C O N F I D E N T I A L SEOUL 000447
SIPDIS
E.O. 12958: DECL: 02/24/2019
TAGS: PREL, MARR, ECON, KS, KN
SUBJECT: KIC ACCESS RESTRICTIONS: DPRK'S INEXPLICABLE
BEHAVIOR AND ROKG'S LIMITED OPTIONS
REF: SEOUL 00381
Classified By: POL M/C Joseph Y. Yun. Reasons 1.4(b/d)
1. (C) SUMMARY: Despite what ROK observers believed was the
DPRK's deliberately provocative decision to restrict Kaesong
Industrial Complex (KIC) access for the second time in a week
on March 13, the South Korean government and businesses
communities are not yet ready to give up on the six-year-old
project, the sole operational example of inter-Korean
economic cooperation project. The ROKG and South Korean
companies, showing resilience in the face of the DPRK's
unpredictable and unexplained behavior, are taking a
day-by-day approach, not knowing whether additional border
restrictions will be imposed in the near future. However,
both government and business contacts told us that the KIC
would be in danger of permanent closure if the North again
cuts off access to the KIC after the March 20 completion of
U.S.-ROK joint military exercises. END SUMMARY.
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Sequence of Events
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2. (SBU) The initial March 9 cutoff of access to the KIC
resulted from the DPRK's announcement that morning that the
North would cut off military-to-military communications
during the Key Resolve/Foal Eagle joint U.S.-ROK military
exercises (March 9-20): "As an immediate measure, during the
period when the war exercises for northward aggression are
ongoing we will carry out stricter military control ...and we
will also cut off North-South military communications."
Officials and business contacts told us that they believe
civilian DPRK officials at the KIC did not expect the western
transportation corridor to be closed that day (reftel); ROKG
officials were intrigued by the hint of internal confusion on
the DPRK's part that day.
3. (SBU) The DPRK resumed border crossings the next day on
March 10. Three days later on March 13, for the second time
in a week, North Korea closed the inter-Korean border,
preventing about 655 South Korean citizens from returning to
South Korea over the weekend. Journalists told us that the
ROKG pressed them not to refer to South Koreans stuck at the
KIC over the weekend as "detained" but instead as "delayed,"
to preserve a calm atmosphere. Nevertheless, YTN's (CNN
equivalent) March 16 morning news said that the KIC issue
would have to reach a "climax" that day. The prospective
crisis was defused because the DPRK authorities granted exit
permission on March 16, also allowing entry into the KIC on
March 17. Crossings proceeded without major problems on
March 18-19, though the continued cutoff of
military-to-military communications required work-around
communications by civilian telephone and fax. On March 20,
border crossings were restricted once again. At close of
business on March 20, the DPRK authorities sent a fax message
through a civilian channel in the KIC stating that
communications -- and consequently, two-way border crossing
-- would resume by March 21. As a result of this abrupt
border closure on March 20, 1,182 people were stranded (667
people scheduled to enter the KIC and 520 people who planned
to return to the South). ROKG officials and KIC businessmen
were essentially holding their breath, hoping that the
episodic KIC access closures will be over as of the end of
the military exercises. They were also reviewing ROKG
options and trying to analyze DPRK behavior.
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ROKG Reactions
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-- Blue House
4. (C) In a March 17 meeting with us, commenting on the
North's KIC access restrictions and the March 13-16 period
when South Koreans were stuck at the KIC, La Won-Chang,
Assistant to the President for Planning and Coordination at
the Blue House, described the inter-Korean atmosphere as
"very sensitive" and said the ROKG believed it was important
to "not provoke" North Korea. He said that the best option
for the ROKG over that weekend was to "wait and see." Other
options, such as closing the KIC or ordering ROK firms to
withdraw, would have been too provocative, since ROK citizens
were still on the North Korean side.
-- MOFAT
5. (C) MOFAT Director for Inter-Korean Affairs Chin Ki-hoon
told us on March 18 that he could not yet draw conclusions
about the North's intentions in connection with the on-again,
off-again access to the KIC and could not predict whether
there would be additional closures. He added that the chief
concern going forward was how to ensure the safety of South
Korean citizens at the KIC, on top of the safety and free
passage guarantee that is already part of the South-North
agreement on KIC (Article 10.1: "The North guarantees
non-aggression to the body, residence, and property of
personnel."). ROKG officials were discussing the issue, but
understood that it was unlikely that the DPRK would sign a
reinforced safety agreement in the context of no inter-Korean
dialogue.
