Kaesong deal leaves more questions that answers

“Precisely what North Koreans do with earnings from Kaesong, I think, is something that we are concerned about.”

– David Cohen, Undersecretary of the Treasury for Terrorism and Financial Intelligence

I won’t conceal my disappointment that North and South Korea say they’ve reached an agreement to reopen Kaesong.  Doing so now would undermine that international financial pressure that will be necessary to disarm North Korea at a time when it’s showing signs of working, and when that pressure might help us achieve interests that matter far more than the mostly emotional reasons for keeping Kaesong open.

There are reasons for Kaesong skeptics to remain optimistic.  The most fundamental of these is that Kaesong is now so obviously a bad investment that if it does reopen, it won’t recover its pre-April output for years, if ever.  Its political climate is inherently unstable; investing shareholders’ money there is like building a nuclear power plant on a fault line.  Assurances from North Korea are unlikely to ease the concerns of analytical, unemotional investors.  In a time of rising international sanctions, Kaesong’s financial arrangements will (and should) also become difficult.

At least some of the current investors must be ready to cash out by now.  Their machinery hasn’t been maintained for months.  Their materials and finished goods have been mildewing in Korea’s record heat all summer.  The workers have been scattered to the four corners of North Korea.  Even if the negotiations proceed relatively smoothly, there will be weeks of delay before the workers, managers, materials, and machinery are reassembled and ready to resume work. Meanwhile, many of the Kaesong factories’ customers have found other suppliers.  Who wants a business relationship with a supplier who can’t guarantee a supply?

Fortunately, agreements in principle with North Korea never mean much, and they can have very short shelf lives.  There are still enough unresolved details to hide a few devils.

South Korean negotiators, entering what they described as a final round of talks, had spent more than 50 hours — over six meetings — pressing for such an assurance. The South had said that it would not agree to Kaesong’s reopening unless Pyongyang pledged that it would not again unilaterally shutter the plant.

The wording in the joint statement was vague and did not directly blame the North for the April shutdown. But it said both the “South and North” would guarantee the zone’s “normal operation.”  [WaPo]

There are unresolved questions of “if” and “when.”

Both sides, however, fell short of agreeing when to reopen the zone that has been idle since early April. They said only that the reopening would depend on how soon more than 120 impacted South Korean companies complete maintenance checkups on their facilities there.

A joint committee will be set up to supervise the future operation of the factory park and other related issues, including compensation for impacted South Korean plants, it said.

“Once the joint committee is set up and inspections and refurbishment of manufacturing facilities takes place, companies will be allowed to go back to the complex and start operations,” said a unification ministry official who requested that he not be identified. [Yonhap]

The way the negotiations played out may be more interesting than the outcome.  The North only conceded, if vaguely, to the South’s demand for more guarantees when the South said it was about to start making insurance payments to Kaesong’s investors, implying that it was about to shut Kaesong down for good.  Park handled the negotiation with a steadiness we haven’t seen in a South Korean president for decades.  One could almost be forgiven for thinking that Park was more eager to be perceived as wanting Kaesong to reopen than really wanting it.

The mirror image of Park’s toughness was the North’s uncharacteristic conciliation (at least by North Korean standards).  It’s curious–but on closer examination, not hard to explain–that North Korea began demanding talks to reopen Kaesong in May, just weeks after shutting it down.  In the end, Pyongyang appears to have acceded to most of Seoul’s demands, although I have to qualify this assertion by conceding that there’s much about the demands and the agreement-in-principle that I still don’t know.  Overall, however, this sequence suggests that Kim Jong Un miscalculated how Park Geun-Hye would react, and failed to foresee other critical events that would unfold two weeks later.  I’ll have more to say about these questions later this week.

4 Comments

  1. The UN commission of inquiry had a hearing in Seoul about cruelty in North Korean prisons. “But there appeared to be little interest in the issue in Seoul. Only a few dozen people, including journalists, attended the public hearing at a city center university.” Park Ju-min and Michelle Kim report for Reuters.

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