North Korea Calls Off Talks, South Korea Says

Source: Yonhap News via Bloomberg

A South Korean soldier works at a check point on the road linked to North Korea, near the Demilitarized Zone in Paju, South Korea. Close

A South Korean soldier works at a check point on the road linked to North Korea, near... Read More

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Source: Yonhap News via Bloomberg

A South Korean soldier works at a check point on the road linked to North Korea, near the Demilitarized Zone in Paju, South Korea.

North Korea called off the highest-level talks since Kim Jong Un took power in protest at the rank of South Korea’s proposed delegate, risking a renewal of tensions and leaving economic projects in limbo.

While the totalitarian regime did not issue a statement, the official newspaper of the ruling Workers’ Party said “it is important to have a proper attitude towards dialogue,” according to a Rodong Sinmun commentary carried by the official Korean Central News Agency. “It is not a true attitude to antagonize or suspect a dialogue partner first.”

The North insisted that South Korea’s unification minister meet its “much lower-ranking” official and rejected the South’s revised proposal for vice minister-level discussions, Unification Ministry spokesman Kim Hyung Suk said in a televised briefing last night. The two-day talks were to begin today in Seoul and focus on the reopening of a joint factory park.

North Korea’s initial willingness to meet indicated Kim was seeking to re-establish economic ties after months of tensions on the Korean peninsula. The agreed-upon agenda didn’t include North Korea’s nuclear weapons program, which it has vowed to maintain in defiance of international sanctions.

Source: KCNA via KNS/AFP via Getty Images

This picture, released by North Korea's official Korean Central News Agency on May 13, 2013, shows North Korean leader Kim Jong Un visiting the Mansudae Art Studio in Pyonguang. Close

This picture, released by North Korea's official Korean Central News Agency on May 13,... Read More

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Source: KCNA via KNS/AFP via Getty Images

This picture, released by North Korea's official Korean Central News Agency on May 13, 2013, shows North Korean leader Kim Jong Un visiting the Mansudae Art Studio in Pyonguang.

North Korea had tried to gain an advantage over South Korea “through this irrational insistence that a top official face a working-level bureaucrat,” said Yoo Ho Yeol, a professor of North Korean studies at Korea University in Seoul.

Defense Shares

South Korea regrets the North’s decision and hopes it will agree to return to talks, the Unification Ministry’s Kim said. North Korea didn’t answer a call via a communication hotline at the Panmunjom border village around 9 a.m., the ministry said separately in a text message.

Defense-related shares rose with naval ship equipment maker Speco Co. (013810) gaining 6.7 percent, electronic warfare equipment maker Victek Co. (065450) rising 4.9 percent and armored vehicle maker Firstec Co. (010820) adding 0.6 percent in Seoul. The benchmark Kospi (KOSPI) stock index fell 0.6 percent to close at 1,909.91 while the won was little changed.

Delegates from the two sides were to have discussed reopening the jointly-run Gaeseong industrial zone and a luxury resort aimed at luring South Korean tourists to the North. Marathon working-level meetings on June 9 laid the ground work for the talks, which would have been the first since Kim took over from his father Kim Jong Il in December 2011.

North Korea’s is demanding the South’s submission and humiliation, said an official from South Korea’s presidential office, who asked not be named as per government policy.

Fundamental Dispute

The chances of a breakthrough in any future North-South talks are slim because the fundamental dispute over North Korea’s nuclear weapons development remains, the International Crisis Group’s Seoul-based analyst Daniel Pinkston said by phone today.

Kim earlier this year threatened preemptive nuclear strikes after the United Nations tightened sanctions for North Korea’s rocket launch in December and an atomic bomb test in February.

North Korea on April 3 started blocking South Korean managers and workers from entering Gaeseong, disturbing operations which generate about $100 million in annual profits for the impoverished regime. It recalled all of its 50,000 workers five days later, shuttering the zone for the first time since it opened in 2005. The park stayed open in the aftermath of 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’s President Park Geun Hye was elected last year as the country’s first female leader partly on her pledge to improve ties with the North through a “trust-building” process. Park has called a nuclear-armed North Korea “unacceptable” while saying issues of humanitarian aid remain independent of politics and that bilateral trust can be developed through “exchange and cooperation.”

‘Sunshine Policy’

Park aims to alter the approach of predecessor Lee Myung Bak, who abandoned previous administrations’ “Sunshine Policy” of engagement, during which the Gaeseong complex and Mt. Geumgang resort came to life.

The “Diamond Mountain” resort at Mt. Geumgang, opened in 1998 by the two Koreas as a symbol of hope for reunification, has been closed since 2008, when North Korean troops shot and killed a South Korean guest walking on a restricted beach.

Shares of Hyundai Merchant Marine Co., the biggest shareholder of the resort’s manager Hyundai Asan Corp., slumped 14.7 percent today. Hyundai Merchant had a 66.2% stake in Hyundai Asan as of March 31.

The U.S. and China, North Korea’s biggest benefactor, have called on Kim’s regime to return to disarmament talks to no avail. U.S. President Barack Obama and Chinese President Xi Jinping found “quite a bit of alignment” on stopping North Korea’s nuclear program at their California meeting last week, White House national security adviser Tom Donilon said.

Timing Significant

The announcement of North Korea’s initial proposal for talks with the South was significant, coming a day before the Obama-Xi summit, Korea University’s Yoo said.

“North Korea was trying to create a facade of eased inter-Korean tensions, hoping to relieve the pressure the U.S. and the Chinese have been levying on Pyongyang,” Yoo said. “Instead, Obama and Xi reinforced their aligned commitment to continue pressuring the North, which led to Pyongyang seeing no need for inter-Korean dialogue.”

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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