Why is North Korea Risking the Closure of the Kaesŏng Industrial Complex?
from Crisis Group’s blog on Korea, “Strong & Prosperous”
by Daniel Pinkston
After five days of restricting access to the inter-Korean Kaesŏng Industrial Complex (KIC), Pyongyang ordered suspension of operations pending a review on the future of the project. KIC was established in accordance with an agreement reached during the June 2000 inter-Korean summit and remains one of the few symbols of inter-Korean cooperation. The project is home to 123 South Korean firms that employ about 53,000 North Korean workers who produce labour-intensive manufactured goods that are losing competitiveness in South Korea’s increasingly high-wage economy. For Pyongyang, KIC is an important source of hard currency, given that both the country’s export competitiveness and its foreign-exchange sources are very limited.
The North Korean government receives about $90 million per year for KIC labour services, but workers see only a portion of this, which they receive in North Korean wŏn at the official exchange rate. Former South Korean President Kim Dae-jung and supporters of the “sunshine policy” envisioned that KIC would be a transformative project that would draw North Korea out of its isolation. It offered an opportunity for North Koreans to see the subversive reality of an alternative economic system; this was in turn expected to encourage reform and opening. Instead, North Korea has operated KIC as if it were a hermetically sealed space station. South Korea has supplied electricity, water and waste-water treatment, heating oil, construction materials, and components and material inputs for the manufactures. The only things North Korea has supplied are the land and labour.
Given that the North succeeded in sealing off KIC, why would the Pyongyang leadership now risk losing it? There are two possibilities, neither of which is reassuring for the future of the Korean peninsula.