Skip to comments.Greedy N.Korea Is Shooting Itself in the Foot (old habit dies hard: ripping off Chicom & SK)
Posted on 10/19/2012 6:58:31 PM PDT by TigerLikesRooster
Greedy N.Korea Is Shooting Itself in the Foot
North Korea revised tax regulations in August for South Korean businesses operating in the joint Kaesong Industrial Complex. The regime said that it will impose hefty fines on companies if caught dodging taxes, and that they would amount to 200 times the tax amount they attempt to evade.
According to original regulations that were agreed in 2003 when both Koreas were working to open the complex, Pyongyang is required to negotiate with Seoul any changes to the relevant tax laws. But the North made the revisions arbitrarily without consulting the South.
Then North Korea accused some companies of under-reporting the prices of their products and apparently slapped punitive taxes based on the new rules on 10 out of the 123 companies in the industrial park.
The North has threatened to either block their exports or evict them from the complex if they fail to pay up. It has also demanded businesses there pay retirement bonuses to all workers who have quit, even though employers are required to award such payments only to workers who they have to let go due to business circumstances after they have worked there for at least one year.
Since it opened in 2004, South Korean companies at the complex have paid North Korea US$245.7 million in salaries for the workers. The regime pocketed more than $60 million each year in workers' salaries and taxes from the complex.
In August, North Korean eminence grise Jang Song-taek visited China and sought Chinese investment in the special economic zone of Rajin-Sonbong and other areas. But a Chinese company which invested $45 million in a North Korean iron mine has pulled out empty-handed after the North unilaterally raised rent, utility prices and salaries. The Chinese company warned other firms to watch out when they invest in North Korea, since there are no safeguards to protect foreign investors.
North Korea must be dreaming if it thinks foreign companies will simply submit to such an arbitrary regime, let alone pour fresh investment into the country.
Chinese Pull Out of N.Korean Mine
The Chinese partner has reportedly pulled out of North Korea’s Musan Mine, Asia’s largest open-air iron mine with an estimated reserve of 3 billion tons of ore.
The Chinese apparently baulked at a price increase of more than 20 percent demanded by the North, although international iron ore prices are plummeting in the wake of the global recession. They won 50-year extraction rights for the mine in 2005.
A smelter in the Chinese province of Jilin near the border with North Korea and operated by Tianchi Industry and Trade, the Chinese partner to the Musan Mine, closed down in September, according to a source in Yanbian on Tuesday. The smelter used to process iron ore extracted at the mine.
The source added, “There’s been no progress in the implementation of plans to lay a railway line and a slurry pipeline between Nanping and Musan.”
Tianchi Industry and Trade turned down the North’s demand, saying it makes hardly any profit as is given wages for North Korean workers and transportation costs.
Tianchi, a private trading company based in Yanbian, has served as a conduit for iron ore produced at the Musan Mine to the Chinese market since the early 1990s. It obtained the extraction rights to the mine in 2005 after concluding a trilateral joint-venture contract with Tonghua Iron and Steel, a Chinese state-run iron and steel mill, and [North] Korea Ferrous Metals Export and Import Corporation.
Tianchi hired North Korean workers and extracted 1 to 1.5 million tons of iron ore at Musan every year, which it supplied to Tonghua and other companies.
But the first cracks in the deal appeared in 2009, and iron ore production had been intermittent since then and stopped completely this year.
The Jilin provincial government has also been hit because it already laid a 41.68 km railway line leading to the border town of Nanping since November last year.
China’s the only reason why they exist in the form they presently do.
North Korea is about to lose one of the few sources of hard currency it has.
This is a good way to tell South Korean companies “Masayo!”
They are going to run off the only “legitimate” source of hard currency they ever had