Fear Prevails Over Greed: The Kaesong Shutdown

North Korea’s shutdown of the Kaesong Industrial Complex (KIC) is the culmination of a steady deterioration in inter-Korean relations during the political transition from Kim Jong Il to Kim Jong Un in the North and conservative rule in the South. Pyongyang appears to have decided to close the KIC primarily for internal security concerns and for fear of incrementally losing ground to enemy states in a Munich-like fashion, thereby stoking more appetite for land grab and inadvertently inviting the US-ROK aggression. The North Korean regime’s March declaration that the inter-Korean relationship had collapsed into a state of war provided the rationale for redefining the KIC as a strategic and military liability that exposes the North to the risk of US-ROK humanitarian intervention, as opposed to a political and diplomatic asset that stabilizes cross-border relations or a source of foreign exchange and advanced technology and know-how. In Pyongyang’s deliberations, fear prevailed over greed and chronic internal weakness precipitated external retreat.

Pyongyang’s repeated references to the ROK government’s alleged plans to use Kaesong as a “theatre of confrontation” and “a fuse for provoking a war of aggression against the DPRK” are noteworthy.[1] Three threats in particular appeared to be of the greatest concern to the North Korean regime. The first was the possible threat that the KIC’s closure might spark civil unrest in the wider Kaesong municipality, which could spiral out of control because of almost certain foreign backing and provoke a nationwide civil war like in Syria. The second was the threat that the United States and South Korea might use a crisis over ROK “hostages” in Kaesong as an excuse for a special rescue operation amidst the ongoing Combined Forces Command (CFC) military exercises that could roll over into an all-out invasion of the DPRK overnight. The third was the threat that the ROK government intended to use the KIC as a venue for putting pressure on and strengthening the international sanctions regime against the DPRK.[2]

It should not be a surprise that the North Korean authorities have always had misgivings about the KIC—the “large hole in the mosquito net” it created and the potential for “ideological and cultural poisoning” of the residents of Kaesong city and North Hwanghae province. Consequently, they always had a plan to fold it up quickly at a moment’s notice. From the Kim regime’s perspective, the long-term viability of Kaesong was always in question, with various political, military and economic forces as well as bureaucratic interests constantly battling for the right to determine its future and chip away at the Kaesong economic pie.

Kim Jong Il reportedly often told the party cadres not to expect anything from the KIC because its main mission was conceived as being a propaganda tool symbolizing inter-Korean relations in the June 15, 2000, summit, not as a real economic enterprise.[3] The Korean People’s Army (KPA) never liked the idea of turning its strategic bridgehead in Kaesong into an extension of the demilitarized zone. The Korean Workers’ Party (KWP) Central Committee Administrative Department supervising internal police and the state security apparatus and the Propaganda and Agitation Department responsible for the nation’s “ideological health” always sought to hamstring the KWP’s United Front Department’s vision for inter-Korean cooperation and restrict the KIC’s operations from expanding. When push came to shove, even the KWP’s Finance and Accounting Department and “Office 39” responsible for filling up the party treasury with foreign exchange, let alone the Cabinet responsible for the country’s economic well-being, could not do much to save the zone despite the expected contribution of almost 90 million USD from the wages of KIC laborers.

The North Korean regime always had a choice of either unilaterally closing Kaesong or collaborating with the South to keep it alive. For some reason, last March, Kim Jong Un decided that it was no longer a matter of choice but a necessity to indefinitely suspend KIC operations and expel all South Korean personnel. On one hand, from a game theory standpoint, this suboptimal and disappointing decision may have been the inevitable outcome of the tit-for-tat strategy pursued by Pyongyang and Seoul in the iterated prisoner’s dilemma they faced in Kaesong. The DPRK’s General Bureau for Central Guidance to the Development of the Special Zone, which is in charge of KIC operations from the North Korean side, clearly indicated in its March 30 statement that the North “will closely follow the movement of the puppet group and the reactionary media” and “will retaliate with resolute measures” to any confrontational moves by the South, all the way up to “shutting down the zone without mercy.”[4]

