Border tensions threaten inter-Korean trade ties

Dubai: With North Korea's warning to close its border with South Korea as of December 1, it is risking the cut off of one of its rare official supplies of hard foreign currency: business in the special economic zone of Kaesong at the border with South Korea.

Though the step to seal the border is primarily political amid icier tensions between Pyongyang and Seoul and triggered by speculations of South Korean and Japanese intelligence over the health of North Korea's leader Kim Jong Il - who allegedly has suffered a stroke or heart attack - the move could bring a lot of inconvenience to the North's ailing economy.

According to Kim Seong-bae, an analyst with the Institute for National Security Strategy in Seoul, closing the border would inevitably lead to a shutdown of the Kaseong Industrial Complex, a special economic zone approximately 70 kilometres from Seoul and its newly built airport hub on nearby Incheon island.

Seong-bae told Voice of America news service recently that shutting down the Kaesong complex would be a "mistake", causing dollar revenue loss and an immense setback for the "special economic zone" concept of the North.

The Kaesong Industrial Zone is indeed a very special location, which became obvious to the author when taking the opportunity to visit the zone together with a special business delegation from the South.

The group managed to get a very rare admission to cross the heavily fortified Demilitarised Zone (DMZ), a four-kilometre stretch between South and North Korea dividing the Korean peninsula since the end of the Korean War in 1953. Since then, the two countries are technically still at war, with the DMZ remaining a mined death strip crossed by only two closely-guarded transit routes. One of them, restored and paved by South Korea's Hyundai Corporation and equipped with two new modern border posts, serves as a crossing line between the city of Paju in the South and Kaesong in the North (the other one is a transit route to the tourist resort of Kumgang on the east coast).

Barbed wire

Travelling through the DMZ reveals a stretch of wild vegetation ornated by enormous barbed wire fences, where scattered bunkers are visible and numerous heavy-armed military personnel are seen patrolling next to the street on which the convoy was allowed to cross.

Equipped with a special group visa, the delegation was allowed to enter the North - after leaving all their mobile phones and analogue camera equipment behind (digital cameras were allowed, but pictures taken and saved on the memory card were inspected before departure).

The first impression of the Kaesong Industrial Zone was that of a rather neat, fairly well-finished factory area on the outskirts of the northern city of Kaesong. It is a commercial and industrial park for Western companies invited to benefit from lowest possible labour costs - or, as some say, from "labour force leasing" by the North Korean government.

The deal is that South Korea's Hyundai Asan company, a division of the huge Hyundai empire, is allowed to build industrial complexes, factories, infrastructure and offices at its own expense. North Korea is providing thousands of cheap labourers in return. A North Korean worker in Kaesong earns around 60 Dollars a month. The salary is paid by the foreign companies directly to the North Korean administration.

How much of the money gets passed over to the workers remains unclear. "Perhaps 30 per cent", suspects Min-Ho Lee, project manager of South Korea's investment agency Kotra. Anyway, at this payment level, Kaesong is by far the cheapest destination for contract manufacturing worldwide, more than a third cheaper than China or Vietnam.

Made in Kaesong

Until recently, around 15 South Korean companies were present in Kaesong with production facilities. To conceal the origin of the goods for western export markets, they are labelled with tags reading "Made in Korea", "Made in Kaesong" or "Made in Gyesong", which is not untrue, but on the other hand not entirely honest.

In Kaesong, all factories are led by expat managers. They use to praise their "well-educated and reliable" North Korean workforce. For the managers, Internet, a telephone connection and even a banking facility (Woori Bank) are provided. North Koreans workers don't have access to any of such amenities.