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S. Korea to punish Kaesong firms accepting N. Korea's wage hike plan

2015/03/10 15:13

SEOUL, March 10 (Yonhap) -- South Korea will penalize its companies operating in an inter-Korean industrial complex if they comply with North Korea's decision to raise wages for North Korean workers there, an official said Tuesday.

The government will exert "strong leadership" in handling the issue as it does not want to set a bad precedent for the operation of the Kaesong Industrial Complex in the North's border town of the same name, the unification ministry official told reporters in a background briefing.

Last month, the North announced a unilateral decision to raise the minimum wage from US$70.35 to $74 starting in March. It also said it would collect 15 percent of their basic wage plus overtime payments as "social security." Currently, the South's firms pay 15 percent of the basic wage alone.

If the measure is implemented, the North would earn a total of $450,000 in additional revenue from the Kaesong district, according to the ministry. Around 53,000 North Korean workers are employed by 124 South Korean firms, mostly small and medium-sized, in the zone created in 2004,

The companies will start to pay March wages on April 10.

"The government maintains a firm position that it can't accept North Korea's measure this time," the official said.

The ministry asked the firms not to follow the North's one-way decision in a meeting with their association last week.

"The government plans to send a formal notice to the firms on what to do and legal and administrative steps they would face if they defy it," the official said. He would not elaborate, saying it's still too early to talk openly the measures considered.

The official said the North is expected to put more pressure on the South via unjust measures such as the withdrawal of its workers from the complex and negligence of duties.

The government will do its best to minimize damages to the South's firms, he said. Half of the South's companies in the Kaesong zone have already bought government-sponsored insurance in case their business there is closed, he noted.

He questioned whether Pyongyang has the will to operate the complex normally, citing a number of similar cases.

In 2013, the North levied unjust taxes on the South's firms in violation of an agreement on tax exemption. It is also refusing to implement a deal on facilitating cross-border travel, communication and customs.

"Still, we do not have the scenario of shutting down the Kaesong Industrial Complex in mind," he said. "The only way to resolve the problem is consultations between the authorities of the two sides. We have a problem with the process of North Korea's decision (on the issue), not its demand for a wage increase itself."