On the other hand, from the perspective of regime survival, it was the rational decision for Kim Jong Un to shut down the KIC now before it had done any serious damage to the Juche ideology and Suryong (Leader)-centered system of governance. Had it been allowed to continue operations, the KIC had the potential, in the long term, to shake the Juche system to its foundation by winning the hearts and minds of the North Korean people working in and near Kaesong. More importantly, “there was no guarantee that people would not stage a protest if Kaesong were to be closed,”[5] according to a former North Korean official who defected to the South. And if they did, there was the possibility that US-led foreign forces might intervene to back it up. Hence, to alleviate the threat of foreign intervention prompted by possible popular unrest in Kaesong, the regime decided to shut down the KIC now. This was despite the fact that the closure resulted in the overnight loss of livelihood for the families of some 53,000 North Korean workers and caused disruptions in the electricity and water supply and daily routines of 250,000 to 300,000 residents of the wider Kaesong municipality, its official economy and open air markets accustomed to the robust trading of ROK-made foodstuffs, daily necessities and household goods originated in the complex. Evidently, from the regime’s perspective, it must have been a price worth paying now to prevent a potentially much costlier civil war backed by foreign intervention in the future.

Second, according to Kim Yang Gon, North Korea’s equivalent of the ROK’s unification minister, “South Korean Defense Minister Kim Kwan Jin revealed his sinister intention to introduce a special unit of the U.S. forces into the zone, vociferating about an operation for ‘rescuing hostages.’” Kim characterized this threat as “a pretext for igniting a war against the DPRK after reducing the Kaesong Industrial Zone to a theatre of confrontation.”[6] How seriously the North Korean leadership perceived this threat is also demonstrated by the statement of the spokesman of the policy department of the DPRK’s National Defense Commission, who said on April 26 that:

…as the KIZ turned into a de facto scene of ‘hostage taking’ to be abused by the U.S. and South Korean military gangsters for provoking an all-out war any time, the DPRK was compelled to take steps for banning personnel from entering the zone and temporarily suspending operations in the zone in order to ensure the safety of personnel from the south.[7]

By allowing a prompt and uneventful evacuation of all ROK personnel from Kaesong, the North Korean regime believed it reduced the possible threat of humanitarian intervention aimed at rescuing “hostages.”

Third, in February, the spokesman for the DPRK’s National Economic Cooperation Committee, the Cabinet agency responsible for overseeing government-level economic cooperation and North-South exchanges, warned that if the ROK authorities were to intensify their inspections of all the goods and products shipped in and out of Kaesong and confiscate suspicious shipments as a way of effectively implementing the UN sanctions resolutions, Pyongyang would consider it as “a vicious sanction against us and take such resolute counter-actions as withdrawing all privileges for the KIZ and restoring the area as a military zone.”[8] By preemptively closing the Kaesong operation, Pyongyang not only removed the probable threat that the international community could use the zone as a tool in its sanctions policy, but also effectively deprived the South of its decade-old economic leverage against the North.

Now that the traditional anti-Kaesong forces within the North Korean leadership have prevailed, they have been quick to portray the closure as an expression of Kim Jong Un’s filial desire to faithfully implement his father’s alleged dying wish to see it shut down,[9] thereby hoping to increase their legitimacy in the eyes of the affected North Korean population and those elements of the national, provincial and local elites who might question its wisdom.

Greater Security and More Bargaining Leverage

The closure of KIC will have considerable implications for North Korea’s military security, internal security, domestic politics and foreign policy.

