KAESONG SPECIAL ECONOMIC ZONE

The special economic zone or industrial region of Kaesong was inaugurated in 2003 in order to develop North Korean technologies and to bring in currencies while providing cheap labour for the candidate companies. Companies deciding to settle there have accepted a certain transition of technology to the benefit of North Korea against advantageous economic conditions (taxation...). North Korea and South Korea have signed accounting and tax treaties to promote investment in the area and this situation is rather unusual and rare. As its name implies, the area is built on the territory of Kaesong, the border town with South Korea: two geographical areas (P'anmun-gun and part of Kaesong-SI) were separated from Kaesong (still under direct administration of Pyongyang to time) and merged.

An initial phase of testing began in 2004 with the installation of 15 South Korean companies, mainly factories. The initial goal was to reach over 250 settlements by Southern companies, 100 000 employees in 2007 and 700 000 five years later. On the basis of these projections, the South Korean Central Bank provided for the creation of 720 000 jobs and 500 million in revenue for North Korea in 2012, and close to $1 800 000 000 of complementary dollars through taxes paid by companies in the region.

In February 2016, only 124 establishments were accounted for, less than half of the forecast, certainly due to U.S sanctions restricting trade. Recently, the area was heavily impacted by the relationship between the two countries: in 2013, during tensions between Pyongyang and Seoul, the North Korean administration refused to enter the territory for South Korean employees, and recalled at the same time 50 000 North Korean employees and thus preventing all operations. The reopening will take place in September. In 2016, in response to the Pyongyang missile tests, South Korea totally interrupts operations in the region as well as deliveries of water and electricity. The North-South warming of 2018 will perhaps mark the reopening of the industrial region. Tourists can’t visit the region but soon it may be allowed again.