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a precedent for cross-border economic cooperation Most private sector economic interest in North Korea has come from business executives born in the north; Hyundai Group’s head, Chung Ju-yung, born in the northern half of a once-united Korea has initiated two major commercial ventures across the DMZ: The first was the I Love Cruise, which chartered South Korean tourists along the eastern coast of the peninsula into North Korean waters to see the revered Mt. Keumkang. The second is Kaesong Industrial Complex. In 2000, Chung Ju-yung (with agreement from Kim Jong-il) established Kaesong Industrial Complex, directly north of Seoul and approximately 20 kilometres north of the DMZ. It aimed for 220,000 jobs and $20 billion in exports for North Korea. Ground-breaking was in June 2003 and again in April 2004. Both North and South were to benefit from the project; South Korean businesses could manufacture products using North Korean labour, providing an opening for North Korea to liberalise and reform its economy, easing tensions across the DMZ. 12 Although it began as primarily a private sector venture, both governments remain heavily involved in the project. South Korean companies operating in Kaesong receive incentives from the ROK in loans and tax breaks, and the ROK provided $223 million of the $374 million required for initial costs during the first stage. These funds were used to build infrastructure, a job-training centre, a water supply plant, a wastewater treatment plant and an electricity substation. 13 The Kaesong Industrial Complex allows small and medium-sized businesses access to labour costs lower than in China or Vietnam, a workforce that speaks the same language, and proximity to the South

Korean market. The long list of companies that have applied to enter the Kaesong Industrial Complex indicates that investment in the area is seen as profitable. In contrast, approximately 40 percent of small and medium- sized South Korean companies that establish operations in China are unsuccessful – a widespread failure in cheaper labour markets indicates both a need and demand for access to a sustainable labour market. Kaesong’s success would provide a convincing precedent for industry and businesses to move north upon reunification or advanced economic cooperation. However, despite the support for South Korean businesses and the bottom line success they have achieved through operations north of the border, North Korean workers in Kaesong Industrial Complex are still denied the basic employment rights they would have in South Korea. While minimum wage is much higher in Kaesong than in the rest of the country, DPRK authorities take up to 45% of the wages paid by the South Korean companies. To date, no South Korean company has been able to say exactly how much of wages paid are kept by their workers.

12 Boose, Donald, Balbina Hwang, Patrick Morgan, and Andrew Sco- bell. Recalibrating the US - ROK Alliance. USA . Strategic Studies Institute, 2003 13 Manyin, Mark and Dick Nanto. The Kaesong North-South Korean Industrial Complex . USA Congressional Research Service, 2011

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Mike Taylor

The speculative settlement in the first phase of the Special Economic Zone within the DMZ at Cheorwon.

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