North Korean Economy Watch

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.

From Joong Ang Daily:

A high-level Korean government official yesterday suggested that the Kaesong Industrial Complex issue be dealt with seperately from the free trade talks with the United States.

“It would be appropriate to discuss the matter on whether products manufactured from Kaesong Industrial Complex in North Korea should be recognized as South Korean in origin in a separate discussion from the free trade negotiation between South Korea and the United States,” said Chin Dong-soo, deputy finance and economy minister.

Mr. Chin said that even though Korea has persistently brought up the issue during the second round of talks, which took place earlier this month in Seoul, there has been no detailed discussion between the two parties.

“If we continue to push the matter while there is no response from the U.S. party, other issues that are being discussed at the free trade talks will likely be jeopardized,” Mr. Chin said.

From Korea Times:

Control on Sensitive Materials to NK Tightened

South Korea’s Ministry of Commerce, Industry and Energy has issued a warning to 80,000 local companies against any shipments of strategic materials to North Korea, officials said Wednesday.

In an e-mail message sent to trading companies, the ministry said international pressure was mounting to prevent Pyongyang from acquiring materials that can be used for the production of weapons of mass destruction. North Korea has been condemned by many countries as well as the U.N. Security Council for firing a series of missiles into the East Sea on July 5.

The ministry also said that with U.S. lawmakers poised to pass a law that penalizes foreign companies that ship dual-purpose materials to North Korea, Washington is expected to strengthen its international monitoring activities.

The message said it could lead to sanctions being imposed on all violators discovered by the U.S. surveillance.

In addition, the ministry said South Korean firms should be careful of shipping products to China and some Southeast Asian countries that could be resold to North Korea.

“If companies have any doubts about whether or not their shipping of products violated the strategic material export rules, they should not hesitate to ask the government,” an official said. He added that companies that ship products to the inter-Korean industrial complex in the North Korean city of Kaesong, just north of the demilitarized zone separating the two Koreas, should be particularly careful.

South Korea is a signatory to the Wassenaar Arrangement, a multilateral pact that restricts the export of commercial products that can be used to make weapons to certain countries. The United Nations has also stressed the need to monitor such trade.

Authorities here have said they will step up efforts to detect and penalize violations.

From Korea Times:

Inter-Korean Economic Projects Not Worrisome’ 

By Park Song-wu, Lee Jin-woo

Inter-Korean economic cooperation programs are not a worry to the United States as the money ending up in North Korea is not likely to be used for developing weapons of mass destruction (WMD), a ranking U.S. finance official said.

In an interview with the Voice of America on Tuesday, U.S. Undersecretary of Treasury for Terrorism and Financial Crimes Stuart Levey said what Washington worries about is the North attempting to abuse international financial institutions to secure funds for its development of WMD.

He said the Kaesong industrial park project and the Mt. Kumgang tourism program _ the two examples of cross-border cooperation _ are not the concerns the U.S. government has in mind to safeguard the international financial system.

In a related development, the Kaesong complex is expected to churn out products worth a record high of $6 million this month, despite security concerns on the Korean Peninsula caused by the North’s missile launches on July 5, an official at the Unification Ministry said.

Denying a negative outlook for South Korean factories in Kaesong, Ko Gyoung-bin, who is in charge of supporting the project, said “everything is going perfectly okay.”

“The total production amount is expected to reach $6 million for the first time since its opening in June 2004, almost 100 percent up from $3 million of last December,” he said during a press briefing in Seoul on Wednesday.

Ko said the export volume of Kaesong products has also been steadily increasing from $1.1 million in May to $1.6 million in June.

“I don’t agree with recent reports which tried to link North Korea’s missile threats with the Kaesong complex,” he said. “I met a few working-level North Korean officials involved in the project last week and they were determined to continue this project.”

As for concerns whether the North Korean government properly pays their workers the wages sent by South Korean firms, Ko said he is confidant that the money has not been diverted for other purposes.

