Kaesŏng Industrial Park is being developed in the region, as a collaborative economic development with South Korea. It is located ten kilometres (six miles) north of the Korean Demilitarized Zone with direct road and rail access to South Korea and an hour's drive from Seoul. Construction started in June 2003, and in August 2003 North and South Korea ratified four tax and accountancy agreements to support investment. Pilot phase construction was completed in June 2004, and the industrial park opened in December 2004.
In the park’s initial phase, 15 South Korean companies are constructing manufacturing facilities. Three of the companies had started operations by March 2005. First phase plans envisage participation by 250 South Korean companies from 2006, employing 100,000 people by 2007. The park is expected to be complete in 2012, covering 25 square miles and employing 700,000 people. As of July 4th 2008, Seventy-two South Korean firms were operating in Kaesong, and employing 30,084 North Korean workers
Electrical power and telephone service is supplied from South Korea; 15MW of power is being supplied in 2005, with plans for a 100MW supply by 2007.
The Kaesŏng industrial park is run by a South Korean committee that has a fifty-year lease which began in 2004. Hyundai Asan, a division of South Korean conglomerate Hyundai has been hired by Pyongyang to develop the land. Thus far a dozen South Korean companies are participating in the project that employs six thousand North Korean Workers' Party workers in eleven factories. Another twenty-eight South Korean firms have signed up to begin building factories as well. The firms are taking advantage of cheap labour available in the North to compete with China to create low-end goods such as shoes, clothes, and watches. Workers earn an average of $57 per month—half of Chinese labour costs and less than 5 percent the salaries of their South Korean counterparts.
Park Suhk Sam, senior economist at the Bank of Korea, figures the industrial zone could create 725,000 jobs and generate $500 million in annual wage income for the North Korean economy by 2012. Five years later, another $1.78 billion would tumble in from annual corporate taxes levied on South Korean companies participating in the industrial project.
The industrial park is seen as a way for South Korean companies to employ cheap labour that is educated, skilled and speaks Korean which would make communication considerably easier. However the zone still faces a number of obstacles. Among the most pressing are U.S. economic sanctions against the North, prohibiting imports of key technologies and goods —such as computers. Yet North Korean leaders still welcome the chance to help revitalise their economy. More than 1000 South Korean firms are rethinking planned shifts of production from China and Southeast Asia to Kaesong.
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