North Korean trade companies are selling South Korean-owned production equipment in the Kaesong Industrial Complex during its prolonged closure as a means to generate foreign cash, sources familiar with the transactions told RFA’s Korean Service.
Pyongyang could lose face if the equipment is found missing when South Korean businesses revisit the complex to check in on their investment, a proposal recently approved by the government in Seoul in an effort to keep inter-Korean reconciliation on track amid tensions over the North’s nuclear program.
The complex, an inter-Korean special economic zone that when open, matches South Korean companies with cheaper North Korean labor, was shut down by the South in the wake of a nuclear test in early 2016.
In the recent era of engagement between the two Koreas under the South’s President Moon Jae-in, both parties have talked of reopening the complex. After rejecting four previous pleas by South Korean businessmen, Seoul last week gave its approval for them to visit the area in what the South’s Ministry of Unification said was an effort to “protect our citizens’ property rights.”
“It’s nice to see South Korean businessmen coming to Kaesong again, but I’m really worried about it because the North Korean trade companies have moved their equipment to other areas, without consultation, so they could continue to make clothes,” said a North Korean trade worker in China on Tuesday in an interview with RFA’s Korean Service.
“The companies that use equipment that should still be in Kaesong are located in several other places, including in Tongrim county in North Pyongan province,” said the trade worker.
The trade worker said that North Korean companies are still able to use the equipment to make goods for export through China and earn foreign cash.
“If South Korea decides to come to Kaesong to inspect their facilities, the [North Korean] companies are going to have to return their equipment to the complex. I don’t know what the companies’ headquarters in Pyongyang are going to do if they have their businesses suspended,” the trade worker said.
The trade worker said that the equipment was moved under the direction of the Central Committee of the Korean Workers’ Party, because the party didn’t want an interruption in the income that the complex was generating.
Companies are able to hide the origin of the products they make by funneling them first through China, the worker said.
“[The products] are being smuggled to China on ships and then they are exported to Japan and Europe,” said the trade worker.
A different source, from North Pyongan province, said that economic sanctions put in place by the U.S. have put pressure on the regime to keep things going somehow.
The sanctions are designed to deprive Pyongyang of resources or capital that could be used in its nuclear program.
“As the U.S. sanctions continue, North Korean companies are seeing a decreased volume of export. This is increasing the deficit in foreign currency, so there’s strong economic pressure on the whole country. North Korea’s economic difficulties have been severely aggravated since the Kaesong Industrial Complex stopped running a few years ago,” said the source.
The source said that Pyongyang has less room to negotiate the reopening of the complex because it already showed its hand by offering to reopen it “without preconditions” in the Central Committee’s New Year’s message.
“This is like admitting that the foreign currency that they earned from the complex was very important to [them],” said the source.
The source said that by smuggling clothes and selling electronics to firms in China at half price, the North Korean side is in for a rude awakening once South Korea realizes the extent of what happened.
“If South Korean companies enter the complex soon, it will be revealed that the equipment is missing and it will be a huge disgrace. For this reason, I don’t think the authorities can allow South Koreans to visit Kaesong just yet,” the source said.
In October 2017, RFA reported that North Korea was secretly running 19 factories to produce domestic clothing and orders from China.
After the report, North Korea’s state-controlled media outlet Uriminzokkiri said, “No one should care what we do in the Kaesong Industrial Complex.”
“The factories in the industrial Complex will run harder,” they added, indirectly admitting that factories in the complex are running illegally.
In August 2018, RFA reported that North Korea was smuggling electric rice cookers left behind by South Korean companies to China.
Following the release of the Korean-language version of this report, South Korea’s Unification Ministry Thursday reaffirmed its position that the Kaesong Industrial Complex facility belongs to South Korean citizens.
A ministry official said the ministry would not accept North Korea’s infringement of property rights, and that the purpose of allowing South Korean businessmen to visit Kaesong was to “confirm and protect the property rights of South Korean citizens.”
When asked by South Korean media about RFA’s report, the official could not confirm its exact details, saying, “South Korean personnel are at the South-North joint liaison office 24 hours a day, 365 days [a year], but we have not been able to grasp the movement [of equipment] as has been stated in [RFA’s] report.”
The joint liaison office was established in September 2018, less than a year ago. But in saying 365 days, the official was echoing language used by South Korean Unification Minister Cho Myoung-gyon during the office’s opening ceremony, that it would allow for “direct discussion of issues 24 hours, 365 days.”
The official noted that when the complex was shut down in 2016, North Korea said they would confiscate assets, but the ministry maintained its stance that North Korea has no right to South Korean-owned property in the complex.
“The South Korean government’s position is that it can never accept any violations of the property rights of South Korean citizens. [North Korea’s] argument is inconsistent with the agreement between the two Koreas,” he said.
Reported by Hyemin Son and Yong Jae Mok for RFA’s Korean Service. Translated by Leejin Jun. Written in English by Eugene Whong.