This page introduces the initiatives and projects that the South Korean government has launched to develop stable inter-Korean relations; to help North Korean defectors adjust to life in South Korea; and to help North Koreans whose human rights are abused.
Gaeseong Industrial Complex project is one of the major joint economic projects between South and North Korea. The project combines the South's capital and technology with the North's land and labor to bring economic benefits to both Koreas. South Korean small and medium enterprises (SMEs) expect the project to lower their costs and increase efficiency as they look for opportunities in overseas markets. The project is also expected to contribute to revitalizing the South Korean economy and promoting reconciliation and peace on the Korean peninsula. The GIC project was launched by an agreement between South Korea's Hyundai Asan Corporation and North Korea in August 2000. Following the agreement, inter-Korean consultations have been held at both the private and governmental levels. The first phase of the project, which included the construction of infrastructure and the allocation of factory units, began in June 2003 and was completed in December 2007. After breaking ground in 2003, the project has made steady progress. The first step was the creation of a 330-hectare pilot district to test the business environment. In December 2004, factory construction in the pilot site had nearly finished when the first production began, which drew a lot of attention from South Korean firms. In August 2005, the first factory slots on 16.9 hectares were allocated to 23 firms. In the second round of factory allocations in April 2007, the ratio of company applications to available units was 2.3:1. The pilot phase has required substantial investments in infrastructure. A telecommunication network was installed with 303 lines in December 2005, and has subsequently been expanded to 1300 lines for telephones and facsimile machines by the end of Nov, 2009. In June 2007, the pyeonghwa or "peace" electrical substation was completed so that the GIC could receive 100,000 kW of electricity from the South. The foundation work of the pilot phase was completed in June 2006, and the remaining infrastructure such as the water supply, sewage and waste treatment facilities was completed in October 2007. The government will address three major difficulties related to the GIC: entry and exit delays; the customs clearance process; and a poor communications infrastructure. By the end of April 2011, 123 factories were operating with about 47,000 North Korean workers and about 800 South Korean staff working side by side. The aggregate output of the complex since 2005 was $1,226,500,000 by April 2011. Exports totaled $172,490,000 from April 2005 to April 2010.
There were several obstacles in promoting the Gaeseong Industrial Complex (GIC) project. For instance, North Korea placed restrictions on the overland travel of people and vehicles across the Military Demarcation Line on December 1, 2008 and detained a South Korean worker in 2009. Nevertheless, the ROK government has made efforts on many fronts to push ahead with the project in a stable manner. In March 2009, North Korea took issue with Key Resolve, the annual ROK-U.S. military exercise. It closed land routes to the GIC three times during the exercise period from March 9 to 21, which led to a disruption in the supply of material inputs and a drop in production. In late March, the North detained a South Korean worker for making critical remarks about its regime and ideologically instigating a North Korean female worker. Due to the detention, the issue of personal safety of South Koreans working in the GIC was raised. In May the same year, North Korea unilaterally insisted that the existing contracts and laws on the GIC were null and void. As to the North's overland travel restrictions, the ROK government demanded an immediate withdrawal of the restrictions, pointing out their unjustness in a statement to North Korea and in a letter of the Unification Minister. At the same time, the government tried to ease the worries of the enterprises working in the GIC. It also took an active response to the detention case, based on cooperation with major stakeholders such as the GIC companies. The ROK sent a protesting message and demanded that the South Korean worker be released as soon as possible in the working-level talks on the GIC. Also, it equested cooperation from other countries concerned. As for the North's insistence on nullifying existing contracts and laws, the ROK government set forth three principles: the establishment of rules, the pursuit of economic rationality, and future-oriented development.The South clearly expressed that it cannot accept the North's unjust claims and demanded that the North withdraw them. Such consistent moves of the ROK government resulted in a normalization of overland travel to the GIC from March 21 and the release of the detained worker on August 13 after 137 days. On August 20, restrictions on entry, exit, and sojourn, which had been in place since December 2008, were also lifted.
