 'Modelling the DPRK
  Economic Reform', Journal of Asian Economics, No. 1, pp. 15-38.
• Smith, H., 1997, 'Regional Perspectives on Economic Integration of the
  Two Koreas – Prospects for Reform in the DPRK', Paper presented to the
  AJRC/Korea Economy Program Workshop, December, Australian National University,
  Canberra.
• Young, Soogil, Lee, Chang-Jae, and Zang, Hyoungsoo, 1998, 'Preparing for
  the Economic Integration of Two Koreas: Policy Challenges to ROK', in Marcus
  Noland (ed.), Economic Integration of the Korean Peninsula, Institute for
  International Economics, Washington DC, pp. 251-71.

FOOTNOTES

1. Korea's economic conditions were similar to those of resource-poor,
   low-income developing countries today. With an annual population growth of
   nearly 3 per cent, unemployment was widespread. Underemployment was also
   rife in the agricultural sector, which supported nearly two-thirds of the
   population. Domestic savings were negligible and the per capita income was
   a meagre US$80. In 1961, Korea's total exports were only US$43 million,
   less than one-quarter of its imports.
2. According to estimates published annually by the Bank of Korea, the DPRK
   economy has contracted since 1990. The size of the economy in 1997 in
   terms of real GDP shrank to less than 70 per cent of that in 1989. In
   1996, the DPRK's per capita income was estimated to be US$910, one-tenth
   of ROK's (Appendix Tables 4 and 5).
3. DPRK authorities claim two consecutive years of a flooding in 1995 and
   1996, and drought and tidal waves in 1997 are mainly responsible for the
   distressed economic condition.
4. However, the DPRK authorities' estimate is only US$3.6 billion.
5. As a first step to open its economy, the DPRK established the
   Rajin-Sonbong Free Economic and Trade Zone (FETZ) in December 1991.
   However, actual investment from abroad in the zone has been disappointing.
   By June 1996, only US$37 million had been disbursed.
6. With technical assistance by the United Nations Development Program,
   UNDP, the DPRK presented an agricultural development plan and requested
   aid of US$300 million. However, no country responded to the appeal.
7. As a tangible outcome of the missions, the World Bank mobilised
   resources from donors to fund a technical assistance project to teach DPRK
   government officials market economics in Shanghai.
8. DPRK-ROK trade is mainly done indirectly via China. The proportion of
   direct trade between the two Koreas is less than 10 per cent of the total.
9. The trend also will be affected by political developments.
10. For example, Daewoo Chairman visited the DPRK several times to discuss a
    Daewoo joint venture in Nampo. Samsung and Hyundai officials visited
    Pyongyang, the capital of the DPRK, in October 1997, to discuss a
    telecommunications project in the Rajin-Sonbong Free Economic and Trade
    Zone and a project to manufacture containers. In December 1997, the Hanwha
    Group officials conducted a petrochemical investment feasibility study and
    examined the possibility of constructing a factory in the Rajin-Sonbong
    zone. The Korea Federation of Small Business also sent a delegation to
    discuss trade and possible joint ventures in January 1998.
11. Daewoo invested US$5.12 million in a joint venture company, which since
    1996 has produced garments and bags.
12. The main contents of the new version completely abolish the size
    restriction of investment in the DPRK by ROK firms and allow investment
    across all business areas, excluding strategic and heavy industries. The
    measures also will expand visits to the DPRK by business leaders of
    chaebols and heads of economic associations.
13. The deal includes lease rights for the Kumkang Mountain Area until 2020.
14. In 1991 the Korea Development Institute estimated US$260 billion, and in
    1997, Noland, Robinson, and Scatasta estimated US$3.2 trillion.
    Definitions and the coverage of unification costs differ, especially the
    timing and method of unification, the level of economic development of the
    DPRK and ROK at the time of unification, the target income level of
    convergence, and the number of years required to achieve targets.
15. DPRK's population is about half the size of ROK's, while East Germany's
    population was about one-quarter the size of West Germany's. East
    Germany's per capita income was 20 to 25 per cent of West Germany's, while
    the DPRK's per capita income is estimated to be less than 10 per cent of
    the ROK's.

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