(Updated) Kumgang/Kaesong update

UPDATE: Marcus Noland discussed this subject with the Daily NK.  Joshua has some thoughts at One Free Korea.

ORIGINAL POST: Hyundai Asan (HA) was having a good year up through July 2008.  At that point, inter-Korean trade volume had experienced a 23% year-over-year  increase—reaching US$880 million.   Commercial trade comprised 94% of this volume, up from 78%, and the number of firms conducting inter-Korean trade reached 526, up from 324.

…and then a South Korean tourist was shot by North Korean soldiers at HA’s flagship project, the Kumgang tourist resort.  Shortly after the shooting, the South Korean government halted tourism to Kumgangsan until the DPRK agreed to launch a joint investigation into the shooting and guaranteed the safety of tourists—which never happened.  As a result, the newly constructed six-star “Kumgang Ananti Golf and Spa Resort” desigend by Korean- American architect Min Sung Jin, sits unused, and revenues at HA are likely to fall to as low as 220 billion won (US$165 million), from about 300 billion won last year (Yonhap).

Despite the troubles at Kumgangsan, the joint-Korean projects on the west coast (Kaesong Industrial Zone and Kaesong tourism) remained unaffected.  The Kaesong Industrial Zone, the most ambitious and risky project, has continued to receive support from both the North and South Korean governments, and the Kaesong tours have grossed the North Korean government nearly $10 million since the project was launched in December 2007

Since I operate on the assumption that people will never turn down free money, even communist governments, I have been skeptical that the DPRK would jeopardize these investments.  As of this week, however, it looks like my assumption is wrong.  It seems the DPRK remains intent to cut off its nose to spite its face.  On November 9, 2008:

A North Korean military team visited an inter-Korean industrial complex in Gaeseong, North Korea, last week to check personnel and facilities there.

Local experts speculated that the unprecedented survey is aimed at putting pressure on the South, whose civic groups continue to send propaganda fliers containing criticism of the North’s dictatorship.

Five military officials looked around the industrial park, Moon Moo-hong, chairman of the Kaesong Indutrial District Management Committee (KIDMAC), said.

“They made the rounds of 11 companies in the complex in the morning and asked about the amount of investment, capital, the number of workers, their salaries and working conditions,” he said.

The officials, in military uniforms, asked about how long it would take to empty the complex several times during the six-hour inspection, he added.

They did not show an amicable attitude either, saying they were not visiting to give out business cards and they had nothing to talk about.

A government official asking to remain anonymous said the visit can be read as a threat to drive out South Korean companies from the complex. (Korea Times)

Who was leading the military delegation? Lt. General Kim Yong Chol:

Kim is widely known as Pyongyang’s chief delegate to inter-Korean general-level talks in South Korea, but this time, he assumed the title of policy chief of the National Defense Committee, the most powerful organization in the North. While inspecting infrastructure and companies at the complex, he reportedly asked, “How long would it take for South Korean companies to pack up and go home?” (Donga Ilbo)

Economically, this is a terrible move:

The complex employs 35,000 North Korean workers who earn 55 dollars a month (63 dollars including social insurance), an amount considered extremely high by North Korean standards. Though the communist regime deducts a significant sum from their salaries, workers there are clearly healthier and better fed than their malnourished neighbors. If each of these workers is assumed to be part of a family of four, the complex feeds 140,000 North Koreans. (Donga Ilbo)

Yet yesterday, the implicit threat to close the border was made explicit:

[On] Wednesday, North Korea’s military threatened to “strictly restrict and cut off” all overland passage through the military demarcation line starting Dec. 1 in protest over Seoul’s “confrontational” policy. (Yonhap)

and

A Red Cross office in the North with the only civilian phone link will shut. (BBC)

Hyundai Asan Corp. said that it has yet to receive an official notice from North Korea on the suspension of its tour program to a historic city in the North, despite Pyongyang’s announcement to restrict border crossings. (Yonhap)

So what has made the DPRK so angry that its leaders are willing to take such drastic action?  Judging only from the public statments by the DPRK’s military spokesmen, it seems to be the proliferation of balloons and anti-Kim Jong il leaflets that human rights groups are sending across the DMZ.   

This seems bizarre because balloons have been crossing the DMZ for decades.  The North Korean villages along the DMZ know exactly how to deal with these leaflets and it is fairly routine for work groups to be organized to go pick them up.  Additionally, North Korea’s leaders are smart enough to know that the South Korean government has no legal authority to prevent its citizens from undertaking these activities.  So the DPRK’s ultimate goals here must be greater than stopping human rights groups from sending the balloons.

Ironically, it is the same human rights groups that are sending the balloons across the border who are most vocal about closing down the Kaesong Industrial Zone and ending the Kaesong tourism project. This is because they believe that the revenues generated by these projects are diverted to support the government with little going to the actual workers.  If the North Korean government ends these inter-Korean projects it will be delivering its most vocal opponents a double victory—the DPRK will end up with more balloons and less South Korean money.  If I was in the business of sending balloons across the DMZ, I would be sending out fundraising letters right now telling potential donors how effective my strategy is. 

Anyhow, if all of this was not strange enough, North Korea has slowed dismantling of the Yongbyon reactor (again), claiming the US owes it energy aid, and asserted that they never agreed to a nuclear verification deal which gives inspectors permission to collect samples and remove them from the country for analysAre they just trying to squeeze more concessions out of the Six-Party talks? Or is this a calculated political strategy?

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An affiliate of 38 North