Archive for the ‘Kaesong Industrial Complex (KIC)’ Category

2015 Kaesong wage fight (UPDATED)

Wednesday, March 18th, 2015

In 2011, Kaesong workers officially received their 5th consecutive annual pay increase. In 2012, they “received” their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongyang closed the complex down in a dispute with the South Koreans. In 2014, work resumed at the complex and Kaesong workers “received” a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex). Now it looks like Pyongyang is raising tensions (unjustifiably in my opinion) to recover a “pay increase” they feel they are owed.

For those new to this topic, I should point out that we are not talking about wages paid to North Korean workers. We are talking about US dollar balances (cash) that are given directly by South Korean firms to the North Korean government. The North Korean government keeps all of the hard currency and pays its workers in local currency. That said, The North and South Koreans still officially refer to “wages” (even though they are nothing of the sort), so I will as well.

I am chronicling this developing story in periodic updates below.

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UPDATE 9 (2015-4-1): S. Korea not budging on Kaesong wage row (Yonhap):

South Korea said Wednesday it will ask the country’s firms at the Kaesong Industrial Complex in writing not to succumb to North Korea’s pressure to raise wages for its workers.

The unification ministry said it will soon send a formal letter to 124 South Korean firms operating in the zone just north of the inter-Korean border.

The move comes as the companies, mostly small and medium-sized, will begin to pay March’s wages to around 53,000 North Korean employees on April 10.

In February, the North decided unilaterally to revise a set of labor rules that included the elevation of the minimum wage for its workers at the Kaesong Industrial Complex from US$70.35 to $74 starting in March.

The South has rejected the North’s decision, saying the wage issue should be decided through bilateral discussions.

It has urged the South’s firms in Kaesong not to follow the North’s measure.

“We plan to send an official letter to them in order to again make clear the government’s stance on the matter,” Unification Ministry spokesman Lim Byeong-cheol said.

He added there has been no progress yet in efforts to hold talks with North Korea to discuss the issue.

Here is coverage in the Hankyoreh.

UPDATE 8 (2015-3-18): South Korean business owners have crossed into the Kaesong complex to complain about Pyongyang’s unilateral wage increase. According to the Financial Times:

On Wednesday more than a dozen businessmen representing about 120 companies visited Kaesong, about 10km north of the border, to voice their concerns about the move, amid growing concerns about the future of the joint economic project

“The unilateral change of labour rules is a problem,” said Chung Ki-sup, head of the council of the South Korean businesses operating in Kaesong, ahead of the 14-member delegation’s arrival in the North. “But this can be easily resolved when dialogue resumes.”

Mr Chung said the North’s stance might in part be a reaction to Seoul’s refusal to ban North Korean defectors and rightwing civic groups from sending anti-North leaflets across the border.

Experts say the wage disputes are unlikely to lead to another closure of the industrial complex, but the problems have renewed scepticism over the merits of the project.

“The disputes are unlikely to be resolved anytime soon,” said Park Hyung-joong, researcher at Korea Institute for National Unification. “Pyongyang wants to use Kaesong as a political bargaining chip when inter-Korean relations are not good. So the complex will remain exposed to political problems, but closing it carries too big political risks for both sides.”

Here is coverage in the Daily Mail and Yonhap.

UPDATE 7 (2015-3-17): The DPRK has tried circumventing the South Korean government to reach out to the Kaesong firms themselves. According to Arirang News:

In an unprecedented move, North Korea asked the heads of South Korean companies operating at the inter-Korean industrial complex in Kaesong to gather for a meeting that was scheduled for earlier in the day.

No specifics about the meeting were announced and the South Korean government asked the company heads. not to respond to Pyongyang’s call.

Instead, the South Korean government held a meeting in Seoul this afternoon with most of the leaders of companies from the complex.

Seoul discussed possible countermeasures and urged the leaders not to abide by Pyongyang’s one-sided demands.

Watchers believe the meeting was Pyongyang’s way of pressuring the South Korean companies to go along with its unilateral decision to raise wages for its workers from a little over 70 U.S. dollars to 74 dollars a month and revise labor regulations.

UPDATE 6 (2015-3-12): The DPRK rejects South Korea’s call for talks on Kaesong wages. According to Yonhap:

North Korea claimed Thursday its decision to raise wages for its workers at the Kaesong Industrial Complex is a legitimate measure under its sovereignty, dimming hopes of an early resolution to disputes between the two Koreas over the issue.

The North’s Central Special Development Guidance Bureau, which is in charge of operating the complex, made clear that it is not a matter to be decided through consultations with the South’s government.

