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rfmcdonaldThe New York Times's Choe Sang-Hung reported that North Korea has begun to close down operations in the Kaesong Industrial Region, a North Korean special economic zone on the frontier with the South that was supposed to be the test-bed for inter-Korean cooperation (South Korean capital and technology, North Korean labour).
Taken from the Wikimedia Commons, here, this map shows the borders and locations of the Kaesong Industrial Region of North Korea. Note that immediately to the southeast of the Kaesong Industrial Region is greater Seoul, the megalopolis that is home to half of South Korea's population and likely produces an even larger share of South Korea's total economic output. Alastair Gale's Wall Street Journal post "Kaesong Closure Would Hurt on Both Sides of the Border" makes the point that the closure of the zone would hurt the South's economy to an extent.
The North's economy, though, would suffer much more. South Korea can survive outsourcing its low-end industrial jobs to China and Vietnam, but who could replace South Korea? (China seems disinterested in the task.) Gale makes the point that Kim is worried about the fate of the tens of thousands of North Korean workers who won't have access to income from relatively well-paying jobs. The overall impact on the North Korean economy and on the living standards of North Koreans, the consensus seems to be, will be strongly negative. Inasmuch as maximizing economic output and living standards isn't the primary concern of the North Korean state, that may not be much of a deterrent.
If the Kaesong Industrial Region (and the now-closed Mount Kumgang Tourist Region on the eastern end of the inter-Korean border) had managed to survive, then the chances for some kind of managed North Korean transition to a more functional state would have been that much greater. Without any inter-Korean economic cooperation, the chances of something going badly awry rise that much more. In the meanwhile, the economic gap between the two Koreas continues to grow, even as the South gets used to life without a northern hinterland. At what point might the South stop caring about a North associated only with costs, not benefits?
North Korea said Monday that it was withdrawing all of its 53,000 workers from the industrial park it runs with South Korea, suggesting that the North was seeking to portray itself as willing to subordinate financial gains to political and military priorities as it increased tensions on the Korean Peninsula.
North Korea “will temporarily suspend the operations in the zone and examine the issue of whether it will allow its existence or close it,” the country’s official Korean Central News Agency quoted a North Korean official as saying after visiting the factory complex on Monday. The official, Kim Yang-gon, a secretary of the Central Committee of the North’s ruling Workers’ Party of Korea, said the final decision would depend on the South Korean government’s attitude, making it clear that North Korea was using the project’s future to pressure the South for political concessions.
The complex, in the North Korean border town of Kaesong, operated for eight years despite continuing political and military tensions, including the North Korean artillery attack on a South Korean island two and a half years ago and the cutoff of all other trade ties after the sinking of a South Korean warship in 2010. South Koreans had hoped that the North’s growing dependence on the complex as an important source of hard currency would provide South Korea with leverage on the North’s recalcitrant leadership. South Korea also thought that it could be used as a possible buffer should there be military conflict.
But the North was angered after its threat this month to close the complex was met with skepticism from some news media analysts who said the North’s leader, Kim Jong-un, would not want to risk losing the cash. On Monday, North Korea said it “gets few economic benefits from the zone while the South side largely benefits from it.”
As with many of the repressive government’s aggressive moves, closing the factory park would harm North Koreans. It is the biggest employer in Kaesong, the North’s third-largest city. It generates $90 million a year in wages for the North Koreans employed there, and shutting it down would affect the lives of 200,000 to 300,000 people in the area, South Korean analysts estimate.
Mr. Kim “is not accountable to his people, and thereby can afford to raise tension almost indefinitely at a great cost to his own people,” said Lee Sung-yoon, a North Korea specialist at the Fletcher School of Law and Diplomacy at Tufts University in Massachusetts. He recalled that the government did not change its policy even after a famine killed an estimated 10 percent of the North Korean population in the mid-1990s.
Taken from the Wikimedia Commons, here, this map shows the borders and locations of the Kaesong Industrial Region of North Korea. Note that immediately to the southeast of the Kaesong Industrial Region is greater Seoul, the megalopolis that is home to half of South Korea's population and likely produces an even larger share of South Korea's total economic output. Alastair Gale's Wall Street Journal post "Kaesong Closure Would Hurt on Both Sides of the Border" makes the point that the closure of the zone would hurt the South's economy to an extent.
Mr. Kim, who asked that his full name not be used, is a manager for a sportswear company in Seoul that outsources around 20% of its production to Kaesong, a jointly run industrial park 10 kilometers, or about 6 miles, inside the North. His company employs 950 North Koreans there and he says it is very happy with their work.
“The skill and labor intensity of workers at Kaesong is far better than we could get in China or Vietnam. They’re disciplined, hard workers and of course language is no problem,” he said.
North Korea’s move Wednesday to block the entry of South Korean managers and delivery staff to the complex has raised the prospect that it might go further and shutter the plant.
“That would be a big problem,” Mr. Kim said. Moving production to South Korea would be possible, but labor costs would be much higher. North Korean staff at the Kaesong plant earn $100-$105 a month according to South Korea’s Unification Ministry, less than one-tenth the wage for average factory workers in South Korea.
A sudden closure could also mean lost inventory and raw materials. Mr. Kim’s delivery trucks were unable to bring out products worth around 200 million won ($178,600) on Wednesday.
The North's economy, though, would suffer much more. South Korea can survive outsourcing its low-end industrial jobs to China and Vietnam, but who could replace South Korea? (China seems disinterested in the task.) Gale makes the point that Kim is worried about the fate of the tens of thousands of North Korean workers who won't have access to income from relatively well-paying jobs. The overall impact on the North Korean economy and on the living standards of North Koreans, the consensus seems to be, will be strongly negative. Inasmuch as maximizing economic output and living standards isn't the primary concern of the North Korean state, that may not be much of a deterrent.
If the Kaesong Industrial Region (and the now-closed Mount Kumgang Tourist Region on the eastern end of the inter-Korean border) had managed to survive, then the chances for some kind of managed North Korean transition to a more functional state would have been that much greater. Without any inter-Korean economic cooperation, the chances of something going badly awry rise that much more. In the meanwhile, the economic gap between the two Koreas continues to grow, even as the South gets used to life without a northern hinterland. At what point might the South stop caring about a North associated only with costs, not benefits?
