Analyze of the Kaesong Industrial Complex - Research Paper Example

Kaesong Industrial Complex in North Korea Kaesong is a located in southwestern North Korea. At the beginning it was called Songdo (“city of Pine”), because it is surrounded by pine-covered mountains. After the Korean War (1950-1953), it was joined to North Korea. This is a home to the Kaesong Industrial Complex (KIC), which is an industrial park and gives an opportunity to South Korean companies to produce and sell their production in the North. It is an 800-acre site located about 106 miles southeast of Pyongyang and 43 miles north of Seoul just across the demilitarized zone. This complex is a result of the attempt to improve relations between South Korea and North Korea made by Hyundai Group beginning in 1998 that coincided with the Republic of Korea’s policy (Manyin 5). In addition to this, several dozen South Korean companies had facilities there which include chemical, machinery, textile and electronics factories (Britannica.com). Most of the employees are from North Korea, but still, there are people from southern part too and all together they create a cheap labor for the South. Moreover, it is a duty-free zone that has no restrictions on the use of foreign currency or credit cards (Manyin 6). However, the political situation also plays an important role in the relationships between two countries. For example, the deteriorating inter-Korean relations in 2013 led to both countries’ withdrawal of their employees from the industrial zone. Furthermore, this city is an important cultural and educational center. There were many tombs, palaces and temples which were destroyed during the war, but hopefully many of them were restored and were designated a UNESCO World Heritage site in 2013 (Britannica.com). The Kaesong Industrial Complex (KIC) is an economic enterprise in which companies of southern Korea have set up factories in a North Korean enclave ten miles north of the demilitarized zone. Although, it is a way for South Korean companies to use cheap labor from North Korea for low-end products. The president Roh Moo-hyun who was a liberal, tried to make Kaesong economically viable. He provided the foreign markets with goods which were produced in the complex. In addition to this, his administration made a lot of attempts to gain a duty-free status for products of Kaesong. Roh tried to place the language in the KORUS FTA. The United States refused to include this language in the agreement because it would give certain benefits to North Korean regime. It is actually the last example of the inter-Korean cooperation projects. Their relations became worse when new developments appeared. In December, 2007 a new president Lee Myung-bak, has linked a progress concerning the North Korea’s agreement to denuclearize. When Lee was at the head of the country, the complex was expanding, there were provided special tax breaks to different types of enterprises, and companies were allowed to resell their lots. On the other hand, among 57 firms, only 7 were approved by his government. So he made attempts towards making the trade easier. (Manyin 4). In 2007 KORUS agreement allowed a theoretical possibility of inclusion some of the products. However, the Kaesong could become a part of KORUS FTA only when North Korea make significant changes in its programs concerning nuclear weapons and improve its human rights record, all in all, to do that things that it refused to (Heritage.org). KIC is a kind of strategic dilemma. On the one hand the cooperation with foreign investors and enterprises would bring constant income; and on the other hand, in such occasion European companies and market would have an influence on North Koreans. The expansion of this park would increase the dilemma. The United States has limited the direct involvement in KIC, which it supported during long period of time. Many of the South Korean officials wanted to attract American investors, but still no one decided to take a chance of it. The trade agreement between the Korea and US (KORUS FTA) was officially signed in 2009 (Manyin 5). Besides, KIC survived in Inter-Korean Tensions in 2010. Actually, tensions increased when government in North Korea announced in January 2009 that it cancelled all political and military agreements with South Korea and in May the same year it cancelled all business contracts even concerning KIC (Britannica.com). The first serious tension took place on March 26, 2010, when naval vessel from South Korea sank in waters between two Koreas. Approximately 50 sailors died, and a multinational investigation team found out that the accident was because of the North Korean submarine. On 24 May of the same year South Korean president announced that ships or vessels from north are not permitted to pass the shipping lanes without special control (Manyin 2). In addition to this, Seoul has prohibited new investments from North (Heritage.org). However, there were some exceptions such as humanitarian aid to infants and children, and for the KIC (Manyin 2). Nevertheless, the relations between these countries remain unclear. One more tension took place on November, 23, when artillery divisions from North Korea fired across the North-South border and claimed that South Korea started that first and they did that in respond. As a result, four people died. After that accident, the South Korea defense minister stated that if there will be any attacks in the future, they will be ought to use air force to strike back. All in all, both Koreas do not want this complex to be closed; of course both of them had financial losses because of tensions, but this park has a symbolic importance. At that time this accident was considered to be