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The two nations also agreed to create a joint fishing zone off the peninsula's west coast in the first half of next year to prevent accidental clashes around their poorly marked sea border, which was the scene of bloody naval skirmishes in 1999 and 2002.
"The South and the North have agreed to firmly shift inter-Korean relations to that of mutual respect and confidence and to actively take measures to develop the relations in the direction toward national unification," said the agreement issued at the end of the three-day prime ministerial talks in Seoul.
South Korea's pointman on North Korea, Unification Minister Lee Jae-joung, described the accord as providing "a major opportunity for South and North Korea to speed up exchanges and cooperation, and to advance peace and prosperity on the Korean peninsula."
The accord calls for the two Koreas to start a cross-border freight train service on Dec. 11 for the first time since the 1950-53 Korean War. The 20-kilometer railway linking the South Korean city of Munsan and North Korean city of Bongdong is to be mainly used for the joint industrial complex being developed in the North Korean border city of Kaesong, which houses 22 companies, employing some 15,000 North Korean workers. The freight train service is expected to cut transportation costs for South Korean firms in the Kaesong complex by nearly half, replacing ships and trucks.
In another sign of opening up, the North agreed to let South Korean businessmen use the Internet and mobile phones when visiting Kaesong. The industrial park, a testing ground for mixing South Korean capitalism and technology with the North's cheap labor, has been touted as one of the crowning fruits of inter-Korean dialogue.
The plan for the cross-border rail is that it will reconnect the two Koreas' capitals and proceed on to Shinuiju, a major industrial city on North Korea's border with China, then go on to link with Russia's trans-Siberian railway. South Korea has longed to reopen regular transport through North Korea to enable it to transport products to mainland Asia and Europe and fuel its export-dependent economy. South Korea will help repair the 500-kilometer railway line between Kaesong and Shinuiju, and the 170-kilometer stretch of highway between Pyongyang and Kaesong, according to Friday's agreement.
South Korea will also start construction of a joint shipping complex in the North's east port city of Anbyon in the first half of next year. The South's Daewoo Shipbuilding and Marine Engineering, the world's third-largest shipbuilder, has already said it was considering building a US$150 million block plant in the North.
Under Friday's accord, the two Koreas will also begin surveys within this year on the proposed development of the North's southwest port city of Haeju and its surrounding border area as a special economic zone.
The accord, comprising 49 clauses in nine articles, was the first tangible outcome of the landmark inter-Korean summit last month. The prime ministers of the two neighbors will meet again in the first half of next year in Pyongyang to further cross-border reconciliation and cooperation.
President Roh Moo-hyun had vowed to cement cross-border cooperation and a reconciliation process during his single five-year term that ends early next year. Roh has won U.N. endorsement and support for the outcome of the inter-Korean summit, in a bid to lock his successor into honoring his campaign.
The improvement of North Korea's economy to the level of South Korea's through closer inter-Korean economic cooperation would be critical to national unification, Roh said in a meeting with visiting North Korean Prime Minister Kim Yong Il.
"Inter-Korean economic cooperation is the best means to accelerate national unification. Both sides have to remove hostility and work together to create an economically equal relationship," Roh was quoted as saying.
