Negotiation Between North Korea (Dprk)

Negotiation Between North Korea (dprk) and South Korea (rok) Over the Issue of Kaesong Industrial Complex

Presently Seoul repatriates workers from North Korea and as well the future of the industrial complex in Kaesong is uncertain. On December 1, North Korea guaranteed work at the industrial complex of Kaesong for 880 South Korean workers - contrary to the agreement reached a few days earlier, which provided for 1600 workers - and another 100 on the tourist site of Mount Kumgang. Pyongyang itself was afraid of the possible expulsion of all of its citizens from the South, beginning on December 3.

There are labor issues that needing addressing at the Saesong Industrial Complex. For example in the process of recruiting workers, this is accomplished by North Korea's Central Guidance Agency on Special Zone Development is accomplished by North Korea's Central Guidance Agency on Special Zone Development, a cabinet level administrative body. According to Nanto and Manyin (2008) the hiring company "...may reject any recruit provided or if the recruit does not demonstrate the requisite skills (e.g., sewing), hire the worker as a trainee at 70% or less of the minimum wage. Employers cannot freely punish or fire incompetent workers. They must give instructions through North Korean mid-level managers. Directly scolding employees is regarded as humiliation and prohibited. The experience of many companies, however, is that labor management is a challenge during the start-up phase of a factory in the KIC. Gradually, however, North Korean workers begin to identify with the company, and a level of trust is developed between the South Korean executives and the North Korean managers and workers." (Nanto and Manyin, 2008) There has historically been such violations of workers rights in the interactions between North and South Korea.

RESEARCH QUESTION

The question addressed in this research is the question of what kind of agreement might be reached in which both North and South Korea experience interactive benefits?

HYPOTHESES greater interaction between workers needs and the employers should be implemented in order to integrate these two factors as related to the country of origin of the employee.

A unified money system between North and South Korea would eliminate this problem effectively and efficiently.

METHODOLOGY

The methodology utilized in this study is the 'Historical Review' which is a process in which: (1) the recognition of a historical problem or the identification of a need for certain historical knowledge; (2) Gathering of as much relevant information about the topic as possible; (3) Forming of hypothesis that tentatively explain relationships between historical factors; (4) the rigorous collection and organization of evidence, and the verification of the authority and veracity of information and its sources; (5) the selection, organization, and analysis of the most pertinent collected evidence, and the drawing of conclusion; and (6) the recording of conclusion in a meaningful narrative.

I. OVERVIEW of the KAESONG INDUSTRIAL COMPLEX (KIC)

In a 2008 CRS Report to Congress entitled: "The Kaesong North South Korean Industrial Complex" it is stated that the Kaesong Industrial Complex (KIC) is "...an industrial park located in the Democratic People's Republic of Korea (DPRK or North Korea) just across the demilitarized zone from South Korea. As of November 2007, over 50 medium-sized South Korean companies were using North Korean labor to manufacture products there, employing around 20,000 workers. The complex was planned, developed, and financed largely by South Korea, and it has become a symbol of the growing level of engagement between the North and the South." (Nanto, Manyin, 2008) the following illustration labeled Figure 1 depicts the location of the Kaesong Industrial Complex (KIC).

Location of the Kaesong Industrial Complex (KIC)

Source: Nanto and Manyin (2008)

Nanto and Manyin state that the KIC resulted from an initiative led by the Hyundai group beginning in 1998 that coincided with the Republic of Korea's (ROK) "sunshine policy" that attempted to improve relations between South Korea and the DPRK. The KIC is located about 106 miles southeast of Pyongyang and 43 miles north of Seoul just across the demilitarized zone (DMZ) in the DPRK. The purposes of the KIC as stated by South Korea have been to develop an industrial park in which South Korean businesses could manufacture products using North Korean labor, provide an opening for North Korea to liberalize and reform its economy, and ease tensions across the DMZ. Although begun primarily as a private sector venture, both governments are heavily involved in the project. Groundbreaking occurred in June 2003 and again in April 2004" (Nanto and Manyin, 2008)

