In June 2003, at the height of the Sunshine Policy of intra-Korean reconciliation, a ground-breaking ceremony took place near the North Korean city of Kaesong. The ceremony launched a construction project that in due time became the Kaesong Industrial Zone (KIZ), the largest of joint North-South projects realized so far.
Many observers (including myself) met the news with skepticism, but they – or should I say “we” – have been proven wrong: The project has survived and even prospered, though not to the extent that optimists hoped back in 2003.
The underlying assumption appeared to be rational and self-evident. By the early 2000s South Korea had long ceased to be a country with cheap labor, so many South Korean companies had moved production overseas (usually to China). Since North Korean labor is remarkably cheap, it was assumed that the KIZ would allow South Korean business to make use of this opportunity, hiring North Korean workers to labor at their workshops and factories. It is also likely that South Korean businesses did not mind the guaranteed docility of North Korean workers, even though the South Korean left – ironically, the major supporter of this capitalist venture – preferred not to mention such politically sensitive issues.
Actual production began in December 2004, when stainless frying pans and pots produced in the KIZ hit South Korean department stores. There was nothing particularly special about these catering implements, but they were widely seen as a sign of reconciliation between the two Koreas and thus sold well.
Indeed, there was much enthusiasm for the project, and it was initially expected that a full 70,000 North Korean workers would be employed at the KIZ by 2007. These hopes were way too optimistic, but the growth was quite spectacular nonetheless: In 2007, the KIZ employed 22,000 North Korean workers. In 2011, their number reached the 50,000 mark, and in December 2014 there were 54,000 North Koreans employed in Kaesong.
… if widespread and persistent rumors are to be believed, the North Korean military opposed the project from the beginning
Little is known about the internal discussions regarding the project on the North Korean side. However, if widespread and persistent rumors are to be believed, the North Korean military opposed the project from the beginning. North Korean generals and their hard-line political allies did not want a large cluster of South Koreans being present very near major military installations, virtually on the road to Pyongyang. They assumed that existence of the KIZ seriously undermined their ability to withstand a possible South Korean offensive. Of course, stories about such internal discussions should not be taken too seriously – like nearly all stories about factional and internal struggle within Pyongyang. Nonetheless, it is also quite possible that these stories contain a kernel of truth.
On the South Korean side, right-leaning politicians presented the entire project as a money-making machine for North Korean leaders – allowing them to enjoy lives of luxury while developing nuclear weapons and missiles. They often misrepresented the KIZ as a slave labor camp, as if the workers there were forced to labor in sweatshops for little or no pay.
Indeed, the issue of wages remains controversial. When production began, the average monthly salary of a North Korean worker was $69 per month. By 2011 the average wage had increased to $109, and in 2014 it reached the level of $155. It is widely known that only a fraction of this money makes it to North Korean workers’ pockets. Wages are paid to North Korean state agencies which then proceed to make deductions. It has never been reported how much KIZ workers actually get. One must surmise that the South Korean authorities – the National Intelligence Service, in particular – have this intelligence, which is not too difficult to get, after all, but they have chosen to remain silent. Nonetheless, if rumor is to be believed, workers get about one third of their nominal salary.
POINT OF DISPUTE
This might appear small change indeed, but by the standards of North Korea, $50 is a very good monthly income. Rather than being a slave labor camp, the KIZ offers probably the best-paid regular work in the country.
Apart from monetary compensation, workers have much better conditions than they could in nearly all North Korean factories. To visitors, the KIZ appears impressive indeed, with its paved streets, good-looking buildings, night-time lighting and overall environment standing in stark relief when compared to the impoverished North Korean countryside.
It is little wonder therefore that the North Korean authorities do not struggle to recruit for the zone. Initially, it was planned that the workers would rotate, one group being replaced by another. However, these plans had to abandoned. There are not enough people for such a scheme. A few years ago, Kaesong had run out of suitable applicants, so some workers are bused from towns and villages nearby. Unfortunately, the sorry state of the road network in the area means that such an option is only available to the lucky inhabitants of not-too-distant areas.
There is little doubt that the North Korean side is interested in keeping the zone alive. At least twice, Pyongyang has attempted to use the KIZ as a means by which to extract concessions from Seoul. The first time was in 2008 when the North Korean side was annoyed by the actions of South Korean NGOs who were using balloons to drop anti-government leaflets in North Korea. When Pyongyang’s demands that the balloon launches be stopped were ignored by Seoul, it restricted the number of the South Korean managers who could be present in the KIZ to 800. The restrictions, known as the December 1st measures, have remained in force ever since, but these restrictions seemingly had little impact on the KIZ activities.
