The Kaesŏng Industrial Region (KIR) or Kaesŏng Industrial Zone (KIZ) is a special administrative industrial region of North Korea (DPRK). It was formed in 2002 from part of the Kaesŏng Directly-Governed City. On 10 February 2016, it was temporarily closed by the South Korean government and all staff recalled by the Park Geun-hye administration, although the former President of South Korea, Moon Jae-in, signalled his desire to "reopen and expand" the region in 2017.
Its most notable feature is the Kaesŏng industrial park, which operated from 2004 to 2016 as a collaborative economic development with South Korea (ROK). The park is located ten kilometres (six miles) north of the Korean Demilitarized Zone, an hour's drive from Seoul, and was with direct road and rail access to South Korea. The park allows South Korean companies to employ cheap labour that is educated, skilled, and fluent in Korean, whilst providing North Korea with an important source of foreign currency.
, 123 South Korean companies were employing approximately 53,000 DPRK workers and 800 ROK staff.
At times of tension between North and South Korea, southern access to the Industrial Park has been restricted. On 3 April 2013, during the 2013 Korean crisis, North Korea blocked access to the region to all South Korean citizens. On 8 April 2013, the North Korean government removed all 53,000 North Korean workers from the Kaesŏng industrial park, which effectively shut down all activities. On 15 August 2013, both countries agreed that the industrial park should be reopened.
On 10 February 2016, the South Korean Ministry of Unification announced that the industrial park would be "temporarily" closed down and all staff recalled, partly in protest over continued North Korean provocations, including a satellite launch and a claimed hydrogen bomb test in January 2016. The next day, the North announced it was expelling all South Korean workers and said it will freeze all South Korean assets and equipment at the jointly run factory park. All 280 South Korean workers present at Kaesŏng left hours after the announcement by the North.
Kaesong Industrial Park Construction started in June 2003, and in August 2003 North and South Korea ratified four tax and accountancy agreements to support investment. Pilot construction was completed in June 2004, and the industrial park opened in December 2004.N Korean Industrial Complex Made Ready For Seoul's Investment, Northeast Asia Peace and Security Network, 30 June 2004. Retrieved 2008-01-18.
Initial phase In the park's initial phase, 15 South Korean companies constructed manufacturing facilities. Three of the companies started operations by March 2005. First phase plans envisaged participation by 250 South Korean companies from 2006, employing 100,000 people by 2007.
Planned final phase The park was expected to be complete in 2012, covering 65 km2 and employing 700,000 people. The plan also called for a supporting zone, roughly a third the size of the industrial zone, that was meant for life-quality operations. Specifically, this meant the creation of residential areas, hospitals, shopping centers, and even a proposed theme park to attract tourists.
Organization The Kaesong Industrial Park used to be run by a South Korean committee that has a 50-year lease that began in 2004. Hyundai Asan, a division of South Korean conglomerate Hyundai, was hired by Pyongyang to develop the land.An Oasis of Capitalism, Newsweek, 19 September 2005. Retrieved at the Internet Archive on 19 January 2008 The firms took advantage of low-cost labor available in the North to compete with China to create low-end goods such as shoes, clothes, and watches.
In 2006, Park Suhk-sam, senior economist at the Bank of Korea, predicted the industrial zone could create 725,000 jobs and generate $500 million in annual wage income for the North Korean economy by 2012. Five years later, another $1.78 billion would be earned from annual corporate taxes levied on South Korean companies participating in the industrial project.
Firms operating within the park By the end of the first full year of operation, 11 South Korean firms were operating in the KIR. By 2006, the 15 initial firms had all begun production including JCCOM, Yongin Electronics, TS Precision Machinery, JY Solutec, Magic Micro, Hosan Ace, Romanson, Munchang Co., Daewha Fuel Pump, Taesong Industrial, Bucheon Industrial, Samduk Trading, Shinwon, SJ Tech, and Sonoko Cuisine Ware. In February 2016, shortly before the park was closed for the last time, the number of South Korean firms operating in the park had increased to 124. The different types of manufacturing performed in the park broke down to 71 textile and clothing firms, nine chemical product firms, 23 that dealt in metals and machinery, 13 that produced electronics, and eight firms of other kinds of production.
Obstacles The zone faces a number of obstacles. Among the most pressing are U.S. economic sanctions against the North, prohibiting imports of key technologies and goods, such as computers.