“South Korea has paid some $500,000 to $600,000 for those 7,800 workers and their families each month,” he said. “I don’t think there’s enough room for North Korean authorities to use part of the relatively small amount of money for other purposes.”

He added the number of North Korean workers in the complex would reach 8,000 this month.

A North Korean worker there earns $64 in wages and allowances a month. Most of the money is paid on the 10th of the month. This month, it was paid as scheduled.

South Korea paid $6 million to rent the complex site for 50 years in 2004.

Earlier this month, the Korea Land Corp., a state-run land developer, which has been involved in the Kaesong project, decided to postpone the sales of some 516,000 pyong (1.7 million square meters) of land in the industrial complex to both South Korean and multi-national companies.

Unlike the present South Korean firms in Kaesong, which benefited from the inter-Korean cooperation fund with low interest rates and a three-year grace period to pay back borrowed money, companies which wish to newly join the project will be required to get loans from commercial banks after getting credit guarantee notes issued by the state-run Korea Credit Guarantee Fund (KODIT).

The industrial complex is expected to house about 2,000 South Korean companies employing nearly half a million North Koreans when it comes into full swing in 2012, according to the ministry.

From Yonhap:

Seoul to expand inter-Korean economic project despite U.S. concerns: official

A ranking South Korean official on Wednesday said the government may expand a joint industrial complex in North Korea’s border town of Kaesong at an early date despite concerns that money paid to North Korean laborers there may be used to build missiles.

“The Kaesong industrial complex is a project that runs strictly on the mechanism of a market system,” Goh Gyeong-bin, head of the office for the inter-Korean economic project at the Unification Ministry, told reporters.

He said the government may begin the next phase of the Kaesong development project as early as August or September, which would include leasing out 1 million pyeong of land at the joint complex to South Korean companies. One pyeong equals 3.3 square meters.

The remarks are in line with Seoul’s earlier stance that it does not need to halt the inter-Korean project despite concerns, mainly from the United States, that wages paid to North Korean workers may be forfeited and diverted by Pyongyang to build missiles and weapons of mass destruction.

The apparent opposition from Washington, although still tacit, intensified after North Korea launched seven ballistic missiles, including a long-range Taepodong-2 believed capable of hitting the U.S. west coast, earlier in the month, while the U.N. Security Council unanimously approved a resolution prohibiting missile-related dealings with the North.

South Korea’s point man on North Korean affairs, Unification Minister Lee Jong-seok, however, has refused to halt or suspend the economic project with the communist state, claiming the U.N. resolution does not require his or any other country to cut normal, legal economic relations with the North.

“What the international community, including the U.S., is worried about is the North making or taking money through illegal means,” Lee told a National Assembly committee on Monday.

Currently, 13 South Korean companies are operating at the industrial complex, where about 7,800 North Korean laborers are getting paid US$57 a month on average, according to Goh.

The ministry official said there was no way of knowing for sure whether the North Korean government was taking any of the wages, but claimed it wasn’t happening.

“There is no possibility. The amount tells us that,” Goh told Yonhap News Agency in a later telephone interview.

“Even though North Korea is an extremely poor state, it would take at least 50,000 (South Korean) won (about $50) on average to feed a family of four for a month,” he claimed.

He said the South Korean companies are paying about $500,000 to $600,000 a month to 7,862 North Korean employees.

“The issue (of possible diversion of funds) may become significant when the amount grows to a significant level through second and third phases (of the development project), but it really is not an issue at this time,” he said in the press briefing.

Between 300 to 800 South Korean companies, depending on the size of each business, are expected to move into the joint complex when the next phase of the development plan is completed, according to Goh.

The industrial complex is expected to house about 2,000 South Korean companies employing nearly half a million North Koreans when it comes into full swing in 2012, according to the Unification Ministry.

