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Workers at the Kaesong Industrial Complex in Kaesong

“A total of 616 billion won (US$512.37 million) in cash entered North Korea through the Kaesong Industrial Complex, and the South Korean government and the private sector invested 1.02 trillion won (US$847.57 billion) in the complex altogether. In the end, it appears this was used to upgrade North Korea’s nuclear weapons and long-range missiles.”

This is a passage from the South Korean government’s statement explaining the complete suspension of operations at the Kaesong Industrial Complex, which was announced by Minister of Unification Hong Yong-pyo on Feb. 10. The statement is an absurd exaggeration and distortion of the facts, and the government has failed to back it up with any concrete evidence.

When a high-ranking official at the Ministry of Unification was asked during a press conference after the announcement whether there is any evidence that North Korea used the money to develop weapons of mass destruction, the official responded that there were concerns and speculation, but that they had not confirmed how much of the money was used for this purpose.

During the regular press briefing on Feb. 11, a senior official with the Ministry of Unification only mentioned the “lack of transparency” resulting from the fact that wages were not paid directly to North Korean workers and from the different exchange rates used for paying the workers in kind (referring to the vouchers for goods that the workers are provided), without offering any clear evidence.

Throughout the administrations of South Korean presidents Roh Moo-hyun, Lee Myung-bak and Park Geun-hye, the South Korean government has held the official position that the Kaesong Complex is a legitimate business resulting from inter-Korean cooperation. This is why the complex was not affected by sanctions even when the UN Security Council adopted resolutions placing sanctions on North Korea after its first three nuclear tests and its long-range rocket launches. But the government’s latest statement overturns this position.

There is a fundamental reason why North Korea could not have used the 1.02 trillion won from the government and private sector that the statement mentions for the development of weapons of mass destruction. In fact, the majority of this money was used for the construction and operation of the complex’s basic infrastructure, its factories, its machinery, and its accommodations and amenities.

The point under debate is the workers’ wages. These are paid each month in cash (US dollars) to the North Korean authorities, while the North Korean workers are for the most part paid in kind. This is related to the government’s claim that 132 billion won (US$109 million) in cash entered North Korea last year and a total of 616 billion won (US$511 million) entered the North since the complex had its trial opening in Dec. 2004.

Currently, wages for North Korean workers at the complex are only US$150 each month, including a fee for “social insurance” (amounting to 15% of wages). The North Korean authorities siphon off 30% of the wages as a “social and cultural program fee” and pay the individual workers the other 70% in cash and in kind.

While the total amount of the “social and cultural program fee” used to go to the Kaesong City People’s Committee, it is now reportedly being used for public services for the workers, including free education and free uniforms and for the construction of infrastructure.

The social insurance fee, a concept that is analogous to South Korea’s industrial accident insurance and national pension programs, is used to pay pensions to workers who have retired from the complex and to support workers who have had accidents.

The social insurance fee is collected from tenant companies at the complex by North Korea’s Central Special Zone Development Guidance General Bureau in the form of tax withholding.

Most of the remaining 70% is paid to the workers in the form of vouchers for goods, while some of it is paid in cash. Workers at the complex can use the vouchers at an exclusive department store and distribution station in the city of Kaesong to purchase basic necessities such as rice, flour, and televisions at a special price.

These goods - which are only provided to the workers at the complex - are acquired in China and Southeast Asia by foreign traders commissioned by the North Korean authorities.

Workers reportedly use the cash they are paid to get haircuts and use public bathhouses.

Residents of Kaesong are so eager to work at the complex that in 2006 the North Korean authorities made a rule that only one member per family could get a job there.

On Nov. 7, 2006, Goh Gyeong-bin, head of the Ministry of Unification department in charge of supporting the Kaesong Complex, officially announced that more than 70% of the wages paid by South Korean tenant companies were going straight to the North Korean laborers.

“It is undeniable that the nutrition and health of workers at the Kaesong Complex tend to be distinctively better than other citizens of Kaesong,” said Yang Mun-su, a professor at the University of North Korean Studies. “How are we to explain this if North Korea appropriated all of the wages to develop its weapons of mass destruction as the government claims?”

By Lee Je-hun, staff reporter

Please direct questions or comments to [english@hani.co.kr]