The most serious crisis in KIZ history occurred in 2013. In late March 2013 the North Koreans staged what can be described as the most intense psychological offensive that Pyongyang has attempted to date. The official media said that the U.S. and South Korea would start a war in a matter of days, and described in graphic detail the terror and power of the imminent North Korean counter-strike. All the usual bellicose rhetoric was employed: The North Korean media suggested that foreigners should immediately leave because war was about to break out, a young Kim Jong Un was shown on the North Korean state TV standing in front of a map of the U.S., where targets of future North Korean missile strikes were clearly marked.
Against this background, on April 9, 2013 the North Korean authorities suddenly pulled all their workers from the KIZ. The operation halted. Seoul reciprocated by recalling South Korean managers. So until September 2013, the zone remained empty and non-operational.
During the 2013 closure some suspected that hard-liners finally won the day in Pyongyang and the zone would not reopen due to strategic concerns and/or fears about ideological contamination. However, the zone obviously proved to be too important for North Korea and its operations finally resumed in September 2013. By 2014, the KIZ had more or less recovered and resumed growth. This can be represented as an indirect proof that North Korean decision makers believe: their country (or regime, if you prefer) needs the KIZ.
SOUTH OF THE BORDER
South Korean actions also testify that KIZ is seen in Seoul as a worthy undertaking. It was demonstrated vividly in May 2010, when after the Cheonan sinking incident the South Korean government introduced the “May 24th Measures” that banned nearly all economic interactions with the North, it made an exception for the KIZ. Admittedly, this was a significant exception: by May 2010, nearly all meaningful economic interactions between the two went through the KIZ.
As of December 2014, 123 South Korean companies operated in the area
It is difficult to talk about the gains of South Korean investors. Like a majority of North-South joint economic projects, the KIZ is indirectly subsidized by the South Korean taxpayer in a number of ways, so we cannot know for certain how profitable it is. As of December 2014, 123 South Korean companies operated in the area. Most of them were small businesses. Reputedly, at the early stages of the project, the South Korean government tried to persuade larger companies to invest in the KIZ, but the big players showed little enthusiasm, so manufacturing in the area is done exclusively by small and medium-sized firms.
As one would expect, from the very beginning light industry has dominated the productive capacity of the zone. As of December 2014, of the 123 companies present 73 are engaged in textile production. This is understandable: labor costs constitute a substantial share of expenses in the light industry so cheap labor matters. Of the remaining number, 24 companies are involved in metal work, while 13 companies specialized in electronics manufacture.
Perhaps, in the end, the project’s greatest legacy will be in acting as a window into the South Korean world for North Koreans in the area. Given the number of workers employed there, it seems that almost every family in the city has either a close relative or friend employed at the KIZ. These people are all exposed to the South Korean lifestyle in ways that would have been unthinkable before. While both North and South Koreans at the KIZ are discouraged from discussing anything political, there is little doubt that even casual interaction with South Korean managers demonstrates to North Korean employees what they have come to suspect: The South is remarkably wealthy and it is also socially very permissive.
It is not incidental that recently, the North Korean authorities decided to ban the long established practice of providing North Korean workers with “Choco Pies,” a popular South Korean sugary cookie, as a snack between meals. “Choco Pies” are usually taken home by the workers and then often sold at exorbitant prices, double or treble the level that these snacks would cost in South Korea. Obviously, the North Korean authorities belatedly realized that this snack had acquired a politically dangerous symbolism, becoming the embodiment of South Korean consumption culture.
Apart from political and cultural influences, the KIZ also provides North Koreans with some opportunities to experience modern technology and modern factory production. Technical knowledge they acquire is obviously quite limited, but it is still better than nothing.
Over the last decade, there have been many discussions about an additional North-South industrial zone. In October 2007, during the final days of the Roh Moo-hyun administration, agreements were all but reached about such a project. However, the presidential elections that followed soon resulted in the collapse of this half-baked agreement. One can nonetheless hope that in due course renewed progress will be made. Recently, there have been some discussions about a possible joint industrial park in Rason SEZ, but for the time being the intra-Korean relations are not good enough for such idea to be realized. Still, it appears that the future of the KIZ is quite safe and this is good news.
Main image: Wikimedia Commons
Join the influential community of members who rely on NK News original news and in-depth reporting.
Subscribe to read the remaining 1807 words of this article.