North Korean Economy Watch

Stephan Haggard and Marcus Noland
East-West Center Working Papers
Economics Series, No. 104
Download paper here (PDF)

Abstract:
Despite North Korea’s turn away from economic reform and the constraints of the second nuclear crisis, the country has in fact become more economically open. But it has emphasized closer economic relations with China and other trading partners that show little interest in political quid-pro-quos, let alone sanctions. Yet the U.S. can still exercise economic leverage by going aggressively after third-party financial intermediaries. This particular form of sanction does not require multilateral coordination, since foreign banking institutions that conduct significant business in the United States have a strong interest in avoiding institutions that the United States Treasury has identified as money laundering or proliferation concerns.

There is some evidence that North Korea moderated its missile proliferation activities during periods when rapprochement with the United States, and to a lesser extent Japan, was a priority, but in the absence of such interest and as legitimate trade, investment, and aid dry up, the incentives to intensify proliferation activities increase.

The internal organization of the North Korean economy has important implications for any policy seeking transformation via engagement. The economy is structured in such a way that outside economic ties are still largely monopolized by stateowned enterprises and other gatekeepers, such as the military. Under such circumstances, the precise design of engagement policies requires very close scrutiny. Even nominally commercial relations can be exploited if the North Korean counterparties believe that they are ultimately political in nature, subsidized and thus vulnerable to blackmail. If economic ties are truly commercial in nature, those choosing to trade and invest with North Korea do so at their own risk. Under these circumstances, private actors will make economic decisions fully factoring in political risk, and North Korea will bear the costs if it chooses to renege on commitments or fails to provide a supportive policy environment.

Paper prepared for the conference on “North Korean Nuclear Politics: Constructing a New Northeast Asian Order in the 21st Century,” University of Washington, June 4-5, 2009. We would like to thank the Smith Richardson, MacArthur, and Korea Foundations for financial support and Jennifer Lee for research assistance.

UPDATE: A shorter version of this paper can be found here.

UPDATE 4: from a reliable source

The situation was caused by a mistranslation. Following the nuclear test and rocket launch earlier in 2009, the FCO suspended funding (and therefore visas) for FCO FUNDED DPRK PROJECTS IN THE UK for three months. This, unfortunately, was mistranslated into “suspending visas for DPRK citizens”, thus the cerfuffle.

UPDATE 3: By Michael Rank

Confusion over a reported ban on Britons visiting North Korea and North Koreans coming to Britain seems to have been cleared up.

Koryo Tours said last week that they had been informed by their partner, Korea International Travel Company, that “In connection with the recent measures taken by UK government not to allow DPRK citizens to enter the UK we also will not receive any UK citizens as tourists to the DPRK for the time being.”

After some confusion, a spokesman for the North Korean embassy in London said on Monday that they had been reassured that there was no ban on DPRK citizens visiting Britain and that North Korea was therefore issuing visas to Britons as normal, although as usual it “depends on the case”.  He had “no idea” how the confusion had arisen.

A Foreign and Commonwealth Office spokeswoman confirmed that “we have not introduced any new measures (regarding visas for North Koreans), nor have we refused any visas recently.”

The Home Office recently posted figures showing that in recent years Britain has somewhat surprisingly issued 13-18 North Koreans a year with tourist visas, including a few under-18s. Most of the few North Koreans visiting Britain presumably come as part of official delegations, including a Workers’ Party of Korea group who came last January.

Foreign Secretary David Miliband said on Monday: “No individual [North Korean] officials are currently subject to travel bans or asset freezes. The new UN Security Council Resolution 1874, passed on 12 June 2009 tasks the UN Sanctions Committee to designate further organisations and individuals for travel bans and asset freezes.”

UPDATE 2: Koryo Tours has notified me that the visa restriction has now been lifted.  According to their email:

We have just been informed by our Korean partners that the ban on UK citizens travelling to the DPRK has been lifted and they are now once more accepting visa applications from Brits.

All tours will be running as expected with no restrictions on any nationalities, and all US tours in the summer are expected to also go ahead.

UPDATE 1:  Michael Rank has managed to uncover the number of tourist visas issued by the UK government to North Korean citizens from 2005-2008 (source):

2005 
Over 18: 17
Under 18: 1

2006
Over 18: 13
Under 18: 3
 
2007 
Over 18: 12
Under 18: 1

2008 
Over 18: 15
Under 18: 2

See the origins of the travel ban below:

(more…)

Korea Herald and Yale Global
Bertil Linter
6/12/2009

Missiles and weapon technology, counterfeiting money and cigarette smuggling, front companies and restaurants in foreign countries, labor export to the Middle East – North Korea has been very innovative when it comes to raising badly needed foreign exchange for the regime in Pyongyang. But there is a less known trade in service that the North Koreans have offered to its foreign clients: expertise in tunneling. A fascinating new glimpse of this business has now been offered in secret photos from Burma obtained by this correspondent.

The photos, taken between 2003 and 2006, show that while the rest of the world is speculating about the outcome of long-awaited elections in Burma, the ruling military junta has been busy digging in for the long haul – literally. North Korean technicians have helped them construct underground facilities where they can survive any threats from their own people as well as the outside world. It is not known if the tunnels are linked to Burma’s reported efforts to develop nuclear technology – in which the North Koreans allegedly are active as well. (See Burma’s Nuclear Temptation by Bertil Lintner, YaleGlobal, Dec. 3, 2008)

The photographs published here show that an extensive network of underground installations was built near Burma’s new, fortified capital Naypyidaw. In November 2005, the military moved its administration from the old capital Rangoon to an entirely new site that was carved out of the wilderness 460 kilometers north of Rangoon.

Meaning the “Abode of Kings,” Naypyidaw is meant to symbolize the power of the military and its desire to build a new state based on the tradition of Burma’s pre-colonial warrior kings. But underground facilities were apparently deemed necessary to secure the military’s grip on power. Additional tunnels and underground meeting halls have been built near Taunggyi, the capital of Burma’s northeastern Shan State and the home of several of the country’s decades-long insurgencies. Some of the pictures, taken in June 2006, show a group of technicians in civilian dress walking out of a government guesthouse in the Naypyidaw area. Asian diplomats have identified those technicians, with features distinct from the Burmese workers around them, as North Koreans.

This is quite a turn around as Burma severed relations with Pyongyang in 1983 after North Korean agents planted a bomb at Rangoon’s Martyrs Mausoleum killing 18 visiting South Korean officials, including the then-deputy prime minister and three other government ministers.

Secret talks between Burmese and North Korean diplomats began in Bangkok in the early 1990s. The two sides had discovered that despite the hostile act in the previous decade they had a lot in common. Both had come under unprecedented international condemnation, especially by the United States, because of their blatant disregard for the most basic human rights and Pyongyang for its nuclear weapons program. Burma also needed more military hardware to suppress an increasingly rebellious urban population as well as ethnic rebels in the frontier areas. North Korea needed food, rubber and other essentials – and was willing to accept barter deals, which suited the cash-strapped Burmese generals. “They have both drawn their wagons in a circle ready to defend themselves,” a Bangkok-based Western diplomat said. “Burma’s generals admire the North Koreans for standing up to the United States and wish they could do the same.”

After an exchange of secret visits, North Korean armaments began to arrive in Burma. The curious relationship between Burma and North Korea was first disclosed in the Hong Kong-based weekly Far Eastern Economic Review on July 10, 2003. A group of 15-20 North Korean technicians were then seen at a government guesthouse near the old capital Rangoon. The report was met with skepticism, especially because of the 1983 Rangoon bombings. But, when North Korean-made field artillery pieces were seen in Burma in the early 2000s, it became clear that North Korea had found a new ally – several years before diplomatic relations between the two countries were restored in April 2007.

“While based on a 1950s Russian design, these weapons (the field guns) were battle-tested and reliable,” Australian Burma scholar Andrew Selth stated in a 2004 working paper for the Australian National University. “They significantly increased Burma’s long-range artillery capabilities, which were then very weak.” Since then, Burma has also taken delivery of North Korean truck-mounted, multiple rocket launchers and possibly also surface-to-air missiles for its Chinese-supplied naval vessels.

Then came the tunneling experts. Most of Pyongyang’s own defense industries, including its chemical and biological-weapons programs, and many other military as well as government installations are underground. This includes known factories at Ganggye and Sakchu, where thousands of technicians and workers labor in a maze of tunnels dug under mountains. The export of such know-how to Burma was first documented in June 2006, when intelligence agencies intercepted a message from Naypyidaw confirming the arrival of a group of North Korean tunneling experts at the site. Today, three years later, the dates on the photos published today confirm the accuracy of this report. By now, the tunnels and underground installations should be completed, as would those near Taunggyi. This well-hidden complex ensures there is no danger of irate civilians storming government buildings, as they did during the massive pro-democracy uprising in August-September 1988. Sources say that the internationally isolated military junta may also consider these deep bunkers as their last repair in case of air strikes of the kind that the Taliban in Afghanistan or Saddam Hussein regime in Iraq endured.

It is not clear how much, or what, Burma has paid for the assistance provided by the North Korean experts, but it could be food – or gold, which is found in riverbeds in northern Burma. Or some other mineral. Burma, of course, is not the only foreign tunneling venture by North Korea.

In southern Lebanon following the 2006 war, Israel’s Defense Forces and the United Nations found several of the underground complexes, which by then had been abandoned by Hezbollah militants. By coincidence or not, these tunnels and underground rooms – some big enough for meetings to be held there – are strikingly similar to those the South Koreans have unearthed under the Demilitarized Zone that separates South from North Korea. Under small, manhole cover-sized entrances hidden under grass and bushes were steel-lined shafts with ladders leading down to big rooms with electricity, ventilation, bathrooms with showers and drainage systems. Some of the tunnels are 40 meters deep and located only 100 meters from the Israeli border. North Korea’s possible involvement in digging these tunnels is however, difficult to ascertain. According to Israeli investigative journalist Ronen Bergman, a senior officer in the Iranian Revolutionary Guards, who had defected to the West, revealed that, “thanks to the presence of hundreds of Iranian engineers and technicians, and experts from North Korea who were brought in by Iranian diplomats ?¶ Hezbollah succeeded in building a 25-kilometer subterranean strip in South Lebanon.”

Beirut sources suggest that it is more likely that Hezbollah has used North Korean designs and blueprints given to them by their Syrian or Iranian allies – both of whom are close to the North Koreans. (Both Iran and Syria have acquired missile technology from North Korea, and what was believed to be a secret nuclear reactor in Syria built with North Korean help was destroyed by the Israeli air force in September 2007.) Either way, North Korean expertise in tunneling has become a valuable commodity for export. And Pyongyang is flexible about the method of payment as long as it helps the international pariah regime.

Bertil Lintner is a Swedish journalist based in Thailand and the author of several works on Asia, including “Blood Brothers: The Criminal Underworld of Asia” and “Great Leader, Dear Leader: Demystifying North Korea under the Kim Clan.” He can be reached at lintner@asiapacificms.com – Ed.

UPDATE: Burmese whistle-blowers sentenced to death
BBC
1/7/10

Two Burmese officials have been sentenced to death for leaking details of secret government visits to North Korea and Russia, the BBC has learned.

The officials were also found guilty of leaking information about military tunnels allegedly built in Burma by North Korea, a source in Burma said.

A third person was jailed for 15 years, the source added.

The military rulers in Burma (Myanmar) have so far made no public comments on the case.

The source told BBC Burmese that Win Naing Kyaw, a former army major, and Thura Kyaw, a clerk at the European desk of Burma’s foreign ministry, had been sentenced to death by a court in Rangoon on Thursday.

They were found guilty of leaking information about government visits to North Korea and Russia, which reportedly took place in 2008 and 2006.

The two men were also convicted of leaking details of a network of tunnels reportedly being built in Burma.

It is thought the tunnels were built to house communications systems, possible weapons factories and troops in the event of an invasion.

The third man, Pyan Sein, was given 15 years in prison on Thursday.

Burma still has capital punishment, but it has not carried out executions in recent years.

Yale Global
Bertil Linter
6/11/2009

BANGKOK: The global economic meltdown has claimed an unexpected victim: North Korea’s chain of restaurants in Southeast Asia. Over the past few months, most of them have been closed down “due to the current economic situation,” as an Asian diplomat in the Thai capital Bangkok put it. This could mean that Bureau 39, the international money-making arm of the ruling North Korean Workers’ Party – which runs the restaurants and a host of other, more clandestine front companies in the region – is acutely short of funds. Even if those enterprises were set up to launder money, operational costs and a healthy cash-flow are still vital for their survival. And, as for the restaurants, their main customers were South Korean tourists looking for a somewhat rare, comfort food from the isolated North of the country. The waitresses, all of them carefully selected young, North Korean women dressed in traditional Korean clothing, also entertained the guests with music and dance.

But thanks to the global economic crisis, not only has the tourist traffic from South Korea slowed, the fall in the value of won has also reduced their buying power. The South Korean won plummeted to 1,506 to the US dollar in February, down from 942 in January 2008. No detailed statistics are available, but South Korean arrivals in Thailand – which is also the gateway to neighboring Cambodia and Laos – are down by at least 25 percent.

Though staunchly socialist at home, the North Korean government has been quite successful in running capitalist enterprises abroad, ensuring a steady flow of foreign currency to the coffers in Pyongyang. North Korea runs trading companies in Thailand, Hong Kong, Macau and Cambodia, which export North Korean goods – mostly clothing, plastics and minerals such as copper – to the region. At the same time, they import various kinds of foodstuffs, light machinery, electronic goods, and, in the past, dual-purpose chemicals, which have civilian as well as military applications. Those companies were – and still are – run by the powerful Daesong group of companies, the overt arm of the more secretive Bureau 39.

North Korea embarked on its capitalist ventures when, in the late 1980s and early 1990s, the country was hit by a severe crisis caused by the disruption in trading ties with former communist allies. More devastatingly, both the former Soviet Union in 1990 and China in 1993 began to demand that North Korea pay standard international prices for goods, and that too in hard currency rather than with barter goods. According to a Bangkok-based Western diplomat who follows development in North Korea, the country’s embassies abroad were mobilized to raise badly needed foreign exchange. “How they raised money is immaterial,” the diplomat says. “It can be done by legal or illegal means. And it’s often done by abusing diplomatic privilege.”

North Korea’s two main front companies in Thailand, Star Bravo and Kosun Import-Export, are still in operation. In the early 2000s, Thailand actually emerged as North Korea’s third largest foreign trading partner after China and South Korea.

Bangkok developed as a center for such commercial activities and Western intelligence officers based there became aware of the import and sale of luxury cars, liquor and cigarettes, which were brought into the country duty-free by North Korean diplomats. In a more novel enterprise, the North Koreans in Bangkok were reported to be buying second-hand mobile phones – and sending them in diplomatic pouches to Bangladesh, where they were resold to customers who could not afford new ones. In early 2001, high-quality fake US$100 notes also turned up in Bangkok and the police said at the time that the North Korean embassy was responsible as some of its diplomats were caught trying to deposit the forgeries in local banks. The North Korean diplomats were warned not to try it again.

The restaurants were used to earn additional money for the government in Pyongyang – at the same time, they were suspected of laundering proceeds from North Korea’s more unsavory commercial activities. Restaurants and other cash-intensive enterprises are commonly used as conduits for wads of bills, which banks otherwise would not accept as deposits.

For years, there have been various North Korean-themed restaurants in Beijing, Shanghai and other Chinese cities. But the first in Southeast Asia opened only in 2002 in the Cambodian town of Siem Reap. It became an instant success – especially with the thousands of South Korean tourists who flocked to see the ancient ruins of Angkor Wat. It was so successful that Pyongyang decided to open a second venue in the capital Phnom Penh in December 2003. A fairly large restaurant in the capital’s Boulevard Monivong, which offered indifferent Korean staple kimchi and other dishes and live entertainment by North Korean waitresses, closed earlier this year for lack of business.

In 2006, yet another Pyongyang Restaurant – as the eateries were called – opened for business in Bangkok. It was housed in an impressive, purpose-built structure down a side alley in the city’s gritty Pattanakarn suburb, far away from areas usually frequented by Western visitors but close to the North Korean embassy and the offices of its front companies in the Thai capital. This was followed by an even grander restaurant in Thailand’s most popular beach resort, Pattaya, which was also housed in a separate building with a big parking lot outside for tour buses. A much smaller Pyongyang restaurant opened in Laos’s sleepy capital Vientiane, but that one became popular not with South Korean tourists, but with Chinese guest workers and technicians. The Vientiane restaurant may be the only North Korean eatery that is still in operation.

After years of watching North Korea’s counterfeiting and smuggling operations, the United States began tightening the screws on Pyongyang’s finances in September 2005. This occurred after Banco Delta Asia, a local bank in Macau, was designated as a “financial institution of primary money-laundering concern.” The bank almost collapsed, and North Korea’s assets were frozen. The money was eventually released as part of an incentive for North Korea’s concession in the Six-Party talks and returned to North Korea via a bank in the Russian Far East. But, coupled with UN sanctions, the damage to North Korea’s overseas financial network was done – including the ability of Pyongyang’s many overseas front companies to operate freely. For example, the two-way trade between Thailand and North Korea peaked at US$343 million in 2006 – but then began to decline. It was down to US$100 million in 2007, and US$70.8 million in 2008.

Now with North Korea conducting a second nuclear test and firing off missiles, Washington has raised the possibility of the re-listing of North Korea as a state that supports terrorism. If that were to happen, many private companies would become hesitant to deal with Pyongyang and its enterprises for fear of being blacklisted by the US Treasury.

With its various money-making enterprises coming unstuck, Pyongyang is increasingly under pressure. The worldwide financial crisis has already put North Korea in a tight corner. There was never anything to suggest that the money earned by North Korea’s economic ventures abroad were to be used for social development at home, or to be spent on basic necessities such as putting food on the tables of the country’s undernourished people. Now, there won’t even be food for sale to South Korean tourists in the region.

According to Yonhap:

Trade between South and North Korea plunged nearly 25 percent in the first four months of this year amid growing tensions on the Korean Peninsula, a report showed Tuesday.

Inter-Korean trade amounted to US$426.35 million during the January-April period, down 24.8 percent from $566.92 million a year earlier, according to the report by the Korea Customs Service.

The decline comes as tensions mounted after North Korea fired a rocket on April 5, prompting the U.N. Security Council to unanimously condemn the move. The North responded by kicking out outside nuclear inspectors and quitting six-party denuclearization talks.

Trade between the two Koreas, which amounted to $328.65 million in 1999, surged more than five-fold to $1.79 billion in 2007 when leaders from the two sides met for the second time. Last year, trade inched up to $1.82 billion.

Experts say that trade is expected to fall further in months to come as tensions are still running high after the North conducted its second nuclear test last month in defiance of repeated warnings by the international community and recently sentenced two U.S. journalists to 12 years in a labor camp for illegally entering the country.

In addition, we pointed out earlier this month that the South Korean government had barely touched the funds it appropriated for inter-Korean projects in 2009.

Finally, although inter-Korean trade has floundered this year, the DPRK’s trade volume reached a record US$3.8 billion in 2008, due largely to its trade with China.  

Read the full Yonhap story here:
Inter-Korean trade tumbles amid growing tensions
Yonhap
Koh Byung-joon
6/9/2009

Earlier this year the UN Security Council issued a Presidential Statement in response to the DPRK’s April rocket (missile) test. In the Presidential Statement, three North Korean firms were blacklisted–Korea Mining Development Trading Corporation, Tanchon Commercial Bank, and Korea Ryongbong General Corporation–all of whom are suspected of having ties with the North’s missile and nuclear programs.

According to Yonhap, the South Korean government has also blacklisted these firms, though no South Korean firms have realtions with any of them:

This is the first time that South Korea has imposed financial sanctions on a North Korean company in relation to Pyongyang’s ballistic activity, the ministry said.

The ministry said that it will consider taking additional measures if the U.N. comes up with separate actions against the North for conducting its second nuclear test on May 25.

Read the full sotry here:
Seoul slaps sanctions on N. Korean firms for missile test
Yonhap
Koh Byung-joon
6/9/2009

UPDATE: In response to the resolution, the DPRK has made some serious threats.  According to the Telegraph:

A commentary in the North’s state-run Rodong Sinmun newspaper claimed the US had 1,000 nuclear weapons in South Korea ready to strike. 

Meanwhile, the Tongbil Sinbo newspaper said that North Korea is “completely within the range of US nuclear attack and the Korean peninsula is becoming an area where the chances of nuclear war are the highest in the world.” 

Over the weekend, North Korea angrily responded to fresh United Nations sanctions by threatening to build as many nuclear weapons as possible. 

Until now, it said, it had only reprocessed one-third of its spent fuel rods into weapons-grade plutonium. Analysts believe the rogue state could end up with enough plutonium to make eight to nine bombs. 

The rogue state also claimed to have a uranium-enrichment programme, the first time it has admitted to one. The claim is alarming, said Professor Yang Moo-Jin, of Seoul’s University of North Korean Studies. 

“The North has abundant natural uranium of good quality, which, if combined with technology and facilities, would result in a great nuclear arsenal,” he said.  

UPDATE:  The United Naitons Security Council (UNSC) has passed a new resolution in response to the DPRK’s second nuclear test.  Althought the text of the resolution has been posted to the UNSC web page (here), below are the economically significant excerpts (taken from Reuters).  The resolution…

1. Calls upon all States to inspect, in accordance with their national authorities and legislation, and consistent with international law, all cargo to and from the DPRK, in their territory, including seaports and airports, if the State concerned has information that provides reasonable grounds to believe the cargo contains items the supply, sale, transfer, or export of which is prohibited;

2. Calls upon all Member States to inspect vessels, with the consent of the flag State, on the high seas, if they have information that provides reasonable grounds to believe that the cargo of such vessels contains items the supply, sale, transfer, or export of which is prohibited;

3. Calls upon all States to cooperate with inspections pursuant to paragraphs 11 and 12, and, if the flag State does not consent to inspection on the high seas, decides that the flag State shall direct the vessel to proceed to an appropriate and convenient port for the required inspection by the local authorities pursuant to paragraph 11;

4. Decides that Member States shall prohibit the provision by their nationals or from their territory of bunkering services, such as provision of fuel or supplies, or other servicing of vessels, to DPRK vessels if they have information that provides reasonable grounds to believe they are carrying items the supply, sale, transfer, or export of which is prohibited … unless provision of such services is necessary for humanitarian purposes;

5. Calls upon Member States … to prevent the provision of financial services … that could contribute to the DPRK’s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programs or activities;

6. Calls upon all Member States and international financial and credit institutions not to enter into new commitments for grants, financial assistance, or concessional loans to the DPRK, except for humanitarian and developmental purposes;

7. Calls upon all Member States not to provide public financial support for trade with the DPRK … where such financial support could contribute to the DPRK’s nuclear-related or ballistic missile-related or other WMD-related programs or activities;

In the Washington Post, Marcus Noland asserts that this sanctions plan is “clever”. Instead of a “crime and punishment” approach to North Korea, he said, the proposed sanctions are “basically defensive,” relying on interdiction of ships and global financial restrictions. He also went on to say, “The North Koreans will be down to whatever China gives them and whatever they can get from their subterranean customers in the Middle East.”

The Washington Post also states:

But there is little chance that these tougher sanctions will limit the ability of Kim Jong Il’s government to profit from more conventional overseas trade, said Lim Eul-chul, a researcher who specializes in North Korean trade for the Seoul-based Institute for Far Eastern Studies.

“The sanctions will not have much effect on what North Korea trades with China,” he said.

North Korea consistently fails to grow enough food to feed its 23 million people, and its state-controlled economy is moribund, but it does have mineral resources that are coveted by many industrialized countries.

The estimated value of its reserves — including coal, iron ore, zinc, uranium and the world’s largest known deposit of magnesite, which is essential for making lightweight metal for airplanes and electronics — is more than $2 trillion, according to the Korea Chamber of Commerce and Industry.

The manufacturing boom in neighboring China has dovetailed with North Korea’s acute need for hard currency and has accelerated Chinese access to the North’s resources, according to Lim, Chinese mining experts and South Korean government officials. There is, however, a significant new wrinkle in the North’s trade with China, Lim said. “The military is taking control of export sales,” he said, citing informants inside North Korea.

Other branches of the North Korean government, such as the Workers’ Party and the cabinet, have been forced to relinquish their interest in these sales to the military, Lim said. The military has grabbed greater control of export revenue, he said, as it has provoked the outside world with missile launches and the nuclear test.

Based on the recent growth of North Korean-Chinese trade, Lim said he does not believe that China wants to “take any strong measures to crush the North Korean economy.”

An article in the New York Times expresses sckepticism that these new sanctions will deter North Korea’s nuclear ambitions:

This time, in addition to financial sanctions, the proposed Security Council resolution calls for a tighter arms embargo, possible interdiction of North Korean vessels. But most analysts say that none of the threats are large enough to stop a regime that sees nuclear weapons as the key to its survival, and that has endured decades of economic sanctions and hardships, including even starvation, rather than capitulate to outside pressure.

“These are people who didn’t flinch even when 2 million of their own people died of hunger,” said Lee Ji-sue, a North Korea specialist at Myongji University.

And that is assuming that the sanctions are fully enforced. While many of these same measures have been included in previous U.N. resolutions, nations like China and Russia were reluctant to enforce them to avoid antagonizing the North.

Critics and proponents alike agree that the linchpin in making any sanctions work is China, North Korea’s primary aid and trade partner. China shares an 850-mile border with North Korea, and its $2 billion annual trade with the North accounts for over 40 percent of Pyongyang’s entire external trade, according to South Korean government estimates. North Korea’s trade with China expanded by 23 percent just last year, the South Korean government said.

Both United States and South Korean officials fear that although Beijing was disappointed by the North’s continued tests, it remains reluctant to push too hard. They say China fears causing a collapse by the Pyongyang regime that could flood it with refugees and create a newly unified, pro-American Korea on its border.

Finally, The Economist weighs in with some critical analysis:

It is hard to envision that the new sanctions will bring North Korea back to the negotiating table. With few exceptions, previous rounds of economic sanctions have had little impact. In the present case, unanimity was achieved at the price of watering down the provisions that require other countries to search North Korean vessels. The final compromise—that North Korean ships are required to undergo searches but cannot be forced to do so—is hardly a recipe for effective enforcement.

As in the past, China—and Russia, to a lesser extent—may have supported the new sanctions primarily to send North Korea a message of unified international condemnation. But North Korea will hardly infer from the passage of a murkily worded, patchily enforced resolution that it has exhausted its ability to wring concessions from its neighbours and exploit their differences. Moreover, even if the new measures are consistently enforced, it’s not clear that punishments designed to put economic and diplomatic pressure on North Korea will change the regime’s behaviour. North Korea is already one of the most isolated and desperately poor countries in the world.

Divergent interests
A lasting solution to the North Korea problem will require more than just agreeing a common approach and collectively enforcing sanctions. The main problem is not just North Korea’s unpredictability, which is, after all, predictable. It is that there are also major differences between the various interested powers in terms of how they assess the threat and what they view as the optimal outcome.

Although China’s influence over North Korea is often overstated, China alone has the economic leverage to force the regime back to the bargaining table. China’s dilemma, however, is that there may be a fine line between the amount of pressure sufficient to force the stubborn regime to make concessions and the amount that would precipitate its collapse. The fall of the current regime would almost certainly result in a massive humanitarian crisis (more accurately, China would suddenly bear the brunt of the crisis already wracking its chronically famine-stricken neighbour). For China (and Russia) the collapse of North Korea would also be a big strategic setback. The bonds of communist solidarity may have faded since Mao Zedong sent hundreds of thousands of soldiers to fight US-led UN forces during the Korean war—but North Korea remains a buffer state, the loss of which could result in a united, US-allied Korean peninsula. 

Read the full articles below:
Key excerpts from U.N. North Korea resolution
Reuters
Claudia Parsons
6/12/2009

Value of N. Korea Sanctions Disputed
Washington Post
Blaine Harden
6/12/2009

Will sanctions ever work on North Korea?
New York Times
Martin Fackler and Choe Sang-hun
6/12/2009

Punishing North Korea
The Economist
6/17/2009

ORIGINAL POST: The DPRK has historically faced few substantive repercussions from its missile and nuclear tests due to roles that Russia and China occupy both in the UN Security Council and in their status as North Korea’s neighbors, trading partners, and investors. Russia is developing the DPRK’s Rason Port and seeks to build a natural gas pipeline through the DPRK to South Korea.  China is the DPRK’s largest trading partner. And of course, hundreds (maybe thousands?) of  North Koreans work in both China and Russia to earn foreign currency for their government.

So how have China and Russia responded to the most recent nuclear test and missile launches? China has issued some tough language condeming the test and supposedly canceled some cultural exchanges, and  Russian President Medviev has also expressed concern in the

Western business media:

We have always had good relations with the North Korean leadership. But what has happened raises great alarm and concern. I have had quite a number of telephone talks with the Prime Minister of Japan and the President of South Korea. We need to think about some measures to deter those programs that are being conducted. We hope the North Korean leadership will get back to the negotiating table, because there is no other solution to this problem. The world is so tiny—as we see from the economic problems common to all of us. But indeed, WMD development or [nuclear] proliferation is a danger that is even higher than that. I’m prepared to discuss this matter in more detail during our meeting with President Obama in Moscow in early July. And we’re going to discuss this in other forums also.

As the UN Security Council debates a resolution in response to the DPRK’s recent nuclear test and missile launches, China appears to be the DPRK’s strongest partner.  According to the New York Times:

Negotiations over toughening sanctions against North Korea in the wake of its underground nuclear test last month have stalled over the issue of inspecting cargo ships on the high seas, according to two Security Council diplomats. China has yet to sign off on the idea that North Korean vessels could be stopped and searched, the diplomats said. Ambassadors from the five permanent members of the Security Council — the United States, Russia, China, Britain and France — plus Japan and South Korea, locked in intensive bargaining sessions all week, have agreed on other issues, including widening an arms embargo and financial restrictions, the diplomats said. North Korea has declared cargo inspections an act of war.

So it looks like Russia is “ok” with searching the DPRK’s cargo ships?  That is surprising.

Aside from inspecting cargo ships, the US is pushing for the UNSC resolution to restrict the DPRK from the global financial system (a la Banco Delta Asia).  According to the Washington Post:

State Department spokesman P.J. Crowley confirmed yesterday that the United States was considering targeting North Korea’s access to financial markets. A draft of the resolution urges U.N. member states to cut loans, financial assistance and grants to North Korea and its suppliers for programs linked to its military program. The draft also expands an asset freeze and travel ban.

The Bush administration applied similar financial pressure in 2005, infuriating Pyongyang. Crowley noted that, during a tour of Asian capitals this week, Deputy Secretary of State James B. Steinberg was accompanied by Treasury Undersecretary Stuart A. Levey, the architect of the Bush-era sanctions.

“Obviously, Stuart Levey’s presence on this team would indicate that we’re . . . looking at other ways that we can bilaterally put pressure on North Korea to return to the negotiating process,” Crowley said.

Additionally, the Obama administration has signaled that it might take the advice of John Bolton, former President Bush’s UN ambassador.  According to the Washington Post:

The United States will consider reinstating North Korea to a list of state sponsors of terrorism, Secretary of State Hillary Rodham Clinton said in an interview broadcast yesterday as the Obama administration looks for ways to ratchet up pressure on Pyongyang after recent nuclear and missile tests.

 “We’re going to look at it,” Clinton said on ABC’s “This Week” when asked about a letter last week from Republican senators demanding that North Korea be put back on the list. “There’s a process for it. Obviously we would want to see recent evidence of their support for international terrorism.” 

Secretary of State Clinton’s comment “we would want to see more evidence of their support for international terrorism” refers to a legal requirement for any nation to be added to the list.

Here is the press release on the nuclear test by the US Director of National Intelligence.

Read more here:
Medvedev’s Strong Words for North Korea
Business Week
Maria Bartiromo
6/3/2009

Talks on North Korea Sanctions Stall Over Inspections
New York Times
Neil MacFarquhar
6/5/2009

U.S. Pushes U.N. Draft on N. Korea
Washington Post
Colum Lynch and Glenn Kessler
6/6/2009

U.S. to Weigh Returning North Korea to Terror List
Washington Post
Peter Finn
6/8/2009

U.S. Weighs Intercepting North Korean Shipments
New York Times
David E. Sanger
7/7/2009

Koryo Tours has been in the North Korea tour business for many years.  They have helped expand tourism in the DPRK and made three great documentaries in the country: The Game of Their Lives, A State of Mind, and Crossing the Line. 

They offer some interesting new information in their June newsletter:

1. Despite the recent nuclear test and missile launches it is still business as usual–and this is for tourist companies as well as for the various European Embassies in Pyongyang. Koryo has tourists going in almost every week and fully expect the Arirang Mass Games (info) to be going ahead from 10th August to the end of September and maybe into October, as previously confirmed. American tourists are welcomed during this time and tours are showing a high level of interest.

2. New tourism attractions:Koryo Tours has just made trips up and down the Taedong river in central Pyongyang available to tourists for the first time.  Several sizes and speeds of vessels are available for short jaunts in the city centre as well as longer cruises to the suburban scenic spot of Mangyongdae. They plan to add these trips to many of their tours.

3. Charity Projects: In addition to Koryo Tour’s long running relationships with the Rotarian Society and Love North Korean Children they have just launched an appeal to raise money for a couple of charitable projects in the DPRK, one to purchase the first ever shipment of Braille dictionaries for blind children, and one to buy playground equipment for orphanages. More details on these projects can be found on their website if you can help then please let them know.

4. Mt. Myohyang named UNESCO site: UNESCO recently awarded the Mt Myohyang area in the DPRK the status of Biosphere Reserve. The area is a sacred site as, according to legend, it was the home of King Tangun, forefather of the Korean people. The scenic mountainous area rises nearly 2,000 metres above sea level. Its spectacular rocks and cliffs provide a habitat for 30 endemic plant species; 16 plant species that are globally threatened and 12 animal species that are also endangered. A wide variety of medicinal herbs also grows in the site.  For tourists, it is well known for the International Friendship Exhibition which is a series of subterranean halls housing the gifts which were given to the 2 leaders by people from all over the world.

If you would like to receive the Koryo Tours newsletter, visit their home page and click on the newsletter link in the upper right corner of the page.

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-4-1
6/4/2009

As inter-Korean relations continue to worsen, cooperative projects and humanitarian aid efforts have practically ground to a halt, leaving inter-Korean cooperation funds almost untouched.

According to the report “South-North Cooperation Fund Statistics” released by the Ministry of Unification on May 31, the South Korean government budgeted just over 1.508 trillion Won (1.2 billion USD) to fund inter-Korean cooperative projects in 2009, but as of the end of April, only 1.8 percent (26.919 billion Won) had been spent.

Some projects originally granted funds include financing for the construction of an East Sea line inter-Korean import facility and joint-use yard (8.795 billion Won); capital loans for Hyundai Asan economic cooperative projects (5.739 billion Won); NGO aid to the North, including nutritional supplements for children and soybean oil from the Catholic Seoul Archdiocese (2.933 billion Won); loans to cover expenses of the Kaesong Industrial Complex (KIC) Management Committee (2.08 billion Won); and the construction of a KIC General Support Center (2.444 billion Won).

Use of this fund has hit a low water mark, in part because 800 billion Won allocated for rice, fertilizer and other humanitarian aid has not been spent. A ministry official stated, “Rice and fertilizer aid can only proceed according to an agreement between North and South Korean officials following a request from North Korea, but this year, there was no request from North Korea, and therefore the amount of cooperative funding spent was low.

The South-North Cooperation Fund distributed 674.409 billion Won in 2005, 470.995 billion Won in 2006, 715.734 billion Won in 2007, and 231.205 billion Won last year.

Although the UN World Food Program was asked to leave the DPRK in March, along with US relief workers, the UN children’s fund (UNICEF) is still distributing relief supplies.  Additionally, the UNDP is about to resume activities.  According to Yonhap:

The U.N. children’s agency said Wednesday its humanitarian aid operations in North Korea remain steady amid diplomatic tensions, and that Pyongyang will soon sign an agreement to allow a nationwide nutritional survey.

“The situation with regard to access and monitoring is the same as it has been in the past,” Gopalan Balagopal, UNICEF representative in Pyongyang, said in an email interview.

“UNICEF undertakes regular field visits to monitor progress of work and holds periodic review meetings with counterparts,” he said.

…

As part of efforts to improve the health of North Korean children and mothers, the agency will soon sign an agreement with the North Korean government to conduct a nutritional survey across the country, set to start in October, Balagopal said.

“We are finalizing a memorandum of understanding with the government shortly for going ahead with a multiple indicator cluster survey, which will have a nutrition component,” he said.

Another aid agency, the U.N. Development Program, is also preparing to restart its program in North Korea after a two-year hiatus, he said. Four UNDP members came to Pyongyang on May 19, and two of them are staying there, keeping “busy with work for restarting their program,” Balagopal said.

UNDP withdrew from Pyongyang in early 2007 after suspicions arose over North Korea’s misappropriation of development funds.

June is a typically lean period in the North in terms of food security, and UNICEF sees increasing numbers of malnourished children in nurseries and hospitals, according to the official.

North Korea’s harvest this year is expected to fall 1.17 million tons short of food needed to feed its 24 million people, according to the Seoul government. Even if the North’s own imports and Chinese aid are counted in, the net shortage will likely surpass 500,000 tons, it said.

Balagopal said his agency has secured about half of its US$13 million target budget for operations in North Korea this year.

He noted there are “some indications” that access to the provinces in the northeast may be restricted to the U.N. agencies. He did not elaborate and said the U.N. will stop its assistance if the access is not guaranteed.

Read the full article here:
UNICEF aid flowing steady in N. Korea: Pyongyang chief
Yonhap
6/3/2009