STAFFDEL VISIT TO KAESONG INDUSTRIAL COMPLEX

C O N F I D E N T I A L SEOUL 001266

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/18/2015
TAGS: EINV ELAB PHUM PREL KS KN
SUBJECT: STAFFDEL VISIT TO KAESONG INDUSTRIAL COMPLEX

REF: A. SEOUL 963

B. 04 SEOUL 6353

Classified By: POL M/C Joseph Y. Yun. Reasons 1.4 (b),(d).

SUMMARY
--------------


1. (U) During an April 12 staffdel visit to the South
Korean-managed Kaesong Industrial Complex (KIC) in North
Korea, KIC officials said that informal conversations with
North Korean workers indicated that the DPRK provided the
workers with approximately 70 percent of their wages, for a
base income of 5,000 North Korean won (around USD 35.00).
Although low by international standards, the KIC officials
pointed out that this wage was approximately double the
average income in the DPRK. The staffdel toured two modern
factories in which working conditions appeared excellent.
Particularly impressive was the enormous scope of the
construction project and the dramatic contrast with the
backward, destitute conditions visible immediately outside of
the complex.


2. (C) COMMENT: Emboffs have now made two lengthy visits to
the KIC and toured five factories. Although we are certainly
not experts on the project, we would make the following
observations: first, working conditions appeared comparable
to those in modern South Korean workplaces; the ROK appears
to have been very conscientious in ensuring that conditions
would meet the standards of modern manufacturing facilities
in developed countries. Second, although the evidence is not
conclusive, available information indicates that wages are
significantly higher than elsewhere in North Korea. Finally,
what comes through most clearly from actually seeing the
Kaesong Industrial Complex is the ROK's absolute commitment
to the success of this project. Seoul has literally moved
physical mountains and figuratively moved bureaucratic
mountains in pursuit of this project and will not willingly
allow it to fail. END COMMENT AND SUMMARY.


3. (U) Poloff on April 12 accompanied a bipartisan
delegation of Senate and House staffers on a one-day visit to
the Kaesong Industrial Complex in Kaesong, North Korea. In
addition to the ROK-sponsored staffdel, the delegation was
joined by Kim Eun Seok, Counsellor for Congressional Affairs
at the ROK Embassy in Washington, Shin Sung Won, Director of
North American Affairs Division II in the ROK Ministry of
Foreign Affairs and Trade, and two personnel from the
Ministry of Unification. Much of the delegation's visit was
similar to the ref A tour that Staffdel Anderson received
March 20 and confirmed the same information; there were
differences, however, that should contribute to a fuller
understanding of the KIC.


4. (SBU) After passing through the brand-new Customs,
Immigration and Quarantine facility on the ROK side of the
DMZ, the delegation's bus crossed the Demilitarized Zone
behind thirteen empty gravel trucks. Border-crossing
procedures on the DPRK side were surprisingly casual:
delegation members showed their passports to a North Korean
soldier who checked them off against a list of travelers
(including photos) that the ROK had previously provided the
DPRK. The delegation members were then rather cursorily
"wanded" and allowed to return to the bus and proceed to the
Kaesong Industrial Complex. Interestingly, departure
procedures at the conclusion of the visit were more thorough:
poloff was required to empty his pockets completely and was
repeatedly wanded.


5. (U) After arrival at the KIC, the delegation received a
lengthy briefing from Kim Dong Keun, the South Koean
Chairman of the Kaesong Industrial District Management
Committee. Kim opened the discussion by pointing out six
aerial photographs of industrial complexes in the ROK. He
explained that North Koreans had no concept of an industrial
complex and often could not visualize it; he had therefore
placed pictures on the conference room wall so that he could
easily show the North Koreans how the KIC would ultimately
appear.

ENVIOUS NORTH KOREANS SPREAD FALSE RUMORS ABOUT KIC?
-------------- --------------


6. (C) Noting ref B reports from Ministry of Unification
officials that the DPRK had moved unreliable workers out of
the city of Kaesong and brought in reliable workers to work
in the KIC, poloff asked if Kim could confirm such actions by
the DPRK. Kim dismissed the allegations as "groundless
speculation." People outside of Kaesong were envious of the
opportunity that Kaesong residents had to work in the KIC, he
asserted, and this resentment generated many false rumors.
He acknowledged that the DPRK regime was concerned that the
KIC might negatively affect its control, but said Pyongyang
was attempting to contain such influence by permitting only
Kaesong residents to work in the KIC. KIC workers reported
that they were also being given more propaganda materials
than previously. Of the 300,000 people in Kaesong, Kim said,
6,500 were already working in the KIC.

