Tenant companies are moving out of Kaesong

Posted on : 2009-06-03 10:55 KST Modified on : 2009-06-03 10:55 KST
S. Korea’s decision to participate in PSI is cited as a factor as tenant firms relocate production bases south and overseas to Vietnam and Indonesia
 located in Paju city
located in Paju city

With tensions between South Korea and North Korea heightening following North Korea’s second nuclear test and South Korea’s decision to participate fully in the U.S.-led Proliferation Security Initiative (PSI) on weapons of mass destruction, a number of businesses have been pulling out of the Kaesong (Gaeseong) Industrial Complex. It was confirmed on Tuesday that some of the tenant companies have been moving facilities south to prepare for a possible closure of the complex, while others have been looking at relocating production bases overseas in countries like Vietnam and Indonesia.

A number of tenant business officials noted that a company identified by the initial “M” had recently moved its entire facilities south out of the Kaesong complex. “From what I have heard, the contracting company was not providing materials due to concerns about production problems resulting from the hardening of inter-Korean relations, so on May 27 they made the decision and shut down factory operations,” said one tenant business official.

Tenant firms also relayed that two companies identified as “B” and “K” had already taken their core facilities and equipment back to South Korea to resume operations again there. In the past, some tenant companies in Kaesong had temporarily taken some of their equipment back into South Korea in order to allay purchasers’ concerns, but there have been no cases until now of companies moving their equipment due to concerns of the complex’s potential closure.

The fact that some tenant companies are preparing to withdraw their equipment is giving rise to concerns about a possible chain of withdrawals. An official with another company identified as “K” commented, “Concerns that the Kaesong complex might close makes it unclear whether we can meet buyer orders.” The official added that the company plans to move its core equipment out of the complex within this week or next week.

Some other companies are showing indications of considering establishing other overseas production bases in countries like Vietnam and Indonesia as an alternative.

The majority view among Kaesong Industrial Complex tenant companies is that activities of withdrawal became visible following South Korea’s decision to fully participate in PSI. Yu Chang-geun, vice chairman of the Association of Gaeseong Industrial Complex Tenant Companies, said tenant firms “feel it has already gotten beyond a level that they themselves can control” following the government’s decision to join PSI as a full member. “If they pull out now, many tenant companies will not be able to receive insurance money, so they have no choice but to get through this difficult situation,” Yu said.

Please direct questions or comments to [englishhani@hani.co.kr]

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