UPDATE: Contrary to a previous post (Listed below), South Korea is now insisting that goods made in the Kaesong Industrial Zone be labeled “Made in South Korea” for trade with the US, and the US is insisting that this will not be possible under the proposed FTA.  I hope someone will blink because reduced trade barriers will be good for both countries.

From the Joong Ang:

U.S. reaffirms its stance against Kaesong in FTA
7/25/2006
 
Franklin Lavin, the U.S. Department of Commerce international trade undersecretary, has reiterated the American position not to include goods produced in the Kaesong Industrial Complex in North Korea in the free trade agreement with South Korea.

“The simple fact is that a bilateral agreement is between two countries,” Mr. Lavin said in a lecture organized by the American Chamber of Commerce yesterday.

“We have no negotiating authority, no congressional authority, to include any other economic entity in that bilateral agreement.”

Koreans negotiators, pushing to include Kaesong products in the FTA with the U.S., cited earlier free trade pacts with Chile and Singapore, which accepted the offer, as a precedent. 

From the KBS:

Seoul Not to Compromise Kaesong Label
Friday, July 21, 2006

A top aide to South Korean President Roh Moo-hyun said Friday the South Korean government will not compromise on the issue of labeling goods manufactured in the inter-Korean industrial complex Kaesong as ‘South Korean-made’ in the ongoing talks for a free trade agreement (FTA) with the United States.

Senior presidential secretary for economic affairs Chung Moon-soo said that Seoul will never yield to Washington regarding the country-of-origin issue for South Korean products made in the Kaesong Industrial Complex.

South Korea’s Trade Minister Kim Hyun-chong also expressed a similar stance on the issue.

Earlier in Washington, U.S. Congress International Relations Committee Chairman Henry Hyde reportedly urged the U.S. government not to regard products made in Kaesong as South Korea-made.

In addition, Deputy U. S. Trade Representative Karan Bhatia has made clear that any deal that is beneficial to North Korea would run counter to the U.S. government’s position.

From the Korea Times:

Korea May Not Insist on Kaesong
By Park Hyong-ki
7/20/2006
 
Kim Jong-hoon, chief of Korea’s negotiating team with the United States on a free trade agreement (FTA), Thursday hinted that Seoul may not insist on including the Kaesong issue in the bilateral trade pact.

“We have not decided on which areas we will defend at all costs,’’ Kim told economic editors of newspapers and broadcasting stations. “I will consult decision-makers on the list.’’

Kim’s remarks came after last week’s negotiations in Seoul where the U.S. delegation, led by Wendy Cutler, rejected Seoul’s request for the exemption of tariffs on products made in the South Korean-led industrial complex in the North Korean town, in the event Kaesong-made goods are exported to the U.S.

The U.S. has reportedly been sensitive to transfers of cash to North Korea for fear they may sustain Pyongyang’s programs of weapons of mass destruction. About 6,000 North Korean workers work in Kaesong for about $60 per month. Kaesong is still in a developing stage so if more companies move in to set up shop, it would spell larger cash flows into the financially-strapped communist state.

Regarding Seoul’s decision to halve “screen quota’’ or its mandatory 146-day viewing of Korean films at theaters before FTA talks began, Kim said, “It provided an atmosphere conducive to the start of FTA negotiations.’’

He said that previous efforts to establish a bilateral trade pact with the United States were thwarted over the screen quota issue.

“We believed that if the screen quota remained intact, it would hobble any agreement at the last minute,’’ he said. “Besides, culture is a two-way street. We can’t just keep on insisting our position.’’

Talking about the rupture of the second round talks, Kim said that Wendy Cutler, chief U.S. negotiator, didn’t have authority to make spot decisions so had to consult with Washington, costing a lot on negotiating time.

The two sides are scheduled to meet for the third round in September in U.S.

Here is the position of the US (From the Donga)

The dissensions that had grown between Korea and the U.S. over the Gaesong Industrial Complex and tourism of Mt. Geumgang show signs of evolving into serious rifts.

