This is the Kaesong Industrial Complex, the jewel in the crown of co-operation between the capitalist south and the communist north.

Seoul policymakers consider this to be the blueprint for future economic relations between two nations who have been divided since the end of the 1950-53 Korean War and are technically still at war.

Others see it as a perfect solution for businesses from the south who want nothing more than low cost labour to produce goods as cheaply as possible, and have no real interest in improving the lot of North Korean workers nor improving relations between the two countries.

Opened in 2003, the Kaesong complex is located just north of the tense Demilitarized Zone that separates the two Koreas, some 10 miles from the city of Kaesong, an ancient Korean capital, and an hour’s drive from Seoul.

It is the first time that foreign journalists have been allowed to visit the facility, which is one of the key fruits of a budding detente between the two Cold War rivals.

Every day, some 300 cars and trucks trundle north through the razor-wire lined, four-lane highway to the complex.

Fifteen small South Korean factories are established in this enclave of capitalism, which currently covers 25 acres. About 6,000 North Korean workers labour under South Korean management, producing pots, footwear and textiles for the southern market.

The future vision is grander: By 2012, the zone plans to expand to 160,000 acres including Kaesong, becoming a regional hub marrying southern capital and expertise with the skills of 700,000 cheap northern laborers.

Standing amid a vast, dusty plain of excavated ground, it includes a bank, a convenience store and accommodation for the 500 South Koreans who currently work here — and for which they receive a 50 per cent hardship bonus. Electricity is supplied by the South, and telephone lines were laid in December, but there is no internet access or cellphone use.

Beyond the five and a half mile, green perimeter fence are brown hills, totally stripped of vegetation. Soldiers in Soviet-style brown serge patrol nearby. Against one section of fence is a drab village. The grey concrete of the shabby houses, set amid plots of brown dust, is cracked and crumbling. Many of their windows, lacking glass, are filled instead with sheet plastic.

Complex officials say that they have assisted local villagers with heating briquettes and rice, but there is otherwise neither trade nor contact across the fence.

The contrast with the complex, with its modern buildings, its street lighting — even a grass lawn — is striking. But officials from Hyundai Asan, the southern conglomerate that has pioneered economic relations with the north, and the state run (South) Korean Land Corp, were ebullient as they welcomed 120 foreign reporters on a tour of the £120 million southern-funded complex.

"The North Korean workers are very diligent, with high manual skills,", said Kim Dong-keun, the president of the complex’s Industrial District Management Committee. "Their productivity level is, on average, 80 per cent that of South Korean counterparts."

The monthly wage paid to northern workers is £31, is just one-twentieth of what employers pay in the South, estimated Moon Chang-sup, president of Stafild, a sports shoe manufacturer. The only currency used in the complex is US dollars.

The factories are no sweat-shops: They are spacious and well lit with appropriate safety features. "This is the first such attempt to work with South Koreans, so there is pride," said Kim Hyo-jung, a young North Korean female interpreter who delivered a snappy powerpoint presentation, complete with laser pointer.

But not everything is rosy. There is no transparency in the wages, which are paid, not to workers, but to a North Korean government agency. "We have no idea what happens next," said one factory foreman.

Workers were reluctant to speak. "I was picked for this job by the government, but I cannot tell you my salary: it is best to ask the company," said a textile worker, who, like her colleagues, is bused into the complex daily.

Despite all the talk of Korean fraternity, social contact between northern and southern workers is non-existent. "It is absolutely impossible to socialise; it is prohibited by the authorities," said Yoo Nam-yeol a South Korean production manager at Taesang Hata, a firm producing cosmetics containers.

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