Gaeseong Industrial Complex

Gaeseong Industrial Complex (GIC, 개성공업지구/開城工業地區, 개성공단/開城工團), an industrial park, has been built by Hyundai Asan and Korea Land Corp. (currently LH Corporation). Gaeseong is located in North Korea just across the Demilitarized Zone (DMZ) from South Korea.

At the end of September 2012, 123 small and medium-sized South Korean companies are using North Korean labor exceeding 53 thousand workers to manufacture from apparel, kitchenware to wrist watches. As a result, GIC has become a symbol of the the growing level of engagement between the North and the South.

With respect to the statutes and regulation applicable to GIC, see Gaeseong statutes.

Key words
Gaeseong, industrial complex, special economic zone (SEZ),

History and Current Status of GIC
GIC was planned, developed and financed largely by the Hyundai Group in South Korea. The GIC project was initiated by Chung Ju-yung, Chairperson of Hyundai, who was born at Tongcheon, North Gangwon Province. It coincided with South Korea's "sunshine policy" that attempted to improve relationships between two Koreas.

Initially, the GIC project was implemented by three phases: The first phase encompassed 800 acres with as many as 300 South Korean firms operating in the complex. At the end of phase 2 and phase 3, the plan was expected to call for 2,000 acres with 800 S. Korean companies and 4,800 acres with 1500 companies, respectively.

In December 2004, GIC saw its first products, kitchenware, being produced by the North Korean workers and sold to the South Korean consumers. Influenced by the complex geopolitical issues including North Korea's nuclear program, the initial plan could not be carried out as projected. In spite of the ever increasing tension between the North Korea and the South Korea in the aftermath of the sinking of South Korean navy ship Cheonan (Mar. 26) and North Korean army's shelling of Yeonpyeong Island (Nov. 23) in 2010, GIC-located companies continued to operate as usual.

As a matter of fact, GIC depends heavily on the power supply, communication facilities and other infrastructure support provided by South Korea. It means that, but for the support from South Korea, GIC cannot exist for one day or so.

Difficulties in GIC
GIC-located businessmen say the difficulties of "3 Movement" (삼통/三通) - movement of persons, telecommunications and quarantine into and out of GIC. They are also suffering from North Korean-style labor management, i.e., only the North Korean labor agency can handle the workforce. They are complaining of excessive overhead charges including high cost utilities and administrative expenses, commuter transportation cost, etc. Also they have found insufficient protective measures provided by laws and regulations in GIC.

Restriction on the use of strategic goods pursuant to the U.S. Export Administration Regulation against hostile countries is another concern for GIC enterprises. Accordingly they have to consume lots of time and labor to check any potential violation of such rule in handling electronic goods and devices.

Supporting Body in the South
To provide human resources and financial support to the GIC project, a public-private institute has been established by the South Korean government. Its purpose is to provide the necessary supporting and protecting measures for the GIC residents including juridical persons of the South making investments in, entering and exiting or staying in GIC.

Local and Global Implications
The GIC project has been largely approved by the international community because GIC has been a symbol of peaceful cooperation between two Koreas and becomes an effective leverage to ease tension along the DMZ and a part of North Korea's economic reforms similar to China's SEZ. South Korea would like to the United States to consider products made in GIC as South Korean in origin for purposes of the Korea-U.S. Free Trade Agreement, which contains a provision on the "Outward Processing Zone" (OPZ). Occasionally GIC raises issues of security, human rights and working conditions in North Korea. Also the U.S. government approval is needed for South Korean firms to ship to the GIC certain U.S.-made equipment currently under U.S. export controls.

Most of all, the U.S. government is concerned about ever-growing foreign exchange flows for the nuclear testing hostile government in Pyongyang.

Suspension and Normalization in 2013
On April 3, 2013, mounting tensions between the North and the South in the aftermath of the North's nuclear test drove the Pyongyang regime to cut the military hotline used for the notification of GIC entries, and further to block South Korean workers and vehicles from entering GIC for an indefinite period.

After 133 days of suspension, on August 14, 2013, the two Koreas agreed to take steps to reopen GIC compromising on the key issue of how to prevent another closure in the future. Under a five-point accord signed at the close of the seventh round of talks at Panmunjeom, they promised to meet again in the near future to form a new joint committee to discuss compensation for businesses and ways to improve passage, communications and customs and how to protect South Koreans’ assets in the border city.

The two Koreas agreed to:
 * Prevent the Gaeseong industrial complex from being halted again and ensure its normal operation without regard to any political situation;
 * Ensure South Koreans’ safety, protect invested assets and resolve passage, communications and customs issues;
 * Ensure international-standard conditions for business and develop the park into a globally competitive industrial complex;
 * Establish and run a joint committee to implement the agreement; and
 * Design institutional frameworks for safe passage and stay, and investment protection, and make efforts for businesses to repair facilities and resume operations.

Globalization and Prospects
The North and the South alike have faced with so-called Gaeseong dilemma in GIC. The future of GIC is believed to depend on how the both parties could handle the very delicate and sensitive issues inside and out of Gaeseong. However, the August 14 Agreement between the North and the South is expected to pave the way to the risk-free efficient industrial park. The GIC operations could be guaranteed once third-country businesses come to GIC.

In August 2013, the two Koreas agreed to work together to develop GIC as a globally competitive industrial base. The two sides pledged to draw foreign companies and upgrade labor, taxes, wages, and insurance conditions to international levels. They also agreed to hold joint foreign investment tours and give tariff benefits to exports of finished goods to third countries in order to make the joint complex a globally attractive and competitive manufacturing base. The would-be foreign investors could take a financial interest in the manufacturing base that merges South Korea’s technology and North Korea’s cheap labor.

President Park Geun-hye believes that the globalization of GIC could solve many of its innate problems. An international (as opposed to inter-Korean) GIC would be good to both Koreas. First, Pyongyang would think twice about using the industrial park as political leverage against Seoul by unilaterally disrupting traffic or operations if there are other governments involved. North Korea could expect an improvement in its global image by opening up and drawing foreign investment. President Park argued that if North Korea proved itself credible in meeting global standards, GIC would be a window of opportunity for the isolated country.