North Korean Economy Watch

According to the Joong Ang Daily:

The northern Gyeonggi area, sharing the border with North Korea, is vulnerable to malaria because the mosquitoes with malaria parasites come from the North. Without vector controls in North Korea, our quarantine efforts are limited.

The spread of malaria had been expected because South Korea has stopped all North-bound shipments of aid, including pesticides and malaria drugs, as part of the sanctions against North Korea following its attack against the naval vessel Cheonan in March.

Health authorities warned in April about a possible breakout of malaria along the border regions. Although they saw the disease coming, nothing could be done about it.

On June 24, the Unification Ministry belatedly permitted a local civilian group to send quarantine aid to North Korea, but shipments have not taken place because of procedural difficulties. Even if the aid is delivered, it will be too late to contain the disease. Any action should have taken place before May.

If the Unification Ministry had seriously considered preventing the spread of malaria from the North, it should not have stopped at approving a delivery of local aid, but instead should have sought support from international groups. From 2001 to last year, the government had been shipping anti-malaria supplies to North Korea via the World Health Organization. This aid protects our people as much as it does North Koreans.

Malaria is not the only adverse result from severed ties with North Korea. The government announced on May 24 that it would cease all inter-Korean trade.

The measure, though understandable, dealt a heavy blow to 800 small- and mid-sized companies whose business primarily involves trade with North Korea. It was motivated by revenge and generated the same adverse fallout as that suffered by the people who have been infected by malaria from the North.

The tardy response to the problems created also proved of little help. The government on July 26 announced it will offer special aid loans to the Kaesong firms to save them from possible bankruptcy. The loans, though cheaper than regular corporate loans, will nonetheless have to be repaid and it may have come too late.

The May announcement of sanctions against North Korea should have included help to our companies to compensate for the damage from the trade sanctions.

Read the full story here:
Hard-line policies affect us, too
Joong Ang Daily
http://joongangdaily.joins.com/article/view.asp?aid=2924376
Cho Dong-ho
8/10/2010

UPDATE 8/9/2010: According to Yonhap:

A state-run North Korean bank has lost a lawsuit for not paying back a loan it borrowed from a Taiwanese bank nine years ago, the New York district court said Friday.

The District Court of New York confirmed it ordered the Foreign Trade Bank of Korea to pay compensations of just under US$6.77 million to the Mega International Commercial Bank (MICB) in a ruling made earlier in the week.

And as Josh notes: “By which they really mean the U.S. District Court for the Southern District of New York.”

Some additional case information may be found here.

As an aside, North Korea also recently lost another court case in the US.  Read more here.

ORIGINAL POST (5/6/2010): According to KBS:

The Taiwanese bank filed its lawsuit to claim some five million dollars in interest and principal on August 25th, 2001.

It is unclear whether the North Korean bank will repay the Taiwanese plaintiff, but North Korea experts say this will at least add to the crunch on North Korean finances.

Some reference information can be found here.

According to the Korea Times:

A state-run North Korean bank is facing trial in the United States for failing to pay a $5 million loan that it borrowed from a Taiwanese bank in 2001, according to sources Wednesday.

The District Court for the Southern District of New York ordered the Foreign Trade Bank (FTB) of North Korea to make a court appearance on May 17 and submit a proposed case management plan and scheduling order.

The FTB reportedly borrowed $5 million from the Mega International Commercial Bank (MICB) in Taiwan on Aug. 25, 2001 on the promise to amortize the principal and interest in three installments by Sept. 15, 2004.

No repayment was made until December 2008, when the FTB paid the MICB $100,000 to cover some of the interest. The North Korean bank has thus far paid off a total of $462,000 to the MICB, still owing $1.78 million in interest and $4.7 million in principal.

“It has been almost unprecedented for North Korea to be sued in a commercial dispute, though there were occasions that the North was asked to stand in U.S. courts for terrorist activities,” an official of the South Korean Consulate General in New York told Yonhap News.

The official said the litigation will hamper Pyongyang’s recent move to aggressively attract foreign investment in an effort to revive its flagging economy, given that obviously doubt will arise over its debt repayment capacity.

Despite a recent currency reform, the North’s economy remains in a parlous state as the U.N. sanctions have cut off virtually all sources of foreign currency.

