Shutting Down the Kaesong Industrial Complex: A "Coalitional Bargaining" Framework

Abstract

The South Korean government unexpectedly shut down the Kaesong Industrial Complex (KIC) on February 10, 2016. This article seeks to explain why the KIC shutdown happened when it did. It argues, using a Coalition Bargaining framework, that is, a combination of financial regulatory harmonization against Weapons of Mass Destruction and the U.S.-ROK-Japan alliance politics, led to the shutdown. According to our framework, the timing of the KIC shutdown has to be seen in light of the emerging trilateral coordination after the December 28 Accord on the issue of comfort women and the introduction of much stronger secondary sanctions on North Korea by the United States. Together, these two initiatives forced South Korea's Park Geun Hye administration to choose the KIC shutdown in return for higher political legitimacy offered by the Accord. In our view, the coalitional dynamic leading up to the KIC shutdown would have been unlikely under other administrations or with different sequencing of events.