North Korean Economy Watch

UPDATE 91 (2014-1-14): ROK spends 1/3 of DPRK budget for FY 2913. According to Yonhap:

South Korea spent less than one-third of its fund intended to boost exchange and cooperation with North Korea last year, the unification ministry said Tuesday.

South Korea spent 296.4 billion won (US$280 million) last year, or 27 percent of the 1.09 trillion won earmarked, for the inter-Korean cooperation fund, according to the ministry, which handles inter-Korean affairs.

The figure represents the highest level in six years as the government paid insurance money to small South Korean companies that operate plants in the North’s border city of Kaesong.

The South Korean companies received insurance money worth 177.7 billion won due to the months-long shutdown of the inter-Korean joint factory park in Kaesong last year.

In 2008, the ministry spent 18.1 percent of the inter-Korean cooperation fund. The ratio dropped to 8.6 percent and 6.5 percent in 2009 and 2012, respectively, as inter-Korean relations soured.

The factory park resumed operations in September, more than five months after the North unilaterally closed it in anger over joint annual military exercises between South Korea and the United States. In August, Pyongyang pledged not to shut the park down again “under any circumstances.”

More than 44,600 North Koreans work at 120 South Korean firms operating in the park to produce clothes, shoes, watches and other labor-intensive goods. The project serves as a major legitimate revenue source for the impoverished communist country.

UPDATE 90 (2013-12-30): The ink has barely dried before the DPRK has seemed to breech it.  This time the DPRK has demanded that the firms in the KIC pay back taxes. According to Yonhap:

North Korea has demanded that South Korean firms operating in a jointly run factory park in the communist nation pay taxes to North Korea, an official said Monday, in an apparent breach of a September deal.

The North said in a notice last week that the firms in the factory park in the North’s western border city of Kaesong should pay taxes incurred between Jan. 1 and April 8, according to the official handling the issue at the unification ministry.

The ministry, which handles inter-Korean affairs, said the North’s demand did not make any sense, and it was in talks with North Korea over the issue.

The move comes three months after North Korea agreed not to collect taxes from the South Korean firms for 2013 to make up for their losses following its unilateral closure of the factory park on April 9.

In September, the sides resumed the operation of the factory park, a month after the North pledged not to shut it down again “under any circumstances.”

Although the North Korean government took a loss on “tax revenue” it still made plenty of money from the confiscated wages of its workers. According to the article:

The North earned US$80 million in wages for its workers last year.

UPDATE 89 (2013-11-24): Inter-Korean trade has started to recover.

UPDATE 88 (2013-11-13): The Korea Times reports that the Kaesong firms are getting loan payments deferred and a new round of talks is underway.  According to the article:

The government said Wednesday it will allow companies with factories at the inter-Korean Gaeseong Industrial Complex (GIC) to delay payment of loans due within the next six months.

“The due date for loans taken out from the state-run inter-Korean cooperation fund will automatically be pushed back six months,” said Park Soo-jin, vice-spokeswoman of the Ministry of Unification that handles inter-Korean affairs, Wednesday, during a regular briefing. “The amount equals to 46 percent of all loans provided by the fund.”

According to the ministry, 28 out of the total 123 companies, which have taken out loans totaling 9.7 billion won ($ 9 million), will benefit from this measure.

Up to date, companies that have factories in North Korea’s border city of Gaeseong altogether borrowed about 21.3 billion won ($ 19.9 million) from the cooperation fund.

The move by the government is aimed at easing the pressure on GIC companies strapped for cash in the face of declined production as a consequence of the five-month hiatus of operations because of heightened tension on the Korean Peninsula earlier this year.

In the same article, the Korea times reports on the latest round of talks between the DPRK and ROK over the management of the KIC:

Meanwhile, on the same day, working-level officials from the South and North met to discuss ways of better protecting investment at the GIC and promote its internationalization.

The meeting of two sub-panels of the Gaeseong joint management committee were held in the North’s border city, the ministry said.

“The two sub-panel meetings, the first since Sept. 26, are designed to bolster the overall global competitiveness of the GIC,” a ministry official said.

There are altogether two sub-panels under the larger GIC joint management committee that has taken charge of running the complex since operations resumed in September.

During the investment protection panel meeting, the two sides reportedly discussed the establishment of an official dispute settlement regime coupled with how to attract more foreign investors into the GIC.

Previously, the two Koreas agreed to hold an IR session on Oct. 31 but it was canceled when little headway was made in a separate sub-panel meeting to change rules dealing with travel, communication and customs at the joint complex in North Korea.

The ministry also said another meeting to discuss the rights and safety of South Koreans working in Gaeseong will be held today.

But the date for the travel and communication meeting has yet to be fixed because of its sensitivity.

Read previous posts below:

UPDATE 87 (2013-11-5): Some South Korean firms leave the Kaesong Zone. According to the Wall Street Journal’s Korea Real Time:

At least nine South Korean firms have ended or have decided to end business at the Kaesong Industrial Complex, just north of the inter-Korean military border, because of uncertain investment prospects and financial crunches following a five-month operational halt amid cross-border tensions.

Officials at the Unification Ministry in Seoul confirmed two of 123 South Korean firms in Kaesong had fully withdrawn from North Korea after selling out their business assets there. They withheld the names of the companies—one manufacturing electronics parts and the other textile.

Korea Exim Bank, which manages state insurance funds for South Korean firms in Kaesong, said another seven South Korean companies, which had leased land to build factories in the industrial complex, informed the state bank of their decision to give up and scrap their business plan.

South Korean firms are still reeling from months of suspended operations, with client orders still not back to normal following the long hiatus. The Unification Ministry said on Tuesday the number of North Korean employees in Kaesong had dropped to 43,000, 20% fewer than before April, because of reduced work.

“We were afraid that the factory in Kaesong—though accounting for only one-fifth of our total output–might continue to be a problem,” said a manager at Magic Micro Co., a South Korean electronics firm that has completely withdrawn from Kaesong and sold out its assets there.

A senior Korea Exim Bank official said another seven South Korean firms had abandoned their land leases for factories in Kaesong after waiting for North Korea’s permission for years in vain. “They could no longer wait and they could no longer bear uncertainty,” the official said.

The bank official also said the largely weak financing is another key reason for South Korean firms to leave Kaesong, adding 59 South Korean firms used state insurance funds to stay afloat during the work stoppage and 35 of them have yet to pay money back on time.

“If they keep failing to pay the money back, we will have to put their business assets up for auction according to law,” the bank official said. “Businesses trade in their assets in Kaesong as there are still South Korean firms which intend to move into North Korea.”

UPDATE 86 (2013-10-28): Ruling party lawmaker Cho Myung-chul not given permission by N. Korea to check out Kaesong Complex. According to the Hankyoreh:

North Korea notified the Ministry of Unification on Oct. 26 that it would accept the tentative schedule and delegation for the visit by members of National Assembly‘s Foreign Affairs and Unification Committee to the Kaesong Industrial Complex, which is scheduled for Oct. 30.

However, North Korea indicated that it would not permit lawmaker Cho Myung-chul to cross the border. Pyongyang’s decision means that Cho, a North Korean defector and Saenuri Party (NFP) lawmaker, will be unable to visit the Kaesong complex.

“By choosing not to allow me to visit the Kaesong Complex, North Korea has shown that it has not changed, and that it has no intention of changing,” Cho said in an Oct. 27 press release.

“This is an opportunity to draw attention to the flaws in Pyongyang‘s management of the complex, which is not designed to better the lives of the North Korean people, but rather to keep an unjust regime in power. I will keep working to resolve these problems.”

“If North Korea truly intended to demonstrate to those at home and abroad that it is committed to refraining from errors such as shutting down the complex, it would have shown the international community that it has changed and that it is capable of communication by granting me permission to visit the North.”

“If Pyongyang had done so, it would have reaped 100 times the propaganda effect both domestically and internationally that it hoped to achieve through holding an investment briefing for overseas corporations,” Cho said in the press release.

Cho defected to South Korea in 1994. He had been teaching in the economics department at his alma mater of Kim Il Sung University.

After coming to South Korea, Cho served as the director of the Center for International Development at the Korea Institute for International Economic Policy and as the head of the Institute for Unification Education at the Ministry of Unification.

Cho joined the National Assembly as a proportional representative after the 2012 general election.

UPDATE 85 (2013-10-23): Koreas ink deal on operations of Kaesong committee secretariat. According to Yonhap:

South and North Korea sealed a deal covering the everyday operations of the secretariat of a management committee that runs an inter-Korean industrial complex in the communist country, the South’s government said Wednesday.

The Ministry of Unification said the attached agreement is a follow-up to the broader pact reached on Aug. 29 that formally created the joint committee. The committee that opened for business on Sept. 30 gives Seoul equal say in the running of the Kaesong Industrial Park in North Korea.

Before Seoul and Pyongyang reached an understanding to reopen the inter-Korean factory park on Sept. 16, the North’s General Bureau for Central Guidance to the Development of the Special Zone ran the complex.

…

The latest agreement outlines operating hours, meetings, exchange of information, travel, communication and emergency protocol.

Under the pact, every possible convenience in movement will be offered to personnel assigned to the secretariat located inside the Kaesong complex to make it possible for the officials to carry out their duties.

The two sides also agreed to regularly exchange information and hold meetings that can allow the secretariat to act as an official liaison office between Seoul and Pyongyang.

The South will, moreover, be permitted to set up three communications lines between the secretariat and Seoul. The communication lines can be increased if situations warrant such a move.

UPDATE 84 (2013-10-16): According to a report in the Daily NK, the DPRK informed the ROK that it was not the appropriate time to host an investor expo in the KIC:

South Korean Minister of Unification Ryoo Kihl Jae, appearing today before the National Assembly Foreign Affairs, Trade and Unification Committee as part of an audit of the incumbent administration, revealed, “The North has notified us that ‘Under the current circumstances, it would be inappropriate to host the investment expo.’” The North Korean notification, in effect cancelling the event designed to help “internationalize” the Kaesong Industrial Complex, came four days after Seoul sent a message of its own expressing negative sentiment about the joint undertaking.

UPDATE 83 (2013-10-14): Seoul has delayed an investor event for the KIC over lack of progress in talks with the DPRK. According to Yonhap:

South Korea said Monday that it has postponed an investor relations (IR) event planned for the end of the month at the joint inter-Korean factory park in Kaesong.

The event was originally arranged to attract foreign investors to set up factories at the Kaesong Industrial Complex that is currently home to 123 South Korean companies.

“Seoul sent the message to the North last Friday,” a unification ministry official said. He said the delay reflects the lack of progress made in talks to enhance communication, and travel to and from Kaesong.

Attracting foreign companies is part of the plan to transform the special business zone into a truly international production hub. Getting foreign companies to invest in Kaesong could also make it harder for Pyongyang to close down the complex.

UPDATE 82 (2013-10-8): Improvement of the KIC has been hampered. According to the Hankyoreh:

The overall worsening of relations between Seoul and Pyongyang is preventing progress at the Kaesong Industrial Complex. The “constructive normalization” of the complex, which resumed operations on Sept. 16, has been put on hold with no sign of a breakthrough.

The forming of the traffic, communication, and customs subcommittee, the focus of “constructive normalization”, has been delayed. In addition, no announcement has been made about the investment briefing for foreign companies, which is supposed to be held on Oct. 31.

The Unification Ministry indicated on Oct. 7 that North and South have not held any meetings of the joint committee for the complex or its four subcommittees since Sept. 26, when the customs and sojourn subcommittee convened for the final time. No future meetings have been scheduled either.

During the Sept. 26 meeting of the customs and sojourn subcommittee, discussion took place about the “legal protection” for South Koreans who are involved with accidents or incidents inside North Korea, but no progress was reportedly made.

The meeting of the traffic, communication, and admission subcommittee, which had been originally scheduled for Sept. 26, did not take place. The day before, North Korea notified the South that it was delaying the meeting.

As a result, no discussion is taking place on various matters, including multiple entries during a single day, access to mobile networks and the internet, and simplification of the admission procedure.

In regard to traffic and communication equipment, restrictions on bringing items into the North is quite strict because of UN sanctions on North Korea.

The subcommittee for international competitiveness, which is connected with internationalization, another key aspect of normalization of the complex, has also not held meetings.

While North and South are scheduled to hold a joint investor briefing for foreign companies on Oct. 31, no notice has been sent out about the briefing, and the organizers have not been able to accept any registrations from foreign companies.

Furthermore, since internationalization of the Kaesong complex is connected to the May 24 measures against North Korea, it is unclear whether the investor briefing will even take place at all.

In addition to this, the investment protection, management, and operation subcommittee, which deals with issues of wages and taxes, has yet to meet even once.

In addition, the Kaesong joint committee, which convened three times during negotiations for reopening the complex, has not met a single time since an agreement was reached to resume operations.

At the moment, all of the inter-Korean deliberative bodies, with the exception of the joint committee secretariat, are on hold.

Experts are questioning whether North Korea may not be content with only “normalization,” without any plans for further development.

UPDATE 81 (2013-10-5): According to the Daily NK, new workers are being sent to work in the KIC and the old ones have been sent off into the countryside.

A source from Shinuiju in North Pyongan Province reported on the 4th, “During the KIC shutdown in April, ideological sessions were held where some workers confessed they had been influenced by the impure ‘capitalist wind.’ They were then dismissed and sent back to their family hometowns. Upon hearing that the complex was to reopen, some had hoped to be reinstated but the authorities ignored this. On the contrary, they actually worked to isolated them from everyone else.”

“The Upper [the authorities] just instructed them to go and find work elsewhere; that was it. But no matter how good they are after working for ages in Kaesong, no enterprise or factory wants to use them because they are tainted goods now.”

According to the source, Kaesong workers were subjected to several weeks of self-criticism following the shuttering of the complex in April. They were made to write in detail their conversations with South Korean business owners, no matter how fleeting the encounters in question may have been.

As is the bread and butter of self-criticism sessions, workers were also encouraged to report on the mistakes or misjudgments of others. This led some to fabricate wrongdoings, in addition to those real issues as may have emerged.

“At the time the atmosphere was rough; people were revealing minor transgressions, mostly based on the presumption that the complex wouldn’t reopen anyway,” the source said. “People claimed they had overheard someone on the production line say ‘South Korean products are better quality,’ or that someone or other had smuggled stuff out of Kaesong to sell on the market.”

“These people have been marked and cannot return to Kaesong,” the source confirmed. “Overnight they went from good jobs with reliable salaries down to the ‘hostile class’.

