The two sides say they will hold further discussions next week.
Seoul's chief delegate Suh Ho has suggested both countries are keen to resume manufacturing as well as expand operations at Kaesong.
The complex already houses more than 120 South Korean factories, which employed more than 50,000 North Korean workers, until Pyongyang unilaterally suspended operations in April.
Presenter: Richard Ewart
Speaker: Dr Robert Kelly, associate professor of international relations at Pusan National University in South Korea
KELLY: A big problem is that Kaesong basically has become a sort of subsidy permanently to North Korea. The idea behind Kaesong originally was not sort of the economic development of South Korean industry, that's not necessary. The real idea was to sort of lure North Korea into better behaviour, business norms, exposure to South Koreans and all this might actually change North Korea and it has not. In that way it has been a failure. Economically it has not been, politically though, which was the purpose of it, it has.
EWART: So against that background could it be the political wrangling that is plainly going on over Kaesong still, South Korea want the North Koreans to apologise for closing down Kaesong unilaterally a few months ago, could it be the political angle that will undermine the industrial success and the whole thing will collapse as a result?
KELLY: That's what I had thought, I have to say I'm a little bit surprised that we've come back to the table so quickly. I do think that the North Koreans are probably feeling the pain, the Kaesong industrial plant was a nice way for North Korea to get cheap quick money. Remember the North Korean government doesn't actually pay the workers there, nor do the South Korean industries there. Instead the North Koreans who work there are paid in won, so the North Korean government actually collects the money directly from the South Korean industries. So in that way a lot of people thought the North Koreans might come back and go for it. I had thought, what I had said earlier was that with a new conservative President the South would be much more reticent to go back into it. And if you actually look at the negotiations there have been several conditions from the South that I don't think the North is going to meet, like you said the apology, and they're talking about restitution with interest for lost production in the last couple of months. There's no way the North is going to go for that stuff.
EWART: And the South of course is asking if Kaesong were to re-open for safeguards that unilateral closure wouldn't happen in the future, but a guarantee on that line is unlikely from North Korea, and even if they gave it, I think we know from past history that they can break it?
KELLY: Yes, and I would agree with that 100 per cent, I think that's correct. I mean at this point why would anybody believe the North Koreans and what they say right? As a good example Chinese industry that has operated in North Korea has had these problems too, and here you would expect the North Koreans would be a little bit more cautious and reticent the way they treat Chinese investors, North Korea's very dependent on China as we all know, and the North Koreans still treat Chinese investors in the way that they have treated South Koreans in Kaesong and other sort of joint projects. And that just tells you what I think a lot of people already kind of suspect, which is the North Koreans don't understand modern business norms, they're not really prepared to make serious sacrifices to follow the rules and stuff like that, so again I'm just surprised that southern industries would want to get back in there, except for the fact that it's very, very cheap labour.
EWART: You mentioned there the money that's going into the North Korean economy, around about 80 million dollars in wages as I understand it when Kaesong was up and functioning. Could you see a situation where someone in the politburo in Pyongyang might say well look, maybe we should just go along with South Korea on this because we need that money and if things don't turn out the way we want, we'll just close it again?
KELLY: Yes, I would imagine that's exactly what's being said in Pyongyang, that's probably what was said ten years ago when the original site was setup. When the site was setup like I said before the idea was that it would actually create sort of like spill over effects, right, that there would be sort of like a hole in the Korean iron curtain as it were, and this would be sort of like a first step towards the liberalisation of the North Korean economy and everything else. And the North Koreans instead have done exactly what you just described, they've isolated it completely, they treat it as a totally self-enclosed enclave, the people who work there are very closely watched, the government takes all the dollars right and then pays the people in useless North Korean won, so the whole project has sort of really kind of gone off the rails from what it was originally supposed to be, and just like you mentioned the North Koreans frequently use it for blackmail. And if they just want to walk out, they always can. So an iron clad reassurance from the North, I mean who believes that at this point?
EWART: Now my understanding is whilst these negotiations are ongoing that some of the South Korean factory owners have been allowed to go back in there to remove goods, and in some cases remove equipment as well. Is there a risk that a number of companies will just go in, pull everything out and say that's it, we wash our hands, we're not coming back whatever agreement you reach?
KELLY: Yes, I would be surprised actually if they managed to expand it. The original story you had mentioned that there was discussion about expanding it. If that is going to happen then it's almost certainly going to mean that there will be political guarantees from the South Korean government to South Korean investors in the zone, from a straight economic perspective it's kind of hard to imagine big industries moving into the zone. Again the cheap labour I guess is the big countervail, but in the past it's been the South Korean government that's really twisted arms to get people in there. And now after the closure, just like you say, I mean I could imagine that a lot of South Korean businesses are just like we're not going in there unless we have like a 100 per cent guarantee from the South Korean government, which basically means the South Korean taxpayers are paying for it and the whole thing becomes political again.
EWART: Cooperation of course between the two Koreas is a constant source of amazement I think to the rest of the world. They don't cooperate on much, but they have managed to cooperate on Kaesong for a relatively prolonged period until the closure back in April. You've also said in your blog though if the worst happens don't mourn its passing. Why not, because do people not see Kaesong as possibly one way to get at the more important issues, for example the nuclear program?
KELLY: Yes, and that's why I think the South is actually coming back to the table. Like I said the economic benefit to the South is minimal, the political benefits haven't really showed up. Increasingly I think Kaesong is seen in the South where I work as sort of like a symbol, it's sort of like one of the last real ways that the South actually communicates and talks to the North and deals with them on a regular basis. And so it's important for that reason, it has a kind of like ideological or sort of like nationalist appeal in the South beyond the political and economic issues. I do think though for myself I would not mourn its passing, I suppose I'm a bit of a hawk in this, but I tend to think that Kaesong basically provides easy money to the North Korean regime. And remember North Korea's not really going to change until they really feel the pressure, until things really begin to sort of get narrow and difficult and tight for them, they start to run out of money and everything else. We all know most of that means their dependence on China, China needs to change. But one thing in my opinion that we should not be doing is allowing the North Koreans to get legal US dollars moving through their banking system, and that's what Kaesong provides. We're not sure, maybe about a billion dollars a year in legal US dollars, and that's actually pretty exceptional that allows the North Korean banking industry to actually operate abroad and say look our money is real, it's not all raised from drug running and counterfeiting and all the other things that the North Koreans do to get dollars.