It is related that Hyundai Asan and the Korea Land Corporation which are both from South Korea have both developed and managed the complex and that companies from South Korea that operate in Kaesong have been receiving "...certain incentives from the ROK government and have certain rights as determined by negotiated agreements with the DPRK. The KIC is a duty-free zone, with no restrictions on the use of foreign currency or credit cards and no visa required for entry or exit. Property and inheritance rights are ensured." (Nanto and Manyin, 2008) Nanto and Manyin relate that those from South Korea and who break the law in the Kaesong complex are "not to go on trial in the North." (Nanto and Manyin, 2008) Nanto and Manyin also relate that the rate at which corporation are taxed in the Kaesong complex are at a rate of 10 to 14% "with an exemption for the first five years after generating profits and a 50% reduction for the ensuing three years. " (2008)

Nanton and Manyin state that the government of South Korea and specifically through its 'Inter -- Korea Cooperation Fund' "...offered companies that established their operations in the KIC (in the pilot project and first phase) loans with low interest rates equal to those applied to public works projects. These loans totaled about $40 million as of the end of 2005. Out of the first 26 firms to either begin operations or contemplate beginning operations in the near-term, 25 of them applied for loans from the Inter-Korea Cooperation Fund. South Korea also provides political risk insurance that will cover financial losses up to 90% of a company's investment in the KIC up to five billion South Korean won ($5.4 million)." (Nanto and Manyin, 2008) it is additionally related in the work of Nanto and Manyin (2008) that South Korean firms, both small and medium in size, "...Under a South Korean law passed in April 2007...are eligible for state subsidies and other benefits equal to their counterparts at home." (Nanto and Manyin, 2008) the first three phases of the master plan of this project are shown in the following labeled Figure 2.

Three Phases

Source: Nanto and Manyin (2008)

The above figure illustrates the first three phases of this project's master plan. As shown, 800 acres are listed in phase one of the plan and approximately 200 firms of South Korea operating in the complex. By phase three this has increased to 4,800 acres in the Industrial Zone and 1,600 acres of supporting land along with approximately 350,000 workers from North Korea. Nanto and Manyin state that the combined industrial and supporting zones "cover an area roughly one-fifth the size of Washington, DC." (2008) the following figure lists the 'numbers of firms and workers in the Kaesong Industrial Complex as stated by Nanto and Manyin (2008)

Number of Firms and Workers in the Kaesong Industrial Complex

Source: Nanto and Manyin (2008)

The following figure lists the 'production by category' at the Kaesong Industrial Complex.

Production by Category at the Kaesong Industrial Complex

Source: Nanto and Manyin (2008)

Stated as an issue relating to the Kaesong Industrial complex are those of labor issues and specifically relating to the "...conditions for North Korean workers there and whether they are being exploited.22 in January 2007, Jay Lefkowitz, President Bush's special envoy for human rights in North Korea, wrote that one of the concerns he had with the Kaesong Industrial Complex is that authorities take a portion (as much as 45%) of the wages paid by the South Korean companies. He noted that verified details are elusive, and neither the DPRK nor South Korean government, nor any company, has been able to state definitively how much of his or her wage a Kaesong worker is allowed to keep." (Nanton and Manyin, 2008)

The officials in South Korea insist that the "...average wages and working conditions at Kaesong are far better than those in the rest of North Korea.24 the monthly minimum wage is $50 ($57.50 including the cost of social insurance) or $2 per day. Increases in the minimum wage are capped at 5% per year. General workers receive $50, team leaders receive $52-$55, and heads of companies receive $75 per month. Workers also receive overtime pay of about $10 per month and average about six hours per week in overtime. The normal workweek is 48 hours. For extended working hours, the overtime premium is 50% of the hourly wage rate. For public holidays and nighttime work (10 p.m. To 6 a.m.), the overtime premium is 100% of the hourly wage rate. In some cases, North Korean workers have asked for additional night shift or weekend work in order to qualify for additional pay. Companies also may pay cash rewards as a special incentive. KIC employees receive 14 days per year in vacation time. At first, North Korean workers were reluctant to ask for leave time, but now they do. Female employees receive 60 days paid maternity leave. Labor costs in Kaesong are approximately 8% of those in a South Korean metropolitan area. South Korean labor laws extend to South Korean workers in the KIC." (Nanto and Manyin, 2008)

