Revival of cross-border Kaesong project hinges on summit talks

South Korean businessman Park Yong-man checking uniforms produced in the basement of his Seoul office. It has been three years since his factory in the Kaesong Industrial Complex was shuttered amid soaring tensions. His textile company, which employe
South Korean businessman Park Yong-man checking uniforms produced in the basement of his Seoul office. It has been three years since his factory in the Kaesong Industrial Complex was shuttered amid soaring tensions. His textile company, which employed around 300 North Korean workers, was one of the 125 South Korean firms operating in the complex, a cross-border project.PHOTOS: AGENCE FRANCE-PRESSE
The Kaesong Industrial Complex area, as seen from a South Korean observatory post.
The Kaesong Industrial Complex area, as seen from a South Korean observatory post.PHOTOS: AGENCE FRANCE-PRESSE

SEOUL • It has been three years since Mr Park Yong-man's factory was shuttered amid weapon tests and soaring tensions, but next week's summit between the United States and North Korea may well signal the South Korean businessman's lucrative return to the North.

His textile company, which employed around 300 North Korean workers, was one of 125 southern firms operating in the Kaesong Industrial Complex, a highly symbolic cross-border business project that made hundreds of millions of dollars for Pyongyang.

Seoul shut down the complex in response to a nuclear test and missile launches by the North, claiming that profits from the North Korean border city were funding Pyongyang's provocations.

Despite toughened international sanctions against the North for its weapon programmes - which currently make restarting Kaesong almost impossible - the recent rapprochement on the Korean peninsula has renewed hopes for businessmen such as Mr Park.

"This will be my fourth excruciating year," said Mr Park, who has been struggling to keep his business afloat since leaving Kaesong, where he had access to hardworking, low-cost skilled labour.

Like other businessmen in Kaesong, Mr Park paid the North Korean government US$70 (S$95) a month for each worker it provided - and critics say employees may have received only a fraction of that.

Mr Park said that since the closure, he has visited more than a dozen countries trying to find the ideal base for his operations. "And the answer was Kaesong," he said.

He now runs two factories in China and Vietnam and a small production line in the basement of his Seoul office. When Agence France-Presse visited, five workers were diligently stitching uniforms for a Saudi Arabian cement company in a room ringing with the soft whir of sewing machines.

A survey conducted by the Korea Federation of Small and Medium Business last year showed 96 per cent of South Korean firms that had operations at Kaesong wished to return. Normalising operations at the complex was one of the key agreements reached between North Korean leader Kim Jong Un and South Korean President Moon Jae-in at the Pyongyang summit last September.

Mr Kim said earlier this year that he wanted to reopen Kaesong "without any preconditions". The dovish Mr Moon has called cross-border economic cooperation "a blessing", but an intricate web of sanctions tightened since the 2016 closure has halted further action. "For now, reopening the Kaesong Industrial Complex is hard," said Mr Kim Kwang-gil, a lawyer who was stationed in the factory zone from 2004 to 2013.

 
 
 

The tightened sanctions include bans on forming joint ventures with Pyongyang and operating financial institutions, such as a bank for the payment of wages, inside the impoverished state.

The United Nations sanctions also prevent exports of textile - a key product manufactured by Kaesong firms - from North Korea, and the US has banned all products manufactured with North Korean labour.

The transfer of bulk cash for workers' wages has been banned by the UN Security Council, and paying North Korea in US dollars, as it did before the shutdown, would now be a violation of US sanctions.

Seoul could seek exemptions from the UN, Mr Kim Kwang-gil said, as it did for a cross-border railway project last year.

But these exemptions have so far been temporary and would not be ideal for guaranteeing Kaesong's future, said Korea Economic Institute senior director Troy Stangarone.

Washington is reportedly mulling over sanctions relief for Pyongyang in exchange for a significant denuclearisation step ahead of US President Donald Trump and Mr Kim Jong Un's second summit in Hanoi.

Ahead of the summit, Mr Moon told Mr Trump that Seoul was willing to "share the burden" with the US by resuming joint economic projects with the North, supporting it as it goes through the denuclearisation process.

The biggest sticking point in restarting the factory park is its potential use as a cash cow for the nuclear-armed North.

In 2017, Mr Moon denied claims by his predecessor that around 70 per cent of some US$546 million spent at Kaesong was used for developing Pyongyang's arsenal.

The North's weapon programme benefited from Kaesong, Mr Stangarone said, even if the factory park did not directly finance it.

"It helped provide Pyongyang with the hard currency it needed to make purchases internationally - some legitimate, some related to its weapon programmes," he added.

South Korean Foreign Minister Kang Kyung-wha told lawmakers last month that Seoul needed ways to reopen the complex without an inflow of hard currency.

Mr Kim Kwang-gil suggested that retailers could open outlets in the complex, where employers would pay for workers' purchases.

But that would cut Pyongyang out of the funding loop, Mr Stangarone pointed out, asking: "Would North Korea be willing to accept an alternative form of payment?"

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on February 22, 2019, with the headline 'Revival of cross-border Kaesong project hinges on summit talks'. Print Edition | Subscribe