North Korean Economy Watch

Yonhap
4/24/2007

The South Korean government said Tuesday that it plans to invite U.S. companies to an investor relations (IR) gathering at the Kaesong industrial complex in North Korea this year.

The event, planned for October, will permit American businessmen to see firsthand the growth of the industrial park that is being built with South Korean capital, the Ministry of Commerce, Industry and Energy said.

The complex is one of the crowning achievements of the June 2000 summit meeting between the leaders of South and North Korea.

More than 20 South Korean companies are making shoes, clothing, watches and mechanical parts in the industrial park just north of the 248-kilometer-long demilitarized zone separating the two Koreas.

“The IR trip is not directly related to the recently agreed-upon free trade pact between South Korea and the United States,” said Hong Suk-woo, deputy minister for trade and investment.

Washington said it does not consider Kaesong part of South Korea and cannot extend preferential treatment to products made there.

In addition to the IR trip, the official said plans are under way to arrange one or two TV programs to be aired with English captions to provide information to foreign businessmen.

“The government is also considering a 24-hour English-language radio broadcasting that can provide timely information to foreign living in South Korea,” Hong said. China, Japan and Germany have such radio programs.

He said the ministry and related agencies plan to set up joint project teams to aggressively target specific companies for investment in the country.

“Government ministries, 16 regional administrations and the Korea Trade-Investment Promotion Agency will form teams that will work as one to attract investments,” he said.

The deputy minister said the 16 regional governments plan to set up three foreign corporate investment teams each by the end of the month so they can begin contacting prospective partners. Particular attention will be paid to attract investment in hightech areas including chemicals, electronics, semiconductors and machinery.

He said without going into details that some foreign companies have expressed interest in investing in South Korea.

Hong said the government expects foreign direct investment to reach $11 billion by the year’s end, roughly the same as last year’s $11.2 billion.

Asia Times
Bertil Lintner
4/24/2007

The state of North Korea’s information-technology (IT) industry has been a matter of conjecture ever since “Dear Leader” Kim Jong-il famously asked then-US secretary of state Madeleine Albright for her e-mail address during her visit to the country in October 2000.

The answer is that it is surprisingly sophisticated. North Korea may be one of the world’s least globalized countries, but it has long produced ballistic missiles and now even a nuclear arsenal, so it is actually hardly surprising that it also has developed advanced computer technology, and its own software.

Naturally, it lags far behind South Korea, the world’s most wired country, but a mini-IT revolution is taking place in North Korea. Some observers, such as Alexandre Mansourov, a specialist on North Korean security issues at the Honolulu-based Asia-Pacific Center for Security Studies (APCSS), believes that in the long run it may “play a major role in reshaping macroeconomic policymaking and the microeconomic behavior of the North Korean officials and economic actors respectively”.

Sanctions imposed against North Korea after its nuclear test last October may have made it a bit more difficult for the country to obtain high-tech goods from abroad, but not impossible. Its string of front companies in Hong Kong, Singapore, Thailand and Taiwan are still able to acquire what the country needs. It’s not all for military use, but as with everything else in North Korea, products from its IT industry have both civilian and non-civilian applications.

The main agency commanding North Korea’s IT strategy is the Korea Computer Center (KCC), which was set up in 1990 by Kim Jong-il himself at an estimated cost of US$530 million. Its first chief was the Dear Leader’s eldest son, Kim Jong-nam, who at that time also headed the State Security Agency, North Korea’s supreme security apparatus, which is now called the State Safety and Security Agency.

Functioning as a secret-police force, the agency is responsible for counterintelligence at home and abroad and, according to the American Federation of Scientists, “carries out duties to ensure the safety and maintenance of the system, such as search for and management of anti-system criminals, immigration control, activities for searching out spies and impure and antisocial elements, the collection of overseas information, and supervision over ideological tendencies of residents. It is charged with searching out anti-state criminals – a general category that includes those accused of anti-government and dissident activities, economic crimes, and slander of the political leadership. Camps for political prisoners are under its jurisdiction.”

In the 1980s, Kim Jong-nam studied at an international private school in Switzerland, where he learned computer science as well as several foreign languages, including English and French. Shortly after the formation of the KCC, South Korean intelligence sources assert, he moved the agency’s clandestine overseas information-gathering outfit to the center’s new building in Pyongyang’s Mangyongdae district. It was gutted by fire in 1997, but rebuilt with a budget of $1 billion, a considerable sum in North Korea. It included the latest facilities and equipment that could be obtained from abroad. According to its website, the KCC has 11 provincial centers and “branch offices, joint ventures and marketing offices in Germany, China, Syria, [the United] Arab Emirates and elsewhere”.