At the U.S.-Korea Inter-Parliamentary Exchange Council press conference held at Rayburn House in Washington on July 18, the American chairman Edward Royce (Republican) emphasized the importance of where the profits from the industrial complex end up, stating the concern that the North Korean leadership may use the cash it earns for developing weapons of mass destruction such as missiles,

Officials from the Bush administration also recently noted that three laws on terrorism must be amended if the U.S. was to allow tax-free imports of goods produced in countries that support terrorism, such as North Korea, adding that such revision would be impossible for the U.S. Congress to accept. In effect, the U.S. will not be including products made in the Gaesong Industrial Complex in the Korea-U.S. Free Trade Agreement negotiations, because of the inconsistencies with existing laws and regulations.

Stuart Levey, U.S. Treasury`s undersecretary for terrorism and financial intelligence who visited Korea on July 16-18 is also reported to have met with Korean government officials and expressed a deep interest in whether a U.N. Security Council Resolution controlling the shipping of military supplies into North Korea would conflict with Mt. Geumgang tourism and the Gaesong complex.

In his statement upon departure from Seoul, disclosed on the U.S. Treasury website on July 18, he declared that they had discussed “issues of common interest, including the new United Nations Security Council Resolution that requires all member states to prevent the transfer of any financial resources in relation to DPRK`s missile or WMD programs.”

On July 18 Levey visited the Ministry of Finance and Economy (MOFE) and requested to know the Korean government’s position on the recent Security Council’s Resolution against North Korea; however a senior MOFE official replied that as the issue lies with the Ministry of Unification, MOFE was not in a place to provide an answer.

“We explained it [to Undersecretary Levey before he asked] because some concerns had been raised that the U.N. Security Council Resolution could clash with the Mt. Geumgang tourism and Gaesong Industrial Complex,” said Song Min-soon, chief presidential secretary for unification, foreign and security policy.

He went on to deny allegations that tensions had arisen between the two countries over the issue, stating that “Korean government officials had expressed there was no problem with the two enterprises regarding the purpose and range of domestic statutes, judicial judgement or international law mentioned in the Security Council Resolution, and Undersecretary Levey had responded that he understood well.”

While Washington has not demanded outright for South Korea to stop its industrial and tourism enterprises in the North, it has been reported to have conveyed strong concerns over the businesses bringing cash into North Korea.

However, a senior Korean official displayed a firm determination in pursuing the Gaesong project. “The Gaesong Industrial Complex is the epitome of the [current administration’s] North Korean policies. We will carry on with it no matter what difficulties are to be faced,” he said.

Fears have been raised that in case North Korea follows its arbitrary announcement on July 19 that it will no longer permit meetings of separated families with further measures to step up tension on the peninsula, South Korea and the U.S. could come to serious troubles over the Gaesong and Mt. Geumgang projects.

Meanwhile, a group of 56, comprised of people from credit assurance companies and from corporate banking divisions of banks such as Kookmin, Shinhan, Hana, Woori, Korea Development Bank (KDB), Kiup, City Bank Korea, Daegu, Busan, Kwangju, Jeonbuk and Kyongnam will be visiting the Gaesong Industrial Complex on July 21, sponsored by the Ministry of Unification.

Say that title five times fast.  From Yonhap:

KEPCO postpones construction of transmission tower in N. Korea indefinitely

Korea Electric Power Corp. (KEPCO), South Korea’s state-run electricity monopoly, has postponed its plan to construct a transmission tower in an inter-Korean industrial park in North Korea indefinitely amid rising tension on the peninsula in the aftermath of the North’s missile launches, the chief of the company said Monday.

“Since the inter-Korean relationship hit a deadlock due to a string of negative factors, such as North Korea’s missile firing, we have decided to put off a groundbreaking ceremony that had been slated for Friday to mark the construction of the transmission tower in the Kaesong industrial complex,” KEPCO’s Chairman & CEO Han Joon-ho said in a meeting with reporters in Seoul.

