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NORTH KOREA NEWSLETTER NO. 107 (May 20, 2010)
*** TOPIC OF THE WEEK

South Korea Starts Cutting Business Ties with Pyongyang

SEOUL (Yonhap) -- South Korea has essentially halted all government-level business exchanges with North Korea and may stop providing even humanitarian assistance to its impoverished neighbor, as tension escalated over the sinking of a South Korean warship near their border.

   Since last week, Seoul has urged hundreds of companies to refrain from starting new ventures in the socialist country, citing political uncertainties, a government official said on May 17.

   The South Korean Unification Ministry official said that his office formally requested last week that 10 other cabinet ministries suspend budgets related to exchanges with North Korea.

   Already, the ministry urged about 200 South Korean companies last week to refrain from signing new deals or supplying resources to North Korea.

   "We thought there were possibilities the companies may suffer unexpected losses under the uncertain and murky circumstances" on the Korean Peninsula, Unification Ministry spokesman Chun Hae-sung told reporters on May 13.

   Chun said the ministry warning did not apply to the more than 110 South Korean companies operating in the North Korean border town of Kaesong, where they employ about 42,000 North Korean workers to produce labor-intensive goods.

   Inter-Korean consignment trade, in which vendors here supply raw materials to North Korea to be assembled into final products, amounted to US$254 million last year, Chun said.

   On May 14, the ministry sent formal documents to about a dozen cabinet ministries and government agencies, according to Chun.

   "Given the grave state of inter-Korean relations following their seizure of our real estate at Mt. Kumgang, we wanted to cooperate with other government agencies in reviewing the inter-Korean exchanges," Chun said.

   He declined to elaborate on the ministry's request or to describe the type of projects each government agency was carrying out. But he insisted that humanitarian aid, including medicine and powdered milk for infants, would continue to be provided.

   Contrary to the spokesman's remarks, civic organizations in Seoul said the South Korean government had barred them from providing such assistance.

   Tensions between the divided countries have run high since the 1,200-ton South Korean naval boat sank March 26 in the Yellow Sea, killing 46 sailors.

   A multinational team on May 20 completed its investigation into the sinking, concluding that a North Korean torpedo attack split the Cheonan in half. Pyongyang denies any role in the sinking.

   With tension running high, South Korean manufacturers in North Korea have expressed anxiety over the future of their businesses.

   On May 18, the Seoul government urged its citizens staying in the North to be cautious after a South Korean worker was expelled last week from the Kaesong complex. Some South Koreans who work at the joint industrial park have returned home over the past few days.

   Also on May 18, 11 archaeologists returned home from Kaesong -- about three weeks ahead of schedule, cutting short their excavation of a royal palace from the Goryeo Kingdom (918-1392).

   The Unification Ministry denied that this was related to inter-Korean ties, saying they had simply completed their work early. The archaeologists began the excavation in March at the ancient city.

   In addition, the ministry said 64 South Koreans who were collecting sand in North Korea returned home. Sand was once the largest import for Seoul from the North, but the government has suspended sand imports as the inter-Korean relations have worsened.

   Making matters worse, North Korea last month confiscated and froze South Korean assets at a joint mountain resort on its east coast in anger over Seoul's refusal to resume cross-border tours.

   The tours were suspended in July 2008 after a South Korean tourist was shot dead by a North Korean soldier in a restricted zone near the resort. The tour program had yielded North Korea about $30 million a year over 10 years.

   North Korea has pressed South Korea to resume suspended tour programs to the Mt. Kumgang resort, but the South has been reluctant to do so and has demanded security assurances from Pyongyang.

   Pyongyang's move prompted Seoul to pledge retaliatory measures, while Pyongyang threatened to "completely review" the joint industrial park in Kaesong.

   Observers say a complete package of South Korean retaliatory measures will be formally soon, with the findings on the Cheonan sinking released.

   Ahead of the public announcement, South Korea invited ambassadors of China, Russia and Japan, among others, to brief them on the results and South Korea's next moves.

   South Korea is expected to raise the issue at the United Nations Security Council and seek further sanctions.

   South and North Korea remain technically at war after the 1950-53 Korean War ended in a truce. Their relations have deteriorated over the past two years as South Korean President Lee Myung-bak has linked aid to progress in North Korea's denuclearization.

  (END)