The KCC’s branch in Germany was established in 2003 by a German businessman, Jan Holtermann, and is in Berlin. At the same time, Holtermann set up an intranet service in Pyongyang and, according to Reporters Without Borders, “reportedly spent 700,000 euros [more than US$950,000] on it. To get around laws banning the transfer of sensitive technology to the Pyongyang regime, all data will be kept on servers based in Germany and sent by satellite to North Korean Internet users.” Nevertheless, it ended the need to dial Internet service providers in China to get out on the Web.

Holtermann also arranged for some of the KCC’s products to be shown for the first time in the West at the international IT exhibition CeBIT (Center of Office and Information Technology) last year in Hanover, Germany. The KCC’s branches in China are also active and maintain offices in the capital Beijing and Dalian in the northeast.

Another North Korean computer company, Silibank in Shenyang, in 2001 actually became North Korea’s first Internet service provider, offering an experimental e-mail relay service through gateways in China. In March 2004, the North Koreans established a software company, also in Shenyang, called the Korea 615 Editing Corp, which according to press releases at the time would “provide excellent software that satisfies the demand from Chinese consumers with competitive prices”.

Inside North Korea, however, access to e-mail and the Internet remains extremely limited. The main “intranet” service is provided by the Kwangmyong computer network, which includes a browser, an internal e-mail program, newsgroups and a search engine. Most of its users are government agencies, research institutes, educational organizations – while only people like Kim Jong-il, a known computer buff, have full Internet access.

But the country beams out its own propaganda over Internet sites such as Uriminzokkiri.com, which in Korean, Chinese, Russian and Japanese carries the writings of Kim Jong-il and his father, “the Great Leader” Kim Il-sung, along with pictures of scenic Mount Paekdu near the Chinese border, the “cradle of the Korean revolution”, from where Kim Il-sung ostensibly led the resistance against the Japanese colonial power during World War II, and where Kim Jong-il was born, according to the official version of history. Most other sources would assert that the older Kim spent the war years in exile in a camp near the small village of Vyatskoye 70 kilometers north of Khabarovsk in the Russian Far East, where the younger Kim was actually born in 1942.

The official Korean Central New Agency also has its own website, KCNA.co.jp, which is maintained by pro-Pyongyang ethnic Koreans in Japan, and carries daily news bulletins in Korean, English, Russian and Spanish, but with rather uninspiring headlines such as “Kim Jong-il sends message of greetings to Syrian president”, “Kim Jong-il’s work published in Mexico” and “Floral basket to DPRK [North Korea] Embassy [in Phnom Penh] from Cambodian Great King and Great Queen”.

On the more innocent side, the KCC produces software for writing with Korean characters a Korean version of Linux, games for personal computers and PlayStation – and an advanced computer adaptation of go, a kind of Asian chess game, which, according to the Dutch IT firm GPI Consultancy, “has won the world championship for go games for several years. The games department has a display showing all the trophies which were won during international competitions.”

Somewhat surprisingly, the North Koreans also produce some of the software for mobile phones made by the South Korean company Samsung, which began collaboration with the KCC in March 2000. North Korean computer experts have received training in China, Russia and India, and are considered, even by the South Koreans, as some of the best in the world.

More ominously, in October 2004, South Korea’s Defense Ministry reported to the country’s National Assembly that the North had trained “more than 500 computer hackers capable of launching cyber-warfare” against its enemies. “North Korea’s intelligence-warfare capability is estimated to have reached the level of advanced countries,” the report said, adding that the military hackers had been put through a five-year university course training them to penetrate the computer systems of South Korea, the United States and Japan.

According to US North Korea specialist Joseph Bermudez, “The Ministry of the People’s Armed Forces understands electronic warfare to consist of operations using electromagnetic spectrum to attack the enemy by jamming or spoofing. During the 1990s, the ministry identified electronic intelligence warfare as a new type of warfare, the essence of which is the disruption or destruction of the opponent’s computer networks – thereby paralyzing their military command and control system.”

Skeptical observers have noted that US firewalls should be able to prevent that from happening, and that North Korea still has a long way to go before it can seriously threaten the sophisticated computer networks of South Korea, Japan and the US.

It is also uncertain whether Kim Jong-nam still heads the KCC and the State Safety and Security Agency. In May 2001, he was detained at Tokyo’s airport at Narita for using what appeared to be a false passport from the Dominican Republic. He had arrived in the Japanese capital from Singapore with some North Korean children to visit Tokyo Disneyland – but instead found himself being deported to China. Since then, he has spent most of his time in the former Portuguese enclave of Macau, where he has been seen in the city’s casinos and massage parlors. This February, the Japanese and Hong Kong media published pictures of him in Macau, and details of his lavish lifestyle there – which prompted him to leave for mainland China, where he is now believed to be living.

