North Korean Economy Watch

Korea Times
Park Song-wu
2/11/2007

South Korea is thinking of chairing a working group for energy aid to North Korea as the United States is trying to differentiate this round of the six-party talks from a 1994 process, a Seoul official said on Sunday.

But Seoul has a firm position that all parties should jointly pay the “tax” for peace, he said.

“Denuclearization will benefit all parties, so the burdens should be shared jointly,” he said. “But we are thinking of taking the lead in the working group for energy aid, considering the circumstances of the other parties.”

He did not elaborate. But Tokyo is not expected to raise its hand to chair the working group, considering the Japanese anger over the North’s abduction of its nationals in the past.

Russia prefers forgiving the North’s debts instead of providing it with energy.

China, host of the multilateral dialogue, is already playing the most important role of chairing the six-party meeting.

What the United States apparently has in mind, and consented to by all parties, is the necessity to differentiate the result of these on-going negotiations from the 1994 Agreed Framework.

Since it was signed by Robert Gallucci and Kang Sok-ju in Geneva on October 21, 1994, Washington provided 500,000 tons of heavy oil annually to Pyongyang over the following seven years.

But the North’s promise to freeze its graphite-moderated reactors in return for two light-water reactors was not obeyed, causing the Bush administration to criticize the deal as a diplomatic failure of his predecessor, Bill Clinton. After that, U.S. diplomats even avoided meeting their North Korean counterparts bilaterally.

The U.S. policy, however, has recently reached a turning point.

“The Bush administration may have been driven to greater negotiating flexibility by a need to achieve a foreign policy victory to compensate for declining public support for the Iraq war and the loss of the Republican leadership of Congress,” Bruce Klingner, a senior research fellow for the Heritage Foundation said in a recent article.

But one thing that has not changed is the U.S. hope of not repeating the “mistake” it made with the Geneva agreement.

From 1994 to 2002, Pyongyang received 3.56 million tons of heavy oil, equivalent to $500 million, from the now-defunct Korean Peninsula Energy Development Organization (KEDO), and the United States shouldered the largest share of $347 million.

To shake off that bad memory, Washington wants to use the term “shut down” instead of “freezing” and even wants to avoid providing fuel oil to the North, reportedly citing the possibility that it can be used for military purposes.

So the talks have dragged on. And, to make things worse, the North Koreans are demanding a lot.

Japan’s Kyodo news agency reported that North Korea had demanded 2 million tons of heavy oil or 2 million kilowatts of electricity in exchange for taking the initial steps towards denuclearization.

Christopher Hill, the top U.S. envoy, expressed hope on Sunday that such technical issues could be discussed at working group meetings. On the same day, the Seoul official hinted that South Korea will chair the working group.

Yonhap
2/10/2007

An official of Switzerland’s banking industry denied accusations that the country’s banks are involved in dealings with North Korea’s leader Kim Jong-il, saying such involvement would taint the industry’s image, a report said.

“There is no way a Swiss bank would be running a bank account for Kim Jong-il knowing that he is a dictator. The reputational risk is simply too high,” James Nason, a spokesman for the Swiss Bankers’ Association, told Washington-based Radio Free Asia (RFA) on Friday.

Korea Times
2/9/2007

North Korea purchased about 15,000 metric tons of rice from China late last year, reflecting a severe food shortage in the communist state, according to South Korea’s state-run trade agency Friday.

The impoverished communist country imported 7,423 tons of rice in October, 3,910 tons in November and 3,928 tons in December, the Korea Trade Investment Promotion Agency (KOTRA) said.

The amount of rice imported over the three-month period is about 2.6 times more than that of the same period in 2005, and it accounted for almost half of its annual rice imports totaling 38,479 tons, KOTRA said.

“North Korea’s massive rice imports following the harvest season means that its food situation is so severe. Due to the imported rice, North Korea’s market rice prices are stable so far,’’ said Kwon Tae-jin, a senior researcher at the state-run Korea Rural Economic Institute.

Another North Korea expert said the communist country might have had to take such measures because of United Nations sanctions on the North following its nuclear weapon test in October as well as South Korea’s suspension of its food and fertilizer aid to North Korea since July.