“As they can’t talk about what happened or go to another job, these guys feel heightened animosity [toward the authorities]. Some said they would give up early and go to live quietly on their private plots in the mountains.”

However, despite the serious nature of the situation for those technically dismissed from their positions in this way, North Korea is highly corrupt. Therefore, it is unclear to what extent the political problems that emerged during and after the Kaesong Industrial Complex shutdown can be “made to disappear” through bribery.

UPDATE 80 (2013-9-30): Kaesong committee secretariat opens for business. According to Yonhap:

South and North Korea on Monday opened a joint body to coordinate in preventing another work stoppage at an inter-Korean factory zone that opened a fortnight ago after a five-month hiatus, the unification ministry said.

The permanent secretariat in the North Korean border town of Kaesong, staffed by both South and North Korean government officials, will assist the joint management committee tasked with running the business park, the ministry said.

This newly established steering committee gives Seoul an equal say as Pyongyang in the running of the complex, unlike in the past when the complex was run by a North Korean body, General Bureau for Central Guidance to the Development of the Special Zone.

Initially eight South Koreans and five North Korean officials will be assigned to the secretariat, it said.

UPDATE 79 (2013-9-27): Choson Ilbo reports that other foreign firms are looking at the KIC. Accordign to the article:

Foreign businesses have started taking an interest in the Kaesong Industrial Complex which reopened last week, but it remains to be seen whether they will develop enough trust in North Korea’s unpredictable ways to park their money and enterprises there.

Among potential investors are Korean-American clothing firms in Los Angeles, Radio Free Asia reported Thursday.

Lee Yoon-se of the Korean Apparel Manufacturers Association in Los Angeles told RFA that members of his group are looking at opening factories in the industrial park.

Korean-American businesses mostly look to Vietnam, China or Cambodia for cheap labor. The Kaesong complex has a geographical advantage, but the drawback is U.S. sanctions against North Korea. But Lee said the companies feel that hurdle could be overcome.

Other Korean-American clothing firms operating in China and Vietnam are also taking interest in the Kaesong complex, RFA said.

Meanwhile, Michael Ertl of German firm Me & Friends visited the industrial park with the head of shoemaker Samduk Tongsang, which operates a factory there.

They toured the complex and met with Hong Yang-ho, who heads the committee managing the complex. Samduk agreed to a joint investment deal with the German firm, a spokesman said.

“We resumed transactions with our overseas partners after the complex reopened. One foreign firm after another has been asking about the complex,” said Han Jae-kwon, chairman of the South Korean business association in the complex. “But we’ve noticed some hesitation because the North unilaterally postponed the reunions of families” separated by the Korean War.

Officials from both Koreas are expected to give a presentation to potential foreign investors at the complex on Oct. 31.

UPDATE 78 (2013-9-27): A potential German investor is checking out the KIC. According to Invest Korea:

The head of a German shoemaker crossed the border into North Korea from Seoul on Thursday to study a joint venture with his South Korean counterpart, officials said.

Michael Ertl, CEO of ME&Friends AG, was to tour a factory park in the North’s western border city of Kaesong with Moon Chang-seop, head of Samduk Tongsang Co., a South Korean shoemaker that runs a factory in Kaesong, according to company officials of the Korean firm.

Ertl and Moon were to return to Seoul later in the day.

It marked the first time that a foreign prospective investor has visited the park since earlier this month when South and North Korea reopened their jointly run factory park, the only remaining symbol of inter-Korean cooperation.

ME&Friends has resumed its business with Samduk Tongsang following the normalization of the factory park in Kaesong. The German company has imported about 300,000 shoes from Samduk Tongsang per year for more than 10 years.

UPDATE 77 (2013-9-26): The ROK has set next year’s budget for the KIC. According to Yonhap:

The budget for the joint industrial complex in the North’s border city of Kaesong was set at 115.6 billion won, up 25.4 billion won from this year. The factory park resumed operations earlier this month after nearly five months of suspension due to heightened security tensions.

UPDATE 76 (2013-9-25): N. Korea postpones Kaesong complex communications, travel sub-panel talks. According to Yonhap:

The Ministry of Unification in Seoul said Pyongyang called for a delay of the sub-panel meeting without giving a reason or setting up an alternate date. The meeting was set to take place at the Kaesong Industrial Complex on Thursday.

Issues on communications links include building infrastructure, allowing Internet access to factories at the North Korean border town and permitting South Korean workers to use their mobile phones. Improving customs inspections is also part of the agenda that is critical if the complex wants to become globally competitive.

The North had said earlier in the month that it will allow easier movement into the complex and expressed a willingness to incorporate radio frequency identification tags (RFID) to make it even easier to enter Kaesong from the South.

“Because of the abrupt move, only the sub-panel meeting that aims to strengthen the rights of South Koreans working in Kaesong will be held,” the ministry in charge of all cross-border relations said.

The meetings have been arranged as part of the landmark Aug. 14 deal to reopen the industrial zone that had been closed since early April after the North pulled out all of its 53,000 workers amid a spike in political and military tensions on the Korean Peninsula. South Korean factories started churning out products once more on Sept. 16, although they have yet to run at levels reached before the shutdown.

The communist country signed a deal creating a new joint management committee that gives Seoul equal say in the running of the complex. In the past the North’s General Bureau for Central Guidance to the Development of the Special Zone ran Kaesong.

The committee has four sub-panels and a dedicated secretariat to help establish new rules and safeguards that can prevent the North from unilaterally closing down Kaesong. The secretariat is expected to begin work next Monday.

UPDATE 75 (2013-9-20): Some new numbers on the KIC’s reopening (Business Korea):

Kaesong Industrial Complex, which reopened on September 16, operated normally during the holiday season, except for Chuseok on September 19. On September 17, normalization efforts continued as 335 South Korean employees went into the complex and 530 returned.

In total, 35,000 North Korean workers got to work on this day, an increase of over 31,000 the previous day. The utilization rate also improved to 56% from 53% the previous day.

Related infrastructure organizations such as Korea Electric Power, Korea Electrical Safety Corporation, and KT also continued their equipment checkups. Nurseries and cafeterias at a few companies are not normalized yet, and some companies are still checking their transformer checkups, delaying electricity supply.

“We’ve incurred much loss from closing the operations. South Korean employees and workers are cooperating in normalization efforts,” said one of the company personnel.

On the previous day, the Kaesong Industrial Complex South-North Joint Committee held its 3rd meeting and agreed to hold negotiations for the opening of an office for themselves on September 24. They also agreed to hold the seminar on joint investment in the Kaesong Industrial Complex on October 31.

UPDATE 74 (2013-9-16): Kaesong Zone declared open. According to Yonhap:

Of the 123 South Korean companies that have factories at the Kaesong Industrial Complex in the North’s border city of the same name, more than half plan to start trial operations and have asked North Korean workers to report to work, the Unification Ministry said.

The ministry said 820 South Korean managers and workers plan to cross over the border into Kaesong during the day, with more than 400 to stay overnight to oversee production operations there.

…

As part of the agreement reached last week to ease travel to and from the complex, the North has agreed to allow 11 separate crossing into Kaesong and 10 exits during the day. Travel restrictions to and from the park have been a source of inconvenience in the past since most entries into the North Korean border town took place in the morning at a handful of pre-set hours, with those unable to keep the appointed time being turned back and told to return another day.

In addition to the reopening of the industrial park, the two sides began the third round of joint management committee negotiations with the aim of enhancing the rights of South Korean workers at Kaesong.

The committee gives Seoul equal say in the running of the complex that in the past was effectively run by Pyongyang.

Seoul has insisted that workers who are accused of violating rules and held by North Korean authorities be allowed to receive counsel from South Korean officials, stating that such a move is part of the critical progressive development process of building trust and ensuring sustainable operations at Kaesong.

The North has so far been slow to respond to the request and sign an affiliated agreement that would bind the communist country to respect the rights of South Koreans.

The two sides also plan to continue talks on advancing communication links such as Internet connectivity and mobile phone use between Kaesong and South Korea, and adopting radio frequency identification tags to facilitate traffic over the demilitarized zone, a critical step to transforming the factory park into a truly international business hub.

Related to the talks, Kim Ki-woong, co-chairperson for the joint committee, told reporters before heading to Kaesong earlier in the day, that future talks will be centered on ensuring that Kaesong becomes internationally competitive.

“To reach this goal, there are still quite a few problems to resolve, even though the factory park itself has reopened,” he said. The official said that the committee will work to resolve all outstanding issues in an step-by-step manner.

According to Voice of America:

South Korean managers crossing the border Monday expressed joy and relief to be getting back to work.

Ji Yoon-tae, deputy chief of a South Korean company at Kaesong, says it has been very tough while the complex was shut down. He says he is sure his company has been having a hard time but, personally, it was really tough. From now on, he says, I hope everything works out well, that the complex becomes revitalized again, and everyone works for a vibrant Kaesong Industrial Complex.

…

South Korean companies say they lost about $1 billion from the suspension of factories producing textiles, watches, and parts for electronics.

As compensation, the North and South Korea agreed the factory owners would be exempt this year from paying taxes.

Officials from the two sides have been holding weekly meetings to discuss further details, including legal protections for South Korean workers and whether the North Koreans who walked should receive compensation.

The two sides also agreed to invite foreign investment from October, a key demand of Seoul to add international pressure on Pyongyang to discourage future shutdowns.

South Korea’s Deputy Minister of Trade, Industry and Energy Choi Kyong-lim told the Seoul Foreign Correspondents’ Club they hope many Chinese companies, in particular, will invest in Kaesong.

He says the importance of Chinese companies in Kaesong Industrial Complex is easily understood even if he does not explain. The location of Kaesong Industrial Complex is close to China. Also, he says, the regular wage in China is higher than the level of countries in Southeast Asia and continues to increase. He says it is important for Chinese companies to utilize North Korean labor at the Kaesong Industrial Complex where wages are low but productivity is high.

China is North Korea’s closest ally and believed to have the most, though limited, influence over Pyongyang.

Choi says South Korean and Chinese officials discussed the legal aspects of products made at Kaesong during recent free trade negotiations.

But it is not clear how much interest Chinese, or any other foreign companies, would have in investing at the factory complex.

The risk of political problems is still high, say political analysts, despite much improved inter-Korean relations.

Cho Bong-hyun, with the Economic Research Center of the Industrial Bank of Korea, says Kaesong at least offers better guarantees than other North Korea investments.

He says some foreign companies have invested and produced in cities in North Korea including Pyongyang. The investment in other cities, he says, has more risks than the Kaesong Industrial Complex. The Kaesong Industrial Complex has been created under the regulation of the Kaesong Industrial Zone, he says, and it is being operated under the agreement between the two Koreas.

So the complex has less risk for investment than others. In addition, he says, Kaesong has better infrastructure for production than other regions so foreign companies prefer it to other cities.

UPDATE 73 (2013-9-12): According to Yonhap:

South and North Korea will try to work out a deal aimed at enhancing the rights and safety of South Korean workers at their joint factory complex in the communist country in upcoming talks, a government source said Thursday.

Talks planned for Friday are expected to touch on issues that were not fully agreed upon during negotiations held earlier in the week. Marathon talks that ended early Wednesday yielded an opening date for the Kaesong Industrial Complex, effectively ending the five-month-long standoff.

…

The latest agreement also called for sub-committee panel talks to be held within the week to discuss issues that were not fully ironed out.

“Two sub-committee meetings touching on communications and travel, as well as rights governing people who are staying there for extended periods of time will likely be held,” a unification ministry official who declined to be identified said. He did not elaborate on the details but hinted that there is a possibility that headway can be made on key issues that can lead to an agreement.

Seoul has said that in the event of a South Korean national being detained, he or she should have the right to legal counsel. This move can allow South Korean officials to be present when the offender is being questioned by North Korean authorities.

“In past talks, the North has not rejected such calls made by the South, and since they had time to examine the proposal, we expect some sort of reply,” the official said.

This right is part of the “progressive development” process that Seoul seeks for the Kaesong factory zone, he added. Progressive development aims to lay a firm foundation for building trust and sustainable growth in cross-border relations.

Besides workers’ rights, the two sides are likely to touch on technical details related to improving communications like permitting Internet access at Kaesong, as well as the use of incorporating radio frequency identification (RFID) tags to ease cross-border movement to and from the inter-Korean factory park.

The ministry already said that RFID and Internet access issues can be resolved within the year, although it may take a bit longer to handle the issue surrounding the mobile phone use. Mobile phone issue needs to be approved by the North Korean military.

If the two sides see eye to eye on these areas, they may be able to sign affiliated agreements when the joint management committee meets next Monday. Affiliated agreements can force the North to implement what it already promised to do in the past.

Officials engaged in talks have hinted that compared with the past, the North seems more willing to listen to proposals. This may be due to the possibility that an agreement in Kaesong can affect upcoming talks to reopen the Mount Kumgang resort to tourism.

Seoul has called for talks to take place on Oct. 2 to discuss possibly resuming South Korean tours to the scenic mountain resort in North Korea that have been suspended since July 2008. The suspension followed the shooting death of a South Korean tourist by a North Korean guard.

UPDATE 72 (2013-9-10): Koreas agree to allow ROK engineers to stay at the Kaesong Industrial Complex to make repairs during the second round KIC committee meeting. According to the Korea Times:

“The North has accepted the South’s request of having South Korean workers in charge of checking infrastructures to stay at the GIC,” said an official from Ministry of Unification. “The South offered to do so because of the restored military hotline that would guarantee the safety of our workers there.”

…

Following the agreement, around 30 South Korean officials from the ministry, KT Corp., Korea Electric Power Corp. and Korea Water Resources will start their stay at the park to start repairing the infrastructures from Tuesday, according to the ministry.

n their second round of committee meeting, the ministry official said the two sides generally wanted the complete opening of the factory park and there was no discord in regards to calls for the progressive development of the Gaeseong park. However some differences exist when it comes to specifics, hinting that negotiations need to be carried out on dispute settlement and arbitration, as well as communications and travel issues.

Seoul has always insisted that before any resumption of operations take place, safeguards need to be set up to guarantee that the complex will not be shuttered down for political or military reasons, while Pyongyang has advocated an immediate reopening.

UPDATE 71 (2013-9-6): North and South Korea restore military hotline. According to Bloomberg:

North and South Korea restored their military hot-line in another sign of improving ties, bolstering efforts to reopen their jointly run industrial park shuttered in April at the height of tensions between the nations.

Officials from the two countries spoke today on the hot-line for the first time since March, when the North threatened war against South Korea and the U.S., the South’s Unification Ministry said in a text message. Previously, the line was used to communicate lists of South Korean nationals traveling daily to Gaeseong complex across the heavily armed border.

