Foreign Factories in North Korea's Kaesong Complex -- Great Idea or Pie in the Sky?

Feb 23 2014, 11:18am CST | by

Foreign Factories in North Korea's Kaesong Complex -- Great Idea or Pie in the Sky?
Photo Credit: Forbes Business

In the realm of believe-it-not, the Kaesong Industrial Complex just above the line between North and South Korea is beginning to appear as perhaps the best hope for the western world to gain a significant toehold into the closed society of North Korea.

So desperate is North Korea for cash that people are talking seriously about expanding the zone, about 45 miles north of Seoul next to the truce village of Panmunjom, to include foreign firms in addition to more than 120 South Korean companies that are already there employing about 50,000 North Korean workers in small-and-medium-sized enterprises. Whether any of them are making money is far from clear, but aides to South Korea’s President Park Geun-hye are sounding out contacts in Washington about opening the zone to all comers, foreign or Korean.

“A key question,” says a report on U.S.-South Korean relations issued in February by the Congressional Research Service, is how much stress Park’s government is likely to place on denuclearization, the “top concern” of the U.S., in relation “to other elements of South Korea’s approach toward North Korea.”

Just as important, says the CRS report, comes the “issue for the Obama administration and Congress” of their willingness to “support – or not oppose – any initiatives by Park to expand inter-Korean relations.” Park’s “desire to some day internationalize and expand the KIC,” warns the report, “could clash with legislative efforts in Congress to expand U.S. sanctions against North Korea” under the “North Korea Sanctions Enforcement Act.”

In other words, the U.S. and South Korea may be on a collision course in which President Park attempts to veer away from Washington’s policy of “strategic patience.” Instead, she may want to strike out on a new path posited in vastly expanding contacts through the Kaesong Industrial Complex.

The potential split between Seoul and Washington comes as Park is hoping to expand on personal ties between North and South Koreans with the resumption this month of reunions of families divided by the Korean War. North Korea’s acquiescence to the reunions, after holding out for cancellation of U.S.-South Korea military exercises beginning while the reunions are still going on, raises hopes for more reunions at which thousands of South and North Koreans, dying off at the rate of several thousand a year, may see each other for a few precious hours.

But how can the U.S. and South Koreans justify moves to internationalize the Kaesong complex when North Korea shows signs of preparing for a fourth nuclear test while brutalizing its own people? A report prepared by the commission of inquiry on the North’s egregious human rights violations reveals in graphic detail the depth and breadth of policies and practices that the North shows no sign of abandoning.

Tom Pinansky, a long-time lawyer in Seoul, argues the case for opening up Kaesong – in violation of sanctions as they now stand – in a talk that he gave at the Korea Institute at Harvard on the theme, “Economic Reintegration of the Koreas: Time to Get on With It.” In the talk Pinansky strongly criticized the provision in the Korea-U.S. Free Trade Agreement that bans the import of goods made in Kaesong.

The reason for the ban is obvious. North Korean workers at Kaesong make a fraction of the wages paid American workers or even the low-paid workers of countries that export their products at bargain prices and enormous profits for foreign firms.  As long as others can do it, Pinansky believes international business interests should be able to set up shop in Kaesong and export to world markets.

Pinansky cites Italy as a country that might pave the way for foreign firms to open up in Kaesong – with the blessing, of course, of the Park government, which in turn would want the support of its American ally. “Countries like Italy and Singapore would be deemed less objectionable,” he said. Rather than object, he added in response to a question, ”Our own government needs to be silent.”

In his talk at Harvard, and a conversation with me, Pinansky scoffed at the objections raised by the State Department to Google Chairman Eric Schmidt’s visit to Pyongyang a year ago. “It’s hard to imagine our State Department panned the Schmidt visit,” he said over lunch in Seoul’s glitzy high-rise Kangnam district. “We should all be supportive to find a way to get more interaction with responsible private-sector actors.”

As a symbol of the inroads that capitalist companies might make into North Korean society by opening facilities in Kaesong, Pinansky pointed out the popularity of South Korean Choco Pies, the double-layered creamy confection that South Korean companies have been serving as snack food to their workers at Kaesong.

Pinansky estimates that 250,000 people rely on the Kaesong complex for survival when you count all the dependents of the 50,000-plus people who actually work there. They in turn have spread Choco Pies far and wide so they’re almost a form of currency in parts of North Korea. Imagine, he suggests, how the free-enterprising spirit could radiate in other ways from Kaesong, bringing profits for both North and South.

Or is such talk just pie in the sky?

Some observers believe conditions are so harsh that few of the Korean companies already in Kaesong are surviving on the investment. In fact, none of the major chaebol, Samsung or Hyundai or LG or SK or lesser empires, wants anything to do with the place.  Hyundai Asan, the company set up by the late Hyundai empire founder Chung  Ju-yung to spearhead his entry into North Korea, has lost heavily building and managing the Kaesong complex and the tourist zone at Mount Kumkang just above the line on the east coast where divided families are meeting..

Pinansky has a ready response. “Private sector people do what government officials can’t do,” he told me. “People have to have the ability to be flexible. They have to negotiate.” The U.S.,“has not been part of the mix,” he contended. “President Park wants to find a way.” The answer is “a responsible private sector,” he insisted. “The most obvious entry point is Kaesong.”

Source: Forbes Business


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