South Korea says will 'punish' firms that bow to North in wage row

SEOUL (AFP) - South Korean companies will be penalised if they yield to pressure from North Korea to raise the salaries of workers in their joint Kaesong joint industrial complex, Seoul officials said Tuesday.

Seoul has been seeking talks for several weeks since Pyongyang announced it planned to unilaterally raise the basic salary of the 53,000 North Korean workers employed across more than 100 South Korean firms operating in Kaesong.

The move would increase the average monthly sum the South pays for each worker - including allowances, welfare and overtime - from US$155 (S$215) to US$164 (S$227.50).

The South has rejected the idea, citing an existing agreement that any wage rise had to be agreed by a joint committee overseeing the management of the complex, which lies just over the border in North Korea.

The North has refused to engage in dialogue with the South over the issue.

The South's unification ministry, which handles cross-border affairs, said Tuesday the firms in Kaesong would face "legal and administrative punishment" if they agree to raise wages.

"The situation will get worse if we succumb to North Korea's demands," a ministry official told reporters, adding that Seoul would take a "strong" stance in the case in order not to set a bad precedent.

South Korean firms setting up in Kaesong have a source of cheap, Korean-speaking labour, as well as preferential loans and tax breaks from Pyongyang, which also effectively underwrites their investment.

Observers say the wage row is part of a battle to assert control over the running of the industrial zone.

First opened in 2004 as a rare symbol of cross-border cooperation, it had previously been spared the fallout from the regular eruptions in relations between the two Koreas.

But the North effectively closed down the park for five months last year following a surge in military tensions.

When it reopened in September, the two sides created the joint committee to deal with any further problems related to its operations.