Last month, Pyongyang notified Seoul of its unilateral decision to elevate the minimum wage from US$70.35 to $74 starting in March. It also said it would collect 15 percent of their basic wage plus overtime payments as “social security.” Currently, the South’s firms pay 15 percent of the basic wage alone.

The South strongly protested against the decision, suggesting that the two sides hold dialogue on March 13 to discuss the problem.

Officials here emphasized that the two Koreas have agreed to decide every issue related with the operation of the joint venture through mutual consultations.

The decision on the wage hike is a “normal and legitimate” exercise of the North’s legislative rights, the bureau’s spokesman told Pyongyang’s propaganda website, Uriminzokkiri.

It’s not a subject for bargaining with the South, he added.

It makes no sense, he added, for the North to hold talks with the South at a time when it is staging a war rehearsal with joint military drills with the United States on the peninsula.

He argued that wages for the North’s workers in Kaesong are still low for their heightened skills and productivity and in comparison with the wage level in special economic zones in other nations.

UPDATE 5 (2015-3-11): Throwing fuel on the fire of this mess, the North and South Koreans are required to resolve real estate rental rates this year. There will be no practical way to resolve this issue independently of the ongoing wage dispute. According to Yonhap:

When the Kaesong Industrial Complex in the North’s border town of the same name started operations in 2004, Seoul agreed with Pyongyang to pay the rent for the North Korean land used by South Korean companies from 2015 after negotiations on the amount.

In November, the North’s Central Special Development Guidance Bureau in charge of the industrial complex notified its South Korean counterpart of its intention to start talks on the rent issue, according to the officials.

But the negotiations are widely expected to face a bumpy road, given a wide opinion gap shown in the countries’ previous exchanges on the issue.

In 2009, the North attempted to collect up to US$10 of rent per 3.3 square meters of land, but it faced strong opposition from South Korea, so the plan was dropped immediately.

Following the North’s notification in November, Seoul has decided not accept such a level of rent as put forth by the North in 2009, which could further mount the inter-Korean tension over the factory complex down the road, according to the officials.

The joint Kaesong factory park is already at the center of an inter-Korean feud after the North announced last month its unilateral decision to raise the minimum wage of North Korean workers in the park from US$70.35 to $74 starting with their March wages.

Seoul, however, rejected the wage increase decision and said it will punish any South Korean firms complying with the North Korean demand.

April 10 is feared to become a watershed in the inter-Korean tension over the Kaesong park as South Korean firms will start paying March wages that day.

South Korean officials have previously said that the North could take extreme measures, such as the withdrawal of its workers from the complex in a bid to increase pressure on the issue.

UPDATE 4 (2015-3-9): South Korea not happy with the DPRK’s moves on Kaesong. According to Yonhap:

South Korea’s unification ministry issued a strongly-worded statement Monday against North Korea’s attitude on their joint venture in Kaesong, calling again for immediate dialogue to resolve pending problems.

It’s “deeply regrettable” that the North is not responding to Seoul’s offer of talks to discuss Pyongyang’s unilateral decision to raise wages for its workers at the Kaesong Industrial Complex, said the ministry.

“It’s questionable whether (the North) has the will for the development of the complex as the two sides agreed,” its spokesman Lim Byeong-choel said, reading out the statement at a press briefing.

The North is violating an inter-Korean agreement and rules to decide all issues related to the operation of the Kaesong zone, including working conditions, added Lim.

Last month, the communist nation announced a 5.18-percent hike in the minimum wage for its workers in the zone to US$74 a month starting in March.

“The government can never accept such a unilateral measure by North Korea,” the official said. “The government will take every necessary step for the development of the Kaesong Industrial Complex and the protection of (the South’s) firms there.”

He urged Pyongyang to hold talks with the South on Friday as proposed.

Launched in 2004 in the North’s border town, the zone is home to about 120 South Korean firms, mostly small and medium-sized, which employ more than 53,000 North Korean workers.

The South’s government has advised the companies not to comply with the North’s decision on the wage level.

UPDATE 3 (2015-3-4): South Korean government holding meeting with stakeholders to determine response to DPRK. According to Yonhap:

The South Korean government said Wednesday it will hold a round-table meeting this week with the heads of local firms operating in the Kaesong Industrial Complex to discuss how to handle North Korea’s unilateral decision to raise the wages of its workers there.

The unification ministry is scheduled to hold the meeting with the council of relevant companies at its headquarters in Seoul at 5 p.m. on Thursday, said ministry spokesman Lim Byeong-cheol. The ministry is in charge of inter-Korean relations.

