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North Korea unilaterally suspended activities at the Kaesong Industrial Complex (KIC) from April 8 to September 16, 2013. One year after resumption of activities at the KIC, production has returned to pre-suspension levels, though not without collateral damage: the South Korean small- and medium-sized firms who invest there experienced financial damages from cancellation of contracts by buyers and other fallout associated with the fundamental uncertainty as to whether they would be able to maintain production in the zone.
On the policy side, progress has been spotty. As we noted in a post back in September 2013, at the time of the re-opening the South Korean Ministry of Unification announced that agreement to re-start the zone contained a provision to improve communications by introducing radio-frequency identification devices (RFID). These would allow pre-approved South Koreans to come and go rather than having to cross the border at a scheduled time. Issues revolving around the use of mobile phones and internet access remained under discussion. (The ground rules for the planned Hwanggumpyong, and Wihwa Island zones allow Chinese businessmen to use their phones.) Since then, according to a nice summary by the Institute for Far Eastern Studies at Kyungnam University, “Kaesong Industrial Complex: One Year After Resuming Operations,” construction of the Customs, Immigration and Quarantine facilities were completed and the RFID system was activated.
But problems have persisted. According to IFES, issues relating to the RFID system, internet access, and the rights and safety of South Korean nationals detained in the park remain unresolved due to North Korean refusal to engage on these issues out of pique over US-ROK joint military exercises. If this is the case, then it amounts to self-defeating retaliation.
The involvement of firms from third countries has also been an ongoing issue. A planned October 2013 session to tout the complex to potential third country investors was cancelled. The IFES brief claims that companies from the United States, Germany, China, Russia and other countries have made inquiries with MOU about the zone. At least in the case of the US firms, given the sanctions regime and concerns over labor practices, one wonders just how serious these inquiries are. But perhaps some Chinese investment could provide “human shield” insurance against future disruptions.
More generally, whether foreign companies will find KIC attractive is an open question. One of the striking findings emerging from the survey work that Steph Haggard and I did on South Korean firms operating there was just how important South Korean public policy support in the form of various indirect subsidies was in sustaining activity at KIC. Is the South Korean desire for human shields sufficiently strong to subsidize third-country investors as well?
There is a bright spot on the labor conditions horizon, however. Lee Sang Yong in the DailyNK reports that the South Korean government, through the South Korean Industrial Health Association, is launching an investigation into exposure of North Korean workers to toxic chemicals in South Korean owned operations in the KIC. Yet even this effort is marred by controversy, with the North Korean side rejecting a South Korean proposal to have doctors examine the workers allegedly affected by improper exposure to toxins. Sincere concerns over health and safety or another North Korean shakedown attempt? Time will tell. But it would be ironic if the capitalist lackies are the agents of worker protection in the people’s republic.