BBC
2/7/2007

As six-party talks on North Korea’s nuclear programme resume in Beijing, the BBC’s Penny Spiller considers whether food shortages in the secretive communist state may have an impact on progress. 

Negotiators for the US, North Korea, China, Japan, South Korea and Russia are meeting in Beijing amid signs of a willingness to compromise.

While the last round of talks in December ended in deadlock, bilateral meetings since then have brought unusually positive responses from both North Korea and the US.

Such upbeat noises were unexpected, coming four months after North Korea shocked the world by testing a nuclear bomb.

The test brought international condemnation and UN sanctions, as well as a significant drop in crucial food aid.

South Korea suspended a shipment of 500,000 tonnes of food supplies, while China’s food exports last year were sharply down.

The World Food Programme has struggled to raise even 20% of the funds it requires to feed 1.9 million people it has identified as in immediate need of help.

Aid agencies warned at the time of a humanitarian disaster within months, as the North cannot produce enough food itself to supply its population. It also lost an estimated 100,000 tonnes-worth of crops because of floods in July.

‘Queues for rations’

Kathi Zellweger, of the Swiss Agency for Development and Cooperation in Pyongyang, said the present food situation in the country was unclear.

No figures are yet available for last year’s harvest, and it was difficult to assess what impact the lack of food aid was having on supplies, she said.

However, the UN’s Food and Agriculture Organisation estimated the country was short of one million tonnes of food – a fifth of the annual requirement to feed its 23 million people.

South Korea-based Father Jerry Hammond said there were signs of shortages – not only in food but also in fuel – when he visited the North with the Catholic charity Caritas in December.

He described seeing long queues for rations, and ordinary people selling goods in the street for money to buy the basics.

“You do expect to see more shortages during the winter time,” the US-born priest, who has visited North Korea dozens of times in the past decade, said.

“But I did see a noticeable difference this time.”

High malnutrition rates

Paul Risley, of the World Food Programme, said people in North Korea may still be cushioned by the November harvest and the pinch will be felt in the coming months.

“We have great concerns,” he said, pointing out that North Korea was now in its second year of food shortages.

He says “stabilising food security” in the country will be very relevant to the talks in Beijing.

“It is certainly the hope of all who are observing the situation in [North Korea] that imports of food can be resumed and returned to prior levels,” he said.

“Malnutrition rates are still the highest in Asia, and we certainly don’t want to see those rates rise any further.”

Father Hammond thinks Pyongyang may be persuaded to consider compromises in Beijing, but is unlikely to do so as a result of any pressure from the people of North Korea.

“People are very cut off from the outside world, and there is constant propaganda about national survival. Even if they go hungry, it will be considered patriotic,” he said.

There have been signs of possible compromise from both sides in the run up to the talks.

Washington has reportedly hinted at flexibility over its offer of aid and security guarantees, as well as showing a willingness to sit down and discuss North Korea’s demands to lift financial sanctions.

Meanwhile, North Korea reportedly recently told visiting US officials it would take the first steps to disband its nuclear programme in return for 500,000 tonnes of fuel oil and other benefits.

And South Korea is keen to resume its shipments of rice and fertiliser aid – if Pyongyang agrees to freeze its nuclear programme, the Choson Ilbo newspaper has reported.

As the nuclear talks resume, all sides will be looking to translate such pressures into progress.

Korea Times
Lee Jin-woo
2/8/2007
 
The government has decided to slash the amount of cash provided to North Korean defectors who come to South Korea and to focus more on helping them find jobs here, the Ministry of Unification said Thursday.

According to the plan, the subsidy provided in cash for the settlement of North Korean defectors will be cut from the current 10 million won ($9,500) to 6 million won. The amount is based on a one-person family and varies according to the number of people in the family.

Those who have come to Seoul since Jan. 1 this year will be subject to the new regulations, the ministry said.

The ministry, which deals with inter-Korean affairs, said it would almost double incentives to encourage North Korean defectors to find workplaces in the South.

Regardless of their annual income, a North Korean employee will get up to 15 million won for three years.

Some 4.5 million won would be provided after the first year of labor, which will increase by 500,000 won per year up to 5.5 million won for the third year.

Previously, the labor incentive was 9 million won over three years.

