As the US and South Korea take steps to enforce UN sanctions against North Korea for its recent nuclear test, a major inter-Korean joint business project producing garments and shoes might be under threat.

Officials say South Korean companies could be ordered to stop production at the Gaesung Industrial Complex in North Korea if the nuclear tension continues to escalate. The 6,500-hectare industrial site is located 8km north of the demilitarised zone.

The Gaesung Complex is one of two major projects (the other being the Mt Kumgang tourist resort) pursued by South and North Korea since a historic summit meeting between the two countries in June 2000.

Critics suspect the money North Korea made from the two projects may have been used for the communist country's nuclear and missile programmes.

To take advantage of North Korea's cheap labour costs, many South Korean companies have been using the chance to produce their shoes and clothing in the North to compete against cheap Chinese products.

At present, thousands of North Koreans work for 15 South Korean companies producing shoes, cookware, luggage, watches, garments and other items in the compound.

Since the Gaesung Complex opened, South Korea has settled all business bills - including salaries of about $57 for each worker per month - in dollars through North Korea's state.

By Peter Chang.