South Korea's tool for northern diplomacy

The Kaesong Industrial Complex is the only industrial special administrative region that still exists as a joint agreement between North and South Korea. Following the sinking of the ROKS Cheonan, relations between the two countries deteriorated significantly, with South Korea accusing the North of the attack and the North subsequently denying involvement.

An international investigation condemned North Korea, but the country maintained its innocent, which has created a polarised dynamic between the North and South once more, for the umpteenth time since the end of the Korean War.

For many political observers, this is part of the normal ebb and flow of relations between the two countries, crises and reconciliatory gestures are common features of diplomacy between the two countries and the Kaesong Industrial Complex plays a critically important part in this dynamic.

Covering an area of around 66 square kilometres within North Korea territory, the industrial city is demarcated by the North as a ‘special zone’, one outside their direct authority and therefore capitalist pursuits are allowed, and under special labour laws, North Korean and South Korean workers are able to work side-by-side, though inequalities between North Korean and South Korean workers have become obstacles to reconciliation many times in recent decades.

This industrial complex is vitally important to both countries. For South Korea, it allows wholly capitalist corporations to benefit from cheap North Korean labour in order to compete with the manufacturing dominance of China, while for North Korea, it provides the struggling communist country with a means by which to inject hard foreign currency into the economy amid a spate of sanctions and currency regulations directed at its nuclear ambitions and alleged role in the Cheonan sinking.

The industrial complex, in addition to its literal, physical, existence as common ground between the two countries, is also a figurative common ground over which South Korea and North Korea can haggle when trying to intimidate or reconcile when trying to placate. South Korean news reports often feature the industrial complex in their bulletins for this reason.

For instance, in the wake of the Cheonan sinking, South Korea cut in half the quota of SK nationals it would allow to work in the industrial complex. This reduces the number of South Korean managers from 1000 to 500, which severely undermined the production capacity of the complex and led to the lay off of many North Korean workers.

The move was categorised by the South Korean government as a security measure. They feared that their workers may be taken hostage and used as leverage if diplomatic relations, which had essentially been severed, deteriorated further. But, many in the South Korea news media and North Korean press saw the move as twin-edged, doubling up as an economic retaliation by South Korea.

However, under intense pressure from South Korean firms, the government eased these restrictions and allowed up to 600 South Koreans to work in the complex. As a further reconciliatory gesture, the government announced to South Korea news media in September, 2010 that they would increase the limit once more to 900.

A few days later, a gesture from the North manifested itself in the form of a plan to establish a worker’s barracks within the complex that would provide easy access to North Korean labour. This gesture on the part of North Korea was an about-turn from their June, 2009 stance when they demanded that worker’s salaries be increased to US$300 and threatened to cancel or rent and wage agreements with the site.

The angst expressed by North Korea was primarily a threat in response to international sanctions, which South Korea had called for and supported, but also a legitimate concern with the working conditions in the industrial complex. North Korean workers, well-educated and fluent in Korean, are an attractive employment pool for South Korean firm, which are able to pay them around US$75 per month, which is around 5% of what a South Korean worker would be offered and half the current average workers wage in China.

The park may, therefore, reasonably be categorised as exploitative. The reasonable response to such a situation would have been to request moderate wage increases, however, and this was a policy that North Korea later adopted after the passion of political confrontation had been spent.

The goodwill gesture of a planned worker’s barracks was amiably received in South Korea.

“If the North side operates a dormitory to increase supply of workers, it would not be bad for companies there,” a South Korean official told the Yonhap news agency. According to recent reports, there is a worker shortage of around 24,000 at the industrial complex and the barracks would be a step toward rectifying this, which would benefit South Korea’s industrial sector.

The Kaesong Industrial Complex’s significance then is more than just economic. It is home to over 120 South Korean companies and employs 44,000 North Koreans and nearly 1000 South Koreans and exports textiles, footwear, watches and kitchenware, but it is also an important rallying point for reconciliation. A piece of land that can be used as an excuse for goodwill gestures, which are integral to easing tensions between the two countries when one feels slighted by the other.