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The Honolulu Advertiser
Posted on: Saturday, September 24, 2005

Personal ties critical in trade between Koreas

By Jae-Soon Chang
Associated Press

A North Korean guide, left, explains historical sites to Hyundai Group Chairwoman Hyun Jeong-eun in Kaesong, North Korea.

LEE JIN-MAN | Associated Press

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SEOUL, South Korea — A dispute between North Korea and its largest South Korean business partner over a personnel move is shedding light on how soured relationships can harm trade in the isolated communist state.

When Hyundai Asan, the tourism subsidiary of South Korea's Hyundai Group, fired one of its top executives, it touched off a cross-border fight that involved cabinet ministers in the North and South and complaints of retaliation. The top official of Hyundai Group is even questioning continued ties to the North.

Hyundai Asan's North Korean ventures include a high-profile tour program to Diamond Mountain and construction of an industrial complex in the border city of Kaesong.

All of the company's revenue comes from its North Korean ventures, including running a resort at Diamond Mountain for South Korean tourists. Due to a hefty initial investment and a lack of tourists, however, it had lost money before posting a marginal profit of $728,000 on revenue of $172 million for the first time last year.

Problems began last month when Hyundai dismissed Kim Yoon-kyu as co-chief executive officer of Hyundai Asan, holding him responsible for unspecified "corruption." He still holds the post of vice chairman.

That decision apparently angered North Korea as Kim, who has been deeply involved in business deals with the North, has developed close ties with officials, including leader Kim Jong Il.

In an apparent tit-for-tat, the North notified Hyundai later in August that it will halve the number of tourists each day allowed to visit its Diamond Mountain resort to 600 starting this month.

The feud turned so serious that South Korea's government has intervened to reverse the threat.

The feud hasn't intimidated investors, who rushed to buy shares in Hyundai Group companies Tuesday after news that North Korea promised to abandon its nuclear weapons programs in exchange for trade and security guarantees.