South Korea cuts last ties to the North: Kaesong shuts down

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Kaesong closure
Trucks and passenger cars with staff leaving the Kaesong Industrial Zone on February 11, 2016.

South Korean companies on February 11 started leaving the Kaesong Industrial Complex, a special administrative zone on North Korean soil near the country’s southern city of Kaesong launched in 2004, in protest over continued North Korean provocations, including a satellite launch and a claimed hydrogen bomb test in January. The government in Seoul said the decision to cease the decade-old manufacturing cooperation was “unavoidable” under the circumstances.

Long lines of South Korean trucks and cars returned across the North Korean border, laden with equipment and goods from factories in the complex just ten kilometers inwards North Korea and about one hour’s drive from Seoul. In the zone, 124 South Korean companies employed about 54,000 North Koreans for one of Asia’s lowest wages, but providing North Korea with much-needed foreign currency.

Kaesong Industrial Complex
Kaesong Industrial Complex

None of the workers showed up on the day.

In 2015, the North earned about $110 million in wages and fees, and concerns are that Pyongyang might have used proceeds from Kaesong to help fund its nuclear and missile programmes over the years. In total, the project has contributed almost $2 billion in trade for North Korea, according to sources in the South.

The average wage for North Korean workers at Kaesong was roughly $160 a month, not paid directly to the workers, but to a North Korean government-run “management company” which kept around 80 per cent. The workers received the rest of the wage in coupons and North Korean currency.

Kaesong Industrial Complex_Arno Maierbrugger
Garment factory in the Kaesong Industrial Complex © Arno Maierbrugger

Some factory owners and South Korean business people voiced their anger over “bad politics” of both countries, after investing millions of dollars over a decade in the complex. In fact, business went relatively undisturbed over the years despite continuous tensions between the two countries.

In 2013, the complex was closed temporarily after North Korea tested a nuclear device and the political situation escalated to the brink of war. Kaesong was also briefly closed three times in 2009, but was quickly back in business after some diplomatic to-and-fro.

Companies have been given incentives by the South Korean government to move operations there, including political risk insurance to cover potential losses of their investment. As it stands, Seoul could now be liable for insurance payments to the South Korean companies that used the complex and also would have to write down its infrastructure investments related to the zone.

Kaesong Industrial Complex_Arno Maierbrugger
Bicycles provided for North Korean workers for the daily commute © Arno Maierbrugger

The connecting road and newly-built Dorasan border station between South Korea to Kaesong alone had a price tag of $63 million plus the provision of some $24 million worth of construction materials and equipment for Pyongyang to build the section on its side of the border.

The Kaesong Industrial Complex was one of only two joint projects between the two hostile countries. The other one was the Mount Kumgang Tourist Region across teh border in the east, established in 2002 to allow foreign tourists access to Mount Kumgang, or Diamond Mountain, the second-highest mountain in North Korea in an area known for its scenic beauty. After a incident in 2008, when a South Korean tourist was fatally shot by a North Korean Guard, the tourism zone was closed and only partially reopened in 2013. Its fate is also unclear as most South Korean-owned assets, namely hotels, other property, equipment and vehicles were seized by the North.

 

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Reading Time: 2 minutes

Trucks and passenger cars with staff leaving the Kaesong Industrial Zone on February 11, 2016.

South Korean companies on February 11 started leaving the Kaesong Industrial Complex, a special administrative zone on North Korean soil near the country’s southern city of Kaesong launched in 2004, in protest over continued North Korean provocations, including a satellite launch and a claimed hydrogen bomb test in January. The government in Seoul said the decision to cease the decade-old manufacturing cooperation was “unavoidable” under the circumstances.

Reading Time: 2 minutes

Kaesong closure
Trucks and passenger cars with staff leaving the Kaesong Industrial Zone on February 11, 2016.

South Korean companies on February 11 started leaving the Kaesong Industrial Complex, a special administrative zone on North Korean soil near the country’s southern city of Kaesong launched in 2004, in protest over continued North Korean provocations, including a satellite launch and a claimed hydrogen bomb test in January. The government in Seoul said the decision to cease the decade-old manufacturing cooperation was “unavoidable” under the circumstances.

Long lines of South Korean trucks and cars returned across the North Korean border, laden with equipment and goods from factories in the complex just ten kilometers inwards North Korea and about one hour’s drive from Seoul. In the zone, 124 South Korean companies employed about 54,000 North Koreans for one of Asia’s lowest wages, but providing North Korea with much-needed foreign currency.

Kaesong Industrial Complex
Kaesong Industrial Complex

None of the workers showed up on the day.

In 2015, the North earned about $110 million in wages and fees, and concerns are that Pyongyang might have used proceeds from Kaesong to help fund its nuclear and missile programmes over the years. In total, the project has contributed almost $2 billion in trade for North Korea, according to sources in the South.

The average wage for North Korean workers at Kaesong was roughly $160 a month, not paid directly to the workers, but to a North Korean government-run “management company” which kept around 80 per cent. The workers received the rest of the wage in coupons and North Korean currency.

Kaesong Industrial Complex_Arno Maierbrugger
Garment factory in the Kaesong Industrial Complex © Arno Maierbrugger

Some factory owners and South Korean business people voiced their anger over “bad politics” of both countries, after investing millions of dollars over a decade in the complex. In fact, business went relatively undisturbed over the years despite continuous tensions between the two countries.

In 2013, the complex was closed temporarily after North Korea tested a nuclear device and the political situation escalated to the brink of war. Kaesong was also briefly closed three times in 2009, but was quickly back in business after some diplomatic to-and-fro.

Companies have been given incentives by the South Korean government to move operations there, including political risk insurance to cover potential losses of their investment. As it stands, Seoul could now be liable for insurance payments to the South Korean companies that used the complex and also would have to write down its infrastructure investments related to the zone.

Kaesong Industrial Complex_Arno Maierbrugger
Bicycles provided for North Korean workers for the daily commute © Arno Maierbrugger

The connecting road and newly-built Dorasan border station between South Korea to Kaesong alone had a price tag of $63 million plus the provision of some $24 million worth of construction materials and equipment for Pyongyang to build the section on its side of the border.

The Kaesong Industrial Complex was one of only two joint projects between the two hostile countries. The other one was the Mount Kumgang Tourist Region across teh border in the east, established in 2002 to allow foreign tourists access to Mount Kumgang, or Diamond Mountain, the second-highest mountain in North Korea in an area known for its scenic beauty. After a incident in 2008, when a South Korean tourist was fatally shot by a North Korean Guard, the tourism zone was closed and only partially reopened in 2013. Its fate is also unclear as most South Korean-owned assets, namely hotels, other property, equipment and vehicles were seized by the North.

 

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