South Korean firms rack up $8.3 billion losses in the North

Posted on : 2012-05-24 13:46 KST Modified on : 2012-05-24 13:46 KST
Businesses say change in government policy did them in, want compensation

By Kim Kyu-won, staff reporter
South Korean businesses have suffered losses of up to ten trillion won (US$8.3 billion) from the cutbacks in inter-Korean economic cooperation under the Lee Myung-bak administration, figures show.
The losses taken by South Korean firms are fives times the 1.8 trillion won (US$1.7 billion) North Korea’s estimated losses. The results show an unintended effect of Seoul’s May 24 sanctions, which were meant to punish North Korea economically for the shooting death of a tourist at the Mt. Kumkang resort, the sinking of the Cheonan warship, and the shelling of Yeonpyeong Island. North Korea has offset these losses with increased cooperation with China.
[Punishing South Korean businesses]
Findings released on May 23 from a study by Hyundai Research Institute senior fellow Hong Soon-jick showed estimated losses of US$8.3 billion, or about ten trillion won, to South Korea for the period between 2008 and 2011, when inter-Korean economic cooperation was either reduced or suspended. This was roughly five times the US$1.6 billion (1.8 trillion won) in estimated economic losses to North Korea over the same period.
The Kaesong Industrial complex is a focal point of inter-Korean economic cooperation. Under the May 24 measures, the second phase of construction at Kaesong was completely halted. This resulted in estimated losses of US$4.1 billion that could have been earned had the construction gone ahead. The second phase of construction was originally set to begin in 2011.
Another problem area was inter-Korean trade, which took losses of US$3.1 billion, followed by the Mt. Kumkang tourism venture, aircraft rerouting, and Kaesong tourism.
Meanwhile, North Korea saw economic losses of US$176 million from Mt. Kumkang tourism, US$3.9 million from Kaesong tourism, US$95.35 million from the Kaesong complex, US$1.3 billion from inter-Korean trade, and US$17.57 million from aircraft rerouting.
These losses pushed North Korea closer to China. While inter-Korean trade dropped from US$1.8 billion in 2007 under the Roh Moo-hyun administration to US$1.7 billion in 2011, North Korea-China trade rose by 2.8 times over the same period from US$2 billion to US$5.6 billion for an increase of US$3.6 billion.
“Ultimately, the Lee Myung-bak government’s sanctions harmed Hyundai Asan and South Korean SMEs more than North Korea,” said Inje University professor Kim Yeon-chul.
[“The government’s risk, the government’s responsibility”]
According to Unification Ministry figures, some 319 of the 1,106 companies involved in inter-Korean economic cooperation, or 28.8%, have shut their doors since the Lee administration took office in 2008.
Chung Yang-geun, chairman of the Committee to Promote Inter-Korean Economic Cooperation, said an independent study in March 2011 showed more than 400 of the 1,017 participating businesses, or 39.3%, as either having closed down or being out of contact. Thirteen of the 32 business operating in the Mt. Kumkang tourism zone, or roughly 40%, have also closed down.
Lee Jong-hong, vice chairman of the council of businesspeople working in the Mt. Kumkang zone, said an independent study found the 32 businesses there suffering losses of 208 billion won through the end of May after investing a total of 134 billion won.
“With the government providing loans for just 12 billion won, which is 9% of the investment, we’re having a tough time keeping the businesses going,” Lee said.
Unification Ministry exchange and cooperation bureau director Hwang Bu-gi said the government had never encouraged businesses to take part in economic cooperation projects in the first place.
“These economic cooperation efforts with North Korea were the participants’ own responsibility,” Hwang said. “They have to bear that risk.”
But Ahn Gyo-sik, former chairman of the Kumkang businesspeople’s council, said the businesses invested after receiving government approval for their North Korea efforts, including tourism at the resort, and ended up suffering losses after the government blocked their efforts.
“The risk occurred because of changes in government policy, not any kind of management errors from the businesspeople themselves,” Ahn said. “The government owes them compensation.”
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