Whatever Kim Jong-nam’s present status may be in the North Korean hierarchy, the KCC is more active than ever, and so is another software developer, the Pyongyang Informatics Center, which, at least until recently, had a branch in Singapore. Other links in the region include Taiwan’s Jiage Limited Corporation, which has entered a joint-venture operation with the KCC under the rather curious name Chosun Daedong River Electronic Calculator Joint Operation Companies, which, according to South Korea’s trade agency, KOTRA, produces computers and circuit boards.

The US Trading with the Enemy Act and restrictions under the international Wassenaar Arrangement, which controls the trade in dual-use goods and technologies (military and civilian), may prohibit the transfer of advanced technology to North Korea, but with easy ways around these restrictions, sanctions seem to have had little or no effect.

North Korea’s IT development seems unstoppable, and the APCSS’s Mansourov argues that it can “both strengthen and undermine political propaganda and ideological education, as well as totalitarian surveillance and control systems imposed by the absolutist and monarchic security-paranoid state on its people, especially at the time of growing conflict between an emerging entrepreneurial politico-corporate elites and the old military-industrial elite”.

So will the IT revolution, as he puts it, “liquefy or solidify the ground underneath Kim Jong-il’s regime? Will the IT revolution be the beginning of the end of North Korea, at least as we know it today?” Most probably, it will eventually break North Korea’s isolation, even if the country’s powerful military also benefits from improved technologies. And there may be a day when the KCNA will have something more exciting to report about than “A furnace-firing ceremony held at the Taean Friendship Glass Factory”.

Bertil Lintner is a former correspondent with the Far Eastern Economic Review and is currently a writer with Asia-Pacific Media Services.

Yonhap
4/24/2007

A senior North Korean diplomat who was deported from Zimbabwe a decade and a half ago for smuggling rhino horns out of the country has been named the country’s new ambassador to Italy, according to the North’s official media Tuesday.

In 1992, Han Tae-song, now a career diplomat in his mid-50s, was expelled from the southern African country on suspicion of being engaged in illicit trafficking in rhino horns.

Since then, Han has worked in the field of international organizations at the North’s Foreign Ministry, specializing in United Nations affairs, the Korean Central News Agency reported.

North Korea and Italy established diplomatic ties in January 2000.

Korea Herald
4/23/2007

South Korea and the United States have agreed not to apply International Labor Organization regulations to an inter-Korean industrial park in North Korea’s border city of Gaeseong, a South Korean lawmaker claimed yesterday.

Kim Won-woong, head of the National Assembly’s unification, foreign affairs and trade committee, said the Gaeseong industrial park is certain to remain an exception to the ILO’s labor rules, paving the ground for Seoul and Washington to designate Gaeseong as an “outward processing zone” (OPZ) on the Korean peninsula.

Gaeseong, located just north of the inter-Korean border, currently houses 23 manufacturing plants, which combine South Korea’s capital with North Korea’s cheap labor.

Under an FTA deal concluded at the beginning of this month, South Korea and the United States agreed to set up a joint OPZ review committee that will identify areas in North Korea that might be designated as OPZs and consider their qualifications if they meet the necessary criteria, including labor and wage practices. But the labor sector was expected to pose a dilemma as North Korea is not a member of the ILO, which stipulates three basic labor rights, namely the right to unionize, collective bargaining and industrial action.

“South Korea and the United States agreed to consider North Korea’s non-ILO member status and unique labor circumstances in the designation of OPZs in the communist state,” said Kim, citing a document he obtained from the Foreign Affairs and Trade Ministry.

In related news, the two Koreas agreed yesterday at the 13th economic cooperation talks in Pyongyang to continue discussing how to fortify the operations at the industrial complex from next month.

Gaeseong park is considered a signature inter-Korean project symbolizing the efforts of expanding exchanges.

South Korea, under the engagement policy of President Roh Moo-hyun, aims to gradually open up North Korea towards market economy for an eventual reform.

Yonhap
Lee Dong-min
4/20/2007

The United States is considering starting exchange programs with North Korea, potentially including government officials, to broaden bilateral relations and help open up one of the most closed societies in the world, a White House envoy said Thursday.

Jay Lefkowitz, appointed by the U.S. president to deal with North Korean human rights issues, said the exchanges could be between athletes, musicians, artists and even government officials.

“This is something we are thinking about,” Lefkowitz said at a session hosted by the Heritage Foundation.

He wasn’t sure whether North Korea would be receptive, the envoy said, “but exchange programs, I think, are ultimately a wonderful way to broaden relationships … they let real people interact with real people.”