Seoul has also suspended tours to the North’s popular tourist destination of Mt. Geumgang, following the shooting death of a South Korean tourist in the mountain resort in July 2008. The tours were a cash cow for the North, generating more than $500 million between 1998 and 2008.

On May 1, the FTB’s official exchange rate was 96.9 won per dollar, but it was traded at 180 won in Pyongyang and higher in other areas, demonstrating the instability of the North’s economy, according to the sources.

Since established in 1959, the bank has served as the reclusive regime’s main foreign exchange bank, they said. It has branch offices in France, Australia, Kuwait, Hong Kong and Beijing.

Read the full story here:
NK trade bank sued for failure to settle debt
Korea Times
5/5/2010

UPDATE 3 (9/6/2010): The DPRK has announced the release of the fishing crew.  According to Reuters:

North Korea said on Monday it was releasing the seven-man crew of a South Korean fishing boat, including three Chinese, after they illegally entered its waters last month.

State news agency KCNA said the crew would be sent back South Korea “taking into consideration the fact that they admitted the seriousness of their act and gave assurances that they would never repeat such an act”.

Tensions have mounted on the peninsula this year after the sinking of a South Korean warship — Seoul says it was sunk by a North Korean torpedo — and a series of recent military drills by the United States and South Korea.

UPDATE 2 (8/18/2010): The DPRK has acknowledged that it has the ship and crew.  According to Bloomberg:

North Korea confirmed it seized a South Korean fishing boat last week off the communist country’s east coast for violation of the maritime border.

North Korea is investigating the four South Korean and three Chinese crew members, who had “confessed that they intruded into the economic waters,” the state-run Korean Central News Agency reported. The North Korean navy captured the boat on Aug. 8 at around 10:15 a.m. local time, the report said.

South Korea has sent a message to North Korea, urging a swift return of the 41-ton Daeseung and its crew. The incident came amid heightened tensions between the two countries after the South accused the North of torpedoing one of its warships in March, killing 46 sailors.

North Korea fired a barrage of artillery shells into the water off its west coast on Aug. 9 after repeated threats of “retaliation” against South Korea’s joint naval drills with the U.S. The U.S. and the South held anti-submarine exercises off the Asian country’s east coast last month and plan to hold more in the coming months.

UPDATE  1  (8/11/2010): According to Yonhap:

South Korea said Wednesday it sent North Korea a message urging the prompt release of the crew of a South Korean fishing boat the communist state seized three days ago amid high military tensions.

North Korea accepted the message delivered through a western military hotline between the two countries at 10 a.m., Unification Ministry spokeswoman Lee Jong-joo said in a briefing.

The message, addressed to the North’s top Red Cross official, contains a call by his South Korean counterpart to free the seven crew members of the Daeseung “promptly in line with international law and customs and on humanitarian grounds,” Lee said.

South Korea is investigating whether the 41-ton boat, which had left for a joint fishing area off the east coast of the Korean Peninsula on Aug. 1, trespassed into the North’s exclusive economic zone. Pyongyang has yet to offer any word on the state of the crew that included four South Koreans and three Chinese.

“We have also asked the North to explain in detail how the fishing boat was seized,” Lee said, adding the Red Cross channel is often used in inter-Korean issues involving civilian boats.

The seizure came amid high tensions between the two Koreas in the wake of the deadly March sinking of a South Korean warship near their western sea border. On Monday, North Korea fired more than 100 rounds of artillery along the Yellow Sea border near the area where South Korea had just ended five-day-long naval drills.

A government source said South Korea and China have been discussing the issue.

“An official at the South Korean embassy in China met with a Chinese government official a few times recently” to discuss the seizure and share information, the source said on condition of anonymity. “The seized crew include Chinese … If negotiations for their release begin in the future, we plan to cooperate with China where necessary.”

In July of last year, a South Korean fishing boat, the Yeonan, accidentally crossed into North Korea’s waters and was towed to a nearby port. The boat was released about a month later.

And according to Reuters:

Chinese diplomats in North Korea were trying to check the reports, said China’s official Xinhua news agency.