Wage and rent agreements
In May 2009, Pyongyang announced it unilaterally scrapped wage and rent agreements at the industrial park. In June 2009, they also demanded new salaries of $300 a month for its 40,000 workers, compared with the $75 they had been receiving prior. News24
In September 2009, a visit to North Korea by the Hyundai Group chairwoman led to a resolution to the North's demands, with mild wage increases and no change in land rents.
In 2012, wages were estimated at $160 per month, about one-fifth of the South Korean minimum wage, and about a quarter of typical Chinese wages.
Taxes and revenue In 2012, the Ministry of Unification was informed that eight of the current 123 companies had received a tax collection notice. The notices were made by a unilateral decision by North Korea. The eight companies were informed of a notice to pay ₩170,208,077 ($160,000 US) in taxes; two of the companies had already paid $20,000 in taxes to North Korea.
Unilateral decisions by the Central Special Direct General Bureau (CSDGB) to amend bylaws is a violation of Kaesŏng Industrial District Law, which requires that any revision of the laws be negotiated between the North and the South.
For the first time, in 2011, the companies in the KIR recorded an average operating profit of ₩56 million ($56,241 US), finally operating in the black after years in deficit.
Green Doctors Green Doctors, an NGO founded in Busan in January 2004, received official government permission to open a hospital in the region in 2005. Since then, it provided medical treatment to the workers at Kaesŏng until the closure of the complex. The doctors who worked there received no salary.
Cheonan incident In May 2010, following the sinking of the ROKS Cheonan and South Korea's response, North Korea severed ties with South Korea and shut its Consultative Office; however, existing activities in the zone maintained production activities, and transport and telephones to South Korea were operating normally.
2013 closure and reopening
On 3 April 2013, North Korea began to deny South Korean employees access to the Kaesong Industrial region. This came as tensions began escalating rapidly between Seoul and Pyongyang.North Korea blocks South workers from Kaesŏng zone BBC News. 3 April 2013. Accessed 3 April 2013 On 8 April, North Korea recalled all 53,000 North Korean workers from the Kaesong Industrial complex, fully suspending its operations. However, 406 South Koreans remained at the complex after its effective closure.Kim, Christine; Lee, Joyce.North Korea warns foreigners to leave South amid new threats of war Reuters. 9 April 2013. Accessed 11 April 2013
On 17 April, North Korea barred a delegation of 10 South Korean businessmen from delivering food and supplies to the 200 South Korean staff who remained in the industrial zone.N. Korea blocks S. Korean food delivery to Kaesŏng staff AFP News. 17 April 2013. Accessed 17 April 2013 On 26 April 2013, South Korea decided to withdraw all remaining staff, and on 4 May, the last seven South Koreans left the Kaesong Industrial Region, which thus was completely shut down.
On 4 July, both countries agreed in principle that the Kaesong Industrial Park should be reopened, as tensions between the two began to cool. Six rounds of talks were held without reaching a concrete agreement, with South Korea's insistence on a provision to prevent North Korea from closing the complex again in the future. During the first week of August, North Korea reiterated that reopening the complex was in both nations' interest. On 13 August South Korea said it would start distributing insurance payments to businesses in the complex, but also said it was open to new wording on the issue of joint control of Kaesŏng. The move, seen as precursor to formally closing the region, sparked a seventh round of talks which South Korea label as "final". An official agreement to reopen the complex was reached and signed on 15 August. The agreement included provisions designed to ensure against a similar shutdown in the future. A joint committee was formed to determine if compensation will be provided for economic losses caused by the shutdown.
On 13 September, before the reopening of Kaesŏng Industrial region, the two governments held a subcommittee meeting to iron out additional issues regarding entrance, legal stay, communication, customs and passing. This also discussed the resumption of tourism in the Mount Kumgang Tourist Region.
On 16 September, Kaesŏng was reopened after five months. All of the 123 companies operating in Kaesŏng experienced losses equaling a combined £575 million ($944 million).
2016 closure On 10 February 2016, in response to a rocket launch by the DPRK, South Korea announced that it would, for the first time, halt operations in the region, describing the launch as a disguised ballistic missile test. Seoul said all operations at the complex would halt, to stop the North using its investment "to fund its nuclear and missile development". The next day, the North announced it was expelling all South Korean workers and said it would freeze all South Korean assets and equipment at the jointly run factory park. All 280 South Korean workers present at Kaesŏng left hours after the announcement by the North.
On Thursday, 11 February, a few minutes before midnight, the South announced it had shut off the supply of electricity and water into Kaesong that supplied the factory zone.