(EDITORIAL from the Korea Herald on June 19)

Failed venture?

South and North Korea are meeting today on the future of the Gaeseong Industrial
Complex - a North Korean industrial park for South Korean corporations.


It will
be the second meeting since the North declared on May 15 that all inter-Korean
accords on Gaeseong with regard to pay, rent and tax were null and void.
Today's meeting is crucial. Depending on its outcome, South Korea may have to
determine whether it will write the industrial complex off as a failed venture or
continue to keep it as a mutually beneficial project combining capital from the
South and labor from the North.
But the prospects for a compromise will be dim if the North insists on its
ill-advised demands - a four-fold increase in pay for North Korean workers, to
$300 a month, and $500 million on top of the $16 million that was already paid in
rent for the industrial complex site in 2004. South Korea has made clear in
unmistakable terms that those demands are unacceptable.
It is practically impossible for the South to back down even if it wishes to do
so. The reason is that probably all companies operating in the complex will
choose to pack up and leave. Why should they stay there when they can employ a
worker for $100 in China and much less in Vietnam and Cambodia?
The North would be grossly misguided if it entertained the illusion that the
South Korean government could subsidize the chronic losses of companies
manufacturing products in the complex. That is not the way capitalism works. No
government could afford to pour huge amounts of money into a bottomless pit.
Nor could the South Korean government under President Lee Myung-bak agree to $500
million in additional rent, which would be seen as nothing but a cash grant in
disguise. That would be inconceivable to the conservative Lee administration,
which accused its progressive predecessors of having lavished cash gifts on the
North Korean communists.
Neither the North nor the South would gain from the closure of the industrial
complex, a likely eventuality for which they will do well to prepare. Its impact
no doubt would be greater on the North, one of the poorest countries in the
world, than on the South.
For the North, the closure would mean a loss of $40 million a year - no small
amount for the communist state, which has few other steady sources of hard
currency. Even more painful should be the loss of 40,000 jobs in Gaeseong, a town
with a population of 150,000.
Abandoning the industrial complex would be costly to the South as well. The cost
of building the industrial complex and much of the facility investments made by
South Korean companies, both of which one estimate puts at 1 trillion won, would
be irrecoverable. But that would not be the only loss. Among the conceivable but
not-so-easily-quantifiable losses are a greater security risk for the nation, a
fall in its creditworthiness and the potential flight of some foreign capital
invested here.
The fate of the industrial complex cannot be considered in the context of rent,
pay and tax alone. It is a matter of not just cost and benefit but security.
Public pressure is mounting against the idea of helping North Korea, which
launched a long-range missile on April 5 and conducted its second nuclear test on
May 25.
Against this backdrop, the North will have to make a decision. It may choose to
kill the goose that lays the golden eggs by pressing ahead with its absurd
demands for a pay raise and additional rent. Or it may decide to keep the goose
alive by accepting an alternative South Korean offer to build dormitories and
nurseries for North Korean workers and a new road for commuters.
(END)