Tuesday, February 28, 2006

Story on NK Industrial Zone in the NY Times

Heads up to NoCHR for alerting us to this story. For more analysis see our post, Zonal Strategies, below.

For managers, a Korean paradise
By James Brooke The New York Times

KAESONG, North Korea In a cavernous factory floor here, where hundreds of North Korean women diligently cut and sewed women's jackets Monday, a South Korean businessman seemed to have found Korea's answer to China: wages at 26 cents an hour.

"Kaesong has more advantages that Vietnam, China or Guatemala," Hwang Woo Seung, president of Shinwon Ebenezer Company, said, citing other countries where his company produces clothes. "We opened here last March and we are already starting to build another factory here twice the size of this one."

If the leaders of the two Koreas have their way, Hwang's factory, with its 326 North Korean workers and seven South Korean managers, will represent the economic future of the peninsula.

"Kaesong Industrial Park, a place where the South's capital and technology and the North's land and labor are being combined to a make a new prosperity," an American-accented voice announced on a peppy information video shown to the first group of foreign reporters to tour the site, only several hundred meters north of the demilitarized zone.

Almost four years after the initial agreement for the park, the legal and infrastructure building blocks finally seem to be in place for explosive growth. Over the next year, the number of South Korean factories and North Korean workers is to nearly quadruple, to 39 factories and 15,000 employees.

By 2012, the industrial park is to spread over 67 square kilometers, or 26 square miles, and to employ 730,000 North Koreans, almost 8 percent of the work force in this impoverished nation, which has a total population of 23 million.

Last month, a South Korean telephone company opened the first 340 of 10,000 planned lines to here. Next month, work is to start on a tenfold increase in the power supplied by South Korea, to 154,000 kilowatts. Last fall, to iron out bureaucratic difficulties for South Korean and other foreign investors, South Korea opened its first government office in the North here.

When 50-year leases for building lots were auctioned off last summer, there were, on average, four South Korean companies vying for each plot. With labor costs rising in South Korea, many owners of small and medium-sized factories, say they face two options: closing and moving to China, or closing and moving to Kaesong.

"We have plans to build a factory here four times the size of this complex," Oh Sung Chang, senior managing director of Taesung Hata Company, a manufacturer of packaging for cosmetics, said after walking reporters past plastic molding and cutting machines manned by North Korean workers. Noting that he plans to start construction this summer, he added: "The Northern side has been very cooperative."

The North, after initial reluctance, has thrown its weight behind the isolated nation's largest center of foreign investment.

"We will bring peace and prosperity to the Korean Peninsula through the Kaesong Industrial Complex," Kim Hyo Jeong, a North Korean official serving on the Kaesong Industrial District Management Committee, told reporters Monday.

According to North Korean propaganda, the North is a worker's paradise. But after 60 years of communism and Kim family dynastic rule, the North looks like a manager's paradise.

Not only are the wages the lowest in Northeast Asia, but independent labor unions are banned.

"Strikes?" Hwang replied dismissively in response to a reporter's question. Raising crossed arms, he said with a slight smile: "Absolutely not."

"North Korean workers are very skilled, and that is why we decided to move here," Moon Chang Seop, president of Sam Duk Starfield, a Pusan- based shoe manufacturer. Noting that shoe manufacturing "is getting small" in South Korea, he said he hoped to one day move his entire line to Kaesong.

For now, Kaesong's 11 factories are producing almost entirely for the South Korean market.

To grow as planned, the park will have to win access to world markets. With North Korea's nuclear weapons program provoking opposition in Japan, Europe and the United States, the threat of commercial sanctions against North Korean products hangs over any investment. At the same time, South Korea hopes that products made here will be eligible to enter the United States under any free-trade pact that may be negotiated with the United States. (read more...)

After free-trade talks were announced last month, U.S. officials discouraged the idea of duty access for products made in this part of North Korea.

"In our view, the agreement applies to goods produced only in South Korea and the United States," an U.S. Embassy official in Seoul told reporters. "We hope that the Kaesong issue won't be a major hurdle in reaching the comprehensive goal of signing the free-trade agreement."

In the United States, American labor and human rights activists may object to employment conditions here.
At Kaesong, the minimum wage for the 48-hour week is $57.50. But $7.50 is deducted for "social charges" paid to the North Korean government. The remaining $50 is paid to a North Korean government labor broker. None of the South Korean factory managers interviewed would guess how much of the $50 salary ends up in the pockets of workers.

"The exact amount is determined by North Korean authorities," said Kim Dong Keun, a South Korean who chairs the Kaesong Industrial District Management Committee.

Under labor contracting arrangements in Russia and Eastern Europe, North Korea's government often withholds half of their workers' salaries.

Attempts to interview seamstresses at the Shinwon, factory elicited evasive responses and intervention by South Korean guides.

"No interviews with North Korean officials or employees are allowed," Mira Sun, the foreign press aide to South Korea's president, Roh Moo Hyun, lectured reporters by loudspeaker in one bus after reporters tried to interview seamstresses.

Alternatives for North Korean workers appears to be bleak.

Although the two Koreas speak the same language and share the same history up until 1945, 60 decades of communism has created, in economic terms, a Bangladesh living alongside a Belgium.

Beyond the shiny new factories and busy construction sites of the industrial park, visitors peering beyond a 5-mile long green wire perimeter fence could glimpse a tableaux reminiscent of Breughel paintings of pre-Industrial Europe. In one field, about 20 people were bent over their hoes. An ox cart creaked down a lane carrying winter feed, while a man with a load of brush on his back trudged down a path.

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