The two Koreas signed a deal in 2005 under which the South would provide $80 million worth of raw materials to help the North improve its tattered light industry and produce more daily necessities, such as textiles, shoes and soap. Seoul's assistance is to be paid back with North Korean natural resources, such as zinc and magnesium. The North has agreed to offer the South rights to develop mineral mines.

Two years have passed since then, but the agreement has not yet been implemented, as military tensions on the peninsula have mothballed cross-border economic projects.

During the economic cooperation talks last week, the South called for a quick implementation of the landmark swap deal, trying to determine the size and timing of Seoul's assistance for the North light industries in hope of an early winning of rights to explore natural resources.

But the two days of negotiations ended without any agreement, raising doubts about the feasibility of the inter-Korean swap deal.

Officials at the South's Unification Ministry said the two sides "were unable to agree on prices for each raw material item," as the North demanded more than the South has earmarked for the shipment. Ministry officials said the two sides would meet again later but did not say when.

During the previous economic cooperation talks last month, the South agreed to ship 5 million tons of polyester fabrics worth $800,000 to the North on June 27 as the first batch of its raw materials. In return, the North agreed to allow a group of South Koreans to visit three mines in the North for a 12-day joint study beginning June 25.

But as the two sides failed to make headway at last week's meeting, the South is most likely to delay the first shipment of raw materials.

On Tuesday, Kim Joong-tae, chief of the ministry's Economic Cooperation Bureau, acknowledged that the South could not make the first shipment of raw materials this month.

"The shipment this month is uncertain due to a dispute over items, price and numbers," Kim told a Seoul forum. "But we have backup plans to send them to the North even if it is delayed."

The North's reluctance to implement the swap deal seems part of its protest at Seoul's decision to suspend shipments of the promised rice aid to the North until it starts shutting down its nuclear reactor.

Earlier this month inter-Korean ministerial talks, the highest-level dialogue channel to coordinate cross-border reconciliation and cooperation, broke down over Seoul's policy of linking economic aid to progress on the nuclear issue.

Military talks between the two Koreas Friday also failed to make progress in offering military guarantees for economic cooperation across their heavily fortified border.

In contrast to the sluggishness in inter-Korean projects, China has rapidly increased its economic influence in North Korea, in an apparent bid to boost its leverage over the communist country in the event of possible turmoil.

China has poured huge funds into the North to win rights to develop underground resources. It has already bought 50-year mining rights to the Musan iron mine and the Ryongdong coal mine, among others.

Reflecting Pyongyang's deepening reliance on China, two-way trade accounted for 56.7 percent of the North's entire trade volume last year, up from 52.6 percent in 2005 and 48.5 percent in 2004.

The North's trade with China increased 13.8 percent from a year earlier in the first quarter of this year, according to Seoul's state-run Korea Trade-Investment Promotion Agency.

And the South's state-run Korea Development Bank expects China to increase its business ventures in the North, in which Beijing sees the communist neighbor as a potential part of its northeastern area, bordering Russia and Mongolia.

North Korea has also reached out to China for economic cooperation to win much-needed hard currency and win Beijing's protection from U.S.-led pressures over the nuclear standoff, it said.

Email This Article

Related Links
Korea Development Bank
The Economy