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Inter-Korean Economic Cooperation Gets Boost

2003-08-18

The two Koreas are scheduled to exchange ratified copies of a four-point pact on bilateral economic cooperation at the truce village of Panmunjom on Monday, boosting momentum for northbound investment by Seoul.

With the pact, the two sides agree to guarantee cross-border investment, eliminate double taxation, seek better settlement of commercial disputes and open clearing accounts.

Seoul and Pyongyang signed the pact during a ministerial meeting in December 2000 and the respective legislatures then ratified the landmark treaty.

''The pact will bring inter-Korean economic cooperation into a new phase with both governments promising to protect cross-border investment,'' an official at an economic institution said.

''It has opened doors for local conglomerates to make inroads into the market, which is yet to be tapped. They will now study the possibility more seriously,'' he said.

The legal protection of investment is expected to relieve entrepreneur's concerns that cross-border investments could be lost if inter-Korean tensions flared.

The pact grants South Korea most favored nation status in the North. It bans North Korea from nationalizing the South's assets on Northern soil. Previously, there were no legal protective measures for investment in the North.

In case of a dispute over an investment, a South-North dispute settlement committee will be set up to deal with the issue. The committee will comprise of 10 members, including a chairman and four members each from the South and North. Experts suggest differences in business customs between the Koreas could spawn conflicts.

The joint body is expected to clear away uncertainties clouding cross-border investment, boosting economic cooperation in the long-term.

The committee will seek to provide a fast-track solution to legal disputes and also introduce an insurance system for damages incurred from incidents such as natural disasters.

In addition, Seoul is considering accepting South Korean companies' assets in North Korea as security when the firms receive loans from the state-run fund for inter-Korean cooperation.

The pact will also prohibit excessive taxation by the North or overlapping taxation on both sides of the Demilitarized Zone.

According to the treaty, South Korean companies will be exempt from tax if they do not have tangible assets in the North such as factories or offices.

If a company pays taxes for income on one side of the border, it does not have to do so on the other side. North Korea levies around 14 percent in corporate tax, while it is 28 percent in South Korea.

The pact is also expected to allow companies to open clearing accounts, enabling them to settle their foreign currency accounts more easily during cross-border trade. The decision is expected to slash expenses by cutting complicated remittance procedures.

During the inter-Korean economic meetings held in Kaesong in July, the two designated the Export-Import Bank of Korea in the South and the Foreign Trade Bank in the North as the banks for the clearance accounts. The currency for settlement will be U.S. dollars.

Source : www.korea.net