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Thursday, 13 November, 2008

Summary: This product provides a summary of events derived from Open Sources on the
current status of the Kaesong Industrial Complex (KIC) and the Kaesong City tours. It
covers recent activity by North Korea from its threats to shut down the KIC and its
announcement of the closure of its overland border with South Korea effective 01 Dec.

Please direct your questions and comments to MAJ Steve Sin, Chief, USFK J2 OSINT: DSN –
(315) 725-5045, Commercial – +82-2-7915-5045, or Email – CIOCCAOSINT@us.army.mil

Information contained in this document is entirely derived from unclassified, open source, information. This product is based
exclusively on the content and behavior of selected media and has not been coordinated with other US Government components.
This report may contain copyrighted material. Copying and dissemination is prohibited without permission of the copyright owners.

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USFK J2 Korea Open Source Report

Current Status: North Korea announced on 12 Nov that it would close its overland
border with South Korea beginning 01 Dec. This comes after months of harsh rhetoric
and threats to close down the KIC if the South Korean government failed to halt the
spread of leaflets from the south into the north. The north labels the leaflets as a smear
campaign directed at its leader Kim Jong Il and warns it could lead to a military
confrontation.

Kaesong Industrial Complex Background: A ground-breaking ceremony was held in

Kaesong on June 30 for the construction of the KIC, one of the biggest inter-Korean
economic projects. Planners intended the KIC to be not only a model of inter-Korean
economic cooperation but also to contribute to the economic growth of the North and the
South. The KIC is run by a South Korean committee that has a fifty-year lease which
began in 2004. The park is expected to be complete in 2012, covering 25 square miles
and employing 700,000 people. According to Yonhap News, 83 South Korean firms are
operating in Kaesong employing approximately 35,000 North Korean workers.

Kaesong City Tours: The city of Kaesong is a historically significant site for both
Koreas. It served as the capital of the Koryo dynasty from 918 - 1392. The major
tourist attraction is the many historic monuments from that era that have survived and it
is not surprising that history teachers form a large part of the visitors.

The Current Problem: Groups of North Korean human rights campaigners and
defectors have launched hundreds of thousands of balloon-borne leaflets into North
Korea. The leaflets describe North Korean leader Kim Jong Il as a "devilish killer who
views his people only as slaves." They say Kim Jong Il is the sole reason for North
Korea's hunger and poverty. They also include information on the failing health of Kim
and outline his family tree, which includes many children by different women; something
frowned upon in conservative North Korea.

North Korea angrily decries the leaflets as a smear campaign against leader Kim Jong-Il
and has asked the south to put an end to the distribution of the leaflets, but they
continue. The continued release of the leaflets has put a strain on already tense relations
and resulted in the north threatening the expulsion of South Korean workers and the
closure of the KIC. On 12 Nov, North Korea announced it will close the overland border
between the two countries on 01 Dec, thus setting the stage for making good on their
threats.

North Korea Threatens Closure of KIC: North Korea has called the leaflet campaign
“psychological warfare,” and “a smear campaign against Kim Jong Il.” It says the failure
of the South Korean government to halt the spread of the leaflets amounts to tacit
approval and has threatened to expel all South Koreans and shut down the KIC, sever
all ties with the south, and warns that it risks provoking military confrontation.

North Korea began its current spate of threats during a meeting of military officials from
the two Koreas in Panmunjom on 02 Oct. This was the first inter-Korean military
dialogue since the Lee Myong Bak administration came into power. The meeting lasted
only two hours and ended without any significant progress after the North's delegates

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warned of "grave consequences" for Seoul's spreading of propaganda leaflets.

Pyongyang's delegation stated the consequences could include the barring of South
Koreans from the North through the inter-Korean border and the eviction of all South
Koreans from the KIC as well as the South Koreans from the Mount Geumgang resort in
the east.

Five days after a release of leaflets on 10 Oct, the Rodong Sinmun, a newspaper
published by the North's ruling Workers' Party, carried a commentary with a new threat,
"If the group of traitors keeps to the road of reckless confrontation with the DPRK (North
Korea), defaming its dignity despite its repeated warnings, this will compel it to make a
crucial decision including the total freeze of the North-South relations.” Leaflets were
again released on 27 Oct and again on 05 Nov, each release followed by renewed
threats from the north.

North Korea Takes Action: On 09 Nov, a five-member delegation, led by Lieutenant

General Kim Yong-Chol, top policy maker at the National Defense Commission chaired
by leader Kim Jong-Il, conducted an unprecedented inspection of the KIC, collecting
information on infrastructure and South Korean firms there. South Korean managers
reported "They asked some odd questions. They asked, for example, how long it would
take for us to pull out," and “They did not show an amicable attitude either, saying they
did not visit there just to give out business cards and they had nothing to talk about.”

South Korean Reactions: Seoul has asked the groups to refrain from sending
propaganda leaflets in an apparent gesture to placate the north; however the groups
have continued sending the leaflets. Although the two Koreas agreed to cease
propaganda activities in high-level military talks held in 2004, South Korea states it
does not have the power to prohibit private citizens from releasing the leaflets.

The South's Unification Ministry, which handles inter-Korean relations, played down the
threats, saying they do not reflect North Korea's official position. Experts on North Korea
opined that the threats are “based on the assumption that South Korea will get so scared
that it will somehow find a way to stop the civic groups from floating their balloons
containing anti-Pyongyang leaflets.” However, a former South Korean unification minister
said “North Korea is likely to act on its threat to partially evict South Korean firms from
the inter-Korean joint industrial complex and Seoul needs to have measures ready for
such developments.”

Present: On 12 Nov, citing South Korea’s failure to stop the leaflets and its failure to
adhere to the 2000 and 2007 agreements (declarations on eventual peaceful
reunification, confidence-building measures, economic cooperation, and a permanent
peace mechanism), North Korea announced “we officially inform the south side that the
actual crucial measure taken by the Korean People’s Army to strictly restrict and cut off
all the overland passages through the Military Demarcation Line will take effect from
December 1 as the first step in connection with the above-said development” and “The
south Korean puppet authorities should never forget that the present inter-Korean
relations are at the crucial crossroads of existence and total severance.”

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OSINT ASSESSMENT: This announcement seems to have taken Seoul by surprise in

the swiftness of its coming. Seoul probably expected something similar in the future, as
evidenced by a meeting planned for Thursday between representatives of the KIC
companies and Unification Minister Kim Ha-Joong, in which the representatives are
planning to ask the minister to halt the spreading of leaflets and to request contingency
measures if Kaesong is shut down.

If the overland route is closed, it will mean South Korean companies in the KIC will, at
least temporarily, have to shut down operations. It is also likely the north will make good
on another threat and expel South Korean personnel from the KIC.

In response to this announcement, a spokesman for Hyundai Asan, the company which
operates the KIC and also operates day trips to Kaesong City, stated he doesn’t expect
the tours to be affected by this announcement. But given the level of seemingly genuine
anger over the leaflets and the level of threats, the inspections, and now the
announcement, it seems likely the closing of the border may be just the first step in
ending, at least temporarily, North Korea’s cooperation in the KIC and will include
suspending the tours.

If the leaflets continue to be sent into North Korea, we assess the north will take more
actions in line with their threats, resulting in the severing of relations with the south. We
also assess this event could be grounds for North Korean provocations along the DMZ
and other areas where the two countries are in close contact, like the Northern Limit Line,
which serves as the western sea border.

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