“If the report is confirmed, the DPRK should treat the Chinese crew members well with humanitarianism, guarantee their rights and interests, and inform the Chinese side of their conditions, the (Chinese) officials said,” according to Xinhua.

ORIGINAL POST: Surprisingly not anywhere near the NLL…

According to the New York Times:

North Korea  seized a South Korean fishing boat in waters near their eastern sea border, the South Korean Coast Guard said Sunday, straining already high tensions between the two Koreas.

The 41-ton squidding boat was believed to have been detained after entering the North’s exclusive economic zone, where foreign fishing boats are banned, the coast guard said in a statement.

Four South Koreans and three Chinese crew members were on board. South Korea’s national news agency, Yonhap, quoting an unnamed coast guard official, said that the ship was being towed to Songjin, a port on the eastern coast of North Korea, for interrogation of the crew.

“Our government hopes for the safe return of our ship and crew according to international laws,” the coast guard’s statement said.

…

The South Korean squid ship left Pohang, a port on the east coast of South Korea, on Aug. 1 and was scheduled to return to port on Sept. 10. It made its last daily radio report to the South Korean Coast Guard on Saturday evening.

UPDATE via the Washington Post:

According to one report in the South Korean media, the boat was operating in a maritime area shared by North Korea and Russia, about 160 miles off the North Korean coast.

Additional thoughts
1. Well it is probably a good thing there was a Chinese crew aboard the ship as this will make it difficult for the DPRK to claim the fishing vessel was attempting  espionage.  If Chinese fishermen can protect South Korean ships from DPRK espionage accusations we might be able to predict that an escalation in tensions between North and South Korea will result in increased employment of Chinese fishermen in the ROK….Chinese fishermen index?

2. Songjin is known in North Korea as Kimchaek.  See a satellite image of it here.

According to the Daily NK:

The 1718 Committee of the UN Security Council has published the final version of its “Report to the Security Council from the Panel of Experts established Pursuant to Resolution 1874,”

In the report, of which the Daily NK has obtained a copy, the 1718 Committee revealed North Korean overseas accounts which had likely been used for North Korea’s illicit activities such as conventional weapons transactions and luxury goods, and the names of entities and individuals involved in those activities. The lists were submitted by UN member states.

The report singles out 17 North Korean officials thought likely to violate UN Resolutions 1718 and 1874, and outlines the reasons why they were designated by the UN member states.

They are Jang Sung Taek, Vice-chairman of the National Defense Commission and the closest associate of Kim Jong Il, Vice-chairman of the National Defense Commission Oh Keuk Ryul, Kim Young Chun, the Minister for the People’s Armed Forces, Director of No. 39 Department Kim Dong Woon, Military Supplies Secretary in the Central Committee of the Party Jeon Byung Ho, former Yongbyon technical director Jeon Chi Bu, First Vice-director of the Ministry of the Munitions Industry Chu Kyu Chang, Standing Vice-director of the People’s Army’s General Political Department Hyun Cheul Hae, President of the Tanchon Commercial Bank Kim Dong Myung, Member of the National Defence Commission Baek Se Bong, Deputy Director of the General Political Department of the People’s Armed Forces Park Jae Kyung, President of the Academy of Science Byeon Youong Rip, Director of the General Bureau of Atomic Energy Ryeom Young, Head of the Department of Nuclear Physics of Kim Il Sung University Seo Sang Il, President of Kohas AG Jacop Steiger and Alex H.T. Tsai, who is known to have provided financial, technological and other support for KOMID, and his wife, Su Lu-chi.

It also released a list of autonomous designations provided by member states, covering 19 North Korean entities. That list was made based on information collected as of April 30th this year.

They are Amroggang Development Banking Corporation, Global Interface Company Inc., Hesong Trading Corporation, Korea Complex Equipment Import Corporation, Kohas AG, Korea International Chemical Joint Venture Company, Korea Kwangson Banking Corp, Korea Kwangsong Trading Corporation, Korea Pugang Trading Corporation, Korea Pugang Mining and Machinery Corporation ltd., Korea Ryongwang Trading Corporation, Korea Ryonha Machinery Joint Venture Corporation, Korea Tonghae Shipping Company, Ponghwa Hospital, Pyongyang Informatics Centre, Sobaeku United Corp., Tosong Technology Trading Corporation, Trans Merits Co. Ltd., and Yongbyon Nuclear Research Centre.

