By Leonid A. Petrov

On the heels of a new U.N. Security Council resolution, which pursued tougher sanctions against the Democratic People's Republic of Korea (DPRK) for blasting a long-range missile and detonating the second atomic bomb, the communist state has moved aggressively against the last remaining zone of inter-Korean economic cooperation, the Gaeseong Industrial Complex.

On June 11, the North Korean Central News Agency announced the nullification of all contracts on rent, salaries and taxes adopted for the industrial park in Gaeseong.

Pyongyang wanted the minimum monthly wage raised fourfold (to $300 from $75) and demanded an immediate lump-sum land lease payment of $500 million. It asked Seoul to empty the industrial estate unless the money was paid.

This notification came after the two Koreas were wrangling over the release of a South Korean worker who was detained by the North Korean authorities for alleged anti-DPRK statements as well as inciting DPRK citizen to defect.

Even without salary increases, the 106 companies that invested in Gaeseong have been in economic trouble and have said they are considering forsaking the ROK government for support.

Now they have started withholding wages to their DPRK staff in protest at the North's demand for increased pay and tax rises.

What lessons can be drawn from the recent rise and fall of inter-Korean economic cooperation? Pyongyang blames the South's ``extreme confrontation policy'' for destroying the foundation of the industrial park, adding that the future of the complex is up to the South.

Restrictions imposed by the North on all jointly operated special economic zones will inevitably lead to substantial losses for the South Korean government, which had guaranteed investors up to 90 percent of their capital in case of forced closure or military conflict.

North Korea will also lose a significant source of revenue, but since both the Gaeseong industrial park and Mt. Geumgang tourist resort are physically in North Korean territory, they will remain the property of the DPRK government, even if closed or abandoned by investors.

There are no figures indicating the extent to which the South Korean side might have profited from these cooperation projects in monetary terms.

Hyundai Asan and the companies investing in the complex have always been subsidized by Seoul through direct and indirect channels, and the system of these subsidies was not particularly transparent.

The South Korean government never wanted to tell taxpayers how much money it had spent on aiding the inter-Korean projects in Gaeseong and Mt. Geumgang; moreover it must have had serious reservations about the future of this investment.

During the decade of the Sunshine Policy (1998-2008) also known as the policy of peace and prosperity, the Gaeseong projects were frequently criticized by hawks in Washington and Tokyo, who saw them as yet another way to indirectly subsidize the North Korean regime.

Indeed, Pyongyang was making good money out of economic cooperation in Gaeseong, amounting to $100 million a year.

So why did it decide to close it so resolutely? The North's official explanation about Seoul's ``extreme confrontation policy'' must be a pretext.

Anti-DPRK propaganda can be disturbing and annoying, but it hardly constituted a direct threat to the regime. After all, Pyongyang had not been influenced by the much larger ROK propaganda efforts prior to 1998.

The real reason could be the Gaeseong project itself. It created a stage where the large number of North and South Koreans worked together for the first time in 60 years since the division of the peninsula.

This project provided a rare opportunity for unauthorized exchanges. The North Koreans not only learned modern technical skills, they also had a chance to see that their southern compatriots do not look or behave like they are normally portrayed by the DPRK propaganda.

Cautious political discussions cannot be ruled out, which in the long run could have a great impact on the internal situation of North Korea.

Anticipating this detrimental development, the North started cooperation with the South on the precondition of switching workers once a year. But later they realized this was impossible for technical reasons.

Inevitably, rumors about life in South Korea started circulating among Gaeseong workers and their families. Illusions about the South became so uncontrollable among the people that the authorities could not bear this situation any longer.

Dr. Leonid Petrov is a research associate at the Research School of Pacific and Asian Studies at the Australian National University. He can be reached at leonid.petrov@anu.edu.au. The views expressed in the above article are those of the author and do not reflect the editorial policy of The Korea Times.