“The two governments are now talking on an official communications line,” Oh Gyeong Seob, a researcher at the Sejong Institute south of Seoul, said by phone. “This is a positive signal for the resumption of operations at Gaeseong.”

The restoration brightens prospects for the outcome of talks between the two countries scheduled for Sept. 10 at Gaeseong, where they will try to set a date for reopening the factory park.

Read more at NK News.

UPDATE 70 (2013-9-3): Kaesong management office warns companies not to start production (Yonhap):

The two Koreas agreed on Aug. 14 to reopen the Kaesong Industrial Complex that has been closed since early April. Under the agreement, North Korea effectively pledged to provide safeguards that will prevent it from unilaterally closing the complex again down the line.

Sources said the Kaesong Industrial District Management Committee (KIDMAC) sent a formal letter to 123 companies with factories in the North Korean border town last week forbidding production. It warned that failure to follow the guidelines could result in penalties for violators.

The Ministry of Unification that is in charge of all cross-border relations said that the letters were sent because the utility infrastructure at Kaesong in currently not up to the task of companies starting production.

If companies tried to produce goods now they would overtax the infrastructure systems, which could lead to blackouts and other problems, it said.

“Technicians need to upgrade the power lines, sewage treatment and water purification,” said a ministry official who requested anonymity.

He added that while most of the work needed to repair basic utilities services has been carried out since mid August, other work is pending.

The committee also made clear that North Korean workers who have been hired to help South Korean companies can only be used to repair factories for production.

Related to the orders issued, some companies said they were bewildered that the committee took such a high-handed approach toward businesses who only wanted to minimize losses caused by the five-month-long halt in operations.

UPDATE 69 (2013-9-2): The two Koreas engage in joint panel talks to set factory park reopening timetable (Yonhap).

The meeting between South and North Korea began at 10 a.m., and it marks the first ever joint committee talks aimed at creating guidelines for progressive development of a suspended factory park in the communist country and set a timetable for its full reopening.

At the start of the meeting represented by five officials from each side, South Korea’s chief delegate Kim Ki-woong and his counterpart Park Chol-su expressed hope that progress will be made.

The committee is made up of four sub-committees, and a permanent secretariat will be in charge of running the industrial park that remains the main economic link between the two countries.

The joint committee, which gives Seoul equal say in the running of the complex, will prevent Pyongyang from disrupting operations in the future.

…

The Ministry of Unification in charge of all inter-Korean relations said that the meeting held at a Kaesong complex support center in the North will concentrate on when to restart operations that have been shuttered for nearly five months.

Seoul has maintained that top priority must be given to preventing disruption to the normal business activities and to make changes to operating procedures to give the park international competitiveness.

The ministry said that opening the complex can take place after such deliberations have made headway.

Shortly before leaving for the North earlier in the day, Kim said every effort will be made so as to ensure that South Korean firms there can conduct business without worry and to allow the factory park to become internationally competitive.

“The aim (of the talks) is to allow Kaesong to be reborn and to make it possible for foreign companies to set up operations there if they desire,” the official said.

The North, on the other hand, has persistently called for an immediate opening and cited that many South Korean companies have already stated they can open factories this month.

Besides touching on guidelines and when the park may open, the two sides will deliberate on when the four sub-committees in charge of regulating and overseeing the movement of people, investment protection, communications and customs, and international competitiveness will hold their separate meetings and the joint secretariat will be created.

North Korean watchers in Seoul said that if the talks make headway, the complex may partially open, but if no progress is made, it may take time before operations resume.

Government insiders, who declined to be identified, said it may be premature to expect quick results at the talks.

“There is just not enough time to touch on all outstanding issues at the first meeting, and (we) predict it may be physically impossible for the heads of each sub-committee to hold one-on-one talks with their opposite numbers,” he said, pointing out that it takes time even to control the wording in agreements.

The ministry, meanwhile, said that 615 businessmen and engineers from South Korean companies are in Kaesong to look over facilities and work with North Korean workers to prepare for the reopening of their businesses. All are set to return to the South later in the day.

UPDATE 68 (2013-8-23): Bradley Babson writes in 38 North: 

My view is that the KIC agreement represents the first step of a careful effort by both countries to re-calibrate their relationship after 10 years of excessive largess from Seoul during the Sunshine Policy era and five years of excessive confrontation during the Lee Myung-bak administration. Both countries have contributed to ups and downs in the inter-Korean relationship and so it is wise for the new leaders to tread carefully in reframing their future relations. In this context, the KIC agreement represents an opportunity to build a more stable foundation for inter-Korean relations that could underpin the ability to address deeper and longer-term issues critical for the security and prosperity of both Koreas. It also provides an opportunity to make improvements in the policies governing the investments and operations in Kaesong that would make it more attractive for investors, more diversified in business models, and more linked to the domestic North Korean economy, thereby increasing its economic value and impact on that economic system.

Several features of the five-point agreement on reopening the KIC provide new openings to pursue these opportunities.

READ MORE HERE

UPDATE 67 (2013-8-19): Marcus N0land offers an unofficial english translation of the recently-adopted inter-Korean agreement on the KIC. You can read a PDF of it here. Noland’s comments here. Bradley Babson’s comments here.

UPDATE 66 (2013-8-17): South Korean officials visit Kaesong Complex. According to Yonhap:

A delegation of 30 South Korean officials made a cross-border trip to inspect facilities at a shuttered inter-Korean industrial park on Saturday, following a recent agreement between the two Koreas to resume its operations.

The officials’ trip to the Kaesong Industrial Complex comes three days after the Koreas agreed to reopen the troubled factory park that had been closed since early April.

According to the unification ministry here, the 30-person delegation is made up of officials from the Kaesong Industrial District Management Committee, telecom company KT Corp., and two state-run companies: Korea Electric Power Corp. (KEPCO) and Korea Water Resources Corp.

They inspected the facilities for electricity, communication and water, which have sat idle for the last four months, and returned home at around 5 p.m. Saturday, through the Customs, Immigration and Quarantine office in Paju, about 50 kilometers northwest of Seoul.

The KT and KEPCO inspection teams were positive about the conditions of electrical wiring and internal telecommunications lines and their viability for normal operations when the complex reopens.

“There seems to be no flaws with the power supply in the drainage system, maintenance or the production lines,” a KEPCO official said.

“I don’t think we’ll have any problems in the complex. Once the firms move back here, we’ll check up on each of them again,” an inspector from KT said.

On Monday, another delegation of 34 people, including environmental experts, will also visit the complex to check on infrastructure.

These trips will make it possible for South Korean companies to send their workers to the complex and start preparing for the resumption of production there.

The companies are also expected to head north soon to perform a checkup of their own on the facilities after the inspection team completes its job.

On Wednesday, the two Koreas agreed to reopen the Kaesong park, which was abruptly shut down in early April when the North pulled out its 53,000 workers hired by the 123 South Korean plants. Pyongyang had cited heightened tensions on the Korean Peninsula, caused by the South’s joint military exercises with the United States, as the reason for its action.

Under the recent agreement, the North pledged never again to close down the industrial park under any circumstances. The two sides, however, failed to agree on when to reopen the Kaesong complex, a result of the historic inter-Korean summit in 2000 and a symbol of inter-Korean reconciliation.

UPDATE 65 (2013-8-16):  The Institute for Far Eastern Studies (IFES) reports the following:

South and North Reach Agreement to Normalize Kaesong Industrial Complex

The seventh round of inter-Korean working-level talks for the Kaesong Industrial Complex (KIC) resumed on August 14. The two sides adopted a five-point agreement.

The agreement came after a sluggish process that took 129 days since the North first withdrew workers from the KIC and 40 days since the first inter-Korean working-level talks began.

The biggest success of the agreement is the confirmation of prevention of future closure of the KIC. After seven working-level talks, both sides reached an agreement through mutual concessions.

The first clause of the agreement states that the South and North agree to prevent recurrence of travel restriction and withdrawal of workers that could lead to the closure of KIC.

The South did not insist that the North take whole responsibility for closure of the KIC as Seoul had demanded early. Rather, it stipulated to 1) prevent recurrence of travel restrictions and withdrawals of workers of KIC, 2) permit secured travel of South Korean personnel to KIC, and 3) guarantee corporate property protection and normalization of work hours for the North Korean workers.

In addition, compensation for damages caused during the closure also saw concessionsfrom both parties. The South requested the North to provide compensation for losses accumulated and the North demanded the South also take corresponding action. Corresponding measures on the South calls for action by the government to provide financial support and tax breaks to businesses in KIC and the North must also provide compensation equivalent to the South.

In order to prevent a future recurrence of the recent situation, both parties agreed to establish the Joint Committee for the Kaesong Industrial Complex. The North initially suggested this and both sides agreed to this at the prime ministerial talks back in October 2007.

According to the Ministry of Unification, “The Joint Committee for the Kaesong Industrial Complex was established to discuss various issues related to the agreement, management, and operation, and it is a permanent consultative state body.” In other words, the previous Kaesong Industrial Complex Management Committee was privately operated and received directions from state authorities and showed difficulty in implementation of agreements but since it is turned over to a state entity, it would have direct control over the agreement.

The agreement also states to install subcommittees under the Joint Committee that directly oversees the compensation of losses and communications, transportation, and customs. Both sides agreed to sign an agreement for organization and operation of the Joint Inter-Korean Committee for Kaesong Industrial Complex.

A noteworthy achievement of this agreement is the arrangement on communication, transportation and customs. The South also suggested the internationalization of the KIC and the North is reported to have positively accepted the South’s proposal.

The issues of communication, transportation and customs were constantly raised by businesses of the KIC. President Park Geun-hye has pursued the internationalization of KIC since the launch of her administration. In the past, South Korean businesses had to make arequest three days prior to travel to the KIC,and use of landline phones were only permitted. However, the new agreement will allow for much efficient procedure, such as same-day request for travel as well as permit on the usage of mobile phones and the Internet.

With regard to internationalization, it includes the promotion of foreign companies, elevation of labor, taxation, wage, and insurance system to meet the level of international standards, and provide preferential tariffs to products exported to a third country. However, raising labor, taxation, wage, and insurance system up to the international standards is likely to be a huge burden to companies. The joint global investment conference is also drawing attention and is expected to help attract foreign investment and international attention to the complex.

UPDATE 64 (2013-8-9): Two Kaesong companies take insurance money. According to the JoongAng-Ilbo:

The South Korean government started to pay compensation for two companies shut out of the suspended Kaesong Industrial Complex as the two Koreas prepare for a seventh round of talks to reopen the factory park next week.

According to South Korea’s Ministry of Unification, the Export-Import Bank of Korea paid a total of about 5.5 billion won ($4.9 million) to two South Korean companies for the loss of their investments in the eight-year-old industrial complex, which has been closed by North Korea since April.

Under the law, if the jointly-run factory complex is shut by a North Korean violation of the inter-Korean agreement for more than one month, the owners of the 123 companies in the park are entitled to apply for compensation under inter-Korean business and cooperation insurance.

They can be compensated for up to 90 percent of the losses on their investments with a 7 billion won maximum per company.

A total of 109 companies have already been approved by the government for compensation.

When the owners receive compensation, they surrender their ownership of their assets in the complex to the government.

But few South Korean companies requested compensation. Aside from two firms, the owners of the remaining 107 companies have not made the request as of yesterday.

“Some owners say they will await the outcome of the seventh round of low-level talks,” a Unification Ministry official told reporters. “It’s the decision of each owner.”

The official said paying the insurance doesn’t signify that the government will walk away from Kaesong soon.

“Paying compensation doesn’t have anything with the upcoming talks,” he said. “It’s just a legal procedure.”

Even if a company is compensated, it can return the money and get back its assets in Kaesong.

After the South Korean government took the first steps to compensate the business owners Wednesday, North Korea abruptly accepted a proposal for a seventh round of low-level talks on Aug. 14.

“We are closely watching the upcoming situation,” an official of Shinwon Group, an apparel maker that has a factory in the Kaesong park, told the Korea JoongAng Daily by phone.

“But it doesn’t mean that we will refuse compensation someday,” he said. “There’s still no guarantee of the resumption of operations despite the positive signal from North Korea.”

UPDATE 63 (2013-8-7): North Korea lifts ban on South Korean workers at joint industrial complex. According to the Washington Post:

After weeks of fruitless negotiations, North and South Korea agreed Wednesday to hold one more round of talks next week in a last-ditch effort to reopen the jointly run Kaesong Industrial Complex on their border.

The agreement came after the North, breaking nine days of silence, consented to the South’s standing offer for “final talks” on the complex. Pyongyang proposed that talks be held Aug. 14, and the South accepted almost immediately.

But analysts say major obstacles remain, noting that two months of on-and-off sit-downs — some of which stretched well past midnight — have done little to thaw relations. In the most recent session, on July 25, officials briefly scuffled as the North Koreans tried to enter a press room to read a statement about the floundering talks.

UPDATE 62 (2013-8-7): Pyongyang suggested August 14 to hod talks on the KIC. According to Yonhap:

The offer, made in the form of a special statement by the Committee for the Peaceful Reunification of Korea (CPRK), comes more than a week after Seoul demanded “final talks” to resolve all outstanding issues surrounding operations at the Kaesong Industrial Complex. So far, six rounds of inter-Korean negotiations have taken place without progress.

The latest proposal, carried by the Korean Central News Agency (KCNA) monitored in Seoul, said the two Koreas should work together to prevent a recurrence of the suspension of operations at Kaesong like the one that occurred in early April. Pyongyang also offered safe passage to all South Koreans entering the complex and said it will protect the property of South Korean businesses there.

It added that the temporary ban on operations announced by the North on April 8 will be lifted and that normal entry into the complex will be permitted.

The CPRK said that the South should accept the talks offer without any preconditions so all differences can be dealt with through dialogue.

Related to the talks proposal, South Korea’s Ministry of Unification said it views Pyongyang’s latest move as the communist country finally responding to Seoul’s continuous calls for dialogue.

South Korea accepted the August 14 proposal. According to Yonhap:

South Korea on Wednesday accepted North Korea’s proposal for a new round of talks next week to normalize operations at the inter-Korean factory park that has been closed for four months.

The Ministry of Unification said that the North’s offer to hold working-level talks on Aug. 14, which would be the seventh round following the failure of the previous six, can be viewed in a positive light.

“Seoul views the latest talks proposal as the North responding to repeated calls for dialogue from Seoul,” ministry spokesman Kim Hyung-suk said. “We hope the North will engage in dialogue in an earnest manner that can contribute to the constructive growth of the complex.” he said.

