Amid a stalled North Korean denuclearization process and sanctions, a group of South Korean officials and entrepreneurs representing an industrial complex in North Korea are heading to the US Congress to preach the virtues of the now-shuttered cross-DMZ project.
“While the GIC may be small, the significance of the GIC is very big,” Jeong Gi-seop, who chairs an association of companies which invested in the complex, known as the Gaeseong Industrial Complex, or GIC, told journalists on Monday. “We are visiting Washington to deliver this value.”
A group comprising Jeong’s members and officials from the Gaeseong Industrial Complex Foundation, or GIDF, a quasi-governmental organization, will visit the House of Representatives on June 11, where they will be hosted by Congressman Ben Sherman, chairman of the House Subcommittee on Asia, the Pacific and Non-Proliferation.
The aim is to “clear up any misunderstandings” about the complex and to make clear its reopening is “a foundation for peace on the Korean peninsula,” GDIF officials said.
Commerce vs politics
The complex – commonly written with the North Korean spelling of Kaesong, but known in South Korea as Gaeseong – was established in 2004 as the jewel in the crown of the “Sunshine Policy” of cross-border engagement, which lasted during the term of two left-leaning Seoul administrations between 1998-2008.
Given the restrictions on the technologies that could be taken into North Korea, South Korean high-tech industrial giants like Hyundai and Samsung did not invest. But at its height, some 125 small southern companies, mainly producing light-industrial goods destined for the South Korean and global economies, were employing nearly 55,000 North Korean workers, generating a total production value of US$3.2 billion.
Some 90% of South Korean underwear and about 30% of South Korean clothing was made at the complex, said Kim Jin-hyang, the chairman and president of Seoul’s quasi-government GIDF.
The complex, 60km north of Seoul, 5km north of the inter-Korean border and 160km south of Pyongyang, is on the outskirts of the North Korean city of Kaesong. A flagship of inter-Korean cooperation, it was designed to promote peaceful integration, though was also seen by some as a blueprint for an eventual southern-led unification of the two states’ economies.
A North Korean corps of two divisions – some 60,000 personnel – was relocated from the Kaesong area, a key jumping-off point for any assault on Seoul, to make way for the complex, said Kim. Not only did the complex represent “a showpiece of market-oriented economy and global standards,” for North Koreans, Kim said: “The ultimate goal was, we would realize peace through economic cooperation.”
However, it was not to be. In fact, not only did the project fail to reduce tensions, it fell victim to the very power politics it was designed to obviate.
In 2006, North Korean detonated its first nuclear device. In 2010, a conservative administration in Seoul halted all further investments in North Korea after Pyongyang’s forces allegedly torpedoed a South Korea corvette and shelled a South Korean island.
That effectively halted new investments in the complex, with the result that it never exceeded one 20th of its planned size.
In 2013, amid security tensions, North Korea pulled out all its workers for several months. Finally, in 2016, amid yet more tension, Seoul ordered its investors out in what would prove a permanent move. The industrial plant has been gathering dust ever since.
However, all is not entirely silent. Amid last year’s rejuvenated inter-Korean engagement process, a joint, dual-governmental liaison office opened on the grounds of the complex.
Currently, financial transactions with North Korea – such as South Korean companies paying the salaries of Kaesong workers – run the risk of US Treasury sanctions, and Kim lamented that there were multiple misunderstandings about the complex in the United States and elsewhere.
Denying a misconception that workers’ wages were diverted to fund North Korean weapons of mass destruction, Kim explained how workers carefully checked their pay documents, to ensure their overtime was properly logged, before signing off. Real wages at the complex, between 2006 and 2015, were US$60-150 per worker, Kim said.
However, of those wages, 30% were deducted to pay de facto state taxes.
On the sanctions front, there may be workarounds, a GDIF official told Asia Times. If dollar transactions prove unfeasible due to US sanctions, barter goods – such as rice or milk power – may be offered in lieu of cash.
A further misconception is that North Korea’s workers were exploited as slave labor by South Korean firms, an allegation Kim refuted. This writer can attest to that. On visits to the complex before its closure, it was very clear that its facilities met South Korea-level standards of industrial safety and best practice.
A clouded future
Kim denied a report that appeared in Radio Free Asia last month quoting an unnamed North Korean source who alleged that some plant at the complex had been moved from Kaesong and was being used by North Korean parties.
“That report was false,” said Kim, citing Seoul officials. He added that he had personally visited the complex in June 2018 when the inter-Korean liaison office was being set up, and had noted that tenant company facilities were intact.
About 30-40 companies that formerly operated in Kaesong have relocated to low-wage Vietnam, but about 90% of all companies that used to operate in the complex went to return, a GIDF official told Asia Times.
Kaesong’s conditions – a skilled and docile labor force, low wages, high productivity and almost-zero turnover – remain a major lure. Stating that one dollar invested in Kaesong translates into $30 of production output, Kim lamented: “No industrial complex can be as competitive!”
But businessmen seeking to return to the complex face a series of stern tasks. Early this month, Seoul granted the factory operators permission to visit the complex. However, permission from Pyongyang has not yet been received. And in Washington, they are unfortunately likely to face a trial by fire.
“Most of the stuff they say about Kaesong is correct: North Koreans can learn something about modern technology and management, they can learn about the South Korea model – and that makes it more likely they will demand changes within their own country,” Andrei Lankov, a North Korea expert at Seoul’s Kookmin University, told Asia Times.
“But the US side takes a very hard stance, and are not going to allow any type of engagement for the time being.”
And even if the complex were – somehow – to be re-opened, won’t the ever-present political risk hang over it?
To that question, Kim offers a simple answer: economies of scale. “If we had 5,000 companies at the complex, South Korea could not shut down those companies,” he said.