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NORTH KOREA NEWSLETTER NO. 104 (April 29, 2010)
*** TOPIC OF THE WEEK (Part 1)

North Korea Freezes South Korean Assets at Mount Kumgang Resort

SEOUL (Yonhap) -- In another sign of deteriorating inter-Korean relations, North Korea took unilateral action this week to freeze privately owned South Korean assets at its Mt. Kumgang resort.

   The South Korean Unification Ministry said on April 27 that North Korean officials posted stickers on South Korean facilities indicating they would be confiscated, while dozens of officials from companies that owned the buildings looked on.

   The week prior, North Korea seized five South Korean government-owned facilities including a reunion center for families separated by the Korean War and a duty free shop. It plans to take control of all South Korean assets at the mountain resort by the end of this month.

   On April 27, North Korea froze shops and other amenities owned by 25 South Korean vendors at the resort. The next day, North Korea froze more South Korean assets including a beachside hotel, a restaurant and an 18-hole golf course.

   "The work ended in a little more than an hour," ministry spokeswoman Lee Jong-joo told reporters on April 27, adding the freeze affected shops and amenities owned by 25 South Korean businesses, including a restaurant, a karaoke bar and a souvenir shop.

   "At an appropriate time, the government will be able to announce proper countermeasures," she said in a briefing. A senior ministry official said earlier this week the measures would be ready by early May.

   Observers say the South may tighten control on inter-Korean trade, another key source of income for the sanctions-hit North.

   South Korea suspended cross-border tours to the mountain on the east coast in July 2008 after a South Korean tourist was shot to death by a North Korean soldier guarding a restricted zone near the resort.

   The North said last week it was taking over South Korean facilities as "compensation for our loss stemming from the extended suspension of the tours." It claims its probe into the shooting was sufficient, and that leader Kim Jong-il has made necessary safety guarantees for future South Korean tourists.

   But Seoul has called for more specific security assurances from North Korea, and demanded a second investigation into the shooting joined by South Korean officials.

   In February, the two Koreas met to discuss the resumption of the tours but did not manage a breakthrough.

   Not long after, the North set April 1 as the starting date for the tours and threatened to take "extreme steps" if the South did not meet the deadline.

   North Korea notified Hyundai Asan, the private operator of the inter-Korean tours, on April 24 that it would carry out its announced seizure of South Korean facilities at Mt. Kumgang. This followed a similar warning a day earlier that it would seize the five South Korean government properties at the resort, freeze privately owned real estate inside the area and expel all employees.

   North Korea has said it may claim ownership of the seized assets or turn them over to a new tourism business partner, in what was likely a reference to China.

   One of the South Korean business officials present during the seizure said after returning from the resort that several military officers were seen directing the freeze, suggesting it involved the National Defense Commission (NDC), the highest seat of power in North Korea. The NDC sent officials to inspect the resort last week.

   Seoul has warned of retaliatory action for the asset freeze, and the Unification Ministry said in a statement last week that North Korea will be to blame for any further deterioration of relations between the divided states that results.

   Observers say the South may drastically reduce inter-Korean trade, which has already suffered since President Lee Myung-bak took office with a get-tough policy on the North's nuclear ambitions in 2008.

   Analysts in South Korea have speculated that the North is feeling the effects of international financial and arms trade embargoes imposed after its nuclear test last May.

   South Korean companies own a combined 359.3 billion won ($325.5 million) worth of land and buildings at the Mt. Kumgang resort. Since the resort was launched in 1998 with Hyundai Asan, tour packages attracted more than 2 million South Koreans and brought the North about $30 million annually.

   On April 28, North Korea apparently sought to justify its moves, accusing the South of balking at the resumption of tours out of a desire to shun improved ties with its socialist neighbor.

   South Korea "will pay the price for coldly kicking away the rare chance of improving relations," Rodong Sinmun, the paper run by the ruling Workers' Party, said in an editorial.

   The standoff over the joint tourism project comes amid increasing suspicions that North Korea may be behind the March 26 sinking of a South Korean naval ship that killed 46 sailors. South Korean President Lee has pledged a stern response for whoever is responsible, while the North has denied involvement.

   North Korea has also threatened to "entirely review" its other major joint venture with South Korea, the joint industrial park in Kaesong, if relations between the divided states do not improve.

   The Kaesong complex houses more than 110 South Korean firms employing 42,000 low-wage but skilled North Korean workers. It began operating in 2004.