It was reported that Unification Ministry officials confirmed in April 2007 that the DPRK had made a request that pay be raised 30% and 10% for members of the North Korean workforce who had graduated from two- and four-year colleges respectively. The two categories comprise approximately 11% each of the workforce of North Korea in the KIC. It is related that wages are paid in dollars to North Korean workers. Additionally the labor law in Article 43 of the Labor Law of the Kaesong Industrial Complex states that "wages must be paid directly to employees in cash." (Nanto and Manyin, 2008) However, according to the DPRK "this is not being implemented now because of the lack of foreign exchange centers in the KIC." (Nanto and Manyin, 2008) According to the ROK Ministry of Unification "...$57.50 minimum monthly salary, $7.50 or 15% of the base pay goes for social insurance (providing for unemployment and occupational hazards). The government also deducts $15 or 30% for a socio-cultural policy fee that goes for rental of state-owned housing, education, medical services, social insurance, and social welfare and reportedly is given to the Kaesong City People's Committee. According to the Ministry, the remaining $35 is paid to the workers in cash (upwards of 5% in North Korean won) or as chits that can be exchanged for daily supplies (food and necessities).32 at the exchange rate of 140 North Korean won per dollar, the $35 translates into 4,900 won. (a kilogram of rice costs about 44 won if bought from North Korea's public distribution system but as much as 1,000 won if bought on the open market. The average family consumes about 60 kilograms of rice per month.) Companies provide the workers with a way to verify their wages by having them sign a ledger or provide a pay slip when they receive their pay." (Nanto and Manyin, 2008)

It was announce by the ROK Ministry of Unification in November 2006: "that it was working with an Australian-South Korean company (Lobana Trading Company) to provide basic necessities to Kaesong. These items are sold primarily at the Kaesong Department Store.34 Since the government distribution system covers only part of a family's needs for items such as rice and sugar, the rest of the basic necessities are obtained by barter or purchased at the department store, even though prices are higher there." (Nanto and Manyin, 2008)

The method of transportation for commuting to the Kaesong Industrial Complex is stated in the work of Nanto and Manyin (2008) to include: 'some 1,000 bicycles also provided for workers living closer to the complex. According to the KIC Management Council, the health condition of workers at the KIC has visibly improved as they have had access to better nutrition."

Recruitment of workers is through North Korea's Central Guidance Agency on Special Zone Development is accomplished by North Korea's Central Guidance Agency on Special Zone Development, a cabinet level administrative body. According to Nanto and Manyin (2008) the hiring company "...may reject any recruit provided or if the recruit does not demonstrate the requisite skills (e.g., sewing), hire the worker as a trainee at 70% or less of the minimum wage. Employers cannot freely punish or fire incompetent workers. They must give instructions through North Korean mid-level managers. Directly scolding employees is regarded as humiliation and prohibited. The experience of many companies, however, is that labor management is a challenge during the start-up phase of a factory in the KIC. Gradually, however, North Korean workers begin to identify with the company, and a level of trust is developed between the South Korean executives and the North Korean managers and workers." (Nanto and Manyin, 2008)

Nanto and Manyin state that North Korean workers presently "...do not have the right to change employers. This promises to keep labor costs from escalating as they have in other developing markets as foreign firms bid for skilled workers. This also provides companies in the KIC with a stable (though aging) workforce. This practice, however, conflicts with what would be consistent with internationally accepted workers' rights." (Nanto and Manyin, 2008)