The new measure will be effective retroactively to defectors who have arrived from the beginning Jan. 1 of last year.

Despite the cut, the total amount of subsidies will be slightly lower than now, as the ministry decided to provide 13 million won, up from 10 million, for each one-man family to help find housing in the South, the ministry said.

Those who are handicapped or suffer from a serious disease will get up to 15.4 million won, it said.

“North Koreans should no longer sit idle in South Korean society,’’ Kim Joong-tae, acting chief of the ministry’s social and cultural exchange bureau, told reporters. “The incentive is aimed at increasing support for North Korean defectors who are trying to adapt to South Korean society.’’

Life is getting more challenging for North Koreans arriving in the South. As the number has surged, the government subsidy for each defector has plummeted.

Many North Korean defectors have complained that the government’s decision lacks an understanding of the harsh reality that they face in Korean society.

“Officials are ignoring the fact that the majority of North Korean defectors who come here after years of hardship in China and other Southeast Asian countries are not able to work normally for a certain period of time,’’ Lee Hae-young, an official of an association of North Korean defectors in Seoul, told The Korea Times.

Lee said it takes about five years for defectors adjust to a completely different market society.

“I think only about three out of 10 defectors who arrive in the South are healthy enough to work,’’ Lee said.

The total number of North Korean defectors to the South since the end of the 1950-53 Korean War is presumed to have surpassed 10,000 early this year, according to the ministry.

Joong Ang Daily
Kang Chan-ho
2/7/2007

Budget allocations by the Bush administration show that the United States plans to continue to pressure North Korea about human rights violations and illicit financial transactions, despite the ongoing North Korean nuclear talks.

In its fiscal plan for the year 2008 released Monday, the U.S. State Department said $20 million had been set aside to support refugees in the East Asian region, including North Korean defectors, while $2 million had been earmarked to support activities promoting democracy in North Korea.

In addition, $668 million will be set aside for radio propaganda broadcasts: The Voice of America and Radio Free Asia will increase their combined broadcast hours targeted to the North by up to 10 hours each day. The State Department is focusing its broadcasts on North Korea, the Middle East, Somalia and Cuba.

In addition, the Treasury Department has budgeted $385,000 to hire two more officials to deal with illicit North Korean financial activities and act in an advisory role to bring more pressure on the communist country.

The budget plan by the State Department also outlined a timeline for the ongoing nuclear negotiations. It projects that should the nuclear talks be concluded, the actual process of dismantling the North’s nuclear weapons should start by early 2008. The plan states that negotiations to dismantle the North’s mid- to long-range missiles would begin next year as well.

Meanwhile, with nations involved in the six-party talks getting ready to convene in Beijing on Thursday to resume nuclear negotiations, Japanese Prime Minister Shinzo Abe said on Monday that without sincere measures taken by Pyongyang regarding Japanese abductees, Tokyo will not come up with the energy aid measures needed to compensate the North.

Officials involved in the nuclear talks have said they intended to take some initial steps toward implementing an international accord reached in September 2005. The Yomiuri Shimbun reported earlier that Pyongyang was looking to get 500,000 tons of heavy fuel per year in exchange for agreeing to stop operations at its Yongbyon nuclear reactor and allowing inspectors from the International Atomic Energy Agency back into the country.

Yonhap
2/5/2007

The United States may recognize goods produced at a joint industrial complex just north of the border as South Korean if there is a change in circumstances, the top U.S. diplomat here said Monday.

In a one-hour meeting with Unification Minister Lee Jae-joung, U.S. Ambassador Alexander Vershbow said that while it is unrealistic to recognize the goods made in the border city of Kaesong as South Korean, there is room left to negotiate within the proposed free trade agreement (FTA) between the two countries, Unification Ministry officials said.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula. Vershbow said ‘if,’ but he did not elaborate on what kind of change under what kind of circumstances,” said a ministry official who was present at the meeting, but who asked to remain anonymous.

So far, the U.S. has avoided placing the issue on the official agenda of the FTA negotiations, so Vershbow’s remarks could be construed as a slight change in U.S. strategy toward forging a free trade deal with South Korea.

In spite of United Nations sanctions on the North following its nuclear weapon test in October, South Korea has kept two major cross-border joint projects afloat: an industrial complex in Kaesong just north of the border, and a tourism program at the North’s scenic Mount Geumgang.

