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North Korea Thaws Ties With South as Gaeseong Talks Progress

The two Koreas agreed to hold a second round of talks on July 10 on resuming operations at a joint factory park, the best progress yet toward mending ties that soured after the North’s February nuclear weapon test.

Negotiators ended more than 16 hours of meetings at the Panmunjom border village yesterday with an agreement to hold follow-up talks this week on normalizing work at the Gaeseong industrial zone, North Korea’s official Korean Central News Agency reported.

North Korea shuttered Gaeseong in April to protest U.S.- South Korean military drills and United Nations sanctions targeting leader Kim Jong Un’s nuclear program. Kim, who had threatened strikes against the U.S. and South Korea, started softening his stance last month as the regime proposed dialogue with the two nations.

The Koreas will “restart Gaeseong when ready” and will discuss ways to normalize operations and prevent future closings at the follow-up meeting, according to the joint agreement carried by KCNA. South Korean businessmen will be allowed to retrieve completed goods and raw materials from the site and inspect facilities starting July 10, KCNA said.

While South Korea sees this as the result of its bid to resolve disputes through talks, it doesn’t mean it’s “simply willing to go back to the way things have been,” the Unification Ministry said in an e-mailed statement yesterday. “Conditions have to be created for the complex to be run not only on a company level but also on the government level.”

Building Relations

South Korean President Park Geun Hye today expressed “relief” at the developments, adding agreements must be adhered to in order to build a relationship.

“It is important for us to protect our businesses’ assets, defend the security of our citizens and prevent a relapse of wrongdoings to not only resolve the Gaeseong issue but for future progress in inter-Korean relations,” Park told her advisers, according to a statement on her website.

Shares of companies operating in Gaeseong gained in Seoul. Watchmaker Romanson Co. (026040) gained 3 percent as of 2:05 p.m. Good People Co. (033340), an underwear maker, rose 1.9 percent. The benchmark Kospi (KOSPI) index of stocks fell 1 percent and the won fell 0.82 percent against the U.S. dollar.

Three officials from each side held the initial talks at Panmunjom, the site for the signing of the armistice that ended the 1950-1953 Korean War without a peace agreement, according to the ministry.

Shut Down

“It’s not easy for Kim Jong Un to permanently shut down Gaeseong because it is a legacy of the late Kim Jong Il,” said Koh Yu Hwan, a North Korean studies professor at Dongguk University in Seoul. “North Korea didn’t shut Gaeseong with a permanent closure in mind, they were only trying to pressure the South,” Koh said. “North Korea knows that it can’t afford to lose Gaeseong for good.”

The North on April 3 started blocking South Korean businessmen from entering Gaeseong. Five days later it decided to withdraw its workers from the industrial zone. On April 11, an unidentified North Korean government spokesman called the closing temporary, while blaming the South for a halt to operations.

Last month, the North requested talks with the South on Gaeseong, then scrapped the offer over a protocol dispute, and less than a week later suggested high-level talks with the U.S. on a peace treaty to formally end the Korean War.

Any talks between Kim’s regime and the U.S. would be the first since the North fired a long-range rocket in April 2012, breaking its pledge of a moratorium on weapons testing in exchange for 240,000 metric tons of food aid.

North Korea faces increasing diplomatic isolation as China, its biggest trading partner, tightens enforcement of UN sanctions targeting financial transactions and joins the U.S., South Korea and Japan on no-tolerance for its nuclear ambitions.

Closing Gaeseong deprived Kim’s regime of a key source of hard currency. Recalling nearly 54,000 of its workers employed by 123 South Korean companies has disrupted the $100 million that Yang Moo Jin, a professor at the University of North Korean Studies in Seoul, estimates the North earns in annual profits.

Panmunjom, about 60 kilometers (37 miles) northwest of South Korea’s capital Seoul, is used for diplomatic engagements and talks. It straddles the military demarcation line that runs through the four kilometer-wide demilitarized zone.

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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