Like most people, I don’t know what the genius behind this shutdown strategy realistically expected to accomplish with it. Its sudden, and apparently pressured, abandonment suggests that its mastermind didn’t think through its potential economic or political consequences, and that the decision was largely motivated by emotion and impulse, most likely egged on by a few yes-men in an echo chamber. He will (and should) pay significant economic and political costs for it. Potential investors, foreign governments, domestic government officials, and ordinary citizens will now question his capacity — and the capacity of those around him — for competent governance, or to create a safe place to do business. Indeed, it is those who are associated with him politically who must be the most bitter toward him.
Obviously, I’m talking about Kim Jong Un’s shutdown of the Kaesong Industrial Park.
Incidentally, and on a completely unrelated note, you may have heard that I had some unscheduled time off recently. I’m glad to report that I used the time productively. I did plenty of reading, writing, long walks with my wife, repair projects, and finally finished these:
The frames are oak, with mortise-and-tenon joinery. They were inspired by a window lattice I saw at Toksugung Palace during my Army days in Korea, years ago.
I was unhappy with the news that Kaesong would reopen, because Kaesong is based on the thoroughly discredited idea of bribing North Korea into reform and disarmament. Three nuclear tests later, the Security Council (including, at the time, South Korea) agreed to adopt UNSCR 2094, whose significance is its shift toward cutting off North Korea’s potential sources of funding for its WMD programs. If Kaesong is one of those funding sources, then it undermines that strategy. There’s something irreconcilably inconsistent about giving someone mouth-to-mouth while you’re strangling them, unless you happen to be a German dominatrix.
A key element of 2094 is that it shifts the burden of investors. It’s no longer sufficient to say that you don’t really know how Kim Jong Un will spend the money you pay him; UNSCR 2094 requires member states to “prevent the provision of … any financial or other assets or resources … that could contribute to the DPRK’s nuclear or ballistic missile programmes,” or other sanctioned activities, such as luxury goods imports. Do you really suppose the South Korean government or any of Kaesong’s investors know how Kim Jong Un is spending the money, or can exclude the possibility that he will use it for sanctioned purposes? Our Treasury Department can’t. If not, their financial arrangements violate UNSCR 2094.
Fortunately, attempts to restart Kaesong in safe mode are working about as well as … well, restarting a PC in safe mode. A high-profile planned conference of international investors that had been scheduled for this week had to be put off due to the North’s failure to lay the groundwork for rebuilding Kaesong’s infrastructure.
South Korea said Monday that it has postponed an investor relations event planned for the end of the month at a joint inter-Korean factory park in Kaesong.
The event that was originally set for Oct. 31 was arranged to attract foreign investors to set up factories at the Kaesong Industrial Complex, which is currently home to only South Korean companies. [….]
“Seoul sent the message to the North last Friday adding that under present circumstances, the reason for holding the event cannot be met,” a unification ministry official who declined to be identified said. He said the decision reflects the lack of progress made in talks to enhance cross-border communication and travel between Kaesong and the South.
Negotiations in these areas were part of the agreement reached to normalize operations at the industrial complex.
“As is known, negotiations on Internet connectivity, mobile phone use, utilization of radio frequency identification tag to ease travel and customs inspections have made no headway since the North called off working-level talks for the Sept. 26 meeting,” the official said. He said since no headway was made in matters that are critical for foreign investment, it has been decided that there is no point in holding the investors event. [Yonhap]
This Daily NK report, by contrast, suggests that the North actually delayed the conference, but this Joongang Ilbo report says that the North agreed to the delay at the South’s suggestion, which is still an unusually compliant response for North Korea. The Chosun Ilbo says that the North is giving the South the cold shoulder because it really wants Kumgang to restart, too.
Although most of the factories at Kaesong are back in production, both the southern managers and the northern workers continue to suffer from the lingering effects of the four-month shutdown.
Of the initial 123 South Korean companies, 118 South Korean companies returned to the Kaesong complex since the reopening and currently employ some 44,000 North Koreans, roughly 80 percent of the workforce before the shutdown in April.
Prior to the shutdown, the factory zone was home to 123 South Korean companies with some 53,000 North Korean laborers. Five firms have not restarted production for various reasons.
A month has elapsed since the resumption of operations on Sept. 16, but South Korean firms still face challenges as demand for their products plunged amid the prolonged tensions on the peninsula. The fall in demand has led to a cash shortage and created a vicious cycle in their business operation. [Yonhap]
The true picture is probably gloomier than this on closer examination:
South Korean firms at Kaesong, however, said they are facing liquidity crisis as their earnings remain weak as buyers are seeking deals at companies located at safer places less affected by volatile political situations.
“We already spent the compensation from the government to pay back bank loans,” another official from a Kaesong-based firm said. “Although we want to make a profit, there are no opportunities.”
A group of electronic firms in Kaesong echoed the view, adding that the companies will not be fully normalized until the uncertainties are abated.
“Out of 45 electronics and machinery firms in Kaesong, only 47 percent have operating factories, at least partially,” the group said in a statement urging two Koreas to resume talks in fully normalizing the complex.
“While the government says around 70-80 percent of the area’s factories are in operation, market watchers here believe the ratio hovers around only 50 percent,” another official from an apparel maker said. “Although all workers are showing up to work, nearly half of machinery are turned off.”
As Kaesong’s existing investors continue to struggle under the weight of last spring’s losses, the South Korean government is considering various bail-out options. (In a related development, the South is also meeting with Kumgang investors, to discuss possible bail-out options for them.)
At the same time, some of the North Korean workers who conceded too much in their “criticism” sessions after the April closure are also having problems getting their old jobs back, or any jobs, for that matter:
As the Kaesong Industrial Complex slowly moves toward a return to normal production, a number of its former employees have been dismissed by the North Korean side as a result of so-called “ideological problems,” Daily NK has learned.
A source from Shinuiju in North Pyongan Province reported on the 4th, “During the KIC shutdown in April, ideological sessions were held where some workers confessed they had been influenced by the impure ‘capitalist wind.’ They were then dismissed and sent back to their family hometowns. Upon hearing that the complex was to reopen, some had hoped to be reinstated but the authorities ignored this. On the contrary, they actually worked to isolated them from everyone else.”
“The Upper [the authorities] just instructed them to go and find work elsewhere; that was it. But no matter how good they are after working for ages in Kaesong, no enterprise or factory wants to use them because they are tainted goods now.” [Daily NK]
Kaesong turns out to be a risky proposition, whatever your nationality.