North Korean Economy Watch

Asia Times
Bertil Lintner
7/25/2007

It has been known since the early 1990s that North Korea exports manpower to eastern Russian logging sites. But two remarkable incidents over the past years reveal that the foreign-currency-strapped nation also sends laborers to other, somewhat less expected places in the world.

When North Korea won a soccer game over Japan at the Asian Games in the Qatari capital Doha last December, its cheerleaders became so excited that they rushed on to the field and carried the players on their shoulders around the grounds. They could do that, because the North Korean cheerleaders were not, as cheerleaders usually are, young, petite women. They were all male – sturdy, middle-aged construction workers who belonged to the contingents of laborers that the North Korean government is sending to work in the Middle East.

Then, in January, the managing director of an unnamed construction firm was found slashed to death, and one of his workers hanged, in a building in the East Malaysian riverside town of Sibu, on the fringes of the jungles of Sarawak. The businessman was identified as Ri Won-gil, 52, and the worker as Kim Kwong-ryun, 47 – both North Koreans. Their company had “been doing contract work here for years”, the Malaysian Star newspaper reported, although it was not clear what kind of work that was.

As many as 70,000 North Koreans are currently working in various countries, Kim Tae-san, a defector who testified last year on North Korean migrant labor to the European Parliament, told US-financed Radio Free Asia (RFA) this year. Other estimates are considerably lower, but it is evident that labor export is becoming an important source of income for the government in Pyongyang.

Today, North Korean workers are found not only in Russia, Malaysia and Qatar but in Dubai, Mongolia, the Czech Republic, Poland, Bulgaria, Libya, Saudi Arabia and possibly also some African countries. Many are dispatched through labor agencies based in China, and most of their salaries end up in the coffers in Pyongyang. As North Korea does not publish any economic statistics, it is not known exactly how much it earns from exporting labor to other countries, but is it believed by North Korea-watchers to be bringing in millions of US dollars annually.

In addition, tens of thousands of North Koreans are working illegally in China, and sending money home to their relatives. This may not directly benefit the Pyongyang regime, but it helps alleviate poverty in the country, and therefore stifle possible social unrest on the level that actually hit the North Korea during the great famine in the early and mid-1990s. On a more organized level, trusted citizens are sent by Pyongyang to work in North Korean-run restaurants not only in China – Beijing and Shanghai – but also in Russia, Cambodia, Thailand and Laos. Profits from those enterprises are, naturally, sent to Pyongyang, or to support the activities of North Korean diplomatic missions in those respective countries.

Russia, or the erstwhile Soviet Union, is the oldest destination for North Korean labor, and it probably began when in 1967 Soviet secretary general Leonid Brezhnev and North Korea’s Kim Il-sung reached an agreement to bring manpower to sparsely populated eastern Russia. In September 1996, Amnesty International stated in its “Democratic People’s Republic of Korea/Russian Federation: Pursuit, Intimidation and Abuse of North Korean Refugees and Workers”, one of the earliest reports on the subject: “North Korea brought in the manpower and ran the logging sites, while the Soviet Union provided the natural resources. The profit, reportedly many million dollars over the years, was split between the two countries.” Some of the income was also reportedly used to pay off North Korea’s debt to Russia.

Today, according to Moscow’s Ministry of Economics, 90% of North Korea’s “exports” to Russia consist of workers. An estimated 2,500 North Koreans are to be found in Primorye, or the maritime region adjacent to the Sea of Japan, and almost all of them work at construction sites in Vladivostok and Nakhodka. According to local sources, they sleep in dormitories and eat together under portraits of the late Kim Il-sung and his son, current ruler Kim Jong-il.

Political classes are held every week under strict supervision of members of the ruling Korean Workers’ Party. The supervisors, who belong to North Korea’s security police, also collect their salaries from the Russian construction companies that have hired them, and give the workers only food and some pocket money. The bulk of their incomes are sent back to Pyongyang, or used to buy computers and other electronic equipment for North Korea’s small but burgeoning information-technology industry.

