South Korea says factory park in North in turmoil
By Jack Kim
SEOUL, May 18 (Reuters) - South Korea's point man for North Korea said on Monday a joint industrial enclave it runs in the communist state is in turmoil after the North voided contracts governing the facility, sending shares in firms that operate there tumbling.
North Korea said on Friday it was tearing up deals on labour, rent and taxes at the Kaesong Industrial Park, the last major economic project between the rival states where South Korean firms use cheap North Korean labour and land to make goods. [ID:nPEK58006]
"Today, the Kaesong industrial zone is in crisis," Unification Minister Hyun In-taek told an academic seminar.
Despite the North's threat, which analysts see as a hard-nosed negotiating ploy aimed at squeezing more money out of the South, the nearly 100 small and medium-sized South Korean firms that employ almost 40,000 North Koreans at Kaesong were operating normally on Monday, officials said. [ID:nSEO53910]
Analysts said the North wants to raise rents and wages, which start at $70 a month per worker and are paid directly to its government, to levels that can increase its cash-starved coffers but are still cheaper than those in China or Vietnam.
Shares in companies that have production units in Kaesong, located about 70 km (45 miles) northwest of Seoul, sank in early trading on fears that the plants could shut down, with watchmaker Romanson (026040.KQ) shedding more than 5 percent and garment maker Shinwon Corp (009270.KS) losing nearly 3 percent.
"If the North thinks the South won't budge an inch, Pyongyang would not stop at just closing down the park. What would follow would be even more political tension, which can lead to increased military tension," said Paik Hak-soon, director at the Center for North Korean studies at Sejong Institute.
Destitute North Korea, stung by tightened trade sanctions in response to its defiant rocket launch in April and decision to back away from a nuclear disarmament-for-aid deal, has been looking to obtain more money from South Korean companies in Kaesong.
North Korea's already battered economy would likely take a further blow if it made good on a threat issued in recent weeks to conduct a fresh nuclear test. It was hit by U.N. sanctions after its first and only test in October 2006. [ID:nSP421458]
South Korea has also called for the immediate release of one of its workers detained by the North at the park for about two months, who is accused of making derogatory comments about the country's communist system. (Additional reporting by Kim Junghyun and Park Jung-youn; Writing by Jon Herskovitz; Editing by Jonathan Hopfner and Valerie Lee)