“We plan to review measures regarding the recent situation,” he said at a press briefing. “Along with related government officials, Chung Ki-sup, head of the council, and about 10 other representatives will attend (the meeting).”

Another ministry official also said the meeting is intended “to share the government’s position on the matter and listen to the opinion of the firms.”

Last week, the North announced it would raise the minimum wage for its workers in the zone by 5.18 percent to US$74 a month starting in March.

South Korea said it cannot accept a decision made without mutual consultation.

The ministry spokesman said the North has not responded yet to the South’s offer of talks on the Kaesong complex on March 13.

“The government will continue to urge North Korea to hold consultations between the authorities of the two sides, which are essential for the development of the Kaesong Industrial Complex,” Lim said.

The North is apparently aware that both sides have already agreed to resolve every problem related to the operation of the joint venture, he added.

UPDATE 2 (2015-2-26): According to Yonhap:

North Korea has notified South Korea of its unilateral decision to raise the minimum wage for its workers at the Kaesong Industrial Complex by 5.18 percent, the unification ministry said Thursday.

In a fax message sent Tuesday, the North said it would increase the minimum wage from $70.35 to $74 starting on March 1, a ministry official told reporters.

In addition, the North announced that it would collect 15 percent of their basic wage plus overtime payments as “social security,” he said. Currently, the South’s firms pay 15 percent of the basic wage alone.

The North Korean workers’ average wage amounted to $141.4 per month in 2014, according to the ministry’s data.

Under Pyongyang’s plan, South Korean firms will have to pay $164 on average for a North Korean worker a month, up 5.53 percent from the current $155, said the official.

He stressed that the South’s government can’t accept the North’s move.

“The two sides are supposed to set wages for workers at the complex and other working conditions through mutual consultations,” he said. “The government will advise our firms to pay the current level of wages until the issue is settled through consultations between the related authorities of the two sides.”

Those companies are scheduled to pay March wages for the North’s workers between April 10-20.

Earlier Thursday, the South attempted to deliver a protest letter, but the North refused to receive it, said the official.

“It’s very regrettable that the North shows such an attitude,” he said.

About 120 South Korean garment and other labor-intensive plants employ more than 53,000 North Koreans at the complex, which was created in 2004.

UPDATE 1 (2014-12-09): North Korea amends Kaesong Industrial Complex labor regulations, lifts wage increase limit. According to the Institute for Far Eastern Studies (IFES):

According to a December 5th report of North Korea’s propaganda media Uriminzokkiri, the Presidium of the Supreme People’s Assembly reached a decision on November 20 to revise the Act on the Kaesong Industrial Complex (KIC).

It reported that ten provisions in the Kaesong worker regulations were revised including the 5 percent ceiling on annual wage increase to the minimum wage.

North Korea’s General Bureau for Central Guidance on the Development of the Special Zone delivered the notice in writing to the Kaesong Industrial Complex Management Committee on December 8, stipulating that 13 provisions were revised. Out of the 49 total provisions, the 13 provisions that were modified pertain to the function of the KIC Management Committee and the wage system.

According to the decision, North Korea elucidated the labor and wage regulations will be unilaterally directed by the General Bureau, dismissing the authority of the KIC Management Committee. Furthermore, the clause that depicts the minimum wage of USD 50.00 and limit of 5 percent wage increase were deleted. Instead, the revised provisions prescribe that the General Bureau will make the decision every year.

In addition, overtime pay will be increased from the current 50 percent to between 50 to 100 percent. Furthermore, workers who have worked for more than a year will be eligible for severance pay, regardless of the condition of their leave. The previous clause stated severance pay was to be paid only when the termination incurred from “circumstance of the company”; but this condition has been deleted from the revised clause, and pay must now be given even for voluntary leave. Also removed was the provision that states the wage should be paid directly to the employee in cash.

Meanwhile, the South Korean government made a statement disproving the recent modifications to the KIC regulations. The South Korean government is refuting North Korea’s decision based on the fact that it was a unilateral decision by the North without consulting the joint committees of the KIC. The South is affirming its position to strongly counter against the North’s one-sided decision.

Revision of the labor regulations of the KIC is regarded as a violation to the general agreement that undermines the stability and the credibility of the KIC regulations. Such labor regulations clearly violate the inter-Korean agreements on wage system and various labor and tax systems newly reached by the various institutions in the North-South Joint Committee of the KIC after the KIC was restarted last year.