WAGES, DPRK "TAXES" AND TAKE-HOME PAY
--------------


7. (SBU) Poloff and the staffers asked a series of questions
about the workers' pay. Chairman Kim first explained that,
by refusing to allow the KIC to convert U.S. dollars into
North Korean won, the DPRK was preventing the implementation
of its agreement to allow workers to be paid directly. If
asked, workers would refuse to say how much money they were
being paid. Based upon several informal conversations,
however, Kim and his staff believed that the DPRK deducted
approximately 30 percent of the wages in "taxes" for
education and health, and then converted the remaining money
into North Korean won at the official rate of exchange of 150
won to the dollar. The resulting monthly income of
approximately 5,000 DPRK won was double the average monthly
wage in North Korea, said Kim, and did not include the
significant amount of overtime that workers earned. (He said
the average workweek was 57 hours.) Thus, of the USD 57.50
that was paid to workers as their base wage, USD 7.50 would
go directly to DPRK "welfare benefits;" of the remaining USD
50.00, DPRK authorities apparently deducted an additional USD
15.00 in "taxes," leaving approximately USD 35.00 that was
then converted into DPRK won at the official rate. (NOTE:
The exchange rate in the informal market varies widely, but
we estimate it is around 3,000 DPRK won to the U.S. dollar.)

CAFETERIA WORKERS: VOLLEYBALL AND POTENTIAL ROMANCE
-------------- --------------


8. (U) After the briefing with Chairman Kim concluded, the
delegation received a short powerpoint presentation on the
KIC and went to lunch in the South Korean cafeteria. A large
group of North Korean men were engaged in a lively volleyball
game next to the cafeteria. North Korean women were visible
working in the kitchen and the waitresses were also North
Korean. Shortly after the delegation began to eat, the
volleyball game broke up; poloff subsequently noticed that,
immediately after serving the last dish for lunch, two of the
waitresses, still in their uniforms, raced outside to
participate in a new volleyball game.


9. (SBU) Noting the large number of North Korean women
working in the KIC, and the numerous South Korean men living
there for two weeks at a time, one young staffer asked if
there had been any romantic relationships between South and
North Koreans at the facility. Chairman Kim denied that
there had been any such development to date, but acknowledged
such an occurrence was inevitable at some point. He gave no
indication of how such a relationship would be managed.

CLOTHING AND WIRE FACTORIES
--------------


10. (SBU) After lunch, the delegation went to the Shinwon
clothing factory (previously visited by Staffdel Anderson)
and to the Bucheon wire factory (not previously visited). At
Shinwon, the manager explained that the factory had 330 North
Korean workers (overwhelmingly women). The workers were
engaged in cutting, measuring and sewing garments. At one
table, a South Korean appeared to be providing training to
North Korean workers. The tour included a visit to a large,
modern dining room where two women were cleaning the kitchen.
A recreation room was adjacent to the dining room with two
ping-pong tables. The delegation also saw a shower facility.


11. (SBU) At the Bucheon facility, the manager explained
that there were 500 workers employed producing wiring for
refrigerators, washing machines and motorcycles. Noting that
Samsung was a major purchaser of the factory's output, the
manager proudly noted that some of the wires the delegation
was seeing produced would be included in products that would
eventually find their way to the United States. Displaying a
chart with production targets and actual output, the manager
lamented that production was lagging the company's goals.
Most of the women workers were either on an assembly line
coiling wiring together or were operating digital crimping
machines, although the delegation also saw some working in an
office. The women were uniformly small, perhaps averaging
around five feet in height, but all appeared healthy.
Indeed, poloff was startled to notice that many wore makeup.
Cafeteria and recreational facilities appeared similar to
those at Shinwon.


12. (SBU) At both Shinwon and Bucheon, virtually everything
was new and clean. Working conditions were excellent:
workers uniformly appeared to have adequate space and there
were no readily apparent unsafe conditions. On the contrary,
workers clearly had more personal space in than many similar
facilities in developed countries and conditions actually
appeared better than in many heavy industries in developed
countries. At both Shinwon and Bucheon, officials told
poloff that their workers had experienced no injuries. When
poloff expressed astonishment at this record, the officials
explained that their factory had only light industry with few
moving parts. (NOTE: The South Koreans' point about the
lack of moving machinery is a good one, but it still seems
unlikely that there have been zero injuries at these two
factories. We suspect they were referring only to serious or
disabling injuries, but time constraints made it impossible
to explore this issue in greater detail. END NOTE.)

INTERPRETER SENDS MONEY HOME TO DOCTOR MOTHER
--------------


13. (SBU) The unwieldy size of the delegation prevented
poloff from any spontaneous requests, such as attempting to
speak with workers. Poloff did, however, speak at length
with the North Korean interpreter, Kim Hyun-ju. Other than
saying that she was a 2002 graduate of the Sariwon Foreign
Languages School and had worked at the KIC since October, Ms.
Kim volunteered virtually nothing about herself, but answered
our numerous questions readily and with apparent sincerity.
She assured poloff she was familiar with foreigners, having
previously worked at the Sariwon Trade Bureau. She lived in
Kaesong with relatives. Asked about her parents, Ms. Kim
readily replied that her mother was a doctor in Sariwon.
Asked about her father, she hesitated, stammered and finally
replied that she did not have a father. Asked if she was
able to send money home, Ms. Kim happily responded that she
sent money to her mother on a regular basis. On the other
hand, when poloff, noting the severe dust storm Seoul had
experienced four days earlier on April 8, asked about the
effect of the storm on Kaesong, Kim rather improbably replied
that she had not noticed any such phenomenon.

