LOCATED JUST above the heavily militarized border between the two Koreas, the Kaesong Industrial Complex (KIC) is a special economic zone built through the investment of 123 South Korean firms. Combining the technology and capital of the South with the human resources of the North, the complex is an arena of economic cooperation and peaceful coexistence. As such, the complex has often been titled “the last bastion of hope” in recognition of its continued operation despite rocky relations during the Lee Myung-bak administration. Today, however, the KIC faces a different scenario: a tentative shutdown. With new leadership in both Koreas and a total lack of direct communication, the future of Kaesong remains undetermined.
Where and how it all started
In 2000, the first formal inter-Korean leaders’ dialogue since the 1945 partition was held between Kim Dae-jung and Kim Jong-il. The “6.15 Joint Declaration” signaled the start of a new era. The declaration affirmed the two Koreass shared resolution to achieve an eventual reunification that was to be of the nation, by the nation, and for the nation. The declaration spoke of a Korean solution to the reunification issue, acknowledgement of a common vision, the timely resolution of humanitarian concerns, such as reunions for separated families, increased interaction between the people through economic cooperation, the promise of working level meetings, and Kim Jong-il’s visit to Seoul to make sure that the agreed upon principles would be carried out in practice.
Among the key principles laid out in the vision of June 15 was an agreement on economic cooperation to help build the North Korean economy and to generate direct socioeconomic interaction between the people of the North and South. The subsequent “Agreement on the Development of an Industrial Zone” between Hyundai Asan and Pyongyang was the start of what would become the KIC. The agreement laid out a step-by-step roadmap for investment and development in the area. Korea Land and Housing Corporation was selected as the key developer, and by 2004, the first grounds of approximately 3.3 square kilometers were complete and ready for operation.
What motivated the Koreas to push for the Kaesong Complex in the first place? For South Korea, under the sunshine policy of Kim Dae-jung and his successor Roh Moo-hyun, establishing the Kaesong Complex was seen as an opportunity to engage with Pyongyang in a cooperative manner and gradually to build peace on the peninsula. For South Korean entrepreneurs, Kaesong provided an opportunity to enter a labor market significantly cheaper than domestic or foreign alternatives. According to statistics from the Ministry of Unification, in 2012, the average North Korean worker in Kaesong was given a salary of $128, less than 1/16 of that of a South Korean manufacturing employee. The significant government subsidies were instrumental as well. The inter-Korean cooperation fund statistics annually published by the Ministry of Unification reveal that the subsidies covered approximately 44.8% of the initial costs. The relative proximity and accessibility of the industrial park were also significant reasons for entry.
When talking about North Korea’s motives for the opening of Kaesong, most foreign commentators have focused on Pyongyang’s need for a “dollar box.” Such exclusive emphasis upon the so-called hermit kingdom’s need for foreign currency does not fully portray the entire picture, however. According to Kim Jin-hyang (Director, Korea Peace Economy Institute), Kim Jong-il saw Kaesong as a uniquely Korean approach to economic growth. With a desire to build up the state economy, the former supreme leader reportedly remarked that, “If we equip ourselves with South Korea’s capital and technology and also normalize relations with the United States, we can develop even faster than China … If this succeeds, we should build up 10, 20 more complexes like this one.” Recent North Korean statements confirm that KIC has indeed been regarded as one of his major economic legacies.
What Kaesong stands for
Started as an initiative to bring the two Koreas together on the principle of separating economics from politics, Kaesong created an arena of peace and cooperation. The key significance of the KIC can be identified as the following: generating direct economic profits and implicit benefits, providing a military buffer zone to preserve stability and security on the peninsula, and taking initial steps for an eventual reunification.
