통일부

1. Overview of Event

  o Date and venue: December 15, 2004 (Wed.), 10:00 - Opening of the Living Art Gaeseong Plant, North Korea

   * Living Art, a kitchen utensil producer, built a 590-pyong factory on a 1,000-pyong lot (one pyong equivalent to approximately 3.3 square meters).

  o Number of attendees: more than 450 in total (over 400 from the South and over 50 from the North)

   * Attendees from the South: Members of the National Assembly (63 persons), aides, etc. (16 persons), government officials (26 persons), journalists, representatives of small- and medium-sized enterprises, female organizations and economic groups, etc.

  o Major details of the event:

    - Commemorative ceremony (ribbon cutting) and tour of the factory/product exhibition center

    - Tour of Gaeseong's historical relics including Sungyang Seowon and Sunjukgyo, luncheon (Janamsan Hotel), etc.

  o Entry of the first-manufactured products into the South for display/sale

    - 1,000 sets of kettles (one set consisting of three kettles in the sizes of 16, 18 and 20 inches) to be sold at Living Art shops in department stores in Seoul after the completion of entry procedures into the South on Dec. 15

2. Related Developments and Implication

a. Related Developments

  o Legal/institutional foundation laid with the conclusion of an agreement between the Hyundai Group (South) and the Asia-Pacific Peace Committee (North) in August 2000

    - North Korea promulgated 11 sub-regulations related to taxes, labor, customs, real estate, insurance and so forth since it unveiled the "Gaeseong Industrial District Act (Nov. 27, 2002)."

    - The two Koreas have reached agreements on four major inter-Korean economic cooperation programs, communication/ customs/quarantine (Dec. 8, 2002) and exit/entry/stay (Jan. 29, 2004).

  o Full-scale development of the complex commenced in earnest after the two sides forged a consensus and concluded an agreement on land rents on April 13, 2004.

    - Approval by the Ministry of Unification as an inter-Korean cooperation program (Apr. 23); completion of land development for the pilot site of 28,000 pyong (Jun. 30) 

        * Stage 1 land development for the main industrial complex being continuously implemented (current percentage of completion: about 40%)

    - The South Korean government's establishment of the "Office of Gaeseong Industrial Complex Project" (Oct. 5) comprising officials from relevant authorities including the Ministry of Unification, Ministry of Construction and Transportation and Ministry of Commerce, Industry and Energy to set up a government-wide support system

    - Launch of the "Gaeseong Industrial District Management Committee" (Oct. 20) in Gaeseong to perform overall management/operation of the industrial complex

  o Promoting companies to locate into the pilot site in full swing after the initial approval of inter-Korean cooperation programs (Sept. 8, 2004) regarding companies moving into the pilot site.

    - Approval of 13 among 15 companies to locate into the complex (conclusion of an agreement on June 14) based on inspection of goods to be taken out of the country, etc., carry-out of relevant equipment and commencement of factory construction

b. Implication

 < Implication of the Gaeseong Industrial Complex Development Project >

  Inter-Korean economic cooperation project to achieve co-prosperity

  o The Gaeseong Industrial Complex development project is an unprecedented project since it goes beyond existing inter-Korean economic cooperation programs, under which the two Koreas make a concerted effort to pursue mutual interests.

    - It is expected that the combination of South Korea's capital and technology with North Korea's land and labor will ease the burden of high production costs facing South Korean companies and contribute to resolving the economic distress that plagues North Korea.

  Contribution to changes in North Korea

  o The Gaeseong Industrial Complex development project promotes reforms in and opening of North Korea and facilitates stable changes in the country.

    - For North Korea, the complex is a buffer zone and test site for its opening. Successful development of the complex may lead to the dramatic expansion of North Korea's reforms and openings.

  o  It also contributes to reconfirming the homogeneity of the people of the two Koreas and reducing North Korea's hostility against the South.

