Why is North Korea's Kaesong industrial park closing?

On Monday, North Korea announced it would pull its workers from the Kaesong Industrial Complex, sounding a possible death knell for the main symbol of hope for inter-Korean cooperation.

North Korea “will temporarily suspend operations in the zone and examine whether it will allow its (continued) existence or close it,” said Workers’ Party of Korea Central Committee secretary Kim Yang-gon, according to North Korea’s official Korean Central News Agency. The KNCA blamed the suspension on aggressive behavior by South Korea, which it said was trying to "turn the zone [Kaesong] into a hotbed of war."

Observers are now trying to gauge the motivations behind North Korea’s announcement amid heightened tensions.

"It's one of two things,” says Daniel Pinkston, North East Asia deputy project director for the International Crisis Group (ICG) in Seoul, South Korea. “It’s either part of a coercive bargaining game meant to pressure external actors, or it’s part of internal coalition building,” though he stressed the first was more likely.

On April 3, North Korea barred South Koreans from entering the complex and hasn’t allowed new workers from South Korea into the industrial park since. The complex has been closed before for short periods, most recently in 2009, but this is the longest interruption to regular in-and-out traffic. The exceptional length of the shutdown and North Korea’s pledge to pull out could signal that inter-Korean relations have reached a new low.

North Korea has a clear incentive to keep the joint economic zone open. The industrial park produced $470 million worth of goods last year, and North Korea earned about $80 million from the complex in 2012, according to South Korea’s Ministry of Unification.  

In addition to its economic importance, Kaesong has been a symbol of inter-Korean cooperation since it opened in 2004. It was designed as a mutually beneficial arrangement that would provide an example of how North and South Korea stand to gain from working together. Should it be closed down permanently, the large cluster of factories sitting unused, or occupied by new tenants, would vividly illustrate just how much inter-Korean relations have deteriorated.

Kaesong is also one of the few connections to the outside world for North Korea, often referred to as a “hermit kingdom.” The North Koreans who work at Kaesong are the most likely to get the chance to interact with businessmen from South Korea. In a country where the state media is by far the most powerful purveyor of information, and routinely demonizes the South, this would give North Koreans a rare look beyond their border.

Some 53,000 North Koreans work in factories operated by South Korean companies in Kaesong. Most of their earnings are taken by the North Korean government, but what they’re left with is still high pay by North Korean standards, and it fuels the economy. North Korean businesses around Kaesong depend on the zone’s workers as customers.

According to the Unification Ministry, there are 474 South Koreans and 4 Chinese nationals still in the complex, along with the North Korean workers. Foreign nationals are free to leave when they choose, but many have stayed behind to keep operations running at their factories.

South Korean Minister of Unification Ryoo Kihl-jae responded quickly to reports of North Korea’s announced withdrawal of its workers from Kaesong, telling reporters in Seoul that the situation on the Korean Peninsula was getting worse. The South Korean government has been feeling recent pressure from lawmakers in both the ruling and opposition parties to send a special envoy to North Korea to try to talk out the recent discord.

But dialogue alone may not be enough to resolve tensions, cautioned Mr. Ryoo.

He reiterated the South Korean stance that before meaningful dialogue can take place, North Korea must honor the agreements it signed in the past and cease its development of nuclear weapons.

Last week, the North Korean government also asked foreign embassies in Pyongyang to submit plans detailing how they would evacuate if a war were to break out. So far, no foreign embassies have announced plans to evacuate. The United States and South Korea do not have embassies in North Korea.