Economy

Korea: Chaos in rare zone of industrial cooperation

No unity, just gates.

Jung Yeon-Je/AFP/Getty

Jung Yeon-Je/AFP/Getty

The Kaesong Industrial zone is normally a rare site of co-operation between the Koreas. Built just inside North Korea’s border in 2004 as a symbol of economic partnership, it is a place where commerce trumps ideology, while generating $2 billion a year for the North’s trade-starved economy. There, more than 50,000 North Koreans provide cut-rate labour for 123 mostly small South Korean companies making household goods.

But the harmony turned to discord on April 2 when North Korean officials blocked the passage of South Koreans into and out of the zone—with 861 South Koreans still inside. The surprise move led to chaos at a checkpoint in Paju, named “the city of Korean Unification” in the sign in this photo. On April 8, Pyongyang announced it would pull all of its workers from the park and threatened to shut it down permanently. All this brinkmanship has come at a time of increased tensions, with North Korea ramping up its threats to bomb the U.S. Yet inside Kaesong, few seem panicked. Many South Koreans opted to stay with their factories even when allowed to exit.

A shutdown in the zone would reverberate across Seoul’s already vulnerable markets—a weaker Japanese yen has hurt exports, prompting it to cut growth forecasts. Uncertainty over Kaesong’s fate caused the market to drop sharply as foreign investors sold stocks. Despite making some moves toward economic reform in 2012, the North suffers from chronic capital shortages. Although Pyongyang may relish sending its message of defiance, it’s clear neither country can afford to have the factories sit idle for long.