Kaesong North-South Sunshine

Kaesong promised us peace and reform. It delivered conflict, tension, and exploitation.

In April 2013, Kim Jong Un pulled 50,000 North Korean workers out of Kaesong, in retaliation for South Korea’s support for U.N. Security Council Resolution 2094. The shutdown lasted for five months and cost investors (and ultimately, the South Korean government that still subsidizes them) millions of dollars. Kaesong eventually recovered to pre-shutdown levels of operation, but the shutdown probably scared away potential foreign investors for years. A few months after the shutdown ended, a new dispute arose when North Korea told Kaesong investors to pay back taxes for the period of the shutdown.

Today, Kaesong is the subject of another North-South impasse. In February, Pyongyang announced a minimum “wage” increase of $4-per-month-per-worker. Seoul refused to accept the increase, told South Korean firms not to pay it, and threatened those that did with an unspecified “corresponding punishment.” For its part, Pyongyang threatened those that didn’t pay with a 15% “arrears charge.” Some of the South Korean firms (49 out of 124) defied their own government and paid anyway. Now, the North Korean workers have begun a work slowdown:

Seoul has requested its companies not to send out March paychecks, vowing to punish violators. Despite the warning, 49 out of 124 South Korean companies have paid March wages to the North’s workers apparently after threats from the North.

The 10-day period of the wage payment for April began on Sunday, signaling for more tension between the two Koreas. The Ministry of Unification said that there has been a reported work slowdown at the complex.

“South Korea cannot accept North Korea’s unlawful activities,” Lim Byeong-cheol, the ministry spokesman, said in a press briefing. “The North should come to the talks to resolve the wage row after immediately ending such activities.”

Many of the firms receive subsidies from the South Korean government, which is to say, they’re middlemen for subsidies by Seoul to Pyongyang. That makes it hard to say what consequences Seoul’s “punishment” would impose on Pyongyang, or the investors. Either way, it’s fair to say that this won’t help Seoul’s efforts to attract foreign investors.

Renewed attention on Kaesong’s opaque wage arrangements and labor standards won’t help, either. Although the North Korean government — which is undoubtedly behind the slowdown — is borrowing a tactic from independent labor unions, Human Rights Watch reminds us that the workers aren’t behind this slowdown, and probably will not benefit from it:

Although the Kaesong Industrial Complex’s law directs the South Korean companies to pay the salaries in cash directly to the workers, North Korea requires workers’ salaries to be given to the government for distribution to the workers. Not surprisingly, the result is the workers only get a small fraction of what they’ve earned. These opaque and unaccountable arrangements make it unclear whether the workers will benefit from the raise in their salaries, or whether Kaesong’s political commissars will just pocket the increase.

The South Korean media has been speculating beyond the issues of wages to ask whether this action creates a renewed priority on North Korea’s unilateral decision making. Most commentators seem less than interested in the plight of the North Korean workers, who face certain retaliation if they stand up against Pyongyang’s abuses, or in the difficulties faced by the South Korean investors who increasingly have little say in issues of the management of the Kaesong Industrial Complex.

Kaesong’s workers only work for the factory owners indirectly. Their real boss is Kim Jong Un. That makes them pawns in a dispute between their real boss and their stepboss. For the last several years, Pyongyang has earned (by some estimates) $90 million annually from Kaesong, either through direct taxation of the companies that operate there, or “by appropriating an undisclosed amount of salary” from the North Korean laborers. It has never even been clear how much of their “wages” the workers really receive, and it has never been clear what Pyongyang uses the money for, although the Treasury Department is interested in the answer. What’s really at stake here is the $450,000* this “wage” increase would reportedly benefit Kim Jong Un.

The Kaesong Industrial Complex opened in June 2004 and has become an important window for the outside world to peer into a sliver of North Korea. North Koreans from remote, rural provinces learn about the outside world through Kaesong. But that’s not enough to make up for the violation of workers’ basic human rights to receive their pay, to have their say, and to organize their own, independent unions.

The Kaesong law governing working conditions in the complex falls well short of international standards, especially with regard to the workers’ right to organize without hindrance, elect their own representatives, form independent labor unions and bargain collectively. Also forgotten in the rush to raise wages was North Korea’s failure to protect women workers from sex discrimination and sexual harassment, and to keep children away from hazardous labor.

Instead of arguing about the increase in salary, the South Korean government should be demanding that North Korea stop playing middleman and ensure that the workers in Kaesong receive all of their salary directly, not just the slivers of their pay that Pyongyang agrees to share with them. [Human Rights Watch]

North Korean arbitrariness, political risk, and the lack of access to U.S. markets have prevented Kaesong from reaching its full potential. Until Kaesong’s labor and wage arrangements are clarified, competing manufacturers and human rights groups can stop Kaesong’s imports from entering U.S. markets using this regulation, which allows interested parties to petition U.S. Customs and Border Protection to stop imports made with “convict labor, forced labor, or indentured labor under penal sanctions” from landing in U.S. ports. Because Kaesong’s goods are manufactured, in part, in North Korea, their import is also restricted under Executive Order 13570, an order imposed in response to North Korea’s continued weapons development.

Kaesong’s proponents promised us it would drive economic, social, and political change in the North; the reality has been barbed-wire capitalism. Instead of bringing financial transparency to the North, it has clashed with and diluted the financial transparency requirements of U.N. Security Council resolutions. Instead of allowing South Korea to influence and disarm the North, it has been a political lever for North Korea to influence the South, and to deter the South from imposing consequences on its nuclear testing. Instead of easing inter-Korean tension, it has been another source of tension and conflict. Contrary to promises that it would pacify the DMZ, it did not prevent the North Korean attacks on the Cheonan and Yeonpyeong Island in 2010. Contrary to promises that it would become an international manufacturing center, Kaesong’s investors are overwhelmingly South Korean. Indeed, the North’s behavior could be mistaken for a willful design to prevent Kaesong from outgrowing the capacity of its internal security services to monitor everyone who works there.

Once again, we’re left asking, “Who changed whom?” A decade after the start of manufacturing there, there’s little sign that Kaesong will keep these promises, or ease Pyongyang toward meeting the standards that apply to the rest of humanity.


  1. You forgot to mention what progress toward reform and opening in NK the influx of choco pies through Kaesong was having until the death of Kim Jong Il. Then he died and his son ate them all.


  2. “You forgot to mention what progress toward reform and opening in NK the influx of choco pies through Kaesong was having until the death of Kim Jong Il. Then he died and his son ate them all. ”

    My week was made.


  3. You’d be surprised to hear that there are a number of SMEs waiting to sign up for the reopening of Kaesong.

    dirt-cheap labor + finished goods stamped with ‘Made in Korea’



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