He added the format of the talks will be unchanged from the past, but pointed out that releasing details of what will be discussed cannot be made public at present.

UPDATE 61 (2013-8-6): ROK government set to pay insurance claims to Kaesong firms. According to Yonhap:

The government is ready to pay insurance claims to South Korean firms that have factories and other assets at a suspended inter-Korean industrial park in the North Korean border city of Kaesong, officials said Tuesday.

The Kaesong Industrial complex, which had been home to 123 South Korean companies, came to a screeching halt in early April amid a spike in tensions on the Korean Peninsula. The halt is estimated to have cost the firms a combined loss of 1.05 trillion won (US$943 million), with the government putting the figure at 706.7 billion won.

Officials at the Ministry of Unification said the 18-person South and North Exchange and Cooperation Promotion Council is in the final stages of reviewing all claims made by firms that have invested in the Kaesong factory zone.

Of the 140 companies that own productions facilities or provide support services and have paid the inter-Korean economic insurance premiums, 109 have asked to be compensated for incurred losses.

“Council members will submit their views by the end of the day with a comprehensive decision on payments to be made starting Wednesday,” an official who declined to be identified said. “All deliberations will be completed soon since there is a legitimate reason for companies making the claims in the first place.”

According to related rules, all payments must be made within three months of the claims being filed, with the maximum total that can be handed out by state-run Export-Import Bank of Korea hovering at little over 270 billion won.

A company can be reimbursed for up to 90 percent of losses incurred on investments, with a ceiling of 7 billion won per company.

Seoul’s move comes as South and North Korea have failed to agree on preconditions to normalizing the factory zone, the last remaining symbol of inter-Korean rapprochement.

The two sides engaged in six rounds of talks to normalize Kaesong in July but made no headway on the crucial issue of safeguards to prevent another work stoppage at the industrial park in the border town.

South Korea has insisted that Pyongyang must give solid guarantees that it will not take steps to close the complex again, while the North has called for the park’s immediate resumption. Pyongyang has also warned that its military may take control of the complex if no understanding is reached.

Related to the payment of insurance money that will allow Seoul to exercise subrogation rights of a creditor to the factories and other assets in the border town. Speculations have emerged that once ownership of assets goes to the government, it will start taking “grave” steps that can eventually lead to a more permanent closure of the complex.

Unification Minister Ryoo Kihl-jae had warned on July 28 that Seoul can take grave measures and called on the North to accept safeguards proposed by Seoul that will prevent another unilateral closure of Kaesong.

Government watchers said that despite a lack of confirmation and Seoul’s outward stance that it is committed to the development of the growth of Kaesong, South Korea could move to first cut off all power and water to the complex, followed by other actions down the line.

UPDATE 60 (2013-8-2): Major Arguments for Inter-Korean Talks on Kaesong Industrial Complex (IFES):

After the six rounds of working-level talks, North and South have reached agreements on a few agendas but the talks are deadlocked on Seoul’s demand that Pyongyang agree not to unilaterally close the complex again.

The South Korean government has steadfastly called for the North Korean government from taking similar arbitrary actions in the future and demanded for firm guarantees that it will not restrict movement of people and materials or pull out its workers unilaterally. In the provisions of agreement Seoul specified, “The South and the North agrees to prevent reoccurrence of closing operations on Kaesong Industrial Complex (KIC) and the North must provide a firm guarantee that it will not take any unilateral actions that may inhibit normal operation at the Complex, including restriction of travel of personnels and materials and unannounced withdrawal of workers.”

On the morning of sixth meeting on the 25, North put forth the following statement on the draft agreement, “The North and the South agree to prevent reoccurrence of closing Kaesong Industrial Complex, provide guarantee on the normal operation of the Complex free from any political influence; and refrain from taking any actions that may lead to such situation.”

In that same afternoon, North Korea proposed additional statement to the draft, “The South must provide firm guarantees that it will not make any political and military threats against the North aimed at the industrial complex and under the circumstances that such incidences do not occur, North will guarantee that it will not restrict travels to and from the complex nor withdraw workers from the complex.” This is a conditional statement that North may engage in similar action if aggravated by the South.

Another major disagreement was on the time of restarting the complex. According to the statement of agreement presented by the North,  “The KIC will resume immediately after the agreement is adopted by both North and the South and will take necessary steps to normalize the operations.”

Further disagreement was found on who will sign the statement as the North demanded that officials at the talks must sign, giving the mandate to the chief representatives from both sides to assign advocates to sign. However, the South responded that “the subject of signature on the agreement must be determined depending on the content of the agreement,” and took a firm stance that officials with substantial authority must sign the agreement.

In addition, compensation was another unresolved issue, although the gap of disagreement was not large enough to break the talks. The South demanded that in order to compensate companies for their losses during the shut-down, the North should give South tax-breaks and other fees for a certain period of time after businesses resume to normal.

Despite the disagreements, both parties have found some grounds of agreement after the six rounds of talks. The South agreed to the North’s demand on the establishment of various mechanisms and operation committees. Since the third round of talks, the North requested for the installment of Joint Committee of Kaesong Industrial Complex and at the sixth meeting proposed the resumption of inter-Korean economic cooperation office and establish and operate necessary subcommittees under it.

Similarly, the North has responded positively to the “internationalization” of the complex that included: 1) Promote attraction of foreign companies to the complex; 2) develop and elevate system of labor, taxation, wage, insurance, management and operation to international standards; and 3) jointly develop plans to receive preferential tariff for products exported to a third country.

The past obstacle on inter-Korean talks, transportation, communication, and tariff did not hamper the talks this time. The North was optimistic to work with the South on Internet communications, mobile phones, facilitate smooth communication, simplification of customs procedures, reducing customs clearance time, and etc.

UPDATE 59 (2013-9-20): In September Yonhap reported on the Number of South Koreans that visited the KIC in July 2013:

A total of 2,814 South Koreans visited the North in July, according to data from the unification ministry. All of them traveled to the industrial complex in the North’s border city of Kaesong, the data showed.

Those visits were made possible as Pyongyang allowed South Korean businessmen to visit their factories in the Kaesong complex while the two Koreas negotiated on how to reopen the suspended complex. The North unilaterally shut down the zone in early April in anger over U.S.-involved military drills in the South.

…

The July figure shows a stark increase from the June figure when no South Korean entered the communist country.

The number of North Koreans making visits to the South, in turn, amounted to 36 in July as Pyongyang sent its women’s national football squad to a regional competition in the South. It marked the first time in two years for North Koreans to visit the South.

UPDATE 58 (2013-7-29): The DPRK has yet to respond to South Korea’s request for another round of talks. According to Yonhap:

South Korea on Monday sent an official message to North Korea offering “final talks” to discuss the normalization of a suspended inter-Korean industrial complex in the North’s border town of Kaesong.

The Ministry of Unification, which handles cross-border relations, said the message was sent via the communication line at the neutral border village of Panmunjom and was received by North Korea. It said no date or location for the talks was proposed.

“The message calls on the North to respond promptly to the talks proposal,” the ministry said, adding that the North gave no response during the day and did not ask to extend the time that the communication line remains open. Ordinarily the South-North communication line is maintained from 9 a.m. through 4 p.m. The lack of response may indicate Pyongyang is taking its time to review what actions to take in response to Seoul’s latest talks proposal.

The message sent follows comments made by Seoul’s Unification Minister Ryoo Kihl-jae on Sunday, who called for a conclusive meeting to iron out all outstanding differences that were not resolved during the previous six rounds of negotiations held throughout the month.

The minister said if the North fails to give a clear response on the safeguard issue, Seoul will be left with no other choice but to make a “grave” decision. The official did not elaborate on what actual measures can be taken but it may entail the closure of the complex, the last remaining symbol of rapprochement between the two Koreas.

See also the Daily NK.

UPDATE 57 (2013-7-27): According to the Daily NK:

North and South Korea are both contemplating irreversible change to the Kaesong Industrial Complex.

The North’s chief delegate to Thursday’s sixth round of inter-Korean talks claimed that Pyongyang can operate the complex even without South Korea, threatening that “if the Kaesong light manufacturing zone cooperative project breaks down, then our military will redeploy to the industrial zone area of the Military Demarcation Line.” In other words, if re-opening the complex proves to be impossible, the North will confiscate the South Korean fixtures and fittings contained therein, and promptly re-station the 2nd Corps of the Chosun People’s Army on the site.

Faced with this threat, the South Korean government did not flinch, however, and made explicit reference to a dramatic choice of its own: the metaphorical “crossing of the Rubicon.” In a statement, the Ministry of Unification noted dryly that “if North Korea does not show a sincere attitude to the issue of recurrence prevention policy, the government will have no choice but to take a major decision.”

UPDATE 56 (2013-7-25): Round six breaks down. According to the Joongang Ilbo:

North Korea threatened to send troops into Kaesong if the jointly-run industrial complex in the city is shut down permanently.

The sixth round of talks over reopening the factory park broke down once again yesterday, leading to a melee between negotiators from the two sides.

According to South Korea’s Joint Press Corps, about 20 North Korean officials, including the chief negotiator Pak Chol-su, suddenly entered the South Korean press center on the fourth floor of the General Support Center for the Kaesong Industrial Complex at 5:23 p.m. yesterday to complain about the breakdown of the talks.

They made the military threat and distributed a press release and drafts of agreements that South Korea didn’t approve. Then South Korean officials appeared in the press center, tried pulling the North Koreans out, and clashed with reporters who wanted to keep the documents distributed by the North’s officials.

Unification Ministry spokesman Kim Hyung-suk said in a statement last night that it regretted North Korea “effectively declaring the breakdown of the negotiation” and “the fate of the Kaesong Industrial Complex is at a critical stage.”

A total of 17 South Korean reporters, photographers and video camera crews were in the press center when the melee took place. The failed negotiations took place on the 13th floor of the same building.

The North Koreans distributed 21 pages of documents to the reporters, including a three-page press release, two basic statements and three draft agreements they had proposed to their South Korean counterparts at the third, fourth and sixth rounds of the talks.

In the press release, North Korea warned that if the Kaesong park was permanently closed, it would send troops to the strategically important city of Kaesong, which is only about seven kilometers (4.3 miles) away from the Military Demarcation Line with South Korea.

“If the Kaesong cooperative businesses once again face disruption, our troops will occupy the areas [near] the Military Demarcation Line [near Kaesong],” the press release said. “The roads [toward Kaesong] off the west coast would be permanently blocked.”

The North Korean delegates went to the press center after they finished closing discussions with Southern negotiators at 5:20 p.m., the Joint Press Corps said. In the press release, the North said it “made sincere efforts to resolve the matter of the Kaesong complex as soon as possible.”

North Korea claimed that “both parties reached agreement to prevent any further shutdown” and “both sides agreed to operate the complex without being affected by any political circumstances and never commit acts to deter the operation.”

The North Koreans claimed they accepted all of the South’s demands, such as ensuring the safety of South Korean workers; restoring telecommunications with the South and the entry of Southern cargo; an internationalization of the complex sought by Seoul; and putting into place concrete measures to prevent further disruptions of business in the future. But the South continued “making vague claims,” the press release said, and “unilaterally demanding us to take all responsibility for the shutdown.” It blamed the South for “driving the talks to the brink of breakdown.”

It also said it suspected South Korea of wanting to permanently shut down the complex” by “deliberately dragging out the talks.”

In the basic statement yesterday, North Korea demanded the immediate resumption of operations. Then South Korean officials appeared in the press center and tried to drag the North Koreans away, the Joint Press Corps said, shouting, “What are you doing here?” and “You should have told us in advance!” They scuffled with the North Korean officials.

Then the South Korean officials clashed with reporters as they attempted to seize the documents that the Northern officials distributed. Unification Ministry spokesman Kim Hyung-suk said in the statement last night that if North Korea doesn’t show “sincerity” to prevent a shutdown of the complex in the future, the South would “make a grave decision.”

The Unification Ministry said it asked Pyongyang to hold additional talks but North Korea argued the negotiations “were already broken.”

The most controversial issue at yesterday’s talks was North Korea demand that the South “not to make any defiant political remarks and military threats,” which refers to the South Korean media’s comments on its use of the Kaesong park as a source of hard currency and upcoming Korea-U.S. joint military drills. But South Korea didn’t accpet the demand, leading to the conflict yesterday.

UPDATE 55 (2013-7-24): Round six talks held. More from Yonahp.

UPDATE 54 (2013-7-24): The South Korean government has named IKEA as one of the foreign firms that it wanted to establish a presence in the Kaesong Industrial Complex. IKEA declined the invitation.

UPDATE 53 (2013-7-23): Round six announced.

UPDATE 52 (2013-7-22): Round five of inter-Korean talks have begun. According to Yonhap:

South and North Korea resumed talks on Monday aimed at reviving a suspended joint factory park in the communist country, with neither side showing clear signs of making concessions.

Working-level officials from both sides have met four times this month but failed to agree on terms to reopen the Kaesong Industrial Complex. North Korea has demanded an immediate resumption of work at the factory zone, while South Korea has insisted on securing safety measures to prevent another suspension, for which the two Koreas blame each other.

…

Three-man delegations from each side began the working-level dialogue at 10 a.m. in a South Korean-built management center located in the Kaesong complex, said the Unification Ministry, which handles inter-Korean affairs. It said the first meeting was concluded as of 10:30 a.m. with both sides outlining their views.

Seoul’s delegation, headed by Kim, crossed the heavily fortified Demilitarized Zone (DMZ) at 8:30 a.m., along with a team of support staff and reporters.

During the last round of talks held Wednesday, both sides stuck to their guns, failing to iron out differences over the industrial zone’s normalization.

Details of what was proposed have not been made public, although the South has repeatedly demanded the North provide a firm guarantee that it will not close the complex down in the future and set up a system to protect the safety and property of South Koreans who have invested and worked in Kaesong. Seoul has said one way to prevent another unilateral closure is to turn the park located just north of the DMZ into an international complex.

UPDATE 51 (2013-7-17): Another round of talks has failed to result in any meaningful progress. According to the AP:

Wednesday’s meeting at the North Korean border town of Kaesong was their fourth meeting this month. It was aimed at finding a way to restart the factory complex there.

…

Media pool reports say chief South Korean delegate Kim Kiwoong told reporters the two Koreas still have “big differences.” Seoul wants measures that would prevent any future unilateral shutdown of Kaesong.

North Korea has pressed South Korea to end military exercises with the U.S.

