The Gaeseong Industrial Complex project is anti-unification

As the few of you out there who have read my blog more than once know, I am convinced that the Roh Moo-hyun (and Kim Dae-jung before) administration is anti-unification. Few things demonstrate the anti-unification tendencies of the Ministry of Unification over the past six years more than the Gaeseong Industrial Complex project (GIC). Warning: this will be another long one. Get a nice cup of Mocha Latte and come back. Ready? OK, clink the post continuation link and read on , brave soldier of truth.

Welcome and enjoy the read. Background The idea of GIC started with a meeting between Hyundai chairman Chung Ju-Yung and Kim Jeong-il back in August of 2000. GIC was agreed upon along with the Mount Geumgang Tourism Project (another boondoggle for the South Korean government to pump money into the regime in Pyongyang. The project has the strong support of both Korean governments and is scheduled to open in 2007. Exhibit A I came across this rah-rah article about GIC. It is pretty fluffy stuff but is has a few choice revelations if you care to take the time to wade through it. Let me share:

As an initial step under Phase I, it will allocate one million pyeong (3.3 square kilometers) specifically to attract highly labor-intensive businesses in order to generate large-scale local employment, create demand for local easy-to-obtain raw materials, and produce items of high market potential for export. Typical industries targeted for attraction include fabric, clothing, shoes, leather, socks, and assembly of electrical/electronic and metal/mechanical products. Some products may be allowed into the North Korean market to help elevate the local standard of living. As of the end of January 2003, 912 companies had applied to enter the Gaeseong Industrial Complex. Among them, 420-odd are in the fabric/clothing/ shoe industries, 230 in are the electrical/electronic/mechanic/metal industries; 100 in the toy and bag manufacturing industries; and 150 in the stationary/glasses/wig industries.

No real surprise here. We all knew that GIC was going to be a 3D industry project. Basically we have North Korean workers undercutting Bangladeshis in the cheap labor market. But I want to file this as "exhibit A" (you'll see this again later). Before we leave labor cost issue, let me share another quote:

On top of the locational advantages, the most significant advantage for South Korean companies at Gaeseong are the deeply discounted production expenses owing to low costs of labor and land plus low tax rates. For example, following negotiations between the DPRK’s Chosun Asia/Pacific Peace Committee, Hyundai Asan and KOLAND, it was agreed that the average monthly salary of a North Korean worker hired by a company in the complex would be $65 including social welfare payments. This level of salary is equal to or below that which domestic small and medium companies based in China and Southeast Asia pay their local employees, and is only 4 percent of the salary a South Korean worker in the manufacturing industry earns. For reference, the average monthly salary for a manufacturing industry worker in South Korea, according to the Department of Labor was $1,525 in 2002.

Exhibit B Just under the labor cost quote is another revealing sentence:

Furthermore, the corporate taxes will be set at a generous 14 percent in Gaeseong, far lower than the 27 percent companies must pay in the South.

So Nork taxes will be low? How will they make up the shortfall, I wonder? It couldn't be from the South Korean government. Could it? Exhibit C Now I draw your attention to the chart that I took from the article. I just want to point out one thing; the length of the lease. If you can't read charts, it is 50 years. Now, that length by itself is not damnable (especially if the lots can be sub-let) but taken with Exhibits A and B, I believe that demonstrates a plan to impede unification, rather than aid it (which is ostensibly the goal of both Korean governments). Exhibit D For the next piece of the puzzle, let's take another look at the Joongang Ilbo article that created such a fuss in blogger land two weeks ago and which I rightly blasted.

If you have ever wondered who was going to buy the stuff made in GIC, you are not alone:The United States bans the import of most North Korean goods, and China remains competitive enough that labor-intensive imports could not easily be sold there. “It is a problem. I admit that,” said Park Yeong-sik of Korea Land Corp. “The goods made in Gaeseong could be sold to North Korea, but the purchasing power of North Koreans is near zero,” he said. Japan also levies higher duties on North Korean products than on those from members of the World Trade Organization. That, some say, leaves South Korea alone to absorb the products made in Gaeseong. “We estimate that South Korea has enough purchasing power to buy the Gaeseong output until the first stage of development is completed,” Mr. Park said. After that, Seoul will have to hope that relations between Pyeongyang and Washington improve.

So South Korean consumers will be expected to buy whatever is made in GIC. And if South Koreans don't buy enough for the companies located GIC to make a profit, what then? Conclusion So let's put this all together: We have (A) low labor costs for labor-intensive industries and (B) lower taxes for companies that locate in GIC. Those companies will (C) sign 50-year leases and will have to (D) sell most of their goods to the South Korean market. What I see here is a plan that puts South Korean business interests against unification. How is that? As I said in my very first post, North Koreans workers would benefit greatly if they would be allowed to come south to fill our local 3D jobs. In fact, even if they made half of what foreign industrial workers make, it would still be ten times more than they will make at GIC. So, GIC can function only as long as North Korea labor is not mobile. In other words, those South Korean companies that locate in GIC will have a vested interest in making sure that North Koreans can't go south. Therefore, it is clear that the governments of both Koreas are pursuing policies which will create a group of business leaders who will support continued division of Korea and which will provide yet another means for the government in Seoul to financially prop-up the regime in Pyongyang. Maybe we can expect unification some time after those 50-year leases are up.