Many more North Koreans – the exact figure is not known but is believed to be at least 10,000 – work under similar conditions in logging camps in Khabarovsky krai (region) and Amursky oblast (province). The main camps in Khabarovsky krai are around Chegmodyn and Alonka in the Verkhnebureinsky region, in the wilderness some 680 kilometers north of Khabarovsk. In Amursky oblast, logging camps with North Korean workers are found in the north along the Yuktali, Yukcha and Gilyui rivers, and along the Arkhara River in the southeast. Fenced off with barbed wire, these camps are in extremely remote areas from which it is almost impossible to escape.

Some Russian logging firms – now all privately owned since the collapse of the Soviet Union and its communist system in 1991 – pay in cash, while others reportedly let the North Koreans keep 40% of the timber they fell as payment. Those logs are sent to North Korea by train, and resold to China, or used in North Korea itself, which has almost no forests left and therefore no timber.

According to Lyudmila Erokhina of the Vladivostok State University of Economics and Services, North Korean workers are preferred in the Russian Far East because they work hard and never complain: “They were brought up as law-abiding citizens in a strictly controlled society.” On the other hand, Chinese and Vietnamese guest workers in the Russian Far East are known to have raised demands for better working conditions, and are alleged by many Russians to be engaged in sometimes dubious local businesses, often in black or gray areas.

The good behavior of North Korean workers and their willingness to put up with harsh conditions may have been selling points when in more recent years Pyongyang began sending laborers to the Middle East, where they, according to RFA, mostly perform “low-skilled labor, such as plastering and bricklaying. The North Korean workers receive meager wages, even lower than the Nepalese workers, who have been known to receive the lowest pay of all foreign laborers” in, for instance, Qatar.

“The entire wage received by North Korean workers goes to the North Korean authorities. In order to make some money they can keep, they have to moonlight,” RFA quoted a South Korean resident in Qatar as saying. Thousands of North Korean construction workers are reported to be living under similar conditions in the United Arab Emirates and Saudi Arabia.

In the Czech Republic, hundreds of North Koreans, mostly women, work in factories producing auto parts, or as seamstresses in the garment industry. According to the US State Department’s 2006 Trafficking in Persons Report, the North Korean regime “provides contract labor for private industry in the Czech Republic. There are allegations that this labor is exploitative, specifically that the DPRK [Democratic People’s Republic of Korea] government keeps most of the wages paid to the North Korean workers and that workers’ movement is controlled by DPRK government ‘minders’.”

Since the formerly communist Czech Republic joined the European Union in 2004, it has been compelled to investigate the conditions of North Korean workers in country. But according to the US report, the Czech government “to date … has not confirmed that they enjoy freedom of movement away from DPRK government ‘minders’ and are not subject to other coercive practices, such as the collection of a majority of the workers’ salaries by DPRK officials”.

Soon, however, the North Koreans in the Czech Republic may be going home because of international pressure. No new work permits will be issued to them, and those who have permits will not have them renewed, which means that by the end of this year there will be no more North Korean workers in that country. The main problem from the Czech government’s point of view is that, since it joined the EU, tens of thousands of its own workers have left to seek higher wages in western Europe, so foreign labor is badly needed. And who could be better than hard-working, compliant North Koreans?

But if they are no longer wanted in the Czech Republic, there are many other countries willing to hire North Koreans – and, as long as Pyongyang needs foreign currency, the export of labor is also likely to continue.

Daily NK
Yang Jung A
7/24/2007

The North Korean Embassy in Berlin has leased its premises of the building in order to pay for its expenses, the Sankei Shimbun reported on the 24th.

According to the newspaper, an 5 stories building, 8160㎡ in area was leased out by the North Korean Embassy to a total of 15 companies including a design company and psychology association.

The North Korean Embassy did not publicize any external advertisements. However, a Germany affiliate is apparently conducting all the paperwork at an office located at the entrance of the building, the newspaper informed.

During the Cold War, North Korea constructed a large scale embassy in Berlin for propaganda and ostentation like other socialist blocs at the time.

However, with the fall of East Germany and the amalgamation with West Germany, the majority of socialist forces receded including the North Korean embassy. Now there are only a dozen or so employees working at the embassy and 70% of the building vacant.

