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Last Updated: Wednesday, 1 October, 2003, 10:09 GMT 11:09 UK
North Korea calls for investors
Kaesong
Kaesong will be the hub of a major development
North Korea has unveiled the terms under which foreign investors will be lured to a ground-breaking industrial zone near the tense border with South Korea.

Two South Korean companies - Korean Land and an arm of the Hyundai conglomerate - are developing an international business park in Kaesong, part of a package of cautious economic reforms in the Stalinist country.

So far, more than 1,000 South Korean firms have enquired about setting up shop in Kaesong, where labour costs will be a tiny fraction of those south of the border.

The North Korean Government now promises investors favourable tax rates, but there are still considerable concerns over whether it will allow businesses much economic freedom.

Pros and cons

Most of the companies so far interested in Kaesong are in light manufacturing, particularly textiles.

Depending on their line of business, these firms will be taxed at up to 14%, less than half the rate levied in the South.

Pyongyang is, however, especially keen to lure hi-tech firms, which will be subject to a tax rate of just 10%.

Investors will have to pay a number of other smaller levies, and must adhere to a minimum monthly wage of $50.

Such incentives have sparked a flurry of interest in the South, but many companies remain wary.

They will be forced to hire workers through a North Korean state agency whose powers and attitude remain unclear.

And there is still little confidence in the fundamental stability of North Korea, which has turned to economic reform in recent years, but which remains virulently opposed to most forms of foreign influence.

Building links

The Kaesong development does, however, seem to be a relatively permanent arrangement.

Kumgang mountains
Kumgang has tourist potential, Hyundai hopes
It forms part of a large-scale construction project in the region, which is just 50 kilometres northwest of Seoul.

Elsewhere the focus is on tourism, especially scenic Mount Kumgang on the country's east coast, which Hyundai has been trying to develop for five years, with mixed success.

There is also a Unification Park, which will be the venue for reunions of families split by the country's division.

Most significant are major road and rail developments which mark the first time the two rival countries have re-established transport links since the end of the Korean war in 1953.


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