6. (C) Chin said MOFAT's initial take was that the North was
continuing its year-long efforts to pressure the ROKG to
change its DPRK policy, as well as trying to foment unrest
among South Koreans. Neither effort had succeeded, because
the ROKG was determined to maintain its calm approach to the
DPRK. A recent poll showed that 73 percent of South Koreans
held the North fully responsible for the closures, whereas
only 15 percent thought the ROKG provoked the closure by
participating in joint military exercises.
7. (C) Asked about other theories making the rounds -- such
as the closures being a sign of the North Korean People's
Army asserting itself over civilian counterparts, or that the
closures were meant to signal the North's desire to have the
South close the KIC -- Chin said that not enough information
was available to be able to draw such conclusions. He
reiterated what Minister of Unification Hyun In-taek told
journalists on March 18: that the ROKG's intention remained
to keep the KIC open. However, Chin acknowledged that
businesspeople were expressing growing reservations about
operating at KIC, given the uncertainties about access and
the knock-on effect on orders, though none had announced a
closure since the first border interruption on March 9.
8. (C) Chin said that his office interpreted the initial
March 9 KIC access cutoff as an inadvertent result of the
North's announcement that all military-to-military
communications would be severed during the Key Resolve/Foal
Eagle exercises. However, MOFAT saw the second access cutoff
on March 13, which stranded South Koreans at the KIC over the
weekend, as a deliberate act. Even so, the message the North
was trying to send was unclear: a protest against ROKG
statements about the DPRK's missile launch, a reaction to ROK
media stories saying that the North reopened access during
that week just to get its USD 1.8 million payroll, or
something else entirely.
-- MOU
9. (C) Ministry of Unification Deputy Spokesperson Lee
Jong-joo, previously MOU's main liaison officer with the U.S.
and other embassies, told us on March 18 that the MOU was not
ready to draw conclusions about the North's cut off of and
reopening of the transportation corridors. Other than the
March 9 DPRK statement announcing that military-to-military
communications would be cut off during the military
exercises, the ROKG had received no explanation. Each day,
MOU had enlisted private businesses in the KIC to ask the
North Korean authorities at the KIC (the Central Special
Direct General Bureau) for further information about its
reasons for the access cutoffs and its future plans, but
those inquiries had gone unanswered. The only communications
coming from the North were the daily letters approving travel
of persons and shipment of materials to and from the KIC;
absence of such a message in the morning was the only way to
know that access was being cut off for the day. Lee agreed
with MOFAT officials that there was simply not enough
information to determine whether the North faced internal
disagreements, a resurgent military, or was trying to
maneuver the South into closing the KIC. However, the
on-again off-again nature of access to KIC pointed at least
to some confusion on the North's part. MOU's stance was to
closely observe the KIC situation over the coming days. A
cut off of access after the March 20 end of the joint
military exercises would be viewed as very serious,
indicating that the North was willing to truly jeopardize the
KIC.
10. (C) Again citing MOU Minister Hyun In-taek's statement
that the KIC would remain open, Lee added that at a March 15
meeting with Minister Hyun, held during the weekend that KIC
businesspeople were prevented from returning to Seoul, CEOs
of KIC companies had pressed Hyun hard in private to not let
the KIC close. Asked about the resiliency of ROK businesses
in the face of uncertainty about KIC access, Lee said that
many of the small companies operating there are used to
running on a shoestring, determined to keep making money at
KIC (where labor costs are extremely low) as long as they
can.
-- Former MOU Minister
11. (C) Former Unification Minister and Chief Delegate to
Inter-Korean Talks (1998, 2002) Jeong Se-hyun told poloff on
March 18 that both KIC border closure decisions were
intentional, aimed to make the "train" the Lee Myung-bak
administration understand that the North was in control of
inter-Korean relations. Jeong, an MOU veteran of 30 years,
predicted that the DPRK would not shut down the KIC because
the Complex was created under direct orders from Kim Jong-il.
