Trouble is brewing once again at the Gaeseong industrial complex, a South-North joint venture in the North Korean border town of Gaeseong.
The issue at hand is the payment of wages for the more than 50,000 North Korean workers who are employed at 125 South Korean companies operating at the industrial complex. Pyongyang announced last month that it would raise the minimum wage to $74 a month from $70.35, a 5.18 percent increase, and revise the welfare payment system. Under the new system, the total pay would rise to $164. The new wage would apply starting with the March payments. The wages are paid between the 10th and 20th of each month.
In November, North Korea unilaterally revised a number of clauses of the South-North agreement concerning the Gaeseong industrial complex, including the elimination of the 5 percent cap on the minimum wage increase. Seoul rejected the demand, insisting that the two sides must agree to any changes in the agreement, and told businesses operating in Gaeseong not to comply. Companies that did not follow Seoul’s instruction would be penalized, the government said.
With the pay day coming up soon and concerned that their managers would come under pressure to comply with the wage hike, a number of businessmen met with North Korean officials Tuesday but returned empty handed, merely affirming their differences.
The anxiety of the businessmen is understandable, given the past record. In 2013, North Korea effectively shut down the Gaeseong industrial complex for five months by pulling out their workers as military tensions increased between the two countries. The prospect of a conflict leading to another work stoppage is nightmarish for the businessmen.
On the other hand, the government is correct in arguing that giving in to North Korea in this instance would be taken as a green light by North Korea to make unilateral changes to the agreements, which, in the long term, will be detrimental to the businesses operating in Gaeseong.
If Pyongyang wants to attract more foreign investments into its special economic zone, it should follow the global standard at Gaeseong, a showcase of South-North economic cooperation. Unilateral changes to agreements are clearly not the norm in international business. In the meantime, South Korean business operators and their counterparts should continue dialogue and avoid work stoppage, which would be detrimental to both the businesses and North Korea, which earns much-needed foreign currency through the joint venture.