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Bilateral relations

Kaesong is 'at the heart' of Korean rapprochement

Kaesong is regarded as an indicator for the state of inter-Korean relations. Analyst André Richter says the reopening of the joint industrial zone gives reason for hope, but not much else.

DW: South Korean workers crossed into North Korea on Monday, September 16, as the joint Kaesong industrial zone (main picture) restarted operations five months after being shuttered. How important is this development for both sides?

Lars-André Richter: It is a positive development because the joint industrial zone is at the heart of rapprochement and the "sunshine" reconciliation policy was initiated in the year 2000. When you take this into account, the closure of the industrial park in April was disastrous. It is therefore a good sign that the zone has reopened. As far as the importance for both Koreas is concerned, the latest development definitely has a political and economic dimension for Pyongyang. For Seoul, the industrial complex ís primarily of political significance. The country doesn't depend on Kaesong economically.

You have spoken about the symbolic character of Kaesong. How real was the danger of the last inter-Korean prestige project being shuttered indefinitely?

As it is often the case, there were many different projections when it came to the future of Kaesong. Some argued North Korea had no other choice but to reopen the park. Others said Kaesong would remain closed in the medium-run, perhaps even permanently. Much information on what's happening in the outside world reached North Korea via Kaesong, especially about South Korea. In the end, economic considerations outweighed ideology.

What was the economic impact of the five-month suspension of operations at the joint industrial park?

The closure of the industrial park resulted in economic losses amounting to around one billion US dollars for South Korea. The government had to pay some 14 million dollars to 46 companies in order to compensate for the losses arising from the shutdown.

During the past few months, companies have also been hit by the loss of some of their clients. It will take time for the situation to normalize and the activity at the plant to return to its pre-shutdown level. The industrial complex is in economic terms more important for North Korea than for the South. The financial loss resulting from the suspension of operations at Kaesong is significant for North Korea.

Both Seoul and Pyongyang agreed that Kaesong should not become a "political pawn" again. Is there a possibility for the zone to be shuttered again as a result of rising political tensions between the two countries?

It was the North which decided to suspend operations at the industrial park on April 3rd. South Korea played no role in it, so Seoul eagerly signed the agreement to reopen the park. It is an important gesture, but it is certainly not one carved in stone.

The reopening of Kaesong to international investors and companies from overseas could make it difficult for North Korea to shut Kaesong down. How would you assess the possibility of foreign firms investing in the plant?

It is true that if foreign companies were to operate in Kaesong, it would make it difficult for North Korea to close the plant. The North has long been looking to attract foreign investment into other parts of the country and not just to Kaesong. However, the possibility of foreigners investing in the country in the short to medium term is not high, especially after the recent crisis during the spring this year.

The key word for the investors is diversification. The Chinese have already been investing in the country. They operate their own special economic zones and other players are now expected to step in. Infrastructure is, however, readily available in Kaesong. But I do not believe that there will be new enthusiasm now to invest in the country. Both North and South Korea have recently agreed to organize a trade fair in Kaesong in October and it remains to be seen how the investor community from neighboring countries as well as Europe and the US reacts.