The latest round of six-party negotiations on North Korea's nuclear weapons program achieved no breakthrough last week, but the Communist country is already benefiting from a series of economic and diplomatic rewards from its closest neighbors, especially South Korea.
Increased commercial and diplomatic ties were intended as an incentive for North Korea to drop its nuclear program. But the North Korean government is receiving benefits although it has not fulfilled a disarmament agreement that it signed at six-party talks in September. In fact, the North has said it will move forward with a 50-megawatt reactor capable of boosting its avowed nuclear arsenal.
A three-day round of six-nation talks on North Korea ended Friday in Beijing without even an agreement on the schedule for new meetings. But South Korea's National Assembly last week approved $2.6 billion in economic and humanitarian aid to North Korea -- an amount that is more than double the 2005 allotment and so large that it may require the South to issue bonds to finance part of it.
South Korea also opened an official liaison office this month in the North for the first time since the 1950-53 Korean War. The two Koreas, meanwhile, inaugurated a new $10 million joint venture textile company last month in Pyongyang, the North Korean capital.
Plans are being mapped out to more than double the size next year of a South Korean-funded industrial park built just across the border in the North Korean city of Kaesong, where 15 South Korean companies now employ 5,000 North Koreans. Meanwhile, a railroad line that will transit the most heavily militarized border in the world is set to be completed by year's end.
Eager to lure more foreign investment for the North, the South Koreans will unveil a Kaesong Industrial Tradeshow in the southern city of Pusan this week at the Asia-Pacific Economic Cooperation, or APEC, summit of 21 world leaders including President Bush.
After the six-party agreement in September, "the mood for reconciliation has improved," said Moon Dae Keun, director of economic cooperation for South Korea's Unification Ministry, the South's agency responsible for dealing with North Korea. "We still need to resolve the nuclear issue, but the agreement has helped us to move ahead with South-North cooperation."
China has also increased its profile with North Korea. President Hu Jintao visited Pyongyang last month, a rare visit for a Chinese official. He was greeted by North Korea's leader, Kim Jong Il, at Pyongyang's international airport, visited a new Chinese-financed glass factory and was quoted by China's official New China News Agency as promising more economic cooperation.
Leading critics of North Korea are complaining about the reaction to the September agreement. Signed in Beijing by both Koreas, the United States, China, Japan and Russia, the deal called for North Korea to give up all of its nuclear weapons programs in return for unspecified economic and diplomatic incentives.
"We can't give them everything they want now. Instead, we need to make them understand the consequences if they don't comply" with the agreement, said Hwang Jin Ha, a member of the National Assembly from the opposition Grand National Party. "We should only make positive gestures with food aid, economic assistance and investment when we see real steps being taken to resolve the nuclear issue."
But others, particularly in South Korea, contend that the aid gives North Koreans an early taste of the far larger economic and diplomatic benefits possible if it complies with the nuclear agreement.
South Korea has been engaged in a program of rapprochement with the impoverished North since the 1990s, under a "sunshine policy" initiated by Kim Dae Jung, a former dissident and Nobel Peace Prize winner who was president from 1998 to 2003.
Momentum slowed for a time after 2002 when North Korea ejected international weapons inspectors and began reprocessing spent fuel rods into nuclear material. After that, South Korean officials started dragging out completion of economic projects that were previously agreed to.
Now, aided by a burst of investment during the second half of 2005, trade between North and South is set to break $1 billion for the first time, according to the Unification Ministry. In addition, South and North Korea reached a historic agreement in principle this month to field a joint team at the 2008 Olympic Games in Beijing.
North Korea is still negotiating a dispute with its largest South Korean investor, Hyundai Asan Corp., over the dismissal of a company official against the Pyongyang government's wishes. But following the September agreement, several South Korean companies that had invested millions of dollars building factories at the new industrial park in Kaesong saw their stock prices jump as much as 10 percent. Several are now making plans to expand their investments across the border, although analysts have said that few South Korean companies have managed to make such investments profitable.
Nevertheless, Kim Ki Mun, chairman of Romanson Co., a major watch manufacturer, praised the nuclear agreement as a "major breakthrough." His company employs 500 North Koreans at Kaesong and is eager to double production in North Korea next year.
Romanson's North Korean employees earn about $60 a month, about 10 percent of a typical South Korean factory worker. Kim said he will begin raising the salaries for the best North Korean workers, and wants to teach them about capitalism by rewarding talent and hard work.
Kim said the greatest obstacle to expanding business in North Korea is U.S. opposition to rapid engagement with the North, not the nuclear issue.
For example, he cited a case last week in which U.S. officials blocked the installation of a South Korean switchboard system at Kaesong on grounds that the equipment contained components that could have been adapted for military use. As a result, Kim said, the 15 companies operating at Kaesong share a single phone line -- and messages to his staff there must often be hand-delivered across the border.
"We will only win over the North Koreans by engaging them and showing them what kind of benefits are in store for them if they join the world community," Kim said. "I honestly believe it is the only way. Now, we just need the Americans to see that too."
Special correspondent Joohee Cho contributed to this report.