Salvaging of Kaesong: A Potential “Reset” for Inter-Korean Relations

Following seven rounds of arduous working-level negotiations stretching over the last six weeks that involved plenty of stubbornness and brinkmanship on both sides, North and South Korea announced a joint agreement today that establishes a new framework for reopening and jointly managing the Kaesong Industrial Complex (KIC). The complex has remained shuttered and immobilized since North Korea pulled its workers from the complex on April 9. The agreement paves the way for the resumption of operations at the complex, but more importantly it constitutes a potential “reset” both for how the complex is managed and helps to stabilizeinter-Korean relations.

Negotiations had stalled over South Korean insistence that North Korea take responsibility for having closed the complex and pledge never to do so again. The text of the inter-Korean joint statement pledges both Koreas to “guarantee the normal operation of the complex” including stable access to the worksite, protection of corporate assets, and the quarantine of the complex from political developments in inter-Korean relations. It also establishes an “Inter-Korean Joint Committee on the Kaesong Complex” through which the two Koreas will jointly manage access, communications, and clearance of goods to and from the complex. The establishment of a joint committee makes both sides responsible for managing transit and access issues within the zone rather than subject to often adversarial negotiations between South and North Korean institutional intermediaries.

More notable than the efforts to put the operation of the complex onto a stable footing, the joint statement pledges both sides to work through the Kaesong Joint Committee to “develop the complex into one with international competitiveness,” including efforts to meet international standards in labor affairs, tax, wages, insurance, and the setting of tariffs on exports, and to promote international investment into the complex. The inclusion of these issues could potentially enable a revised payment scheme for North Korean workers at Kaesong while protecting companies in the complex from arbitrary shakedowns or levies of unanticipated taxes and fees by the North.

On paper, the joint statement identifies, reframes, and attempts to depoliticize the most obvious operational and business strategy issues that must be addressed for KIC to have a future in its own right. In practice, addressing each of these issues will be inherently political, practically challenging, and absolutely necessary if Kaesong is to be commercially viable. The framework for joint management combines the stakes of both Koreas in the success of the project and aspires to transform Kaesong from an exceptionalist political experiment into an internationally competitive, operationally viable entity.

Although skepticism regarding North Korea’s credibility remains, the salvaging of the Kaesong project avoids the worst for North Korea’s economic situation, given the negative signal Kaesong’s closure would have sent to the world regarding North Korea’s potential as a business partner. The North Koreans waited for South Korea to announce that it would settle insurance claims of companies operating inside Kaesong before coming out with a unilateral public statement from the Committee for the Peaceful Reunification of Korea on August 7 that it would lift its temporary suspension of operations at Kaesong, allow return of South Korean company representatives to the complex, provide safety guarantees for South Korean personnel at the complex, and pledge to ensure normal operation at the complex. This statement set the stage for the resumption of negotiations and inter-Korean joint statement on August 14.

In addition, the resumption of KIC opens the way for the two Koreas to addess other thorny issues in the relationship, including humanitarian issues such as divided family reunions, economic and cultural cooperation measures, and the establishment of a peace park at the DMZ. Former Pyonghwa Motors CEO Park Sang-kwon reported to the media his conversation with North Korea’s top official dealing with the South Kim Yang-gon in the week prior to the resumption of official negotiations that “if things go well with the Kaesong Complex, things will also go well with the DMZ park” proposed by Park Geun-hye. Inter-Korean negotiations on these issues are unlikely to be easy, but it is now possible for such negotiations to proceed on the basis of a recognition of overlapping concrete interests in cooperation through the resumption of Kaesong.

Despite the salvaging of Kaesong, one major obstacle to North Korea’s economic prosperity and integration with its neighbors remains: the Korean Workers’ Party Central Committee tied itself last March announced that North Korea would pursue the twin objectives of economic improvement and nuclear development. The economic development objective is bolstered by North Korea’s decision to salvage Kaesong on South Korean terms, but the nuclear development objective continues to stand as a major obstacle limiting Kim Jong-un’s ability to deliver on pledges that the North Korean people will not again have to “tighten their belts.”