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North Korea Blames South for Scrapped Dialogue on Joint Complex

North Korea blamed South Korea for the cancellation of talks planned for this week on reopening a joint factory park, a setback to prospects of improved economic ties and reduced tensions with Kim Jong Un’s regime.

North Korea was “compelled” to call off the June 12-13 meeting in Seoul due to the South’s unwillingness to cooperate, the official Korean Central News Agency said today in a statement. The totalitarian state denied insisting that South Korea’s Unification Minister meet a lower-ranked official, saying it proposed an appropriate counterpart.

“The south side had no intent to hold dialogue from the beginning and that it only sought to create an obstacle to the talks, delay and torpedo them,” said an unnamed spokesperson of the Committee for Peaceful Reunification of Korea, in a statement carried by KCNA. “We have nothing to expect.”

North Korea’s initial proposal to meet indicated a desire to re-establish economic ties after months of threats including preemptive nuclear strikes. The discussions wouldn’t have officially included Kim’s atomic weapons program, which the regime has vowed to maintain in defiance of international sanctions.

This dispute is “a labor pain of sorts” to make way for “new inter-Korean relations,” Unification Minister Ryoo Kihl Jae told reporters yesterday in Seoul. “North Korea will have to show sincerity if it wants to take part in these relations.”

Calls Unanswered

North Korea didn’t answer South Korea’s calls made via a communication hotline at the Panmunjom border village for the second day in a row, the Unification ministry said today in a text message. South Korea regrets the North’s decision and hopes it will agree to return to talks, Unification Ministry spokesman Kim Hyung Suk said on June 11.

Defense-related shares rose yesterday at the possibility of resumed inter-Korean tensions. Naval ship equipment maker Speco Co. (013810) gained 6.7 percent, electronic warfare equipment maker Victek Co. (065450) rose 4.9 percent and armored vehicle maker Firstec Co. (010820) added 0.6 percent in Seoul.

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.

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 yesterday.

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.

‘Trust-building’

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.”

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 yesterday. Hyundai Merchant had a 66.2% stake in Hyundai Asan as of March 31.

‘Alignment’

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.

The announcement of North Korea’s initial proposal for talks with the South was significant, coming a day before the Obama-Xi summit, said Yoo Ho Yeol, a professor of North Korean studies at Korea University in Seoul.

“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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