(FORTUNE Magazine) – DIVIDED Korea stands as one of the last tragic relics of the Cold War. Looking ahead to 2000, why shouldn't we assume the country will unify just as Germany did? Leaving aside that nobody predicted German unification at the start of the 1980s, there are lots of reasons for pessimism. North Korea's octogenarian ''Great Leader,'' Kim Il-Sung, retains his iron grip and his profound faith in the virtues of central planning. After four decades of uneasy cease-fire, some 1.7 million soldiers -- including 40,000 Americans -- still face off across the demilitarized zone (DMZ) that divides Korea along the 38th parallel. North and South remain technically at war. The North's recent refusal to come clean about its nuclear weapons program has chilled relations that were beginning to thaw. And yet the economic forces that swept away communism in the former Soviet Union and Eastern Europe are just as strong, and perhaps stronger, in the upper half of the Korean peninsula. The North's already weak economy has been spiraling downward since former communist allies in Russia and China stopped propping it up with financial aid and subsidized oil. Kim can't live forever, and when he goes, some kind of dramatic change is sure to follow. South Korea's entrepreneurial business leaders aren't waiting. Despite the difficulties of doing business in the North, they are vying to stake claims in what they are convinced will become one of global capitalism's last virgin ! markets. Leading the charge is Kim Woo-Choong, 55, gutsy chairman of Daewoo, South Korea's fourth-largest corporation. When North and South signed a nonaggression pact last December, Kim rushed to Pyongyang, North Korea's capital, and returned anxious to invest in nine joint ventures that could manufacture textiles, shoes, luggage, and similar consumer products. The South Korean government has since approved 34 applications from other companies eager to explore business contacts in the North. For now, direct investments between the two countries remain illegal. But joint ventures that observe the letter of the law by channeling shipments through third parties (mostly agents in Hong Kong, Japan, or Singapore) have already sparked a mini-explosion in exports and imports. The value of the trade between the two Koreas should top $200 million this year. That's peanuts, until you realize it is up from just $1 million in 1988 (see chart). Since 1990, Kolon, a leading South Korean fabric manufacturer, has been sending idle sewing machines and materials as well as contracts for specific items to a factory outside Pyongyang. The goods are routed through a Korean- American go-between. The company imports North Korean-made knapsacks and schoolbags back to Seoul. In a similar arrangement, Samsung, the South's largest trading company, has just received its first shipment of 10,000 pairs of North Korean pants via Hong Kong. An untapped supply of low-cost, high-skill labor is what mostly attracts South Korean businesses to the North. Since 1986 the average South Korean worker's pay has doubled to more than $4 per hour. To stay competitive, most South Korean managers understand that they must keep advancing into ever higher value goods. As they race up the manufacturing chain from sneakers to VCRs to computers, they would like to shift the simpler, labor-intensive production northward. Says Samsung Petrochemical CEO Ungsuh Park: ''If the North liberalizes its policies so that South Korea can supplement its manufacturing skill with North Korean cheap wages, that would be a dream.'' Some dreamers even foresee a day when North Korea could become yet another thriving Asian consumer market. That day is a long way off. With per capita GNP of just $1,038, North Korea trails far behind South Korea (per capita GNP: $6,498). Even so, its population of 22 million -- bigger than Taiwan's or Malaysia's and almost ten times the size of Singapore's -- makes a potentially attractive target. ! Still, getting there won't be easy. For one thing, the North is basically broke. When South Korean farmers got permission from Seoul to ship 5,000 tons of rice directly to North Korea last year, they never got paid (although the South Korean government reimbursed them). Says Hyundai Engineering & Construction CEO Chung Hoon-Mok: ''Our northern brothers do not have the means to pay other than through barter or countertrade.'' They also produce little that the South wants to buy. The bulk of North Korea's exports are fish and zinc, with a little poor-quality cement mixed in. The bigger hurdle is political. The North is wary of too much South Korean direct investment and trade, partly because it doesn't want its propaganda- surfeited citizens to realize just how rich their neighbors have become. But without direct control over their trade or ventures, South Korean managers say they have no guarantee merchandise will ever arrive -- and when it does, the circuitous shipping costs are often more than they bargained for. Warns Sung-Rai Choi, head of the Samsung Group's international operations: ''Unless we can trade directly, the total value of our bilateral trade will never rise above $500 million.'' In late July, North Korean Premier Kim Dal-Hyon made an unprecedented visit to Seoul. He toured factories and talked about the kind of ventures he thought would work well in Nampo, an area just north of the DMZ that his government wants to turn into a special economic zone similar to those in China near Hong Kong. But when Kim met with South Korean President Roh Tae Woo, he was told flatly that no investment would be permitted until the North agreed to mutual inspections of nuclear research facilities -- something it had promised and then refused. South Korean officials and their Western allies suspect North Korea is just a few years away from a nuclear bomb. Tokyo and Washington have suspended economic and diplomatic contact with Pyongyang until the issue is resolved. Despite this setback, Koh Il-Dong, a fellow at the Korea Development Institute, echoes many South Korean executives when he insists: ''They cannot take a U-turn.'' The best reason to think the North will eventually back down is that it has nowhere to run. In August even China's communists finally established diplomatic relations with the government in Seoul. Like the Russians before them, the Chinese want to trade with and draw capital from an economic winner rather than endlessly subsidize a sure-fire loser. Chaos north of the DMZ is always a possibility. Kim Il-Sung has named his son, Kim Jong-Il (''Dear Leader''), as successor. But if some party heavyweights choose not to accept that decision after the Great Leader dies, North Korea could descend into civil war. In the long run, though, the same forces that drive the growing economic union of China, Taiwan, and Hong Kong will almost certainly pull the two Koreas together as well.

CHART: NOT AVAILABLE CREDIT: Source: Ministry of Trade and Industry CAPTION: SOUTH KOREA'S TRADE WITH NORTH KOREA