KEPCO had planned to build a transmission tower capable of sending 100,000 kilowatts of electricity from the South to the industrial park, located just across the demilitarized zone that separates the two Koreas.

The company currently transmits 15,000 kilowatts of electricity via 23 telegraph polls for more than 13 South Korean companies operating there.

The South Korean-built complex is a product of a historic inter-Korean summit in 2000 which set off a series of cross-border projects. About a dozen South Korean garment and other labor-intensive plants are currently in operation in the complex.

KEPCO’s announcement comes amid escalating tension between the two countries, triggered by the North’s missile launches on July 5.

Last week, North Korea withdrew all of its government officials from a joint dialogue office in Kaesong, cutting off the last direct channel for communication with Seoul.

From the Korea Herald: 

North Korea has demanded a change in its business partner for tours to Gaeseong and has been banning South Koreans from entering the border town since the beginning of this month, Seoul government sources said yesterday.

The Gaeseong tour has been a source of dispute between the two Koreas since the North demanded last year that its current partner, Hyundai Asan Corp., be replaced with Lotte Tours Co.

Since last May, the North has delivered messages on three different occasions saying that it has “decided to operate the Gaeseong tour with Lotte Tours Co.,” the Seoul government sources said yesterday.

In what Hyundai Asan calls a breach of contract, the North asked Lotte Tours between August and September last year to launch a tour program to Gaeseong, a city near the inter-Korean border rich in historical attractions. The North said it could no longer discuss the tour with Hyundai Asan. Lotte did not respond to the proposal.

Lotte Tours Co. is South Korea’s third-largest travel company.

At the end of last month, Pyongyang sent an invitation to Lotte to visit North Korea, the sources said. Lotte requested permission on July 5 for the visit but Seoul denied it following the North’s test-firing of seven missiles the same day.

Since the 1990s, Hyundai Group has exclusively led North Korean tourism projects.

However, Hyundai recently fell out of North Korea’s favor after it sacked chief executive of Hyundai Asan, Kim Yun-kyu, over allegations of embezzlement last year. Kim had been Hyundai’s point man for North Korean businesses following the death of Hyundai Group founder Chung Ju-young, who paved the way for economic exchanges with the reclusive state.

But conflicting positions over the price of the tour are the real reason behind North Korea’s refusal to work with Hyundai Asan, some sources suggested.

During a pilot tour program for Gaeseong conducted by Hyundai Asan between the end of August and early September last year, North Korea reportedly wanted as much as $150 for every tourist, almost 10 times it charges to Mount Geumgang on the east coast.

Hyundai Asan refused the price, saying it would never break even.

Seoul said yesterday Hyundai Asan remained the official partner for all tour projects with North Korea.

“The North wants to change partners unilaterally, but the Seoul government’s approval of (Hyundai Asan as the main partner) for the Gaeseong tour remains valid,” a government official said.

Lotte has also acknowledged the present situation and decided not to participate in the Gaeseong tour unless the contract between Hyundai Asan and the North is fully sorted out, the official said.

It is Seoul’s position that it cannot overturn its original approval for Hyundai Asan, but that it could be possible for Lotte to sign a separate contract with the North.

Observers said it could thus be possible for Hyundai Asan and Lotte to join hands in the tour business.

One of the alternatives could be for Hyundai Asan to remain as the main business partner but to pass actual operation authority to Lotte Tours. The Seoul government is positively considering the option as well, sources said.

In a letter to South Korean Unification Minister Lee Jong-seok last month, the North Korean representative for inter-Korean tour projects said that it would ban South Koreans visiting the inter-Korean Gaeseong industrial park from entering the streets of Gaeseong. The industrial complex sits on the outskirts of the border town.

Observers said the entry ban is considered to be North Korea’s pressure on the South to allow Lotte to replace Hyundai Asan.

Hyundai Asan and the North signed a $500 million deal in 2000 for the exclusive rights to seven economic programs, including tours to Gaeseong.