As North Korea lifted its "December 1 Measures,"restrictions on entry, exit, and stay that started on December 1, 2008, vehicles' passage to the GIC rose from 6 to 23 times a day in the summer season and 21 in the winter. From September 1, 2009, the gate was opened for transit from 08:30 to 17:40 on weekdays. In line with this arrangement, the ROK government introduced an automated vehicle inspection system in September 2009 to facilitate a normalization of transit. In November, it even introduced a plate recognition system in the Inter-Korean Transit Offices to facilitate vehicle inspections. It also continued to implement independent measures to simplify passage and customs clearance procedures such as replacing radio frequency identification readers (RFID). As a result, the success rate of digital pass recognition was improved to over 99%, and recognition time was shortened to less than two seconds. With installation of additional communication lines in the complex, inconveniences facing GIC enterprises were reduced.
The ROK government's commitment to stable maintenance and development of the GIC led to a joint study tour of industrial complexes in Qindao, Suzhou, and Shenzen in China, and Yenpong in Vietnam from December 12 to 22, 2009. During the tour, the delegation composed of North and South Koreans studied development and management systems, corporate support service, and passage and customs clearance systems of overseas industrial complexes in an attempt to broaden a common understanding on the present and future of the GIC. Subsequently, the two Koreas held review meetings in the Inter-Korean Economic Cooperation Consultation Office in Gaeseong from January 19 to 20, 2010 to assess the results of the tour and discussed the way forward and the common challenges facing the GIC. In the fourth inter-Korean working-level talks on the GIC on February 1, 2010, the ROK emphasized the need to first address the inefficiencies stemming from the "3C"issues and urged the North to cooperate. As such, the two Koreas had a working-level contact on the issues on March 2 and had serious, detailed consultations on how to resolve them, but failed to reach an agreement. They agreed to discuss the matter further in workinglevel contacts that would be held later on.
After it was found that North Korea was behind the sinking of the Cheonan, the ROK government implemented countermeasures on May 24, 2010. They included the suspension of new investment projects and the prohibition of additional capital investment for existing business ventures in the Gaeseong Industrial Complex (GIC) as well as the termination of processing businesses outside the GIC. Nevertheless, the ROK government decided to maintain on-going production activities of the GIC given the unique status of the complex. However, it decided to reduce the number of personnel staying in the complex to 50-60% of normal levels, after comprehensively considering the safety of its citizens as well as production factors. The North's Committee for the Peaceful Reunification of the Fatherland issued a statement on May 25 that expressed strong opposition to the measure. On May 27, the General Staff of the Korean People's Army released a notification with similar criticism. In addition, the North's General Bureau for Central Guidance to the Development of the Special Zone also criticized the South in an oral statement declaring, "the South's actions are preparations for a closure of the complex, and, if it is shut down later, the South will be held accountable."It also insisted that the outbound shipment of all GIC production facilities by South Korean enterprises be approved by its tax office. However, at the same time, the Bureau stated that it would continue to strive to promote the complex. A reduction in the number of South Korean workers in the GIC caused some inconveniences in the production activities of GIC businesses. To minimize losses to ROK enterprises, the ROK government extended a significant level of support and administrative help to avoid major disruptions, and, at the same time, reinforced and streamlined the institutional framework, including the economic cooperation insurance system.
On June 14, 2004, 15 companies signed tenant contracts to start their businesses in the GIC pilot site, and, in 2005, 18 firms moved into the complex. At the end of June 2010, 121 companies were operating in the GIC. There were 70 firms in textiles, 22 in machinery and metal works, 13 in electrical and electronic goods, 9 in chemical products, 3 in food products, 3 in paper and wooden products, and 1 in non-metal minerals. Despite the hardship caused by the North's restrictions on border crossings in the first half of 2009, the number of companies rose by 28 between 2008 and June 2010.
The increase in the number of GIC workers, which continued to soar by more than 10,000 every year until 2008 as the number of companies increased, slowed somewhat in 2009. The number of North Korean workers exceeded the 30,000 mark when Living Art, a kitchenware company, hired 55 workers in November 2004. As of late June 2010, about 44,000 North Koreans were working in the complex.