The area is on lease for 8 Euros per ㎡ which is considerably cheaper than other locations in the busy area of Brandenburg Gate which costs at least $10~15 Euros.

Yonhap
7/21/2007

A U.N. relief official said North Korea currently receives only a small portion of the food aid it needs and his agency is considering stepping up aid to feed almost 2 million more people, a U.S. government-funded radio station reported Saturday.

In an interview reaching here Saturday through the Korean version of the VOA’s Web site, Robin Lodge, a spokesperson for the World Food Program (WFP), said international relief agencies, including the Office of Food for Peace, recently gathered in Rome, Italy and discussed the possibility of sending the communist state additional food that could feed 1.9 million people there.

Lodge was also quoted by the U.S.-funded broadcaster as saying North Korea currently receives from his agency only about 10 percent of what it needs to feed the 7 million believed to be suffering from starvation.

North Korea does not release any official data on its food situation but many outsiders believe that more than 2 million people died when famine swept through the country in the late 1990s.

Good Friends, a Seoul-based relief group dedicated to North Korea, said in its latest weekly newsletter on Wednesday that a growing number of North Koreans died of starvation or hunger-caused diseases recently, especially in remote areas.

“Famine-driven deaths began to occur across North Korea in late June,” the report said. “In some cities and counties in the provinces of North Pyongan, Ryanggang, Jagang and South and North Hamkyong, the number of deaths is on the increase daily.”

The reports contradict widespread reports that the North’s food situation has improved significantly in recent years.

On Friday, Seoul started sending 50,000 tons of rice aid to North Korea overland as part of its promised loan of 400,000 tons of rice aid.

Over the next five weeks, the South is to deliver 30,000 tons of rice to the North via a road passing through the border town of Kaesong, while another 20,000 tons will be transported across a paved road on the east coast. South Korea is delivering 350,000 tons of rice to the communist country by sea.

South Korea resumed shipping rice aid to North Korea in late June after more than a one-year hiatus, as the North shut down its nuclear facilities in the first step toward eventual nuclear dismantlement.

Choson Ilbo (hat tip One Free Korea)
7/20/2007
 
A Korean American businessman has been arrested by the U.S. Federal Bureau of Investigation on charges of hiding his activities as a spy for the South Korean government, AP reported Thursday. According to court documents obtained by the wire agency, Park Il-woo, also known as Steve Park, was a legal resident in the U.S. for the past 20 years and conducted business with North Korea. Park provided information he obtained from his frequent trips to North Korea to the South Korean government in return for payments.

U.S. law requires anyone acting as an agent of a foreign government to register with the U.S. government and disclose the nature of the activity. The FBI met with Park three times to ask about his activities between 2005 and 2007. But each time, Park denied his contacts with or knowledge of certain South Korean officials. Park was expected to appear in court Thursday afternoon.

PR Newswire
7/19/2007

To: NATIONAL EDITORS

Contact: Yusill Scribner of the Office of United States Attorney Michael J. Garcia, Southern District of New York, +1-212-637-2600

NEW YORK, July 19 /PRNewswire-USNewswire/ — Park Il Woo, a/k/a “Steve Park,” was arrested today on charges that he repeatedly lied to FBI agents about his activities in the United States on behalf of the Republic of Korea (commonly known as South Korea), from 2005 to the present, announced Michael J. Garcia, the U.S. Attorney for the Southern District of New York, and Mark J. Mershon, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (FBI).

Agents also executed a search warrant at Park’s Manhattan residence simultaneous to the arrest. According to the complaint and search warrant affidavit, incorporated by reference in the complaint:

Park, 58, a lawful permanent resident of the United States, engaged in conduct in the United States on behalf of the South Korea by, among other things, obtaining information from officials of another foreign government and providing that information to South Korean officials in exchange for payment.

For example, during a recorded telephone call, Park relayed to a South Korean official working in Manhattan that officials of the other foreign government had asked Park to help them obtain certain items, including insecticides and anesthetics. However, the complaint alleges, on three occasions in 2005 and 2007, Park gave false information to FBI agents regarding his contacts with or knowledge of certain South Korean officials.

