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Why South Korea should reopen the Kaesong Industrial Complex

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Korean People's Army Lt. Col. Nam Dong Ho is silhouetted against the truce village of Panmunjom at the Demilitarized Zone (DMZ), which separates the two Koreas, in Panmunjom, North Korea. (Photo: AAP).

In Brief

On 11 February the South Korean government abruptly shut down the Kaesong Industrial Complex (KIC), a joint inter-Korean industrial zone located just 10 kilometres north of the Demilitarised Zone (DMZ), as a punishment for North Korea’s recent nuclear test and rocket launch.


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The closure left more than 52,000 North Korean workers unemployed and more than 120 small- and medium-sized South Korean companies with nowhere to do business.

On 8 March, the South Korean government announced unilateral sanctions against North Korea, including banning the entry of ships from third party countries to South Korea via the North and prohibiting dealings with 40 individuals and 30 entities related to the North’s weapons program.

The South Korean government hopes that these expanded sanctions will lead more countries to cut trade with North Korea and pressure it to abandon its nuclear weapons program. The announcement came a day after North Korea’s warning of pre-emptive nuclear strikes in response to the start of annual US–South Korea joint military exercises. In light of the skyrocketing tensions, the prospects for continued inter-Korean economic cooperation symbolised by the KIC appear grimmer than ever before.

Yet South Korea should reassess its decision to close the KIC. The KIC has taken on an irreplaceable role as a ‘lifeline’ connecting the divided nation that has survived numerous political storms. In the aftermath of the inter-Korean summit in 2000, the two Koreas’ respective leaders saw that economic cooperation and the resulting social exchanges could serve as a springboard for reconciliation. Successive South Korean administrations pursued a two-track approach of continuing economic engagement in spite of political tension.

But from 2008, a conservative turn in South Korean politics and a fraught leadership transition in North Korea threatened to set back economic cooperation. The Lee Myung-bak administration in South Korea declared that the expansion of the KIC would be halted until the North Korean nuclear issue has been resolved.

Still, the KIC continued to operate and ultimately survived even the escalating political and military conflicts of 2010 — including the sinking of the South Korean naval vessel Cheonan and the North’s shelling of Yeonpyeong, a South Korean island near the Northern Limit Line. The only real interruption to the KIC came in 2013, when North Korea unilaterally stopped South Koreans entering the complex in response to the South’s inclusion of a ‘KIC South Korean hostage rescue exercise’ as part of the annual US–South Korea joint military exercises. After months of closure the two governments agreed to reopen the KIC under a new joint management structure.

The economic rationale for reopening is obvious. Tens of thousands of North Korean job losses have had a devastating impact on the everyday lives of North Koreans and have led to instability as the former light industry workers have been relocated to work on ginseng plantations and in food processing factories with poorer labour conditions. Concerns are also growing among the small- and medium-sized South Korean businesses that used to operate in the KIC and depended on the cheap North Korean labour and land to retain a competitive edge for their products. The continuing employment of these North Korean workers, through their exposure to both the market economy and superior labour conditions, further holds a unique value in promoting a model for North Korea’s economic opening and reforms.

The KIC also plays an invaluable role as an avenue for continuing high-level dialogue and a platform for people-to-people exchanges across the border. Through the intimate interactions the KIC facilitates on various policy and operational issues, the KIC provides a confidence building measure capable of helping recover the lost trust between the two Koreas.

Around 800 South Korean managers and government officials reside in the KIC during the work week, coming into contact with over 50,000 North Korean citizens. This marks a level of people-to-people interaction that is unparalleled in inter-Korean relations. In addition, the KIC provides a unique opportunity for government-to-government dialogues and negotiations through which various institutional agreements have been struck.

Several key inter-Korean agreements were created thanks to the KIC, which provide for investment protection, prevention of double taxation, establishment of dispute resolution procedures and settlement based on open accounts. These treaty-like agreements guaranteed smooth and efficient flows of goods and personnel across the DMZ and provided overarching legal foundations for smooth operations of cross-border business between the two Koreas.

More broadly, the KIC has taken on irreplaceable symbolic significance in the minds of South Koreans as the only remaining ‘lifeline’ connecting the divided nation. The KIC is the only surviving initiative of economic cooperation between North and South Korea. It has shown remarkable resilience despite the intensified political and military tension between the two Koreas during the past two administrations. Losing the KIC permanently would be tantamount to destroying the last hope of reconciliation between the two Koreas. Tens of thousands of separated families and their children would find this unacceptably cruel.

The South Korean government should reassess the costs and benefits of the permanent shutdown of the KIC. While financially assisting the North Korean regime’s nuclear ambitions would be anathema, there is no clear evidence as to what extent North Korea has used revenue from the KIC for its weapons program. And it is unreasonable to expect that the KIC’s closure will lead to a change in North Korea’s behaviour.

