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Closing Kaesong: Tensions on the Korean Peninsula

PAJU, SOUTH KOREA - APRIL 04: A Genaral view of empty road connection Kaesong Industrial Complex (KIC) with South's CIQ (Customs, Immigration, Quarantine) at inter-Korean transit office in Paju on April 4, 2013 in Paju, South Korea. 400 South Koreans remain in the joint industrial complex fearing they can not get back there once return to South. In recent weeks North Korea have threatened to attack South Korea and U.S. military bases. (Photo by Chung Sung-Jun/Getty Images) ORG XMIT: 165783517

An empty road connecting Kaesong Industrial Complex (KIC) with South’s CIQ (Customs, Immigration, Quarantine) at the inter-Korean transit office in Paju, South Korea. (Photo by Chung Sung-Jun/Getty Images)

Written by Jort van Oosterhout

On February 10, 2016, South Korea decided to shut down the Kaesong Industrial Complex (KIC). Seoul’s decision followed North Korea’s alleged hydrogen bomb test on January 6 and its long-range missile launch one month later. Pyongyang considered the South’s decision to close Kaesong “an act of war” and threatened repercussions. The North responded swiftly by expelling all South Korean nationals from the area and freezing factory assets by South Korean firms. Thereafter, it cut off all access routes to the KIC (which is situated on North Korean territory) and declared it to be under military control.

The South reciprocated with the announcement of its largest military drill with the U.S. to date, expected to take place in March. North Korea, in turn, countered on February 20 by conducting coastal military exercises near the disputed sea border and close to the South Korean island of Baengnyeongdo. The artillery rounds shot caused anxiety among the South Korean population, to whom the 2010 shelling of Yeonpyeong island by the North is still fresh in its collective memory.

South Korean Minister of Unification Hong Yong-pyo stated that the South’s decision to suspend activities at Kaesong was reached in an effort to prevent South Korean money from being funneled into the North’s nuclear program, and to alleviate its people’s dismay over the security situation. Even though the ministry retracted this statement due to a lack of evidence, South Korean President Park Guen-hye reiterated the allegation one day later.

While appealing to the public’s legitimate security concerns, the official reasoning behind Seoul’s decision seems deceptive. Moreover Park’s ruling to (most likely permanently) dissolve the KIC constitutes nothing but a historical aberration.

The KIC was born out of the first summit meeting between the Koreas in 2000, where the two sides vowed to thaw relations. It stood out as the flagship of Sunshine policy promoted by former South Korean President Kim Dae-jung which entailed détente and reconciliation through encouraging interaction and economic cooperation.

In April 2013, the joint venture had already closed down after North Korean leader Kim Jong Un pulled out the 55,000 North Koreans working at the site. At that time, relations were strained due to similar reasons: a North Korean rocket launch in December 2012 was followed by a nuclear test in February 2013. However, the complex was reactivated five months later, after both parties signed a five-point agreement. Essentially, the agreement sought to “constructively normalize” the complex and de-politicize its continuity.


Given the North’s previous behavior and conspicuous nuclear ambitions, Seoul could have anticipated future tests. And it did. The Park administration insisted on isolation of the cross-border project from future diplomatic discord. The first clause of the accord states: “The two Koreas will not make Kaesong suffer again from the stoppage of the complex […]. They will guarantee the normal operation of the complex […], with the complex not to be affected by inter-Korean situations under any circumstances.”

Then why did Seoul shut down Kaesong now? In an NK News article, North Korea-watcher Aidan Foster-Carter logically argues that the recent tests cannot possibly have prompted Park’s decision to terminate the KIC. In 2013, she negotiated to reopen the complex in the immediate aftermath of nuclear and missile tests. This clearly indicates her desire at that time to preserve the last vestige of inter-Korean cooperation, irrespective of future nuclear tests by the North.

Korea observers and pundits are therefore wondering for the reasons behind Park’s decision to renege on her promise and negate the agreement. It represents the end of her Trustpolitik doctrine through which she sought to engage Pyongyang in a similar fashion as German Chancellor Willy Brandt’s Ostpolitik did with Eastern Europe.

On February 17, Park confirmed her departure from Trustpolitik in her address to the National Assembly. She emphasized that her administration no longer expected the North Korean leadership to alter its behavior. Crucially, she pledged to tighten the screws on Kim Jong Un and aim for regime collapse: “We will take stronger and more effective measures to create an environment where the North cannot survive with its nuclear development, which will eventually speed up the collapse of the regime.”

