In early 2016, the Kaesong Industrial Complex (KIC) – the joint inter-Korean economic project just north of the demilitarized zone (DMZ) – was abruptly suspended by the South Korean government. It had been successfully operating for 12 years, providing a significant opportunity for people of the two Koreas to engage in a cooperative manner. The venture provided South Korean companies with cheaper labor costs, while providing North Korea with critical hard currency, and an opportunity to start reforming its economy.
The Kaesong Industrial Complex remains closed, a prominent symbol of the current impasse in inter-Korean relations (although these relations are heavily reliant on on the progress in nuclear negotiations between North Korea and the United States). To gain a firsthand understanding of the venture The Diplomat spoke with Dr. Jin-hyang Kim, the former head of the Kaesong Industrial Complex (2008-2011), and former member of the National Security Council under President Roh Moo-hyu (2003-2008). Kim is currently the President of the Kaesong Industrial Complex Foundation, an organisation that advocates for the reopening of the Complex.
Can you explain how the Kaesong Industrial Complex was initially organized, and what were the primary goals of the joint-venture?
The first inter-Korean agreement on the construction of the KIC was signed in August 2000. The first stage of the plan was to create a complex of 3.3 square kilometers, this would eventually be significantly expanded, with the third stage planned to create a city of 66 square kilometers.
The complex began construction in June 2003; and in December 2004, its first product, a pot, was produced and sold out in just a few hours at a department store in the South under the name of ‘unification pot’.
The KIC was the first joint venture built by the two Koreas, and was designed to move beyond the division of past 70 years towards a peaceful cooperation. The KIC is not just an economic complex, rather it is an industrial complex of peace and unification. It is also the only place where South and North Korean workers have continued to communicate, interact and live together in the same office and production site for more than a decade.
At the time of the complete shutdown of the KIC in February 2016, there were factories in about 40 percent of 3.3 square kilometers of land from the first phase of the plan. It housed 124 tenant companies with 55,000 North Korean workers and 80 business offices were operating.
The KIC was created in order to develop inter-Korean relations in a way that leads to the institutionalization of peace, and that peace settlement promotes economic cooperation. The complex is not the result of reconciliation; but it is the first seed planted by the South and the North to explore the history of reconciliation, cooperation and peaceful coexistence.
During the period when the Kaesong Industrial Complex was in operation what were the economic benefits that were being created for both North and South Korea?
The KIC has been a breakthrough that ensured a firm competitive edge for South Korean companies, which are now becoming less competitive due to problems such as high-cost, low-efficient production, avoidance of 3D (Difficult, Dirty, Dangerous) industries, high wages, high land fee and logistics costs.
The KIC, which provides competitive labor costs of $70 per month for basic wages, reduction of logistics costs with only an hour’s distance from Seoul, and tariff-free, has more favorable conditions than any other overseas production in such as China or Vietnam.
In addition, the KIC has been a good indirect opportunity for North Korea to understand not only the principles and institutions of capitalist operation such as tax and accounting systems; but they could also acquire technologies in consumer goods and light industries, operating factories, as well as know-how in running the industrial complex.
What were the reasons for the Complex’s closure in 2016?
The complete shut-down in 2016 was a policy decision made by the former South Korean government of President Park Geun-hye. In 2013, the KIC was temporarily closed for six months, but in August of that year, the South and the North re-opened it and agreed to ensure normal operation of the KIC without any political influence.
However, as North Korea continued its nuclear and missile tests, the South Korean government decided to suspend the complex as a method of pressure on Pyongyang. It was rumoured that the KIC was closed on the grounds that wages for North Korean workers were being diverted to fund the development of nuclear weapons and missiles, however this was an unconfirmed story. The Policy Innovation Committee of the South’s Ministry of Unification confirmed that the formal South Korean government’s decision to suspend the KIC was made due to this groundless statement that the wages of KIC would be diverted to North Korea’s development of WMD. The decision was made without legal process.
Furthermore, the testimony of a North Korean defector who stated that wages of North Korean workers were being diverted to nuclear missiles was confirmed as ‘groundless’. In fact, this person defected to South Korea even before the KIC was built. There was a huge policy failure in the process of deliberately closing down the complex.
In your advocacy for reopening the Kaesong Industrial Complex you have promoted the idea of the “Peace Economy”, can you explain what you mean by this?
The “Peace Economy” simply means the enhancement and expansion of inter-Korean economic cooperation. To be more specific in content wise, it means that the South and the North will achieve peace and economic prosperity through economic cooperation. The Peace Economy can be seen as the opposite of the divided economy of the past 70 years. The divided economy is a deformed economy in which the South and the North have been completely disconnected from each other geographically, politically, economically, and militarily.
The process of creating an inter-Korean economic community through inter-Korean economic ties and the sophistication of inter-Korean economic cooperation can be regarded as the Peace Economy; the economic, social and cultural effects of this Peace Economy will be tremendous. Peace is something that we cannot postpone. Based on the experience of operating the KIC, the Peace Economy is the most advanced way to establish peace.
In addition, the Peace Economy of the Korean Peninsula will be a key pillar of the Northeast Asian peace economy in the international political and economic context. In other words, the Peace Economy of the Korean Peninsula is meaningful as it can expand to the peace economy of Northeast Asia in terms of energy, resources, logistics, etc. It will be a watershed moment for the peace in East Asia and the world beyond Northeast Asia.
President Moon Jae-in is seen as being open to the idea of reopening the Kaesong Industrial Complex, what actions would this require from the North Korean government, and how likely is this to occur?
Four years have passed since the complete shutdown of the KIC, a symbol of inter-Korean peace and co-prosperity. The KIC was not just an industrial park, but a place that guaranteed the future value of peace, economy, (national) security and unification culture. What we gained over the four years since the shutdown has been the massive damage to businesses, the expansion of mutual distrust between the two Koreas and the reproduction of military tension.
It is true that there are practical constraints for the re-opening as several U.N. Security Council resolutions have been added after the complete shutdown in 2016, but the complex should be resumed to drive denuclearization. We need to look back on the core reason why the South and the North planned to start the KIC. We created the KIC in order to develop inter-Korean relations in a way that leads to the institutionalization of peace and that peace settlement promotes economic cooperation.
When the KIC expands, more South Korean companies will enter. With more companies, there will be several thousands of cooperative firms (suppliers) as well. In this way, the war might disappear physically. In addition, the two Koreas will generate significant economic benefits for each other.
South Korean President Moon Jae-in said that the Peace Economy would dismantle the last remaining Cold War regime on Earth and build a new order of peace and prosperity. At the same time, it is a matter of life or death for the people of Korean Peninsula. The Peace Economy is not an area of possibility, but a matter of necessity. Peace and economic prosperity are fundamental areas of national happiness for the people living in this divided country. For the sake of people’s happiness, the nation and politics must realize peace no matter what. In this regard, the earlier the declaration of the end of the war is better for Korean people, the sooner the Peace Economy, inter-Korean economic cooperation and the re-opening of the KIC are better.
Proper reunification is the final outcome of the long process of peace. After all, reunification is a long period of peace that has lasted for decades, and the peace process itself is unification. The unimaginable value and the experience of prosperity arising from the creation of several inter-Korean (joint) industrial complexes will be the process of peaceful reunification of the Korean Peninsula.
This interview has been edited.