Military Security: The KPA stands to benefit tactically but may have to pay a political price for the shutdown. On one hand, the North Korean leadership always believed that “the DPRK provided an area of military strategic importance to the south side in Kaesong. This meant a big concession.”[10] If Kaesong land is returned to the operational use of the KPA’s Sixth Infantry Division under the Second Army Corps, that original concession will be retrieved and the KPA’s offensive advantage will be restored to its pre-June 2005 level, thereby raising the military threat level to South Korea and strengthening strategic deterrence. As the spokesman for the Committee for the Peaceful Reunification of Korea (CPRK) reminded the South Korean authorities on April 4, 2013, “the Zone is less than 40 km from Seoul.”[11] On the other hand, some ROK analysts speculate that the internal political backlash generated by the zone’s closure may have cost their jobs to the former defense minister Kim Kyok Sik and first vice-minister of defense Hyon Chol Hae, who were reportedly among the most ardent military opponents of the zone.[12] But, as subsequent developments demonstrated, Kim Kyok Sik was instead promoted to Chief of the KPA General Staff, while Hyon Chol Hae honorably retired, confirming the alternative hypothesis that the KPA (which orchestrated the current Kaesong crisis) actually ended up as its primary political beneficiary as well.[13]

Internal Security: Kim has finally succeeded in “killing the South Korean Trojan horse,” long demanded by the North’s national security establishment. This should help alleviate the regime’s internal security concerns and generate some propaganda benefits for fortifying the siege mentality and buttressing the heightened war rhetoric. But at the same time, by a single stroke of his pen, he created 53,000 “vectors of truth” that are now spread around the country and can share their positive experiences and stories about South Korea with their new co-workers, undermining the regime’s anti-South propaganda.

Domestic Politics: By shutting down Kaesong, Kim Jong Un eliminated the final tangible pillar of Kim Jong Il’s policy towards the South, thereby completely abandoning the legacy of the June 15 era, which exposed him to domestic criticism for the lack of filial piety and undermined his domestic legitimacy in the eyes of many remaining true believers. That said, Kim Jong Un has now cleared the debris from the bygone era and is positioned to start formulating his own trademark policy towards South Korea, which will be associated with his name only and become part of his own historical legacy.

Foreign Policy: The closure of Kaesong severed the last tangible link between the North and the South. In some sense, inter-Korean relations have now reverted back to the immediate pre-Korean War era of 1949-50 when the border was tightly sealed off, there was neither peace nor war (much less an armistice in place), and both sides probed each other’s defenses and intentions through deliberate provocations and cross-border incursions in preparation for the sacred war for national reunification.

In addition to payback for the loss of face and revenues, the North suffered when the South unilaterally shut down the Mt. Kumgang tourism project, the Kim regime is going to use the Kaesong crisis to “train” the Park Geun-hye administration to be more receptive to its needs while upping the ante in strategic bargaining with the South. It has inflicted financial pain on businesses operating across the DMZ and imposed a political price on the Park administration, exposing it to accusations that it is even worse than its hardline predecessor who kept Kaesong alive despite his anti-North punitive measures. At the same time, by suspending the Kaesong operations indefinitely, Pyongyang increased its leverage to demand the revocation of “May 24 measures” imposed by the Lee Myung-bak administration in retaliation for the North’s sinking of the Cheonan corvette, resumption of Mt. Kumgang tourism, and removal of any conditionality from humanitarian aid in a possible package deal as a total price for re-opening Kaesong.

The future of the KIC may also become an issue in US-DPRK relations if Washington, with Seoul’s blessing, decides to regard the resumption of Kaesong operations as a yardstick to measure progress in the inter-Korean relations. The improvement of the North-South relations has long been one of Washington’s preconditions for the improvement in the US-DPRK relations.[14][15]

Monitoring Change over Time

Judging by the totality of North Korean actions with respect to the Mt. Kumgang joint tourism project, one of the following four scenarios may unfold in the near-to-mid-term future—listed from most likely (1) to the least likely (4). In the table below, I paired them with a number of forward-looking indicators which should tell us which one of the scenarios is unfolding.



Scenario I:
North Korea will maintain the KIC freeze indefinitely.

Pyongyang stubbornly maintains its demand of “no future hostile actions and joint US-ROK military exercises” as a basic pre-condition for reopening KIC.
North Korea maintains its hardline policy towards the Park Geun-hye administration and rejects all dialogue offers from the South under various pretexts.

