Koreas Agree To Talks Over Closed Factories

By Jack Kim

SEOUL, July 4 (Reuters) - North and South Korea agreed on Thursday to hold talks aimed at reopening a jointly run factory park that was a rare source of cash for the North three weeks after their last attempt at dialogue collapsed in bickering over protocol.

North Korea accepted the South's proposal, made by its Unification Ministry, paving the way for talks on Saturday at the Panmunjom truce village that straddles their heavily militarised border.

"The North agreed to working-level talks at 10 o'clock on July 6...at Pammunjom," the Unification Ministry said in a statement.

The two sides used a telephone hotline restored by the North late on Wednesday amid pressure from owners of small and medium South Korean firms in the Kaesong industrial zone. The companies had sought action to stem losses caused by the shutdown.

"The proposal takes into account the big problems facing the firms of Kaesong industrial zone three months after it was suspended and the potential damage anticipated with the start of the monsoon season," ministry spokesman Kim Hyung-suk said in calling for the talks.

A sudden flurry of activity in June raised expectations that the two Koreas, which remain technically at war under a truce ending the 1950-53 Korean War conflict, would resume high-level dialogue for the first time in six years to ease tension.

The North had proposed talks to reopen the factory zone, which generates $90 million annually in wages for its workers. It shut the zone down in April at the height of weeks of tension during which Pyongyang threatened both South Korea and the United States with nuclear annihilation.

The North, which has vastly inferior conventional military power compared to the affluent South, has for years channelled scarce resources into nuclear and missile programmes and has issued such threats often for propaganda purposes.

Proposed cabinet-level talks in June were called off one day before they were due to start, with each side accusing the other of insincerity by planning to send low-ranking officials.

The United States and South Korea, as well as China, the North's sole major diplomatic ally, have urged Pyongyang to take steps to end its nuclear programme and to return to dialogue.

The impoverished and isolated North conducted its third nuclear test in February, prompting stiffer U.N. sanctions against it.

South Korean President Park Geun-hye has pledged to engage the North in dialogue and take steps to build confidence for better ties, but has also vowed not to give in to unreasonable demands or make concessions to achieve superficial progress.

Her predecessor, Lee Myung-bak, cut off a decade of lucrative aid from liberal leaders and demanded nuclear disarmament, angering the North.

The North was blamed for sinking a South Korean navy ship and bombing an island while Lee was in office. About 50 people died in the two incidents. (Additional reporting by Ju-min Park and Christine Kim; Editing by Paul Tait and Ron Popeski)