In the industrial complex, South Korean businesses use cheap North Korean labor to produce goods. Twenty-one South Korean factories employ about 11,160 North Korean workers in Kaesong.

The six-party talks aimed at ending North Korea’s nuclear weapons program, involving the two Koreas, the U.S., China, Japan and Russia, will reconvene in Beijing on Thursday.

US May Accept Kaesong Goods
Korea Times
Ryu Jin
2/5/2007

The United States might recognize goods made at a joint industrial complex in the North Korean border city of Kaesong as South Korean products in a proposed free trade agreement (FTA) if there is a change in circumstances, the top U.S. diplomat in Seoul said Monday.

U.S. Ambassador to Seoul Alexander Vershbow said in a meeting with Unification Minister Lee Jae-joung that, although it seems unrealistic at the moment to recognize the Kaesong products as South Korean, there is room left to negotiate within the proposed FTA.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula,” a ministry official said after the meeting. “Ambassador Vershbow said `if,’ but he did not elaborate on what kind of change under what kind of circumstances.”

Vershbow’s remarks could be interpreted as a sign of change in U.S. strategy since Washington has so far refused to deal with the issue as an official agenda item in the ongoing negotiations for a South Korea-U.S. FTA.

Inter-Korean ties have soured in recent years in tandem with the deteriorating North Korea nuclear standoff. But the six-party talks aimed at ending North Korea’s nuclear program is expected to see a substantial progress in the coming round of negotiations.

South Korea has kept afloat its major cross-border projects with North Korea, including the joint industrial park in Kaesong and a tourism program at the North’s scenic Mt. Kumgang, even after Pyongyang’s nuclear test in October.

South Korea has exerted much effort to have its counterparts in FTAs, such as Southeast Asian countries, recognize the Kaesong products as “made in Korea” because it has a significance to further promote the joint industrial project.

A total of 21 South Korean factories are operating in the Kaesong industrial park at present, employing over 10,000 North Korean workers.

Daily NK
2/3/2007

Though the number of North Korean drug smuggling cases is on the decline, a U.S. report claims that the number of Chinese crime gangs reexporting North Korean drugs to 3rd world countries is on the rise.

Radio Free Asia (RFA) conducted an interview with Researcher Raphael Pearl of the U.S. Congressional Research Service (CRS) on the 30th regarding his claims in a report “Drug Trafficking and North Korea: Issues for U.S. Policy.

In the report Pearl spoke of an incident where Australian authorities captured a North Korean vessel “Pongsu” in April 2003 which was amidst transporting $160mn worth of heroin and said that this case had “enhanced international attention” on the issue of North Korean drug smuggling and since then the number of drug smuggling incidents had generally declined.

Since 1976, there have been a total of 50 cases where 20 different countries were caught in foreign relations with North Korea for drug trafficking. However, within the last 2 years, the majority of cases of drug smuggling were found in China’s Shenyang, Dalian and Dandong. Further, links to North Korean authorities have yet to be verified regarding these cases.

Pearl said that despite the fact North Korean drug trafficking has declined on the whole there have been cases where North Korean drugs were mistaken for drugs made in China. Also, he said that through the intervention of Chinese crime gangs, North Korean drugs were being reexported to 3rd world countries.

Some argue that the reason drug incidents have declined is due to the fact North Korean authorities have reduced their direct participation in the manufacture of goods. However, more and more Chinese crime gangs are intervening in the manufacture of North Korean drugs and smuggling, he said. In other words, there is a high possibility that North Korean drugs are being reexported through the intercession of China.

Pearl said that North Korean authorities are attempting to compensate the losses from a decline in drug smuggling with the manufacture and smuggling of fake cigarettes, medicines and small weapons. He also emphasized and confirmed the pivotal role of illegal acts such as exporting fake cigarettes and drugs in contributing to North Korea’s economy and income.

In the report, Pearl expressed his concerns on North Korea, giving the example that parts of farming areas had been used to cultivate drugs even amidst a poverty stricken country and indicated that the money from illegal acts such as drug smuggling and counterfeit currency could further add to the development of missiles and nuclear weapons.

