A South Korean company operating at an inter-Korean industrial complex in the North Korean border city of Kaesong is going out of business. This will be the first time a South Korean firm at the joint industrial complex has had to close its business because of financial pressure.
South Korea’s Ministry of Unification announced Thursday that the South Korean company had submitted its intent to disband to the Kaesong Industrial District Management Committee, which manages the complex.
The company has manufactured packaging for wristwatches and mobile phone cases at the collaborative complex since 2005, employing around 100 North Korean employees.
But a Unification Ministry official said the company has been suffering from a sharp drop in orders since 2012, which led to a decrease in annual sales volume of US $300,000.
The packaging manufacturer’s exit from the inter-Korean industrial park follows that of a clothing manufacturer in June 2009. Unlike the packaging company, however, the clothing manufacturer did not go out of business because the clothing company owned another factory in the South.
The Unification Ministry official explained the North Korean employees will receive their monthly pay for the next three months as well as severance packages based on the number of years they have worked for the company.
Due to the lackluster business, the packaging company was unable to pay back the South Korean government’s insurance money given out last year.
The South Korean government provided insurance to 59 of the 125 firms operating out of the Kaesong complex in 2013, when it was temporarily shut down due to worsening inter-Korean relations. The companies were required to return the money after the park resumed operations.
According to the Unification Ministry, 18 companies were not able to pay back the money, amounting to some (US) $43 million in loss for the South Korean government.
South Korean firms say many companies operating out of the complex are in financial distress, due to a plunge in orders following the temporary shut down and Pyongyang’s request for higher pay for its workers.
The Kaesong Industrial Complex is located just north of the demilitarized zone that divides the peninsula. The joint project is viewed as a symbol of cooperation between North and South Korea.
In April 2013, North Korean authorities pulled all 53,000 North Korean workers from the park, which shut down all activities there. The industrial park resumed operations in August, 2013.
Jee Abbey Lee contributed to this report