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Shutdown of Gaeseong Industrial Park and Hopes for Resumption

2018-07-26

ⓒ YONHAP News

At 8:06 a.m. on April 27, 2018, South Korean President Moon Jae-in got out of his car to exchange greetings with citizens. Only a minute before that, he left the presidential office for the third inter-Korean summit. After he shook hands with citizens who were cheering and waving the national flags, he was about to get into the car again. But then, he turned toward a group of people who were holding a placard saying “The new economic map of the Korean Peninsula should start with the normalization of the Gaeseong Industrial Complex.” President Moon approached them and said, “I’ll do my best.” Those people were close to tears when they heard him say that. Why did the businesspeople come to see the president off? Today, we’ll talk about the shutdown of the Gaeseong Industrial Complex and hopes for its resumption. 


On February 10, 2016, the South Korean government made a surprise announcement about the closure of the Gaeseong Industrial Complex, 35 days after North Korea’s fourth nuclear test and three days after its long-range missile launch. The joint factory park had been the symbol of inter-Korean economic cooperation for over ten years since its construction began in 2003 and it produced its first goods the following year. The South Korean government’s decision to shut down the industrial park in response to North Korea’s repeated provocations came as a great shock to South Korean firms doing business there. Shin Han-yong, president of the Corporate Association of the Gaeseong Industrial Complex, recalls the shocking moment. 


I can’t express how I felt at that time. I remember it was the last day of the Lunar New Year’s holiday. Government officials called us together and informed us of the decision, just three hours before the government made an official announcement, as if they did us a special favor. They told us that the government had no choice but to close the industrial park but it would resolve all the problems by giving us necessary support. Actually, things didn’t work out at all. We were absolutely dumbfounded. 


Upon hearing the grave news, the companies had to pack up in a hurry. There were some 280 South Koreans at the park when the government announced its decision to close it. The next day, on February 11, they all returned to South Korea, but they failed to bring the finished goods and facilities with them. On the same day, North Korea closed the industrial park and declared the area under military control. The North expelled all South Korean workers from the industrial complex and froze the assets of companies operating there. The companies returned to the South empty-handed but they still cherished hope for the reactivation of the suspended operation of the park, as they remembered that it had once been closed before. 


North Korea’s third nuclear test in February 2013 aggravated relations between Seoul and Pyongyang. In April that year, North Korea notified the South of the closure of the Gaeseong Industrial Complex. Following Pyongyang’s hard-line stance, manufacturers operating at the complex withdrew temporarily. But in September of the same year, 134 days after the shutdown, the industrial park resumed its operation. The inter-Korean industrial park business faced a crisis whenever cross-border tensions arose, but it certainly served as a link between the South and the North. Given that, the companies believed that the park would surely reopen when bilateral ties improved. But the reality was different from their hopes. Mr. Shin continues. 


Most of the companies suffered from financial difficulties. After the industrial park was closed, local banks told them to pay back their loans. Even if the companies didn’t need to pay back the loans right away, the banks charged higher interest rates due to the downgraded credit ratings of the companies. In brief, the firms became delinquent borrowers, except only a few. Some companies chose to operate their factories overseas, but that wasn’t easy, either.  


The aftermath of the shutdown of the industrial park was dismal. The closure resulted in 1.5 trillion won or 1.3 billion US dollars in losses. Most of the small manufacturers were in extreme financial difficulties, with one after another going bankrupt. Some others moved their bases to different countries, such as Vietnam, but they failed to secure a production base with quality laborers working at low wages, like the one in Gaeseong. The companies that had once operated in Gaeseong have experienced many difficulties since the suspension of the park, but they haven’t given up hope yet. Mr. Shin’s business card still has the address of his factory in Gaeseong. Here again is Mr. Shin. 


My business card shows my ardent wish that I’ll certainly go there again one day. There is a small flag that businesspeople should attach on their cars when entering Gaeseong, and a cover that hides the license plate number. Some businessmen still carry the flag and the cover with them, keeping them in their car trunk. Even if the factory park reopens, they will have to change those things. They are well aware of that, but they still carry them around. This shows that they never let go of their hopes. 


Two years and five months have passed since the operation of the Gaeseong Industrial Park was suspended. But the businesspeople haven’t changed their business cards and still keep their passes, in the hopes that the park will reopen some day. Their expectations are rising, especially after this year’s summit between South and North Korea.


At the April 27 inter-Korean summit, South Korean President Moon Jae-in and North Korean leader Kim Jong-un agreed to establish a joint liaison office. Officials from the two sides will stay and communicate with each other at the same office, where bilateral contact will hopefully be held on a regular basis. Apparently, the agreement to set up the office in Gaeseong, in particular, shows that the two sides considered the possibility of resuming the Gaeseong Industrial Park. Let’s hear again from Mr. Shin. 


When the new South Korean government was inaugurated last year, we conducted a survey on companies that did business in Gaeseong. And a month and a half ago, we again carried out a similar survey, jointly with the Korea Federation of SMEs. The result was all the same. The vast majority—about 90 percent—of the respondents said that they were willing to enter the industrial park again. Their answer isn’t surprising at all. Who doesn’t want to return, with their assets still left there? Moreover, they haven’t received proper compensation yet. Apart from the business reasons, they feel kind of responsibility or a special sense of calling, as they did something extraordinary in Gaeseong for some ten years. Some people may not understand why businessmen talk about unification. But many of those manufacturers say that they should do something to contribute to improving inter-Korean relations and hope to see the positive result of economic cooperation at the very factory site where they had been working. 


For the reasons Mr. Shin just explained, the manufacturers have been waiting for the industrial complex to reopen. So, what would they do first when the factory park gets back to normal operation? 


I keep thinking of the North Korean laborers there. Their faces keep going through my mind. When I was with them, I didn’t really feel this way. But now, after being away from them for a while, I feel even closer to them than my own relatives. If I go there again, I’d like to grab their hands first. When the park was suspended for about six months in 2013, I imagine they were mobilized into labor in other sites. When we were reunited later, their faces had been burnt black, probably in the strong sunlight. I thought it would be a lot better for them to work at the industrial park in Gaeseong, and I’m sure they thought the same way, although they didn’t say that. If I meet them again, I hope to hold their hands, have a pleasant conversation with them, eat and drink together.

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