Kaesong Industrial Region

Kaesong Industrial Region
Korean transcription(s)
• Hangul	개성공업지구
• Hanja	開城工業地區
• Revised Romanization	Gaeseong Gongeop Jigu
• McCune–Reischauer	Kaesŏng Kongŏp Chigu
Short name transcription(s)
• Hangul	개성
• Hanja	開城
• Revised Romanization	Gaeseong
• McCune–Reischauer	Kaesŏng
Map of North Korea highlighting the region
Country	North Korea
Government
• Type	Industrial Region
Area
• Total	66 km2 (25 sq mi)
Dialect	Seoul
Split from Kaesŏng Directly Governed City in 2002.

The Kaesong Industrial Region (KIR) is a special administrative industrial region of North Korea (DPRK). It was formed in 2002 from part of the Kaesong Directly-Governed City.

Its most notable feature is the Kaesong industrial park, operated as a collaborative economic development with South Korea (ROK). The park is located ten kilometres (six miles) north of the Korean Demilitarized Zone, an hour's drive from Seoul, with direct road and rail access to South Korea. The park allows South Korean companies to employ cheap labour that is educated, skilled, and fluent in Korean, whilst providing North Korea with an important source of foreign currency. A joint venture by both brother nations, the complex symbolizes the last remaining link between Koreans across the peninsula.^[1]

As of April 2013, 123 South Korean companies were employing approximately 53,000 DPRK workers and 800 ROK staff. Their wages, totalling some $90 million each year, had been paid directly to the North Korean government.^[2]

At times of tension between North and South Korea, southern access to the Industrial Park has been restricted.^[1] On 3 April 2013, during the 2013 Korean crisis, North Korea blocked access to the region to all South Korean citizens. On 8 April 2013, the North Korean government removed all 53,000 North Korean workers from the Kaesong industrial park, which effectively shut down all activities.^[2][3] On 15 August 2013, both countries agreed that the industrial park should be reopened.^[4]

Kaesong Industrial Park

Construction started in June 2003, and in August 2003 North and South Korea ratified four tax and accountancy agreements to support investment. Pilot phase construction was completed in June 2004, and the industrial park opened in December 2004.^[5]

Initial phase

In the park's initial phase, 15 South Korean companies constructed manufacturing facilities. Three of the companies started operations by March 2005. First phase plans envisaged participation by 250 South Korean companies from 2006, employing 100,000 people by 2007. The park was expected to be complete in 2012, covering 65 km² and employing 700,000 people.

Organization

The Kaesong industrial park is run by a South Korean committee that has a fifty-year lease that began in 2004. Hyundai Asan, a division of South Korean conglomerate Hyundai, has been hired by Pyongyang to develop the land.^[6] The firms are taking advantage of low cost labour available in the North to compete with China to create low-end goods such as shoes, clothes, and watches.^[6]

Park Suhk-sam, senior economist at the Bank of Korea, predicted the industrial zone could create 725,000 jobs and generate $500 million in annual wage income for the North Korean economy by 2012. Five years later, another $1.78 billion would be earned from annual corporate taxes levied on South Korean companies participating in the industrial project.^[7]

Obstacles

The zone faces a number of obstacles. Among the most pressing are U.S. economic sanctions against the North, prohibiting imports of key technologies and goods, such as computers.^[6]

Wage and rent agreements

FamilyMart in the industrial zone. North Koreans are prohibited from using the convenience store, which was set up for the use of South Korean workers. South Korean currency is not accepted.^[8]

In May 2009, Pyongyang announced it unilaterally scrapped wage and rent agreements at the industrial park. In June 2009, they also demanded new salaries of $300 a month for its 40,000 workers, compared with the $75 they were currently receiving.^[9]

In September 2009, a visit to North Korea by the Hyundai Group chairwoman led to a resolution to the North's demands, with mild wage increases and no change in land rents.^[10]

In 2012, wages were estimated at about $160 per month, about one-fifth of the South Korean minimum wage, and about a quarter of typical Chinese wages.^[11]

Taxes and revenue

In 2012, the Ministry of Unification was informed that 8 of the current 123 companies had received a tax collection notice. The notices were made by a unilateral decision by North Korea. The eight companies were informed of a notice to pay ₩170,208,077 ($160,000 US) in taxes; two of the companies have already paid $20,000 in taxes to the North Koreans.^[12]

Unilateral decisions by the Central Special Direct General Bureau (CSDGB) to amend bylaws is a violation of Kaesong Industrial District Law, which requires that any revision of the laws be negotiated between the North and the South.

For the first time, in 2011, the companies in the KIR recorded an average operating profit of ₩56 million ($56,241 US), finally operating in the black after years in deficit.^[12]

Green Doctors

Green Doctors is a non-governmental organization established in Busan in January 2004 by a doctor named Keun Cheong. In 2005, this organization received official government permission to open the Kaesong Industrial Region Hospital. Since then, it has provided medical treatment to the workers at Kaesong. For the last 8 years, the doctors who work there receive no salary. It has earned the trust of the North Korean workers and medical team, and it wishes to become a catalyst for a closer relationship between the two Koreas. ^[13]

Cheonan incident

In May 2010, following the sinking of the ROKS Cheonan and South Korea's response, North Korea severed ties with South Korea and shut down the Consultative Office in the zone,^[14] however existing activities in the zone maintained production activities,^[15] and transport and telephones to South Korea were operating normally.^[16]

