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‘North seen eager to settle Gaeseong row’

Skepticism was growing about the prospect of an early normalization of the Gaeseong industrial complex as the two sides geared up for new talks on Monday in the North’s border city.

The two Koreas failed to narrow their differences during the previous four rounds this month. The sour mood was especially apparent after a North Korean delegate refused to shake hands with his counterpart before talks last week. Pyongyang has consistently blamed the South on every occasion the talks have failed to produce results.

But the North’s demeanor appears to mask its desperate desire to salvage the factory zone, which is a key source of hard currency for the destitute economy and could act as a test of the North’s attitude toward foreign investment, which it has struggled to attract.

Veteran analysts say it is the North that is more anxious to see a breakthrough in the gridlock.

“North Korea’s economy can be divided into three sectors: trade with China, government spending, and special economic zones. Right now the relationship with China is at its lowest point ever, the government doesn’t have money, and almost none of its special economic zones, including Gaeseong, are running as planned” says An Chan-il, a North Korean studies professor at Chung-ang University. “The North needs Gaeseong back.”

Seoul has demanded a legal framework that will guarantee the safety of South Korean citizens and material in Gaeseong, prevent another unilateral closure, and induce international investment before resuming production.

North Korean officials, however, called for the reopening of the industrial complex without preconditions.

Gaeseong’s factories employed 53,448 North Korean workers and generated over $80 million in revenue for the Kim Jong-un regime before the North shut the complex in early April.

“Gaeseong took care of not only the 50,000 North Korean workers, but also their families, rendering around 200,000 people dependent on the industrial park. With the complex shut down, we can presume unemployment is causing some trouble to those people’s welfare,” said Chang Yong-seok, Senior Researcher at the Seoul National University Institute for Peace and Unification Studies.

Special economic zones such as the Gaeseong complex are convenient sources of foreign exchange for the North Korean economy. Selling relatively cheap human labor or renting out land to foreign companies under a totalitarian political system ensures a steady flow of cash without having to worry about labor strikes, production costs or marketing.

“The North Korean regime has developed what political analysts call the ‘rentier state’ mentality. The regime pursues easy, lucrative government projects that do not require direct production of goods and services,” said Park Hyung-jung, senior researcher for the Korea National Institute of Unification. Like countries that sell crude oil for cash, the North is selling human labor at Gaeseong, he added.

The North’s economy is in shambles. China’s stepped-up participation in the U.N. sanctions against North Korea and its nuclear and missile programs is further isolating the North’s economy.

China halted road construction in April for another North Korean special economic zone at Hwanggeumpyeong, an island located at the mouth of the Yalu River.

In May, the Bank of China severed dealings with the Foreign Trade Bank of North Korea, which is suspected to have facilitated cash movements for North Korea’s nuclear program.

Using the U.N. System of National Accounts and South Korean prices, the Bank of Korea tallied North Korea’s nominal gross national income at 33.5 billion won ($29.71 billion), less than 3 percent of the South’s.

But Gaeseong is not all about earning emergency cash for a struggling economy.

“Gaeseong is more important because of its futuristic symbolism. Gaeseong will serve as a precedent to potential foreign investors in what they can expect when investing in North Korea,” said Chang.

The talks about re-opening Gaeseong also serve as a “show of effort” to China and the United States, An added. “If talks succeed in reopening Gaeseong, all is well. If not, the North can at least argue that they tried to talk to their neighbors in the South if China and the United States ask questions.”

Officials from the two Koreas will meet again Monday to continue talks.

By Jeong Hunny (
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Korea Herald daum