The Seoul government consequently approved Hyundai Asan to be the official tour business partner for Gaeseong in March 2003.

Upon North Korea’s first request in August, Lotte Tours Co. said it will not pursue a tourism business in Gaeseong unless North Korea cleared terms with Hyundai Asan Corp.

By Lee Joo-hee

From the Korea Times on 7/21/2006:

North Stops Kaesong Tours
By Lee Jin-woo

North Korea has banned South Koreans from visiting Kaesong, a city near the inter-Korean industrial complex claiming it wants to replace Hyundai by Lotte as a new partner for arranging tours of South Koreans to the capital of the ancient Korean kingdom.

The Unification Ministry downplayed the shutdown, saying it is unreasonable to link the gridlock of the tourism project to the recent missile crisis.

“North Korea brought up the issue months ahead of the present disputes involving the missile launches on the Korean Peninsula,’’ Kim Chun-sig of the ministry told reporters yesterday.

He said Pyongyang has asked the South three times since May to accept Lotte in place of Hyundai Asan, a North Korea-related business arm of Hyundai Group.

“We believe the contract signed between the North and Hyundai is still effective and legally binding unless the two sides agree to nullify the deal,’’ he added.

He said Unification Minister Lee Jong-seok has asked Lotte Tour Chairman Kim Ki-byung not to get involved in the inter-Korean business during their meeting on June 30.

Lotte has made it clear that it would not join the project unless Hyundai-Asan drops the project.

Hyundai has already arranged three trial tours to the ancient city. However, last October, the North Korean committee abruptly announced it would not initiate the program with Hyundai-Asan, only two months after the sides signed a contract.

The relationship between the two sides turned sour after Hyundai Chairwoman Hyun Jeong-eun dismissed Hyundai-Asan CEO Kim Yoon-kyu. Kim was accused of diverting millions of dollars in corporate funds to an undisclosed source.

In addition, the North wants a payment of $150 per tourist to the city, nearly 20 times more than the $20 Hyundai Asan pays to North Korea for every South Korean traveler to Mt. Kumgang. Hyundai has been reluctant to accept the North’s request.

On June 22, the North announced that from July 1 it would not allow South Korean visitors to the industrial complex to visit the city’s downtown area that includes historic sites.

Hundreds of South Koreans, mostly businesspeople and government officials, have been allowed to visit the city during their visit to the industrial complex.

“In a letter, North Korea’s Asia Pacific Peace Committee said no South Koreans will be allowed to visit the city from July 1,’’ Kim said. “We’ve decided to kept it confidential as we wanted to handle the issue during the South-North ministerial talks that ended poorly in Pusan earlier this month.’’

The director added it is technically incorrect to say the “Kaesong tourism project came to a halt or became suspended’’ as there have been only trial tours to the city.

The communist country test-fired seven missiles earlier this month, including one believed to be capable of reaching parts of the United States.

It also said Wednesday that it would halt family reunions of relatives split by the heavily fortified Korean border after the South refused to discuss aid at recent high-level talks. 

From Yonhap:

Pyongyang cuts off last direct dialogue channel with Seoul: ministry

North Korea has withdrawn all of its government officials from a joint facility with South Korea in its border town of Kaesong this week, cutting off the last direct channel for communication with Seoul, an official at the Unification Ministry said Saturday.

“The North Korean side notified (Seoul) on Friday that some of its representatives at the inter-Korean economic cooperation promotion committee office are withdrawing,” Yang Chang-seok, a spokesman for the Unification Ministry, told reporters.

The spokesman said Pyongyang pulled out its government officials from the joint dialogue office, where nine representatives, including five to six civilian and business delegates from each side, have been permanently stationed to discuss government and business projects between the divided Koreas.

“Therefore, we think we will face difficulties for a while in working-level negotiations between the governments which have been conducted at the economic cooperation promotion committee office,” Yang said.

From Yonhap:

Hyundai Asan withdraws all workers, equipment from N.K.