In 2009, the growth of production output in the GIC slowed down despite an increase in investment and the number of tenant companies. The value of GIC production in 2009 was US$250 million, about the same as in the previous year. The complex's accumulated production amount exceeded US$700 million in September 2009 and US$800 million in January 2010, after surpassing the US$100 million mark in late January 2007. As of late June, 2010, the amount stands at US$941.04 million. The production amount from 2008 to the end of June, 2010 was US$239.82 million in textiles, US$65.52 million in electrical and electronic goods, US$60.97 million in machinery and metal works, US$44.37 million in chemical products, and US$5.49 million in food products, paper, and wooden products and miscellaneous items.
Considering the fact that GIC companies are South Korean firms and that global competitiveness is important to them, the ROK government built infrastructure on par with other domestic industrial complexes in the South. A water supply system, a wastewater treatment system, and a waste landfill were completed in December 2009, following the completion of the firstphase development site in June 2006. As of December 2009, the daily water supply capacity was 30,000 tons; wastewater treatment, 15,000 tons; the capacity at the landfill site, 61,000 cubic meters; and the daily capacity for incinerated waste, 12 tons. As for electrical power, a daily capacity of 100,000 kilowatts of electricity is supplied to factories there. The construction of a second incinerator with a daily capacity of 50 tons was supposed to begin in December 2008 with a target completion date of December 2011. However, the plan was put off due to such changing circumstances as the North's restrictions on passage to the GIC in 2009. The number of communication lines reached a total of 1,300 as KT installed an extra 600 lines in November 2009. The ROK government will discuss with the North about building a communication center, providing Internet access, and allowing the use of mobile phones, with the goal of providing communication services comparable to that in South Korea.
The construction of a technical training center began in 2007, and a general support center and a day care center will soon start operating after the completion of construction in 2009. Moreover, the construction of a fire station with a floor space of 2,181 square meters that can accommodate eight fire trucks began in December 2009, and an emergency care center is on the drawing board. The general support center, a 15-story building with one basement floor and 30,784 square meters of total floor space, was built between August 2007 and December 2009. The building houses the Kaesong Industrial District Management Committee (KIDMAC), offices of public institutions, convenience facilities, including a bank, a promotion hall, an exhibition hall, and shops that service tenant companies.
Considering the fact that GIC companies are South Korean firms and that global competitiveness is important to them, the ROK government built infrastructure on par with other domestic industrial complexes in the South. A water supply system, a wastewater treatment system, and a waste landfill were completed in December 2009, following the completion of the firstphase development site in June 2006. As of December 2009, the daily water supply capacity was 30,000 tons; wastewater treatment, 15,000 tons; the capacity at the landfill site, 61,000 cubic meters; and the daily capacity for incinerated waste, 12 tons. As for electrical power, a daily capacity of 100,000 kilowatts of electricity is supplied to factories there. The construction of a second incinerator with a daily capacity of 50 tons was supposed to begin in December 2008 with a target completion date of December 2011. However, the plan was put off due to such changing circumstances as the North's restrictions on passage to the GIC in 2009. The number of communication lines reached a total of 1,300 as KT installed an extra 600 lines in November 2009. The ROK government will discuss with the North about building a communication center, providing Internet access, and allowing the use of mobile phones, with the goal of providing communication services comparable to that in South Korea. Small and Medium Enterprises and Encouragement of Purchase of SME Products Act. Other than this act, the Inter-Korean Exchanges and Cooperation Act and the Inter-Korean Cooperation Fund Act, in addition to other laws, also apply to the GIC.
The North's legal framework is composed of the Kaesong Industrial Zone Act (the KIZ Act) as the basic law and 16 regulations, including the Development Regulations. The KIZ Act authorizes the central industrial district guidance agency to establish detailed rules under the regulations. Detailed rules are enacted through consultations between the two Koreas given that the industrial complex is operated under inter-Korean cooperation. Accordingly, consultations on about 10 detailed rules are currently being held between the two Koreas. Besides, the Kaesong Industrial District Management Committee (KIDMAC), authorized by the KIZ Act, has enacted and implemented 46 working rules, including construction and building standards for the district.
