The country is unattractive to European companies "because the conditions for investment are not safe enough and not predictable enough," EU Industry and Enterprise Commissioner Guenter Verheugen said.

Speaking in an interview, Verheugen said North Korea must make "some important changes" to draw European business. "Conditions must improve considerably," he added.

Verheugen, in South Korea for meetings, described current European investment in the North as "practically nonexistent" with a host of concerns keeping companies away.

"The regulatory environment is completely unpredictable and it's no certainty that rules are applied in a nondiscriminatory way," Verheugen said. "Security of investment is not sufficient."

North Korea has missed out on the investment-driven economic boom that has sparked high growth rates in many Asian countries, held back by its communist political system, Soviet-style command economy and drive to develop nuclear weapons.

Over the past five years, however, the impoverished state has experimented with limited market reforms and drawn increased foreign investment, mostly from China and South Korea.

Verheugen welcomed the just-concluded summit between North and South Korea as a "positive signal" that achieved "some concrete results."

South Korean President Roh Moo-hyun and North Korean leader Kim Jong Il on Thursday signed a declaration calling for efforts to conclude a peace treaty to formally end the 1950-53 Korean War.

Their meetings over three days were the second inter-Korean summit. The first, between the North's Kim and then South Korean President Kim Dae-jung, was in 2000.

Roh and Kim also agreed to promote further economic cooperation, including a new special economic zone on the North's west coast, infrastructure improvements and natural resource development.

Verheugen said the North clearly has potential.

"If I remember that South Korea 40 years ago was still a very poor rural community, certainly it's the same potential in the North, the same people," he said. The problem in North Korea, he said, was "political conditions."

"It's clear European companies have better places in Asia to invest," Verheugen said. "We should not forget that Europe is the strongest investor in South Korea."

Verheugen met South Korean Trade Minister Kim Jong-hoon on Friday ahead of Kim's planned trip to Brussels next week for discussions with EU Trade Commissioner Peter Mandelson.

South Korea and the EU are scheduled to hold a fourth round of free trade talks beginning Oct. 15 in Seoul.

"I am quite confident that we will see progress relatively soon," Verheugen said of the negotiations, which began in May.

"Certainly South Korea ranks very high as a place in Asia where European companies want to do business," he said.