Gaeseong shutdown leads to W815b in losses for firms

The sudden shutdown of a joint inter-Korean factory complex north of the Demilitarized Zone has cost South Korean companies 815 billion won ($660 million) in damages so far, the companies said Wednesday.

“The figure will rise as companies are still counting business losses and those numbers have not been included,” said the representative body for 124 South Korean companies which had been running factories in Gaeseong industrial park.

The complex, located in the North Korean border city of Gaeseong, is now shut, as the direct result of political decisions made by South and North Korean authorities.

On Feb. 10, Seoul unilaterally decided to close the park, the last remaining symbol of inter-Korean economic cooperation, in retaliation to Pyongyang’s recent military provocations. North Korea responded the next day by expelling South Koreans from the park and freezing all assets.

The 124 companies that have been producing garments, shoes and other labor-intensive items had little time to move their facilities, raw materials and products. Forty-nine of the firms have no production base elsewhere.

The combined damages include 569 billion won in fixed investments such as production facilities and 246 billion won in product inventories and raw materials.

“Losses are mounting from the sudden production halt and are likely to exceed initial investment amounts,” the group claimed.

Chung Ki-sup, who heads the body, called for government compensation, saying the insurance offered will only cover part of the damages they have incurred.

South Korea, utilizing a special fund for inter-Korean cooperation projects, had offered insurance to the companies in the event of a shutdown or war, but nearly 40 percent of them, or 46 firms, did not sign up for it.

Those who are covered are entitled to compensation of up to 90 percent of their initial investment amount, not actual losses, with a cap at 7 billion won. The insurance will cover slightly more than a quarter of the 815 billion won, the group claimed.

Chung said that the companies will mount a campaign for the enactment of a special law that will allow bigger compensation from the government.

President Park Geun-hye, seeking public support for her decision for the shutdown, has said that the government will compensate 90 percent of all damages incurred by Gaeseong-based firms.

By Lee Sun-young (milaya@heraldcorp.com)