Issues which must be Resolved for Internationalization to Happen
Guaranteed Operation of KIR Regardless of Peninsula’s Political Situation
There are concerns that North Korea would simply use a political rea- son to shut down KIR, despite North Korea and South Korea agreeing to keep the operation of KIR separate from politics. As many potential foreign investors are more concerned about political risk than eco- nomic opportunity, it is imperative that political risk be minimized.
KIR policy reform
(1) Guarantee of physical safety, safe passage and stay
The purpose is to protect South Korean and foreign investors’ phys- ical safety when it comes to entering and exiting the KIR, as well as staying within it. Clarification of concepts such as “gross violation”
and “basic rights,” as well as for procedures regarding issues such as criminal incidents and power of attorney, is necessary.
(2) Resolving communication, travel and customs process issues Free access to the KIR, electronic monitoring of entry to and exit from KIR, establishing communication lines (Internet and cellular phone) between KIR and companies HQ’s, streamlining of customs processes, and other issues are at the heart of this problem.
(3) Investor protection and management issues
Foreign companies are sensitive about guarantees for their invest- ment. Thus, devices for stable management are required.
Resolution of International Sanctions against North Korea
For KIR to develop, sanctions against North Korea need to be relaxed;
of course, the impetus for those sanctions to be relaxed must come first from North Korea. The United States Congress has pointed out that efforts to expand the KIR may come into conflict with US mea- sures to tighten sanctions against North Korea, and stated that it could be a test of the relationship between the US and South Korea.
Methods for Internationalization of KIR
Assurance of Conditions in line with International Standards
(1) Freedom for foreign companies to operate independently Control of North Korean workers lies with the North Korean govern- ment, not with the companies that employ them. This would be seen as a violation of a company’s rights to deal with its workforce, and thus North Korea would have to change its policies to match those of capitalist countries with regard to the operation of companies.
(2) Investor assurance and dispute resolution mechanisms
This includes discussions such as how to protect investors in cases such as another unilateral shutdown of KIR. Also covers investiga- tion procedures in cases of legal violations, as well as reparation mechanisms. This will be covered in more detail later.
(3) Improving North Korean workers’ skill level
Foreigners are concerned that North Korea workers skill levels are unsatisfactory, which may necessitate training protocols.
“Made in South Korea,” Preferential Tariffs and International Competitiveness
An area of dispute is marking of product origin. For domestic use,
“made in Korea” was used with no problem, but that cannot be used while exporting. Thus, there is a need to improve the interna- tional competitiveness of KIR. This can only achieved if headway is made into the international market, and this means that products made in the KIR must be labeled as “made in Korea,” not “made in North Korea.”
On the whole, KIR products are classified as “made in North Korea,”
and this means that tariffs are much higher because North Korea is not a WTO member. This is even worse when one considers that the US, which considers North Korea a terrorist state, levies tariffs close to 100% on KIR products while limiting access to the US market, making things incredibly difficult. The situation is similar with markets like the EU and Japan, thus pricing KIR products out of competition.
Solutions for this problem have been suggested in the form of Free Trade Agreements (FTAs). As an example, the South Korea-Singa- pore FTA circumvents the problem by classifying products made in KIR as equivalent to being made in South Korea, thus qualifying them for tariff exemption. Other FTAs have provisions where certain products produced in the KIR can be classified as being made in South Korea by having the Korea Customs Service provide proof of place of origin; however, according to parliamentary records, there have been no occasions where this condition has been exercised, primarily due to the limited scope of products that this condition
applies to. The South Korean government is working to include the aforementioned equivalency condition in FTAs that are currently being pursued, such as the Korea-China-Japan FTA, the Korea-China FTA, the Korea-EU FTA ‘COPZ’ and the Korea-US FTA ‘COPZ.’
All these efforts can only be successful if the North shows signs that they are willing to reform, specifically with regards to the nuclear disarmament of North Korea, the promotion of KIR as a relaxant in the political climate of the Korean Peninsula, and economic cooper- ation between the two Koreas.
Attracting Foreign Companies
(1) North and South efforts to attract foreign companies
Attracting foreign companies can raise the profile of KIR and stabi- lize its operation. Article 3 of the legislation concerning KIR allows foreign companies to invest in the region, and step 3 of the KIR developmental plan has attracting foreign investment as a goal. In 2007, over 110 foreign companies visited the region, and Kimberly- Clark showed interest in investment at the time.
(2) Specifics
In April 2007, one German and two Chinese affiliates had regis- tered for entry into KIR, but they never commenced operations and have now all pulled out of the area due to incidents like the sinking of the Cheonan. Attempts to attract foreign companies that were operational within South Korea were made in September 2013, but the investment briefings that were planned for October 2013 were cancelled due to investor concerns over the political situation between the two Koreas. The South Korean government has contin-
uously made attempts to attract foreign investors for the KIR, and it should focus on creating a legal infrastructure in tandem with North Korea to reduce the risk that potential foreign investors feel like they would be taking.
Adoption of International Standards Regarding Labor Management, Taxes, Wages and Insurance
Peterson Institute Vice President Marcus Noland commented, in a report about hiring North Korean workers and labor standards applied to said workers, that 94% of the companies within KIR are supplied with workers who have been screened by the North Korean government based on factors such as class. With the North Korean government so deeply involved in many aspects of KIR’s operation and staffing, including taking much of the workers’ earnings for use by the North Korean government, foreign investors would not be enthusiastic about investment in KIR. Noland raised the example of the “Sullivan principles,” where South African companies had to adhere to conditions set forth to reduce unfair labor practices and segregation or face disinvestment, as a possible analogy. Adherence to international standards of labor are important for the attraction of foreign investment.