For example, on March 20, 2007, FBI agents showed Park photographs of certain South Korean officials working in Manhattan, and Park stated that he did not know two of the officials. Park then drove directly from that FBI interview to a restaurant in New Jersey, where he met with one of the South Korean officials he claimed not to know.

Park is scheduled to appear this afternoon before U.S. Magistrate Judge Ronald L. Ellis in Manhattan federal court. Mr. Garcia praised the efforts of the FBI for their efforts in this continuing investigation.

Assistant U.S. Attorneys Jennifer G. Rodgers and Stephen A. Miller are handling the prosecution.

The charges and allegations contained in the complaint and documents incorporated by reference are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

SOURCE U.S. Department of Justice

Wall Street Journal
Melanie Kirkpatrick
7/20/2007

Of all the evidence turned up by the U.S. concerning irregularities in the United Nations Development Program’s operations in North Korea, some of the most disturbing concerns the transfer of dual-use technology.

As reported last month, the U.S. has uncovered documents showing the UNDP procured and delivered to North Korea in May 2006 technology that could be used for military purposes: global positioning system (GPS) equipment, a portable high-end spectrometer and a large quantity of high-specification computer hardware. According to packing lists and confirmation receipts, the items were intended for a “GIS” — geographic information system — project.

The equipment “is the type of technology subject to (U.S.) export controls,” says a spokesman for the Commerce Department’s Bureau of Industry and Security, which is responsible for issuing export licenses. So how did it end up in Pyongyang? It would seem more than passing strange that Commerce would have issued the requisite export licenses. The answer is: It didn’t.

U.S. officials, led by Ambassador Mark Wallace at the U.S. mission to the U.N., have spent a year looking into the UNDP’s operations in North Korea. Now, at the request of the State Department, Commerce searched its archives and found no record of any application for export licenses for the GPS, spectrometer or other equipment for the GIS project in North Korea.

Over the past 10 years, Commerce has received more than 200 license applications to export U.S. technology for U.N. projects in North Korea. Of those applications, the UNDP was named in a grand total of two, including one for software for the same GIS project that was equipped last year. That application was rejected.

Previously undisclosed documents show that the UNDP had been trying to equip the GIS project since at least 1999, when the application for an export license for mapping software was denied. Commerce cited concerns over the lack of safeguards in the project that could result in the software being diverted to the North Korean government and used for military purposes.

Yet seven years later, the UNDP procured and transferred sensitive technology to the same, unsafeguarded project — this time without bothering to apply for a license. And while there’s no evidence the UNDP went ahead and purchased the software for which it had been denied a license, that possibility must be considered, since GPS equipment is useless in such a project without mapping software.

The denial notice for “Case Number: Z177037” is dated Sept. 18, 1999. The “consignee in country of ultimate destination” is listed as the UNDP in Pyongyang. The one-page notice is written in prose that is clear and unambiguous: “The Department of Commerce has concluded that this export would be detrimental to U.S. foreign policy interests.”

The 14 items on the UNDP’s wish list were all classified “EAR99,” which means they are subject to Commerce jurisdiction but didn’t specifically appear on the Commerce Control List of items restricted for export. In discussions over the past several weeks with State Department officials, Commerce officials who examined the archives explained their agency’s decision to deny the export license. During the interagency review of the UNDP request, they say, questions were raised about whether the software would stay in North Korea after the UNDP international staff left and whether North Koreans would have access to the software.

Supporting documents show that the answer to both questions was yes. A letter dated April 5, 1999, from the software manufacturer that was seeking the export license on behalf of the UNDP, explains: “The project is supposed to be completed in three (3) years and the software will be left with the state agencies.”

Emails from the UNDP to Commerce offer further information about the UNDP’s security controls — or lack thereof. An Aug. 3, 1999 email from the UNDP’s Shankar Manandhar, in response to a Commerce query, says, “We would like to inform you that the North Korean nationals will have access to the computer in the project office in [the] presence of UNDP staff.” In another email, Mr. Manandhar notes that the software will be “utilized in the project office.”