The current minimum wage of a KIC worker is USD 70.30, which reaches up to an average of USD 150.00 per month after various incentives are included. Each company is paying a total of USD 210.00 per employee where 15 percent of the minimum wage is allocated to social insurance, transportation, and snack costs.

North Korea has persistently demanded for a wage increase. North Korean employees dispatched to China’s Dandong City are paid an average of USD 300.00 per month. Thus, the recent move by North Korea can be seen as a move to raise the minimum wage at the KIC to a similar level. In addition, this move can be interpreted as North Korea’s intention to maximize economic gain by taking unilateral action toward tenant companies in the KIC.

ORIGINAL POST (2014-12-9): In 2011, Kaesong workers received their 5th consecutive annual “pay increase”. In 2012, they received their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongygang closed the complex down in a dispute with the south Koreans. In 2014, Kaesong workers received a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex!). Now it looks like Pyongyang is signaling that it intends to unilaterally raise wages.

According to Yonhap:

South Korea is scrutinizing North Korea’s unilateral decision to amend a number of wage-related clauses at the jointly operated Kaesong Industrial Complex, an official said Tuesday.

As soon as a review of the North’s demands are finished, the government will take appropriate steps, the unification ministry official told reporters.

“We are in the process of reviewing and analyzing the contents revised by the North,” he said on background.

The South and the North have an agreement over 49 items in place on the working conditions for around 53,000 North Korean workers in the zone.

Without prior consultations with the South, the North announced its decision to revise 13 of them, which include scrapping a 5-percent cap on the annual minimum wage increase rates, easing qualifications for severance pay and strengthening the authority of the North’s agency in charge of running the complex, according to the official.

North Korean workers’ wages have jumped 5 percent every year since 2007. North Korean workers are currently paid US$70.35 each month. If various allowances and incentives are counted, wages reach $130, reportedly about 50 percent higher than the average income of workers in North Korea.

Read the full story here:
S. Korea reviewing NK move over Kaesong workers’ wages
Yonhap
2014-12-9

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Korea-China FTA (as it relates to the DPRK)

Wednesday, March 11th, 2015

UPDATE 1 (2015-3-11): Dandong tries to position itself as gateway to North Korea via China – [South Korea] FTA. According to Yonhap:

The Chinese border city of Dandong, known for its bustling trade with North Korea, has unveiled a plan to become a “bridgehead” to boost trade between South Korea and China as the two nations work to formally sign a bilateral free trade deal.

The plan, put forward by the Dandong city government in Liaoning province on Tuesday during the country’s annual session of the Communist Party-controlled parliament, came as the bilateral trade deal between South Korea and China is expected to be signed within the first-half of this year.

“China and South Korea completed free trade negotiations. Dandong will make efforts to serve as a bridgehead of trade between China and South Korea,” the Chinese city government said in a statement.

The trade deal is expected to give a big boost to the city’s ambition to become a trade hub in the northern parts of the Yellow Sea and the Bohai Strait, adjacent to the Korean Peninsula, it said.

Details of the Chinese city’s plan are sketchy, but the city is expanding its logistics and marketing facilities to cope with rising trade if the South Korea-China free trade deal is implemented, according to the statement.

As much as 80 percent of bilateral trade between North Korea and China is conducted through Dandong.

Although China’s trade with North Korea appears largely unaffected, large-scale economic projects between the allies have made little progress as China’s leadership has been increasingly frustrated with the North’s defiant pursuit of nuclear weapons.

Last week, Chinese Premier Li Keqiang said Beijing will spare no effort to formally sign a bilateral free trade agreement with South Korea “as soon as possible.”

The deal calls for South Korea and China to remove tariffs on about 90 percent of goods traded between the two nations over the next two decades. However, rice and cars were excluded from the deal.

ORIGINAL POST (2015-2-26): Goods at teh Kaesong Complex will be included in the China-[South] Korea FTA. According to the Joong Ang Daily:

More than 300 products manufactured in the Kaesong Industrial Complex in North Korea will be given special tariff reductions for export to China once the Korea-China Free Trade Agreement (FTA) takes effect, the South Korean government said Wednesday.

This is the largest number of products from Kaesong that will be eligible for tariff reductions in a bilateral trade pact signed by Korea. Its FTAs with the United States and the European Union don’t deal with products manufactured by South Korean companies in the North Korean industrial park.

New agreements have been negotiated in the three months since President Park Geun-hye and Chinese President Xi Jinping announced the free trade pact last November in Beijing.

According to the Ministry of Trade, Industry and Energy, a newly upgraded pact was signed and exchanged on Wednesday in Beijing after follow-up negotiations were held recently.

