- The Washington Times - Saturday, May 16, 2009

SEOUL | Pyongyang on Friday unilaterally nullified all agreements that it has signed with Seoul over the jointly run Kaesong Industrial Zone in North Korea, a move that was immediately rejected by the South.

In a statement released by state-run media, North Korea said it was redrawing all bilateral contracts related to wages, tax and land use. If they do not accept the new conditions, South Korean firms “are free to leave Kaesong,” the statement said.

South Korea, which on the same day had been trying to set up talks with the North on a South Korean worker detained at the complex by Northern authorities since March 30, called the North’s action “not acceptable at all.”

Unification Ministry spokesman Kim Ho-nyeon said, according to local news reports, “It is irresponsible for the North to say that [companies] should leave unless they unconditionally accept its unilateral measure.”

The dispute threatens the operation and existence of the last material achievement of the decade-long “sunshine policy” of engagement with North Korea, as well as South Korea’s long-term blueprint to upgrade its neighbor’s basket-case economy by gradual expansion of the complex.

It came a day after Pyongyang said it would try two American reporters whom it is holding for purportedly crossing its border from China and followed an apparent ballistic missile test into the Pacific on April 5 that rattled nerves around the region.

The industrial park - a splash of color in the otherwise barren North Korean landscape - opened in 2003 on the outskirts of Kaesong, an ancient Korean capital that lies just north of the demilitarized zone. More than 100 small southern firms operate in the zone, paying $75 per month per North Korean laborer. Some 40,000 northerners are employed there, producing goods such as kitchenware, sport shoes, semiconductor parts and watches.

Eventually, the zone was to have employed half a million North Koreans, and set a benchmark for similar zones in other parts of the country.

However, the chill in North-South relations that set in after conservative President Lee Myung-bak took office in February 2008 after a decade of liberal rule in the South has cast a shadow over joint projects. The chill has been reinforced by the North’s withdrawal from nuclear talks and the restart of its nuclear programs.

Earlier this year, North Korea unilaterally changed cross-border transport arrangements, causing losses for the Southern companies operating there. At the end of March, it detained a South Korean worker for purportedly criticizing the North Korean government. The worker remains in North Korean custody. South Korea has been denied access to the man.

Opinion is divided over whether the North will allow the complex to go to the wall. It is a critical source of foreign exchange, and the cash-strapped regime could simply be trying to force up wages. However, some experts have long anticipated Kaesong’s closure, given the close contact that it permits between North and South Korean workers - contact that they maintain the hard-line regime must see as an unacceptable risk to its tightly insulated society.

“Kaesong is much more important for North Korea’s economy than for South Korea’s economy,” said Andrei Lankov, a North Korea watcher at Seoul’s Kukmin University. “But the economy itself is much less important for the North Korean government than for any other government worldwide.”

Pyongyang routinely prioritizes security over economics.

The other flagship achievement of North-South engagement was the Mount Kumgang joint tourism zone, which opened in 1999. That has been in limbo since last July after the shooting death of a South Korean tourist.

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