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Firms Blast North’s Business Climate

Posted September. 05, 2006 06:53,   


“Problems can arise anytime you do business in North Korea since there is no market order. However, when business partners disregard agreed-upon deals, it is impossible to conduct any new business. Someone who betrays others can always betray me. Now, who will be willing to trust North Korea and make new deals with it?”

Upon hearing the news report yesterday that North Korea sold the rights to build a large-scale resort including a golf course within the Gaesong Industrial Complex to South Korean real estate developer Unico, despite the fact that Hyundai Group currently holds the rights, one executive of a large company was assured that North Korea was not a trustworthy investment partner.

“If the South Korean government fails to have a control over ‘lawless’ North Korea, the entire business with North Korea can fall into a crisis,” he worried.

During the Kim Dae-jung administration, Hyundai Group began its North Korean business led by then-chairman Chung Ju-yung. It has invested more than $1 billion in North Korea, including $450 million (about 510 billion won by then exchange rate) illegally transferred to the North as a price for holding the inter-Korean summit in 2000. In the process, the company had to go through a major management crisis and the tragedy of Chairman Chung Mong-hun’s suicide.

At such a great cost, Hyundai earned from the North “seven business rights,” which include the rights to provide electricity, railway, tourism, and a dam. With regards to the 3-phase Gaesong Industrial Complex project, it obtained a certificate with which it is allowed to use the land for 50 years.

Nevertheless, Hyundai is gradually being excluded in North Korean businesses except for the existing Geumgang Mountain tour and the first-phase Gaesong Industrial Complex development. There are even rumors that North Korea is in the final stages of negotiation with Lotte Tours over tourism business in Gaesong and Baekdu Mountain, excluding Hyundai that has the business rights in those areas.

Now that North Korea is found to have sold the rights to use 1.4 million-pyeong of land in Gaesong to Unico at the price of $40 million, there is a greater sense of crisis in Hyundai.

It is needless to say that North Korea bears the largest responsibility for the recent trouble.

However, some point out that the South Korean government has been too lukewarm in its response to the problems with the North, out of fear that inter-Korean relations might suffer. They argue that such an attitude only encourages North Korea’s “derailment.”

“Hyundai Asan’s deal with the North over the second and third phases of the Gaesong Industrial Complex development and Unico’s deal with the North can cause overlaps or conflicts. Thus, the companies will have to negotiate over the matter,” said Goh Gyeong-bin, director-general of the Social and Cultural Exchanges Bureau at the Unification Ministry, yesterday when the news on Unico’s North Korea deal was reported.

“The Ministry of Unification never approved Hyundai Asan of its North Korea business to build a golf course in Gaesong. I believe a double deal is possible here just like it is in the private area,” he added.

This implies that the extraordinary business of inter-Korean economic cooperation is being recognized as an ordinary area of private autonomy where private business partners must resolve problems through self-negotiations.

However, everyone knows that Hyundai’s North Korea business did not start out as a mere private business activity. “The government has drawn no clear line in North Korean business, allowing companies to recklessly engage in such business only to encourage North Korea to develop bad habits,” one executive of an economic organization pointed out.

“In order to effectively manage business deals with unpredictable North Korea, the South Korean government must provide clear trade rules and guidelines. Considering the extraordinary nature of North Korean business, relying on the private sector’s autonomy will only extend uncertainties,” professor Hong Ki-taek of ChungAng University emphasized.

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