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S. Korean Workers to Exit Joint Plant With North Cutting Contact

The last remaining South Korean workers at an industrial zone jointly run with North Korea will leave the complex today, bringing activities to a halt for the first time since the park opened nearly a decade ago.

Seven workers will re-enter South Korea at 5:30 p.m. local time, South Korea’s Unification Ministry spokesman Kim Hyung Suk said by phone in Seoul. North Korea had prevented them from leaving the Gaeseong complex earlier this week over a dispute over unpaid wages and bills.

The withdrawal of the workers severs one of the last channels of inter-Korean contact and shutters a plant that has been an important source of income for the North. It comes amid weeks of tension on the Korean peninsula since Kim Jong Un’s regime in February conducted an atomic test and threatened preemptive nuclear strikes against its enemies.

“The very existence of Gaeseong used to ease the political tension between the two Koreas, so shutting it down even temporarily means higher geopolitical risk,” Cho Bong Hyun, a research fellow at IBK Economic Research Institute, said by phone today before the ministry’s announcement. “It’s not easy to shut Gaeseong, but it will be much more difficult to reopen because restarting would need a shift in political climate before both Koreas approve it again.”

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 concluded this week. The decision by South Korean President Park Geun Hye to withdraw workers was “inevitable” after North Korea refused to hold talks over the facility, Unification Minister Ryoo Kihl Jae said on April 26.

Profitable Park

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.

North Korea has not 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 Korea will provide 300 billion won ($273 million) in emergency loans for companies hurt by the closing of Gaeseong, the Unification Ministry said yesterday. Damages include losses from suspended factory production and inability to ship completed products from the complex, the ministry said.

To contact the reporters on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net; Cynthia Kim in Seoul at ckim170@bloomberg.net

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

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