It could be similar to the “ping pong diplomacy” initiated with China, he said, and the opportunity would be beneficial for both countries.

“It is highly likely that the people North Korea sends abroad will be chosen from the elites,” Lefkowitz said.  “Nonetheless, even the most pro-regime participant will undoubtedly have his assumptions jarred by seeing the outside world.”

U.S. relations with North Korea are heavily restricted by domestic laws. Pyongyang, denounced annually in human rights reports as one of the world’s most oppressive regimes, is also suspected of developing nuclear weapons and sponsoring terrorism.

The two countries held their first diplomatic normalization talks last month, a process begun when North Korea signed on to an agreement to eventually give up its nuclear weapons and programs.

Lefkowitz said human rights improvement in North Korea is a prerequisite to establishing formal relations.

“If the North Korean government ever wants to be seen as legitimate, it will have to make progress on human rights,” he said.

There is a glimmer of hope, the envoy said, quoting a Russian expert on North Korea who says a “quiet revolution” is under way in the communist nation and that the government there is gradually losing control over its people.

The phenomenon, Lefkowitz said, is very similar to what happened in the last days of the Soviet Union.

He criticized China for refusing to help North Korean refugees flowing into the country through their shared borders and said next year’s Beijing Olympics is a chance to highlight the situation.

“Does anyone seriously believe that a massive abuse (of) the refugee population will go unnoticed? I certainly hope not,” Lefkowitz said.

“This is an area where the international media can play a big role of exposing what’s going on.”

The envoy repeated his skepticism about the Kaesong industrial complex, an inter-Korean pilot economic project. Located just north of the border, the complex houses factories built with South Korean capital and run by North Korean labor.

Lefkowitz refuted argument that the project guarantees the same kind of success from China’s special economic zones.

In China, the companies operated under relatively free market conditions and accepted foreign investment and participation, he said.

For Kaesong, the “most troubling” is lack of overall transparency, he argued.

“This does not necessarily foretell liberalization,” he said. “Until there is transparency, other countries should not import goods made in Kaesong.”

Yonhap
4/20/2007

South Korea sustained a loss of some US$3 million on Friday as its contract for fuel oil aid to North Korea expired, the Unification Ministry said.

South Korea had planned to send 50,000 tons of heavy fuel oil to the North unless the communist country missed last Saturday’s deadline for taking initial steps toward its nuclear dismantlement under a landmark deal signed in February.

“The contract between the procurement authorities and GS Caltex expired today. The exact amount of penalty money is not clear, but it will amount to some 3.6 billion won given the cost of loading and storage,” the ministry said in a statement.

On Feb. 13, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

North Korea could receive another 950,000 tons in fuel aid if it disables the reactor irreversibly and declares a list of all nuclear programs to the International Atomic Energy Agency. The cost of the aid will be equitably distributed among the other countries in the six-nation talks.

But the North failed to shut down and seal its nuclear facilities by last Saturday, saying it would take first steps toward nuclear dismantlement as soon as it confirms the release of its funds frozen in a Macau bank since September 2005.

Macau’s financial authorities unblocked the North’s US$25 million in Banco Delta Asia, but the North has neither withdrawn the funds nor said when it will start implementing the initial steps.

“The contract was signed with an eye on the Saturday deadline and the IAEA’s nuclear inspection, but the unexpected Banco Delta Asia issue delayed the implementation of the agreement, costing us the penalty,” a ministry official said, asking to remain anonymous.

The official added that a new contract for heavy fuel oil will be made in consideration of the progress in the six-nation talks, involving the two Koreas, the United States, China, Japan and Russia.

Kyodo News
4/20/2007

About 16 million children and adults have been immunized against measles in North Korea in one of the fastest responses to a major outbreak of the disease, it was revealed Friday.

The mass vaccination was organized by the U.N. Children’s Fund, the World Health Organization, the International Federation of the Red Cross and Red Crescent Societies and North Korea after the government asked for help in February.

According to the international organizations, the immunization campaign was done in two phases, with 6 million children aged 6 months to 15 years vaccinated last month and 10 million people aged 16 to 45 years immunized earlier this month.

The campaign was arranged following the appearance of several cases of measles in North Korea last November. By February this year two adults and two children had died and more than 3,600 had been infected.

Measles had not been reported in North Korea before this outbreak since 1992, according to a joint press release from the international organizations involved, and many health workers in the country were unfamiliar with the disease.

“This was a remarkable example of good cooperation between different organizations,” said Jaap Timmer, the International Federation’s head of delegation in North Korea.

“The Red Cross mobilized more than 15,000 of its volunteers to visit families and explain the importance and benefits of the vaccination campaign.”

Measles is spread by contact with fluid from an infected person’s nose or mouth and is highly contagious. Symptoms include fever and a rash.

