"There were many stumbling blocks laid out by the North during this session"

Kim Young-tak,
head of South Korean negotiating team

Discussions had become bogged down over North Korea's demands for higher wages for its 40,000 workers at the complex and an increase in rents paid by South Korean firms.

"There were many stumbling blocks laid out by the North during this session," the chief of the South Korean delegation, Kim Young-tak, told reporters in Seoul.

More then 110 small to medium-sized South Korean companies use cheap North Korean labour at the factory park, to make products such as cooking pots, clothes, shoes and watches.

The companies receive tax breaks and other incentives from the South to set up there and pay workers a basic salary and social welfare benefits that total $70 a month.

Kaesong also provides a vital source of revenue for North Korea's moribund economy, which has come under further pressure by fresh UN sanctions imposed after its nuclear test in May 2009.

The economy has also been hit by currency control measures it imposed at the end of last year that made it more difficult for its people to buy goods.

Shortages

Kaesong industrial park


  The park opened in June 2003 located near the North Korean city of Kaesong, about 70km northwest of Seoul, the capital of South Korea

About 100 South Korean firms have set up factories in the park, mostly to assemble products using cheap North Korean labour

About 38,000 North Koreans work in the park producing or assembling items such as textiles, watches and cosmetics cases

Minimum monthly wage of $75 is paid to the North Korean state and not directly to workers

The move has sparked inflation and a shortage of goods on the shelves, leading to reports of unrest among an already impoverished public who are having more trouble buying goods.

At the same time South Korea has stuck by its policy of freezing off handouts once worth about 5 per cent of the North's estimated $17 billion a year economy, saying aid will only come when his neighbour scraps its nuclear ambitions.

North Korea has recently said a year-long boycott of nuclear talks could only end once UN sanctions were removed and the US opens talks on a peace deal to replace the armistice that ended the 1950-53 Korean War.

Analysts say the North is trying to win concessions to lure it back to the stalled six-way, disarmament-for-aid talks by attaching conditions to its return and making threats to security in the North Asia region.

Rhetoric has been increasing from both sides of the border in the past week.

South Korea's defence minister said on Wednesday that Seoul would be willing to launch a pre-emptive strike to halt a possible nuclear attack by North Korea, comments that will likely lead to a sharp rebuke by Pyongyang.

On Friday, the North threatened to cut off all dialogue with the South and launch a "holy war" against South Korean leaders.