Let us remind that the Kaesong Hi-Tech Industrial Park has been functioning for more than a decade, being the largest project of inter-Korean economic cooperation. Currently, 124 small and medium enterprises from the Republic of Korea (the RK) are operating at Kaesong, with the employment of 53,000 workers from the DPRK.
And here is a new problem. In 2014, Pyongyang demanded from Seoul to repair and streamline the infrastructure facilities at the Complex territory. In particular, the North demanded to repair sewage pipes through which water, going through the sewage treatment facilities on the Complex territory, is supplied to the residential sector of the city of Kaesong. But South Korea denied the request. The South indicated that the above mentioned sewage treatment facilities allow passage of 16,000 tons of water, out of which only 5,000 tons are used for the needs of the Kaesong Industrial Complex, and the rest 11,000 tons are supplied to the city. Besides, the North demanded to repair the roads used by the North-Korean workers for commuting.
After the RK rejected these demands, the DPRK unilaterally raised the employees’ minimum wages from USD 70.35 to USD 74 per month (almost by 5.2%). In addition, a new additional tax was imposed.
In response to the South Korean government’s suggestion to discuss all controversial issues under the joint management committee for the Kaesong Industrial Complex, the North denied the request. Official Seoul also immediately stated that it vigorously opposed the DPRK decision and suggested holding negotiations on this issue.
Money is not an issue here. With the average wages in the RK of about USD 2,500 per month, it is ridiculous to bargain for five dollars and increasing monthly wages from USD 70 to USD 74. Even if we take into account all charges and taxes, each North-Korean worker will cost the South Korean side USD 164 per month instead of the current USD 155, it is still peanuts.
On March 8, 2015, the South Korean Ministry of Unification urged the companies working in the Complex not to respond to the demand on the wages increase (‘If we go soft and concede to Pyongyang, then in future it will put forward new demands on a unilateral basis’), and on March 9, its Spokesperson Lim Byeong-Cheol urged Pyongyang to cease unilateral actions and renew the dialogue under the joint management committee for the Kaesong Complex. The decision was taken to prepare contingency funds from the Inter-Korean Cooperation Fund against the possibility of compensation for losses which the Complex companies may suffer as a result of the DPRK actions.
On March 18, fourteen South-Korean entrepreneurs visited the DPRK. The day before, the DPRK government tried to gather their representatives who were located in the Hi-Tech Industrial Park, but the latter, under the pressure of the South Korean authorities refused to come to the meeting. The aim of the trip was to bring to the notice of the North Korean side the concerns over Pyongyang’s unilateral decision and to settle the problem, as the March salary was due on April 10. As Chung Ki Sup, Chairman of the Association of the Kaesong industrial zone companies stated, they had been talking for two hours with the North-Korean officials, in particular, with the Deputy Head of the General Directorate on Development of the DPRK Special Areas, Park Cheol Soo. The businessmen tried to submit to the DPRK Government their official statement, in which they oppose the unilateral wages increase and introduction of other taxes, but the North-Korean functionaries refused to accept the document. 115 out of 124 companies from the South, who were located in Kaesong, signed the statement.
A few days later Lim Byeong-Cheol reported that the wages of the Kaesong Industrial Complex employees could yet be raised: ‘The position of our Government is as follows. Prior to the changes of the work rules under the current agreements on the basis of negotiations between the joint management committee for the Kaesong zone and the Central Directorate on the Development of the DPRK Special Areas we can agree to the minimal wages increase for the DPRK workers in the amount of up to 5%.’ In relation to the increase of other taxes and charges, the official also emphasized that at first it was necessary to change the existing rules, and only afterwards – to initiate any increase.
He indicated that the RK Government was ready to discuss this issue under the joint management committee for the Kaesong Industrial Complex and the North-Korean Directorate on the Development of the DPRK Special Areas, and that the change in the position was caused by the demands from the South-Korean companies to start relevant negotiations. As for a more full-scale revision of the labor conditions, in this case a dialogue with the North is of great importance.
What are the sides’ arguments? Seoul indicates that in accordance with the agreements, Pyongyang cannot unilaterally increase the wages and change other conditions. Besides, in accordance with the said agreements, the wages increase cannot exceed 5% per annum. But the North underlines that the wages are too small, and it has the right to change the conditions, since the Complex operates on the DPRK territory.
‘The moment of truth’ should occur between the 10th and 20th of April. Just in this period the Southerners will pay the wages to the DPRK workers, and taxes and other charges to the North Korean Government. Evidently, the South will adhere to the old scheme, while the North will require re-calculation. Local experts differ in the appraisal and forecasts for the situation development. Some experts predict that in the end the DPRK will agree to negotiations, in the course of which Seoul and Pyongyang will work out a half-way variant. Other experts assume that it will come to a full-scale conflict, confrontation and if the worst comes to the worst – to the Complex closure. There are also those who think that the Government of the South has prepared to the pulling-out of the project in general and now only seeks a proper reason for that.
Time will show. In 2013, as we remember, the Complex was considered to be irrevocably closed.
Konstantin Asmolov, candidate of historical sciences, senior researcher at the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”.
