SEOUL: South Korean factories at a joint industrial estate in North Korea are losing orders because of growing tensions between the two countries, according to officials.

The North, which for months has been blasting what it calls Seoul's confrontational attitude, on Monday imposed strict border controls and ordered the expulsion of hundreds of South Koreans working at the Kaesong estate.

The communist state is also angry at the spreading of propaganda leaflets across the border by Seoul rights activists.

The activists said on Friday they would suspend the leaflet launches to give the North a chance to change its attitude.

Kaesong, just north of the heavily fortified border, was seen as a potential model for joint projects – with the North providing the cheap labour which the South lacks and Seoul providing the investment and know-how.

But the Corporation of Kaesong Industrial Council, which represents the 88 southern firms in the estate, said members have been making losses of 20-30 per cent on their operations since tensions began rising last month.

"It depends, but businesses are mostly suffering a loss of 20 to 30 per cent," Yoo Chang-Geun, deputy head of the council, told a news conference.

The border controls have not hampered operations but South Korean buyers are cancelling orders because of the uncertainty about Kaesong's future, he said.

Lee Im-Dong, the council's general manager, said factories are seeing a cut in orders ranging from 20 to 70 per cent.

"Our output capability has remained unaffected but they are questioning about whether there will be a stable supply," Lee added.

The firms produce light industrial goods such as clothing, watches and kitchen utensils worth 250 million dollars per year. About 70 per cent of the goods go to South Korea and 30 per cent are exported.

The council said 36,600 North Koreans, earning about 70 dollars a month, work for the South Korean firms, and another 45 factories are under construction.

Yoo said the North, despite the border controls, had promised to guarantee business and economic activities at Kaesong.

But he urged the South Korean government of conservative President Lee Myung-Bak to send a special envoy to North Korea to try to mend relations.

Lee, breaking with the "sunshine" engagement policy of his predecessors, has linked major economic aid to progress in the North's denuclearisation – a stance which enrages Pyongyang.

The North has also accused Lee's government of condoning the leaflets, which are carried into the North by gas-filled balloons and which fiercely criticise leader Kim Jong-Il.

Seoul said it has asked the rights groups to stop, but has no law to make them desist.

The groups said on Friday they would suspend the launches, following an appeal from the ruling party chairman Park Hee-Tae.

"Under the ruling party chairman's request, we have decided to stop sending flyers for the time being and observe changes in North Korea's attitude," said the groups in a joint statement.

"This decision has nothing to do with North Korea's threats or the pro-Pyongyang force in the South," they said in reference to scuffles which broke out on Tuesday with left-leaning groups.


- AFP/so