[Viewpoint] Teaching the North a capital lesson

North Korea has always been preposterously audacious. Samsung Electronics Vice Chairman Yoon Jong-yong visited North Korea in 1999 when the manufacturer was pressured by the Kim Dae-jung administration to consider investment ventures in North Korea. He met with North Korean officials with reluctance, and his jaw dropped upon hearing their crude and impertinent demands. They bluntly told Yoon that Samsung Electronics should make semiconductors in their land, and that Hyundai Motor should make cars, and Posco steel and iron, if South Korea wanted to be taken seriously in inter-Korean economic cooperation.

The shrewd businessman held his ground. “Electricity was on and off in my hotel room yesterday. If power goes off even for five minutes on a semiconductor line, it costs the company more than $100 million,” he told the Northern officials, and Samsung was able to bow out of the awkward situation.

It has always been North Korea’s style to be high-handed. North Korea invariably plays an arbitrary and overbearing role in its dealings with South Korea. The Kaesong Industrial Complex - an industrial park developed and run by South Korean companies - is a typical example. The deal was that South Korea would employ cheap labor to help boost industrial activity and know-how in the impoverished and underdeveloped society. The wage level is naturally low. But South Korean companies provide their 42,000 North Korean workers with snacks and a daily meal. After three months on the job, the haggard faces of the North Korean workers gain color.

To many young North Koreans, working at the industrial park is a dream job. Some pay off recruiters a year’s worth savings to get jobs there. And then their government suddenly wanted to rewrite the contract, demanding the rent on the 50-year lease be cut in half, and wages for workers quadrupled. But South Korean companies have suffered losses for years.

Earlier this week, ailing North Korean leader Kim Jong-il made a rare visit to China. His tours to China’s thriving port cities of Dalian and Tianjin suggest the purpose of the visit. The reclusive state, which is under extensive international trade sanctions, is seeking economic aid from its only ally.

The high-profile visit is likely to accelerate China’s incursions into resources-rich North Korea. Since its arbitrary freeze of South Korean assets in the Mount Kumgang resort, no other investor would dare put money into such an unreliable country. China is its last resort. If North Korea opens Najin, the northeastern port city is bound to fall into the hands of Chinese companies. Some speculate North Korea will one day become one of China’s northeastern economic territories.

Still, we can rest assured about two things. One is that China won’t likely allow its blue-chip companies to go into North Korea. If North Korea is branded a terrorist state, no products from the territory can be shipped abroad. International markets accepted products from Kaesong factories because of a guarantee from the South Korean government that sought exceptions for Kaesong products whenever it negotiated free trade agreements. Companies heading for North Korea will likely seek cheap labor and no hassles with pollution or environmental controls.

Second, North Korea for the first time will learn to bow and scrape. It can hardly defy China. But is Chinese capital reliable? From our experience, far from it. North Korea may have to swallow a bitter pill of erratic capital inflows from its sole benefactor.

South Korean companies had been patient with North Korea for the last decade, but still we were kicked out. North Korea’s economy will now be at China’s mercy. We may not like that fact, but we must accept it. Since the suspected North Korean involvement in the sinking of the naval corvette Cheonan, many Koreans have suggested folding the venture in Kaesong. But this is a bad idea. We cannot walk out of a business contract.

Moreover, the inter-Korean venture in Kaesong will offer a contrast with North Korea’s ventures with China. North Koreans may have to brace for some tough disillusionment in their trade with Chinese companies. Then they would have to realize how generous South Korea had been.

The banner cry of one-race has long been futile. We should reassess economic relations with North Korea on practical grounds. One possibility is 50-50 joint ventures with China. If we invest together with China, North Korea cannot so easily resort to reckless moves. We must restore our business status as an investor in the North and should be able to pay North Korean workers directly. Over the last week, China entertained leaders from both South and North Korea, provoking criticism of an excess display of clout. But Kim’s visit to China will work for our side in the end because it will make North Korea realize the value of South Korean capital.

*Translation by the JoongAng Daily staff.
The writer is an editorial writer of the JoongAng Ilbo.

By Lee Chul-ho