[OUTLOOK]Why rush to build at Gaeseong?

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[OUTLOOK]Why rush to build at Gaeseong?

The first working-level meeting on the project of building an industrial complex in the North Korean city of Gaeseong was held in Pyeongyang from Thursday to Saturday. In the meeting it was agreed that North Korea would pass a "Gaeseong Industrial Complex Act," hold a ground-breaking ceremony in December and finish the first stage of construction by the end of next year. If the project goes as scheduled, Hyundai Asan and the Korea Land Corporation would start parceling out the land in March. It is expected that businesses that don't require too much electricity or industrial water will be able to move in early.

The Gaeseong industrial complex project deserves a positive evaluation in that it is more evidence of North Korea's opening to the rest of the world after its decision to designate the city of Sinuiju as a Hong Kong-like special economic district. But there is a mountain of issues to solve for the Gaeseong complex project to succeed. What is most worrying is the North's perception of the project. It is doubtful whether North Korea sees Gaeseong as a business that it must willingly carry out in order to revive its economy. If Pyeongyang acts as if it is doing a big favor for South Korea by building the Gaeseong complex and concentrates on the considerations that it could squeeze out of Seoul in return, then the future of the project is unclear.

Another point of concern is that South Korea is to provide all the financing for the building of the complex up front. If North Korea's only role in the project is to provide land, then South Korea will have to bear the entire economic burden should the project be canceled.

Remember that China had earned the trust of foreign investors by investing heavily in infrastructure for its special economic zones. It would be a dangerous approach for North Korea to behave as if its role ends with providing the right to use its land and the rest is up to the foreign investors. And with the controversy that has arisen over Hyundai's financial aid to North Korea, questions about aid could rise again should the Korea Land Corporation provide the funds for the project.

North Korea claims its new Gaeseong Industrial Complex Act would give the administrative rights at the complex to the South Korean business that would manage the complex, but unlike the Sinuiju district, there is no clause to hold back any exercise of jurisdiction by North Korea's central and regional authorities. This is a serious drawback for the autonomy of Gaeseong. Even with a South Korean manager, it looks doubtful that stable labor management would be possible. North Korea has some quite concrete demands on the level of wages. Unexpected intervention by the North Korean military because Gaeseong is close to the Demilitarized Zone could also cause problems. The Gaeseong Industrial Complex Act must include terms to address those concerns.

Other issues to be resolved include the connection of inter-Korean railroads and highways and rights of passage, customs inspections and communication issues. South Korea has never had the experience of signing a border agreement on overland transportation, and we need to prepare for problems.

The agreement must also stress that this is a domestic agreement and not international trade. Without such recognition in the international community, exports from Gaeseong could pose problems. If construction can only start next spring at the earliest, why not postpone the ground-breaking ceremony scheduled in December? We need more time to prepare for this undertaking.

The Gaeseong industrial complex will be the benchmark for testing North Korea's attitude toward economic reform. If North Korea fails to get foreign as well as South Korean support for the Gaeseong project, then the future of the project is bleak indeed. Piecemeal reforms and preferential treatment on taxes alone won't earn the trust of international society.

In the context of a Trilateral Coordination and Oversight Group meeting to be held in Tokyo to discuss pressure on North Korea, it is doubtful whether a commercial contract between North Korean contractors and the South's Korea Electric Power Corporation would be enough to guarantee the power supply for the Gaeseong complex. For the success of the complex, North Korea must first voluntarily forgo any nuclear weapons program and declare a clearer open-door and economic reform policy.

The Gaeseong complex is not a problem to be hurried.

* The writer is director of the economic cooperation division at the Korea Institute for National Unification.

by Oh Seung-yul

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