The last sentence in the above paragraph reveals that the DPRK is not serious about reopening the Kaesong complex.

UPDATE 50 (2013-7-15): South Korean firms removing assets from Kaesong Complex. According to the Hankyoreh:

“The association has not yet determined how much the companies at Kaesong brought back to Korea on July 12 and 13, but as a rule the companies are coming out with two or three vehicles that are completely full of materials,” said Seong Hyeon-sang, the chair of the Damages Subcommittee of the Emergency Measures Committee for Promoting the Normalization of the Kaesong Industrial Complex.

“A significant amount of time would be needed to bring out machines and everything else that is needed,” Seong said. “Since the companies only have one or two days to bring it all out, they are complaining about the difficulty.”

In response to observations that some companies are bringing back equipment, Seong said, “There are certain companies that are bringing back basic equipment, such as machine molds that can be used in South Korea.” He said that, since the machine molds will need some work before they can be used again, some companies are trying to bring as many to South Korea as they can.

When asked whether the companies weren’t trying to withdraw from Kaesong altogether, Seong said that for most of the companies it would be impossible to move all of their equipment with a few vehicles in just one or two days. “In order to remove the equipment from the complex entirely, it would take at least a month and ten or more big trucks.”

The Corporate Association of Kaesong Industrial Complex (CAKIC) seems concerned that the removal of materials and equipment might make it look like the companies are permanently emptying out the complex. If they are not careful, the complex could end up shutting down for good.

But at the same time, the companies still feel as though they should bring back as much as they are able to carry. This is a response to the possibility that the talks about the Kaesong Complex could break down, which would reset relations between North and South and return to a situation where no one is allowed to visit the complex, as was the case for the past few months.

The third round of working-level talks between North and South at Kaesong started at 10am today, on July 15, but it is difficult to predict if or when an agreement will be reached. This is a sign that the companies at Kaesong cannot count on the reopening of the complex that North Korea is calling for or the “constructive normalization” that the South Korean government is talking about.

The Ministry of Unification estimated that 87 electronics, machinery, and metal companies operating at Kaesong brought out 517 tons of products and materials between July 12 and 13. However, they said that detailed statistics about what kind of items were brought out, and what the volume of those items, are not ready yet. On July 15, 159 representatives from 48 textile and sewing companies are planning to visit the Kaesong Complex to bring out materials.

UPDATE 49 (2013-7-14): Talks continue on 7-15. According to Yonhap:

South Korea prepared Sunday for another round of talks with North Korea on setting conditions for reopening a suspended joint industrial complex after the sides failed to narrow differences in two previous rounds of negotiations.

Earlier this month, the two sides agreed in principle to restart the factory park in the North’s border city of Kaesong. The complex was suspended after Pyongyang withdrew all of its 53,000 workers from the 123 South Korean factories in the zone amid heightened security tensions.

The sides have since held two rounds of follow-up negotiations but failed to reach agreement on conditions for reopening the complex, with the South demanding Pyongyang take specific steps to guarantee it won’t unilaterally shut down the complex again, and the North calling for an immediate reopening.

A third round of talks is set for Monday at the Kaesong complex.

The widespread view is that it won’t be easy for the two sides to find a compromise as their differences are too big to narrow. Experts say this week’s negotiations are crucial in determining whether the Kaesong complex could reopen.

On Saturday, North Korea increased pressure on the South to agree to a reopening.

Making public its statement sent to Seoul two days earlier, the North warned that how the Kaesong complex issue is resolved will affect the overall inter-Korean relations.

“Unless the Kaesong Industrial Complex issue is resolved, there cannot be any progress in inter-Korean relations,” the North said in the statement disclosed through the official Korean Central News Agency.

South Korea will be sending a new chief negotiator to Monday’s talks.

Senior Ministry of Unification director Kim Ki-woong has been named to replace Suh Ho as chief negotiator in what officials said was a routine reshuffle.

The Kaesong complex was the last-remaining symbol of once-booming inter-Korean rapprochement. It has also been a key source of hard currency for the impoverished North as South Korea usually pays the North about US$90 million annually in worker wages.

Seoul is pushing for strong safeguards to prevent another shutdown of the complex.

It is also demanding a North Korean apology for causing considerable financial and other damage to South Korean companies. The 123 South Korean companies have claimed 1.05 trillion won (US$933 million) in losses so far due to the shutdown.

UPDATE 48 (2013-7-12): South Korea replaces their negotiator. According to the JoongAng Ilbo:

Suh Ho, former head of the inter-Korean exchange and cooperation bureau under the Ministry of Unification was abruptly replaced by Kim Ki-woong, another high-ranking Unification Ministry official, on July 12, three days before the third round.

At the time, a Unification Ministry official told reporters it was a regular rotation and there was no special reason for it.

Since his replacement, Suh has been replaced in his bureau and not been offered a new position.

A number of sources said some hard-line officials at the Blue House and the National Intelligence Service didn’t like Suh’s attitude at the negotiating table.

The Blue House and NIS followed the negotiations in real time through a telecommunication device installed at the conference room in the Kaesong Industrial Complex where the negotiators were held.

President Park Geun-hye could listen to the talks just like she was listening to a radio in her office in the Blue House.

While listening to the discussion, Park was also able to relay instructions to the team in Kaesong, and she did, the sources said.

At one point she said, “Show a stern response,” and at another, “As we are at a disadvantage now, end this session now.”

North Korea couldn’t tap those instructions because they are sent as coded messages via telephone or fax.

They were received by a National Intelligence Service agent included in the delegation as one of the three negotiators.

Suh, an experienced negotiator with North Korea, was replaced because the Blue House and NIS didn’t like what they heard, the sources said.

“There was criticism that Suh didn’t properly respond to the claims of Pak Chol-su, the North’s chief negotiator,” a Southern official involved in the talks said. “He was allegedly too moderate.”

Sources said Pak claimed the so-called May 24 sanctions, which were set in place by the Lee Myung-bak administration in 2010, led to the closing of the complex.

The May 24 sanctions were a reaction to the sinking of the South Korean Navy ship Cheonan, which a group of international investigators blamed on North Korea.

They were put in place nearly three years before North Korea pulled its workers from the Kaesong park last April. But Suh didn’t properly refute Pak’s claim.

Another South Korean government official said some hawks in the Park government didn’t like Suh’s passivity from the very first round, which went on for 16 hours from July 6-7.

“Suh tried to show a sterner attitude toward the North after the second round concluded,’’ the official said. “But it was too late.”

Some sources attributed his replacing to the NIS official who attends the talks as a negotiator, surnamed Huh, who reportedly wrote a report to the Blue House criticizing Suh.

“If the government can’t clearly explain why it had to change the chief negotiator to the public, they will struggle gaining trust from the people for its North Korean polices,” said Yang Moo-jin, a professor at the University of North Korean Studies.

UPDATE 47 (2013-7-10): Factory managers were permitted to return to the KIS to inspect their facilities, but another round of talks have failed to yield progress. According to the New York Times:

The factory managers inspected their manufacturing equipment ahead of the possible resumption of operations. Another group of South Korean factory managers planned to make a similar trip to Kaesong on Thursday.

Representatives of the two Korean governments had met on the border over the weekend and agreed upon the factory managers’ trips to Kaesong, but they remained far apart over the terms of reopening the complex. They plan to meet again on Monday.

Also Wednesday, North Korea proposed separate talks on July 19 to arrange reunions of families separated by the 1950-53 Korean War. The South accepted the offer but declined another North Korean proposal for talks on resuming a jointly operated tourism program that took South Koreans to a scenic North Korean mountain resort but was suspended when North Korean soldiers shot and killed a South Korean tourist in 2008. South Korea said the two sides should focus on the Kaesong negotiations.

Suh Ho, the chief South Korean negotiator, said on Wednesday that North Korea must accept “common sense and international standards” in Kaesong before the complex can be “normalized and further developed.”

South Korea is urging North Korea to take steps to ensure that it will not let political and military disputes interfere again with the Kaesong operation. The South Korean president, Park Geun-hye, has suggested that one such step would be an agreement to invite non-Korean factories to Kaesong.

“If the Kaesong complex becomes internationalized with foreign factories,” she said in March, “North Korea will not be able to do things intolerable under international standards, such as an abrupt travel ban or a sudden tax increase,” actions that she said South Korean firms had been subject to there.

…

During talks on Wednesday, the two Koreas bickered over the estimated 700 billion won, or about $600 million, in damages that the three-month suspension of operations has caused to 123 South Korean factories in Kaesong.

…

But some hard-line conservatives in South Korea have demanded that the government close the factory park for good. They argue that most of the $80 million to $90 million paid annually as wages for North Korean workers ended up in the coffers of the North Korean government, which was building nuclear weapons and running prison gulags.

UPDATE 46 (2013-7-7): The two Koreas have agreed in principle to restart the Kaesong Industrial Complex. According to Yonhap:

South and North Korea agreed in principle to normalize operations at the inter-Korean industrial complex that has been idle for nearly three months, helping to keep alive the only viable economic link between the two countries, the government said Sunday.

Seoul’s Ministry of Unification said after 16 hours of negotiation, the two sides were able to find middle ground on various outstanding issues.

…

It said under the agreement signed at 4:05 a.m., inspections of manufacturing facilities will be carried out at the Kaesong Industrial Complex starting on Wednesday. South Korean businessmen with factories in the North Korean border town will carry out the inspections with the help of engineers.

The ministry said Pyongyang agreed to discuss ways to implement safeguards to prevent another shutdown of the industrial park in the future. This meeting is scheduled to take place in Kaesong on the same day the facility inspections kickoff.

Seoul said from the outset, that normalization must be contingent on the North pledging not to unilaterally disrupt operations at the complex again, and the introduction of international standards of doing business.

The two sides, moreover, concurred on allowing South Korean businessmen to collect finished goods and raw materials needed to make products from the border town, with the North agreeing to extend safe passage over the demilitarized zone for South Korean personnel.

UPDATE 45 (2013-7-6): According to Yonhap, the talks are struggling…

 “Our side demanded the North’s side provide an explicit guarantee on recurrence prevention and make a responsible statement on damages of our companies resulting from the North’s unilateral measure,” the official said.

However, Pyongyang avoided directly responding to the South Korean demand and insisted that the industrial park should be swiftly reopened, he said.

The two Koreas also blamed each other for the suspension of the industrial zone, according to the official.

…

As soon as the working-level meeting began at Tongilgak, a conference building in the North Korean side of the neutral border village of Panmunjom, early signs of differences emerged, with both sides differing over what should be done first to reopen the complex, according to South Korean pool reports.

UPDATE 44 (2013-7-4): The Joongang Ilbo reports that 46 firms are giving up on Kaesong:

Frustrated by the suspension of a factory zone jointly run with North Korea, some South Korean business owners say they’re giving up hope of being able to return and want to remove equipment and assets stuck there.

Owners of 46 out of the 123 South Korean companies in the Kaesong Industrial Complex announced that they want to remove all of the equipment and other materials remaining in the industrial park to redeploy them to South Korea or a foreign country.

…

The 46 companies are mostly mechanical and electronics businesses who worry that their expensive equipment could be harmed by humidity during the rainy season without proper maintenance.

“As the crisis in the Kaesong Industrial Complex continues, we, the makers of machine parts, can’t wait anymore,” the businessmen said in a joint statement. “We demand [the government] make a decision on whether to [permanently] shut down the complex as early as possible for the sake of the companies at risk of bankruptcy.”

“If [the government] doesn’t make any decision, we can’t help but relocate all of our facilities in the Kaesong Industrial Complex to the country [South Korea] or abroad,” they said. “We call upon the government to take proper measures and offer support for the relocation.”

They also asked Pyongyang to allow the relocation and resume communication with South Korean officials through the military hotlines they have cut off.

“We have appealed for approval for the visit of a minimum number of our workers for maintenance of our facilities,” Kim Hak-gwon, representative of the owners of the 46 companies, said yesterday at the press meeting. “But the authorities of both North and South Korea didn’t approve this request, and we couldn’t help but make this decision.”

According to the Unification Ministry, the total losses reported by the 123 South Korean companies is about 1.05 trillion won ($918 million). But the ministry acknowledged only about 760 billion won as the official losses of the 123 firms.

The losses for the 46 companies have not been estimated, the ministry told the Korea JoongAng Daily.

The Unification Ministry said the government “will deeply scrutinize” the demand from the companies and “ponder measures.”

“The most effective solution for this problem is for North Korea to return to the government-level talks that our government has already proposed,” a Unification Ministry official told reporters.

UPDATE 43 (2013-7-4): Bloomberg reports that the DPRK and ROK have agree to hold talks on the Kaesong Industrial Center. The North also restored a border hot line and has said it will allow South Korean businessmen to visit the factory park.

North and South Korea held a call over the hot line at 9 a.m. after agreeing yesterday to resume communication, South Korea’s Unification Ministry said in a text message. In a separate text message later today the ministry said the North had agreed to an offer to hold working-level talks on July 6. That meeting would take place at the north end of the Panmunjom border village.

UPDATE 42 (2013-7-3):  North Korea on Wednesday restored its official hotline with South Korea and announced it would let the South’s businessmen visit a shuttered joint industrial zone, Seoul officials said.

“The hotline was restored this afternoon after North Korea accepted our request to normalize it,” a South Korean unification ministry official said on condition of anonymity.

Read more here.

UPDATE 41 (2013-7-3): 46 firms request permission to remove equipment while it still functions.

UPDATE 40 (2013-7-2): The Daily NK offers a summary of events to date.

UPDATE 39 (2013-6-26): South Korea is trying to sell its majority stake in Woori Bank, the bank that was responsible for coordinating payments between the North and South Koreans at the Kaesong Industrial Park. Read more here.

UPDATE 38 (2013-6-25): Kaesong Kaesong firms lose 1.05 trillion won due to halt in operations. According to Yonhap:

South Korean companies with factories in the suspended inter-Korean industrial complex in North Korea have suffered 1.05 trillion won (US$910 million) in overall losses since the zone ground to a halt in early April, the government said Tuesday.

…

The Ministry of Unification said 706.7 billion won of the total reported has been confirmed as a loss after close scrutiny of data provided by a local accounting firm. Confirmed losses include money invested into factories and production equipment by firms and immediate loss in sales.

The 350 billion won difference between total losses claimed by the companies and the final tally reflects lack of supporting documentation, said the ministry in charge of all cross-border cooperative arrangements. The ministry added it did not accept estimates of future losses because there is no way to determine such figures.

The tally, collected by the ministry from May 1 through June 7, is based on claims submitted by 234 businesses that either had factories in Kaesong or were affiliated with the firms. There are 123 companies that actually have production facilities at Kaesong.

