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Complicated Legal Matters Will Follow on Heels of Gaeseong Industrial Complex Shutdown
Aftermath of the Shutdown
Complicated Legal Matters Will Follow on Heels of Gaeseong Industrial Complex Shutdown
  • By Michael Herh
  • February 12, 2016, 08:30
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South Korean companies, which operated factories in the Gaeseong Industrial complex, are expected to suffer huge financial damages due to the suspension of factories and the freeze of their assets there.
South Korean companies, which operated factories in the Gaeseong Industrial complex, are expected to suffer huge financial damages due to the suspension of factories and the freeze of their assets there.

 

The Gaeseong Industrial Complex’s annual production stood at US469.9 million in 2014. Salaries for North Korean laborers reached US$8.84 million, accounting for 18.8 percent of the production. But now, South Korean companies, which operated factories there, are expected to suffer huge financial damages due to the suspension of their factories and the freeze of their assets in the complex. 

The shutdown of the complex is fueling complicated legal controversies. Such legal controversies involve lawsuits between South and North Korea, South Korean companies’ lawsuits against the South Korean government and the opposition parties’ and civic group’s petitions with the Constitutional Court.  

First of all, “We have frozen all assets such as South Korean companies’ equipment, materials and products in the complex,” declared North Korea’s Secretariat of the Committee for the Peaceful Reunification of the Fatherland. This will bring about legal controversies over such assets.

By international law, an asset freeze is a nation’s economic sanction against another nation when an international conflict takes place. But the sanction can be justified when the latter violates an agreement or international law. In this respect, North Korea has little basis for the asset freeze. A dominant view is that even though the North Korean legal system does not have the scheme of provisional seizure but has the concept of forfeiture, the freeze cannot be applied to the Gaeseong Industrial Complex since the freeze is about illegally acquired assets.      

They say that North Korea’s asset freeze is a violation of a stipulation in the Agreement on Investment Guarantee between South and North Korea signed in 2006. The stipulation is “The two nations neither nationalize each other’s invested assets nor restrict their property rights.”    

The point is that South Korea does not have countermeasures against such high-handedness of North Korea. South Korea may take North Korea to the International Court of Justice (ICJ). But if North Korea refuses to do that, the ICJ can do nothing about it.  

South Korean companies in the Gaeseong Industrial Complex are poised to file a lawsuit against the South Korean government unless the South Korean government compensates for them. “The South Korean government’s decision to pull out of the inter-Korean industrial complex triggered a death sentence to the complex,” said Jeong Gi-seop, chairman of the Gaesong Industrial Complex Companies Association. “We will hold the South Korean government accountable as it made an unreasonable and unfair decision.”    

The opposition Minjoo Party of Korea is considering taking a legal action such as filing a petition with the Constitutional Court in connection with the government’s decision to suspend the operation of the industrial complex.   

“The government’s decision goes against Article 23 of the Constitution that all people’s property rights shall be guaranteed and its boundaries will be set by law,” said a representative of the opposition Minjoo Party of Korea. “We are studying ways to file a petition with the Constitutional Court after deliberating with companies in the complex and legal reviews.  

Against it, the government refuted that its decision is an administrative act based on a high-level political judgment. “In the past, a South Korean businessman claimed damages from the government, while claiming that his company was put into a crisis of going under due to the May 24 measures against North Korea due to the Cheonan Battleship Incident,” a government official said. “But the court ruled that the May 24 measures were a high-level political act different from general administrative acts.”     

The opposition Minjoo Party of Korea, however, argued that the two are totally different matters now that the May 24 measures did not have related legal stipulations, but the Gaeseong Industrial Complex is subject to the Act on Exchanges and Cooperation between South and North Korea.   

On the other hand, earlier, the Lawyers for a Democratic Society publicly asked the Cheong Wa Dae or Presidential Office, and the Ministry of Unification to clarify legal grounds for the suspension of industrial complex operations, saying that the decision should be backed by legal grounds.