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North Korea Blocks South’s Workers From Industrial Park

Source: Yonhap News via Bloomberg

A South Korean soldier checks a bus on the road linked to North Korea at a check point near the Demilitarized Zone (DMZ) in Paju, South Korea, on April 3, 2013. Close

A South Korean soldier checks a bus on the road linked to North Korea at a check point ... Read More

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Source: Yonhap News via Bloomberg

A South Korean soldier checks a bus on the road linked to North Korea at a check point near the Demilitarized Zone (DMZ) in Paju, South Korea, on April 3, 2013.

North Korea prevented South Korean workers from entering a jointly run industrial park today, adding to tensions after saying it will restart a mothballed nuclear plant and threatening to attack its southern neighbor.

Workers aren’t being allowed into the Gaeseong zone, the first blockage since 2009, though those already staying in the complex are allowed to leave, South Korean Unification Ministry spokesman Kim Hyung Suk said. North Korea said March 30 it may shut the park in response to recent flights over the Korean peninsula by U.S. stealth bombers.

“The entry ban is a serious obstacle to stable operation of the complex,” Kim said. “In order for there to be more investment into North Korea, just as it wishes, there needs to predictability and mutual trust.”

Kim Jong Un’s regime generates about $100 million in profits annually from the joint project and South Korea makes quadruple that amount, according to Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. About 200,000 North Koreans, including workers and their families, depend on the Gaeseong industrial zone for income, Yang said.

“We think this a regrettable move,” U.S. State Department spokesman Victoria Nuland said at a briefing today. “The ban ought to be lifted.”

Photographer: Jung Yeon-Je/AFP/Getty Images

South Korean trucks return after they were banned access to Gaeseong joint industrial park in North Korea, at a military check point of the inter-Korean transit office in Paju on April 3, 2013. Close

South Korean trucks return after they were banned access to Gaeseong joint industrial... Read More

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Photographer: Jung Yeon-Je/AFP/Getty Images

South Korean trucks return after they were banned access to Gaeseong joint industrial park in North Korea, at a military check point of the inter-Korean transit office in Paju on April 3, 2013.

Further Isolation

North Korea has barred South Koreans from the zone before, Nuland said. “This is just a choice that further isolates the country rather than taking them in the direction of a better future,” she said.

Tensions are the highest since at least 2010, after North Korea detonated a nuclear weapon in February and said annual U.S.-South Korea military drills that run until the end of April had brought the region to the brink of war. The regime yesterday said it will restart all facilities at the Yongbyon nuclear site shut by a 2007 disarmament deal, including a reactor that generates spent plutonium fuel rods.

“They are only delaying South Korean entry to the park, not entirely shutting down the complex, at least not yet,” said Koh Yu Hwan, a North Korean studies professor at Dongguk University in Seoul. “By doing this on top of declaring the Yongbyon restart, North Korea is able to keep raising tensions and pressure the U.S. and South Korea.”

Company Employees

More than 120 South Korean companies including apparel company Shinwon Corp. (009270), underwear manufacturer Good People Co. (033340) and watchmaker Romanson Co. (026040) employ more than 53,000 North Korean workers at Gaeseong, located about 10 miles (16 kilometers) north of the demilitarized zone. Their minimum monthly wage last year rose 5 percent to $67.

Shinwon’s shares fell 0.8 percent today in Seoul, while Romanson declined 2.7 percent.

The benchmark Kospi index of stocks fell 0.2 percent, while the won weakened as much as 0.5 percent, touching a six-month low, before finishing little changed at 1,117.60 per dollar. The yield on South Korea’s 2.75 percent bonds due March 2018 was unchanged at 2.56 percent, according to prices from Korea Exchange Inc.

There are around 860 South Korean workers in Gaeseong and 446 had planned to leave today, according to the Unification Ministry. After North Korea imposed the entry ban, only 33 ended up leaving Gaeseong to return to Seoul, the ministry said, adding that many changed their minds.

The ministry plans to seek the North’s approval tomorrow for 526 citizens to enter and 983 to leave Gaeseong, according to a text message.

Meeting Threats

South Korea may respond with force if its citizens at Gaeseong are threatened, Defense Minister Kim Kwan Jin said in a closed meeting with lawmakers, according to parliamentarian Won Yoo Chul who was an attendee.

The South is ready to “annihilate” 70 percent of North Korean forces within five days of an attack, Kim told the meeting, Won said in an phone interview.

While North Korea’s “bellicose rhetoric” highlights a longstanding regional risk, “it does not undermine South Korea’s credit fundamentals,” Moody’s Investors Service analysts Thomas Byrne and Steffen Dyck wrote in a report yesterday. “South Korea’s stability has been ensured by the deterrence provided by its robust alliance with the United States.”

Factories Operating

“Factories in Gaeseong are operating as usual, independent of the raw materials and personnel traffic that’s been restricted” today, said Yoo Dong Ok, chairman of Daewha Fuel Pump Industries and a spokesman for South Korean companies operating in the industrial complex. “Governments on both sides must leave Gaeseong out of politics and let it run as normal. It’s the last remaining inter-Korean exchange and economic cooperation and neither side can afford to lose that.”

Two U.S. Navy destroyers have been sent to the western Pacific to respond to missile threats, Pentagon spokesman George Little said yesterday.

U.S. Secretary of State John Kerry said yesterday it would be a “serious step” if North Korea violates its obligations by restarting the nuclear facilities.

A uranium enrichment plant and a 5-megawatt graphite-rod reactor that generates plutonium were closed six years ago as part of a deal with the U.S., South Korea, China, Russia and Japan to end North Korea’s nuclear ambitions in exchange for energy aid. Six-nation talks aimed at dissuading the regime from developing nuclear weapons haven’t been held since 2008.

Plutonium Reserves

North Korea has 24 to 42 kilograms of plutonium from the Yongbyon reactor, enough to produce four to eight nuclear bombs, according to estimates from Stanford University physicist Siegfried Hecker, who visited the facilities in 2010.

Tensions last rose to this level between the two sides in 2010, following the sinking of a South Korean warship that killed 46 sailors, and North Korea’s shelling eight months later of a South Korean border island, in which four people died.

Almost 800 South Koreans were stranded in Gaeseong in March 2009 after the North temporarily severed communications and suspended cross-border movement to protest the same annual U.S.- South Korea military drills currently taking place.

Kim’s regime last month cut off a military hot line with South Korea, put artillery forces on high alert and threatened pre-emptive nuclear strikes.

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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