Sending vaccines and syringes to North Korea cost about $6 million, the press release said.

Asia Times
Robert Neff
4/20/2007

Many small countries in the world have resorted to unorthodox methods of obtaining much-needed currency. Although these methods may be legal, they often assist unscrupulous individuals and governments in conducting illegal activities. One popular method of obtaining cash is through flags of convenience (FOC). Countries, even land-locked ones, register other nations’ ships under their flag for a price.

It is a profitable industry that has no shortage of customers. Shipowners choose to register their ships under a foreign flag for a number of reasons, including tax advantages, cheap non-union crews, the ships’ conditions fail to meet the standards of the owner’s country, political reasons, or to facilitate illegal activities.

Because many of these ships often exchange flags and even their names, it is difficult to trace them, thus providing the anonymity they need to conduct their illegal operations. According to a statement by David Cockroft, general secretary of the International Transport Workers’ Federation (ITF): “Arms smuggling, the ability to conceal large sums of money, trafficking in goods and people and other illegal activities can also thrive in the unregulated havens which the flag of convenience system provides.”

Flying the Cambodian flag
One of the most notorious FOC countries was Cambodia. In 1994, Cambodia established its own ship registry – Cambodian Shipping Corporation (CSC), based in Singapore – and began immediately flagging ships of other nations.

Although its beginnings were modest (only 16 foreign ships registered with Cambodia during the first year) the CSC rapidly expanded. According to CSC, prior to its closing in 2002, the number of ships registered with the company was between 400 and 600, but according to US investigators and Cambodian officials the number was probably twice that.

CSC offered basically what many other FOC countries offered: registry for any ship, no questions asked, under its (Cambodia’s) flag for a low price. But, unlike other FOC countries, it offered to do the entire process online and within 24 hours. Despite Cambodia’s relative lag in Internet technology, its operation in Singapore enabled CSC to pioneer online registration.

As more and more foreign ships registered with CSC, it soon became apparent that a large number of the ships were involved in illegal activities. Cigarette smuggling operations were discovered near Crete and Albania; during the oil embargo of Iraq, oil was smuggled out of that country; human trafficking and prostitution operations were discovered near Japan and Crete, and, of course, drug trafficking.

All of these activities were cause for concern and drew condemnation, but there was one more criminal activity that concerned many nations even more: allegations that many of the ships were running arms. “Cambodia is one of the highest-risk flags. It is particularly murky and has got to be one of the first choices if you are running arms,” a spokesman for ITF said.

When asked about CSC’s alleged illegal operations, Ahamd Yahya of the Cambodian Ministry of Public Works and Transport was reported to have told Fairplay: “We don’t know or care who owns the ships or whether they’re doing ‘white’ or ‘black’ business … it is not our concern.” (Fairplay, October 12, 2000.)

Unsafe ships
In addition to illicit activities, the condition of the ships themselves was a concern. According to an article in the Guardian of London, by 2002 the company had about 450 registered ships, and out of this number 25 had suffered shipwrecks/strandings, 41 collisions, nine fires and 45 arrests. Nine  ś% ¬’n-registered ships were deemed severely hazardous and banned from entering European ports.

By the summer of 2002, many of the leading shipping organizations were calling for action to be taken against CSC. A spokesman for ITF condemned CSC and Lloyds shipping intelligence service wrote in an opinion piece: “The world should join us in demanding that Cambodia shut down this sleazy and pestilent offshore registration. How many more people have to die in incidents involving Cambodian-flagged vessels, or its ships detained for illegal activities, before something is actually done about it?”

The North Korean connection
American and South Korean interests in CSC were aroused when it was observed that a large number of North Korean ships, at least a dozen according to Michael Richardson, journalist and author of A Time Bomb for Global Trade, were registered with CSC and flying the Cambodian flag.

It is no secret that the Cambodian royal family had, and still maintains, a close relationship with the North Korean regime. King Norodom Sihamoni has often spoken of the Kim regime in a favorable manner. Kim Il-sung provided him with asylum during the turbulent years of Cambodia’s past and even built him an extensive 60-room palace outside Pyongyang. When the royal family returned to Cambodia it was accompanied by North Korean diplomats and bodyguards.

North Korea’s involvement in Cambodia’s flag of convenience operation was suspected after an investigation revealed that one of the primary partners in CSC was Lim In-yong, a senior North Korean diplomat who had served in Cambodia for many years. His role with CSC was described as being that of “a private citizen, [and] not as a representative of the North Korean government”. Whether his role was purely that of an individual or of a more sinister nature is unclear. But the United States and several other countries became increasingly suspicious of North Korea and the company’s motives.