13 out of the 19 have direct or indirect links to Tanchon Commercial Bank and Korea Mining Development Trading Corporation (KOMID).

Amroggang Development Banking Corporation is the financial arm of KOMID and related to Tanchon Commercial Bank, which has also been designated by the 1718 Committee. Additionally, Global Interface Company Inc. is owned by Alex Tsai, who is thought to have provided, or attempted to provide, support to KOMID.

Sobaeku United Corp. is involved in activities related to natural graphite, producing graphite blocks that can be used in missiles.

The report points out, “North Korea has established a highly sophisticated international network for the acquisition, marketing and sale of arms and military equipment, and arms exports have become one of the country’s principal sources for obtaining foreign exchange,” and goes on to say, “Agencies under the National Defense Commission (NDC), the Workers’ Party of Korea (WPK) and the Korean People’s Army (KPA) are most active in this regard.”

The report explains, “The Second Economic Committee of the National Defense Commission plays the largest and most prominent role in nuclear, other WMD and missile-related development programs as well as in arranging and conducting arms-related exports.”

It adds, “The General Bureau of Surveillance of the Korean People’s Army is involved in the production and sale of conventional armaments.”

The report points out that North Korea has opened 39 accounts with 18 overseas banks in 14 countries. 17 of which are held with Chinese banks.

Besides China, 11 banks in eight European and former Soviet countries (Russia, Switzerland, Denmark, Hungary, Poland, Italy, German, Belarus and Kazakhstan) hold 18 North Korean accounts. There is one account in Malaysia.

“The DPRK also employs a broad range of techniques to mask its financial transactions, including the use of overseas entities, shell companies, informal transfer mechanisms, cash couriers and barter arrangements,” the report notes.

According to experts on North Korea, since North Korean overseas illegal activities are all led by the loyal group surrounding Kim Jong Il, U.S. financial sanctions in accordance with UN Security Council resolutions 1817 and 1874 and also U.S. Executive Order (E.O.) 13382 have the potential to be a great pressure on the Kim Jong Il regime.

The Panel of Experts, which was appointed by the UN Secretary-General on 12 August 2009 to author the report, are David J. Birch (United Kingdom of Great Britain and Northern Ireland, coordinator), Masahiko Asada (Japan), Victor D. Comras (United States of America), Erik Marzolf (France), Young Wan Song (Republic of Korea), Alexander Vilnin (Russian Federation), and Xiaodong Xue (People’s Republic of China).

Read the full story here:
Report Explains Sanctions Decisions
Daily NK
Kim Yong Hun
8/6/2010

According to Yonhap:

Inter-Korean trade has fallen more than 30 percent since the South cut almost all business relations with the North after Pyongyang was blamed for torpedoing one of its naval ships in late March, the customs office here said Friday.

According to data provided by the Korea Customs Service, the trade between the two Koreas came to US$123.06 million in June, down 32 percent from April, when they still kept their ordinary business relations despite a probe into the naval disaster.

…

South Korea’s exports to the North amounted to $56.88 million in June, down 27 percent from April, while imports decreased 36.5 percent to $66.18 million over the same period, the data showed.

Inter-Korean trade also dropped 21 percent from May, with its exports to and imports from the North falling 4 percent and 32 percent, respectively.

Despite such a sharp shrinkage, the customs office said the decline was not as steep as expected thanks to the Kaesong complex, which takes up most inter-Korean trade.

“The reason why the decline was not as sharp as expected is because we still keep a trade channel open in the Kaesong complex, which accounts for around 70 percent of total trade with the North,” a customs official said.

South Korea is the North’s second-largest trade partner after China. A suspension of inter-Korean business would cause a significant impact on the efforts of the reclusive communist nation to secure cash, according to experts.

Earlier, a state-run think tank here said inter-Korean trade suspension could cost North Korea about $280 million annually, adding to pressure on the North’s cash-strapped regime in governing its country.

Read the full story here:
Inter-Korean trade falls more than 30 pct amid heightened tensions
Yonhap
8/6/2010

According to the Sophia News Agency:

North Korea has expressed interest in buying Bulgarian foods, pharmaceuticals and software, among other products.

