"Inter-Korean Economic Cooperation Faces Crisis of Regressing to 20 Years Ago, Stakeholders Growing Anxious"

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[Asia Economy Reporters Yu Je-hoon and Moon Hye-won] Inter-Korean economic cooperation (economic cooperation) is on the verge of reverting to 20 years ago. Following North Korea's demolition of the Inter-Korean Joint Liaison Office, on the 17th, North Korea announced the forward deployment of military forces to the Kaesong Industrial Complex and the Mount Kumgang tourism zone, symbols of inter-Korean economic cooperation. As inter-Korean relations spiral to such extremes, Hyundai Group, which has led inter-Korean projects since 1998, and companies operating in the Kaesong Industrial Complex are unable to hide their bewilderment.

Hyundai Group and Hyundai Asan, which hold a 50-year exclusive business right (land use right) over 66㎢ (approximately 20 million pyeong) of the Mount Kumgang tourism zone and the Kaesong Industrial Complex area, held a morning meeting on the same day to share the urgent situation unfolding since the previous day and to establish countermeasures.

Hyundai Group and Hyundai Asan have invested about 1.4 trillion KRW over the past 20 years in the Kaesong and Mount Kumgang areas, including business rights and tangible asset construction costs. However, the Mount Kumgang tourism business has been stalled since the 2008 killing of Park Wang-ja, and the Kaesong Industrial Complex has been virtually suspended for nearly 5 to 10 years since the South Korean government's suspension of operations in 2016. During this period, Hyundai Asan's revenue losses alone reached 1.6 trillion KRW. A Hyundai Asan official said, "Since Kim Yo-jong, the 1st Deputy Director of the Workers' Party of Korea, declared that inter-Korean relations would shift to an adversarial relationship, some degree of this was expected," but added, "Although we knew from experience that North Korea would 'act as warned,' we did not expect such a swift and decisive actual move, so it is indeed bewildering."

Companies hoping for the reopening of the Kaesong Industrial Complex also could not hide their gloom. There are about 120 companies operating in the Kaesong Industrial Complex. In February 2016, following North Korea's nuclear test, the Park Geun-hye administration decided to completely suspend operations at the Kaesong Industrial Complex, forcing these companies to flee southward, leaving behind machinery, equipment, and products. According to the association, the assets left behind at the time of withdrawal were reported to the government to be about 900 billion KRW. This amount only considers fixed assets such as machinery and equipment and current assets such as finished products, and when including investment losses, it is estimated to exceed 1 trillion KRW.

These companies have also filed civil lawsuits against the government to recover investment losses, but not even the first trial has proceeded. Since liabilities have not been confirmed, it is difficult to proceed with closure procedures until the government officially declares the Kaesong Industrial Complex project completely terminated. Jeong Ki-seop, chairman of the Kaesong Industrial Complex Companies Association, said, "It now seems very difficult to reopen the Kaesong Industrial Complex," adding, "North Korea did not oppose the reopening of the complex, so the solution should have been found through relations with the United States."

Experts diagnose that this situation cannot be simply seen as a 'deadlock' phase. Although North Korea has not yet mentioned dismantling the facilities of the Kaesong Industrial Complex pilot zone, which covers 3.3 million ㎡ (about 1 million pyeong), it is interpreted as effectively taking steps toward reconsideration. Hong Min, head of the North Korea Research Division at the Korea Institute for National Unification, said, "North Korea's plan to deploy military units to Kaesong and Mount Kumgang means restoring areas previously under military control. Although they have not mentioned dismantling facilities, it is tantamount to officially declaring the negation of the existing framework of inter-Korean economic cooperation projects," adding, "This is not just a simple crisis but a phase where inter-Korean relations overall are regressing to the level of about 20 years ago."

Signs that inter-Korean economic cooperation could return to square one have been continuously detected. In October last year, North Korean Supreme Leader Kim Jong-un disparaged South Korean tangible assets located in Mount Kumgang as "shabby" and ordered their complete dismantlement. In particular, Kim indirectly denied the legacy of his predecessor, Kim Jong-il, the former National Defense Commission Chairman, by stating that "the dependence policy of predecessors who tried to rely on others when national power was weak was very wrong" in relation to Mount Kumgang economic cooperation. Given that the exclusive business rights were granted by Kim Jong-il, concerns among the various economic cooperation stakeholders are growing.

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