China is the largest importer of Korean goods in the world, and trade with the country has consistently risen over the past decade.

The FTA initialing on Wednesday in Beijing came after three months of continuous negotiations in which the two sides came up with more detailed articles and resolved technical and legal details.

On Wednesday morning, commercial attaches from the Korean embassy in Beijing exchanged the initialed documents with their counterparts.

With the initialing, the two countries confirmed the English version of the FTA document, and the “substantial agreement” announced in November has gotten a step closer to implementation.

The pact still requires official signing and final ratifications from the two countries’ legislatures before going into effect.

“The two governments agreed to do our best to complete an official signing by the first half of this year so that our exporters can start benefiting from the FTA as soon as possible,” Woo Tae-hee, assistant minister for trade and chief FTA negotiator, said at a press briefing at the Sejong government complex on Wednesday morning.

Signings of FTAs are usually done by trade ministers, but an official at the Trade Ministry said this FTA is likely to be signed by the two presidents.

Under the updated agreement, Korean producers of 310 products in Kaesong will benefit from reduced or completely eliminated tariff as if the products were produced locally.

This will improve the price competitiveness of those exports from Kaesong to China.

To be eligible, at least 60 percent of each product’s raw materials should come from China or Korea. The list of 310 products will be renegotiated every year.

The Kaesong provision is a lot more generous than in Korea’s other FTAs, the Trade Ministry says.

Korea’s FTA with the European Free Trade Association (Korea-EFTA), consisting mostly of Scandinavian countries, gave tariff breaks to 267 products from Kaesong. The Korea-India FTA gave breaks on 108 products. The FTAs with ASEAN, Peru and Colombia gave breaks to 100 products.

Korea and China also inserted language into the FTA to launch a group to discuss opening more industrial complexes in North Korea.

The updated Korea-China FTA also includes an article that potentially allows other countries or offshore industrial complexes like Kaesong to join the Korea-China FTA. The article was added on China’s request.

“Through the Korea-China FTA, I think China wants to set up a new trade order within Northeast Asia, which other major Asian economies like Hong Kong and Macau can also participate in and expand this bilateral free trade pact into a larger-scale trade partnership within Asia,” Woo explained.

The two countries also decided to form a separate committee that discusses new business zones in each country to encourage the exploitation of the Korea-China FTA. Discussion of jointly operated business zones received a boost in the wake of Chinese Vice Premier Wang Yang’s visit to Seoul at the end of January.

The locations of such business zones are undecided yet, but candidate regions include Yancheng, Yentai and Guangzhou, cities located on China’s southern and eastern coasts, and Saemangeum on the western coast of Korea.

The Korea-China FTA’s services and investment articles also got more specific.

As soon as the FTA goes into effect, Korean law firms with a China office can do joint projects with local law firms.

The rule will be first tested within Shanghai Free Trade Zone. Also, the Chinese government agreed to lower barriers for business licenses for Korean builders.

However, the Korea-China FTA still seems to be limited to manufacturers, and other areas remain protected by tariffs including farmers and manufacturers in weak sectors.

China excluded most of Korea’s key export items to China in auto parts, steel and petrochemical industries from the tariff elimination list.

Korea’s sensitive agricultural products like rice, meat, vegetables and fruits will still keep their current tariff levels.

The level of tariff reduction and schedule for elimination varies by the product.

But most of Korea’s top exports to China, such as displays, petrochemical products, mobile phones and auto parts, will maintain current tariff levels.

On the other hand, the tariffs on top imports to Korea from China – the list is similar, including semiconductor, mobile phones, computers and displays – will be mostly eliminated as soon as the FTA is implemented.

The details of Korea-China FTA are currently available to the public on the Trade Ministry’s website.

Read the full story here:
Korea-China FTA includes Kaesong
Joong Ang Daily
2105-2-26

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Ten Years at the Kaesong Industrial Complex: South Korea’s Listed Firms Demonstrate Strong Growth

Friday, January 30th, 2015

Institute for Far Eastern Studies (IFES)
2015-1-30

The Kaesong Industrial Complex (KIC, also known as Gaeseong Industrial Complex) has recently celebrated its tenth anniversary of operation. Despite years of twists and turns, most of the listed South Korean firms with operations at the KIC generally showed a higher than average annual growth rate of 10 percent.

According to the financial investment industry and the Corporate Association of Gaeseong (Kaesong) Industrial Complex (CAGIC), the ten companies in the KIC recorded average sales and operating profits of 116.84 percent and 143.23 percent from 2005 to 2013. This translates into a compound annual growth rate (CAGR) of 10.16 percent in terms of sales, and 11.75 percent in operating profit.

