South-North Basic Agreement on Inter-Korean Cooperation Takes Effect on August 18

The Korean government announced its plan yesterday to allow firms that invested in the North to offer the invested assets in the North in security in borrowing money from the Inter-Korean Cooperative Fund. The government also decided to adopt a loss-compensation system to compensate those North-investing firms for any loss and damages when their business is disrupted by political reasons, such as the North‘s nuclear issues.

“Through discussion with businesses (including Hyundai Asan), we concluded that investment in North Korea will increase when the two supportive measures are implemented,” said an official at the Ministry of Unification, adding, “Relevant regulations and detailed stipulations of the fund will be revised after consulting government agencies.” He noted, “Acknowledging the investment as a qualified mortgage will aid North-investing firms in getting loans from the fund and implementation of the loss-compensation system will further promote inter-Korean business by encouraging more companies to invest.”

In the meantime, the Seoul-Pyongyang agreement on the inter-Korean exchange and cooperation regarding investment guarantees, double-taxation avoidance, the establishment of a dispute settlement system, and payment clearing system will officially go into effect after the two parties exchange the approval notification letter at Panmunjeom on August 18. The agreement was signed at the Fourth Ministerial Meeting of the Two Koreas at the end of 2000. Official effectuation, however, has been delayed by 32 months since then because the South ratified the agreement in June this year while the North in July.

Seung-Ryun Kim srkim@donga.com