The Inter-Korean Cooperation District Support Directorate of the South and the General Bureau for Central Guidance to the Development of the Special Zone of the North are the central support and management bodies of the Gaeseong Industrial Complex project. The Directorate was established on October 5, 2009, succeeding the Office of Gaeseong Industrial Complex Project as the latter's organizational term expired. Now, the Directorate is responsible for the planning and coordination of the overall affairs related to the GIC, including support for infrastructure building and improvement of the entry and exit system as agreed between the two Koreas. The KIDMAC was established in October 2004 in order to provide support for production and management activities of the GIC tenant companies. As of December 2009, the KIDMAC is composed of one chairman, one vice-chairman, five departments (general management, business support, complex management, entry and exit, and planning and legal affairs), and three teams (legal order, budget and accounting, and entry and exit support). The budget and entry and exit support divisions were reorganized in September 2009 to speed up the entry and exit procedures and to improve the efficiency of budget planning and execution.Responsible for general management and operation of the GIC, the KIDMAC issued 1,495 passage and residence cards and dealt with 437 applications to register or establish businesses in 2009 alone.
Considering the poor business environment during the developing stages of the GIC, the ROK government allowed enterprises to take loans from the Inter-Korean Cooperation Fund to pay for initial capital costs. By December 2007, about 47.8 billion won was extended to the businesses that moved into the pilot site, and about 25.8 billion won to the first group of companies going to the main site. This support was replaced with the technology guarantee and the credit guarantee systems in December 2007. In the meantime, the Small & Medium Business Corporation (SBC) extended 26.7 billion won to 38 small and medium enterprises between 2007 and late June 2010. The restrictions that North Korea imposed on cross-border travel on December 1, 2008 challenged the business activities of those involved in inter-Korean cooperation projects. In an effort to ease their difficulties, the ROK government delayed the receipt of interest and principal on the loans from the Inter-Korean Cooperation Fund by six months for 22 businesses in January 2009, and did so once again in November the same year. The ROK government also decided to provide an emergency operation fund with a limit of six billion won for those who moved into the GIC after June 30, 2008. Accordingly, it extended a total of 1.8 billion won in loans to 9 businesses by the end of June 2010, which helped relieve the difficulties facing the tenant companies and promoted their production activities. The ROK government introduced an economic cooperation insurance policy in July 2005 under which damages are covered up to 90% from the Inter-Korean Cooperation Fund if tenant companies suffer losses due to unexpected risks rising from the North's seizure of invested assets and the resultant discontinuation of their operations. The number of subscribers began rising after the end of 2008 when the business conditions in the GIC deteriorated due to the North's restrictive measures. As of late June 2010, there were 139 subscribers and the total assets of the insurance fund reached 485.9 billion won. To provide better business conditions to the tenant companies, the ROK government raised the insurance amount limit from 5 billion won to 7 billion won and eased the requirement for insurance payment from three months of business suspension to one month in July 2009. Expansion of insurance coverage, loosening of payment requirements, and deferment of loan repayment helped relieve the suffering of the GIC tenants. Also, the ROK government introduced a trade insurance policy (for outbound delivery of raw materials and performance guarantee) so that the tenants can avoid the risk involved in the suspension of delivery for raw materials and enjoy a stable environment for investment and production.
The ROK government made a variety of efforts to help the GIC tenants expand their markets in 2009. Following the conclusion of a free trade agreement with the U.S. on April 2, 2007, the ROK signed another free trade agreement with the European Union on October 15, the same year. As for recognizing goods produced in the GIC as having originated in the ROK, the two agreements stipulate that the Committee on Outward Processing Zone on the Korean peninsula, which will be established one year after the Korea-US FTA is ratified by the National Assembly, shall handle the designation of certain areas, including the GIC in the North, as outward processing zones (OPZ) under certain criteria. As such, the ROK government will continue to make efforts for GIC products to be considered as ROK produced goods and to acquire preferential treatments for OPZs. Also, the ROK government supported GIC tenants to participate in various exhibitions and sales events to help them promote and sell their goods and explore new markets. In 2009, the following trade promotion events were held: the GIC and Inter-Korean Trade Goods Exhibition; Buy Korea 2009 Autumn; the 8th World Korean Business Convention in Songdo Convensia, Incheon; and the GIC Goods Exhibition in the National Assembly building. In 2008, the government introduced "PEACE WORKS"as a common brand for GIC products to facilitate sales, and applied for a trademark in January 2009. Small cards and banner advertisements of the brand were also used during the exhibitions. In 2010, the GIC companies attended a Common Brand Fair held in COEX, Seoul where they had opportunities to display and promote their products, and consult with major retailers regarding sales opportunities. The Korea Federation of Textile Industries held a sourcing meeting that served as an opportunity for the GIC firms to expand their markets.
