Seoul - Angered by Seoul's harder line against its neighbour, North Korea is restricting access to a jointly operated industrial zone near the border, as both sides suffer the effects of politics and external economic factors.

Pyongyang put new limits on the number of South Korean workers who could be employed in factories at Kaesong, which has contributed to a decline in orders received by South Korean-owned firms that are suffering from currency depreciation at the same time.

As the future of the 88 South Korean factories at Kaesong darkens, Pyongyang is itself faced with the problem of how to keep the
37,000 North Korean workers employed if the special industrial zone shrinks, or fails.

Inter-Korean relations have soured over nuclear talks, with Seoul taking a harder line and Pyongyang tightening border controls and expelling hundreds of South Korean workers from the zone on December 1.

The new decree forces South Korean business to curtail access to Kaesong and reduce the number of South Korean workers at factories in the heavily fortified area.

As a result, orders received by South Korean companies operating at Kaesung fell 40 per cent to 60 per cent, according to Kim Gyu-Chull, head of a non-governmental organization on inter-Korean cooperation.

"It is even rumored that if the current rigid situation continues, three or four South Korean companies in Kaesong may go insolvent within this year," he added.

South Korean owners have also seen costs rise by one-third since October, because they are required to pay their workers in dollars. The South Korean won has depreciated more than 30 per cent against the dollar in the last quarter of 2008.

The Kaesong special zone is an experiment in cooperation, with South Korean firms providing the capital to create employment opportunities, and North Korea providing cheap labour for Seoul's export industries.

Since December 1, the number of South Korean workers in Kaesong factories was cut from an average of 1,600 to about 1,000. Pyongyang has increased the number of North Korean workers from 36,618 on November 31 to 37,168 in mid-December, according to South Korea's unification ministry.

Amid concerns that Pyongyang may force the park to shut down, North Korea is also conflicted about what to do with its workers.

"Even if Pyongyang manages to force South Koreans to trim down or shut down their operation in Kaesong, Pyongyang obviously has nowhere else to locate these North Korean workers," an industry analyst said. (dpa)