The South Korean military is expected to issue a statement later this week accusing North Korea of a torpedo attack on the Cheonan, which sank near the inter-Korean sea border in March.

“The joint investigation team has found evidence to conclude that the Cheonan was torpedoed and that it was a North Korean torpedo,” a senior government official said.

“The military is considering issuing a statement against North Korea and on its stance after the investigation results are unveiled around Thursday.”

The statement is likely to be signed by Defense Minister Kim Tae-young rather than Chairman of the Joint Chiefs of Staff Lee Sang-eui as Kim has called the South Korean naval disaster a “grave issue of national security.”

Through the statement, the military plans to denounce the North for the “military provocation,” warn that Pyongyang should be responsible for everything that takes place from now on and declare its intent to prepare against a possible confrontation.

“I cannot say whether the statement would use direct expressions such as the North’s ‘military provocation’ or ‘military attack’ as the investigation results are yet to be announced,” the official said.

“But such statement is usually targeted at someone, so its premises would include those (accusations).”

The U.S. also reportedly sees the Cheonan’s sinking as an “armed attack” against its ally rather than an accident.

“The military will clarify its position on what external or internal measures to take once the investigation results are announced,” said another source in Seoul.

“The military is likely to announce stern measures to enhance military preparedness after President Lee Myung-bak makes a public statement (on the Cheonan disaster).”

Lee is expected to publicly speak of his position later this month after the investigation results are disclosed.

The military is pushing to unveil the 1,200-ton Navy corvette that split into two to the press on Wednesday or Thursday. The broken ship is currently at the Navy’s Second Fleet Command in Pyeongtaek, its home port.

The joint investigation team, about 70 percent of whom are military officials and the rest nongovernmental or international experts, is scheduled to make public around Thursday the results of its probe into what tore the Navy patrol ship.

The scheduled announcement, followed by a special presidential statement and more sanctions against the North, is expected to further strain the already sour inter-Korean relations.

Seoul is likely to suspend all inter-Korean trade and economic cooperation projects except for the joint industrial park in the North’s border town of Gaeseong.

The South Korean government last week advised all companies involved in inter-Korean trade, except for those operating in the Gaeseong enclave, to put new cross border business projects on hold.

Seoul is also reportedly mulling additional measures such as prohibiting North Korean vessels from passing the Jeju Strait and resuming psychological warfare near the border through propaganda radio broadcasts or turning a blind eye to those flying leaflets across the border.

There are concerns that severing inter-Korean cooperation would increase North Korea’s dependence on China and that military confrontation without any inter-Korean exchange would pose risks in terms of national security as well.

Nevertheless, the government is seeking “stern measures” in the aftermath of the Cheonan sinking that killed 46 South Korean seamen.

The dominant view in Seoul is that it is necessary to warn the North that it should no longer see the South simply as an economic cooperation partner, especially as Pyongyang prepares for a father-to-son power succession.

Having claimed that it has nothing to do with the Cheonan’s sinking, North Korea is expected to strongly react to Seoul’s planned accusation and follow-up measures.

If the Seoul government blocks North Korean vessels’ passage through the Jeju Strait and resumes propaganda against the North, Pyongyang is likely to respond by banning South Koreans’ trips to the Gaeseong enclave and disclaiming security guarantees for South Korean airplanes flying near its air space.

This could lead to a shutdown of the Gaeseong park, the last remaining inter-Korean reconciliatory venture, and heightened tensions.

As Seoul and Washington are in effect linking the sunken ship case to the resumption of the six-nation nuclear talks, there are unlikely to be any breakthroughs to eclipse the Cheonan situation.

An all-out suspension of inter-Korean trade would result in annual losses for North Korea of about $370 million and about 80,000 jobs, a civic group here said.

“North Korea would lose about $230 million in annual income from not being able to sell its agricultural and marine products, and another $50 million from not being able to sell products processed in Gaeseong such as clothes or peeled garlic,” Kim Kyu-cheol, leader of the South-North Forum said.

The group estimated that North Korea would lose about $49 million in annual income from the Gaeseong industrial park and another $44 million from the inter-Korean tour business compared to when both ventures were running normally.

“An all-out suspension of inter-Korean trade would result in 45,000 lost jobs in Gaeseong, plus a loss of another 30,000 jobs involved in trade elsewhere in the North,” Kim said.

By Kim So-hyun  (sophie@heraldcorp.com)