An official source said that while there are some 296 companies that are eligible to declare their losses, 62 opted not to do so.

“Those that did not file damage claims said their losses were too small to warrant making a declaration,” said the official, who declined to be identified.

He said based on the data provided, Seoul will consider requests made by the companies and announce a new set of measures to help these businesses early next week.

“Every effort will be made to reflect wishes of the companies within the confines of the law,” the official said.

The ministry, meanwhile, said many companies asked for more financial support, such as expanding the coverage of the inter-Korean economic cooperation insurance policy and making greater use of the South-North cooperation fund.

It said as of Tuesday, 76 of the 96 companies that took out insurance policies have filed for losses, which can allow up to 222.9 billion won to be paid by the Export-Import Bank of Korea (Eximbank).

Once the insurance payment is made, Eximbank will own the facilities in Kaesong, although original owners will be given “first rights” to buy back their assets if operations at Kaesong return to normal.

UPDATE 37 (2013-6-11): Next round of inter-Korean talks cancelled. According to the Daily NK:

Tomorrow’s inter-Korean talks have been cancelled after the two sides were unable to reach agreement on the composition of their respective delegations.

The two sides exchanged lists of five named delegation members by phone earlier at lunchtime, but North Korea reportedly raised objections and refused to accept the South Korean list.

The talks had been due to take place over two days in Seoul. It is unclear whether Thursday’s talks have also been cancelled.

According to the New York Times:

North Korea eventually appointed a party official lower in rank than Mr. Kim as its chief delegate, but the South said it would then send a lower-level official than Mr. Ryoo.

North Korea then accused the South of a “grave provocation” and told the South that it would not send a delegation to Seoul, said Kim Hyung-suk, a South Korean government spokesman.

“We consider the North Korean decision very regrettable,” Mr. Kim said. The North had not yet responded as of early Wednesday morning.

It has always been difficult to determine which officials are equivalent in authority in the very different political systems of the two Koreas. But the inability to resolve the dispute reflected a deeper standoff, analysts said.

The mutual mistrust between the two governments has deepened in recent years, as North Korea conducted nuclear tests and provoked South Korea militarily; the South then pulled back from its “sunshine policy” of working to engage the North. Consecutive conservative governments in Seoul complained that years of ample aid and investment had not persuaded Pyongyang to abandon its nuclear arms program.

“The collapse of the government talks shows how rigid the South and North Korean authorities have become,” said Cheong Seong-chang, an analyst at the Sejong Institute in South Korea.

UPDATE 36 (2013-6-9): DPRK and ROK hold talks at  Panmunjom. According to Yonhap/Korea Times:

South and North Korea are in agreement on holding a ministerial meeting in Seoul next week that can build mutual trust and ease uncertainties on the Korean Peninsula, a government official said Sunday.

In the morning session of the first government-level talks in years at the truce village of Panmunjom, the two sides exchanged views on protocol, location, the agenda and size of the delegation to be present at Wednesday’s ministerial meeting planned for Seoul, the Ministry of Unification said.

“The two sides shared the same understanding in regards to the ministers’ meeting,” said ministry spokesman Kim Hyung-suk, stressing that both Seoul and Pyongyang wanted the meeting to take place.

He said that discussions took place in a calm manner and without any particular contentious issues surfacing. The official also said South and North Korea are reviewing the issues raised by the other side and will arrange further contact to iron out details.

“Views exchanged are being discussed by both sides, and if both sides come to an understanding, an agreement will be reached,” the official said.

He declined to elaborate on the details since negotiations are pending. The official said that while no fixed timetable has been set for the resumption of talks in the afternoon, such details will be arranged by official communication channels.

The morning talks started at 10:13 a.m. at Freedom House on the South Korean side of the joint security area and were concluded a little after 11 a.m.

The meeting came after the North’s Committee for the Peaceful Reunification of Korea (CPRK) called for working-level talks Friday following its earlier proposal to hold government-level talks to resolve issues such as the Kaesong Industrial Complex, Mount Geumgang tours and reunions of families separated by the Korean War (1950-53).

Seoul has accepted the government-to-government talks and countered by asking for a ministerial-level meeting so all key issues can be discussed by responsible officials.

The communist country had also called for the joint hosting of celebratory events to mark the 13th anniversary of the June 15 South-North Joint Declaration and the 1972 July 4th North-South Joint Statement. The two statements are considered to be key documents that have helped lay the foundation for inter-Korean talks.

Chun Hae-sung, who is leading the three-person South Korean delegation, told reporters before leaving for the talks that every effort will be made to build trust that can lay the foundation for improving South-North relations.

“There is a need to build trust from small issues and the South’s goal is to keep faithful to the principle of the ‘trust building’ process for the Korean Peninsula,” the head of the policy setting office at the unification ministry said. The trust-building process is the main policy goal of South Korean President Park Geun-hye.

He said that the Panmunjom talks aim to lay the successful groundwork for the ministerial-level talks. The official said administrative and technical matters will be discussed.

The North, meanwhile, was represented by Kim Song-hye, a senior official on the CPRK, with extensive experience in negotiations with the South.

KCTV video here.

More on the DPRK’s representative delegate here.

Coverage in The Guardian.

Coverage in the BBC (and here)

UPDATE 35 (2013-6-7): DPRK activates Red Cross hotline, and progress reported on talks. According to the BBC:

North Korea reopened a Red Cross hotline with South Korea on Friday and invited officials from Seoul to talks over the weekend, a further sign the North wants to improve ties after a barrage of threats to wage war this year.

UPDATE 34 (2013-6-6): North Korea calls for talks with South Korea about industrial park. According to the Washington Post:

In a sudden change of heart, North Korea called Thursday for talks with South Korea about reopening a shuttered industrial park and restarting tourist exchanges and reunions of separated families.

Seoul almost immediately accepted, setting the stage for the first talks since the 20-something Kim Jong Un took over the leadership of North Korea after the death of his father, Kim Jong Il, in December 2011.

…

In Seoul, the Unification Ministry , which handles North Korea relations, said there was no date or agenda set for what would be working-level talks. It does not appear that the talks will address more substantive matters, such as North Korea’s nuclear program.

“We hope the talks will become an opportunity to help forge trust,” the ministry said in a statement.

…

The statement released Thursday came from North Korea’s Committee for the Peaceful Reunification of the Fatherland.

“We call for meeting between authorities to normalize Kaesong Industrial Complex and reopening of Mount Kumgang Tourist Region,” Pyongyang’s official KCNA news service reported. “If necessary, we could negotiate humanitarian issues such as bringing together separated families.”

The statement referred to the anniversary of a landmark June 15, 2000, summit in Pyongyang between North Korea’s Kim Jong Il and then-South Korean President Kim Dae-jung.

The rapprochement policy between the Koreas eventually fell apart, strained by North Korea’s weapons programs and resentment by South Koreans that they were being cheated.

UPDATE 33 (2013-5-21): Inter-Korean trade tumbles following closure of Kaesong Industrial Complex

The monthly inter-Korean trade volume came to US$23.43 million in April, down 88 percent from $194.27 million recorded the previous month, according to the data from the Ministry of Unification in charge of inter-Korean affairs.

The April figure is almost similar to the average monthly trade volume of $23.94 million registered in 1995.

In early April, the North banned the entry of South Korean workers and materials into the Kaesong Industrial Complex and withdrew all North Korean workers employed by South Korean firms there in protest against Seoul’s joint military exercises with the U.S. in March.

…

Trade between the two countries, which remain technically at war since the 1950-53 Korean War ended in an armistice, had steadily increased since late in the 1980’s to register an annual record of $1 billion in 2005.

UPDATE 32 (2013-5-21): Seoul offers financial support to troubled Kaesong firms

According to Yonhap:

Before holding the meeting, the Seoul Metropolitan Government decided to extend the deadline for the payment of a total of 190 million won (US$170,434) in local income taxes for three Kaesong companies headquartered in Seoul.

Earlier this month, the municipal government conducted a fact-finding survey of a total of 49 companies in Seoul which have factories in Kaesong to explore ways to alleviate their plight.

UPDATE 31 (2013-5-6): Kaesong loss tally to be delayed

According to Yonhap:

The government survey of corporate losses by South Korean firms following North Korea’s suspension of the joint industrial park in the North is being delayed due to difficulties involving loss assessment, a government official said Friday.

UPDATE 30 (2013-5-6): Total losses incurred by Kaesong companies to be tallied this week

According to Yonhap:

The exact losses incurred by the South Korean investors have been unknown but estimates vary from around 1 trillion won (US$910 million) to around 3 trillion won.

One source at the Ministry of Unification, which handles inter-Korean affairs, said survey sheets were sent out last week for the 123 companies to declare their losses in the coming days.

“The companies should return the surveys in the next few days and then the government can have a clearer picture of losses,” the official said, declining to be identified.

UPDATE 29 (2013-5-6): South Korea reduces power supply to Kaesong

According to Yonhap:

South Korea has a maximum daily capacity of sending 100,000 kilowatts to the factory zone in the North’s border city of Kaesong, but its supply has tumbled to around 3,000 kilowatts a day, said the officials at the unification ministry that handles inter-Korean affairs.

…

The spokesman declined to elaborate, but a source at the state-run Korea Electric Power Corp. (KEPCO) said about 3,000 kilowatts of power is being used at Kaesong. KEPCO officials said that even before operations were halted at the zone, power sent from the South hovered between half and a third of the maximum capacity.

One KEPCO official said that because power is still reaching the industrial park, the water treatment facility there is still working. The water processed there is supplied to tens of thousands of Kaesong citizens.

In testimony to a parliamentary hearing, Unification Minister Ryoo Kihl-jae said the amount of power supplied to Kaesong has steadily dropped to one-tenth of the normal level, starting in late April.

Seoul originally had hinted that it would completely cut off power supply to the industrial complex but it has opted not to do so for the time being because such a move may be viewed in the North as a sign that the industrial park is doomed to die.

UPDATE 28 (2013-5-5):  Kaesong workers reassigned

According to the Daily NK:

The 53,000 former Kaesong Industrial Complex workers from North Korea have been dispatched to a wide range of alternative workplaces in the North Hwanghae Province region, and are currently being given lectures and study sessions to eradicate the “capitalist ideas” they picked up while working in Kaesong, Daily NK has learned.

A source from Sariwon in North Hwanghae Province told Daily NK on the 3rd, “All the workers who used to be in Kaesong have been dispatched to factories, enterprises and cooperative farms in the North Hwanghae Province region. The workers are getting annoyed, because the authorities are forcing them to attend thought reform study sessions on Party policy for more than two hours a day.”

The source added, “They are part of an ideological battle to pluck out capitalist ideas by the roots. The Party cadres running the self-criticism sessions want to know every detail of the conversations they had with the managers of the South Chosun companies they worked for.”

The lectures and study sessions accurately convey the fear of the North Korean authorities at having to integrate 53,000 workers with experience of both South Korean capitalism and the attitudes and ideas of South Korean managers. By distributing the workers in small numbers to all corners of Hwanghae Province, the authorities presumably hope to limit their interactions with one another and decrease the danger of dissatisfaction at the closure rising to the surface.

“The men who did technical work in Kaesong have been dispatched to factories, while most of the women have gone to cooperative farms,” the source said. “Many of them are pretty aggravated because these placements have been done unilaterally by the provincial Party People’s Committee Department of Labor, and have little to do with their personal aptitude.”

Elsewhere, Daily NK has learned that the former workers are well aware that it was the North Korean authorities that unilaterally withdrew from the complex, launching the latest crisis.

UPDATE 27 (2013-5-3): Kaesong firms offered low-interest loans

According to Yonhap:

Financial companies in South Korea will provide troubled local companies at the inter-Korean industrial park with an emergency fund of up to 700 billion won (US$636.5 million) to help them avoid cash shortages amid high political tension, the financial regulators said Friday.

The Financial Services Commission (FSC) and its executive body the Financial Supervisory Service (FSS), have called on financial companies here — banks, savings banks, insurers and credit card firms — to offer a special short-term loan to companies based in the Kaesong Industrial Complex, located at North Korea’s border, according to the authorities.

The nine-year-old industrial park ground to a halt early last month when the communist state withdrew its 53,000 workers from the complex in protest of U.S.-involved military drills in the South.
…

To prevent Kaesong firms from going insolvent, the financial regulators first instructed state-run policy lenders and large commercial banks to offer special relief funds.

Woori Bank, the flagship unit of the country’s biggest lender Woori Finance Holdings Co., and state-run Industrial Bank of Korea will provide 100 billion won each, with policy lender Export-Import Bank of Korea to set aside 300 billion won for emergency loans, the FSC and the FSS said.

The remaining 200 billion won will come from other commercial banks, credit cooperatives and insurance companies, they added.

The fund provided by the financial sector comes in addition to the 300 billion won emergency fund set up by the government to be offered to troubled companies in Kaesong. Altogether the country has arranged a total of 1 trillion won to prop up the small and medium enterprises that are vulnerable to abrupt changes.

Banks will extend a special loan of up to 500 million won to a company experiencing financial difficulties, the authorities said.

he FSC and the FSS have also asked banks to defer repayment of maturing debts owed by Kaesong companies as part of an effort to help them avoid default. Banks cannot raise their loan interest rate citing falling credit, the regulators said.

The outstanding amount of loans extended by banks to Kaesong companies currently stands at 1.6 trillion won, according to the FSS.

UPDATE 26 (2013-5-3): The final group of South Koreans have left the KIC

According to the Wall Street Journal:

The final group of South Korean workers returned home from a jointly run industrial park inside North Korea, closing the last outpost of inter-Korean economic cooperation a month after Pyongyang began its choke on the complex.

Seven officials crossed into the South on Friday evening after settling a dispute over wages and taxes with the North. Trucks containing $13 million in cash were sent up to the border to complete final payments after their return.

To Seoul, the significance of the Kaesong plant is symbolic rather than economic, as it has represented the thread that has kept the Koreas connected since its opening in 2004, remaining in operation through several downturns in ties, even military confrontations.

UPDATE 25 (2013-4-30): The South Korean Woori Bank, which managed financial transfers for the KIC has closed.

According to the Choson Ilbo:

The sole branch of a South Korean bank in North Korea has closed down eight years after it opened. Two remaining South Korean staffers of Woori Bank at the inter-Korean Kaesong Industrial Complex headed back to the South on Monday night carrying around US$100,000 from the bank’s safe.

