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(News Focus) S. Korean firms in a fix after Kaesong shutdown

All Headlines 09:30 February 16, 2016

By Park Sang-soo

SEOUL, Feb. 16 (Yonhap) -- Tension on the Korean Peninsula has been one of the greatest concerns for South Korean companies operating in a jointly run inter-Korean factory park in the North, but Seoul's recent shutdown of the zone could mean life or death for them, analysts say.

Indeed, a group of 124 South Korean firms located in the complex, which produce clothing, textiles, and other goods, are in peril, bracing for massive losses that some worry may eventually lead to their bankruptcies.

Last week, South Korea suspended the operation of the industrial complex in Kaesong, just 50 kilometers north of Seoul, mostly in response to the North's recent nuclear test followed by the a satellite launch that many believe was a disguise for a long-range missile test.

Two days after Seoul announced its decision to at least temporarily shut down the industrial complex, Pyongyang expelled all the firms from the park and froze their assets there on Thursday, not allowing them to bring back any processed goods or equipment to Seoul.

The complete shutdown of the Kaesong Industrial Complex is unprecedented as South Korea had previously maintained operations, even through periods of heightened strains.

This time, Seoul's decision to shut down the factory park was largely based on the notion that the North was using a large part of the wages paid to North Korean workers to upgrade its long-range missiles and nuclear weapons.

The South Korean firms, stung by the abrupt decision, are calling on their government to provide full-scale support.

"We strongly urge the government to compensate us for the damage that will be inflicted," the association of the 124 South Korean businesses operating in the factory park said last week in a statement. "We are making it clear that the government should shoulder all the damage for us."

In a meeting with lawmakers, Chung Ki-sup, who leads the business association, also has said the closure is tantamount to a death sentence for the Kaesong-based firms.

"Without prior consultations and notices, the closure (of the Kaesong Industrial Complex) is causing great damage to us," he said.

Some estimate that the South Korean firms operating there may shoulder massive losses following the factory shutdown.

When the industrial park was closed for 160 days in 2013 in North Korea's protest against a joint military exercise between South Korean and U.S. forces here, the South Korean firms reported a combined loss of 1.05 trillion won (US$869 million).

The firms claim their damage will only be greater this time considering the sheer growth of their business operations over the years.

The Seoul government promised all-out support for the Kaesong-based firms with measures including an extension of maturity on outstanding loans, as well as emergency relief funds to both companies and their South Korean employees.

But government measures alone will not be enough to make up for the heavy losses they are expected to face.

Seoul's chief economic policymaker urged the entire business circle to help the Kaesong-based firms.

"Now is the time for all members of the business circle to exercise their spirit of friendship and mutual help so the Kaesong firms can stand on their own feet again at the earliest date possible," Yoo Il-ho said last week in a hastily arranged meeting to draw up support measures for the firms.

The joint industrial park in Kaesong, just north of the inter-Korean border in the communist North, opened in 2004 under an agreement reached at the first-ever inter-Korean summit between then South Korean President Kim Dae-jung and the late North Korean leader Kim Jong-il in Pyongyang in 2000.

With some 54,000 North Korean workers on payroll before the shutdown, the once symbol of reconciliation between the divided Koreas has often been considered a cash cow for the impoverished North.

The Seoul government had provided a set of incentives to companies operating there, including providing insurance to cover potential losses in their investment, which means it is obliged to give the firms payouts.


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