High tariffs drag down Kaesong job successes

Hailed as the crowning achievement of the 2000 inter-Korean summit, the Kaesong Industrial Complex opened in 2004 amid high expectations. But in recent weeks, the site just north of the demilitarized zone has faced both hopes and worries.
While high tariffs limit exports of products made by South Korean companies, the factory complexes in Kaesong are creating more jobs for North Korean workers.
The Korea Institute for Industrial Economics and Trade reported that the joint industrial complex only exported $47.2 million worth of goods as of September 2007. This accounts for around one-fifth, or 22.4 percent, of goods made by the complex so far.
KIET said that the low export figures contrast with survey results that show that 68 percent of all companies in Kaesong wanted to sell their products beyond South Korea.
“The main reason why Kaesong-made products are not exported is because countries including the United States and Japan slap high import duties on North Korean goods,” a researcher at KIET said.
While the United States usually levies import duties of 4.7 percent or 6 percent on most foreign clothing, these tariffs are raised to 35 percent for so-called column-2 countries like North Korea, the researcher said. Rates for North Korean shoes, for example, can reach as high as 84 percent.
Japan also charges high markups. Tokyo’s tariffs on clothing from countries with most-favored-nation status generally stand at 16 percent, but rise to 40 percent for North Korea.
In order to overcome this problem, KIET said, there must be clauses in Seoul’s free trade agreements with foreign countries to get trade partners to accept Kaesong goods as made in South Korea.
Reports by the Korea Industrial Complex, however, delivered promising news yesterday, saying that a factory complex that housed operations for 32 local companies increased its number of North Korean workers to 3,500 ― a 1,200 gain from when the facility first opened last October.
The rise in workers is a positive sign that Kaesong is helping local small and midsized enterprises stay afloat, as well as paving the way for further inter-Korean business cooperation, the Kicox report said.
“With a drop in tax benefits for foreign companies and average wages reaching $80 to $100 a month in China, Kaesong is becoming more attractive to South Korean companies,” a Kicox source said.
The factory/apartment block is the first of many complexes to be built this year.

By Cho Jae-eun Staff Reporter [jainnie@joongang.co.kr]