South Korea Lawmakers Make First Trip to Gaeseong Complex Since Kim Death

A delegation of South Korean lawmakers today visited a jointly-run industrial complex in North Korea in the first such trip since Kim Jong Un succeeded his father as leader of the totalitarian state.

Eight lawmakers toured factories and met representatives of South Korean businesses in the Gaeseong Industrial Park six miles (10 kilometers) north of the border that opened in 2005. More than 50,000 North Koreans employed by 123 South Korean companies at the facility produced a record $400 million in goods last year, according to ministry figures.

Park Joo Sun, head of a parliamentary committee on inter- Korea relations, said after returning that business owners told the delegation the complex needs 23,000 additional North Korean workers to meet growing demand.

“We hope that our visit can be a catalyst for increased activity in Gaeseong,” Park said at a press conference in the South Korean border city of Paju.

The zone’s success is one bright spot in bilateral ties that have worsened since two attacks in 2010 killed 50 South Koreans. North Korea is aiming to attract foreign investment even as it has shown no sign of ending a nuclear weapons development program that has led to international sanctions.

Park said South Korean representatives complained to his group that a May 2010 restriction banning new investment and equipment is hurting business. The measure was imposed following the deadly torpedoing of a South Korean warship. North Korea has denied all responsibility.

‘A Miracle’

Gaeseong is proof North Korea has the potential to achieve “a miracle” in growth by embracing a gradualist approach to economic liberalization, Lee Jaewoo, an economist for Bank of America Merrill Lynch in Seoul, said in a phone interview. “North Korea has almost no interaction with the world economy right now, and the more it does so, the more that will help opening up and introducing reforms,” Lee said.

Kim Jong Un inherited an economy one-fortieth the size of the South’s and reliant on aid from China to feed its people following the Dec. 17 death of his father Kim Jong Il. The younger Kim is aiming to continue his father’s goal of building a “strong and prosperous nation” this year to celebrate the centenary of state founder Kim Il Sung’s birth in April.

The North’s economy contracted 0.5 percent to 30 trillion won ($26.9 billion) in 2010, compared with South Korea’s 1,173 trillion won, according to the South’s central bank. North Korea had a shortfall of as much as 700,000 metric tons of food last year, which could affect a quarter of its population, according to the United Nations Food and Agriculture Organization.

Closing the Gap

Kim’s regime could “dramatically” shrink the difference between the size of its economy and that of South Korea over the next four decades by joining the global trade system like China did with its market socialism, Lee said. Opening up without fully relinquishing state control or being absorbed by the South could result in annual growth of 10 to 12 percent, he said in a report this month.

Military confrontation and political tension between the two Koreas have affected operations in Gaeseong, where about 750 South Koreans work as well. North Korea has frequently refused to let cargo or workers back across the border, forcing some factories to suspend operations.

Such measures have disrupted South Korean business owners who run the factories and send raw goods to the complex to produce watches, shoes, kitchenware and electronic goods. Watchmaker Romanson Co. (026040), women’s apparel maker Shinwon Corp. (009270) and Namkwang Engineering & Construction Co. are among the Seoul- based companies operating there.

Global Sanctions

International sanctions freezing North Korean assets overseas, prohibiting direct and indirect imports of goods and services and authorizing the searching of its ships for weapons have failed to persuade the country to return to six-nation nuclear disarmament talks. North Korea also rejected an overture from South Korean President Lee Myung Bak to view the leadership succession as a “window of opportunity” in resuming dialogue.

Lee’s chief nuclear envoy said in an interview last week he is “optimistic” that incentives offered by the U.S. and his government will convince North Korea to resume the talks.

“The prospects of the normalization of the relationship between Pyongyang and the international community, and eventually a lifting of sanctions, all those benefits will be a strong incentive for the new leadership,” Lim Sung Nam, South Korea’s representative to the dialogue, said in the interview.

Today’s delegation included members of both the ruling and opposition parties who sit on parliament’s Foreign Affairs, Trade and Unification Committee and the Special Committee on Inter-Korean Relations Development.

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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