N. Korea Holds Factory Officials Citing Unpaid Wages

Photographer: Kim Jae-Hwan/AFP/Getty Images

South Korean cars returning from the Gaeseong joint industrial complex in North Korea, arrive at a gate of the inter-Korean transit office in Paju on April 30, 2013. Close

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Photographer: Kim Jae-Hwan/AFP/Getty Images

South Korean cars returning from the Gaeseong joint industrial complex in North Korea, arrive at a gate of the inter-Korean transit office in Paju on April 30, 2013.

(Corrects average Gaeseong wages in seventh paragraph. This story was first published on April 30.)

North Korea refused to allow seven South Koreans to leave a shuttered industrial park until a dispute involving unpaid wages and bills is settled, prolonging the dispute over the jointly-run project.

Of the 50 managers remaining at the Gaeseong zone, 43 crossed the border at midnight for the first time in nearly a month, South Korea’s Unification Ministry said in a text message. The North has blocked access since April 3 and South Korean President Park Geun Hye last week decided to pull out.

The seven will be able to depart once unpaid wages, corporate taxes and phone bills for the month of March are settled, according to a ministry official who declined to be named, citing government policy. The South was not able to pay after the North rejected an April 10 request for a cash truck to enter Gaeseong, the official said.

A final withdrawal will sever one of the last channels of cross-border contact and shutter a plant that has been an important source of income for North Korea. The departures come amid weeks of tension since Kim Jong Un’s regime in February conducted an atomic test in defiance of international sanctions and threatened preemptive nuclear strikes against its enemies.

Photographer: Chung Sung-Jun/Getty Images

A South Korean worker meets his mother after arriving from the Gaeseong joint industrial complex in North Korea at the inter-Korean transit office in Paju, South Korea on April 29, 2013. Close

A South Korean worker meets his mother after arriving from the Gaeseong joint... Read More

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Photographer: Chung Sung-Jun/Getty Images

A South Korean worker meets his mother after arriving from the Gaeseong joint industrial complex in North Korea at the inter-Korean transit office in Paju, South Korea on April 29, 2013.

“North Korea is being illogically stubborn, demanding payment while not allowing cash deliveries into Gaeseong,” said Cho Bong Hyun, a research fellow at the IBK Economic Research Institute in Seoul. “Ultimately any resolution to Gaeseong- related issues will require a general mood for dialogue and that won’t happen until some sort of a concession is made on the nuclear issue.”

Checking Claims

Five of the seven remaining officials are from the Gaeseong management committee, and will discuss the payment issue with North Korean counterparts, the ministry official said. The other two are from South Korea’s second-largest mobile operator KT Corp. (030200), who are staying behind to operate the phone lines and facilitate communication between Gaeseong and Seoul.

The seven will need at least two more days to check the balance sheets of all 123 South Korean companies with North Korean claims, the official said. South Korean companies on average pay up to $8 million per month to nearly 54,000 laborers, the official said, declining to disclose how much the North is demanding.

No soldiers or military units are stationed near Gaeseong, South Korea’s Defense Ministry spokesman Kim Min Seok said, while adding that the North still has missile launchers on its eastern coast since deploying them around April 4.

‘Inevitable’ Decision

North Korea recalled all of its workers from the factory park on April 8 to protest U.S. and South Korean joint annual military drills, which conclude today. Park’s decision to withdraw the workers was “inevitable” after North Korea refused to engage in talks over the facility, Unification Minister Ryoo Kihl Jae said April 26.

Agreements between the two Koreas have “burst like a bubble,” Park said at a meeting yesterday with senior advisers, according to a statement on her website. “Who in the world will want to invest in North Korea now?”

Companies at the complex, about 10 kilometers (six miles) north of the demilitarized zone on the border between the two countries, have produced more than $2 billion of goods since Gaeseong opened in 2005, according to Unification Ministry data. North Korea generates $100 million in annual profits at Gaeseong, while South Korea makes quadruple that amount, according to Yang Moo Jin, a professor at the University of North Korean Studies in Seoul.

Supplies Blocked

North Korea hasn’t allowed supplies of food or medical equipment into the complex since April 3. Gaeseong has remained open during previous periods of tension, including tests of nuclear weapons and missiles in both 2006 and 2009, and the 2010 deaths of 50 South Koreans in a ship sinking and the shelling of a South Korean border island by the North.

South Korean companies operating in Gaeseong have urged the government to break the impasse and provide compensation to help revive their businesses.

The Export-Import Bank of Korea revived its pledge to expand financial aid to companies running plants in the complex, the state-run lender said in an e-mailed statement April 27, without giving details. The bank has provided 300 billion won ($271 million) of aid, including lower lending rates and higher ceilings on loans, it said.

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

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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