South Korea Cuts Off Trade with North Over Sinking of Warship

The wreckage of the South Korean naval ship Cheonan is salvaged by a giant offshore crane

South Korea has cut off trade with North Korea, banning Pyongyang's ships from it waters and demanding an apology from the regime of Kim Jong-il for the sinking of one of its warships last March.


Announcing retaliatory measures for the torpedoing of the Cheonan, South Korea's president Lee Myung-bak, also raised the temperature of the military stand-off on the Korean Peninsular, vowing "immediate" retaliation if the North committed any cranefurther provocations.


"From now on, (South) Korea will not tolerate any provocative act by the North and will maintain the principle of proactive deterrence," a sombre Mr Lee said in a nationally televised speech delivered from the country's war memorial.


"If our territorial waters, airspace or territory are violated, we will immediately exercise our right of self-defence." Mr Lee, who last week said the sinking was a breach of the 1953 armistice that ended the Korean War, confirmed that Seoul will refer the matter to United Nations.


North Korea has continued to deny responsibility for the attack, which killed 46 South Korean sailors, despite the wealth of evidence produced by a multi-national inquiry which recovered parts of the tail section of a North Korean-designed torpedo from the seabed where the Cheonan sank.


Last week Pyongyang employed its characteristically bellicose rhetoric to threaten "all-out war" if the South sought to extract punitive sanctions for the sinking. North Korea's near-bankrupt economy is already reeling from the impact of UN sanctions imposed last year after the illegal testing of a ballistic missile and a second nuclear device, with defectors reporting rising food shortages and growing discontent among the population.


Analysts said that President Lee's response - which exempted the joint Kaesong industrial complex and aid for North Korean children - appeared to be carefully calibrated, avoiding direct mention of Kim himself. However Mr Lee warned that the South was no longer prepared to turn the other cheek in the face of North Korean provocations, as it had in the past after a 1983 bombing in Myanmar aimed at Seoul's then-president and the downing of a South Korean airliner in 1987 which killed 115 people. "But now things are different.


North Korea will pay a price corresponding to its provocative acts," he said, adding "North Korea's goal is to instigate division and conflict. It is now time for the North Korean regime to change."


The South's capital and stock markets dipped slightly on the news with the won falling more than two per cent to an eight-month low in early trading, though later recovered a little, as traders appeared to signal that the situation was not yet sufficiently grave to trigger capital flight.


"South-North tension is certainly not positive, but given historical trends, losses that markets suffer over this will be brief, unless a drastic situation takes hold. By drastic, I mean war. I do not think war is likely though," said Kwak Joong-bo, a market analyst at Hana Daetoo Securities.


Confirmation that the North had sunk the Cheonan provoked widespread condemnation among South Korea's allies last week, including Britain, the US, Japan and Australia. However China, which has a veto on the UN Security Council, has refused to actively condemn the sinking, describing it as "tragic" and "unfortunate" and urging caution on all side to avoid further destabilizing the Korean Peninsular.


The United States, which is holding the latest round of the Strategic & Economic Dialogue in Beijing on Monday and Tuesday, is pressuring China to join international efforts to punish Pyongyang. Hillary Clinton, the US Secretary of State, again urged China not to let the sinking of the Cheonan go unchallenged and personally briefed her Chinese counterpart Dai Bingguo over the weekend on specifics of the international investigation.


Washington expects Beijing "to take some steps in the international arena to underscore the seriousness of the matter", said a US official accompanying Mrs Clinton.