By Kim Tae-gyu
Staff Reporter


KAESONG - A high ranking North Korean official expressed strong discontent over the South’s lackluster attitude toward the Kaesong Industrial Complex, just north of the Demilitarized Zone (DMZ).

Ju Dong-chan, who is in charge of Pyongyang’s project for special zones, made the remarks on Wednesday at a ceremony to mark the shipment of the first made-in-Kaesong products.

``The development of the Kaesong park is much later than expected. We should complete 15 factories here by the end of this year since it is a promise to our nation,’’ Ju told reporters before attending the ceremony.

The comment cast a chill on the South’s euphoria that the first Kaesong products would accelerate inter-Korean economic cooperation.

Livingart Co., the Inchon-based kitchenware maker, started to turn out kettles at the park on Wednesday.

Earlier this year, the two Koreas announced that a total of 15 tenants would start production at the 92,400-square meter pilot zone of Kaesong by the end of 2004.

However, the plan would not materialize because two of the 15 firms have yet to receive Seoul government’s approval for their operation in the North.

Hyundai Asan, which has spearheaded the Kaesong project as an affiliate of Hyundai Group, expected only four firms to churn out products this year.

Asked about the reason of such tardiness, Ju refused to comment. But a Pyongyang official noted the South should take full blames for the setback.

``The consensus here is that the South is responsible for breaking its pledge to complete production lines for 15 firms this year,’’ claimed the North Korean official, who declined to be identified.

Regarding the slow-paced construction, Hyundai Asan pointed its finger at delayed negotiation in power transmission and the establishment of telecom line.

The two Koreas inked a deal on the supply of electric power to Kaesong as late as Dec. 4 and the Korea Electric Power Corp. will supply 15,000 kilowatts of electricity to the pilot zone from next month.

As a result, Livingart had to use a power generator to crank out its kettles and other companies are also having a hard time securing enough electricity for construction.

In addition, the two sides have yet to agree on the 100 lines for telephone and fax services to Kaesong, although the telecom deal is likely to be concluded soon.

The lack of chemistry between the two Koreas was demonstrated amply by Unification Minister Chung Dong-young, the South’s top delegate to the dedication event, and Ju.

While exchanging pleasantries before the ceremony, they barely spoke to each other. Ju even left the event after his celebration speech while Chung was still delivering his speech.

During a tour to the Livingart plant after the tape-cutting ceremony, the two barely traveled together and Ju even disappeared during the field trip, embarrassing officials from the South and Hyundai Asan.

Grandiose Scheme

In August 2000, Hyundai Asan agreed with North Korea to develop a 20-million-pyong (66 million square meters) complex in Kaesong, 10 kilometers north of the world’s last Cold War frontier.

Currently, the first phase of construction is underway with the aim of completing it by 2007 and housing 300 companies.

Via a three-phased development plan through 2011, Hyundai Asan predicts the Kaesong park will attract 2,000 companies mostly from South Korea while employing 700,000 North Koreans and 100,000 South Koreans.

The Kaesong complex is touted as one of the most positive fruits of the historic June 2000 summit meeting between the leaders of the two Koreas.

Many experts have projected the unprecedented cocktail of South Korea’s leading-edge technology and rich capital with North Korea’s cheap labor would create a boon of cross-border cooperation.

Monthly wages of North Korean workers in the Kaesong park were set at a minimum $50 with an additional social and welfare fees of $7.50. The wages are less than a 10th of labor costs in the South.

Because of the cheap workforce also causing no language problems, the Kaesong complex attracts labor-intensive industries like manufacturers of garments, shoes and electronic parts.

Livingart said the firm could save about 30 percent of production costs thanks to its relocation to Kaesong when compared to its Inchon factories in the South.

Kaesong’s geographic location has also been hailed as its main competitive edge as the border city is situated just 60 kilometers north of Seoul and 170 kilometers south of Pyongyang.

