N. Korea Wants More Gaesong Revenue

Since July 1, North Korea has completely prohibited South Koreans from entering the city of Gaesong.

On June 22, North Korea’s Chosun Asian Pacific Peace Committee sent a letter to Minister of Unification Lee Jong-seok and notified, “Under the conditions where Gaesong tourism project is not proceeding, we will restrict the entry of South Koreans visiting the Gaesong industrial complex from entering downtown Gaesong.” The South Korean government explained such details to reporters on July 3, but was concerned that it might affect inter-Korean relations. Moreover, with the approach of the 19th ministerial talks held between July 11 and 13 in Busan, the government planned to work this out with North Korea, and asked for a media embargo. However, during the actual ministerial talks, no negotiations whatsoever took place regarding this issue.

The Reason North Korea Changed its Mind—

In August 2000, North Korea agreed with Hyundai Asan Corporation to pursue tourism of the streets of Gaesong. However, during the “2005 Pyongyang Open Golf Tournament” held in Pyongyang in August of last year, North Korea verbally proposed to Lotte Tour CEO Kim Ki-byung, who was attending the event, a Gaesong tour business project.

That was right after former Hyundai Asan Chief Executive Kim Yun-kyu, the loyal follower of Hyundai’s two presidents Chung Joo-young and Chung Mong-hun and the individual who was leading Hyundai Groups’ projects in North Korea, had been sacked. It is reported that North Korea agreed to run exhibition tours of Gaesong city when Hyundai Group Chairwoman Hyun Jung-eun, accompanied by former Chief Executive Kim, met with Chairman Kim Jong Il in July of last year, but felt betrayed by Hyundai when they sacked him not even a month after the agreement had been reached.

Since then, North Korea expressed to the South Korean government that it could not partner up with Hyundai Asan, and persistently demanded to change the Gaesong tour business partner to Lotte Tours.

A Ministry of Unification (MOU) official stated, “North Korea took such restriction measures to express their discontent over not having their demands met. Unless the business partner changes the contract under its voluntary will, Hyundai Asan’s status as business partner will remain unchanged.”

All This Over Money?—

Under all North Korea’s unreasonable demands lies a money issue. Reportedly North Korea and Hyundai Asan negotiated the price of fees in late August and early September of last year, but their differences were too vast. North Korea demanded $10 million as the price of tourism and $150 to $200 per tourist, but Hyundai Asan refused to accept such demands citing that it would be unprofitable.

In the end, some think that North Korea’s real intention is to abandon Hyundai Asan, which will not submissively accept their demands, and try to run the tourism project with Lotte Tours.

MOU Exchanges and Cooperation Bureau Director Kim Chun-sik said, “Minister of Unification Lee met with Lotte Tours CEO Kim on June 30. Lotte Tours expressed that they would not take part of the Gaesong tourism project unless North Korea and Hyundai Asan’s contract was over.”

However, after receiving an invitation from North Korea’s Asian Peace Committee in late last month, Lotte Tours applied to the MOU to visit North Korea, and only withdrew its plans to visit North Korea when inter-Korean relations worsened due to the missile launches. For the time being, Lotte Tours is deferring, but it has left room for negotiations with North Korea.

Future Forecast—

Some analysts have not ruled out the possibility of both companies cooperating on the Gaesong tourism project. In other words, just as Hyundai Asan is running the Geumgang Mountain tourism project with Korea Tourism Organization, and Gaesong industrial complex project with Korea Land Corporation, so it might keep its status as business partner while permitting Lotte Tours mange operations.

There is also the possibility of North Korea unilaterally terminating its contract, leading to a legal dispute. According to the agreement reached by Hyundai Asan and the Asian Peace Committee, on principle, disputes are settled by mutual agreement, but if a solution is not found, then an arbitration committee composed of three South Koreans and three North Koreans would be established to solve the dispute.

If the committee fails to reach a conclusion, then both parties would have to make a request to the China International Economic and Trade Arbitration Commission in Beijing for arbitration.