  Promotion of improvements in inter-Korean relations and reduction of tension on the Korean peninsula

  o The industrial complex symbolizes inter-Korean reconciliation and cooperation and also serves as a test site for unification where people of the two Koreas work together, broadening the scope of their mutual understanding.

  o Promotion of inter-Korean economic cooperation will encourage easing of military tension, contributing to peace on the Korean peninsula and resolution of the North Korean nuclear issue.

   - It is expected that the industrial complex will be helpful to the resumption of inter-Korean dialogue and creation of an atmosphere favorable for finding a workable solution to the North Korean nuclear issue.

  Development of the Gaeseong Industrial Complex is one of the most important projects undertaken under the "Policy for Peace and Prosperity" pursued the South Korean Participatory Government. 

• It is a win-win project that pursues co-prosperity of the two Koreas as well as a project of peace to break out of the Cold War mindset through economic activities.

 < Significance of the completion of construction of the factory and manufacturing of the first products >

  Signal of the full-fledged implementation of the Gaeseong Industrial Complex development project and entry into the stage of product manufacturing

  o Completion of the construction and putting the first plant into operation means the launch of product manufacturing activities in full scale in the Gaeseong Industrial Complex.

   - Provides fresh momentum to the movement into a new stage of product manufacturing, following the signing of a land lease agreement last April and approval of inter-Korean cooperation programs last September, regarding South Korean companies moving into the complex.

  Symbol of the possibility of success of inter-Korean cooperation programs for co-prosperity

  o Manufacture of the first products in the Gaeseong Industrial Complex marks the successful combination of South Korean capital and technology with North Korean land and labor, showing the possibility of future success of the Gaeseong Industrial Complex.

    - Based on the operational process of the pilot site, which constitutes, in nature, a pilot project for Stage 1 development of the complex, a successful model for development of the main complex will be formulated. 

  o Expansion of product manufacturing in the future will broaden the horizon of mutually-complementary economic cooperation between the two Koreas and contribute to laying the cornerstone for the creation of an economic community encompassing the two Koreas.

  Reaffirmation of the two Koreas' determination to push for the Gaeseong Industrial Complex development project

  o Despite some adverse circumstances, the two Koreas have maintained the momentum for the project, firmly abiding by their policies.

   - The two sides have consistently pressed for the development of the Gaeseong Industrial Complex after they worked out an agreement on such development in August 2000, catapulting inter-Korean economic cooperation to a higher level.

  Manufacturing of the first products in the Gaeseong Industrial Complex attests to the possibility of its sustainable development.

    - Despite certain difficulties, the project has been executed consistently, and now enters the stage of product manufacturing.

< Prospects for future development of the Gaeseong Industrial Complex >

  Establishment of the foundation to usher in a new era of Northeast Asia

  o From a mid- to long-term perspective, it will provide a platform to expedite the vision of a Northeast Asian era, one of the goals of the "Policy for Peace and Prosperity."

• If the complex is developed in alignment with Seoul and Incheon on one hand and Pyongyang and Nampo on the other, it will be able to serve as a hub of Northeast Asia and a base for economic cooperation in the region.

     * Gaeseong, which is located 60km from Seoul and 50km from Incheon, will combine the financial function of Seoul, distribution function of Incheon and manufacturing function of Gaeseong for efficient overall cooperation.

  Creation of favorable conditions for a national community 

  o In the larger context, the Gaeseong Industrial Complex is a litmus test and a stepping stone to the creation of a Korean community.

• Stability and prosperity on the Korean peninsula will lead to overall stability and cooperation in Northeast Asia.