Taekwang Industry, Korea Electric Terminal, Cuckoo Electronics, Jahwa Electronics, and Romanson were among five companies that showed highest sales, operating profits, and net profits that recorded high annual growth rate of more than double digits. Excluding Cuckoo Electronics, which was listed with the KIC from last year, all nine companies (out of ten) reached the average of 485.91 percent in terms of market capitalization from 2005 to 2014 and averaged yearly increase of 19.34 percent. In addition, Cuckoo Electronics emerged as a star company with a market capitalization of 1.7 trillion KRW due to its high-speed growth, recording annual average sales of 12.89 percent since 2005 and an operating profit of 22.4 percent.

South Korean companies entered the KIC from 2004, began operations, and saw their first production in December 2004. The companies in the KIC suffer whenever tensions are high between North and South Korea, but they were hit hardest in 2013 when North Korea unilaterally shut down the complex for five months. However, the financial investment industry positively evaluates the KIC to have significant advantage such as low labor costs.

Although this strong growth cannot be seen entirely as the ‘KIC effect’, the competitiveness of the KIC seems to have contributed to some extent to these earnings. In fact, “Hi Korea Unification Renaissance Stock Fund,” launched by local asset manager Hi Asset Management Co., delivered a return of 9.79 percent during the eight-month period since its introduction in May.

The low cost of labor of North Korean workers in the KIC is considered as an advantage for the competitiveness of companies. This is leading to higher earning and consequently a rise in their share prices.

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Second firm in KIC bows out

Thursday, October 30th, 2014

According to Yonhap:

One of South Korea’s small and mid-sized manufacturing companies (SME) at the inter-Korean industrial complex has applied for business closure due to falling sales, officials said Thursday.

An unidentified small manufacturer for watch and mobile phones cases on Wednesday submitted an application for dissolution to the committee handling affairs at the joint park, according to officials from Seoul’s unification ministry.

It marked the second case since June 2009 that South Korean firms operating at the Kaesong Complex have closed their businesses. It also marked the first time since the operation of the park had been halted briefly last year.

The company, which had employed about 100 North Korean workers, has been suffering from business setbacks since 2012 as its annual sales fell to US$300,000 from its peak of some $700,000.

The Yonhap report does not mention the name of the company that is closing up shop.

The first firm to go bankrupt in the KIC was the Living Art/Sonoko Factory.

Read the full story here:
S. Korean firm at Kaesong park faces biz failure
Yonhap
2014-10-30

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ROK-KIC road reportedly in bad shape

Tuesday, October 14th, 2014

ROK-KIC-Road-2013-10-13

 

Pictured Above (Google Earth): The road linking the KIC and South Korea

According to the Daily NK:

A bridge and northern parts of a road and connecting South and North Korea built by Pyongyang, for which Seoul provided 25.3 billion KRW [23.6 million USD] worth construction materials and equipment, are in decrepit conditions, according to documents obtained by a South Korean lawmaker.

“A strip [5km] of the northern side of the road connecting to the Kaesong Industrial Complex and parts of Tongil Bridge [220m] are extremely run-down, with cracks and severe forms of distortion,” representative Ha Tae Keung from the ruling Saenuri Party said, citing data submitted by Korea Land and Housing Corporation and Korea Expressway Corporation on Thursday. “However, the southern part of the project [5.1km], which cost us 68 billion KRW [63 million USD] is in good condition,” he stated.

“According to safety tests, the bridge and road are expected to progressively deteriorate, raising concerns of a major accident,” Ha said. “We may face another disaster such as the Seongsu Bridge collapse [in South Korea in 1994].”

The connecting road from South Korea to the inter-Korean Kaesong Industrial Park in the North began in September 2002 and was completed in 14 months. Seoul put 68 billion KRW [63 million USD] behind the project for its side and provided 25.3 billion KRW [23.6 million USD] worth of construction materials and equipment for Pyongyang to build its section.

Read the full story here:
Dilapidated Roads to Kaesong a Major Safety Concern
Daily NK
Lee Sang Yong
2014-10-14

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Recent CRS reports on the DPRK

Tuesday, October 7th, 2014

The Congressional Research Service “recently” published two reports which relate to the DPRK:

The U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implementation
September 16, 2014: 2014-9-16-KORUS-Kaesong
June 2, 2011: Imports-from-North-Korea-2011

(Although this report focuses mostly on US-ROK issues, there is detailed discussion of the complex negotiations around the Kaesong Industrial Complex (KIC).)