This has been announced by the Bulgarian Chamber of Commerce and Industry (BCCI), which is researching the opportunities for organizing a business delegation trip to North Korea or North Korea and China in the fall of 2010.

According to the announcement of the International Organizations and International Cooperation Directorate of the BCCI, the North Korean side has shown interest in Bulgarian software products, pharmaceuticals, food products – including canned food, wines, juice, yellow cheese, and compotes; as well as metals – cesium, potassium, zinc, radium.

Read the full story here:
North Korea Interested in Buying Bulgarian Compotes, Software
Sophia News Agency
8/5/2010

Accroding to the Choson Ilbo:

North Korea apparently offered a tour to the Mt. Kumgang resort to some 20  Chinese embassy staff last month but did not tell South Korea’s Hyundai Asan, which built the facilities there and has the exclusive right to run the tours. A Unification Ministry official said this was “a clear violation” of Hyundai’s operating rights.

According to the website of China’s Foreign Ministry, the officials toured the scenic mountain resort for three days from July 21 at the invitation of North Korea’s Foreign Ministry. The officials toured sites in Mt. Kumgang that require permission from Hyundai Asan. “The splendid peaks and strange rock formations of Manmulsang, the spectacular scenery of the Haekum River, the flowing waters of the Kuryong Falls… listening to the tour guide made us feel like we were in Shangri-La,” a participant wrote. There is also a photo of them in front of the Kuryong Falls.

In 2000, Hyundai Asan paid US$500 million to North Korea for the exclusive right to operate seven projects in the North, including tours to Mt. Kumgang. But Hyundai Asan said it was unaware of the tour for the Chinese diplomats. “When our tourism operations ran smoothly, North Korea always informed us when they were bringing guests into Mt. Kumgang,” a Hyundai Asan staffer said. “It’s objectionable that they offered the tour without notifying us.”

In April, North Korea froze real estate in Mt. Kumgang belonging to Hyundai Asan and the South Korean government and said it would allow Chinese travel agencies to operate tours to the resort. When a number of Chinese travel agencies began offering tours, the South Korean government and Hyundai Asan protested, and in May Culture and Tourism Minister Yu In-chon sent an official letter to the Chinese government explaining that the freeze was a breach of contract and asked Beijing to take the resort off the list of travel destinations.

“The fact that Chinese diplomats, who must have been aware of the delicate situation, visited Mt. Kumgang is simply puzzling,” a South Korean official said.

Read the full story here:
N.Korea Takes Chinese Diplomats on Mt. Kumgang Tour
Choson Ilbo
8/5/2010

According to the Daily NK:

Despite the implementation of UN Security Council Resolution 1874 in June, 2009, North Korea’s weapons exports last year earned the country approximately the same amount as they have since Resolution 1718 was passed in 2006.

Song Young Sun, a lawmaker sitting on the National Defense Committee of the National Assembly, told reporters on Wednesday, “South Korea’s intelligence organizations have obtained a figure of around $50 million, and they assume that in practice the North has exported much more than that.”

Intelligence authorities apparently believe that the reason is that North Korea has exported parts and supported foreign munitions factories in other ways, rather than exporting finished weapons.

In September of last year, a Georgian cargo plane containing 35 tons of weapons parts including those for the Taepo-dong 2 was intercepted in Bangkok. Two months later, a ship heading for Congo was also revealed by South Africa to contain parts of the T-54 and T-55, North Korean tanks based on Soviet designs.

Meanwhile, the most successful period for the sanctions regime was immediately after UN Resolution 1718 was imposed on North Korea in 2006, when North Korean exports are estimated to have been reduced to $30 million, just 1/7th of the previous year’s total.

Read the full story here:
North Korea’s Arms Exports Stay Steady
Daily NK
Kim Min Su
8/5/2010

They have been in the news quite a bit recently.

According to the Donga Ilbo:

The U.S. has reportedly confirmed that nine of the 15 financial institutions North Korea operates overseas are involved in illegal activity.

Accordingly, the nine and more than 20 other institutions and individuals, including financiers who oversee the institutions, will be subject to Washington’s new financial sanctions announced against Pyongyang.

A government source in Seoul said Wednesday, “The U.S. government and intelligence are pointing to Kim Tong Myong, president of Danchon Commercial Bank of the North. The bank helped to amass slush funds overseas for the North.”

“Washington judges that organizations subject to Executive Order 13382, which regulates weapons of mass destruction, are also involved in other activities, including the illegal trade of luxury goods and money laundering. The U.S. is considering including many such organizations in the new executive order.”

Under Executive Order 13382, three financial institutions and 18 trading companies were subject to financial sanctions. The imminent addition of six more North Korean financial institutions abroad will further put the Stalinist country in a bind.

On Washington’s plan to impose additional sanctions against Pyongyang, South Korean Foreign Minister Yu Myung-hwan said, “Measures designed to impose specific sanctions on organizations and individuals and freeze assets will come in two weeks.”

And according to the Choson Ilbo:

Hong Kong financial authorities are inspecting all banks in the territory to find out if North Korea’s Taepung International Investment Group has opened secret accounts there. Taepung has the unenviable task of attracting foreign investment to the North.

According to information obtained by the Chosun Ilbo, the Hong Kong Monetary Authority in late July asked banks to report no later than Aug. 3, if they had engaged in “any kind of transactions” with four companies over the past six years.

The four are Taepung International Investment Hong Kong, Taepung International Investment Holdings Virgin Islands, Taepung International Investment Group, and Taifung (Taepung’s Chinese pronunciation) International Investment Group.

This was the first time Taepung has been targeted for financial sanctions by a third country.

A source in Hong Kong said it seems authorities have asked all Hong Kong branches of about 190 banks from the U.S., Europe and Asia for data about the four Taepung affiliates and two Iranian firms.

Taepung Hong Kong is believed to be a paper company. In April it registered at Rm.# 2508, Lippo Centre, 89 Queensway, Hong Kong, but the only office at the address is a local law firm.

Read the full stories here:
US: 9 Illegal NK Financial Entities Abroad Confirmed
Donga Ilbo
8/5/2010

Hong Kong Looks for Secret N.Korean Accounts
Choson Ilbo
8/5/2010

According to the AFP:

The United States is expected to blacklist three key North Korean figures suspected of handling secret funds for leader Kim Jong-Il as part of its new sanctions, a report said Wednesday.

Washington is devising the measures to punish the North for an alleged deadly March attack on a South Korean warship and to push it to abandon its nuclear weapons ambitions.

Yonhap news agency, quoting an unidentified South Korean government source, said one of the three officials is Kim Tong-Myong, head of the North’s Tanchon Commercial Bank.

“The US is paying special attention to three people, including Kim Tong-Myong, who operate North Korea’s secret funds abroad,” the source was quoted as saying.

“If they are included in the new sanctions, it could deal a blow to North Korea’s leadership.”

The foreign ministry had no comment on the report.

Washington also has evidence that nine North Korean financial institutions operating overseas and at least two trading firms have been used for illicit activities such as trading in conventional arms, luxury goods and counterfeit money, the source was quoted as saying.

Overall, the US is expected to add 10-20 North Korean entities and individuals to its blacklist, the report said.

Robert Einhorn, US State Department special adviser for non-proliferation and arms control, said Monday during a visit to Seoul the new measures would designate companies or individuals involved in the North’s illicit activities.

Any property or assets they possessed which were under US control could be blocked.

“By publicly naming these entities, these measures can have the broader effect of isolating them from the international financial and commercial system,” Einhorn said.

He named Tanchon Bank as one of several North Korean companies active overseas. The bank has already been designated by the US and the UN Security Council for suspected illicit activities.

South Korean Foreign Minister Yu Myung-Hwan said details of the new US sanctions will emerge soon.

“We’re expecting concrete measures within the next two weeks that will freeze assets of related North Korean individuals or companies and will prohibit third countries from dealing with such individuals or companies,” Yu told a local radio station.

South Korea, the United States and other countries, citing a multinational investigation, accuse the North of torpedoing a South Korean warship in March with the loss of 46 lives — a charge it denies.

Read the full story here:
US to target secret funds of N.Korea’s Kim
AFP
8/4/2010