the most serious between North and South. The Kaesong population is around 200,000 people (Manyin 3). Although, the future of KIC seems to be ambiguous, for instance in 2010, it was expected that Kaesong would have approximately 2000 companies employing 250,000 workers and earning $150 billion annually. In 2012, the company expected to provide 700,000 working positions. Unfortunately, this company failed in doing all that. In June 2010, Kaesong owned 121 factories and had only 47,000 employees from North Korea and 500 from South Korea. The amount of income from export was $140 million from April 2005 to May 2010 and annual income for North Korea was only $30 - 60 million (Huffingtonpost.com). As for production aspects, Kaesong factories mostly produce low-end goods which include clothing and textiles; and seventy-one firms are dedicated to it, for kitchen utensils there are four firms, two firms for auto parts , two for semiconductor parts and one for toner carriages. Most of the goods are made of raw materials produced in the South Korea. Some of them can be assembled by the employees from North and then they return them to South (Heritage.org). In December 2011, after the death of Ki Jong IL from heart attack, his son Kim Jong-eun became a leader of the country. His leadership has made the relations between North and South uncertain. He wanted to make an economic reform that would be appropriate to new regime (Patrick M.Cronin). In 2013 North Korea started threaten to the United States and South Korea, including verbal warnings about missile attacks against both of them. In April the same year, Democratic People’s Republic of Korea (DPRK) closed the access to Kaesong to the employees from both sides. Thus, the process of production stopped. However, some people stayed there in order to take care of machinery because they did not want it to break down. DPRK informed about the intention to resume work of the industrial region in August, 2013. In September 16, there were negotiations between South and North concerning the KIC which they share and they became to general conclusions. They decided to make higher taxes, attract foreign investors and never stop the work of the complex. More than 800 people from South will get back their working positions. Moreover, Pyongyang gave guarantees that the complex will not be closed as it happened before. Also the procedures of checks of vehicles and residents of South Korea on the entrance to a complex were simplified (Britannica.com). Last year Kaesong has restarted its activities. This complex survived in the crisis of the cutoff of cooperation in economic spheres between North Korea and South Korea. Unfortunately, the things are still bad there. First of all, it is difficult to invest money in it due to the cold political relationship between North and South. The suspension of services does not attract investors and it is shocking. They increased the wage level, but Chinese companies continue to hire North Koreans. One more thing is that factories do not bring the expected income. Only when the complex made a step to internationalization, things started to change for a better (Businesskorea.co.kr). Despite its difficult history, KIC still remains to be an important strategic investment that can bring prosperity for the people from North Korea and at the end to unify two Korean states. When taking into consideration the current road and railway connections between Seoul and Kaesong, it is necessary to point out that it may become the main transportation link between North and South Koreas. Today, China has already become North Korea’s top economic partner and it has shown less interest jointly investing with South Korea in North Korea. In order to gain certain results, it is necessary for both to make the transformations in inter-Korean relations (Patrick M.Cronin 7-8). In conclusion, it is possible to reignite the Kaesong Industrial Complex in North Korea and expand it greatly by investments. The economic cooperation between North and South Korea is a chance to prevent a conflict in the peninsula. There is a need of establishing regular military-to-military contacts (Patrick M.Cronin 34). Another important feature of cooperation is the ability to go on compromises and a desire to provide working positions to the residents what at the same time can make their lives easier. Works Cited Britannica.com North Korea. Retrieved May 29, 2015 from: http://www.britannica.com/EBchecked/topic/322222/North-Korea/281273/Relations-with-the-South#ref1035163 Businesskorea.co.kr Kaesong Industrial Complex Suffering from Insufficient Workers with North Korean Manpower Moving to China. Retrieved May 29, 2015 from: http://www.businesskorea.co.kr/article/6025/labor-shortage-kaesong-industrial-complex-suffering-insufficient-workers-north-korean Heritage.org Complaints about North Korean Imports a Smoke Screen for Trade Protectionism. RetrievedMay 29, 2015 from: http://www.heritage.org/research/reports/2011/05/complaints-about-north-korean-imports-a-smoke-screen-for-trade-protectionism Huffingtonpost.com To Reunify Korea, Start From Kaesong. Retrieved May 29, 2015 from: http://www.huffingtonpost.com/seokhyun-hong/kaesong-reunify-korea_b_5849596.html Mark E. Manyin, Dick K. Nanto. The Kaesong North-South Korean Industrial Complex. [Congressional Research Service], March 17, 2011. Retrieved May 29, 2015 from: http://fpc.state.gov/documents/organization/159346.pdf Patrick M. Cronin. Vital Venture: Economic Engagement of North Korea and the Kaesong Industrial Complex. Center for a New American Security. 2012. Washington DC. Retrieved May 29, 2015 from: http://www.cnas.org/files/documents/publications/CNAS_VitalVenture_Cronin_0.pdf Read More