Among several charges of illegal operations by North Korean ships, one was drug smuggling. When it was suggested in the media that Cambodian-registered North Korean ships may have been involved in drug smuggling, CSC denied any knowledge.

Incidents of drug smuggling involving ships from other nations flagged by the company were apparent. In 2002, the Greek-owned, but Cambodian-registered Winner was seized by French forces and discovered to be smuggling a large amount of cocaine. Interestingly enough, Hun Sen, the prime minister of Cambodia, gave his permission to the French government to board the ship – an indication that he did not support CSC. A short time later he revoked CSC’s authority to grant registry to foreign ships.

Perhaps the most infamous North Korean drug smuggling operation took place in 2003. The North Korean freighter Pong-su began its journey from North Korea under its own flag, but on arriving in Singapore changed its registration and reflagged under Tuvulu. It then proceeded to Australia where it was discovered trying to smuggle in a large amount of heroin, and was eventually seized after it tried to resist Australian authorities. Although this incident did not involve a Cambodian-flagged ship, it does give some credence to speculation that North Korea had smuggled drugs using CSC-flagged ships.

Weapons smuggling
While North Korea’s attempts to gain badly needed hard currency by smuggling drugs and tobacco were of some concern to the United States, more important were allegations that North Korea was smuggling and selling advanced weapons technology to other nations.

“Of most concern to the US and indeed to South Korea was the clear evidence that North Korean freighters flying the Cambodian flag or on the Cambodian register were moving ballistic missiles to clients in the Middle East and Africa,” noted journalist Richardson.

Perhaps the best-known of these Cambodian-registered North Korean ships was the Song Sang. In November 2002, a freighter believed to be carrying weapons departed a North Korean port and was tracked by American satellites and American naval ships. In December, as it made its way through the Indian Ocean, it was stopped by American and Spanish naval forces and inspected.

The United States justified its actions by claiming that it was flying no flag and thus was considered a pirate ship. According to Richard Boucher, the State Department’s spokesman, “At first we couldn’t verify the nationality of the ship because the ship’s name and the indications on the hull and the funnel were obscured. It was flying no flag.”

On investigation it was found that the ship was the So San, which claimed to have Cambodian registry. The So San’s manifest stated it was transporting cement to Yemen, but an examination revealed 15 Scud missiles with 15 conventional warheads, 23 tanks of nitric acid rocket propellant and 85 drums of unidentified chemicals all hidden beneath the bags of cement.

It is believed that the North Koreans tried to disguise the ship (Song Sang) by painting over the last two letters in the first name and the final letter in the second name (So San) to help prevent identification. The ship was eventually allowed to continue on its course after it was determined that it had broken no laws.

World criticism
Following the World Trade Center and other terrorist attacks, world opinion began to force the Cambodian government to reconsider its policy of allowing CSC to flag ships at will. The Cambodian government felt compelled to take action before one of the ships under its flag was found guilty of terrorist activity.

“We are victims because the company recklessly allows ships to use the Cambodian flag without proper inspection or control,” said Hor Namhong, the foreign minister, adding: “The company will be audited by the government.”

In July 2002, bowing to international criticism over concern for “Cambodia’s maritime safety record”, the Cambodian government revoked CSC’s authority to grant registrations, giving that authority to the Ministry of Public Works and Transportation. Ironically, it was this ministry that had just two years earlier declared disinterest into the alleged illegal activities of ships registered under its flag.

The Ministry of Public Works and Transportation was only in control of the registry for about six months before the Cambodian government granted the authority to register and flag ships to a new company, International Ship Registry of Cambodia, and its representatives in Busan, South Korea. According to e-mail correspondence from the company’s managing director, Charles Bach, to New York Times reporter Keith Bradsher, there are no longer any North Korean ships registered under the Cambodian flag.

But Marcus Hand, the Asian editor for Lloyd’s List, explained how difficult it is to know for certain who owns what ship because so many of them are owned by different companies registered throughout the world and only the North Koreans themselves know how many ships they own and what flag they fly.

Not only does North Korea purchase flags of convenience, it also sells them for nearly three times the normal asking price. According to ITF in 2006, out of 408 North Korean-flagged ships, only 187 of them were actually owned by North Korea; the rest were owned by other nations including Cambodia, Tonga, Comoros and Sao Tome and Principe – nations that are infamous for their own flags of convenience.

Prior to the United Nations Security Council’s resolution following North Korea’s nuclear test in October 2006, some of the ships registered to North Korea may have done so to avoid inspection while they carried out illegal activities.