They were part of 50 South Korean workers who had stayed in the industrial park as the South waited for North Korea to respond to an offer of talks to keep the operations going.

The complex has become a symbol of failed efforts to bring the two Koreas closer through a joint business project.

The Woori branch at normally had around $300,000 in its safe, but the balance dwindled as South Korean businesses there withdrew their money after North Korea closed the border to South Korean vehicles coming in on April 8.

The Bank said it brought back the computer servers and three PCs with the financial transaction records of the 123 South Korean companies at the complex.

The branch had three South Korean and four North Korean staff. It handled the payment of some $8 million in monthly wages for the 53,000 North Korean workers there as well as exchanging foreign currency.

While the bank’s domestic and international operations are linked by Internet, the branch in North Korea was connected only to headquarters in Seoul.

Bank staff had to be wary of North Korean wire taps when making phone calls with headquarters. “We refrained from discussing over the phone how much money was left in our safe,” a staffer said.

UPDATE 24 (2013-4-30): DPRK allegedly reassigns former Kaesong labor force

According to RFA:

One North Korean source in China said he had heard that most of the workers had been sent to assignments in other locations.

“I heard from a high-ranking official that two thirds of the North Korean workers at Kaesong were reassigned to rural areas and the others were relocated to sewing factories in North Korea,” he told RFA’s Korean Service, speaking on condition of anonymity.

“The North Korean government reassigned them quickly, so I suspect that North Korea was bent on closing the Kaesong Industrial Complex,” he said.

A second source in China said he too had heard that the workers had been relocated, but added that the new assignments could be short-term ones.

“It is too early to conclude that North Korea had a plan to close the complex,” he said, speaking on condition of anonymity.

“The North Korean government might think this conflict won’t wrap up in the short term, so they could have reassigned the workers temporarily.”

UPDATE 23 (2013-4-30): Remaining South Korean factory managers leave KIC

According to the New York Times:

The withdrawal of the 43 factory managers meant that the Kaesong Industrial Complex, in the North Korean border town of Kaesong, was emptied out except for seven South Koreans who will remain for a few days to sort out a dispute over unpaid wages.

When that is settled, South Korea is expected to turn off the electricity it supplies to the complex, which until now has been one of the most brightly lighted parts of North Korea, a country shrouded in darkness at night because of a severe lack of fuel.

South Korea had planned to withdraw all 50 of its citizens from Kaesong by 5 p.m. Monday, but a dispute over the payment of some wages and taxes owed to the North delayed their departure. In the end, 43 factory managers were allowed to cross the border after midnight, while five officials and two communications technicians from the South stayed to sort out the dispute.

North Korea pulled out all of its 53,000 workers from Kaesong on April 9 in a protest against joint military exercises by the United States and South Korea. It also blocked South Korean managers and supply trucks from entering the complex.

But it was not until Friday, when the North rejected a proposal for dialogue, that the South announced a decision to withdraw all of its 175 managers and officials, who had stayed in Kaesong hoping the complex would reopen. Of those, 125 left on Saturday, loading as many finished products as they could fit in the trunks and on the seats, roofs and hoods of their cars.

The emptying out of the Kaesong complex represents a new low in inter-Korean relations. South Korea cut off all other economic ties with North Korea in 2010, blaming it for the sinking of a warship and the deaths of 46 sailors. North Korea cut off all military and Red Cross hot lines with the South last month, removing all official ties between the Koreas except for the lines of communication between their civil aviation authorities.

The American-South Korean military drills ended Tuesday. But there was no sign that the Koreas would end their dispute over the complex anytime soon.

UPDATE 22 (2013-4-29): The Daily NK assterts that Kim Jong-il issued a “Close Kaesong” order

According to the Daily NK:

North Korea is moving toward closing the Kaesong Industrial Complex in accordance with orders issued by Kim Jong Il before he died, according to new information from a Chosun Workers’ Party cadre based in Pyongyang.

Kim is said to have decreed the closure out of concern that Kaesong was capable of shaking the foundations of the North Korean system thanks to the effect it was having on the minds of those who worked in or near it.

The cadre from the North Korean capital told Daily NK on the 29th, “Kim Jong Il’s greatest concern of all was that as the Kaesong Industrial Complex got bigger it would cause a growing number of workers to harbor feelings of interest and longing for South Korean society. Kim Jong Eun is now focusing on Kim Jong Il’s injunction that ‘you must move decisively to close it as soon as you see a chance.’”

According to the cadre, in the aftermath of the 2007 summit between former South Korean President Roh Moo Hyun and Kim Jong Il in Pyongyang, one North Korean cadre was removed from post for reporting to Kim Jong Il, “The feeling is that the Kaesong Complex has run well for a few years and the people’s lives are noticeably improving so everyone welcomes it.” Kim allegedly told the man, “You must’ve lost your mind, acting so rashly with no idea about Party policy.”

News of the case is said to have reached not only Central Party officials but also some ordinary citizens, causing a rumor to circulate in early 2008 whereby “The Kaesong Complex could now shut down at any time on Kim Jong Il’s word”

The source added, “Kim Jong Il was always telling Party cadres not to expect anything from the Kaesong Complex. It has only ever been used as a propaganda tool symbolizing inter-Korean relations, and this time South Korea has been caught in North Korea’s trap.”

Meanwhile, a second source, this time from northerly Chongjin, also told Daily NK today, “The Kaesong Complex started a process of changing people’s awareness; away from the idea that South Chosun people are our sworn enemy to the notion that we are compatriots, and this thought has now spread far and wide.”

But, the source added, “I have heard the cadre’s words many times, that ‘the Central Party has a plan to get rid of it at any moment.’”

The source went on to claim that North Korean workers attending recruitment interviews for the Complex were told that they would not need to move home since “it is only temporary employment so workers should live in together,” and, “We don’t know what will come of the Kaesong Industrial Complex going forward, so there is no need to move.”

The Chongjin source also added that in public lectures held on Saturday 27th April, people were told, “The stoppage of the Kaesong Complex is deserved punishment for the south side government’s offending of our supreme dignity. If they do not accept this and beg forgiveness for it there is no chance of the Kaesong Complex reopening.”

UPDATE 21 (2013-4-29): Small and Medium Business Corp reports some business statistics in the Kaesong zone

According to Yonhap:

The average sales by 118 out of a total of 123 South Korean firms operating in the complex came to 1.48 billion won (US$1.3 million) in 2011, compared with 1.13 billion won in 2010 and 900 million won in 2009, according to the data by state-run Small and Medium Business Corp.

For 2011, the firms posted 56 million won in operating profit on average with their net loss averaging 14 million won.

The average debt ratio reached 346.7 percent in 2011, improving from 464 percent a year earlier, but still far worse than the average 171 percent recorded by local manufacturers in 2011, according to the data.

Cheap labor was cited as the No. 1 reason why the firms decided to operate factories in the Kaesong park, followed by easy accessibility to the town, just north of the heavily-fortified border with the North, the data showed.

But a lack of control over North Korean workers, difficulties with Internet and telephone connections, and a shortage of North Korean labor were cited as drawbacks in operating in the park. A majority of the South Korean firms in the Kaesong park said the North regime’s intervention in their business activities was severe.

UPDATE 20 (2013-4-29): Does North Korea have enough electricity to run the Kaesong Zone?

According to the Choson Ilbo:

The electricity used in Kaesong Industrial Complex is completely supplied from South Korea. A substation in Munsan, Gyeonggi Province, sends electricity to the 100,000 kW Pyeonghwa substation in Kaesong built by South Korea, which then redistributes the power to the businesses.

North Korea suffers chronic power shortages. According to the Bank of Korea, North Korea has a generation capacity of 6.97 million kW, and generates 23 billion kW/h — just 9 and 5 percent of South Korea.

The power supply is prioritized to the elite and munitions factories in Pyongyang. The Kaesong complex is not on priority list.

The report also mentions that it would be impractical to ship goods over land to China….but what about to the Haeju Port?

UPDATE 19 (2013-4-29): South Korean factory managers begin to leave the Kaesong zone

According to Yonahp:

On Saturday, 126 people came back to the South with the remaining 50 workers scheduled to return Monday afternoon, leaving no South Koreans at the complex for the first time since the zone went into operation in late 2004 as a prominent symbol of inter-Korean reconciliation.

“Over the past weekend, (some of) the remaining workers returned from the Kaesong industrial complex. Now the government should do its best to provide substantial support for related businesses and workers so as to help them not lose hope,” Park said during a weekly meeting with senior secretaries.

“People around the world watch on TV our workers coming out of the Kaesong complex while trying to carry as many products as possible on the roofs of their cars. In a situation where a mutual agreement turns abruptly into bubbles, who would be willing to make investments in North Korea?” she said.

UPDATE 18 (2013-4-27): A north Korean official sounds pessimistic about the future of Kaesong

According to the Associated Press:

Once the last South Koreans leave, what will become of the jointly run factory park remains unclear.

“It is only a matter of time” before the complex shuts down for good, an unnamed spokesman for North Korea’s General Bureau for Central Guidance said Saturday. “We treasure the Kaesong industrial complex but won’t bestow favors on those who return evil for good.”

UPDATE 17 (2013-4-27): South Korean staff leave the zone

According to Yonahp:

After its offer for dialogue to resolve the tension was rejected by North Korea, South Korea on Friday ordered all of its workers at Kaesong to pull out, a decision that has raised serious doubt about the future of the last remaining symbol of inter-Korean rapprochement. Kaesong is a byproduct of the historic inter-Korean summit in 2000.

In turning down the South’s offer for dialogue, North Korea warned of “grave action” of its own, without giving specifics.

The North’s powerful National Defense Commission said Friday it would ensure safe passage of the South Koreans across the border.
…

A total of 175 South Koreans were staying at the Kaesong Industrial Complex in the North’s border city of the same name when the Seoul government announced its decision to pull them out on Friday. Of them, 125 returned home on Saturday together with one Chinese who was staying there with them.

All of the remaining 50 South Koreans are scheduled to return home by Monday, according to the Unification Ministry which handles cross-border affairs with North Korea.

According to the article, the business owners were not pleased about being ordered back to the south:

Also on Saturday, the association of South Korean companies operating in the complex called on the government to compensate for financial damages stemming from the withdrawal.

It also demanded that the government allow its representatives to visit the complex, take measures to protect raw materials left in Kaesong and continue to make efforts to reopen inter-Korean talks.

“Companies operating in Kaesong have been embarrassed by the government’s decision to pull out all workers (from the complex) and are wary of a possible shutdown of the complex” Han Jae-gwon, head of the Kaesong Industrial Complex Companies Association told reporters at the Customs, Immigration and Quarantine (CIQ) office in Paju, about 50 kilometers northwest of Seoul.

UPDATE 16 (2013-4-24): South Korean government offers assistance to troubled Kaesong firms

According to the New York Times:

South Korea on Wednesday announced financial aid for 123 South Korean factories left stranded in an industrial zone in North Korea as the North showed no signs of allowing the complex to reopen.

..

The financial assistance announced on Wednesday included $8 billion in special loans and $14.3 million in bank loans whose repayments will be postponed with government help. The companies will also get tax relief and unemployment allowances if any of their South Korean workers are laid off because of the trouble in Kaesong.

“We will do our best to minimize the damages for the companies that have factories in Kaesong,” said Kim Hyung-suk, a spokesman for the Unification Ministry of South Korea. He indicated that more aid would be provided if the shutdown continued.

…

About 900 South Korean managers used to supervise their factories in Kaesong. As of Wednesday, 176 of them still stayed there, hoping the North would send its workers back in soon.

UPDATE 15 (2013-4-23): Kaesong closure affecting participating companies

According to Yonhap:

The head of a small clothing company expressed concerns about a possible collapse of his company as he could not meet a deadline to deliver goods to a large South Korean company.

He said his company’s possible collapse would result in the bankruptcies of dozens of its subcontractors. The official did not elaborate and asked not to publish his company’s name.

…

A local maker of machine parts said it was considering abandoning its assembly line in Kaesong and setting up a factory in China after its biggest business partner floated the idea. The local company also asked not to be identified, citing the issue’s sensitivity.

The development underscored challenges facing South Korean companies involved in business ties with North Korea.

Daewha Fuel Pump Industrial Ltd., a South Korean auto parts supplier that has a factory in Kaesong, said its Indian business partner has canceled a deal as it failed to deliver parts to the Indian company due to the suspension.

The Indian company told the South Korean company that it would switch to a U.S. supplier instead.

The Indian company also asked Daewha to either return modeling equipment from its factory in the complex or pay back money equivalent to its investment, according to Choi Dong-hun, a Daewha official. Choi declined to identify the Indian company.

Meanwhile, Kolon Industries Inc., South Korea’s leading textile and chemical material producer, said it would receive clothes worth about 6 billion won (US$5.3 million) from its five South Korean suppliers in Kaesong after the complex’s operations return to normal.

Kolon Industries said the decision is part of its efforts to share the burden with its business partners.

Yoo Chang-geun, a vice chairman of the association of South Koreans who run factories in Kaesong, called on the government to provide emergency loans to the South Korean companies in Kaesong.

Yonhap details some of the procedures being used to resolve problems at Kaesong:

[The anonymous official] said working level officials from the unification, finance, commerce and labor ministries as well as the Financial Services Commission, the Small and Medium Business Administration and tax office have held meetings to review requests made by Gaeseong companies and check what actions could be taken.

“Seoul has been informed of the damages being caused by the North’s actions and is examining measures that can be taken immediately and those requiring more time to implement,” he said.

He hinted that request to declare Gaeseong a “special disaster zone” is being examined by the Ministry of Security and Public Administration.

The official said that while conditions are dire, Seoul and the affected companies are not thinking of writing off assets at Gaeseong as being lost, but are focusing on reducing fallouts from work stoppages, the cancellation of business contracts with buyers and the liquidity crunch felt by companies.

“Some banks such as Woori and the Industrial Bank of Korea have already provided 18 billion won ($16 million) to 33 companies to help with liquidity shortfalls, with other financial institutions moving to roll over on debt payment schedules, and provide fresh loans at preferential rates,” he pointed out.

Gaeseong companies have also been given waivers on rent and public utility payment obligations, with the latter worth about 2 billion won, while the tax office plans to hold off on collecting value added taxes.

“The government’s plan is to steadily update what it can do to help Gaeseong companies, without triggering opposition from companies that have factories in South Korea and are facing similar problems,” he said.

The official, meanwhile, said that Gaeseong companies sent a petition to the General Bureau for the Special Zone Development Guidance that manages the border town for the North, asking authorities to reconsider its actions and normalize operations.

