North and South Korea’s Kaesong complex shaken by pay dispute

02:37 - Source: CNN
CNN visits last symbol of inter-Korean cooperation

Story highlights

The Kaesong Industrial Complex houses South Korean businesses employing North Koreans

It lies just north of the Demilitarized Zone that has divided North and South Korea since 1953

Pyongyang and Seoul are in a dispute over the North's demand for a higher minimum wage

Kaesong, North Korea CNN —  

If cooperation has a sound, it is that of heavy machinery as thousands of shoes roll off assembly lines at a South Korean factory full of North Korean workers – just miles from the countries’ heavily armed border.

Invited back to North Korea by the government in Pyongyang, I gain rare access to the Kaesong Industrial Complex, which lies north of the Demilitarized Zone (DMZ) that divides the two Koreas.

This ceasefire line has separated North and South Korea since the end of the brutal Korean War in 1953. As no peace agreement was signed, the two are technically still at war.

Tens of thousands of fully armed troops are stationed on either side of the border, ready for battle. But just a few kilometers into North Korean territory – in an area that’s a potential flashpoint for violence – Kaesong operates as a symbol of cooperation between the nations. From some points in the park you can see the flags of both nations flying.

The complex was established more than a decade ago at a time when a previous government in South Korea was pursuing a “Sunshine Policy” of friendship with its reclusive northern rival.

Its creation allowed South Korean companies to benefit from the low cost of North Korean labor. Meanwhile, North Korea gained a valuable stream of hard currency revenue by appropriating an undisclosed amount of salary from its citizens working in Kaesong.

But the around 125 South Korean businesses and some 52,000 North Korean workers at the complex are caught in the middle of a showdown between their governments. The trigger this time, pay.

North Korean complex managers are demanding a minimum wage increase of $4 a month.

South Korea objects to a wage hike, saying the North is going around the rules by unilaterally declaring a new minimum wage – without consulting with the South.

Workers are worried about the future of the venture.

Plans frozen

“When we started doing business here we had 300 workers. Now we have 3,000,” says shoe factory manager Kang Mi-hwa.

Kang tells me that she believes the key to the factory’s success is a good relationship between the South Korean managers and their North Korean workers, who share the same language and a similar culture.

She says she’d like to hire 2,000 more. But she can’t.

The industrial complex may be open, but a planned expansion has been frozen for five years.

In 2010, Seoul stopped all new investment in Kaesong, after accusing the North of torpedoing the navy ship Cheonan and killing 46 South Korean sailors – an allegation the North denied. Several months later, North Korea shelled South Korea’s Yeonyeong Island – killing four South Koreans – saying it had been provoked by Seoul’s annual military exercises.

The expansion freeze left the industrial complex half empty – and businesses like Kang’s shoe factory with no way to expand.

“Because of the sanctions, we can’t fill huge orders and meet high demands,” she tells me.

Next to the factory lies open space that was earmarked for expansion and is now sitting unused, one of many empty lots scattered all over the complex.

Kaesong looks like a complex that was envisioned to do much more than it does.

Previous disputes

Every morning and every evening, 270 buses help transport North Koreans back and forth to work.

But these buses stopped for several months in 2013 when escalating tensions between the two neighbors led North Korea to pull all its workers out.

The countries finally agreed to reopen Kaesong some five months later with an agreement that the industrial zone’s operations would no longer be “affected by political situations under any circumstances.”

While the South Korean businesses have government insurance to protect them from loss during times of political turmoil, it was still financially devastating for many businesses and a handful still remain closed.

Now the dispute over worker pay is again threatening operations.

Seoul argues that the salary hike is a breach of an existing agreement for the industrial park.

South Korea’s Unification Ministry also says the average wage has risen by approximately $50 per month, including overtime since 2013, and now stands at around $180 per month. The wages that are paid directly to Pyongyang total around $90 million a year but it’s unclear what percentage of that is received by the workers themselves.

North Korea is a communist country and so many services such as housing are provided free of charge, meaning wages are low by Western standards.

“We believe the attitude of the South Korean government is hurting the lives of workers here,” North Korean official Pak Chol Su tells me.

When CNN visits, the assembly lines are still rolling – but the crisis is deepening with potentially far-reaching implications.

At risk – the last remaining symbol of inter-Korean cooperation. And the livelihoods of tens of thousands of workers and their families.