There is some question as to the number of ships that were owned by United States-based companies and registered and flagged under North Korea. According to the American Central Intelligence Agency’s Fact Book, there were three, but Bill Gertz, in an article published with The Washington Times (June 8, 2006), listed nine ships owned by foreign companies, such as Egypt and Syria, based in Delaware, United States. One of these ships was discovered in March 2006 engaged in smuggling migrants off the coast of Europe. Under sanctions that went into effect in May 2006, the companies were required to cancel their registrations with North Korea and seek new registrations with other countries.

The new threat
With the CSC no longer able to grant registrations and Cambodia and South Korea’s progressively warmer relationship, North Korea has been forced to look elsewhere to register its ships. According to The Straits Times, at least 40 nations in the world engage in flags of convenience; many of them willing to flag North Korean ships for a price. North Korea does business with several of them, but a surprising replacement for Cambodia has apparently been found – Mongolia, a land-locked nation.

However, following North Korea’s nuclear test in October of last year, Mongolia’s Ship Registry has urged ships under its flag to abide by the United Nations resolution against North Korea. It is unclear what effect this has had on North Korean ships registered with Mongolia.

In addition to the North Korean threat of nuclear weapons, it has been speculated that North Korea may have the ability to launch modified missiles from its submarines and cargo ships. North Korean-flagged ships would be more susceptible to being stopped and searched by United Nations forces, but ships under FOC might pass unnoticed through surveillance and pose a significant threat to the enemies of the Pyongyang government and to the reputations of the governments which flagged them.

Yonhap
4/19/2007

South and North Korea on Thursday discussed a range of economic issues, including food aid, at a belated session of talks after the North withdrew preconditions for the formal opening, pool reports said.

But the plenary session, which took place about eight hours later than scheduled, did not appear to go smoothly as Chu Dong-chan, chief of the North Korean delegation, left the conference room, slamming the door shut behind him, just half an hour after the start of the meeting.

“Both sides delivered their position to each other during the meeting. We have to be engaged in further discussion, but the situation is not that good,” Chin Dong-soo, chief of the South Korean delegation, was quoted as saying by reports from Pyongyang, the venue of the talks.

The session was supposed to be held at 10 a.m., but failed to materialize because the North abruptly demanded to exchange keynote speech texts prior to the meeting.

The North also called for seeing a draft of a written agreement on the South’s provision of rice aid, as well as a draft of the joint press statement to be issued at the end of the four-day talks.

But the South rejected all of the requests, calling them “unprecedented” and “unproductive.”

Instead, they started the closed-door plenary session at 5:30 p.m., and the keynote speech texts were exchanged just before the session in the same manner as in previous meetings, a South Korean delegate was quoted as saying.

“Let’s work hard together and come up with good results for the Korean people,” Chu said in his opening remarks.

Chin echoed his view, saying, “Let’s pool efforts to make the talks benefit us mutually and become a stepping-stone on the path of joint prosperity.” The South is scheduled to hold a press briefing in Pyongyang to explain what they discussed during the meeting later Thursday.

South Korea was to call upon North Korea to fulfill its promise to shut down its main nuclear reactor at the earliest possible time.

According to South Korea’s keynote speech text obtained by pool reporters, Vice Finance Minister Chin was to call for the North’s immediate action on the denuclearization process.

“The quick implementation of the Feb. 13 agreement is a shortcut to draw firm international support for inter-Korean economic cooperation,” the text said.

South Korea was also to propose to conduct test runs of reconnected cross-border railways sometime in May, according to the reports. The two sides are scheduled to hold a series of negotiations until Saturday, the last day of the four-day meeting.

“The overland transportation of economic cooperation goods will be offered in consideration of the high cost of logistics from maritime transportation,” a South Korean delegate said, asking to remain anonymous.

The two Koreas will also address the North’s request for 400,000 tons of rice in the form of a loan. South Korea is likely to accept the request unless the situation surrounding the North’s nuclear reactor shutdown gets worse.

Shortly after the North conducted missile tests in July, the South suspended food and fertilizer aid. But fertilizer aid was resumed in late March, a few weeks after the two sides agreed to repair their strained ties.

The inter-Korean dialogue came just days after the communist nation failed to meet a Saturday deadline to shut down and seal its nuclear facilities under a landmark six-nation agreement signed in Beijing in February.

Last Friday, North Korea said it would take first steps toward nuclear dismantlement as soon as it confirms the release of its funds frozen in a Macau bank since September 2005.

Macau’s financial authorities unblocked the North’s US$25 million in the Banco Delta Asia, but the deadline passed with no word from the North on whether it has confirmed the release of the funds or when it will start implementing the initial steps.

In the February accord, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

The U.S. promised to resolve the financial issue within 30 days, but it failed to do so because of technical complications.

Meanwhile, during a luncheon meeting with South Korean delegates, Chu flatly denied that North Korea is considering sending back the USS Pueblo to the United States.

