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Shut Down Kaesong, South Korea

April 17, 2013 in Economics

By Doug Bandow

Doug Bandow

There are many ways to characterize the North Korean government. Chutzpah and ungrateful come to mind. Especially regarding the South Korean-financed Kaesong Industrial Complex. The North has suspended operations there; Seoul should close the zone.

Construction on Kaesong commenced a decade ago. It was part of the so-called Sunshine Policy, an attempt by the Republic of Korea to bribe Pyongyang into behaving better. The ROK government provided money, food, and fertilizer. South Korean companies provided investments, salaries, and goods. There was nothing wrong with the idea in principle. After decades of a fighting a cold war sometimes turned hot, Seoul hoped to encourage detente with its northern antagonist.

Unfortunately, the policy failed. Although bilateral trade hit a record last year of almost $2 billion, political relations have cratered. With the so-called Democratic People’s Republic of Korea apparently determined to make normal ties between the two Koreas impossible, the ROK should demonstrate that it, too, can play tough. In Kaesong, Seoul should bring its nationals home, shutter its factories, and cut off its funds. No more cash while the DPRK threatens to incinerate its benefactor.

Dancing To Kim’s Tune

Hopes were high for KIC when it opened in December 2004. Southern firms spent some $845 million on the facility, in which 123 companies now employ fifty-three thousand North Koreans. However, original plans envisioned adding hundreds of additional enterprises and ultimately employing seven hundred thousand people, around 3 percent of the North’s population. Even today Pyongyang collects tens of millions of dollars in taxes, rents and salaries. The latter alone runs $90 million annually.

The North’s threat to close Kaesong offers Seoul an excellent opportunity to respond with toughness without risking military conflict.”

The DPRK never has been a good host. Four years ago it unilaterally scrapped rent and wage agreements, demanding massive increases, and briefly prevented South Koreans from leaving. After a North Korean minisub sank an ROK naval vessel in 2010, the North closed KIC’s Consultative Office. Earlier this month Pyongyang barred access to South Koreans, which forced some companies to stop operations. Then the Kim Jong-un government kept its workers home, closing the rest of the factories.

The North claimed that it “gets few economic benefits from the zone, while the South side largely benefits from it.” Pyongyang announced plans to “examine the issue whether it will allow [KIC’s] existence or close it.” Indeed, the facility would “cease to …read more
Source: OP-EDS

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