Iran-North Korea-Syria Ballistic Missile and Nuclear Cooperation 
April 16, 2014: 2014-4-16-Iran-Syria-Missile

You can download most former CRS reports dealing with the DPRK here.

 

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Kaesong Industrial Complex: One year after resuming operations

Friday, September 26th, 2014

Institue for Far Eastern Studies (IFES)

The Kaesong Industrial Complex (KIC) was reactivated on September 16, 2013 after a five-month shutdown due to North Korea’s withdrawal of North Korean workers from the complex. One year has passed without interruption of operations. However, while most of production activities were resumed to pre-shutdown levels, previously discussed agreements between the two Koreas are not meeting expectations in terms of transportation, customs, communications, security for personnel and vehicles, upgrades to meet international standards, and normalization for development of the KIC.

The tentative suspension of the KIC lasted from April 8 to September 16, 2013. During this period, all aspects of both production and export were frozen completely. After restarting operations, gradual progress was made, with production in October 2013 down only 32.7 percent compared to March of the same year (pre-suspension), totaling approximately 30.8 million USD. By May 2014, average monthly production totaled nearly 42.8 million USD, showing a strong recovery to a total of 93.5 percent of pre-suspension production capacity.

After resuming operations, companies at the KIC experienced problems such as loss of capital, cancelled contracts by buyers, order quantity reduction, and other problems which caused uncertainty about the future of the complex. In spite of this, companies at the complex were quickly able to recover due to their own efforts and the support of various related organizations.

However, since the reactivation, not much progress has been made toward achieving the goal of “developmental normalization” of the KIC. This goal is aimed at expanding and improving the complex through cooperation between the two Koreas. Agreements have been made between the North and South to work together to make the complex better than it was before the shutdown by solving several issues related to safe entry and stay of personnel; transportation, customs, and communication in the KIC; and internationalization of the complex.

For some time after restarting operations, the agreements between the North and South were actively being pursued, and the process of developmental normalization progressed steadily. In January 2014, construction of the Customs, Immigration and Quarantine (CIQ) facilities were completed alongside the implementation of a Radio Frequency Identification (RFID) electronic entrance system, and in the following month, progress was made on agreements related to the provision of an Internet service at the KIC.

Furthermore, the joint North-South Commercial Arbitration Committee was created. In March 2014, the committee had its first meeting, which dealt with commercial disputes arising at the complex. Recently, over twenty companies from the United States, Germany, China, Russia and other countries have made inquiries to the South Korean government with regard to investing in the KIC. The Foreign Investor Support Center was also opened to attract and manage investments from abroad.

However, due to the joint ROK-US military exercises, inter-Korean relations have become strained. North Korea also has taken a passive stance toward the Kaesong agreements, leading to a situation where no real progress has since been made. South Korea has been calling out for a subcommittee in order to enforce the RFID card system, continue discussion on the introduction of Internet service, and address the problems of passage, communication and transport at the complex. Seoul has been demanding continuously for North Korean authorities to cooperate on these issues.

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KIC goods and the DPRK’s Choco Pies

Wednesday, September 24th, 2014

According to the Daily NK, the DPRK has developed its own version of the South Korean “Choco Pie”. And it is apparently winning over North Korean consumers:

[…] the once popular South Korean snack Choco Pie is seeing a decline in its asking price. In June, Pyongyang demanded that South Korean companies at the industrial complex stop distributing Choco Pies to workers there, as officials had found it problematic that North Korean workers were saving the snacks and selling them in the markets. More recently, the northern workers have been receiving Chaltteok Pie (찰떡) [a chocolate covered rice cake from the South], individually packaged coffee, yulmucha (율무차)[grainy tea made with Job’s Tears], and candy bars.

“In Pyongyang, at the ‘Geumeunsan Trade Company,’ (금운산, Kumunsan Trade Corporation) they have been baking bread for about a year,” the source said, adding, “Of all the different kinds of bread, the most popular are the ones with butter inside, and they are less than 1000 KPW– much cheaper than Choco Pie.”

The trade company is an affiliate of the Military Mobilization Department [Military Manpower Administration in South Korea], which deals with the procurement of military supplies among its many functions. They either directly import the goods or obtain them from military factories in various locations across the country, and oversee the manufacturing of military equipment and machinery.

Geumeunsan Trade Company maintains branches in multiple areas, including Rasun and Cheongjin, and the office in Pyongyang imports ingredients such as flour, sugar, and cooking oil directly from China. According to the source, the raw material prices are cheaper than in the  North’s markets, and the products taste good, allowing it to monopolize the confectionery market there.