“Return? Why do we return such an important thing?” Chu said when asked about press reports on the possible repatriation of the warship.

The USS Pueblo, docked on the bank of the Taedong River in Pyongyang, is used to stoke anti-American feeling among the North Korean public. It was seized on an intelligence-gathering mission off North Korea’s east coast in 1968.

On Wednesday, U.S. Republican Sen. Wayne Allard introduced a resolution demanding that North Korea return the Pueblo in exchange for a Korean battle flag captured in the 19th century and now on display at the U.S. Naval Academy in Maryland.

South and North Korea had already expressed their commitment to carry out what they had already agreed upon at the latest ministerial meeting held in March. The Koreas agreed to discuss food aid and schedules for test runs of cross-border trains as part of efforts to expand economic cooperation for the sake of joint prosperity.

“Let’s implement already agreed-upon issues, overcome barriers bravely and advance grandly as united people,” Kwon Ho-ung, chief councilor of the North Korean cabinet, said in a welcoming speech during the reception for the South Korean delegation Wednesday evening.

In response, Chin stressed that the two sides should upgrade their economic ties. “I expect that the meeting will actualize and develop economic cooperation,” he said.

The six-member South Korean delegation arrived in Pyongyang Wednesday afternoon on a direct flight from Gimpo Airport. The delegates attended a banquet hosted by Kwon, following a brief meeting with their North Korean counterparts.

Also high on the agenda are test runs of the cross-border railways in the first half of this year, and the implementation of an economic accord in which South Korea was supposed to provide raw materials in exchange for the North’s natural resources.

North Korea abruptly called off scheduled test runs of the railways in May under apparent pressure from its hard-line military. The cancellation also led to the mothballing of the economic accord. North Korea’s subsequent missile and nuclear weapons tests further clouded hopes of implementing the agreement.

The tracks, one line cutting across the western section of the border and the other crossing through the eastern side, were completed and set to undergo test runs. A set of parallel roads has been in use since 2005 for South Koreans traveling to the North.

South Korea has repeatedly called on North Korea to provide a security guarantee for the operation of the railways, but the North has yet to respond on the issue.

The reconnection of the severed train lines was one of the tangible inter-Korean rapprochement projects agreed upon following the historic summit between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in 2000.

In 2005, South Korea agreed to provide the North with $80 million worth of raw materials to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

Daily NK
Kim Min Se
4/18/2007

Cigarette prices escalate as Japan toughens economic sanctions

Following Japan’s economic sanctions, North Koreans are finding it to difficult to splash out on luxury goods, an inside source informed on the 17th.

Though only a minority of the rich are experiencing this hardship as the import of Japanese cigarettes and foods slowly come to a halt, it will be interesting to note what further repercussions will follow as a result of Japan’s sanctions.

The North Korean rich often lavish on “Seven” cigarettes, made in Japan which is known to be different to “Mild Seven” sold in South Korea. It is a much stronger cigarette containing 14mg of tar and 1.4mg of nicotine,

Seven was first introduced to North Korea in the mid-1980’s and has captivated tobacco preference of North Koreans ever since. As living standards deteriorate in North Korea Seven cigarettes have become a rare commodity for an average person to have today, though earlier in the 90’s, Seven was a luxury cigarette smoked by the majority of North Koreans. In particular, merchants who accumulated wealth through North Korea-China trade still prefer this brand to others.

Unlike other popular luxuries, smoking is a habit which becomes easily addictive. Hence, a handful of North Korean elites who in the past commonly smoked Seven’s and acquired its taste are experiencing withdrawal symptoms today, due to Japan’s economic sanctions and consequent ban of Seven.

Seven is a strong cigarette and though it sells well throughout the Japanese, it is not a preferred brand in South Korea. While Japan places export bans towards the North, conversely North Korean authorities are also regulating Japanese goods. For this reason, North Korean citizens are smoking these cigarettes in secret.

As supply does not meet demand, the cost of Seven cigarettes has skyrocketed in the cities of Pyongyang and Nampo.

Nowadays, a packet of Seven’s in Pyongyang sells at around 40 Yuan (11,000 North Korean won, US$3.6). This is 7~8 times more expensive than the common North Korean brand of cigarettes “Cat.” Considering that a kilogram of rice costs 800 North Korean won (US$0.26) and the average monthly salary of a worker 3,000~4,000won (US$0.98~1.3), the price of Seven’s is phenomenal.

However, as supply continues to be depleted, rich merchants and powerful ministers face a difficult test.

Furthermore, the rich and former Korean residents of Japan are unable to taste the flavors of popular Japanese foods that they have become accustomed to such as soy sauce, bean paste and instant noodles for a long time.