2013 closure and reopening

On 3 April 2013, North Korea began to deny South Korean employees access to the Kaesong Industrial region. This came as tensions began escalating rapidly between Seoul and Pyongyang.^[17] On 8 April, North Korea recalled all 53,000 North Korean workers from the Kaesong Industrial complex, fully suspending its operations.^[2][3] However, 406 South Koreans remained at the complex after its effective closure.^[18]

On 17 April, North Korea barred a delegation of 10 South Korean businessmen from delivering food and supplies to the approximately 200 South Korean staff who remained in the industrial zone.^[19] On 26 April 2013, South Korea decided it would withdraw all remaining staff.^[20] On 4 May, the last seven South Koreans left the Kaesong Industrial Region, which thus was completely shut down.^[21]

On 4 July, both countries agreed in principle that the Kaesong Industrial Park should be reopened, as tensions between the two began to cool.^[22] Six rounds of talks were held without reaching a concrete agreement, with South Korea's insistence on a provision to prevent North Korea from closing the complex again in the future.^[23] During the first week of August, North Korea reiterated that reopening the complex was in both nations' interest.^[4] On 13 August South Korea said it would start distributing insurance payments to businesses in the complex, but also said it was open to new wording on the issue of joint control of Kaesong. The move, seen as precursor to formally closing the region, sparked a seventh round of talks which South Korea label as "final".^[24] An official agreement to reopen the complex was reached and signed on 15 August. The agreement includes provisions designed to ensure a similar shutdown cannot occur in the future. A joint committee will be formed to determine if compensation will be provided for economic losses caused by the shutdown.^[4] No date for resuming operations has been set.^[23]

On 13 September, before the reopening of Kaesong Industrial region, the two governments co-held a subcommittee on additional issues regarding entrance, legal stay, communication, customs and passing.^[25] This ongoing debate is considered crucial with the governments of both North and South Korea also discussing the resumption of the Mount Kumgang Tourist Region. The 2008 shooting of a South Korean tourist and the 2010 Cheonan incident have played a role in the Kumgang negotiations and the South wishes to bring the issue to a peaceful, non violent end.^[26]

On 16 September, Kaesong was reopened after five months.^[27] All of the 123 companies operating in Kaesong experienced losses equaling a combined £575 million ($944 million).^[28]

Transport

There are two modes of travel to Kaesong, road and rail.

Rail

Kaesong Industrial Region is served by Korean State Railway from Panmun Station through the Pyongbu Line. There is rail access to South Korea (operated by Korail) via the Gyeongui Line but it is not known what restrictions apply. An agreement to re-establish rail freight services between North and South Korea was made in November 2007.^[29]

The closest station in South Korea is Dorasan Station, from which road access can be taken.

Road

Limited road access is available for workers from South Korea via South Korea National Route 1 to the DMZ and then into Kaesong via Asian Highway 1 in the North. The route between the two highways is a paved road and part of the AH1 network. There are no connecting roads en route and a turnaround is available only in the South before the entering the North. Access on the road is closed if there are restrictions from checkpoints upon entering the DMZ.

Air

There is no option of air travel available from Kaesong to the South. Sohung South Airport is the closest airport to Kaesong in the North, but it serves no South Korea-bound flights.

The closest airports in the South are Gimpo International Airport and Incheon International Airport, from which road access can be taken to the industrial region.

See also

• Rajin-Sonbong Economic Special Zone
• Mount Kumgang Tourist Region

References

External links

• Official website: Kaesong(Gaeseong) Industrial District Management Committee (KIDMAC) of South Korea
• Official website: Hyundai Asan, the South Korean firm responsible for creating the Zone
• Work to Start on Kaesong Industrial Park, People's Daily, 4 November 2002
• South Korea Begins Supplying Electricity to N.K. Industrial Park, Yonhap News, 17 March 2005
• Despite U.S. Attempts, N. Korea Anything but Isolated, Washington Post, 12 May 2005
• North-South Korea Trade Increased to Record $1.1 Bln in 2005, Bloomberg, 23 January 2006
• A One-Hour Commute to Another World, Los Angeles Times, 28 February 2006
• "Kaesong zone a troubled Korean jewel" Asia Times Online, 6 April 2006
• "Companies in Kaesung Delegate Management over to North Korea" Daily NK, 17 May 2007
• The Kaesong North-South Korean Industrial Complex, Mark E. Manyin and Dick K. Nanto, Congressional Research Service, 18 April 2011.

Regions and administrative divisions of North Korea Regions Kwanbuk Kwannam Kwansŏ Kwandong Ryŏngdong Ryŏngsŏ Haesŏ Provinces Chagang North Hamgyŏng South Hamgyŏng North Hwanghae South Hwanghae Kangwŏn North P'yŏngan South P'yŏngan Ryanggang Direct-administered city P'yŏngyang Special cities Namp'o Rasŏn Special administrative regions Kaesŏng Kŭmgang Sinŭiju

North Hwanghae Province Capital Sariwŏn Cities Kaesŏng (Kaesŏng Industrial Region) Sariwŏn Songnim Counties Changp'ung Chunghwa Hwangju Kaep'ung Koksan Kŭmch'ŏn Pongsan P'yŏngsan Rinsan Sangwŏn Sin'gye Sinp'yŏng Sŏhŭng Suan Sŭngho T'osan Ŭnp'a Yŏnsan Yŏnt'an

Coordinates: 37°56′N 126°38′E / 37.933°N 126.633°E / 37.933; 126.633