“The company has brought in foreign equipment and technology, putting it ahead of the South’s Choco Pie in price and taste,” he said, concluding, “This is why with the introduction of these different breads in Pyongyang, the price of Choco Pie [from the South] has dropped to 500 KPW from 1,200 KPW.”

The same story also reports that goods produced in the Keasong Industrial Complex are selling really well in the DPRK:

“These days, there are all kinds of goods in the markets,” adding that “no matter what kind of foreign products come in, they cannot beat KIC goods, which sell out due to high demand.” In North Korean markets, goods from South Korea, China, Japan, Russia, and elsewhere are brought in either through official or illicit trade routes. The products are then sorted by quality into “good, average, and poor” with corresponding prices.

“With the KIC now back in full operation, products are spilling into the markets,” he explained. “The goods produced there are not found in the Kaesong markets but areas such as Sinuiju [near the northwestern border] and Pyongsong [located an hour North of Pyongyang].”

Merchandise from the joint complex, such as clothes, shoes, and other mass-produced goods, sell for much higher prices compared to those from China, because not only are they new in the market, they are also considered scarce. The hefty price tag is believed to include a premium for the risk of smuggling the goods out of the heavily guarded industrial park and the bribes required to gain entry.

The items most popular with men are hiking boots, especially those made with special materials to withstand cuts from sharp objects like knives, and pants. Women, on the other hand, prefer goods for around the home, such as high-quality and sanitary cutting boards, the source told Daily NK.

“Top-quality pants from China in the Pyongsong market sell for a rather high price of roughly $10 USD, but KIC products sell for $30 USD,” he said. “Although Chinese products use the best material they have, there’s a big difference in the quality and degree of processing,” justifying why those who have used KIC-produced goods will invariably opt for them again, even if it means they need to pay more.

Authorities in the North try to keep a tight lid on goods from KIC trickling into the black market in an effort to prevent people from longing about life in the South. According to the source, this is why sellers or buyers refrain from using the word “Kaesong” and simply say, “Do you have goods from the Complex? Complex pants, or Complex shoes?”

The article does not mention it, but I suspect that not many goods are smuggled out of the KIC. The goods are probably exported from South Korea to China where they are imported back into North Korea.

Read the full story here:
Kaesong Goods Fetch Highest Market Prices
Daily NK
Seol Song Ah
2014-9-24

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DPRK tightens entry rules in Kaesong factory park

Friday, July 18th, 2014

Apparently out of fear that the Keasong Industrial Complex might be used to subvert national security, the DPRK is instituting new rules for South Koreans entering the park. According to Yonhap:

“The North notified the management committee for the Kaesong Industrial Complex of its plan to tighten entry rules starting on Friday,” said the ministry, which handles inter-Korean affairs.

Under the stricter rules, South Korean workers are subject to a one-day entry denial if they are found carrying prohibited materials critical of the North Korean regime or automobile black boxes.

Those who don’t abide by entry rules by failing to cover up their car license plates or deviating from regular entry allowance hours will also be put under entry denial of up to two days, according to the ministry.

The North has also hinted at the possibility of punishing South Korean companies operating in the Kaesong complex, depending on the level of future entry rule violations, the ministry said.

Currently, North Korea fines South Korean workers US$100 for carrying cell phones, while failure to abide by entry hours is subject to a $50 fine.

The toughened rules also came despite Seoul’s pronounced opposition to the unilateral decision.

Seoul has previously expressed its opposition and demanded the changes be discussed bilaterally, but the North has unilaterally issued the notification, officials said.

Read the full story here:
N. Korea tightens entry rules in Kaesong factory park
Yonhap
2014-7-18

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Farewell Choco Pie?

Tuesday, July 1st, 2014

News media reports claim that the DPRK has banned the use/possession of Choco Pies in the Kaesong Industial Complex.

According to the Washington Post:

By some estimates, as many as 2.5 million Choco Pies were traded monthly — though it’s unclear who exactly was so assiduously following Choco Pie markets.

Regardless of its volume, the trade will now surely be shrinking.

According to recent reports in the South Korean press, North Korean authorities have now banned the South Korean-produced Choco Pie at the Kaesong Industrial Complex following a lengthy crackdown on the chocolate treat that has made it scarce in Pyongyang.

Before, workers could pocket as many as 20 pies every night of work. But now, South Korean factory staff said they’ll instead get sausages, instant noodles, powdered coffee or chocolate bars as a bonus.

You can read the full story here.

More information here and here.

Previous posts on the Kaesong Industrial Complex here.

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