Combining the South’s technological know-how and capital with the North’s relatively cheap labor, Kaesong has been able to prove its economic potential. According to “The Kyunghyang Shinmun,” the 2012 total profits amounted to $469.5 million. Statistics from the Ministry of Unification also show this. The accumulated producton from January 2005 to December 2012 amounted to $1.98 billion and the accumulated export value was roughly $234.74 million. Such profits do not only go to the 123 South Korean firms directly involved, but also go towards nearly 5,800 subcontractor firms and the 53,448 North Korean workers and their families. In addition to the direct economic profits generated by the factories, the mere existence of the complex is seen to have served as a guarantee of stability, thus encouraging foreign investment into South Korea. In a recent interview with “The Wall Street Journal,” Cho Bong-hyun, a senior research fellow at the IBK Economic Research Institute, asserted that, “The Kaesong Complex is always like a yardstick for some foreign investors when it comes to the geopolitical risk for their business on the Korean peninsula. If it remains open, they feel relieved.”
Another crucial significance of the KIC lies in its strategic location. Kaesong lies directly north of the heavily fortified Korean Demilitarized Zone. As such, the location of the complex provides a buffer zone against potential military conflict. In fact, the 6th and 64th divisions of the North Korean People’s Army are reported to have been stationed 10-15 kilometers behind their previous locations to accommodate the establishment of the industrial zone. As the Kaesong-Paju-Munsan route was one of the two major routes of attack during the Korean War, the existence of the zone in precisely that location has had real implications for inter-Korean security relations. With a jointly operated zone of economic cooperation acting as a buffer zone, serious military provocations were deterred.
In addition, “Kaesong is a place where a small reunification between the North and South happens day by day,” argues Kim Jin-hyang. Through daily interactions, North Korean workers and South Korean businessmen and workers are able to come to a better understanding of the society, culture, and value system of “the other.” As the two Koreas have taken separate paths for a long time, such interactions can be seen as first steps towards a greatly anticipated reunification.
On shaky grounds
If the Kaesong Complex has embodied such values, how can we account for the indefinite shutdown? Contrary to the common view of a sudden turn of events after Kaesong’s persistent survival even during previous clashes such as the Cheonan incident and the Yeonpyeong Island shelling, Kim Jin-hyang argues that there were already signs of deterioration starting during the Lee Myung-bak administration. “Ever since Lee announced his North Korea policy titled ‘Denuclearization, Openness, and 3000,’ which put the denuclearization of North Korea as the prerequisite for any further negotiations or cooperation, the principle of the separation of politics and economics was broken and the fate of the Kaesong Complex became unclear.”
The “Denuclearization, Openness, and 3000” initiative arrived after a regime change from the progressive Presidents Kim Dae-jung and Roh Moo-hyun to the more conservative and hard-line Lee Myung-bak. The right wing viewed the Sunshine Policy of the previous administrations as a failure, arguing that it had only helped to legitimize the North Korean system and fed it with more incentives to continue pursuing its nuclear program. Following the sinking of the ROKS Cheonan in March 2010, the Lee administration announced the “5.24 measure,” which explicitly stated that Seoul would stick to a more hard line approach with Pyongyang. One of the direct consequences of this measure on the Kaesong Complex was the ban on further investment. As such, the additional plans for development were unable to be carried out. “Ever since the Lee administration, the government barely sought to maintain the status quo and disallowed any further development,” Kim argues, based on his experience as the former director of corporate support at the KIC management committee. “It is only natural that the North came to the conclusion that in the current stage of inter-Korean relations, Kaesong is an Achilles heel that the security-obsessed Pyongyang cannot afford to keep.” The recent developments surrounding the complex – the North’s decision to withdraw its workers, which prompted the South’s response to “evacuate” its citizens, and the North’s subsequent rejection of an offer to engage in official dialogue – demonstrate such insecurity that Kaesong may become an “epicenter of the yellow wind of capitalism” as Kim Young-chul, the director of North Korea’s General Bureau of Reconnaissance, is said to have consistently warned the North Korean workers stationed in Kaesong.