The old royal Korean capital of the Koryo Kingdom is also close to the emerging logistics center of Inchon, the South’s second-biggest port city boasting of the state-of-the-art Incheon International Airport.

All in all, the Kaesong project is expected to provide more than $9.6 billion in economic benefits to Pyongyang and $74.9 billion to Seoul by 2011 according to the Hyundai Research Institute in South Korea.

Made in Axis of Evil

However, there still remain challenges before fully taking advantage of the Kaesong park as a low-wage production base and savoring the tangible results.

One of the most irritating headwinds is the U.S.-led export control on strategic equipment to North Korea. Almost all production gear, even down to a simple PC can be denied entrance to the North under the Wassenaar Arrangement.

The pact, signed by 33 nations like South Korea, the U.S., Japan and Germany in 1996, restricts the transfer of potentially dangerous technologies into countries listed as supporting terrorism, including North Korea, Iraq and Libya.

Domestic watchmaker Romanson, which plans to set up a factory in Kaesong next year, is one of such firms which have suffered trouble in securing an approval to transfer necessary equipment across the border.

Also the North’s lack of preferential trading status in many nations could result in hefty tariff barriers. Experts point out goods from the North may face duties of 40 percent or more in some nations.

``To some nations, products labeled `Made in North Korea’ may equal `made in axis of evil,’ triggering unfavorable treatment in tariffs or other trading terms,’’ a Seoul analyst warned.

U.S. president George W. Bush bracketed North Korea as an axis of evil alongside Iraq and Iran during his State of the Union Address in 2002.

The Southern government solves the barrier in a practical fashion as shown in the recently signed free trade agreement (FTA) with Singapore.

Late last month, President Roh Moo-hyun and Singaporean Prime Minister Lee Hsien Loong agreed on the FTA, which will go into effect after being ratified by the parliaments of the two nations.

Under the agreement, the products made at the Kaesong complex will enjoy equal status as those made in South Korea, although the goods will be labeled ``Made in the DPRK,’’ the acronym for the North’s official name of the Democratic People’s Republic of Korea.

In addition to the established export destination in Singapore, outbound shipments of Kaesong goods to Europe are also likely.

However, things will be different when it comes to exports to the United States and Japan and Hyundai Asan admits it.

``In the embryonic stage of the Kaesong project, the merchandise will be shipped mainly to the South. The exports to the U.S. or Japan and the resultant tariff problems should be solved over the long haul, maybe politically,’’ a Hyundai Asan official said.

Quality of Labor Force

Hyundai Asan has reiterated companies will be able to use a cheap but skilled workforce in Kaesong. Yet, things might be somewhat different in reality.

In the case of Livingart, the stainless cookware provider said the North’s laborers are dearth of relevant skills, causing more defects in the final products.

``Currently, the quality of new kettles in Kaesong is somewhat inferior to that of our products made in Inchon. We expect the gap to diminish next year,’’ Livingart official Hwang Yong-soo said.

A North Korean mechanic in the two-storied Livingart plant said he has experience with lathes but needs more skills to operate the new kettle machines well.

A female worker, Lee Hye-kyong, at the Livingart factory said labor demand outstrips supply right now with just a few Kaesong residents vying for jobs here.

``Everyone who applies for jobs in the Kaesong park gets work easily at the moment, including me and my colleagues,’’ the 18-year-old Kaesong resident said.

At the complex, those older than 18 years old are allowed to work.

Asked if a job in the Kaesong complex is an enviable one, the media-shy Lee, who has worked at a library in Kaesong for the past two years, shook her head.

Watchers say Kaesong certainly has much attraction to South Korean outfits and the city might emerge as their main relocation destination instead of China or Vietnam.

As much certainly, however, they add there lie long and bumpy roads in realizing such outlook and it remains to be seen whether the Kaesong project will pave the way for intertwined economic future of the two Koreas or fell apart into backwater.

voc200@koreatimes.co.kr