The Peninsula

When Will Kaesong Reopen?

By Juni Kim

In February 2016, the South Korean government shut down the Kaesong Industrial Complex, one of the few avenues of inter-Korean economic cooperation, over concerns that the funds were being used to supplement North Korea’s weapons programs. The sudden start to the inter-Korean peace process last year renewed interest in the resumption of joint economic activities like Kaesong, though there has been little indication if the complex will be open again in the coming months or years.

When it first opened in 2004, the Kaesong Industrial Complex was created as a pioneering platform for inter-Korean economic engagement under South Korea President Kim Dae-jung’s “Sunshine” policy. Along with the popular Mount Kumgang tourist site also located in North Korea, these projects were meant to help foster closer inter-Korean ties and help with North Korea’s economic development, with the eventual goal of both countries easing towards reunification. The complex used South Korean capital to employ thousands of North Korean workers to produce light industrial goods, with around 54,700 workers and 124 firms operating in the complex prior to its closure.

The complex shut down in early 2016 under the previous South Korean administration, whose position on North Korea policy hardened after a series of North Korean nuclear weapons and missile tests. With both the 2017 presidential election of Moon Jae-in, who campaigned on a pro-engagement platform, and the restarted inter-Korean peace process in 2018, there has been a stronger push by South Korea to resume joint economic projects like Kaesong. One project that has seen some progress in the recent peace process is the plan to join railways between the two countries, which was recently displayed through a symbolic groundbreaking held last December.

Despite the historic string of North Korean summits last year, disagreements between the U.S. and North Korea over denuclearization has slowed the process of restarting inter-Korean projects, which current UN sanctions against North Korea prevent from occurring normally. Moon Jae-in has been enthusiastic in promoting economic cooperation to further the peninsula peace process, and North Korean leader Kim Jong-un also expressed openness to reopening Kaesong in his 2019 New Year’s address. He stated, “… we are willing to resume the Kaesong Industrial Park and Mt Kumgang tourism without any precondition and in return for nothing, in consideration of the hard conditions of businesspersons of the south side who had advanced into the Kaesong Industrial Park…”

The failure to reach an agreement at the recent U.S.-North Korea summit in Hanoi has dampened expectations on the timeline for restarting inter-Korean economic projects like Kaesong, but South Korean officials and business leaders remain intent on pursuing these options. In a public address given shortly after the close of the Hanoi summit, South Korean President Moon Jae-in stated he would continue to consult with the U.S. to reopen both Kaesong and the Mount Kumgang tourist area. Minister of Unification Cho Myoung-gyon also reiterated the effort last week to work alongside the U.S. in attempting to resume operations at both sites.

Along similar lines, the Kaesong Industrial Complex Emergency Response Committee, comprised of several South Korean business leaders, have petitioned the South Korean government multiple times for access to the complex to check on closed facilities, though such access has yet to be granted. A spokesperson from the South Korean Unification Ministry during a press briefing last Wednesday indicated that such a visit could occur even with sanctions still in place and that the Moon administration supports the “protection of corporate property rights.”

The “no deal” result of the Hanoi summit is certainly a setback, but South Korea has demonstrated their investment in seeing inter-Korean economic ties continue to develop. However, such undertakings are unlikely to take place without the U.S being on board, and that would first require a denuclearization deal with North Korea which would allow for either a sanctions lifting or exemption. In a previous Peninsula blog, KEI Senior Director Troy Stangarone noted that the necessary sanctions relief for joint economic projects like Kaesong may occur in different forms, whether on a permanent, renewable or exemption basis. In any case, this would be a prerequisite before the complex could reopen.

If talks between the U.S. and North Korea continue in a positive and productive direction, it is possible to see the resumption of joint economic activities like Kaesong in the near future as long as a proposed deal includes some form of approved sanctions relief. A phased approach to denuclearization may provide this type of opportunity, though U.S. special envoy to North Korea Stephen Biegun said in public remarks yesterday that the U.S. is not pursuing such an option. If talks stall or derail for whatever reason and a potential deal is tabled, then these joint projects will likely be put on hold. Ultimately, the respective leaders of the U.S., South Korea, and North Korea are in the driver’s seat in determining if and when Kaesong will reopen.

Juni Kim is the Program Manager at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone.