North Korean Economy Watch

July 1, 2009
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Summary: The United Nations Security Council unanimously passed Res. 1874 on June 12, 2009, in response to North Korea’s second nuclear test. The resolution puts in place a series of sanctionson North Korea’s arms sales, luxury goods, and financial transactions related to its weapons programs, and calls upon states to inspect North Korean vessels suspected of carrying such shipments. The resolution does allow for shipments of food and nonmilitary goods. As was the case with an earlier U.N. resolution, 1718, that was passed in October 2006 after North Korea’s first nuclear test, Res. 1874 seeks to curb financial benefits that go to North Korea’s regime and its weapons program. This report summarizes and analyzes Res. 1874.

On the surface, financial sanctions aimed solely at the Democratic People’s Republic of Korea (DPRK, the official name of North Korea) and its prohibited activities are not likely to have a large monetary effect. Governments will have to interpret the financial sanctions ban of the resolution liberally in order to apply sanctions to the bank accounts of North Korean trading corporations. A key to its success will be the extent to which China, North Korea’s most important economic partner, implements the resolution. In summary, the economic effect of Resolution 1874 is not likely to be great unless China cooperates extensively and goes beyond the requirements of the resolution and/or the specific financial sanctions cause a ripple effect that causes financial institutions to avoid being “tainted” by handling any DPRK transaction. A ban on luxury goods will only be effective if China begins to deny North Korea lucrative trade credits.

Provisions for inspection of banned cargo on aircraft and sea vessels rely on the acquiescence of the shipping state. In the case of North Korean vessels, it is highly unlikely that they would submit to searches. Resolution 1874 is vague about how its air cargo provisions are to be implemented, in contrast to the specific procedures set forth regarding inspecting sea-borne cargo. While procedures are specified for sea interdictions, the authority given is ambiguous and optional. Further, DPRK trade in small arms and ammunition is relatively insignificant, and therefore the ban on those exports is unlikely to have a great impact.

According to Yonhap:

North Korea has received some 2.7 trillion won (US$2.29 billion) from South Korea and international partners since 1994 in return for false promises to scrap its nuclear program, according to a lawmaker on Monday.

For the Geneva Framework Agreement reached in 1994, the North received $1.98 billion worth of support from South Korea, the U.S., Japan and the European Union, which was mostly used in building light-water reactors, Rep. Kwon Young-se of the ruling Grand National Party said, citing a report submitted by the foreign ministry.

Read the full story here:
N. Korea received US$2.3 billion through past nuke agreements: lawmaker
Yonhap
Tony Chang
10/5/2009

Radio Free Asia
Junho Kim
10/6/2009

North Korea is launching a crackdown on official corruption in its key mineral export sector, a crucial source of foreign exchange for a country where millions go hungry and the ruling party has total control of resources.

“[North Korea] is currently restructuring mineral exporting companies, because such trading entities have been found to be corrupt and inefficient and involved in various abuses,” said the China-based representative of a company importing minerals from North Korea.

The source added that many importers dealing with North Korean exporters had been negatively affected by their lack of professionalism and reliability.

“The overwhelming majority of North Korean trading companies are involved in exports of minerals, so the need to revamp them is evident and understandable,” the source said.

More than 58 percent of North Korea’s U.S. $1.13 billion exports in 2008 consisted of minerals and mining products.

The restructuring would target companies with unexplained gaps in their financial accounts and those that embezzled funds during the export process, the China-based source said.

Investigation slows exports

North Korea is a key source of magnesite, a mineral used in steel-making, synthetic rubber production, and the preparation of magnesium chemicals and fertilizers.

A China-based ethnic Korean businessman surnamed Nam said Chinese importers are having trouble filling orders for molybdenum, a metal used to make heat-resistant aircraft parts, electrical contacts, industrial motors and filaments.

“For about a month, discussions on imports of molybdenum from North Korea to China were suspended at the request of the North Korean authorities, who asked their Chinese counterparts to be patient and wait a little more,” Nam said.

In an attempt to further tap abundant mineral resources, the authorities are attempting a clean-up of the mineral export sector, the China-based source said.

Following an investigation of corrupt and inefficient mineral-exporting North Korean companies, export quotas might be assigned to such companies, and those found guilty of abuse could be imprisoned, the source said.

Swiss-based mining venture Quintermina was recently formed to secure magnesia materials from North Korea, the company said on its Web site.

It said the magnesite resources of North Korea, an extension of the magnesite-talc belt from the northeastern Chinese province of Liaoning, China, are estimated at 3 billion tons, and capable of producing around 100,000 tons per year.

UPDATE: I have since found out that DPRK art was influenced by Russian art until 1968 when Kim Il Sung gave a speech about art having “Korean context.”  After this production of chosunhua (Korean ink painting)  increased.

ORIGINAL POST: When I visited the DPRK in 2004, one of the destinations on the itinerary was the Museum of American War Atrocities in Sinchon (located here).  This museum is flanked by two large murals, and below I have posted a picture of the mural on the right side of the museum:

(click for larger version)

The caption at the bottom of the mural reads “Let’s take revenge a thousand times on the US imperialist wolves.”

This painting and many others are available in the book North Korean Posters: The David Heather Colleciton by Prestel Publishers.  This weekend, however, I received a copy of Soviet Posters: The Sergio Grigorian Collection also by Prestel Publishers, and after turning only three pages I saw this image:

(click for larger version)

This poster bears such a resemblance to the North Korean mural above that I believe it is fair to say the North Koreans “borrowed” the sentiment for their own people.  The woman’s face is nearly identical aside from the fact that she has been made Korean and her dress has been converted into a hanbok (aka Choson-ot in the North).  The face, from the nose down, and hands are identical.

The Russian poster is by Konstantin Ivanov and the caption reads “Lets avenge the people’s suffering.”  It was published in 1943, and according to Soviet Posters:

The image of the motherland, born before the war, gained momentum during the conflict (WWII).  Mothers called their soldier-sons to kill and conquer the enemy, and to free the land from the dangers of Nazism.

Can any readers from China or Russia identify any other North Korea copies?

According to the Associated Press:

A U.N. development agency has resumed operations in North Korea after a more than two-year pause following allegations of fraud.

The North’s Korean Central News Agency said a ceremony Wednesday marked the return of U.N. Development Program to the country.

UNDP withdrew its operations in March 2007 following allegations that the agency had left itself open to exploitation by the communist regime for money laundering and other illicit purposes.

A U.N. audit cleared UNDP of wrongdoing in June last year, saying the agency knew of no improper financial dealings.

Yonhap news agency reported that UNDP decided to restart its North Korea projects after Pyongyang guaranteed independent auditing and administrative changes to ensure the transparent use of funds.

1. Previous UNDP posts here.

2. Previous DPRK aid posts here.

Read the full article here:
Scandal-hit UN program resumes aid in NKorea
Associated Press
9/30/2009

UPDATE 2: Last month, South Korea seized a North Korean shipment to Syria which contained hazmat suits “to guard against nuclear, biological or chemical infection”. The four containers that were confiscated in Busan contained the Russian-made suits (or North Korean-made but copied from Russian designs). The report’s lead says that the items were related to chemical weapons, but the rest of the report doesn’t explain why it believes it was chemical-related and not biological or nuclear.

UPDATE 1:  South Korea also searched containers shipped by the DPRK on a Panamanian ship.  According to Yonhap:

South Korea confiscated and searched containers shipped by North Korea on a Panama-registered freighter last month but reportedly found no suspicious cargo, according to sources Monday.

The National Intelligence Service (NIS) and relevant authorities on Sept. 22 ordered an inspection of the ship docked in the southeastern port of Busan and searched the four containers, a government official said, requesting anonymity.

The official said authorities found some kind of protective clothing but did not elaborate further.

A port official in Busan also confirmed that the NIS ordered the search, saying it received tips that the containers could be carrying hazardous material. The ship carrying the containers had arrived from China last month.

“Nothing particular was discovered from the search, but I’m aware that the government is still in the process of confirming the results,” the port official said, refusing to elaborate.

ORIGINAL POST: Last August the Indian government detained and searched a North Koren vessel that was anchored in Indian waters.  This week, the Indian government stopped and searched a second vessel anchored in Indian waters.  According to the Telegraph (of India):

The Indian Coast Guard detained a North Korean vessel for the second time in two months but gave the all-clear to the ship found anchored without permission off the Kerala coast today.

A spokesperson for the navy and the Coast Guard, Commander Roy Francis, said the Hyangro was found stationary in Indian waters when it was supposed to be sailing to Karachi, Pakistan. Coast Guard and naval personnel boarded the ship but found it was carrying no cargo.

The Hyangro was surrounded by two Coast Guard vessels and a naval warship after fishermen reported its presence to the authorities.

The captain of the ship told the investigators he had dropped anchor “because of technical problems in the ship’s tanks that were leaking”. The ship had last made port in Colombo. It is owned by the Pyongyang-based Sinhung Shipping Company.

A navy source in Delhi said later this evening that the crew of the Hyangro had been cleared after questioning. The entire crew of 44 was North Korean.

A UN resolution empowers member countries to inspect North Korean cargo being transported by sea, land or air.

More here.

Read the full article here:
North Korea ship
The Telegraph (of India)
10/4/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-30-1
9/30/2009

North Korean laborers in the Kaesong Industrial Complex are gaining attention as they are awarded with the government’s certificate of high quality, a certification difficult for even South Korean companies to earn. It is very rare for the North Koreans to earn in only about one year what it takes South Korean small and mid-sized businesses 2~3 years to get.

On September 25, the Korea Chamber of Commerce and Industry presented the food container-producing Sungrim factory, located in the KIC, with the Chamber’s ‘Single PPM Quality Certification’. This certification is awarded to the company that, during the last six months, have found less than 10 out of 1,000,000 products (0.001%, 10PPM) to be defective. To date, only 1,664 factories throughout Korea have earned the certificate, and this is the first time it has been awarded to a factory in the Kaesong Industrial Complex.

The Sungrim factory launched a ‘Single PPM’ project to boost the quality of its output in July of last year, and received the Korea Chamber of Commerce and Industry’s award just 14 months later. The KIC Sungrim factory was opened in April 2008, and manufactures food container lids for the CJ Corporation. It employs 88 North Korean workers and 3 South Korean supervisors.

When the factory first opened, the skill level of the workers was considerably lower than counterparts elsewhere, and this was reflected in the dissatisfaction of customers and large number of defective products. It appeared that workers were indoctrinated with the North Korean system of equality, in which production numbers were less important than providing meals, exercise facilities, and other benefits. However, as the workers became more loyal to the company, their efficiency improved as well, and employees even began repairing their own equipment in the event of a failure. The CJ management recognized this, and allowed the North Korean laborers to improve at their own pace, sparing no expense to support their efforts.

The result was that the factory which had produced as many as 650 defective goods per month at the beginning was able to reduce the number of maligned goods to 15 within a year, and eventually down to 1.8 PPM. This placed the factory more than 17 times higher than the 31.3 PPM average for the 111 companies receiving one of Korcham’s three certificates (Single PPM, 100 PPM, and 1000 PPM).