UPDATE (21 OCT): The Times had an article today on rising tensions between North Korea and China due to similar issues – North Korea’s mistreatment of outside firms doing business within the country. Hardly a surprise, and gets to the point people constantly make about getting China to “do something about North Korea.” In the end, the North doesn’t listen to the Chinese much either, and for the Chinese to bring them to heel would require Beijing to utilize the type of extreme measures (e.g. halt in oil shipments) they’ve rarely proven willing to employ.
I get it that the South’s government wants to reduce the eventual, astronomical costs of reunifying with the North by amortizing those costs over the longest period possible, but as a business owner, why on earth would you risk investing in the North?
Yesterday’s JoongAng Daily, a South Korean English language paper, carried a story on the North suddenly upping tax rates on South Korean businesses in Kaesong, the joint North-South industrial zone located just over the border inside North Korea. The North told the SK businesses and the South’s government it was unilaterally changing 117 out of the 120 clauses in the zone’s regulations on 2 Aug. – a move that violates the agreement governing the zone, which stipulates a bilateral agreement is required before any changes can be made. Anyone surprised by this sudden, unilateral change by the North, please begin holding your breath.
Not only did the North change the rules, it reserved the right to decide the tax rate on a product-by-product basis, as well as charge up to eight years of back taxes on the new rate (the zone opened in 2004). So the taxes are not just going up now and into the future, businesses may suddenly owe the new rate on all of their previous years’ taxes as well. Fun.
So, having started and helped run two businesses in the South, I know my answer if the South’s government ever comes calling, urging me to invest in the North – NO. While I can understand the South’s government, that the more businesses, jobs, infrastructure, etc. that is created now, the less they’ll have to create in the eventual post-reunification future, the North’s investment climate just isn’t good enough.