South Korea’s Hyundai Asan, the North Korean business arm of the Hyundai Group, pulled its workers on Friday from the construction site of a separated family reunion center on North Korea’s Mount Geumgang.

The pullout follows an earlier notification from the communist state that the South Korean workers should withdraw from the construction site before Saturday.

A group of 24 workers returned to the country earlier in the day and an additional 104 workers were pulled out around 5:10 p.m., according to the company.

The withdrawal comes as the first visible sign of soured relations between the divided Koreas after North Korea launched seven ballistic missiles, including a long-range Taepodong-2, on July 5, despite strong opposition and appeals from the South.

Pyongyang said earlier in the week that it was no longer able to continue inter-Korean humanitarian projects, mainly Red Cross-sponsored programs to reunite North and South Korean families separated by the countries’ division.

The announcement came after Seoul said it would suspend humanitarian aid shipments to the impoverished North until the missile crisis is resolved.

North Korea accused the Seoul government of abandoning its northern brethren to please Washington and Tokyo, which spearheaded the passage of a U.N. Security Council resolution condemning the North’s missile launches. The countries are apparently looking to impose additional sanctions.

South Korean Unification Minister Lee Jong-seok dismissed the accusation Thursday, saying the suspension of aid shipments was based on his country’s “own judgment.”
“The reason the government decided to suspend additional food and fertilizer aid was because the North aggravated the situation without considering our position or concerns,” the minister said in a regular press briefing.

The South Korean company, which is also the North’s business partner for a cross-border tour program to the North’s mountain resort, has been working to construct the 12-story separated family reunion center.

North Korea has agreed to allow two South Korean engineers to stay and continue with other business tasks while overlooking the incomplete facility, Yang said.

Another group of 29 Korean-Chinese workers would also be reassigned to the company’s tourism section in the North, according to Yang.

A Hyundai Asan spokesman said Thursday that tours to Mount Geumgang will continue.

The Koreas officially remain in a state of war since the fratricidal Korean War (1950-53) ended only with a cease-fire. More than 90,000 people from the South alone remain separated from their loved ones.

From Yonhap 7/20/2006 (via the Lost Nomad):

N. Korea tells S. Korean contractor to leave site of family reunion center
By Byun Duk-kun

North Korea has told a South Korean company to withdraw all of its workers from the construction site of a separated family reunion center before Friday, one day after it said it would no longer hold reunions of families separated by the division of the Koreas, the Unification Ministry said Thursday.

The one-day notice came in a letter faxed to Hyundai Asan, the North Korea business arm of the Hyundai Group, Yang Chang-seok, a spokesman for the Unification Ministry, told reporters.

“The main point of the letter was for Hyundai to halt its construction of the family reunion center on Mount Geumgang by Thursday and have all of its construction workers leave the site before the end of Friday,” Yang said.

The message was delivered Wednesday shortly after the head of North Korea’s Red Cross society told his South Korean counterpart that his country can no longer hold the humanitarian project to reunite separated families due to what it claimed to be Seoul’s submission to international calls for economic sanctions against the communist state.

Seoul suspended its humanitarian aid for the impoverished North after Pyongyang launched seven mid- and long-range missiles on July 5, despite repeated opposition and warnings from the South and its allies.

South Korea’s point man on North Korea, Unification Minister Lee Jong-seok, said in an earlier press briefing that North Korea’s decision to halt the humanitarian project was regrettable, but that the suspension of aid was not intended to be a sanction or to put pressure on the North.

The decision, according to Lee, was based on Seoul’s “own judgement” that the North has seriously undermined security and peace on the Korean Peninsula by test-firing the missiles despite Seoul’s concerns.

The U.N. Security Council on Saturday adopted a resolution that condemned the North’s missile launches while prohibiting missile-related dealings with the Stalinist state.

Lee said the U.N. resolution must be interpreted “strictly,” a repeat of his opposition against imposing other economic sanctions on the North.