The Defense Department recommended to Commerce that the application be denied. In a memo dated July 20, 1999, Defense explains that “These items could pose both national security and proliferation issues for the US and allies if diverted to the North Korean military.” Among the list of potential military applications cited are “planning a nuclear weapons infrastructure or missile launch sites.” And, “it could also be used for targeting.” In the end, as one Commerce official explained, since this type of mapping software can be used for military purposes, it was deemed to be “too great a risk of diversion.”

The Commerce official also says the case notes for the denial specify that several earlier licenses granted to the UNDP in North Korea had been conditioned in such a way that no North Korean nationals were to have access to the licensed items. Oh, really? Based on the UNDP’s replies to Commerce’s questions regarding the 1999 application, the official says that the licensing officer at the time believed it was “highly likely” that the UNDP was violating the terms of its previous licenses by allowing North Koreans access to licensed items. We now know — as confirmed by the U.N.’s preliminary audit of the UNDP’s North Korea operations — that the agency’s local staff were Ministry of Foreign Affairs employees assigned to the UNDP by the government.

It’s also worth noting the year these events took place: 1999. That is, the denial notice originated in Bill Clinton’s Commerce Department, part of an administration that was “conducting a one-sided love affair with North Korea,” in the felicitous phrase of Christopher Cox, then a Republican congressman closely monitoring Asian issues. On Sept. 17, 1999, the day before the issuance of the denial notice, the administration announced it would ease economic sanctions on North Korea. But approving the sale of sophisticated mapping software was a bridge too far even for the Clinton administration.

Since the U.S. went public in January with evidence of the UNDP’s lack of oversight of its programs in North Korea, the agency hasn’t exactly been forthcoming. At first, the UNDP denied that it had purchased dual-use equipment for North Korea, referring instead to “rice husk removers” and “plotters to help the [Korean] authorities more accurately produce maps for environmental monitoring.”

Next it look the line that the GPS equipment, portable spectrometer and computers delivered in May 2006 “do not represent state-of-the-art technology,” as Ad Melkert, the No. 2 UNDP official, put it in a June 28 letter to Zalmay Khalilzad, U.S. ambassador to the U.N. An annex to Mr. Melkert’s letter describes the technology as “not high-end or sophisticated” — an assessment at odds with the representations of the manufacturers. Trimble, for example, maker of the GPS GeoXT Handheld sent to North Korea, describes its product as having “a powerful 416 MHz processor running the most-advanced operating system available.” Mr. Melkert says in the annex that the UNDP is investigating “whether the vendors [in the Netherlands and Singapore] were required to obtain export permits for these items” — which sure sounds like an effort to shift responsibility.

Since January, when the U.S. concerns were made public, the UNDP has pulled out of North Korea and the U.N. audit has confirmed extensive violations of U.N. rules regarding hiring practices, the use of foreign currency and site inspections. The latest U.S. revelations raise far more serious questions about the UNDP’s oversight. Under the most generous interpretation, the agency was negligent of its legal responsibilities to keep dual-use technology out of a country that is on the U.S. list of terror-sponsoring states. At worst, it deliberately transferred the technology, knowing it was breaking U.S. law and helping to strengthen Kim Jong Il’s military dictatorship.

These questions — and many more concerning the UNDP’s record in North Korea — highlight the need for an independent, external inquiry of the UNDP’s programs world-wide. The U.S. first went public with its concerns in January, after months of pressing the UNDP for more transparency. If anything, as the latest U.S. evidence shows, things are worse than anyone thought.

Ms. Kirkpatrick is a deputy editor of the Journal’s editorial page.

Korea Times
7/19/2007

The European Union shunned South Korea’s request to include goods made in an inter-Korean industrial park in North Korea in a potential free trade agreement between the two sides, Seoul’s chief negotiator said.

South Korea launched free trade talks with the 27-country economic bloc in Seoul in May, only a month after it successfully concluded similar trade talks with the United States. A second round of South Korea-EU free trade talks began in Brussels on Monday.

“The EU side told us that it’s difficult for trade negotiators to deal with the Gaeseong issue because it’s complex legally and politically,” Deputy Trade Minister Kim Han-soo told reporters on the third day of the five-day negotiations this week, referring to the South Korean-built industrial complex in the North Korean border city of Gaeseong.

But the EU left open the possibility of a compromise, depending on the progress both sides will make in upcoming meetings, Kim said.

Before the second round began, Kim had expressed optimism over the Gaeseong issue.

“The Gaeseong issue is one of our top priorities. So we will keep pushing the EU to accept our request,” he said.

South Korea considers the industrial park, located just north of the world’s most heavily fortified border, to be a model for inter-Korean economic cooperation. About 15,000 North Korean workers are employed by 23 South Korean companies, producing garments, kitchenware and a number of other goods.

The industrial park is one of the prominent symbols of inter-Korean reconciliation efforts following a landmark summit in 2000 between then South Korean president Kim Dae-jung and North Korean leader Kim Jong-il.

The Gaeseong matter was one of thorniest issues during the 10 months of tough negotiations between South Korea and the U.S., but the two sides made an artful compromise, allowing them to discuss the issue later, depending on progress in international efforts to dismantle the North’s nuclear weapons program.

Kim and his European counterpart, Ignacio Garcia Bercero, director of bilateral trade relations at the European Commission, are leading the negotiations to move a deal forward between South Korea and the EU.

This week’s talks were centered on the pace of tariff reductions on automobiles. The EU asked South Korea to phase out its 8 percent tariff on auto imports within three years, instead of the seven years suggested by Seoul. according to a South Korean delegate who asked not to be named.

Other potential sticking points in the negotiations are South Korea’s protective pharmaceuticals and cosmetics markets. In addition, the EU wants better access to South Korea’s services market, particularly for law firms and hospitals, Kim said earlier.

Some progress has been reported, as the EU agreed to soften its anti-dumping rules for South Korean goods.

“So far, talks have been underway at a pace that we expected,” Kim told reporters. However, he admitted this week’s negotiations were aimed at clarifying each side’s positions, rather than bargaining.

No discussion was held on the agriculture sector. South Korea initially offered to exclude some 250 agricultural products such as rice, pork and chicken.

Officials at the EU delegation were unavailable for comment.

The EU is the second-largest trading partner of South Korea, with US$79 billion in bilateral trade in 2006. Unofficial studies suggest a deal would boost the figure by as much as 40 percent.

A third round of talks was scheduled for September in Brussels.

Korea Times
7/18/2007

North Korea has ceased operations of four more nuclear facilities after closing Saturday its key nuclear reactor that produces weapons-grade plutonium, the chief of the U.N. nuclear watchdog said Wednesday.

“We have verified all the five nuclear facilities have been shut down,” Mohamed ElBaradei, head of the International Atomic Energy Agency (IAEA), was quoted as saying in Kuala Lumpur, Malaysia, by the Associated Press.

He said some of the facilities have been sealed by IAEA inspectors who are currently staying in the North to verify the shutdown and disablement of the North’s nuclear facilities.

His remark comes as a new round of six-party talks on North Korea’s nuclear disarmament is set to resume in Beijing Wednesday afternoon.

The talks involving the two Koreas, the United States, China, Japan and Russia are supposed to deal with disablement of the North Korea’s nuclear facilities and the North’s declaration of all of its nuclear programs under the second phase of a February agreement.

Korea Times
Kang Shin-who
7/17/2007

More and more universities are removing departments of North Korean studies. Since Dongguk University was the first Korean university to establish a major in North Korean studies in 1994, five other universities followed: Kwandong University in 1996, Myongji University and Korea University in 1997, Chosun University in 1998 and Sun Moon University in 1998.

However, three of the five universities no longer offer the major. Chosun University abolished the department a year after its establishment because it could not guarantee jobs for graduates. Sun Moon University will change the department to North Asian studies from next year.

Also, Kwandong University, which is located in Gangwon Province, gave up the studies last year because the school has failed to meet the admission quota over the last few years.

Although students can major in North Korean studies at Dongguk University, the school will recruit only 20 new students for the next academic year, 20 less than the previous year.

Experts say that severe competition on landing jobs has caused many universities to give up North Korean studies. Many of the major hopefuls expect that they could easily get a job at the Ministry of Unification or research institutes for North Korea, but they have not taken advantage of their major. According to a survey by the Korea Research Institute for Vocational Education and Training, only 20 percent of students majoring in North Korean studies said that they are positive about their future, but 40 percent of them said their studies have no future.

While undergraduate schools have seen a decrease in the number of North Korean major students, more graduate schools have opened the studies. Sogang University set up the program at its graduate school in 1990, Kyungnam University in 1997 and Ewha Womans University last year.

Daily NK
Kim Min Se
7/17/2007

Only six, seven years ago, drugs inside North Korea secretly circulated among a portion of the upper-level officials and the specially affluent class, such as Chinese emigrants. Opium or heroine, produced in North Korea, were sold abroad to make foreign currency.

North Korea produces and exports drugs at the national level. Events where North Korean vessels and diplomats, through drug transport or charges of sales, are prosecuted by third-party countries is common. South Korean government, in the midst of North Korea’s breakdown in foreign currency supply in 1998, has deduced at one point that foreign-currency earners through illicit drug sales and illegal activities had amassed 100 million dollars.

From year 1970, North Korea’s drug sales, which secretly began on a small-scale, by the decree of Chairperson Kim Jong Il, rose in reality as a national enterprise and began official productions. In the August of same year, Chairperson Kim named the opium seed cultivation work as “White Bellflower Business.”

Further, he bestowed the appellation, “White Bellflower Hero,” to the person who sold over 1 million dollars of drugs, and ordered, “For the acquisition of foreign currency, export opium on a large scale (information reported by the National Intelligence Service, Lee Jong Chan former Chair at the inspection of National Intelligence Service on November 6, 1998).” As for North Korea’s drug production factories, the Nanam Pharmaceutical Factory in Chongjin and Hamheung’s Heungnam Pharmaceutical Factory are well-known.

Drugs, which are costly to average civilians preoccupied with making a living, were considered as a portion of the special class’ acts of aberration. The North Korean government, besides the foreign-currency earners, strictly inspected acts of drug circulations, so one could not even dream about this as a means of making money.

After the collapse of national provisions, drug sales also increase.

However, the food shortage brought a huge change to North Korea’s drug production and circulation. When the planned-economy system, where the nation was in charge of the provisions, broke down, the citizens started doing sales for survival. In North Korea where means of making money are not abundant, the place where one can smell money is at the market.

The revitalization of the jangmadang (black market) and general markets gave citizens in the cities a certain of opportunity to make a living. Further, they learned the mentality that money is best for survival. The custom began to spread where the citizens went through thick and thin if it meant working at a money-making job. Drugs infiltrated this opening.

Drugs that are most highly circulated in North Korea are philopon and heroine. The center of philipon productions is in Hamheung, South Hamkyung.

Hamheung is considered as a chemical industry synthesis base within North Korea where companies related to the chemistry branch can be abundantly found.

The representative place is the 2.8 Vinyl Chemical Complexes. Besides this, there are Hamheung Chemical Industry College (in its 5th year), the Heungnam Fertilizer Factory, and the Heungnam Pharmaceutical Factory, which are the providers of North Korea’s top chemical researchers.

The reason why Hamheung became the main place of philopon production

The raw materials for the vinyl complex are limestones of the Ounpo Mine in Hongwon-gun and the raw materials of the Heungnam Fertilizer Factory are ramrods of Huhcheon-gun and emulsified steel of the Manduk Mine.

For this reason, many chemistry-related researchers and workers are residing in Hamheung. The problem is that after the food provisions were cut off, they turned their eyes to Philopon production when making a living became difficult.

They can produce high-quality philopon, if they just have a good laboratory and raw materials. In particular, outside demand for Philopon was explosive in early 2000, when there were no huge restraints in the North Korea-Japanese trade and when the North Korea-Chinese trade became active.