Scenario II:
North Korea will de facto nationalize and resume the use of KIC by its own efforts or in collaboration with other foreign investors.

Most Kaesong laborers stay in the Kaesong area.
DPRK begins construction of a local power station in the vicinity of Kaesong.
DPRK begins to organize “KIC road shows,” advertising Kaesong business opportunities among foreign investors, especially in China and Southeast Asia, and, possibly converting it to a special economic zone for the use of Chinese and Southeast Asian investors.

Scenario III:
North Korea will dismantle the plant and equipment in KIC and move it all to the hinterland, and return the land to the military use by the KPA’s 6th Infantry Division.

53,000 Kaesong workers move out to the regions outside North Hwanghae province or get conscripted into local KPA units.
6 Infantry Division subunits reposition southward and take control over KIC.

Scenario IV:
North Korea will renegotiate the terms of operation and re-open KIC.

The North responds positively to the South’s dialogue proposals.
Pyongyang agrees to South-proposed inter-Korean working-level talks.
Pyongyang shows interest in Cabinet-level inter-Korean talks.
Pyongyang adopts a constructive attitude at the talks.
Pyongyang drops its demand of “no future hostile actions and joint US-ROK military exercises” as a basic pre-condition for re-opening KIC.

[1] “CPRK Spokesman Slams South Korean Group for Vociferating about Kaesong Industrial Zone,” KCNA, April 4, 2013.

[2] “S. Korea Will Have to Pay Dearly for ‘Sanctions’ against KIZ,” KCNA, February 7, 2013.

[3] Choi Song Min, “Kim Issued ‘Close Kaesong’ Order,” Daily NK, April 29, 2013, http://www.dailynk.com/english/read.php?cataId=nk01500&num=10532.

[4] “DPRK Warns Future of Kaesong Industrial Zone Depends on SK’s Attitude,” KCNA, March 30, 2013.

[5] “Pyongyang Threatens to Shut Joint-Korean Industrial Park,” Chosun Ilbo, April 1, 2013, http://english.chosun.com/site/data/html_dir/2013/04/01/2013040101054.html.

[6] “Important Steps Declared as Regards Kaesong Industrial Zone,” KCNA, April 8, 2013.

[7] “NDC Policy Department Threatens to Take Final Decisive Step,” KCNA, April 26, 2013.

[8] “S. Korea Will Have to Pay Dearly for ‘Sanctions’ against KIZ,” KCNA, February 7, 2013.

[9] Choi Song Min, “Kim Issued ‘Close Kaesong’ Order,” Daily NK, April 29, 2013, http://www.dailynk.com/english/read.php?cataId=nk01500&num=10532.

[10] “Important Steps Declared as Regards Kaesong Industrial Zone,” KCNA, April 8, 2013.

[11] “CPRK Spokesman Slams South Korean Group for Vociferating about Kaesong Industrial Zone,” KCNA, April 4, 2013.

[12] “김격식 낙마 개성공단 폐쇄 문책 인사,” Radio Free Asia, May 13, 2013, http://www.rfa.org/korean/in_focus/nk_nuclear_talks/kaesong-05132013170116.html.

[13] “김정은동지의 특사 중화인민공 화국방문은 위하여 출발,”KCNA, May 22, 2013.

[14] “Kaesong emerging as key variable in N. Korea-U.S. relations,” Yonhap, May 7, 2013, http://english.yonhapnews.co.kr/northkorea/2013/05/07/0401000000AEN20130507004100315.HTML.

[15] Alternatively, while some ROK analysts speculate that the North may use Kaesong to engage the US in dialogue with Washington’s drawing the line on making compromises, there may be little the North can do to utilize the inter-Korean complex as a bargaining tool. See Lee Joon-seung, “S. Korea-U.S. summit meeting unlikely to draw out N. Korea: analysts,” Yonhap, May 8, 2013, http://english.yonhapnews.co.kr/national/2013/05/08/67/0301000000AEN20130508005900315F.HTML.

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