In contrast to what some reporters claim, the closure of the complex does not hurt the North Korean economy significantly. Available statistics corroborate this. Assuming that all KIC-related payments to North Korea flowed directly to Kim Jong Un and his cadres, the proceeds of the joint endeavor amount to $100 million annually. This comprises less than 1% of the North’s annual trade volume. To put these numbers into perspective: the Kim regime earned $2.48 billion from trade with China in 2015. Thus, Seoul cannot have shut down the complex just to hurt the North economically. So why did Park make this radical U-turn?

The answer to this conundrum lies mainly within short-term domestic politics. In April, South Koreans will vote for a new National Assembly. Currently, the conservative party of Park, who usually takes a tougher stance on North Korea, enjoys a majority. On the other side of the political spectrum, the progressive opposition parties take a more engagement-oriented approach. Thus, they tend to support preservation of the KIC. Yet, by officially acknowledging that the KIC acts as a financial support base for the North’s nuclear program, the government effectively eliminated the supposed merits that South Korean progressives attribute to the complex.

There is little evidence, however, to buttress Park’s assertion that KIC revenues in particular were utilized to boost the North’s military arsenal. In a 38North article, scholar Ruediger Frank rightly stipulates that payments were not made in cash with marked notes that were easy to track. Thus, Frank argues, any payment that flows to the Kim regime could be seen as propping up Pyongyang’s nuclear advancement. Crucially, Frank contends that the North’s nuclear program seems close to indigenous after decades of sanctions and isolation. In that case, ceasing the influx of hard currency would accomplish little.

It is important to realize that money that flows into the North Korean market also bolsters the nascent middle class that is gaining a foothold in the urban areas. Needless to say, a growing middle class generates political activism. In this way, projects like the KIC carry the potential of incrementally altering economic practices and frames of reference. Like I mentioned in my 2013 IPD article on Kaesong’s reopening: bottom-up marketization creates an individualist way of thinking which is increasingly difficult to uproot. No wonder the North’s military has always disliked the KIC; they are all about regime survival. Presumably, one of Kim Jong Il’s last instructions to his son was to close Kaesong whenever he would see an opportunity arise.

Kaesong Frank

No images of the leaders, no slogans, no patriotic music. Instead, a continuous supply of electricity, bright lights, and snacks for the breaks: a window to the better side of life in South Korea.

Critics of Kaesong and rapprochement argue that the complex did not induce any positive change since its inception in 2004, but only gobbled up South Korean taxpayer’s money. Indeed, North Korea stepped up its nuclear arms race and did not implement perestroika-like reforms. Yet, Kaesong should be perceived as a vehicle for gradual en meticulous change at the grassroots-level. Seoul should be in it for the long haul.

Moreover, efforts like these should be complemented by a solid engagement approach, expanding joint projects instead of abandoning them. Former presidential adviser Moon Chung-in rightly states that “everything else has failed: sanctions, military confrontations, waiting for [North Korea to] collapse. […] There is no option besides engagement. Unless we want war.” However, like Korea-specialist John Feffer argued in an FPIF article, South Korea and the international community have been rigorous in isolating the North and half-hearted in their engagement efforts.

During the last couple of weeks, however, perceptions among the South Korean public have critically changed. Last week, Gallup Korea stated that 55% of the South Korean population favored closing Kaesong and suspending aid. Of course, these public opinion polls are strongly influenced by the recent propaganda onslaught in the South against Pyongyang.

Still, Park is best advised to keep her cool, like she did during the 2013 crisis. She could have steadfastly adhered to her Trustpolitik vision. Unfortunately she refused to do so. She chose to go with the short-term: securing a win at home and jumping on the international bandwagon in favor of isolating Pyongyang.

What now? After the shutdown of the Mount Kumgang tourism project (which was closed in 2008 after one million South Koreans had visited it), Pyongyang successfully compensated this loss of income by attracting Chinese tourists. Chinese investors could similarly more than make up for the loss of Kaesong in the economic zones that the North shares with China. And what about Russia? Amid heightened tensions between Moscow and Washington, the Kremlin seems more willing than ever to offset Western efforts to impose economic pain on North Korea.

Seoul’s closing of the KIC has had an uncertain impact on the North’s nuclear program, while squandering a valuable instrument for gradual change from within, humanizing inter-Korean relations. The Trustpolitik and Sunshine policies have been effectively buried.