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The Choco Pie dividend: South Korean firms are drooling at the prospect of business in the North

The Post’s Michelle Ye Hee Lee explains why there's a chance for Choco Pie to go from being a black market treat to displayed on North Korean store shelves. (Video: Jason Aldag/The Washington Post)
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SEOUL — At a glass-and-stone office complex in downtown Seoul, a team of corporate strategists is thinking about diplomacy, North Korea, and the power of marshmallow, yellow cake and chocolate.

At the same time, dozens of other companies across South Korea also are jockeying for any edge to jump into North Korea if Kim Jong Un’s outreach eventually opens investment in a country that needs everything from new roads to designer doorknobs.

But Orion Corp. has something the others do not: the original Choco Pie and its status as a treat so coveted in the North that it can be peddled on the black market for many times its price.

There is still no way to predict whether North Korea could get an investment rush from South Korea and other countries across the region. For starters, the Kim regime needs to make enough nuclear concessions to win a rollback of some U.N. sanctions.

That hasn’t dampened the optimism of South Korean executives, though. Companies of every stripe — construction, shipping, mining, hotel groups, automaker Hyundai and others — have started to weigh the potential windfalls and risks. Many industry officials see South Korean food companies as among the most likely to make the first possible forays, using common culture and tastes as calling cards.

“For South Korean companies, low wages and close proximity are definite plus factors, and, of course, the shared culture and language as well,” said Gloria Koo, associate director of the University of Southern California’s Korean Studies Institute.

Perhaps no company has a more ready fan base in the North than the South Korean makers of the original Choco Pie, a cake-and-marshmallow sandwich dipped in chocolate, somewhat like an American MoonPie. An executive at Orion, which introduced the Choco Pie to South Korea in the 1970s, said last month that its most-famous snack could be the advance guard in North Korea for the company’s full line of crackers, cookies and other munchies.

Choco Pies were a favored extra among North Korean workers at the now-suspended Kaesong industrial zone, a project that began operating in 2004 to allow a foothold in the North for scores of midsize South Korean companies. The North Korean workers stashed them instead of eating them. Choco Pies were so prevalent for sale or barter on the streets that North Korea reportedly banned their import to Kaesong in 2014.

Choco Pies became such a symbol of resistance that activist groups in South Korea sent them over the border tied to balloons, and the company gave a lifetime supply of Choco Pies to North Korean soldier Oh Chong-song, who was badly wounded by gunfire in his dash south across the demilitarized zone in November.

With food and facts carried in bottles, activists try to penetrate isolated North Korea

Investing in food for North Korean markets is also a focus of one of South Korea’s major conglomerates, the Lotte Group.

The business is counting on lessons learned through its more than decade-long association with the Kaesong economic zone, where the company’s food division provided snacks including a lemon-lime soft drink called Chilsung Cider and its own version of the Choco Pie. The Kaesong project offered some South Korean manufacturers cheap labor and provided the North with foreign currency. It was suspended in 2016 amid Seoul’s anger over the North’s nuclear tests.

“In planning our North Korea-bound initiatives, Lotte is approaching this first from a humanitarian-aid and social-
exchange perspective, rather than business, at the moment,” said Lotte spokesman Kang Sung-doo. “Food products will serve such humanitarian and social purposes well.”

This month, Lotte announced a North Korea task force that encompasses the huge reach of the regional powerhouse company, which has headquarters in Tokyo and Seoul. Lotte’s food, hotels, logistics and chemical holdings are making contingencies for the North.

“There are needs at every level in North Korea. So, of course, this is making companies, especially those in South Korea, very interested to move if Kim Jong Un allows it,” said Kim Byung-yeon, an economics professor at Seoul National University. “But this is also the concern. North Korea is so unknown and so in need that there could be serious problems if companies just rush in.”

How the Choco Pie ran afoul with Kim Jong Un

The professor has led calls for “managed economic engagement” if sanctions ease. But it’s hard to say how many businesses in South Korea are willing to go slow.

A recent North Korea investment forum in Seoul brought together about 600 corporate executives and economic researchers to hash over future opportunities. The list went on and on: roads, railways, ports, airports, the electrical grid, hotels, televisions and consumer goods of all kinds.

Real estate firms zeroed in on the untouched property in the DMZ. Some tourist companies brainstormed ideas about the North — all aware that even giant Hyundai was once burned by the North’s government.

In 1998, Hyundai opened a mountain resort for tourists at North Korea’s Mount Kumgang, just over the border. Hugely popular, it was closed in 2008 by the North after a sentry shot and killed a tourist. The entire development was confiscated by Pyongyang.

South Korea’s central bank estimates that the North Korean economy has expanded at a respectable 1.24 percent on average each year since Kim assumed power in 2011, gradually allowing a budding free enterprise system to emerge with small private shops and restaurants.

China, however, remains the big brother, having served as the North’s economic lifeline for decades. The Chinese city of Dandong is a busy gateway for Chinese exports and the hub for Beijing’s policies of creating special economic zones built on cheap North Korean labor.

This leaves South Korean businesses — even powerful global brands such as Hyundai and Samsung — asking for government help to catch up. Many executives express hope for a master plan by the government of South Korean President Moon Jae-in to handle potential investments into North Korea and, down the road, possible reunification.

“As an individual company, we can’t plan on our own to do work in North Korea,” said Seo Geum-yul, vice president of South Korea Engineering & Construction. “We hope the South Korean government will come up with a plan that we can be a part of.”

Some initiatives are taking shape. South Korea’s Ministry of Justice has started reviews of potential changes in the country’s laws related to cross-border exchanges and economic cooperation. The South’s deputy prime minister, Kim Dong-yeon, said the government is “considering various scenarios” for economic cooperation with the North.

At a meeting this month in Kyrgyzstan, North Korea cleared the way for the South to join an international group promoting cooperation between railways, marking one of the first apparent business-friendly moves following the groundbreaking meeting in April between the leaders of the two Koreas.

“Sanctions remain in place, and unwinding sanctions can be a complex and contentious undertaking that, in the case of North Korea, will also require working through multilateral restrictions,” said Clara Gillispie, senior director of trade, economic and energy affairs at the National Bureau of Asian Research’s Washington office.

“I do think that it makes sense for investors to be thinking about these risks at an early stage,” she added. “But even after a successful summit, we are still at an early stage.”

Min Joo Kim contributed to this report.

Correction: A previous version of this story misidentified the source of the lifetime supply of Choco Pies for a North Korean soldier who defected to the South.

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