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Kaesong Complex Closure Seen Squeezing Cash-strapped N. Korea

Visitors walk around near the products that were made at Kaesong Industrial Complex in North Korea at its showroom at the unification observatory in Paju, South Korea, Feb. 10, 2016.

South Korea’s decision to shut down an inter-Korean industrial complex is likely to impose a financial burden on North Korea, experts in Seoul said.

In what appeared to be the toughest sanctions South Korea has taken against North Korea over the communist country’s nuclear posture, Seoul said Wednesday that it was suspending all operations at the complex located in the North Korean border city of Kaesong.

Following its fourth nuclear test January 6, Pyongyang launched a long-range missile last weekend, drawing strong protests from Seoul.

The industrial park established in 2004 is jointly run by the two Koreas. It is home to 124 South Korean companies that employ 54,000 North Koreans to produce textiles, machinery and chemical products. Pyongyang earns around $100 million a year, mostly from the workers’ wages, through the project. Compared with Pyongyang’s total international trade volume, which is estimated to be between $7 billion and $8 billion a year, the number appears to be insignificant. But many experts say the implications of the shutdown could be significant.

Facing financial burden

Kim Kwang-jin, a researcher at the Institute for National Security Strategy, South Korea’s state-run research institute, said the Kaesong project is an important hard-currency source for Pyongyang.

“The shutdown will impact the country’s economy. The Kaesong complex earnings roughly equal the amount five foreign-currency-earning entities would bring in every year,” said Kim, a North Korean defector who worked as an executive of a state-run insurance company while in North Korea.

Some said the closure would take a heavy toll on about 200,000 North Korean workers and their families, noting the project is their financial lifeline.

FILE - North Korean workers assemble Western-style suits at the South Korean-run ShinWon Corp. garment factory inside the Kaesong Industrial Complex in Kaesong, North Korea.
FILE - North Korean workers assemble Western-style suits at the South Korean-run ShinWon Corp. garment factory inside the Kaesong Industrial Complex in Kaesong, North Korea.

The shutdown also is likely to hurt Pyongyang’s effort to attract foreign investment. The country has established more than 20 economic development zones since 2013, but it has been struggling to find investors. Seoul was trying to pave the way to some new opportunities by seeking foreign investors for the inter-Korean venture.

Turn to China

Critics argued the impact would be limited, saying Pyongyang could find another currency source by sending workers overseas.

“The Kaesong workers would get higher wages in China. The shutdown would not do much damage to the North Korean economy,” said Cheong Seong-chang, director of unification strategy at the Seoul-based Sejong Institute.

While 800 South Korean managerial staff worked at the complex on a regular basis before the North Korean nuclear test last month, recently Seoul limited its citizens’ stay there. As of Wednesday, about 180 South Koreans were staying at the industrial park, according to South Korea’s Unification Ministry. Seoul said it would begin to pull the remaining citizens out of the park Thursday.

Symbol of cooperation

The joint venture, the only remaining substantive economic engagement and symbol of cooperation between the two Koreas, has been relatively unaffected by tensions and hostilities between the two sides.

Seoul excluded the economic project from across-the-board sanctions it imposed on Pyongyang in retaliation for the 2010 fatal sinking of its navy ship in which 46 sailors died. In 2013, Pyongyang shut down the complex over joint military drills between Washington and Seoul, but reopened it several months later.

The South Korean government and companies invested more than $850 million in the zone’s infrastructure. Last year, the output of the companies at the complex exceeded $500 million for the first time since its opening, according to the Unification Ministry.

Jee Abbey Lee contributed to this report.