The Gaeseong industrial park project is, once again, at a critical juncture, as North Korea unilaterally announced on May 15 that it had terminated all existing contracts concerning the inter-Korean joint economic venture. In a statement sent to the South, North Korea said it would no longer provide “preferential treatment” regarding wages and land fees, and announced the cancellation of all contracts signed with Seoul on these matters. Pyongyang also said it would start revising laws and regulations to better reflect the current situation and that South Korean companies should leave the complex if they choose not to accept the new rules without conditions. The North shifted responsibility for its actions to South Korea, saying Seoul’s insincere attitude pushed the communist regime into adopting the extreme measures. Why is North Korea taking such a tough stance? Professor Yu Ho-yeol of Korea University cites several possibilities.

North Korea consistently says it will no longer provide preferential benefits that had been given to the South in the spirit of June 15th inter-Korean joint declaration. In other words, the North is pressuring Seoul to fully implement bilateral agreements stated in the joint declaration adopted in the first inter-Korean summit in 2000. Also, North Korea demands the two sides operate the Gaeseong industrial park under business principles, in an apparent bid to gain more economic benefits from the venture business. The wording of the North’s statement shows that the North Korean leadership has already decided to terminate the project and that it is ready to shift the blame to Seoul when the industrial park is closed. We have to watch the North’s next action, still leaving open these possibilities.

The Gaeseong Industrial District Act stipulates regulations regarding the operation of the industrial park, including employment, land use and tax. The Gaeseong complex is also subject to 16 subordinate regulations and 41 itemized rules. If North Korea does press ahead with its notification, it will soon announce a set of revised contracts, which include massive hikes in wages and land fees. Some experts say there still is room for negotiations, citing the last part of the statement in which the North says the outcome of the situation depends entirely on South Korea. But Professor Yu has a different opinion.

Of course, we cannot entirely rule out the possibility of negotiations. But North Korea clarifies its take-it-or-leave-it attitude in the statement, which says South Korean companies may leave the complex if they don’t want to honor new regulations. I don’t think the two sides will frankly express their positions and coordinate their views, even if bilateral dialogue does take place.

The one-hundred-six South Korean manufacturers doing business in Gaeseong have been hit hardest by the North’s drastic measure. Last Friday, the association of South Korean firms in the industrial complex expressed worries about the North’s announcement and demanded for authorities-level discussion. In a meeting with representatives of South Korean companies in Gaeseong on Monday, Vice Unification Minister Hong Yang-ho reiterated that the government’s position advocating the stable development of the Gaeseong complex remains unchanged. But the second round of working-level inter-Korean talks on the Gaeseong project, which were initially to take place on Monday, never materialized. Accordingly, many are concerned about a worst-case scenario, in which North Korea may choose to shut down the industrial park altogether. The closure of the joint complex will not only cause economic losses but also pose a significant political burden on both sides.

While operating the Gaeseong industrial park, North Korea has enjoyed economic benefits from workers’ wages, land fees and tax. But the nation will no longer gain such benefits if the industrial park goes down. Also importantly, Pyongyang’s unilateral decision could foil joint businesses involving foreign investors, severely hurting its national credibility in the international community. South Korea, for its part, has invested some 580 million dollars in creating and operating the industrial park. Given the potential economic losses of partner firms, South Korea’s losses could amount to billions of dollars. It will also worsen the already unstable political landscape in the region. All things considered, the closure of the Gaeseong complex would not be advantageous to South Korea, either.

The South Korean government is bracing for a protracted stalemate with the North. It has decided to take some time to prepare for countermeasures against the North before suggesting additional dialogue. Unification Ministry’s deputy spokesperson Lee Jong-ju said in a briefing on Monday that the government’s basic principle is to continue to seek bilateral dialogue between the two Koreas to resolve the Gaeseong issue. On the same day, Unification Minister Hyun In-taek told reporters that the government would propose talks in an appropriate way at an appropriate time. Diplomatic experts say Seoul should approach this issue from a broader context.