3. Current Status and Business Plan

a. Development of the Gaeseong Industrial Complex

  Project Overview

  o Location: Gaeseong-si and Panmun-gun

  o Area: 20 million pyong in total (65.7 ); 8 million pyong for the industrial complex and 12 million pyong for host cities

  o Development plan by stages: development in 3 stages

    - Stage 1: land lot development of 1 million pyong and pilot site development of 28,000 pyong being conducted currently for entry of companies to operate their plants

    - Development plan for the remaining 19 million pyong subject to mutual consultation between Hyundai Asan and the North

  Stage 1 Development Plan (1 million pyong)

  o Location: Bongdong-ri, Gaeseong

  o Period: 2002~2007 (including preparatory period)

  o Cost: KRW220.5 billion (infrastructure: KRW109.5 billion)

  o Developer: Hyundai Asan?Korea Land Corporation

  o Implementation Method: To lease land from the North for fifty years for I ts development into an industrial complex and its subsequent lot sale to domestic and foreign companies/management

   Lot sales to be conducted in the first half of 2005 after finalization of the Stage 1 lot sale plan based on collection of a wide range of opinions from relevant business entities and consultation between government authorities.

  Development of the pilot site

  o Implementation of a pilot project to meet the requirements for early placement of small- and medium-sized enterprises in the Gaeseong Industrial Complex and scrutinize the legal/institutional mechanism, investment environment, etc. in advance to prepare for the operation of the main industrial complex.

    - Lot sales of 28,000 pyong in the Stage 1 development area of 1 million pyong to 15 companies

b. Support for production activities of companies in the complex

  Plant operation

  o Among the companies to move into the pilot site, 13 companies obtained approval for inter-Korean cooperation programs. Among them, 8 companies embarked on construction of their factories in the area. 

    - The remaining 5 companies are currently in the process of selecting constructors and engaging in negotiations for quotes.

  o Among the companies that embarked upon the construction of their plants, Living Art has become the first company to hold a ceremony celebrating the completion of construction. Two to three companies are to complete construction of their factories and put those factories into operation within this year.

    - The other companies are pressing ahead with operation of their plants during the first quarter of 2005.

  Employment and Training of North Korean Workers

  o Three to four companies that are planning to put their factories into operation this year including Living Art will employ more than 700 North Korean workers. In 2005 when other factories begin operation, approximately 4,000 North Korean workers in total will be hired.

  Utilization of infrastructure including electric power supply and communication facilities

  o With regard to electric power supply, an agreement was concluded to the effect that KEPCO would take the sole responsibility for the overall power supply project including design, installation and operation of power supply facilities. (Dec. 3)

    - Construction to support power supply in the North (MDL Gaeseong Industrial Complex) are to be completed within this year to provide power to the pilot site.

  o Concerning the supply of communication facilities, the two sides reached a consensus that Korea Telecom (South) and the North will make joint investments and assign and perform respective roles, as regards the pilot site only, for the time being. The two sides are currently adjusting the wording of their written agreement.

    - The two sides will gear up for the supply of low-cost, high-quality communication services by completing construction of the communication network as soon as practically possible after signing of the agreement.

    - As regards the main complex of 1 million pyong, construction of necessary communication facilities will be pursued based on further consultation with the North in 2005.

  Management of goods to be carried out from the complex

  o Basically, the Gaeseong Industrial District Management Committee will play the central role in the control and management system to conduct stringent control and management of goods in the complex.

    - Formation/operation of a dedicated management team, establishment of an on-site monitoring system, control of the access to the industrial complex, etc. to be implemented

  o In addition, plans to control goods to be taken out of the complex will be formulated and executed, including designation of an officer in charge, for each company moving into the complex.

  Sale of manufactured products

  o As regards the marketing channels for goods manufactured in the pilot site, the products will be applied to local consumption, brought into the South in the form of semi-finished goods or exported to areas with no trade barriers.

  o In the case of Living Art, the kitchen utensils produced by the company will be transported into the South for domestic consumption or be exported to such regions as the EU with no tariff barriers.

  Plans on how to handle the two companies which have yet to obtain approval

  o As regards certain strategic commodities which have yet to gain approval, a precision inspection by the South and consultation with the U.S. are still underway.

    · Upon completion of these procedures, the South Korean government will decide whether to approve such businesses.