Friday, March 24, 2006

Korea note -- ROK & DPRK cooperation

Business Week had a little article with a big story. I haven't run across any online note, but the implications are enormous. Dear Leader is apparently allowing North Korean workers to work for South Korean companies under tight controls.

For decades, there has not been much traffic across the demilitarized zone dividing North and South Korea, where hundreds of thousands of soldiers are on constant alert. But these days, some 200 cars, trucks, and buses cross the border every day.

They're going to the Kaesong Industrial Complex, a dusty outpost that is North Korea's boldest economic initiative in decades. Just an hour north of Seoul, Kaesong is cordoned off from the rest of North Korea by seven-foot-high fences patrolled by squads of soldiers.

Just after 7:00 a.m., Monday through Saturday, dozens of buses from North Korea enter Kaesong, ferrying some 6,000 northern workers to 11 South Korean-owned factories to make shoes, clothing, pots, and other low-tech goods. Another 28 South Korean outfits have signed agreements to set up plants there, while 1,000 more are considering such a move, the Seoul government says.

The idea behind the effort is simple: North Korea is home to a huge, cheap, and underemployed workforce. South Korea needs a low-wage manufacturing base to compete with China. By 2012, Kaesong could be home to 725,000 jobs and generate $500 million in wages annually for the North Korean economy, figures Park Suhk Sam, senior economist at Bank of Korea. After a five-year tax holiday expires, another $1.8 billion might tumble in annually from corporate taxes levied on South Korean companies operating there. "The overall impact on the North will be huge," Park says.

North Korea's "Dear Leader," Kim Jong Il, has little choice but to experiment, given the dire condition of the North's economy. True, Kim's first priority is political self-preservation, so any opening will be measured. But since 2002 he has embraced -- however grudgingly -- tentative economic reforms. State-owned farms and factories that exceed production targets are now rewarded with higher wages. And Pyongyang has eased price controls and opened private markets where food and consumer goods are sold. "North Korea is pushing ahead with changes to the extent that they will not jeopardize its regime," says Paik Hak Soon, a security expert at the Sejong Institute, a Seoul think tank.

For South Korean companies, Kaesong offers plenty of advantages. North Korean workers at Kaesong earn about $50 a month, around half the average wage for unskilled workers in China and less than 10% of what South Koreans earn. Kaesong "offers better business conditions than China," says Moon Chang Seop, president of shoemaker Samduk Stafild. The company has invested $10 million in its spotless Kaesong factory, where some 1,200 workers cut and stitch shoes.

Outsourced work for South Korean capitalists may not be exactly what Marx and Engels -- or Kim Il Sung (Kim Jong Il's father) -- had in mind, but it could be the only hope for Pyongyang.

This is a very significant story. I am amazed that it is not getting more attention.

Now get a load of this...

A U.S. Congress staff member visited a joint North-South Korean industrial project in the north to learn more about it, the U.S. Embassy in Seoul said Tuesday.

Douglas Anderson, a staffer on the House International Relations Committee, looked around the South Korean-run industrial complex in the Northern border city of Kaesong for several hours on Monday, said embassy spokesman Robert Ogburn.

''He has wanted to go up and see and what it was like, and we sent a couple of embassy guys to go with him,'' the spokesman said.

South Korean media reported that it was the first time U.S. officials have visited the industrial zone, but Ogburn said it's not. ''Working-level people have been there before,'' he said, without giving further details.

The Kaesong industrial complex is one of the showcase inter-Korean projects launched after the landmark 2000 summit between the two country's leaders.

Fifteen South Korean companies now operate at the complex, using cheap North Korean labor. They started producing kitchenware and other goods in late 2004.About 6,000 North Korean workers are employed at the factories.

South Korea hopes that a potential free trade agreement with the United States could include goods made at a joint industrial zone in North Korea.

But Washington is against it as a free trade deal only applies to goods originating within the territories of the two parties of the agreement _ South Korea and the United States

Great, huh?

More here.

So what am I missing? Is US policy so fixated on North Korea as an enemy that anything resembling a rapprochement of the two Koreas is anathema?

The Marmot's Hole, which I consider the preeminent Korean blog in English, posts about this development. It looks as though things are developing between the two Koreas with or without the advice, participation or approval of any of the big powers. That would mean China, Japan and the U.S. There is a chance that these moves are being done with tacit U.S. approval, but I don't give the State Department that much credit. Or if the State Department is involved, it would come as a surprise to me if the administration is in the loop.

In case sensible ideas don't work out, deniability remains a safety net. I'm not sure what the safety net is when dumb ideas result in spectacular failure.

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