Kaesong venture must go on

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Kaesong venture must go on

The escalating tensions on the Korean Peninsula have taken a toll on the inter-Korean joint venture in Kaesong. North Korea has banned entry to factory and withdrawn all North Korean workers, putting a full stop to assembly lines that have been running for the last decade regardless of the ups and downs in inter-Korean relations. South Korean business representatives who sought to visit the complex were also turned away. There are no signs of Pyongyang retracting its decision to suspend operations at the industrial zone in punishment for Seoul’s “contentious attitude” for going through with high-profile military drills with the U.S. The clash may ultimately bring a fatal end to the Kaesong business ventures, which served as a kind of test for post-unification economic partnership that can combine South Korean technology and capital with cheap labor from the North. Inter-Korean relations may become irrecoverable if the last buffer zone disappears.

Any living organization longs to last. The Kaesong business venture is a precious and hard-won child from a marriage of the two Koreas even if it was arranged out of convenience. It was the starting point for the two Koreas envisioning the ultimate goal of a genuine union. The two Koreas have thus far put aside political and ideological differences for the business venture. It would be unfortunate for both if they give up on a business that is not yet 10 years old. Hopes of those with investments in the complex and all Koreans with a common goal of reunification or at least an economic union would crumble. The two Koreas must remind themselves of the symbolic significance of the Kaesong venture.

Both Koreas will lose big from the shutdown of the Kaesong complex. North Korea will first lose legitimate annual revenue of $90 million from the industrial plant. The country, under dire straits from harsh international trade and financial sanctions, would be hard hit. The 53,000 North Korean workers would be out of decent-paying jobs. The country won’t be able to pursue other free economic and industrial zones. No country or foreign business would want to put their money in whimsical North Korea. North Korea’s near-bankrupt economy could be further battered.

South Korean businesses would also suffer from their investment in Kaesong. The complex was uncharted territory of new opportunities for South Korea’s small manufacturers. They benefited from cheap labor, maintenance and transportation costs. They also found it easier to connect with North Koreans because of the common language and gained competitiveness. The breakdown of the Kaesong business would be huge setback for South Korean small and midsized businesses. Many of them are already losing more than 10 billion won ($9 million) a day because assembly lines sit idle. A full shutdown would translate into at least 6 trillion won in losses and the bankruptcy of 7,000 affiliates, taking a toll on the South Korean economy as a whole. Prolonged business suspension and full closure would also throw inter-Korean relations to a territory of no return.

The Kaesong complex served as a buffer zone. It symbolized the status and fate of the two Koreas regardless of military skirmishes and confrontation.

It eased foreign investors’ jitters about the so-called “Korea risk.” The shutdown has sent ripples through the financial markets and the economy. To sustain stable growth and recovery, South Korea must work to keep the Kaesong venture alive.

The Kaesong Industrial Zone is a token of a peaceful Korea and gives guidance for a unified economy. It survived the freeze in inter-Korean relations in the aftermath of North Korea’s attacks on a naval ship and Yeonpyeong Island. It must be sustained for the sake of peace and prosperity. We cannot go on fighting forever in a rapidly globalized community. The two Koreas must help one another build a common future together. The Kaesong conundrum must be solved wisely. North Korea must reopen the gates and South Korea should not miss the momentum to mend ties.

Translation by Korea JoongAng Daily.

*The author is an analyst at the Industrial Bank of Korea Economic Research Institute.

by Cho Bong-hyun
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