It would be a short-sighted reaction if the government focuses only on economic losses when dealing with the Gaeseong issue. From a wider perspective, Seoul must let the North know exactly what will be helpful or unhelpful for its regime survival. This attitude will help resolve critical North Korean issues, other than the Gaeseong business, such as the North’s missile and nuclear threats. Another thorny issue is the fate of a Hyundai Asan employee who has been detained in the North for over 50 days. One of South Korea’s most important tasks is to guarantee the properties of South Korean companies at the Gaeseong industrial park and the safety of South Korean personnel there. Seoul must continue to urge Pyongyang to accept basic principles to operate the joint complex and resolve controversial issues under these principles.

Both South and North Korea have more to gain than lose from the Gaeseong project, the symbol of inter-Korean economic cooperation and the last remaining bilateral reconciliatory project. The two sides should resume working-level talks as early as possible to overcome the political setback and keep the meaningful business afloat.


[Interview] ‘Mezzanine Echoone’ Gives New Hope to N. Korean Defectors
The factory of Mezzanine Echoone, a social enterprise mostly run by North Korean defectors, is located in Paju City in Gyeonggi Province, northwest of Seoul. Aside from six office workers, all 24 manufacturing workers are such defectors. Here’s company official Nam Seong-hyeon.

Nearly 90 percent of North Korean defectors have a hard time in adjusting to South Korean society. With the purpose of creating jobs for North Korean defectors, social welfare organization Merry Year Foundation, the Ministry for Health, Welfare and Family Affairs, and SK Energy, South Korea’s largest oil firm, partnered up to establish this company, Mezzanine Echoone, in December of 2008. It is a manufacturer of wood blinds. Actually, a box-making company, named Mezzanine I Pack, was established earlier with the same purpose. So, Mezzanine Echoone is the second factory aimed at hiring North Korean newcomers.

Not all North Korean defectors can work here, though. Applicants are required to complete an eight-week training program. If the participants are absent from the training session or late for the classes three times or more, they won’t receive certificates. The strict rules reflect the company’s philosophy that those who don’t take personal responsibility in preparing for their future will not be given a job. On the other hand, those who demonstrate quality work performance are given an opportunity to receive business management education, and all the workers are provided with the four major social insurances and permanent job status until retirement age. Most employees had simply engaged in day jobs before, but this program allows them to learn professional skills and work as regular staff on a stable basis.

It’s comforting to work with my fellow North Koreans. It’s nice to talk about our hometowns with each other. This is a factory for North Korean defectors, so the company shows special consideration for its workers. The company understands its workers’ situations and respects our opinions. It also helps us commute more conveniently. It’s nice to work here.

Mezzanine Echoone now proceeds smoothly as a social enterprise designed to help North Korean defectors stand on their own two feet. But the company has endured many difficulties for the past five months. The North Korean workers have diverse career backgrounds—from singers to accountants and lawyers—and it was far from easy for the newcomers to assimilate to South Korean society and culture, which is starkly different from that of North Korea. Here, again, is Mr. Nam.

Many defectors want to receive fair treatment. The newcomers from the socialist North believe that all the employees should work on an equal basis, so they often find it difficult to assimilate to South Korean corporate culture. On the other hand, there are independent and responsible workers who have quickly adjusted themselves to this new environment. Interested in getting a promotion, they always finish their jobs on time and they are eager to work even more. So their labor productivity is high.

Mr. Nam says he had some prejudice against North Koreans at first, but while hanging around with them, he’s realized they are just the same as South Koreans. Mezzanine Echoone posted 58-thousand dollars in sales in the last three months, and it plans to mass produce goods to be sent to public organizations and churches. Mezzanine I Pack, the first factory for North Korean defectors, started to turn a profit ten months after its opening. Encouraged by its achievement, Mezzanine Echoone, too, is spurring efforts to take its business to the next level.

Following Mezzanine I Pack and Mezzanine Echoone, a third Mezzanine project is underway. We plan to establish the third Mezzanine factory within the year and hire 100 North Korean defectors this year. Currently, most defectors work in the manufacturing lines. We plan to provide them with management education so they can start their own businesses later.

The firm has given new hope to North Korean defectors and helped them achieve economic independence. Here’s hoping the company will continue to grow as a successful business model, and the newcomers will be given more opportunities to work in a pleasant environment.