On balance, the economic and political costs to South Korea of the KIC’s closure outweigh the benefit of its potential leverage in compelling North Korea to abandon its weapons program. The South Korean government should consider resuming the operations of the KIC, while maintaining a principled approach on the security front.

The security concerns surrounding the North’s weapons program have existed since the beginning of the KIC’s operations. The present tensions do not mark the first time that North Korea threatened to attack Seoul, either. To be sure, the specific circumstances and the intensity of the threat posed by North Korea’s nuclear capacity have evolved significantly. But the fundamental value of pursuing economic engagement and keeping communication channels open with North Korea remains unchanged.

Jean Lee is a graduate of the Woodrow Wilson School of Public and International Affairs at Princeton University currently working at the US–Asia Law Institute at New York University School of Law. This article is based on a chapter of the author’s thesis, ‘The Kaesong Industrial Complex and Its Implications for Inter-Korean Relations’.

7 responses to “Why South Korea should reopen the Kaesong Industrial Complex”

  1. Kaesong brought in about 110 million a year to the north, with about 80 to 90% going to the government. If the military in the north gets 50% of government spending, that meant that Kaesong give the NK military about 50 million a year. The Cheonan did not sink it was sunk by a North Korean torpedo, with the cost of 46 lives and hundreds of millions of dollars in South Korean tax payers money. Also the South Korean managers were not allowed to talk to the Northern workers but had to speak with Northern managers who would talk to the workers, so I’m sure that more than 50,000 of the Kaesong workers never spoke to a South Korean. The closure will devastate the economy of Kaesong, as each worker probably supported 3 or 4 family members with their income. Thus you now have a quarter of a million people whose lives were seriously hurt by the reckless policies of Kim Jong-un and hopefully one day closer to freedom.

    • Well, I don’t see any freedom for the South Korean workers since the rich people and corporations have refused to hire South Korean workers for full-time employment considering how well they recover after the reckless policies they made in the 1990s. In addition, the suicide rate of the elderly in South Korea continues to rise since they have no social safety net after all the years they work to make South Korea an economic powerhouse. What good is political freedom when there is no economic security?

  2. I did not know about this complex that is located a few miles north of the DMZ. I wonder how the South Korean labor force felt about it since it is probably one reason why the South Korean companies don’t want to hire its own people since they got a steady supply of cheap labor.

  3. Dennis, ead the article South Korea’s generation of discontent date 11 September 2015 on this website. Seems to me that the South Koreans can’t enjoy any kind of freedom when there is no economic security. In addition, the suicide among the South Korean elderly continues to be an issue since the country has not created a some kind of social security/pension system for them since the day it became independent from Japan despite the fact that the elderly people work their tails off to make South Korea an economic power house.

  4. Gunther, you seem to be implying a moral equivalence between South and North Korea, which is an absurd concept. Is South Korea a flawed country, yes like all countries are. They are a far too materialistic, however many of them started out in cardboard shacks in the 1960’s so one can understand their obsession with wealth. North Korea was the wealthier industrial part of Korea under Japanese rule. South Korean per capita GDP is around 28,000 dollars, North Korea is ranked #179 in the world at 696 dollars, 1/40 of South Korea. Gunther you are probably a socialist/communist and feel compelled to defend North Korea. Having democratic republic in your name does not mean you are either. North Korea is a racist fascist family mafia state only interested in the top 1per cent. I just a read a story about a North Korean defector who was a scientist in the North, at the height of the famine in the late 90’s, his job was to make Kim Jong-Il’s beef more tender and find formulas to aid his libido. I believe North Korea in in its final days, soon will be able to go there and see for yourself and hopefully they still won’t require you to have a government minder with you at all times, and you will be able to travel to other parts of the country besides the capital.

    • Dennis, you seem to be an unrepentant capitalist who will defend any country that is ant-communist even if they are a right wing dictatorship which South Korea was for many years and defend a country like the USA which is supposedly a democracy but is actually a republic and was in fact a plutocracy which had existed before the Great Depression of 1929 and is returning to being a plutocracy again.

      “North Korea is a racist fascist family mafia state only interested in the top 1per cent.”

      You need to apply that statement to the chaebol families of South Korea and to the wealthy elite in the USA. You also need to visit other parts of the USA that is suffering from extreme poverty like in the Deep South, Kansas, Wisconsin, and even in affluent places like the Silicon Valley. Of course, you have city and county governments in the Silicon Valley trying to drive the homeless people out of the area and to criminalizes homeless.

      As Nick Hanauer pointed out an unregulated capitalist system supported by the plutocrats is unsustainable and if left uncheck will led to a bloody revolution.

  5. Workers in North Korea have no human rights. They are owned like property by the state. North Korea is for all intents and purposes a slave state. You cannot trade with a slave state unless you yourself are wishing to support slavery. The fact that you may hurt the slave by not supporting slavery is just ridiculous because the alternative is to support slavery.

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