North Korea Takes Out Anger on $2 Billion Factory Zone

South Korean trucks return back after they were banned access to Kaesong joint industrial park in North Korea.
Jung Yeon-Je | AFP | Getty Images
South Korean trucks return back after they were banned access to Kaesong joint industrial park in North Korea.

North Korea on Wednesday closed access to a joint factory zone that earns $2 billion a year in trade for the impoverished state but will allow hundreds of South Koreans to return home, officials said, allaying fears they could have been held hostage.

Factories in the Kaesong Industrial Park were still believed to be operating, but North Korea's decision to block entry is a further sign of the growing tensions on the Korean peninsula. On Tuesday, Pyongyang said it would restart a mothballed nuclear reactor.

The industrial park has not formally stopped operations since it was inaugurated in August 2000 as part of efforts to improve ties between the two Koreas. It houses 123 companies and is staffed by 50,000 North Koreans and hundreds of South Korean business owners and managers.

(Read More: North Korea Raises Stakes in Nuclear Standoff)

More than 800 South Koreans had stayed overnight in the park, just north of the world's most heavily armed border. South Korea's Unification Ministry demanded the park be opened.

The ministry later said 46 workers would return by 5 p.m. with the remainder staying there, South Korea's Yonhap news agency reported.

North Korea has threatened a nuclear strike on the United States and missile attacks on its Pacific bases after fresh U.N. sanctions were imposed for the country's third nuclear weapons test in February. Pyongyang has also said it was in a state of war with South Korea.

In response, Washington has bolstered its forces in the region. Extra deployments have also coincided with annual war games with South Korea, which Pyongyang claims are a prelude to an invasion. Among the hundreds of South Koreans waiting to get in on Wednesday there was a sense of foreboding that Kaesong would be closed permanently, dealing a death blow to the one remaining example of cooperation between the two Koreas.

"Trust between North and South will fall apart, as well as the trust we have with our buyers. We're going to end up taking the damage from this," Lee Eun-haeng, who runs an apparel firm in Kaesong, told Reuters at the customs office at the town of Paju on the southern side of the border.

Lee's business employs 600 North Koreans who earn $130 on average a month.

Another company official, Jang Sun-woo, said North Korean workers had been unfriendly since the weekend while there had been growing concern that difficulties sending in supplies and oil could hit operations soon.

South Korean companies pay a total of more than $80 million a year in wages to workers in the zone. The Kaesong project accounts for almost $2 billion a year in trade for North Korea, according to figures from South Korea.

(Read More: North Readies Rockets After US Flies Bombers Over South)

The Unification Ministry said it had a contingency plan for dealing with any hostage taking, should it occur, but did not elaborate. North Korea held a South Korean hostage for months in 2009 after the worker allegedly slandered the North.

Most experts had not expected Pyongyang to jeopardize the zone, given the money it brings in.

"It appears to be a temporary measure intended to raise tensions with the South, having declared it is entering a state of war and having been ridiculed for keeping Kaesong open for financial reasons," said Cheong Seong-chang of the Sejong Institute think tank in Seoul.

"At least until the end of April, when (South Korean/U.S.) drills end, the North is likely to keep up the tensions as it had done in previous years. The message is it is capable of dealing a major blow to Kaesong."

News of the Kaesong closure hurt South Korean financial markets. The won currency was trading at a six and a half-month low in early trade.

Major Test

North Korea's young leader Kim Jong-un, aged 30, has ratcheted up tensions since he took office in December 2011 by also staging two long-range rocket launches in defiance of U.N. sanctions.

On Tuesday, North Korea said it would restart its mothballed Yongbyon nuclear reactor with the aim of supplying plutonium for its nuclear weapons program and to generate electricity.

While there is skepticism that the young Kim will actually stage a military strike, his actions pose a major challenge to new South Korean President Park Geun-hye who took office just a week after the North's Feb. 12 nuclear test.

(Read More: South Korea Vows Fast Response to North; US Deploys Stealth Fighters)

China, the North's closest ally, is also watching. Beijing expressed regret at North Korea's decision to reopen the nuclear plant on Tuesday, a move that effectively ends its hopes of re-starting nuclear talks.

U.N. Secretary-General Ban Ki-moon said the crisis over North Korea had gone too far and he appealed for dialogue.

"Nuclear threats are not a game. Aggressive rhetoric and military posturing only result in counter-actions, and fuel fear and instability," Ban, a South Korean, told a news conference during a visit to Andorra.