An association of small and medium-sized businesses wants to build a second industrial park in North Korea along the lines of the joint Kaesong Industrial Complex.

The head of the Korea Federation of Small and Medium-sized Businesses, Kim Ki-mun, told a press conference in Seoul on Tuesday that his organization is looking at Haeju or Nampo in North Korea as suitable locations.

The comments have increased hopes here of a breakthrough in chilled relations with Pyongyang. Kim's idea coincides with the North's hopes to develop more special economic zones.

"Small and mid-sized companies are very satisfied with the Kaesong Industrial Complex, which has played as crucial a role in inter-Korean cooperation as the reunions of separated families," Kim said. "Due to rising labor costs in Southeast Asia, around 2,000 small and mid-sized businesses are on the waiting list to set up operations in the Kaesong Industrial Complex.”

The federation originally considered the Rajin-Sonbong region but concluded that the cities do not provide suitable power generation and can only be reached by ship. "Haeju and Nampo would be one-and-a-half or two-hour’s drive from Kaesong if a road is built, and they can get electricity generated in Kaesong and have an abundant labor pool," Kim said.

But he said North Korea may not like the idea because those cities are near Pyongyang and naval facilities.

The federation has yet to discuss the proposal with the government here. A government official said, "We haven't had any request for discussions from the federation, and this prospect hasn't been officially considered either."

The official added that the construction of another industrial complex like Kaesong would be "impossible" unless Seoul-Pyongyang relations improve and the South lifts its ban on exports to the North.

The measure, imposed after the North sank the Navy corvette Cheonan and shelled Yeonpyeong island, halted cross-border economic exchanges, and stopped money flow and aid. That is why the construction of additional factory space in the Kaesong Industrial Complex remains frozen.

Cho Bong-hyun of the IBK Economic Research Institute said the government may decide to be "flexible" in enforcing the ban if Chinese or other foreign companies build an international economic zone together with Korean firms.

The government has signaled it could relax restrictions if foreign investors decide to park their money in the Kaesong Industrial Complex.