North and South Korea agreed to open a trade office in the first half of next year and start building an industrial park in the North from early 2004, South Korea said on Saturday.

 The agreement came after the two Koreas met in Pyongyang for their latest round of economic cooperation talks since embarking on a process fo reconciliation more than three years ago.

 South Korea's Unification Ministry said the trade office will be opened in North Korea's city of Kaesong, where the two countries plan to build a huge industrial park, combining the South's capital and technology and cheap labour from the North.

 More than 90 percent of trade between the communist North and capitalist South is routed through a third country, such as China.

 That has been partly due to logistical reasons -- the heavily militarised border dividing the two countries has not had any rail or road links until recently -- but also because neither country recognises the other as a sovereign state.

 North and South Korea agreed to start constructing the industrial park early next year in Kaesong, with a model complex completed in the first half of 2004, the ministry said in a statement.

 Kaesong, a former royal capital in feudal Korea, is about 70 km (45 miles) north of Seoul, close to the Demilitarised Zone dividing the peninsula.

 North Korea has begun to introduce market reforms to its centrally planned economy in an effort to revive an economy shattered after a succession of natural disasters compounded by mismanagement over the last decade.

 The two Koreas, China, the United States, Russia and Japan are also eyeing a second round of talks by the end of the year. Pyongyang is seeking aid and security guarantees in exchange for concessions on its nuclear programme.

North and South Korea will hold an eighth round of economic cooperation talks in Seoul from March 4 to 7 in 2004, the statement said.

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