A blossoming Kaesong Industrial Complex

Despite the last cold spell, spring is here. But inter-Korean reconciliation and cooperation are still being hindered by various issues just as the South’s economy struggles. Economic cooperation is a strain on progress rather than serving as an engine, and the 70th anniversary of the liberation of Korea is not likely to bear fruit.

Then how should we resolve the deadlock? The solution can begin from the areas where both Seoul and Pyongyang have a direct interest and are familiar with. One is the Kaesong Industrial Complex. Just in time, the complex faces a crisis of existence due to the revision of labor regulations in North Korea.

If South and North Korea overcome the crisis, then we can make progress in a higher level of cooperation and create new economic engines.

In November 2014, the North Korean authorities unilaterally revised the labor regulations and notified Seoul that the annual 5 percent maximum wage increase would not be restricted in the future, and that the new rule would be enforced this year. The change will result in a drastic wage increase and will undermine legal security, adding a burden to the companies operating in the Kaesong Industrial Complex.

The issue should be resolved through dialogue and negotiation rather than a wage increase. The Kaesong Industrial Complex is a zone jointly managed by the South and North Korean governments. The Ministry of Unification and the North Korean authorities attract investment and provide various administrative services through the Kaesong Industrial District Management Committee. While the laws and systems are defined by Pyongyang, the foundation is the agreement between the South and the North and the experiences of South Korea.

The unilateral argument cannot convince businessmen and would not resolve various interests between the South and the North. Since Seoul is willing to resolve the issue actively, the North Korean authorities need to respond. It would be a great opportunity for Pyongyang to deviate from the stubborn attitude it has displayed. If they believe their position is just, they need to make reasonable arguments according to the process agreed to by the South and the North.

When the Kaesong Industrial Complex issues can be resolved through dialogue and negotiation, Korean companies and foreign companies will begin to show interests in the Kaesong Industrial Complex and investment in North Korea. Only then will the Korean Peninsula welcome the new spring of reunification beyond the development of the Kaesong Industrial Complex.

Lee Jae-il, Managing director at Deloitte Anjin LLC and a member of the Kaesong Industrial Complex Legal Consultative Committee