SEOUL—Authorities in North Korea have warned South Korean companies in its Kaesong industrial area they must pay workers’ wages or face fines, as many investors begin to feel the effects of the economic downturn.
Lee Lim-dong, secretary general of the Committee of the Association of Enterprises Invested in the Kaesong Industrial Complex, said the issue of unpaid salaries was brought up late last year but had now become a formal demand.
“This time around, official notification was issued to all South Korean enterprises invested in Kaesong, through the Kaesong Industrial District Management Committee (KIDMC),” Lee said.
Kaesong, which lies in North Korea just across the border between the two countries, employs nearly 36,000 North Koreans in mostly South Korean factories that manufacture consumer products such as textiles, watches, footwear, and other light industrial goods for export.
The complex opened in 2004 amid thawing relations between the North and South.
South Korean businesses invested in Kaesong have already incurred serious losses due to the depreciation of the South Korean won against the U.S. dollar, according to Kim Kyu Chol, head of the Forum for Inter-Korean Relations, a Seoul-based group monitoring inter-Korean business relations.
“They already have to spend 30-45 percent more on labor [because of this],” he said, adding that the lives of South Korean entrepreneurs in the Kaesong economic zone would now be even more difficult.
“The recent announcement of fines and possible suspension of operation by the North Korean authorities will further aggravate tensions,” he said.
Kaesong investors said the North Korean government had sent them a directive titled “Regarding Labor Relations in the Kaesong Industrial Zone.”
According to Park Yong-man, director of Green Textile Co.—a South Korean company invested in Kaesong—“The official notification was sent to all South Korean companies in Kaesong on Feb. 10.”
Meanwhile, Kim said, one South Korean electroplating company had already failed to pay its North Korean workers for more than three months and had been suspended.
Seven South Korean companies in Kaesong are currently unable to pay their North Korean workers on time and will soon be in bigger trouble because of the new measures, Kim said.
South Korean companies operating in Kaesong are not allowed to recruit or dismiss North Korean staff directly, and North Korean authorities impose quotas of staffing numbers on them.
In early February, North Korean officials said that salaries of North Korean supervisors watching over the night shift at South Korean enterprises in Kaesong would have to increase by 200-300 percent, putting further pressure on labor costs.
And companies can be suspended from operations for failing to pay their employees for more than a month.
Kim said South Korean companies in Kaesong don’t need more supervisors or clerical workers, which the North Korean side has sought.
“They are already facing a managerial crisis, and a [demanded] 50 percent increase in the number of North Korean managerial staff is pushing it too hard,” he said, adding that South Korean enterprises would find this hard to accept.
Until recently, the Kaesong Industrial District Management Committee (KIDMC), a joint North-South panel overseeing the complex, was responsible for half of the U.S. $10 a month transportation allowance given to North Korean workers in Kaesong.
North Korea demanded as of Jan. 1 that South Korea Kaesong companies must now pay the entire cost.
Original reporting in Korean by J.W. Noh. Korean service director: Francis Huh. Translated by Grigore Scarlatoiu. Written for the Web in English by Luisetta Mudie. Edited by Sarah Jackson-Han.