NO BREAKTHROUGH AT KAESONG; NORTH-SOUTH IMPASSE

C O N F I D E N T I A L SEOUL 001080

SIPDIS

E.O. 12958: DECL: 07/08/2019
TAGS: PGOV PREL ECON KS KN
SUBJECT: NO BREAKTHROUGH AT KAESONG; NORTH-SOUTH IMPASSE
CONTINUES

REF: SEOUL 01005

Classified By: A/DCM Joseph Yun. Reasons 1.4 (b/d).


1. (C) Summary: The fourth round of inter-Korean
negotiations at the Kaesong Industrial Complex (KIC) on July
2 adjourned without significant results. The ROKG continued
to emphasize the need for the ROK detainee's release; DPRK
was solely focused on the USD 500 million fee, increased
wages, and land lease fees. The ROKG anticipates more
difficult times ahead in inter-Korean negotiations, but
remains hopeful that the KIC will not be forced to close. To
date, one KIC apparel firm has officially pulled out, but
more will follow if the situation at KIC does not improve
soon. End Summary.


2. (SBU) The 70-minute morning session of the fourth round
of the KIC talks took place on July 2, following April 21,
June 11 and 19 meetings. Unlike the previous round on June
19, the July 2 talks were brief and without any "unofficial"
meetings during breaks. Kim Yong-tak and Park Chul-soo
remained as delegation heads for South and North Korea,
respectively.

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Entering a "Famine" in Inter-Korean Dialogue
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3. (C) Ministry of Unification (MOU) Director General for
Dialogue Planning Department Suh Ho described the July 2
talks as "the worst round" so far. The North Korean
delegation did not show any response to the ROKG's repeated
demands to release the Hyundai Asan employee, Mr. Yu, who has
been detained in North Korea since March 30. The North also
ignored the ROKG proposal to make headway on pending issues
from the previous round, including discussions on the
"Guiding Principles for the Development of KIC," a joint trip
to a Vietnamese industrial park, and border crossing
restrictions placed on December 1, 2008 (see reftel). The
ROKG suggestion to discuss dormitory and nursery construction
for the North Korean workers and to establish a "Joint
Committee on Passage and Stay" also failed to gain North
Korean attention.


4. (C) The one and only focus for the DPRK delegation was
money: a USD 500 million "one-time" fee, increase in wages
and land lease fees, all of which the ROKG rejected in the
previous round on June 19 (reftel). Because the two sides
could not narrow their differences, the afternoon session was
canceled and the talks ended without setting the next meeting
date.


5. (C) MOU interpreted the North's lack of flexibility and
refusal to engage in any meaningful discussion as its desire
to "take a break." DG Suh believed the inter-Korean dialogue
had entered a "famine," likely to continue through the joint
U.S.-ROK military exercise in August. The ROKG will suggest
meeting for another round of talks at the KIC before the
exercise begins, Suh said.

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ROKG Priority: Detainee Release
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6. (C) Separately, another senior MOU official told POL M/C
that while it is clearly not possible for the ROKG to cave on
the North's demand for USD 500 million, "something" could be
worked out if Mr. Yu could be released. That "something"
could be in the form of food aid to the DPRK or a child care
center in the KIC. As for wage and rent increases, the ROKG
could engage in this discussion only after the resolution of
Mr. Yu's case. KIC businesses have indicated to MOU that if
the North could make it easier to ship goods, material and
personnel across the border, the companies would save costs,
which would then make it possible for them to hike wages and
rents.


7. (SBU) To date, one apparel company, SkinNet, has
officially withdrawn from the KIC. Other small and
medium-sized companies are barely holding on, incurring a
loss over USD 31 million in the past six months, but would
not be able to survive a long-term impasse of the KIC talks.
STEPHENS