Koreas reach agreement to reopen Kaesong industrial zone

North and South Korea reached an agreement yesterday to reopen the Kaesong joint industrial zone - closed by Pyongyang in April at the height of soaring military tensions.

A five-point agreement that came out of a seventh round of talks committed both sides to making "active efforts" to resume normal operations as soon as possible after inspecting shuttered plants. A joint panel will discuss compensation for economic losses suffered as a result of the complex's closure.

The agreement will help lower tensions ahead of the launch of joint South Korean-US military exercises on Monday which the North had warned could bring the divided peninsula "to the brink of war".

Established in 2004 as a rare symbol of inter-Korean co-operation, Kaesong was a key hard-currency earner for the North and the decision to shut it down took many observers by surprise. It was closed amid heightened tension following the North's third nuclear test in February.

The previous six rounds of talks had foundered on the South's insistence that North Korea provide a binding guarantee that it would not close the complex again.

Yesterday's deal suggested a compromise had been reached where the North accepted that a worker pull-out had closed Kaesong, while both sides promised to ensure it remained open in the future.

"The South and the North will prevent the current suspension of the Kaesong industrial complex caused by the workers' withdrawal from being repeated again," the pact said. It also included a pledge to promote foreign investment in Kaesong - a key South Korean demand.

The North had proposed the seventh round of talks last week, just hours after Seoul announced it was going to start compensation payments totalling US$250 million to businesses hit by Kaesong's closure. The payout move was widely seen as the first step towards a permanent withdrawal from the zone.

Yesterday's accord was welcomed by South Korean company owners who had complained that Seoul and Pyongyang were using their livelihoods as political football. "We will do our best to help the Kaesong industrial park boost its international competitiveness and become a globally viable place for investment," said the association representing the owners.

Monday's military exercises will involve about 50,000 South Korean and 30,000 US troops practising a North Korean invasion scenario.

Although largely computer-simulated, it is viewed as highly provocative by North Korea, which has already issued dire warnings of its impact on stability on the peninsula.

"If the drill takes place, conditions in the region will become unpredictable and escalate to the brink of war," the North's ruling-party newspaper Rodong Sinmun said last month.