hankyoreh

the head of the Northeast Asia research institute at the Vietnamese Academy of Social Sciences

The Fourth 2008 Hankyoreh-Busan International Symposium held its second day of meetings November 21 with the theme of the future of the Gaeseong (Kaesong) Industrial Complex. Held at the Novotel Ambassador Hotel in Busan and jointly sponsored by The Hankyoreh, the city of Busan and the Korea Land Corporation, the second day of the symposium set its sights on identifying “conditions of success for special economic zones and tasks of the Gaeseong Industrial Complex.”

According to Lee Young-hoon, researcher at the Bank of Korea’s Financial Economy Institute, based on production inducement effect aspects, the Gaeseong Industrial Complex has the vast potential to grow 7.1 times in three years, assuming that inter-Korean relations are not deteriorated as they are now. The production inducement effect for 2007 reached a maximum of US$670 million, but it is estimated that in 2010 it will reach a maximum of US$4.72 billion. Lee selected 2010 as the forecast date because if things go as scheduled, 2010 is when “the 260 businesses that signed residence contracts at the time of the Gaeseong Industrial Complex’s first stage of apportionment will be operating in earnest.” The Ministry of Unification estimated that at that time, the resident businesses will be engaged in production at a complex with a scale of 608,000 pyeong (2.01 million square meters), employing over 100,000 North Korean workers. Of course, the current reality casts a pall on this forecast.

It was also calculated that the natural effect of the Gaeseong Industrial Complex on the North Korean economy will increase by a large scale. The wage earnings returned to North Korean workers in 2007 amounted to a mere US$14.3 million, but it is expected that it will reach US$118,100,000 in 2010. Lee said, “Because the Gaeseong Industrial Complex is cut off from the internal economy of North Korea, the reality is that the economic effects from the attraction of investment are limited to employment effects.” At the same time, he said, “If you consider the scale of the economy, the effect that the Gaeseong Industrial Complex will have on the North Korean economy is greater than its direct and indirect effects on the South Korean economy.”

Some also commented that the industrial complex needs to adopt a clearer image as a business complex for the sake of its long-term development. Mimura Mitsuhiro, associate senior researcher at Japan’s Economic Research Institute for Northeast Asia, said, “The Gaeseong Industrial Complex project is a valuable ‘public asset’ from the standpoint of North and South Korean reconciliation and cooperation, but from the standpoint of foreign companies, it should be a place where a certain degree of money is earned.” Mimura added, “There needs to be discussion of the extent to which the Gaeseong Industrial Complex is a business and the extent to which it is a public asset.”

Mimura said, “As of now, the Gaeseong Industrial Complex has barriers to investment from smaller-sized Japanese businesses,” citing the need to place a communication base in Seoul as well if Japanese smaller-sized businesses are to enter the industrial complex and the fact that strict regulations apply to the exportation of equipment to the North. He suggested, “If they want to lure foreign businesses, they need to resolve issues of profitability as seen from the perspective of foreign businesses.”

Cho Dong-ho, professor of North Korean studies at Ewha Womans University, said the problem is that “when the Gaeseong Industrial Complex was first started, non-economic factors were regarded as too important.” Cho commented, “There is a need to view the complex based on economic efficiency.”

Cho noted, “The government’s decision to build a day-care center in the complex also doesn’t fit in with an economic view.” He said, “The day-care center needs to be built by North Korea or the resident businesses. They need to rethink this method of supporting resident businesses with taxpayer money.”

Kim Eun-jong, director of the office for inter-Korean cooperative projects at the Korea Land Corporation, offered a rebuttal, saying, “Viewing the Gaeseong Industrial Complex as a public asset is not appropriate.” Kim added, “Public money is being provided in support for basic facilities for the construction of a large-scale industrial complex.”

Kim said, “It has the characteristics of a public asset because of factors such as the reaching of institutional agreements between North and South Korean authorities, but all economic activities following the apportionment of land have been realized purely as business activities based on profitability.” Kim also said, “There are barriers such as place of origin issues and limitations on the bringing in of strategic goods and money, but even now, businesses from places other than the U.S. and Japan, such as Europe, have expressed a positive reaction to the profitability of the complex.” He emphasized, “The experiences of tenant companies that have already passed the break-even point are a testament to the profitability of the complex.”

Some say the government needs to address a workforce shortage at the Gaeseong Industrial Complex. Gang Chan-beom, chief executive of 55N66.com, a clothing company that was scheduled to move to the complex in December, said, “I planned to hire 2,000 North Korean workers, but the actual number of workers optioned for the factory is about 10 percent (of the needed workforce). To resolve the problem, I want to build a dormitory with company money to hire and house workers outside Gaeseong.” Gang noted that South and North Korean authorities have not implemented an agreement that would support such a dormitory. In addition, Gang said, “The use of the industrial complex’s infrastructure should be guaranteed for construction of separate dormitories and loans from inter-Korean cooperation funds are needed.”

Ngo Xuan Binh, the head of the Northeast Asia research institute at the Vietnamese Academy of Social Sciences, cited his country’s experience as a testament to the idea that special economic zones can be successful. He said, “Vietnam was gradually able to push for industrialization and modernization due to the development of 183 special economic zones.” In order to build a special economic zone successfully, a stable long-term plan based on a comprehensive national strategy needs to be set up, he said.

Please direct questions or comments to [englishhani@hani.co.kr]