Inter-Korean cooperation is complex

Since Hyundai's Mount Kumgang tourism program has hit the wall two years after its inauguration, there are rising voices of self-reflection that the time has come for the government and private enterprises to make an overall review of inter-Korean economic cooperation.

The Hyundai Asan Corp., launched by the Hyundai Engineering and Construction, Hyundai Motor and other Hyundai affiliates with investments of US$612 million during the past two years since the corporation started the Kumgang cruise tourism project in November 1998, has seen its revenue end up with US$233 million, incurring a deficit of as much as about US$379 million.

The tourism project came under the limelight for its symbolic meaning of the Kim Dae-Jung government's sunshine policy of engagement with North Korea and paving the way for the South Koreans to set their feet on the soil of the forbidden land in the North. But the balance of the payments for the two years is disastrous.

The business circle orchestrated much media hype about inter-Korean projects such as the development of the Kaesong Industrial Complex and the Kyongui Railroad reconnection following the historic mid-June inter-Korean summit, but few projects have been launched in actuality. They advised that the government should refrain from exploiting the inter-Korean cooperation programs for political goals regarding Pyongyang but to provide a favorable environment for private enterprises to start lucrative businesses in the North.

If the environment for business investments is safe and profitability is guaranteed, the profit-seeking businesses are certain to launch ventures in the North vigorously and competitively, regardless of the government's encouragement policy measures.

Inter-Korean cooperation has dual nature:

The year 2000 will be recorded as the year during which the government-initiated programs flourished compared with private ones.

Dr. Kim Chung-Kyun of the Hyundai Research Institute said that the inter-Korean economic cooperation, which began in 1989 with simple barter trade and trade of manufactures goods in 1992, the current year marked a great change in the bilateral economic cooperation and exchanges with the initiative of the related government authorities in terms of the agreements on the development of the Kaesong Industrial Zone and the Seoul-Shinuiju railway reconnection projects.

Dr. Cho Dong-Ho, North Korean team leader of the Korea Development Institute, noted that the government-led inter-Korean economic cooperation made a significant stride from the political point of view, but from the economic standpoint, they fell far short.

As the inter-governmental cooperation programs are feasible with the taxpayers' money or public funds, the projects could be implemented with political decisions. However, enterprises' investments will be possible only when healthy environments need to be provided, conducive to their safe and drastic investments.

An official related to the trade business cautioned that Pyongyang failed to come up with consistent inter-Korean economic cooperation, pointing out that it blocked shipments of South Korea's cooperative goods into the North. He also noted that the private-level economic cooperation has been rather unbalanced, as in the case of Hyundai's deficit-ridden cruise tourism.

Meanwhile, some business conglomerates are reluctant to comply with the government requests for the North Korean investments following Hyundai's setback on the Kumgang program. Their position is to do cosmetic business with the North, if they are compelled by the government, but in reality they have no interests in undertaking major ventures in the North, unless profits from the inter-Korean projects are guaranteed.

Exchanges and investments increase rapidly:

Inter-Korean trade volume this year marked US$400 million, the highest-ever amount in bilateral trade. Specifically, with the invigoration of the imports of North Korean farm products and continuous production of garments and other labor-intensive goods in the North, the two-way economic cooperation and exchanges are likely to be expanded into the areas of electric and electronic, automobile and other high-value-added key industries.

Cheil Textile Industries, LG and SK groups are doing successful business in their garment processing activities in the North. LG and Samsung Electronics have succeeded in operating their factories, producing 20-inch TV sets and radio-cassette players. Samsung has started software manufacturing with the hired North Korean workers.

Despite the dispute over profitability, Tongil Group is promoting the construction of an automobile factory in Nampo, North Korea.

However, there is a small number of the industrial firms that can afford to remit their income to the home country. As many entrepreneurs investing in the North hail from the North, they are looking forward to future profitability, irrespective of the present conditions.

Government needs to play limited role:

Dr. Shin Chi-Ho of the Samsung Economic Research Institute advised that the government should make a clear distinction between state projects and private ones, and that it should not interfere with private business, while exerting efforts to create institutional environments under which they can invest in the North without apprehensions. In the meantime, the government should concentrate its efforts on large-scale ventures such as the cross-border railway, highway construction and other infrastructure facilities.

Although the government-initiated inter-Korean cooperation projects naturally involve political considerations, the scales, timing and method of the economic aid to the North will have to be decided and implemented with the people's consensus, whereas any political considerations must be denied in the private-level inter-Korean businesses.

Problems remain with differing laws and systems:

While Hyundai is suffering from difficulty in its Mount Kumgang tourism project, other private enterprises also are facing crises. This is mainly because of the lack of managerial capability in spite of the politics-economy separation principle, on the one hand, and the failures in providing legal and institutional devices for the smooth implementation of inter-Korean economic cooperation.

Although South and North Korea signed four economic cooperation pacts, including investment guarantee and double taxation prevention deals, during the fourth round of the inter-Korean ministerial talks held in Pyongyang earlier this month, their domestic coordination of procedures have yet to be completed. It is assumed that the complete legal guarantee for the inter-Korean economic collaboration will be made after next June, at the earliest.

Notwithstanding, it is doubtful that the projected legal measures could address all disputes that might arise from the bilateral exchanges in the future, as they are merely concerned with general stipulations.

Dong Yong-Sung, North Korean study team leader of the Samsung Institute, commented that the legal agreements bear significance in that they cover problems in general, but that the stipulations would stop short of governing all potential disputes stemming from their actual implementation.

The government made it clear that it would retain the authority to approve private businesses' North Korean projects but that it would not interfere with their profits and losses. But this government posture is irresponsible in view of the closed North Korean society, he pointed out. In this regard, the government ought to provide useful information to the private firms on North Korean society and its market.

On the contrary, some enterprises are complaining that the government is apt to inflate the profitability of the North Korean market in an attempt to induce South Korean investment into the North, while neglecting its responsibility for furnishing precise guidelines needed for the advancement into the North.

For the Kumgang tourism program, once praised as a precious fruit of the sunshine policy, has hit a snag over the massive losses, Hyundai forced its way for the project irrespective of its profitability. The Hyundai case has provided a painful lesson for both South and North Korea to learn how to make future economic cooperation viable.

Prof. Koh Yoo-Hwan of Dongkuk University, as the South learned a lesson from the Hyundai tourism project, the North will have to come all-out to arrange the internal systems, so that the South Korean businessmen are convinced that their investments can earn profits, if the North is to gain something through the economic exchanges with the South.