Beyond the Cold War binary
The series of events that have lead to the closure of the KIC have been viewed by both the North and the South through a Cold War prism. Each side has condemned the other for being directly responsible for the eventual shutdown through provocative rhetoric and action. South Korean media has constantly reported on the North as the main perpetrator and provoker. Yet, considering that inter-Korean relations are an interactive relationship, responsibility lies with both sides.
The Cold War has not ended in Korea. In struggling to be recognized as the sole legitimate Korea, the two Koreas constantly second-guess each other’s motives and refuse to sincerely communicate with the other. What implications does this persistence of the Cold War system carry? In a particularly infamous speech delivered in January 2002, former U.S. President George W. Bush designated North Korea as a member of the “axis of evil” (along with Iran and Iraq). In this mindset, North Korea necessarily becomes the rogue state that, in the recent words of U.S. President Barack Obama, seeks to “bang your spoon on the table and somehow you get your way.” Such fixed roles are evident in South Korea’s mainstream media headlines highlighting the recent “provocations” made by the belligerent North as inter-Korean tension escalated and the KIC showed signs of deterioration.
In such a binary system, North Korea has often been described as a selfish and unwilling baby. According to John Feffer, co-director of “Foreign Policy in Focus” at the Institute for Policy Studies, this is problematic because it limits not only our understanding of North Korea but also our policy options. In an editorial for “Hankyoreh” he wrote: “By treating North Korea as a largely irrational force, pundits fall into the mistake of portraying the ‘parental units’ (United States, South Korea, China) as overly permissive. Any hint of diplomacy produces charges of coddling … in essence, accusing not only Obama but various other governments of sparing the rod and spoiling the child.”
Kim Jin-hyang shares a similar concern. “By reducing North Korea to the irrational villain in the current system, we are missing the full picture,” he argues, continuing that the North has, in fact, very serious security concerns. Indeed, in May 1972, during an encounter with Harrison Salisbury and John Lee, both journalists at “The New York Times,” Kim Il-sung revealed that due to perceived U.S. hostility, “we are always making preparations for war. We do not conceal this matter.” Even after a few decades, Pyongyang’s security concerns remain as significant as ever. Kim describes how North Korea sees itself as being in an unresolved war with the United States for the past 60 years and how it perceives fundamental threats to its survival.
“Ultimately,” he declares, “it is important to constantly remind ourselves that inter-Korean relations are not simply one-sided but rather an interactive process. When dealing with North Korea, we must be able to move beyond the dominant Cold War system and attempt to recognize the North as it is. It is only then we will be able to progress towards true dialogue and understanding.”
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A symbol of peaceful coexistence and cooperation, the Kaesong Complex has been an indicator of hope. With the current crisis, however, its prospects seem bleak. In order to find a way out of the futile cycle of perpetual violence and frustration, we must learn to go beyond the larger context of the Cold War system and make efforts to see the North for who they truly are and then formulate policies based on mutual respect and understanding.
<Timeline of major events between the two Koreas>
- Inter-Korean Summit between Kim Dae-jung and Kim Jong-il
- 6.15 Joint Declaration
- “Agreement on the development of an industrial zone” between Pyongyang and Hyundai Asan
- First product of the Kaesong Industrial Complex is released (reunification pots)
- Lee Myung-bak administration comes to power; publishes “Denuclearization, Openness, and 3000” initiative
- Tourist shot dead at Mt. Kumkang Resort; end of tourism project
- South Korean navy ship Cheonan torpedoed
- 5.24 statement: bans additional investment at the Kaesong Industrial Complex
- Yeonpyong Island shelling incident
- Kim Jong-il’s death; successor Kim Jong-un comes to power
- Park Geun-hye elected as South Korean President
- North Korea conducts third nuclear test
- UN sanctions on North Korea
- North Korea revokes the temporary truce
- “Foal Eagle” US-ROK joint military exercise
- Indefinite shutdown of Kaesong Industrial Zone