Commentary on the "Agreement to Normalize the Kaesong Industrial Complex (KIC)"

August 19, 2013 6:30 AM

I am leaving for vacation, and at this juncture, there is no official translation of the North-South Korea Agreement to Normalize the Kaesong Industrial Complex (KIC). So what follows is Jaesung Ryu's unofficial translation and a few comments from me in red.

Agreement to Normalize the Kaesong Industrial Complex (KIC)

The South and the North, in order to resolve the KIC problem due to the imposition of limited passage and withdrawal of workers, have engaged in official working level talks on 7 occasions from July 6 2013 to August 14, and agreed to the following for a constructive normalization of the KIC.

1. The South and the North shall not allow the recurrence of shutting down the KIC by restricting passage and withdrawing workers and guarantee its normal operations that shall be uninfluenced by the state of affairs in any case, including stable passage for South Korean personnel, normal appearance at work by North Korean workers, and protection of company properties.

Also, the South and the North shall discuss matters regarding the issue of compensating for the loss suffered by the companies due to the current shutdown of the complex and its related topics in the KIC South-North joint committee which will be established hereafter.

So the basic issue is North Korea's credibility.  Having shut down the KIC once, what is the mechanism to insure that they don't do it again? The agreement does not yield any no commitment to compensate upfront, but the principle of compensation recognized and sent to a new committee. Hard to know that to make of this. It could be genuine--this is the MOU spin, on the other hand, it could be a face-saving gesture that goes nowhere. In the case of the KORUS FTA, for example, South Korea wanted duty-free treatment of KIC-produced goods; the US was adamantly opposed.  As a face-saving gesture, the issue was sent to a bi-national committee. There is no way under current circumstances that the US would consent to duty-free treatment of KIC-produced goods.  Just the opposite: the trend in US policy since the KORUS agreement was signed was ever-tightening sanctions, and greater scrutiny of KIC. The US government rationalized the move to its domestic audience as a mechanism for quickly giving the economy a boost in case of an abrupt German-style collapse and absorption scenario. So maybe the South Koreans will get tax holidays or wage payment waivers out of this. If they do, I am skeptical that the tax holidays will make these firms whole. At this point, only a handful of KIC firms are paying taxes, though as production continues in the zone, that number will rise.  More effective compensation would be waiving wage payments to the state for some period of time (the North Korean government could pay the workers out of its own pocket), but don't hold your breath.   

2. The South and the North shall guarantee the safety of South Korean personnel commuting to the KIC, protect company investments, and resolve passage, communication, customs issues.

① The South and the North shall guarantee safe passage and sojourn of South Korean personnel who commute to the KIC.

② The South and the North shall protect the assets of South Korean companies in the KIC and make institutional arrangements to conduct joint-investigations and settle disputes including damage compensation in case of illicit conduct,

③ The South and the North, in order to resolve issues of passage, communication and customs, shall take measures to guarantee regular passage, supply internet and mobile phone communication, simplify and shorten customs process, wherein their relevant working-level issues will be discussed at the KIC South-North joint committee.

Point 3 is a nod to the fact that the Chinese have negotiated better rules on telecommunications and banking at the Hwanggumpyong and Wihwa Island zone than exist at KIC.

3. The South and the North shall guarantee internationally acceptable business conditions for companies, and develop the KIC into an internationally competitive industrial complex.

① The South and the North shall actively seek to invite foreign companies.

② The South and the North shall develop relevant regulations as to labor, tax, wage, insurance and other matters that are implemented in the KIC towards internationally acceptable levels.

③ The South and the North shall seek measures to develop the KIC into an internationally competitive industrial complex, including the recognition of preferential tariffs on KIC products when exported to a third country.

④ The South and the North shall promote joint presentations for foreign investment.

The idea here is that the North Koreans treat South Koreans more rashly than third parties; by “internationalizing” KIC they will deter the North Koreans from provocative behavior.  But again, what's the credibility? First, who will come and in what numbers? Second, will their presence actually deter the North Koreans?  We’ll see. As for preferential tariffs (subpoint 3), they may have some success with countries/groupings that care little about human or worker rights (China, for example), but per my earlier comment, this will not fly with the US. Speaking of which, under subpoint 2, are they going to aim to meet standards set out by the ILO or OECD? Somehow I doubt it. As for subpoint 4, I wouldn't want to be the South Korean facing skeptical foreign audiences on these road shows.   

4. The South and the North, to fulfill the above mentioned agreements, shall establish and operate a KIC South-North joint committee along with sub-committees as deemed necessary.

In doing so, the South and the North shall sign an agreement on the establishment and operation of the KIC South-North joint committee, and start to take action through such bodies.

5. The South and the North shall arrange institutional mechanisms for safe passage, sojourn and investment protection, and actively endeavor for KIC companies to inspect and reopen their facilities in the complex.

August 14, 2013

Upholding the instructions of their respective superiors,

KIC South-North official working level talks

Kim Ki-woong, Senior Representative of the South

Upholding the instructions of their respective superiors,

KIC North-South official working level talks

Park Chol-su, Head Representative of the North

Bottom line: the North Koreans are predictably getting away with more than they would in a less politicized environment.

Witness to Transformation: We read these documents so you don't have to!

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