Kaesong Industrial Region

Kaesŏng Industrial Region is a special administrative industrial region of North Korea. It was formed in 2002 from part of Kaesŏng Directly Governed City.

Kaesŏng Industrial Park
Kaesŏng Industrial Park is being operated in the region, as a collaborative economic development with South Korea. It is located ten kilometres (six miles) north of the Korean Demilitarized Zone with direct road and rail access to South Korea and an hour's drive from Seoul. Construction started in June 2003, and in August 2003 North and South Korea ratified four tax and accountancy agreements to support investment. Pilot phase construction was completed in June 2004, and the industrial park opened in December 2004.

Initial phase
In the park’s initial phase, 15 South Korean companies constructed manufacturing facilities. Three of the companies had started operations by March 2005. First phase plans envisaged participation by 250 South Korean companies from 2006, employing 100,000 people by 2007. The park was expected to be complete in 2012, covering 25 square miles (65 km2) employing 700,000 people. As of June 2010, 110 factories were employing approximately 42,000 DPRK workers and 800 ROK staff. Companies operating or under construction in the complex are seeking to hire an additional 26,000 North Korean workers. Construction of dormitories and other infrastructure for the additional workers is on hold as the Lee Myung-bak administration has prioritized movement on North Korean nuclear issues. Electrical power and telephone service is supplied from South Korea; 15MW of power is being supplied in 2005, with plans for a 100MW supply by 2007.

Organization
The Kaesŏng industrial park is run by a South Korean committee that has a fifty-year lease which began in 2004. Hyundai Asan, a division of South Korean conglomerate Hyundai has been hired by Pyongyang to develop the land. The firms are taking advantage of cheap labour available in the North to compete with China to create low-end goods such as shoes, clothes, and watches. Workers earn an average of $57 per month—half of Chinese labour costs and less than 5 percent the salaries of their South Korean counterparts.

Predictions
Park Suhk Sam, senior economist at the Bank of Korea, figures the industrial zone could create 725,000 jobs and generate $500 million in annual wage income for the North Korean economy by 2012. Five years later, another $1.78 billion would tumble in from annual corporate taxes levied on South Korean companies participating in the industrial project.

Obstacles
The industrial park is seen as a way for South Korean companies to employ cheap labour that is educated, skilled and speaks Korean which would make communication considerably easier. However the zone still faces a number of obstacles. Among the most pressing are U.S. economic sanctions against the North, prohibiting imports of key technologies and goods, such as computers. More than 1000 South Korean firms are rethinking planned shifts of production from China and Southeast Asia to Kaesong.

Wage and rent agreements
In May 2009 Pyongyang announced it had unilaterally scrapped wage and rent agreements at the estate. In June they also demanded new salaries of $300 a month for its 40,000 workers, compared with around $75 currently. Several months later, a visit to North Korea by the Hyundai Group chairwoman led to a resolution to the North's demands, with mild wage increases and no change in land rents.

ROKS Cheonan incident
In May 2010, due to the ROKS Cheonan sinking incident and South Korea's response, North Korea severed ties with South Korea and shut down the Consultative Office in the zone, however existing activities in the zone maintained production activities, and transport and telephones to South Korea are operating normally.

Transport
Kaesong Industrial Region is served by Panmun Station which is on the Pyongbu Line. There is rail access to South Korea via the Gyeongui Line but it is not known what restrictions apply. An agreement to re-establish rail freight services between North and South Korea was made in November 2007.