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NORTH KOREA NEWSLETTER NO. 105 (May 6, 2010)
*** INTER-KOREAN RELATIONS

North Korea Virtually Scraps Joint Tour Program of Mount Kumgang

SEOUL (Yonhap) -- Per a unilateral notification, North Korea completed freezing South Korean properties and expelling South Korean workers from its Mt. Kumgang resort at the end of last month. Pyongyang's action followed its seizure of the Seoul government-run facilities on April 23 and freeze of most of the privately owned South Korean tourism assets at the end of April.

   Seoul officials said South Korea was compelled to withdraw most workers from the joint mountain resort on the North's east coast on May 3 after Pyongyang ordered them out in anger over Seoul's refusal to resume cross-border tours.

   A group of 24 employees, who work for chief tour operator Hyundai Asan, returned across the Demilitarized Zone at around 9:40 a.m. on May 3, leaving only 16 personnel behind at the resort, Unification Ministry spokesman Chun Hae-sung said in a briefing.

   Dozens more had already left the mountain resort over the weekend after North Korea ordered all but 16 of the nearly 100 workers out by May 3. The remaining 16 are from Hyundai Asan and Emerson Pacific Group, which has been building gold courses at the resort.

   According to Hyundai Asan, 37 ethnic Koreans from China, who had been employed at the resort as maintenance workers under short-term contracts, crossed the military demarcation on May 2.

   The expulsion came after Pyongyang confiscated South Korean government-run facilities and froze most of the privately owned South Korean assets at the mountain resort. The assets include a hotel, restaurants, a golf course and a shopping center.

   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 saying 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.

   On April 27, 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 since the Korean War and a duty free shop.

   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 tours won the impoverished communist state millions of U.S. dollars each year before they were suspended in July 2008 after a Seoul tourist was shot dead by a North Korean soldier guarding a military zone.

   North Korea demands that the tours resume, arguing their suspension caused it hefty economic losses, while South Korea says Pyongyang has yet to implement measures to guarantee tourist safety.

   Seoul has strongly denounced the North Korean moves and vowed to take countermeasures. "We are working with related government branches to prepare and review our measures," ministry spokesman Chun said, calling the North Korean moves "illegal and unjust."

   But North Korea warned of more "punitive measures" against South Korea if South Korea carries out retaliatory action against Pyongyang for seizing and freezing its assets at their joint mountain resort.

   Minju Joson, a newspaper run by Pyongyang's Cabinet, said South Korea is to blame for the recent North Korean actions at the resort because it did not heed warnings.

   "If South Korean authorities had shown only a little bit of interest in the resumption of the Mt. Kumgang tours, things would have not come this far," it said in a commentary carried by the North's official Korean Central News Agency (KCNA).

   "We will continue to take firm punitive measures as we announced already if the South Korean authorities continue to worsen the situation with confrontational maneuvers," the KCNA said, apparently referring to planned South Korean countermeasures.

   The tours, which drew nearly 2 million South Korean tourists, operated for a decade and were hailed as a symbol of reconciliation between the divided countries.

   South Korea insists that a new probe into the death of the tourist must be launched under its supervision and that concrete, specific steps to guarantee safety for future visitors must be taken by the North.

   The North said last month 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.

   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 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.

   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. They say the measures could include a significant reduction of cross-border trade with North Korea, which came in at over US$1.6 billion last year. Pyongyang has no investments in the South.

   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.

   According to Hyundai Asan, it has spent 226.9 billion won ($204.6 million) to build hotels, a harbor, power generation facility and roads since November 1998. The company also paid another $486 million to Pyongyang for the exclusive right to operate the tours and resort.

   Other investors including Emerson Pacific, the Korea Tourism Organization and the National Agricultural Cooperative Federation's banking branch spent 133 billion won to build a golf course, spa and a bathhouse at the resort's hot springs and a theater for cultural performances.

   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 skilled North Korean workers at low wages. It began operating in 2004.

   Since the tour program was shut down in July 2008, Hyundai Asan has lost an estimated 257.9 billion won from the operation. To stay afloat, the company took emergency measures that included a massive layoff that reduced the number of workers from 1,084 to 387.

   But an expert on inter-Korean economic exchanges estimated that South Korea's losses from the shutdown of the Mt. Kumgang tours will reach more than 1.84 trillion won, or about $1.67 billion.

   At a forum in late April, Kim Young-yoon, head of the Korea Logistics Forum in Seoul, said not only Hyundai Asan and other investors, but also the local economy of Gangwon Province, where tourists gathered before crossing the inter-Korean border, has been greatly affected by the shutdown.

   Kim estimated that South Korean private companies, including Hyundai Asan, invested a total of 359.3 billion won, while the government spent another 4.86 billion won to build a fire station and pave roads at the resort.

  (END)