hankyoreh

A view of the Kaesong Industrial Complex from Paju

The private sector is calling for the government to take specific action to revitalize the Kaesong Industrial Complex, which has been closed for the past three years.

“We need not only a plan to reopen the Kaesong Complex but also measures to revitalize it,” said the Korea Federation of SMEs, a state cooperative representing small and medium-sized enterprises, on Feb. 10, while unveiling a plan for doing exactly that. The proposed plan includes a number of measures for revitalizing the complex, including creating legal and institutional safety mechanisms for the complex, improving the investment insurance system for inter-Korean economic cooperation, creating an inter-Korean economic cooperation fund reserved for SMEs, building a dormitory inside the complex and internationalizing the complex, as well as ways to resolve problems that tenant companies may face when the complex is reopened.

The Korea Federation of SMEs said that it had drawn up its plan after soliciting the opinions of tenant companies and experts including Kim Gwang-gil, an attorney who served as the head of the legal team at the Gaesong (Kaesong) Industrial District Foundation (GIDF).

The Korea Federation of SMEs’ plan begins by asserting the need for a legal and institutional safety mechanism aimed at preventing the Kaesong Complex from being shut down again. “Inter-Korean agreements and legislation in South and North Korea overlap and are applied on a selective basis, which creates legal uncertainty. The National Assembly needs to ratify inter-Korean agreements in order to give them legal force,” the federation said. Another suggestion was to create regulations that would require the state to compensate losses incurred during a suspension of inter-Korean cooperation projects in order to lower the risk that businesspeople face.

Furthermore, the Korea Federation of SMEs’ suggested revamping the investment insurance system in order to bolster the protective network for investors. The investment insurance currently operated by the Export-Import Bank of Korea has low limits in its insurance contracts (7 billion won [US$6.22 million] in economic cooperation insurance and 1 billion won [US$889,288] in commerce insurance). In addition, the benefits paid only amount to 90% of economic cooperation and 70% of commerce, which is less useful for guaranteeing corporate value as the scale of the investment increases. Finally, there is no insurance system for business losses or the loss of business rights resulting from business interruptions, and the federation argues that such an insurance system should be created.

The Korean Federation of SMEs also made the case for establishing financial support and building infrastructure in order to support and encourage SME investment in North Korea. The current Inter-Korean Cooperation Fund requires companies seeking funding for exchange and cooperation to submit business plans for each fiscal year, and those plans must then be approved by the president. This system discourages ordinary loans and is also focused on managing risk by compensating losses, the federation argues, which means that it does little to help SMEs do business in North Korea.

As a result, the federation proposed using government loans and capital from the private sector to set up an inter-Korean economic cooperation fund for SMEs that could be used to support business ventures in North Korea. The federation also spoke of the need to support North Korea and build infrastructure to support a bigger workforce: “The three-stage development plan is stuck at 43% of the first stage because of the May 24 measures imposed in 2010. When the complex was shut down in 2016, the tenant companies there had a shortage of between 15,000 and 20,000 North Korean workers.”

In addition, the Korean Federation of SMEs asserted that the government needs to minimize the funding crunch that will be faced by companies that would like to return to the Kaesong Complex when it reopens. When these companies return to the complex, they’ll have to return the government subsidies they’ve been receiving since the complex shut down. The government needs to delay the period of repayment and recalculate the amount these companies have to repay by reassessing their asset values in order to make it easier for them to raise funds, the federation argued.

By Hyun So-eun, staff reporter

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