By Yoon Ja-young
Following the closure of Gaeseong Industrial Complex, businesses that had been operating in the joint factory zone are facing huge losses, as North Korea has frozen the goods and materials there.
To make matters worse, most of these businesses are uninsured.
They claim there are critical problems with the policies offered by the government through the state-run Export-Import Bank of Korea.
“Because the policies would have to guarantee against the political risks of North Korea, no private insurance company would be willing to sell such insurance policies,” a bank spokesperson said.
“That’s why it was operated by the economic cooperation fund that the Unification Ministry entrusted to us.”
According to the bank, there are two types of insurance policies for companies operating in the Gaeseong Industrial Complex.
They can take out economic cooperation insurance, which covers losses incurred to their investment. Or they can take out trade insurance, which covers risks involved in taking goods in and out of the joint complex.
However, about 40 percent of the businesses have not taken out economic cooperation insurance. No company took out trade insurance.
“They chose not to take out the insurance, saying the process was too complicated,” the spokesperson said. “They are supposed to submit documents verifying entry and exit of the goods and materials from the complex, but they said they did not have enough people to do this.”
The trade insurance was introduced in 2009 August, after the joint Mt. Geumgang Tour program in North Korea was suspended.
Because Korean businesses suffered increasing losses when the joint tour program was closed, the Unification Ministry introduced the insurance policy to protect the businesses.
If the joint factory zone is closed for more than two weeks, businesses that have taken out insurance can get up to 70 percent coverage for losses sustained from material left in Gaeseong.
The insurance also covers the penalties that businesses have to pay their buyers for breaking the supply contract.
However, businesses have been demanding that the insurance policies should be improved, citing the small coverage and complicated process.
The private Inter-Korean Economic Exchange Council said in a report to the Korea International Trade Association that the businesses were not taking out trade insurance because it was of no help in reality.
“The subscription rate for insurance reflects its effectiveness,” the report notes. “A low subscription rate means the insurance program is failing to win the trust of businesses, and that the businesses are exposed to risks in investment.”
The council also said coverage of the economic cooperation insurance was too narrow. The insurance covers only up to 7 billion won loss in investment, even if the loss is much more. Businesses also complain that the insurance undervalues their total investment because it takes into account only the capital.
Because of the situation, conflict between businesses and the government is expected over compensation.
When the Gaeseong Industrial Complex was temporarily closed in 2013, businesses reported 1.1 trillion won in losses, but only 56 companies received a total of 176.1 billion won insurance money. The companies repaid most of the insurance money after resuming operations at Gaeseong.