SEOUL, South Korea – South Korea has not ruled out the possibility that a joint industrial complex in North Korea will ultimately be shut down, a news report said Saturday, after the North announced it was canceling contracts for companies operating there.
North Korea told the South on Friday that all contracts on running the factory park in Kaesong, just north of the border, are invalid. It said it will write new rules on taxes, rent and wages on its own and that the South should unconditionally accept them or pull out of the complex.
The move was a major blow to a project seen as a symbol of collaboration between the wartime foes, though the communist regime has previously taken steps undermining the complex in protest against tough approaches to it by conservative South Korean President Lee Myung-bak.
More than 100 South Korean companies employ some 38,000 North Koreans at the zone to make everything from electronics and watches to shoes and utensils, providing a major source of revenue for the cash-strapped North.
North Korea's announcement signals a sharp raise in taxes, rent and wages at the complex — a move that would significantly reduce the appeal of operating factories in the North where arbitrary border restrictions and closures have meant losses for South Korean companies.
South Korea denounced the announcement and called the North irresponsible.
"This is a measure that fundamentally threatens the stability of the Kaesong complex, and it is not acceptable at all," Unification Ministry spokesman Kim Ho-nyeon said Friday.
On Saturday, the mass-circulation Chosun Ilbo newspaper said Seoul is bracing itself for the park's closure.
"Our position is that we will risk Kaesong's shutdown in the worst case," it quoted an unidentified official as saying. The newspaper said the government plans to compensate the Kaesong companies for losses if the complex is closed.
Unification Ministry spokesman Kim said the government is not considering the park's closure. "Our position is to save the complex," he said.
Spokeswoman Lee Jong-joo told a briefing later Saturday that South Korea will continue to seek talks with the North, though it has not yet responded to an offer to meet next week.
Relations between the two Koreas have significantly deteriorated since President Lee took office in February last year. Since then, reconciliation talks have been cut off and all key joint projects except the factory park have been suspended.
North Korea claims the South is benefiting from "preferential treatment" at Kaesong — including free rent and cheap labor. The regime scrapped those benefits Friday, blaming Seoul's "confrontational" stance.
"We cannot provide favors forever to those seeking confrontation," the North said.
North Korean workers in the complex are paid about $70 a month on average — about half the salary of Chinese laborers at South Korean factories in China, according to South Korean officials.
Analyst Kim Yong-hyun at Seoul's Dongguk University said the North is using brinksmanship in an attempt to force South Korea to change its policy.
The association representing the companies operating at Kaesong issued a statement saying they are "deeply worried and perplexed" by the North's decision. It also called for both governments to resolve the situation through dialogue.
Last month, the two Koreas held their first government-level talks since Lee took office, but the meeting made little progress with the North refusing to free a South Korean worker detained in late March for allegedly criticizing the regime's political system.
The North said it had intended to negotiate new terms for the complex with South Korea, but that the South was insincere and kept raising the issue of the detained worker, which it said was not on the agenda.
The industrial park opened in 2004 at a time of budding reconciliation between the sides, and has provided the North with badly needed hard currency that some fear is being diverted to its nuclear and missile programs.
Nuclear tensions are also high on the divided peninsula because the North has quit disarmament talks and threatened to conduct an atomic test following its widely criticized April 5 rocket launch. North Korea also has arrested two American journalists who are to go on trial in early June for allegedly entering the country illegally.