Of Profits & Reconciliation: Kaesong Industrial Complex

They say the road to hell is paved with good intentions, and that certainly seems to be the case here: opened in 2004 as a manifestation of the late Roh Tae Woo's "sunshine policy" of South towards North Korea, it was hoped Kaesong Industrial Complex would herald closer economic ties between the two Koreas. Located in the North near the now-legendary 38th parallel, this (quasi-) export processing zone was modelled in part on the example of other successful EPZs in the region. Through trials and tribulations you are all well aware of including North Korea's penchant to throw tantrums every so often, Kaesong has not really lived to its billing. Not only has South Korean investment there been (wisely as it turns out) somewhat limited, but closer economic ties leading to better political ones did not emerge.

That said, there have been some South Korean investors who saw potential advantages in low-cost labour north of the border. It could even have led to knowledge transfer helpful to north Korean development. Many of them poured not-insubstantial savings into facilities in Kaesong, only to be stung this year as occasional short-lived evacuations and closures since 2004 have now led to full-scale desertion of the industrial estate. Can you say "mass expropriation"?

The South Korean entrepreneurs who invested up to 10 years and millions of dollars in the Kaesong industrial complex, a symbol of economic collaboration between the Koreas that is now shuttered by the North, have little more than hope to cling to as assembly lines sit idle day after day. They say they want to go back to work. The sooner the better. They say they cannot abandon their investments in factories, or the cheap North Korean labor that helped them put aside misgivings about doing business with the South's unpredictable neighbor. Some were just getting over their beginners' mistakes and were starting to see the fruits of their work. 

But North Korea has been unrelenting in its decision to bar South Koreans from entering the factory city just inside its border, and withdraw the 53,000 North Korean workers who manned assembly lines. As the lockout enters a third week, customers of the South Korean companies are growing impatient and losses are mounting. Some businesses are quietly mulling giving up on Kaesong altogether.

"We have built the Kaesong industrial complex by the sweat of our brows, believing in guarantees that we would be able to work freely," said Han Jae-kwon, chief of the association of South Korean factories in Kaesong. "We find the reality tragic and sad that we are unable to travel to our own factories." The Kaesong complex has been nearly deserted since early April, when Pyongyang pulled the plug on its last significant economic link with the South. Most of the nearly 900 South Korean managers and entrepreneurs left soon after. Some 200 remain and are getting by on whatever food they had stored.

It does not seem fair that positively-minded South Koreans who went there for non-economic reasons--especially a desire to bring about reconciliation--are being punished for their efforts. When only one side wants to talk it over regarding Kaesong, that's not going to work as firms located there keep losing international business. But then again, how did the saying go about the road to hell? One certainly hopes they will recoup their investments when North Korea again relents on its comic-fantasist-Leninist-Marxist stylings, but the damage has been irreparably done to the idea that the hermit nation would interfere less with this project that seemed so promising all those years ago.

UPDATE: Employing North Korean style hyperbole--don't ask me why--South Korea has made an ultimatum on re-opening Kaesong and releasing the South Korean managers held captive there:

After weeks of threatening rhetoric from the North, South Korea on Thursday promised its own unspecified "grave measures" if Pyongyang rejects talks on a jointly run factory park shuttered for nearly a month. The park in the North Korean border town of Kaesong is the most significant casualty so far in the recent deterioration of relations between the Koreas. Pyongyang barred South Korean managers and cargo from entering North Korea earlier this month, then recalled the 53,000 North Koreans who worked on the assembly lines.

South Korea's Unification Ministry on Thursday proposed working-level talks on Kaesong and urged the North to respond by noon Friday, warning that Seoul will take "grave measures" if Pyongyang rebuffs the call for dialogue. In a televised news conference, spokesman Kim Hyung-suk refused to say what those measures might be. Some analysts said Seoul would likely pull out the roughly 175 South Korean managers who remain at the complex.

UPDATE 2: On 2 May, aside from "repatriating" the remaining South Korean managers these past few days still keeping guard over their firms' plant, property and equipment, South Korea has decided to lend these pioneering firms emergency aid. Call it an unexpected but most certainly welcome form of "political risk insurance" insofar as outright grants cannot be given:

South Korea has offered 300 billion won ($272.41 million) million in special loans to companies affected by Pyongyang's decision last month to close a jointly run industrial zone in North Korea, a government official said on Thursday. A government taskforce will provide the assistance from May 6 in the form of loans with interest rates of 2 percent. More than 120 South Korean businesses have invested in the border complex at Kaesong.

"The government is currently trying to provide tailored support for these businesses and once we finish determining the current status of the companies, we will continue to make more support available," said Suh Ho, a director-general at the Unification Ministry which deals with inter-Korean affairs. Suh said cash handouts to the companies were legally impossible and that loans - money for which will be taken out of various government funds - were the only available solution in the short-term.