LEVELING MOUNTAINS INSIDE KIC, FARMING BY HAND OUTSIDE
-------------- --------------


14. (SBU) After touring the factories, the delegation was
taken by bus around the perimeter of Phase I of the
construction project. (As the delegation departed, we
noticed that the employees of the Shinwon factory were
assembled in the parking lot for calisthenics. Chairman Kim
explained that the Shinwon employees did ten minutes of
calisthenics twice every day.) The KIC construction project
is enormous, with every imaginable type of earth-moving
equipment visible in large numbers. Although the large
majority of the equipment was manufactured by Hyundai, poloff
counted four Caterpillar backhoes, two Caterpillar
excavators, two Caterpillar bulldozers and an Ingersoll-Rand
asphalt machine, all in operation. At one point, Chairman
Kim pointed to two dump trucks driving along a flat stretch
of earth and explained that previously a 100-meter high hill
had stood in this location; it had been leveled.


15. (SBU) On the west side of the complex, the bus passed
what an MOU official explained was the only exit for workers
going to and from Kaesong. The checkpoint was manned by two
DPRK soldiers. As poloff watched, the soldiers waved a van
through the checkpoint without stopping it. The MOU official
explained that only North Koreans were allowed in and out of
the checkpoint, and that they had to present a KIC
identification card to show that they were entitled to enter.


16. (SBU) Two small villages abutted the edge of the
complex, and the contrast between the activity within the KIC
and that without could not have been greater. On the east
side of the facility, perhaps 20 people were working to
prepare a rice field for planting. Men pulled small carts
carrying orange or green boxes along a road parallel to the
edge of the complex. Further on, a man could be seen
throwing dirt or some other substance onto the field.
Although poloff could see one or two miles, he was unable to
identify a single motorized vehicle; the only animals visible
were a cow in the distance and perhaps a dozen chickens in
one of the fields. The houses, some of which were almost
adjacent to the complex, were dilapidated; in some, there
appeared to be no glass in the windows, which had been
covered with thick plastic. Incongruously, several of the
houses sported what appeared to be homemade antennas, with
several pieces of wood nailed together to support rods at the
top of the antenna. None of the South Koreans accompanying
the delegation could explain the purpose of the antennas.

BRIEFING THE NORTH KOREANS
--------------


17. (C) Official DPRK interest in the visit was clearly
strong. (Although MOU officials tell us the DPRK usually
requires a month to process an application to visit the KIC,
poloff's application to accompany the delegation was approved
in less than a week.) During lunch, NAD II Director Shin
Sung Won relayed to poloff that KIC officials had told him of
their North Korean counterparts' request for comprehensive
briefings on the visit. Although the meeting with Chairman
Kim had just ended, the KIC officials had already provided
the North Koreans with a quick update on the meeting; they
would provide their counterparts with a detailed briefing
later in the day. The North Koreans had expressed particular
interest in poloff's questions about pay and conditions, the
KIC officials said. (Separately, Shin informed poloff that
MOU officials accompanying the delegation had commented --
apparently disapprovingly -- on poloff's "pointed" questions
to Chairman Kim.)


18. (C) At several points of the tour, the delegation was
accompanied by three North Korean "managers." A South Korean
KIC official filmed the delegation almost continuously during
the tour of the factories and a North Korean photographer
also took occasional pictures. After the delegation had
departed the KIC and was preparing to go through DPRK exit
procedures, poloff was asked to step out of line to speak
with one of the North Korean managers, Mr. Yoon. Yoon asked
for poloff's impressions of the complex, noting that he was
eager to see an improvement in relations between the United
States and the DPRK and the lifting of American sanctions
against Pyongyang. Poloff replied that while there were
questions in the USG about conditions for workers in the KIC
and their pay, these issues were unrelated to American
actions against Banco Delta Asia, which were law enforcement
measures taken to prevent American currency from being
counterfeited. Yoon appeared satisfied.

INVESTORS' TOUR
--------------


19. (U) As the delegation returned to the South Korean side
of the Demilitarized Zone, we were engulfed by another
delegation of perhaps 200-300 South Korean businessmen who
were returning from their own tour of the KIC. Poloff spoke
to one of the businessmen who explained that they were
executives of small and medium-sized Korean businesses who
were considering investing in the KIC. The businessman, who
said he was in the watch-manufacturing business, said the
project looked very inviting as a place to invest. It is a
measure of the size of the KIC that we and the other tour
group had apparently both been in the project all day long,
but never saw each other until we arrived at the CIQ facility
at the same time.
VERSHBOW