Jeong characterized the recent KIC border problems as a
"child's play," saying that the North's real intention was
not to close the KIC, but to raise tensions. Ultimately,
according to Jeong, North Korea aimed to obtain greater
leverage in the next round of negotiations with the United
States -- through pressure on the KIC, its missile launch and
expulsion of food monitors.
-- National Assembly
12. (C) Two National Assembly members, from the ruling Grand
National Party and the Democratic Party, told us March 17
that the North's on-again, off-again restrictions on travel
to and from the KIC cast the long-term viability of the
experiment in economic cooperation in serious doubt. Neither
lawmaker, however, in extended conversations about current
political issues mentioned Kaesong until prompted by our
questions. Neither lawmaker expressed any concern about the
face that South Korean citizens were detained in the KIC
during March 13-16. One lawmaker speculated that the North
would close the KIC as soon as it could find alternative
employment for the some 40,000 North Korean workers currently
employed by South Korean firms, possibly at the joint
Korea-China economic project in Sinuiju, but others see such
a move as unlikely because the Sinuiju project has not
developed.
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Business Reactions
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13. (C) Director Yim Hwang-yong of S.J. Tech, a mid-sized
company producing plastic valves in the KIC since 2005,
described the current situation as the "worst since the
company's inception." According to Yim, the present
situation is far worse than the period after the 2006 nuclear
test when the KIC companies were virtually unaffected. Yim
said he felt "stuck;" unable to fill the customers' orders in
confidence since border crossings could be interrupted again,
and unable to pull out completely because his company would
not receive insurance compensation unless the KIC were
completely shut down by the DPRK.
14. (C) Yim dismissed the March 9 border closure as a
"possible mistake" on the DPRK's part, but thought the March
13 closure sent a much stronger and worrisome message. Yim
said the March 13 incident was a proof, and the first signal
to the KIC companies, that the North Korean mood does affect
the KIC and could lead to closure.
15. (C) On the other hand, Hyundai Asan Executive Vice
President Jang Hwan-bin, representing the firm that developed
the KIC, told poloffs on March 17 that despite temporary
hesitation to invest in the KIC after the access
restrictions, businesses would "forget" these troublesome
times as soon as the North-South relations were restored and
profits increased. Jang believed that South Korean
businesses preferred the KIC over China, so the firms would
not easily pull out from the KIC and leave behind affordable
North Korean labor.
16. (C) Jang said that North Korean behavior after the
completion of the joint U.S.-ROK military exercise on March
21 would be the key indication of Pyonyang's "true
intentions" toward the KIC. Jang predicted that if border
troubles at the KIC continued after the joint military
exercise, this would indicate further deterioration of
North-South relations. The trouble then, Jang commented,
would be far beyond the KIC. For now, he agreed with the
ROKG's cautious, day-by-day approach.
17. (C) Lamenting a lost opportunity to improve relations
with the North, Jang pointed out that the current
administration would have found itself in a better position
with the North if it had promptly delivered the fiber optic
cables requested by the North Korean military in June 2008
and again in October 2008. (NOTE: ROKG officials have told
us they tried to set a date for delivering communications
materials in October 2008 during military-to-military talks,
but got no DPRK response. END NOTE.) Jang pointed to
February 2009 as another missed opportunity, when the newly
appointed Unification Minister did not show any interest in
visiting the KIC or speaking positively about its expansion.
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Comment
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18. (C) If the DPRK was determined to raise tensions with its
March 9, 13 and 20 KIC access closures, and the resulting
weekend detention of 655 South Koreans, the ROKG, with
support from the KIC business community, was equally
determined not to let the episode become a crisis. At the
same time, ROKG officials acknowledge privately that the KIC
detentions would have become a crisis had they continued
through March 16 or later. As IHT journalist Choe Sang-hun
told us on March 19, the ROKG's main lesson over the March
13-16 period was that they had no way to get their citizens
out of the KIC. ROKG officials are united in saying that
they don't want the KIC to close, and believe that the DPRK
wants it to remain open as well, but if ROK citizens are
detained again, KIC will unravel.
STEPHENS