Currently, 150 South Korean workers are working at the North’s mountain resort to build the 13-story reunion facility, according to Yang.

“We are moving toward pulling the workers out,” he said.

The divided Koreas have held 14 rounds of the Red Cross-sponsored reunions between separated families since the historic inter-Korean summit in 2000.

More than 90,000 people from the South alone still remain divided from their loved ones on the other side of the heavily fortified inter-Korean border, according to the ministry.

The Koreas officially remain in a state of war since the 1950-53 Korean War ended only with a cease-fire, not a peace treaty.

From the Joong Ang Daily:

Guarantees for Kaesong

Detailed plans for providing private loans to companies moving to the Kaesong Industrial Complex are being made. Even though the relationship between the two Koreas is in a state of confusion because of the recent missile crisis, several senior officials from big banks and the credit guarantee funds are planning to visit the industrial complex in North Korea.

The administration’s rationale for the visit is to get immediate financial support from the private sector to implement its special loan guarantee program to companies in Kaesong. The banks are certainly willing to give the loans once they have a guarantee certificate from the fund, which is backed by the government. The guarantee fund has nothing to worry about because the government will probably patch up the damage if the companies default on the loans.

Although the funding is considered private capital, it is in effect a loan using tax money as security.

It is not right to support an inter-Korea project through such means. Even if the Kaesong Industrial Complex is a symbol of the economic cooperation between South and North Korea, the competitiveness and the business potential of companies moving to the complex should come first.

The companies should be able to make profits on their own and without any special treatment or support from the government. The banks will be making loans as if they are only hypothetical. They have no intention of giving out loans without the government guarantee. This demonstrates just how uncertain the business potential of the Kaesong Industrial Complex really is.

There is also the problem of getting products made at Kaesong acknowledged as South Korean products. The United States, which is Korea’s most important export market, is not accepting the idea. Without solving this problem, the prospects of the Kaesong Industrial Complex are uncertain.

Giving huge financial support to the Kaesong Industrial Complex at a time when tension in the international community is rising because of the test launch of North Korean missiles sends the wrong signal to the international community. The United States is worried about the cash that the project will generate for North Korea and probably its military programs. This funding is contradictory to the international mood. 

Also from the Joong Ang: Apparently the subsidy-providing agency says it needs a bigger budget!

‘Guarantees’ and ‘North Korea’ sound risky to a state-run fund

As corporate bankers and the Korea Credit Guarantee Fund trek to the Kaesong Industrial Complex today for an inspection visit, the state-run loan guarantor sounds less than happy about its role in funding companies at the North Korean complex.

Last month, the Finance Ministry said the government would give loan guarantees of up to 10 billion won ($11 million) per company to help South Korean companies who have set up plants there.

Several of the big banks here will join the group visiting the complex ― they include representatives from Kookmin, Shinhan and Hana ― and say they are looking for business. “This visit is a step in our preparations for possible financial dealings with the companies there,” said an official at one of the banks who asked not to be identified.

But a credit guarantee fund spokesman seemed to hope that won’t happen under the present ground rules. “We feel the companies at Kaesong present enough financial risk that without special funding from the government, it would be difficult to guarantee all the loans on our own,” he said.

Seoul estimates that about 1.2 trillion won in aggregate will have to be made available to companies operating at the complex; most of them are smaller manufacturers. The program announced by the government on June 16 said the loan guarantees would extend for as long as seven years. So while from the lenders’ point of view any loans would be nearly free of risk, the credit guarantee fund has a different perspective.

“We will do what the government tells us to do,” the fund’s spokesman sighed, “but the government should be responsible [for our losses].”

Seoul has about 7 trillion won available in its Inter-Korean Cooperation Fund, but those funds are spread across many programs, including tourism at Mount Kumgang and funding of both North and South Korean visitors at conferences and festivals.

Fifteen companies have set up plants in Kaesong; 24 more have reserved sites, and Seoul’s ambitious plans call for about 800 manufacturers to set up shop by 2012.