April 1, 2006｜Korean Peninsula
Ri Sin Hyo
Researcher, Korean Association of Social Scientists (KASS)
2.The Kaesong Industrial Complex
At present, the development of the Kaesong Industrial Complex is taking place in the DPRK at a brisk pace.
The government of the DPRK is actively striving to guarantee the conditions that will enable all those businesspeople with an interest in the development of the Kaesong Industrial Complex to conduct economic activities with peace of mind. By November 2002, under a decree issued by the Standing Committee of the Supreme People’s Assembly, all the laws, regulations and agreements required for the development of industrial complexes, such as the Kaesong Industrial Complex Law, had been adopted and announced. These laws and regulations were compiled in such a way as to adequately guarantee the conditions for corporate activities by investors within these complexes, and they provide sound legal guarantees for undertaking the speedy construction of industrial complexes.
The development of the Kaesong Industrial Complex is attracting a great deal of interest from both within Korea and overseas, as a new, high-level economic cooperation activity that will promote comprehensive development in all fields.
The Kaesong Industrial Complex is an international industrial, trade, commercial, financial and tourism zone that is managed in line with the laws of the DPRK. The method used in the development of the industrial complex involves developers leasing land in the complex, putting the site in order, building infrastructure and then attracting investment. Koreans from the ROK and those based overseas can invest in the industrial complex, as well as foreign companies and individual economic organizations. Preferential conditions for economic activities are guaranteed in such areas as hiring labor, land use and tax payments. Investment in the infrastructure construction sector, light industry sector and advanced science and technology sector is particularly encouraged. The rights and profits of investors in the complex are legally protected and inheritance rights concerning investment assets are also guaranteed.
The industrial complex has an extremely favorable investment environment; corporate income tax is 14% in ordinary sectors and 10% in “encouraged sectors” (infrastructure, light industry, advanced science). Businesses in encouraged production sectors will have taxes waived for five years and then be eligible for a 50% reduction in taxes for three years, while service industries will have taxes waived for two years and then be eligible for a 50% reduction in taxes for one year. Individual income tax is 4-20%, property tax is 0.1-1%, and inheritance tax is 6-25%. Business tax is 1-2% in ordinary sectors and 7% in the entertainment sector, while companies in the infrastructure sector receive a tax waiver. Urban management tax is 0.5%.
The land leases last for 50 years and it is possible to extend this period; moreover, it is possible to transfer, let or pawn all or part of the land usage rights and building ownership rights during the land usage period.
The lowest rent is US$50 a month (subject to an additional social insurance premium of 15%). As a free-trade area, free passage to and from the complex is guaranteed through the issue of entry and exit certificates by the management authority, and everyday convenience, such as transport and communications in the complex, is guaranteed to the maximum degree possible.
Developers establish the industrial complex management authority. The established industrial complex management authority fulfils the role of both the local government and the industrial complex management authority, and it is a company that is in direct charge of business relating to investment and management activities.
The groundbreaking ceremony for the Kaesong Industrial Complex was held on 30th June 2003; at the North-South Summit and the Conference of the North-South Economic Cooperation Promotion Committee that followed this, agreement was reached to conduct the trial development of one million hectares. With the announcement that a land rental agreement had been concluded after the design of this had been completed, work began in earnest on the first phase of the industrial complex, covering one million hectares.
Currently, as site preparation in this area is completed, companies are moving in and embarking upon production, and product manufacture is beginning in earnest.
The products manufactured here are highly acclaimed in the market and there is considerable demand for them.
At present, 7,000 people are working at more than 20 companies. Once infrastructure construction is completed this year, another 30 or more companies are due to move in, employing more than 15,000 – 20,000 workers.
It is anticipated that the excellent products manufactured in this complex will, in the future, be exported to Northeast Asia and continental Europe via the east and west coastal railway lines.
Recently, interest in the Kaesong Industrial Complex is increasing on a daily basis, both within Korea and overseas. Many businesspeople from various countries and regions, including Japan, China and Europe, are visiting the DPRK due to their deep interest in the complex and companies are continuing to announce their intention to invest there.
The development of the Kaesong Industrial Complex is a patriotic activity that will accomplish the unified development of the ethnic Korean economy, as well as promoting brotherhood, mutual prosperity and mutual benefits between North and South. The development of the industrial complex is an activity aimed at the balanced development of the ethnic Korean economy, and is appropriate to the basic philosophy of “we brothers together”. In this process, North and South will solidify their understanding, cooperation and trust, and further enhance the momentum towards the unification of the entire people, who aspire to be a single people in a single land.
Today, as the South and North are cooperating against the background of deep interest on the part of many people from within Korea and overseas, and are striving to ensure the successful development of the Kaesong Industrial Complex, only America is unhappy about the progress of the development of the complex.
However, it seems that the development of the industrial complex, which is intensifying in line with the June 15 North-South Joint Declaration, will continue to progress smoothly, whatever obstacles may be encountered.