[Viewpoint]Profit, not ideology, drives business

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[Viewpoint]Profit, not ideology, drives business

The summit meeting between South and North Korea is being considered a success despite some worries and criticism.
If implemented faithfully, the joint declaration produced at the talks will contribute to the easing of tensions on the Korean Peninsula and the establishment of peace in Northeast Asia.
The new joint declaration contains more concrete statements than the June 15 agreement from the 2000 summit meeting.
The major obstacles to economic cooperation between South and North Korea, such as transportation, communication and customs clearances, will be improved. Cargo will be transported on the Gyeongui Line.
These agreements will have a positive effect on South Korean companies that have started businesses in North Korea.
Other projects, such as creating a zone of peace and reconciliation on the west coast, building a shipyard in Anbyon and Nampo and developing natural resources, will help diversify our economic cooperation with North Korea.
But we shouldn’t say with certainty that these agreements will invigorate economic cooperation with the North in the future.
It is true that the poor social overhead capital in North Korea hinders investment there. However, the most serious problem with the South’s investment in the North is uncertainty caused by political and military confrontations.
The 2002 physical clash on the west coast halted the Kaesong Industrial Complex project for two years.
Last year, North Korea’s nuclear test heightened tensions between South and North Korea.
North Korea has refused to implement reforms or open its doors or principles to a market economy. Such a closed society also increases the uncertainty.
Besides, the United Nations Security Council banned North Korea from importing strategic goods, and the United States has listed it as a sponsor of terrorism. That makes it very difficult to trade goods with the North.
Every time we send a shipment to North Korea and more than 10 percent of it consists of U.S.-made goods, approval from the United States is needed. Most electronic appliances, such as computers, cannot be brought into the communist country.
For businessmen, such uncertainty means that they have to give up business opportunities.
Unless the uncertainty is removed, South Korean companies are unlikely to make huge investments into the North.
North Korea has asked South Korean companies to make a great deal of investments. The South Korean businessmen who have visited the North agree on that general idea, but they are more careful about specific investment plans.
In order to increase investment in North Korea, the typical traits of a closed economy ― regulations and vague laws regarding investments ― must be lifted. In addition, trust must be built to increase certainty.
Last year, the investments made by South Korean companies exceeded 10 billion dollars.
A large amount was invested in Asian countries, such as China and Vietnam. Even though the two countries have socialist regimes, they follow market principles and actively open their doors to investment.
If the environment for investing in North Korea improves to that level, South Korean companies will definitely rush to North Korea, as it is close by and the people speak the same language.
It will be a problem if the South Korean government pushes for economic cooperation with North Korea without a long-term plan, hoping to produce immediate achievements.
South Korea must not ignore the simple fact that capital goes to where profit can be found. Money is cowardly. Businessmen will not invest in something unprofitable.
Economic cooperation with North Korea can become successful only with this basic business understanding. If the economic cooperation is led by non-economic factors, neither South Korea nor North Korea will benefit.
The agreements reached at the recent summit meeting will require a long period of time and a huge amount of investment.
According to economic research institutes, the cost will range from 10 trillion won, or about 10 billion dollars, to 60 trillion won.
For next year’s state budget, 1.3 trillion won has been allocated for cooperation with North Korea. The South Korean government and its companies, however, cannot implement projects with North Korea on their own.
Economic cooperation projects will pay off only after North Korea’s nuclear issue is resolved. Only after that will neighboring countries provide help. Most of the projects for economic cooperation with the North will be left for the following administration so they should not be carried out hurriedly now. The agreements at the summit meeting must be carefully examined by estimating costs and finding ways to finance the projects, before drawing follow-up measures for implementation.

*The writer is the vice chairman of the Federation of Korean Industries. Translation by the JoongAng Daily staff.

by Lee Youn-ho

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