By Benjamin Katzeff Silberstein
The Ministry of Unification in Seoul announced today that the industrial park in Kaesong be closed as a form of retaliation for North Korea’s recent rocket launch, alleging that funds from the park have been used to finance the north’s arms buildup. Wall Street Journal (with my emphasis):
A representative of South Korea’s Unification Ministry said that the move to shut down Kaesong was an effort by South Korea, “as a key party, to show leadership in taking part in these moves.”
Kaesong is an important source of income for Pyongyang. The regime received $120 million last year, and a total of $560 million since 2004, in workers’ wages directly from the South Korean side, according to the Unification Ministry. Those payments are made directly to the regime, which is then charged with paying the workers themselves, a system that critics say allows the regime to pocket most of the money.
“It appears that such funds have not been used to pave the way to peace as the international community had hoped, but rather to upgrade its nuclear weapons and long-range missiles,” the Unification Ministry said on Wednesday.
Naturally, this is bad news for the North Korean economy. But how bad exactly?
Here are a few other figures to give some sense of the proportions:
- The volume of trade between North Korea and China only in the January-May period of last year totalled $1.1 billion, with North Korean exports accounting for $954 million.
- Between January and November last year, the value of North Korea’s exports to China was $2.28 billion.
- Textile exports to China from North Korea brought in around $800 million in 2014.
- North Korean guest workers in China’s border provinces are estimated to be raising between $140-$170 million per year.
In the overall context, it seems like losses from the closure of Kaesong could be potentially bad, but not catastrophic.
UPDATE 1: Here is the full statement from the Ministry of Unification:
Government Statement regarding the Complete Shutdown of the Gaeseong Industrial Complex
North Korea has pushed ahead with the extremely provocative act of launching a long-range missile on the heels of its 4th nuclear test, showing disregard for the repeated warnings of the international community and the suffering of its people.
North Korea’s provocations are a direct challenge to peace and stability on the Korean Peninsula and in the international community and its actions are absolutely unacceptable. Notwithstanding international efforts to deter North Korea from developing its nuclear capabilities and long-range missiles,
North Korea has declared that it would follow up on its recent provocations with additional nuclear tests and missile launches, thereby not even showing the slightest intent to forgo the development of its nuclear and missile capabilities.
The status quo is not static, as North Korea’s nuclear capabilities will be upgraded, all but leading to a catastrophic disaster. If left unattended, North Korea’s nuclear and missile development will lead to a fundamental imbalance in and threat to the security landscape of Northeast Asia, not to mention the Korean Peninsula, and the countries of this region will be left with no choice but to take measures to ensure their own survival and shore up their security, and there are concerns that this could eventually even lead to a nuclear domino effect.
Under these grave circumstances, it is clear that the existing approach will not work in discomfiting North Korea’s nuclear and missile development plans. Accordingly, what is in order is a vigorous response together with the international community that, for sure, exacts a price for North Korea’s misguided actions, as well as extraordinary measures that compel North Korea to give up its nuclear capabilities and change its ways.
At a time when the international community is seeking sanctions in the wake of North Korea’s violation of UN Security Council resolutions with its nuclear test and long-range missile launch, there is a need for Korea, as a key party, to show leadership in taking part in these moves.
Over the years, our Government has been working to continue maintaining the Gaeseong Industrial Complex despite North Korea’s repeated provocations and under extreme state of affairs, all with a view to assisting the lives of the North Korean people, providing impetus to lifting up the North Korean economy, and achieving the shared progress for both South and North Korea. We have also made every effort to move the Gaeseong Industrial Complex forward under the position that it should be developed in conformity with international norms.
However, such assistance and the efforts of our Government have ultimately been wrongly harnessed in the service of upgrading North Korea’s nuclear weapons and long-range missiles.
To date, the total amount of cash that flowed into North Korea through the Gaeseong Industrial Complex is 616 billion won (560 million dollars), with 132 billion won (120 million dollars) in cash having flowed into North Korea last year alone, and the Government and the private sector have invested a total of 1.019 trillion won. It appears that such funds have not been used to pave the way to peace as the international community had hoped, but rather to upgrade its nuclear weapons and long-range missiles.
This tramples on the efforts of the Korean Government and the 124 businesses that have set up shop in the Gaeseong Industrial Complex, and puts at risk the lives and safety of the Korean people.
Today, in order to stop funds of the Gaeoseong Industrial Complex from being used to support the development of North Korea’s nuclear and missile capabilities, and to prevent our businesses from suffering, the Government has decided to completely shut down the Gaeseong Industrial Complex.
We have notified the North Korean authorities of this decision and called on them to extend such cooperation as is rendered necessary by the complete shutdown of the Gaeseong Industrial Complex, including the safe return of our citizens.
The Government will move expeditiously forward with all steps to ensure the safe return of our citizens, and will set up a Government Task Force under the Office for Government Policy Coordination to provide the necessary whole-of-government assistance to our businesses.
We ask for the full understanding of our people that the Government’s complete shutdown of the Gaeseong Industrial Complex is an unavoidable decision, which takes into account the seriousness of the situation on the Korean Peninsula, and we call upon the people to stand with us as we seek to overcome such challenges.
UPDATE 2: Kent Boydston at the Peterson Institute offers this graph, and notes we can expect to see the trend reverse:
Full reference to the Wall Street Journal article quoted above:
South Korea, Japan Take Steps to Penalize North Korea
Wall Street Journal