Within the complex is the Green Doctors Hospital, which opened in April, 2007 by bringing together medical facilities of Green Doctors, a volunteer medical group, and the North's general clinic into one building. North and South Korean workers are provided basic services in separated sections, but the surgical, radiology, diagnostic test, and ultrasound rooms are shared. The medical team is comprised of two doctors, one nurse, and two administrative staffs from the South and 19 staff members from the North.
Out of the 90,023 North Korean workers who were treated at the hospital between 2009 and late June 2010, about 42% or 37,359 used the internal medicine department, 32,461 (36%) were treated in the obstetrics and gynecology department, 17,453 (19%) were treated by the surgical department, and 2,750 (3%) were provided with miscellaneous medical services. The ROK government is seeking to launch an emergency care hospital within the complex to provide enhanced medical services to GIC employees. A new strain of H1N1 flu virus swept across the world in 2009. The ROK government took several measures to prevent the pandemic from spreading to the GIC. It installed thermal cameras on the ROK side of the Inter-Korean Transit Office to monitor the body temperature of the employees crossing to the North, provided public health education to GIC companies, and distributed prevention manuals. After confirming that a South Korean worker was infected with H1N1 virus on November 14, 2009, the ROK government loaned two thermal cameras to the North for free to strengthen prevention campaigns within the complex. Also, it vaccinated the medical staffs of the Green Doctors Hospital in December, donated two thermal cameras to the North, and provided the North Korean workers with 1,000 doses of Tamiflu antiviral medicine.
Financial remuneration for the North Korean workers includes wages, additional allowances for overtime or night work, bonuses for certain duties or positions, in addition to other special bonuses. The labor regulations of the North's Kaesong Industrial Zone Act stipulates that the minimum monthly wage be settled through the agreement between the KIDMAC and the General Bureau for Central Guidance to the Development of the Special Zone and not to be increased by more than 5% each year. The monthly minimum wage rose from US$50 to US$52.5 on August 1, 2007 and to US$55.125 on August 1, 2008. From August 1, 2009, it was US$57.881. Aside from labor compensation, the tenant enterprises pay 15% of their monthly payroll as social insurance premium according to the labor regulations. The KIDMAC and the tenant companies operate shuttle buses for the North Korean commuters. There were 228 buses in operation as of late June 2010. Besides, the enterprises provide the North Korean workers with breaks shower and exercise facilities to improve their working environment.
To raise the GIC's productivity, the ROK government wanted to build the Center for Technology and Education in November 2007 and nurture technicians who can meet the diverse demand of the GIC tenant companies. The center was composed of 22 lecture and training rooms that may simultaneously accommodate 700 people a day. It was supposed to provide a variety of programs, including ones customized to tenant companies' needs, and self-development courses for the South Korean workers, but the facility has not been launched due to worsening inter-Korean relations and the failure to reach a final agreement between the two Koreas. Since 2006, the two sides have pursued the establishment of a day care center and a technical education center. Following consultations between the two Koreas, construction began in October 2009 and was completed in December that year. The center is expected to enhance productivity of the GIC companies since it would help raise the personal welfare of the North Korean female workers and reduce their absence rate. The day care center is a two-story building with a total floor space of 860 square meters and can accommodate up to 200 infants and children at the same time. Even though the consultations with the North have long remained suspended because of soured bilateral relations, the center will go into operation at full swing once an agreement is reached on operational details.