Hamheung citizen Choi Myung Gil (pseudonym) said, “In the initial stage, if the businessmen provided raw materials and funds to researchers, they made high-quality Philipon and kept half of the profit. Do poor researchers have any money? They made them because businessmen received orders from China and Japan and sold them. Also, there was nothing to fear because bribes kept the mouths of the National Security Agency and the Social Safety Agency shut. There is nothing one cannot do with money, so what kind of a researcher would crush such a money-making scheme?”

Mr. Choi said, “The cost of production of philopon is no more than 3,000 dollars per kilogram in North Korea. If one sells this, he or she can receive 6,000 dollars on the spot. Manufactured Philopon can be handed over to middlemen or if it directly enters Shinuiju and is given to dealers, it can bring in from 9,000 to 10,000 dollars.”

He said, “My friend, who worked as a researcher in the Hamheung Branch Laboratory, also lived poorly, but became wealthy overnight by making philopon. I also am benefitting from him. There are many people who have become wealthy in Hamheung by making philopon.”

Ultimately, when the North Korea-Chinese traders bring the raw materials from China, the Hamheung chemical researchers make the philopon and the merchants take these to China for sale. In this process, the Chinese crime syndicate have also intervened.

Daily NK
Kim Min Se
7/17/2007

Researcher Raphael Pearl at the U.S. Congressional Research Service (CRS) maintained that recently, the Chinese crime syndicate has interfered in North Korean drug manufacturing and deals. Through the steady appearance of the up and coming wealthy class who have amassed a lot of money through sales, a significant amount of drugs began to be circulated in China.

North Korea-Chinese businessman Kim Myung Guk (pseudonym), who is in charge of North Korean mineral exports, frequently enters Hamheung to get minerals (uranium concentrate). Presently, Mr. Kim is in Dandong, China to meet Chinese businessmen.

Mr. Kim said, “The philopon from Hamheung is the best. In Pyongyang, Shinuiju, and Chongjin, Hamheung-made philipons are the most trusted. So I frequently receive requests to deal Hamheung philopon from other businessmen.”

Mr. Kim said, “It got to the point that the Chinese government requested inspection of the Hamheung factory, so the North Korean authorities carried out partial abolition. Nowadays, there is hardly anyone among the North Korean businessmen who do not know about the fact that Hamheung is the center of drug production.”

The Chinese government, when North Korean drugs started coming in on a mass-scale, pointed out the Heungnam Pharmaceutical Factory in Hamheung as a drug production factory in North Korea and demanded the abolition of the factory.

With exports to the outside closing, the great enterprise sold in North Korea

Currently in Shinuiju, philopon made in Hamheung is being sold for 9,000 to 10,000 dollars per kilogram. Drug dealers bring these into China and resell them at three times the higher price to Chinese drug dealers.

However, foreign sales of North Korean drugs is significantly decreasing as a whole.

In recent years, PSI and other international surveillance network have been strengthened regarding North Korea’s illegal actions, so drug exports have remarkably decreased. Further, North Korea-Japan relations have become worsened, so it seems to have exerted an influence on control of North Korean drug sales.

In Dandong, Chinese-North Korean businessman Kim Jong Man (pseudonym), who does trade with North Korea, said, “North Korea, before it ceased trade with Japan due to bad relations, sold a lot to Japan. It is a well-known fact that they were sold at high prices to Japanese yakuza via regular traders.”

However, with the worsening of relations, most avenues for drug sales have been closed. Also, the Chinese government, while proclaiming an all-out war with drugs recently, have significantly intensified control and inspections.

The Chinese government has shown a strong intention to control by broadcasting live via China’s CCTV the trial process of drug criminals through recent unconventional circumstances.

Mr. Kim said, “Due to the circumstances, the significant decrease in North Korean drugs going into China, compared to a year or two ago, can be felt.” Such an atmosphere is collectively acknowledged by other businessmen.

Inevitably, since routes for foreign sales have been closed, drug sales are increasing inside North Korea recently.

If such a trend continues, the day when North Korea will become one of the handfuls in the world known for its drug production and consumption does not seem too far off.