Tuesday, 16 June 2009

Capitalists are not the only greedy ones

The WSJ recently reported that the DPRK asked the ROK for more payment to maintain an industrial complex that the South Koreans are operating within the territory of North Korea to help the North to develop their economy faster. If history is any guide, we should not be surprised at the behavior of the North Koreans. Incidentally, as products manufactured in Kaesong have been given preferential tariff under some of the FTAs signed by the ROK, this could be challenged as illegal under WTO Law.  Not that the North Koreans would care, but it would be interesting to watch how the North Koreans would react in such a case.

Pyongyang Raises Ire On Industrial Complex

SEOUL -- North Korea told South Korea on Thursday it wants to be paid more to keep open a joint industrial complex on its side of the inter-Korean border. The North's most recent demands came amid rising global tensions due to Pyongyang's tests of missiles and a nuclear device earlier this year. The United Nations Security Council is expected as early as Friday to call for expanded sanctions and inspections.

[Koreas photo] Bloomberg News

North Korean women working at the Kaesong Industrial Complex.

The money sought by North Korea would make the Kaesong Industrial Complex far more expensive to run and likely wipe out its economic attractiveness to the South Korean companies that have factories there.

But North Korea also said it intended to keep the complex going and would keep talking to the South, a departure from the invective it has heaped on South Korea's government for the past 15 months.

In Thursday's meeting at Kaesong, North Korea set out three demands: a one-time payment of $500 million to use its land at the complex for 50 years, housing for 15,000 workers, and a shift in the start date for annual land-use fees to 2010 from 2015.

Pyongyang also wants to raise the $75 monthly per-worker payment that South Korean manufacturers pay to $300. The two countries refer to that as a salary payment, but the money goes to the North Korean government and it is unknown how much is then paid to individual workers.

"The figures are the initial proposal," said Kim Young-tak, director-general of the complex and leader of the South Korean delegation at the meeting. "Through discussion, we can get closer." The Kaesong complex opened in 2004 and has been the key reason for the growth of trade between the two countries, which amounted to $1.82 billion last year. At present, 106 South Korean companies operate small factories in Kaesong that employ about 39,000 North Koreans.

[Productivity Problem chart]

North Korea last year began imposing restrictions on Kaesong, threatening its viability, in retaliation for South Korea's decision to link other economic assistance to the scaling back of the North's nuclear-weapons development.

South Korean officials didn't reject the North's demands and said they will meet again with North Korean officials June 19.

Mr. Kim said South Korea pushed the North for information about a South Korean worker who was arrested at the complex on March 30 and hasn't been seen since. The North's delegation said the man was "fine" but didn't elaborate. "We emphasized that the detention of our worker is a fundamental issue," Mr. Kim said.

The economic viability of the complex has never been clear. South Korea guarantees a portion of the losses that its manufacturers experience at the facility. Over the past two years, a productivity gap emerged as the growth of factories and workers in Kaesong outpaced the growth in the value of production at the facility.

Write to Evan Ramstad at evan.ramstad@wsj.com and SungHa Park at sungha.park@wsj.com

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