'Kaesong is the answer': South Koreans pin hopes on shuttered complex

South Korean businessman Park Yong-man checks uniforms produced in the basement of his Seoul office on Feb 14, 2019. He has struggled to keep his business afloat since leaving Kaesong.
PHOTO: AFP

SEOUL - It has been three years since Park Yong-man's factory was shuttered amid weapons 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 weapons programmes - which currently make restarting Kaesong almost impossible - the recent rapprochement on the Korean peninsula has renewed hopes for businessmen like Mr Park.

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

Like other businessmen in Kaesong, Mr Park paid the North Korean government US$70 (S$94.55) a month for each worker it provided - and critics say employees may have received only a fraction of that.

Since the closure, Mr Park said he had visited more than a dozen countries trying to find the ideal base for his operations.

The Kaesong Industrial Complex, which suspended operations since the previous South Korean government unilaterally closed it down in February 2006 over Pyongyang's nuclear test.

"And the answer was Kaesong," he added.

He now runs two factories in China and Vietnam and a small production line in the basement of his Seoul office. When AFP 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 that 96 per cent of South Korean firms who had operations at Kaesong wished to return.

WEB OF SANCTIONS

Normalising operations at the complex was one of the key agreements reached between North Korean leader Kim Jong Un and the South's President Moon Jae-in at their summit in Pyongyang 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 co-operation "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 new measures 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 textile exports from North Korea - a key product manufactured by Kaesong firms - and the US has banned all products manufactured with North Korean labour.

The transfer of bulk cash for workers' wages is banned by the 15-member council and paying North Korea in US dollars, as it did before the shutdown, would now be a violation of Washington's 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 Mr Trump and Mr Kim'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.

CASH COW

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 weapons programme "benefited" from Kaesong, Mr Stangarone said, even if it 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 weapons 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.

Lawyer Kim 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?"

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