He also expressed concern over the issue of segregating North Korean authorities especially with foreign groups being associated with North Korean drug smugglers.

Choson Ilbo
2/2/2007
 
Russia is trying to strengthen ties with North Korea, citing a “China threat” in Korea and the Far East. The Gudok, the daily newspaper of Russian Railways, said in an article Tuesday, “If China takes control of Najin port in North Korea, Russia may suffer huge losses in the project to link the TKR (Trans-Korea Railway) and the TSR (Trans-Siberian Railway).”

Gudok is published by Vladimir Yakunin, the president and CEO of Russian Railways and one of the closest allies of Russian president Vladimir Putin. Sources say the report can be viewed as Russia’s official position as it tries to expand its influence with Pyongyang.

“China has completed feasibility studies for Najin port and is now doing repairs and upgrades to wharfs and container unloading facilities,” the article said. It said that because the port lies at the start of the Najin-Hasan Railway and does not freeze throughout a year, Russia must take hold of it.

“China has already requested that the UNDP, or UN Development Program, give the Chinese the right of free passage in the UNDP-initiated Tumen river development project. What China aims to achieve is to establish its own port in North Korea as a foothold to advance into the Pacific Ocean,” the article said. The newspaper urged the Russian government to respond aggressively.

Sources with the Korean government said Thursday, “The Russian government suggested late last year that it would pursue a railway modernization plan on a 54km stretch of the Najin-Hasan line with its own money, without support from South Korea, if we expand container transportation on the route between Busan and Najin.”

Currently only North Korean trains are in service on that stretch of railway. Russia has been working on the line since July, converting its narrow gauge to the standard that supports container transportation.

North Korea, which has sent around 10,000 construction workers and loggers to the Far East region, is welcoming closer cooperation with Russia. When president Putin announced last Saturday that Russian would spend 100 billion rubles (W3.7 trillion) to hold the Asia Pacific Economic Cooperation summit in Vladivostok in Russia, North Korean consulate-general Shim Kuk-ryeong in Nachodka said, “North Korea is ready to join major construction projects as soon as Vladivostok’s infrastructure development project starts.”

Russia’s efforts to expand its influence with North Korea can be seen as falling within the context of Putin’s recent emphasis on the Far East. Late last year, Putin said, “Russia’s security is now being threatened with the illegal migration of Chinese into the Far East.”

Korea Times
2/2/2007

Kim Jong-il, the idiosyncratic leader of North Korea, may be dispensing Hennessy cognac and Cartier watches to his cronies for a little while longer, thanks to a 300-year-old territorial dispute between the United Kingdom and Spain, the Financial Times reported Thursday.

The times said the precise status of Gibraltar, a hunk of British-owned rock at the mouth of the Mediterranean, has caused a new row between London and Madrid that is delaying a European Union (EU) ban on luxury goods sales to Pyongyang.

The ban was agreed by the United Nations last October as one of a series of sanctions against North Korea, following its Oct. 8 underground nucear weapons test.

The aim was to deprive Kim and his supporters of some of the finer things in life, including thoroughbred horses, luxury vehicles, watches, pearls and musical instruments, the daily said.

The sanctions were adopted by EU foreign ministers in November, but they are still not in force across the bloc, according to the world-renowned finacial newsppwer.

“If Kim is wondering why, he need look no further than the War of the Spanish Succession and the 1713 Treaty of Utrecht that ended it _ handing Gibraltar to Britain,’’ the times said.

Problems arose when Madrid spotted that the EU regulation needed to implement the sanctions contained a reference to the “competent authorities’’ responsible for enforcing them: listed in the small print was Gibraltar.

Spain’s foreign ministry wants the reference to Gibraltar deleted before the EU regulation can come into force.

“We do not recognize Gibraltar’s authority in international policy,’’ the daily quoted the ministry as saying, “The UK is the only competent authority in this respect.”

The times quoted British diplomats as saying that there would be a legal hole in the sanctions if Gibraltar was not included.

It said both sides are trying to resolve the dispute and insist it is a hiccup in improving relations over the colony.

The newspaper said that in September the two countries, along with Gibraltar, signed an agreement on airport access, telecoms and border controls, hailed as the beginning of a new era of cooperation.