Kaesong zone a troubled Korean
jewel By Andrew Salmon
KAESONG, North Korea - It may be the jewel
in the crown of North-South Korean economic
relations - but economically, is an industrial
complex in one of the world's most isolated,
insulated and ill-reputed states a viable
proposition?
The Kaesong Industrial
Complex, opened in 2003 on North Korean soil with
southern capital, has been championed by Seoul's
Roh Moo-hyun administration to the extent that the
South Korean president last year reportedly
extended an informal invitation to
US
President George W Bush to visit. (To nobody's
surprise, that visit did not transpire.)
Questions hang, however, over whether the
complex can fulfill the dream of its founders, who
see it as the blueprint for future North-South
economic relations and a potential regional hub
for low-cost manufacturing. And with the nuclear
crisis simmering steadily, the shadow of a hawkish
Washington hangs over Kaesong's future.
On the ground Having said that,
on the ground, things look rosy. A factory complex
is rarely a thing of beauty, but amid the desolate
landscape of North Korea, it adds a splash of
color to the dominant browns and grays.
The 10-hectare complex sits in the midst
of a dusty plain of excavated ground just north of
the Demilitarized Zone (DMZ) separating the two
Koreas. It is some 15 kilometers from the city of
Kaesong, an ancient Korean capital, and an hour's
drive from Seoul. Every day, convoys of some
southern 300 cars and trucks trundle north along
the barbed-wire-lined four-lane highway that cuts
through the DMZ to the complex.
Fifteen
small and medium South Korean enterprises - 11 are
already operational - have established factories
in this enclave of capitalism. About 6,000 North
Koreans labor under South Korean direction,
producing pots, footwear, textiles and other
products primarily for the Southern market.
With the complex's South Korean backers
clearly keen to sell the North on the joys of
capitalism, these factories are no Third World
sweatshops. They are spacious, well lit and
equipped with industrial-safety features; the zone
even boasts a gleaming red fire engine. Amenities
include a bank, a convenience store and
accommodation for the 500 South Koreans who
currently work here, receiving a 50% hardship
bonus. Electricity is piped in from the South.
Cross-border telephone lines were laid in December
- a historic event in itself - but there is, as
yet, no Internet access or cell-phone use in the
zone.
Officials from Hyundai Asan, the
Southern conglomerate that has pioneered economic
relations with the North, and the state-run
(South) Korean Land Corp, were ebullient as they
welcomed 120 foreign reporters on a tour of the
US$220 million complex recently. "The North Korean
workers are very diligent, with high manual
skills," enthused Kim Dong-keun, the president of
the complex's Industrial District Management
Committee. "Their productivity level is, on
average, 80% that of [their] South Korean
counterparts."
One of the few Northern
workers wheeled out to face the press was the
delightful Kim Hyo-jung. "This is the first such
attempt to work with South Koreans, so there is
pride," said the attractive young female
interpreter after delivering a snappy PowerPoint
presentation, complete with laser pointer.
The monthly wage paid to Northern workers,
$57.50, is about one-tenth to one-twentieth what
employers pay in the South, estimated Moon
Chang-sup, president of Stafild, a sports-shoe
manufacturer that is planning to relocate its main
operations from South to North in the near future.
(Ironically, the only currency used in the complex
is the US dollar.) A further boon for South Korean
management used to dealing with unruly unions at
home is the discipline of the Northern workforce:
there have been no labor disputes.
Future vision, future
issues Planners envisage a grandiose future
for the industrial zone. By 2012, they plan to
expand it to 6,610 hectares, developing it into a
regional manufacturing hub marrying Southern
capital and expertise with the skills of 700,000
Northern laborers - who are a cheaper bunch even
than their Chinese comrades. Meanwhile, Kaesong
city itself is envisaged as a cultural tourism
zone, attracting the history-hungry citizens of
Seoul with the world's largest extant collection
of Korean traditional architecture.
Unlike
the planned free economic zone on the Chinese
border at Sinuiju - a proposal that has been
indefinitely shelved after the man Pyongyang chose
to head it, Dutch-Chinese entrepreneur Yang Bin,
was arrested by Beijing authorities in 2002 -
Kaesong has realistic possibilities, some believe.
Its proximity to a South whose small enterprises
face a labor shortage and whose government is keen
to build an economic bridgehead on the soil of its
communist neighbor, grant it a fighting chance.
But tellingly, despite entreaties from
Hyundai Asan, the promise of cheap, disciplined
labor, and its adjacency to the lucrative Southern
market, no foreign investors have yet signed up
for the zone. And there are concerns that, with
the United States at odds with South Korea over
how to deal with the North, the Kaesong project
could founder on the rocks of geopolitics.
Washington requires high-tech products
destined for North Korea that include US
intellectual property to undergo stringent export
controls. This has irritated many in the South -
particularly after the process delayed the
transfer of telecommunications equipment. It also
appears highly unlikely that Kaesong-built
products will be included in a free-trade
agreement between Seoul and Washington that is
under negotiation.
"Kaesong is clearly
getting in the way of the US putting a financial
stranglehold on North Korea, so there is a looming
showdown between Seoul and Washington on whether
the project should move forward," said Peter Beck,
who heads the International Crisis Group in
Northeast Asia. "It is a pillar of North-South
cooperation, but I think South Koreans are going
to be in an increasingly difficult position when
nuclear talks go nowhere; they are going to face
pressure to slow down or pull back."
Outstanding issues And even
today, there are issues. The contrast between the
complex, with its modern buildings, utility poles
and street lighting - even a lawn - and its
surroundings is striking. Beyond the 8.6km green
perimeter fence, soldiers patrol. Against one
section of fence is a drab village. The gray
concrete of the shabby houses, set amid plots of
brown dust, is cracked and crumbling. Many of
their windows, lacking glass, are filled instead
with sheet plastic.
Officials of the
complex say they have assisted local villagers
with heating briquettes and rice, but there is
otherwise neither trade nor contact across the
fence, indicating that the experience of
capitalism is strictly insulated. This assumption
is buttressed by relations inside the complex:
despite talk of inter-Korean fraternity, social
contact between Northern and Southern workers is
non-existent.
"It is absolutely impossible
to socialize; it is prohibited by the
authorities," said Yoo Nam-yeol, a South Korean
production manager at Taesang Hata, a firm
producing cosmetics containers.
In
addition, there is little transparency in wages,
which are paid not to workers but to a North
Korean government agency. "We have no idea what
happens next," admitted one Southern factory
foreman.
Beyond the red-dressed Kim, North
Korean workers were reluctant to speak to
reporters. "I was picked for this job by the
government, but I cannot tell you my salary; it is
best to ask the company," said one textile worker,
who, like her colleagues, takes a bus to the
complex daily.
Logistics are a further
issue. While the railways between the two Koreas
were reconnected in early 2004, theoretically
linking Seoul and Sinuiju on North Korea's Chinese
border, it is uncertain when trains will start to
run through Kaesong.
"There will be talks
on opening the line in July, but it is not
certain," said a South Korean official at Dorasan
Station, a giant steel-and-glass edifice on the
southern side of the border. The lack of rail
transport complicates his firm's logistics costs,
said Stafild's Moon, whose head office is on the
south coast of the peninsula, in Busan.
Andrew Salmon is the Seoul-based
author of American Business and the Korean
Miracle: US Enterprises in Korea, 1866 - the
Present and a frequent contributor to the South
China Morning Post, the Washington Times and The
Times.
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