…

The ministry in charge of inter-Korean relations, meanwhile, said there are now 180 South Koreans at Gaeseong, with eight having returned over the demilitarized zone that separates the two countries just before noon. The numbers are much smaller than the 850 that usually stay at Gaeseong.

UPDATE 14 (2013-4-23): The Daily NK reports on the domestic political motives that could have driven the DPRK to close Kaesong

UPDATE 13 (2013-4-18): According to Yonhap, 197 South Koreans remain at Kaesong Zone

UPDATE 12 (2013 -4-17): KCNA outlines its views on ROK’s politics towards the Kaesong zone

According to KCNA:

Right after the appearance of the present regime, it totally blocked even the cooperation between north and south non-governmental organizations which had barely been kept afloat, desperately enforcing “sanctions” against the DPRK over its satellite launch for peaceful purposes and nuclear test for self-defence. From February last it strictly controlled the entry of goods into KIZ. It worked hard to turn KIZ into a theatre of confrontation with the north. It seriously hurt the dignity of the DPRK, describing KIZ “a source of money” and “source of food” of the north.

…

Needless to say, KIZ can hardly exist amid such unprecedented mayhem of confrontation.

The conservative group is now becoming vociferous about “normalization of operations in KIZ” and “dialogue”. It is doing so not because of any concern for the minor south Korean enterprises or any wish to bring about a turn in the phase. But it is nothing but a crafty ploy to evade the blame for the crisis in KIZ and justify the moves for confrontation and war.

The puppet group can never evade its responsibility for the present grave situation in KIZ. If the group keeps vilifying the important step taken by the DPRK in a bid to pass the buck for the crisis to it, the situation will reach a more uncontrollable phase.

UPDATE 11 (2013-4-17): DPRK refuses ROK business delegation to the Kaesong Zone

According to Yonhap:

North Korea on Wednesday ignored the request by South Korean businessmen to cross over the demarcation line that separates the two countries so they can deliver food to employees and check the condition of their facilities at Kaesong.

The Ministry of Unification, which had sent the request through the Kaesong Industrial District Management Committee in the North Korean border town, said it received no permission from Pyongyang for the passage of the 10 businessmen.

The businessmen are currently at the Customs, Immigration and Quarantine office in Paju, about 50 kilometers northwest of Seoul.

The move shows the communist country has no immediate plans to alter its policy of banning South Korean personnel and materials from entering the joint complex in the communist country. The entry ban has been in place since April 3.

It had also pulled out all of its 53,000 workers from the complex on April 9, effectively halting operations at the 123 factories for over a week.

There are presently 209 South Korean workers at the complex just north of the demilitarized zone with three expected to return home during the day.

UPDATE 10 (2013-4-9): South Korea requests medical professionals be allowed to enter Kaesong Zone

According to Yonhap:

As the suspension continues, the local general Paik Hospital, the operator of a roughly 10-person medical team, pull its medical workers out of the zone last Saturday, citing a lack of daily necessities.

In response, the association of South Korean firms operating in the park has said that the North should allow South Korean medical workers into the Kaesong Industrial Complex in the event of emergent patients.

On Sunday, a 43-year old South Korean man had to be rushed to a South Korean hospital from the Kaesong park just north of the heavily-fortified inter-Korean border due to the withdrawal of the medical team.

About 300 South Koreans are still in the park, with the North only allowing South Koreans to leave the zone.

UPDATE 9 (2013-4-9): President Park disappointed

According to Yonhap:

“It is very disappointing that North Korea abruptly said yesterday that it will temporarily suspend the operation of the Kaesong Industrial Complex that has been operating without any problems,” Park said.

“How long should we see this endless vicious cycle of (North Korea) creating crises before reaching compromise in exchange for aid and again creating crises before compromise and aid?” she said of Pyongyang’s pattern of behavior.

Unless operations of the complex are normalized, South Korea will have to use state funds earmarked for inter-Korean exchanges and cooperation projects to compensate companies for damage arising from the suspension, Park said.

Park’s spokesman, Yoon Chang-jung, denied speculations by some local media that South Korea is bracing for all possibilities over the fate of the factory park, including its closure.

“The government remains unchanged in its position that the Kaesong Industrial Complex should continue normal operations,” Yoon said. “It is not true that the government has been drawing up measures with the shutdown of the Kaesong Industrial Complex in mind.”

UPDATE 8 (2013-4-9): How much has South Korea invested?

According to Yonhap:

South Korea has invested 900 billion won (US$802 million) into Kaesong with output reaching $469.5 million worth of goods as of 2012.

UPDATE 7 (2013-4-9): DPRK employees do not show up for work

According to the Wall Street Journal:

Some 53,000 North Koreans are employed at the complex but didn’t arrive for work on Tuesday morning, according to South Korean companies based there. As of late Monday (2013-4-8), 475 South Koreans and four Chinese nationals remained on the site.

President Park called North Korea’s move “very disappointing,” adding that few countries will invest in North Korea if the country violates international norms and promises at the Kaesong complex by suspending operations.

According to the Washington Post:

Although North Korea barred South Koreans from the Kaesong plant this past Wednesday, few analysts suspected that Pyongyang would shutter the plant — which generates foreign currency for the authoritarian government — even temporarily.

North Korea might eventually reopen the facility, six miles north of the demilitarized border. But South Korean businesses could be wary about returning to an area that Pyongyang has described as a “theater of confrontation” — one that operates on the political whims of its leadership.

UPDATE 6 (2013-4-8): Kim Yang Gon Visits Kaesong Industrial Zone, bars DPRK workers

According to KCNA:

Minister of Defense of south Korea Kim Kwan Jin openly disclosed his scenario to dispatch a special unit of the U.S. forces to the zone, while crying out for an operation for “rescuing hostages”. Kim Yang Gon branded the scheme as an intentional provocation to make the zone a starting point of a war.

He called for maintaining strained and mobilized posture on a high alert with the U.S. and the south Korean warmongers stepping up moves to provoke a war against the DPRK.

It has become impossible to operate the zone as usual due to the south Korean warmongers’ reckless acts, Kim Yang Gon said. He held a consultative meeting on the spot and entrusted relevant fields with detailed tasks, urging them to get fully ready to cope with whatever development in the zone.

The developments to which he referred are reported in this separate KCNA story:

The DPRK is compelled to make an important decision related to the issue of the industrial zone now that the south Korean authorities abuse the generosity and compatriotism of the DPRK for their hostile purpose.

Upon authorization, I declare the following important steps as regards the crisis in the Kaesong Industrial Zone:
1. The DPRK will withdraw all its employees from the zone.

2. It will temporarily suspend the operations in the zone and examine the issue of whether it will allow its existence or close it as the south Korean authorities and military warmongers seek to turn it into a hotbed of confrontation between compatriots and war against the DPRK, hurting its dignity.

The General Bureau for Central Guidance to the Development of the Special Zone will be responsible for the working matters related to the important steps including the withdrawal of the employees and the temporary suspension of the operations in the zone.

How the situation will develop in the days ahead will entirely depend on the attitude of the south Korean authorities.

Yonhap covered the South’s response:

Related to the KCNA’s announcement, the Unification Minister Ryoo Kihl-jae said in a meeting with lawmakers that the North’s decision to withdraw its laborers will only make things worse for them. He said that Seoul will confirm the latest developments and their impact before coming up with its own policy to handle the situation.

The Ministry of Unification, in charge of conducting talks with the North, issued a formal statement expressing deep regrets over the announcement made by Kim.

“The latest unilateral action cannot be justified in any way and full responsibility falls on the North,” it said, adding that it will react calmly and resolutely to the indiscriminate actions taken by the North, with every measure being focused on ensuring the safety of the South Korean workers still at the complex.

UPDATE 5 (2013-4-7):  Three South Korean firms halt production due to lack of materials. The number of South Korean firms suspending operations increases to 13. (Yonhap)

According to the Associated Press:

The last media visits to factories from the South Korean side are believed to have been in 2007. In September [2012], The Associated Press visited from the North Korean side, accompanied by officials from the North-South management committee that administers the special economic zone.

UPDATE 4 (2013-4-5): Party vs. military and the future of Kaesong

According to the JoongAng Ilbo:

Sources told the JoongAng Ilbo on Wednesday that there was internal friction between the military and the ruling party’s high-ranking politicians over whether to close down the joint industrial zone.

“The North Korean military is strongly demanding to immediately shut the complex, given the tense relations with Seoul,” the source, familiar with North Korean affairs, told the JoongAng Ilbo on condition of anonymity.

But some ruling Workers’ Party officials in charge of inter-Korean cooperation argue that the shutdown of the complex would create a great deal of problems, the source said.

“The ruling Workers’ Party opposed the shutdown, saying it is a matter that would affect the livelihood of the 50,000 [North Korean] workers as well as their 200,000 family members,” the source said.

Some ruling party and cabinet members also claim that keeping the complex running was one of the wills of the late North Korean leader Kim Jong-il.

UPDATE 3 (2013-4-5): North Korean workers do not work at Kaesong on Arbor Day

According to Yonhap:

Operations at the Kaesong Industrial Complex have been halted in observance of North Korea’s arbor day holiday, government and business sources said Friday.

The Ministry of Unification and local companies that have plants in the border town just north of the demilitarized zone (DMZ) said the 53,000 North Korean workers did not report for duty on Friday.

The same article also reported on South Koreans returning home:

The ministry, meanwhile, said that there are currently 608 South Koreans at the park along with six Chinese citizens.

On the first day that the North banned entry, 33 South Koreans returned, with 220 crossing the border the following day.

And how are communications in the Kaesong Zone?

Kim said that despite the severing of official hotlines between South and North Korea, there are still some 1,300 private phone lines that are still in operation so the ministry can contact companies directly.

UPDATE 2 (2013-4-3): DPRK blocks South Koreans from entering Kaesong Industrial Zone

According to the Washington Post:

North Korea on Wednesday banned South Korean workers from entering a joint industrial complex near the demilitarized border, officials in Seoul said, putting in jeopardy a project that provides the only daily contact between the two nations.

The North did not say how long the entry ban would last, and it did allow South Korean workers who had been at the facility to return home.

According to the BBC:

More than 850 South Koreans were at Kaesong when the ban was announced, and very few have returned.

…

The BBC’s Lucy Williamson, at the border, says many have decided not to return immediately because they fear they will not be allowed back in.

One South Korean worker who returned from the complex said some of his colleagues had been held up because they had no transport.

“Other people couldn’t return because they were supposed to be taken home on trucks scheduled to carry supplies into North Korea, but the trucks couldn’t get into the North,” said the worker.

UPDATE 1 (2013-4-1): South Korean workers allowed to enter Kaesong Industrial Zone

According to Yonhap:

South Korean workers and cargo on Monday headed for the Kaesong complex without a hitch despite North Korea’s recent threat to close the joint industrial zone in the communist country.

The Ministry of Unification said the North approved the movement of personnel and goods through the Kaesong Industrial District Management Committee (KIDMAC) earlier in the day. Seoul has been contacting the KIDMAC, an office jointly staffed by South and North Korea, to get confirmation for the daily movement of workers over the demilitarized zone (DMZ) that separates the two Koreas. In the past, communication was handled through a military hotline, but the North cut off the hotline on Wednesday.

“The North gave its approval and 352 South Koreans crossed over the DMZ at 8:30 a.m.,” a ministry source said. The official said 853 people are expected to head for Kaesong within the day and 355 are scheduled to return.

ORIGINAL POST (2013-3-30):  DPRK warns it may act on Kaesong Industrial Zone

According to Naenara:

Height of absurdity

A spokesman for the DPRK Central General Bureau for the Guidance of the Special Zone Development issued the following statement on March 30 to condemn the south Korean clan of traitors, government-patronized media and hack writers for having made preposterous remarks with regard to the Kaesong Industrial Zone. He said:

They are now hurling a stream of invective at the fact that the entry of the KIZ is barely maintained, saying the north never touches it as it is a source of foreign currency income and talking about double-facedness of the north, a serious insult to the dignity of the country.

It is really abnormal that the KIZ is maintained in such a grave situation that the inter-Korean relationship has been broken totally and a hair-trigger situation on the eve of a war has been created on the Korean peninsula by the vicious north-targeted nuclear war moves of the US and south Korean war hawks.

The reality shows that the puppet clan will have no say even if the south Korean personnel are banned from entering the KIZ and the zone is closed.

However, the DPRK side is exerting utmost self-restraint, considering that the livelihood of the small enterprises of the south hinges on their business in the zone and if it is closed immediately their businesses would go bankrupt and they would be unemployed.

In fact, it is not the DPRK side, but the puppet clan and the south Korean small businesses that benefit from the KIZ.

But the government-patronized media and the hacks in the south are busy slandering the DPRK without considering them like idiots who are bereft of elementary discrimination.

If the puppet clan of traitors even gossip and bluster about the barely existing KIZ and try to hurt the dignity of the DPRK in this regard even a bit, the industrial zone will be banned and closed without mercy.

The DPRK side does what it is determined to do and whether the KIZ already in a critical situation will be maintained or not wholly depends on the approach of the puppet clan.

The south Korean businessmen in the KIZ should see the prevailing situation squarely and duly refute the absurd arguments the puppet clan and government-patronized media are making like a thief crying “Stop thief”.

The DPRK side will closely watch the moves of the puppet clan and reactionary media organizations.

A resolute measure will be taken if they continue to make reckless remarks slandering the dignity of the country.

Additional Information
1. About the Kaesong Industrial zone (Wall Street Journal)

2. Timeline of events leading to Kaesong suspension (Yonhap)

3. Dr. Yu Byounggyu (in 38 North): “DPRK dependency on ROK economy was 18% in 2000, but grew to 38% in 2007. This has now fallen to 21%. DPRK dependency on the Chinese economy has grown from 20% to 70% in 2007.

4. Dr. Yu Byounggyu (in 38 North): “13% of Kaesong output is exported.”

5.  Dr. Yu Byounggyu (in 38 North): Problems in the Kaesong Zone: No 24-hour entry, complicated customs procedures, insufficient telecom infrastructure (mobile phones and internet).

6. Stephan Haggard: Total investment in the zone is estimated at about $840 million, with $350 of that in infrastructure and the remainder in the factories and equipment. (These are approximate numbers given by Ministry of Unification)

7. Stephan Haggard: Kaesong’s 2012 Trade data.

This entry was posted on Wednesday, November 13th, 2013 at 11:43 pm and is filed under International trade, Kaesong Industrial Complex (KIC), Light Industry, Manufacturing, South Korea, Special Economic Zones (Established before 2013), Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.