North Korean Economy Watch

From Yonhap:
Suspension of inter-Korean business only hurts S. Korea: official
10/13/2006

Suspending South Korea’s joint business projects with North Korea would do more harm to the South than the North while doing little to convince the communist state to halt additional nuclear tests, a ranking South Korean official said Friday.

“Cutting off (inter-Korean economic projects) now would only show our firm will (to retaliate against North Korea for its claimed nuclear test) by inflicting wounds on parts of our own body,” the official told reporters, asking not to be identified.

“The damage North Korea would suffer would be very insignificant compared to the damages we would suffer,” the official added.

The remarks came amid calls from here and abroad for the Seoul government to immediately halt cross-border business projects with the North in retaliation for the North’s claimed nuclear test on Monday.

The main opposition Grand National Party (GNP) claims the country’s economic cooperation for the impoverished North has helped the North’s missile and nuclear weapons program.

“In the current situation, (South Korea) must strengthen its alliance with the United States and actively participate in U.N. Security Council sanctions on the North while cutting off all of its cash assistance to the North,” GNP floor leader Kim Hyong-o said Friday at a party leadership meeting.

An average of 40,000 South Koreans travel to a scenic resort on North Korea’s Mount Geumgang every month, paying about US$1 million in admission fees to the North, according to Hyundai Asan, the South Korean developer of the resort.

Fifteen South Korean companies also pay about $600,000 a month on average to North Korea in wages for the 8,700 North Korean employees at an industrial complex being developed by the two Koreas near the North’s border town of Kaesong, according to the Unification Ministry.

The government official, however, said the government had no immediate plans to scrap the inter-Korean projects, claiming the money paid to the North through the projects is not aimed at assisting the North’s weapons program and that the amount is insignificant.

He said the country would align its North Korea policy and economic cooperation with a U.N. Security Council resolution when one is passed, but claimed a U.S. draft of the resolution, even if approved by the Security Council, would not call for a suspension or reduction of inter-Korean economic cooperation.

“Vice Foreign Minister Yu Myung-hwan said at the National Assembly Thursday that there is nothing in the U.S. draft resolution” that would call for a suspension of the two cross-border projects, the official said.

Yonhap:
10/11/2006

South Korean civic groups on Wednesday sent humanitarian aid shipments to North Korea despite the heightened tension over North Korea’s declared nuclear test, officials said.

A 2,864-ton ship plying the Incheon-Nampo route departed for a North Korean port with shipments of 14 containers for humanitarian aid and another 45 containers for construction and raw materials to be used at the Kaesong industrial complex just north of the inter-Korean border.

The aid shipments include 2,000 bicycles, two ambulances, blankets and boilers, they said.

Following North Korea’s announcement of its first-ever nuclear test on Monday, the South Korean government suspended a shipment of 7,500 tons of cement to the communist country.

“We hope that the provision of bicycles on humanitarian grounds will contribute to maintaining civilian inter-Korean exchanges and offering a clue to the resolution of the stained inter-Korean relationship,” a local YMCA official said. 

Yonhap
10/4/2006

South Korea will continue to provide aid to help North Korea recover from flood damage despite growing tension over Pyongyang’s announcement that it plans to conduct a nuclear test, Seoul officials said Wednesday.

“It is difficult to suspend aid for Pyongyang’s flood recovery right now,” said an official at the South Korean Unification Ministry. “But the situation can change depending on the North’s moves.”

As of Wednesday, Seoul has shipped 21,585 tons of cements to Pyongyang, about one-fifth of the 100,000 tons it promised for recovery efforts.

The South also has sent 89,500 tons of rice and 3,200 tons of steel rods for the same purpose.

South Korea has cut its regular food shipments and fertilizer aid to Pyongyang since the missile tests in July, but it shipped a one-time aid package for flood damage recovery.

In a Foreign Ministry statement released Tuesday, North Korea said it would “conduct a nuclear test” in the future to bolster its war deterrent against what it called threats of U.S. aggression.

South Korea, the United States and other concerned parties warned Wednesday that North Korea will face a strong and united response by the international community if it carries out a nuclear test.

Some watchers raised concern that the cement provided to the North could be used to help with an underground nuclear test.

“How can the international community understand South Korea’s decision to send a shipment of cement to the North when it is seen as being essential for a nuclear test?” asked Rep. Rhee In-je of the People’s Central Party.

Joong Ang Daily:
9/26/2006
Lee Ho-jeong

Kim Moon-soo, Gyeonggi province governor, said yesterday that the provincial government is working on two projects in cooperation with North Korea.

Mr. Kim spoke at a press conference in Seoul entitled “Gyeonggi province opens the future of Korea.”

According to the Gyeonggi governor, the first project is called, “Gyeonggi-Pyongyang Rice Farming Project.” The site of the project is Danggok near Pyongyang, North Korea.

The project helps North Korean farmers advance their farming technology in crop harvesting by providing tractors and other advanced farming tools. In addition, the project provides humanitarian assistance such as health care and day care centers.

The second project is enhancing cooperation in the field of film animation.

“North Korean’s animation skills rank among the world’s best, but they lack infrastructure and technology,” Mr. Kim said. In the project, North Korean animators are teamed with South Korean animation film production companies to produce an animated film.

Mr. Kim said the cooperative effort will also contribute to improving humanitarian problems in North Korea.

The governor also said Gyeonggi province is taking steps to increase foreign investment in the region.

“My predecessor, Sohn Hak-kyu, has done a wonderful job drawing foreign investment that helps to illuminate Gyeonggi province,” Mr. Kim said.

The governor said that to draw more foreign investment, the provincial government has to strengthen incentives. For example, public servants who bring in foreign investment will receive a bonus of 200 million won ($211,860). And if a foreign private business is brought in, the bonus is 300 million won.

In addition, Mr. Kim said the Gyeonggi government will reduce the regulations and simplify rules.

The governor has appointed a Samsung Electronics official as the provincial government’s counselor on foreign investment and established a private counseling committee consisting of 20 private entrepreneurs.

The governor also stressed that the free trade agreement now being negotiated between Korea and the United States will be a huge help for foreign investment.

Korea Times:
9/26/2006 

An inter-Korean joint venture firm was launched for the first time in the North Korean border town of Kaesong yesterday, the South Korean investor in the project said.

The “Arirang-Taerim joint venture stone company” was established with half of the investment provided by South Korea’s granite processing firm Taerim industrial and the other half by the North’s Kaeson General Trading, according to the Yonhap News Agency.

A ceremony to mark the completion of the new company’s factory was held with some 300 government officials and businessmen from the two Koreas in attendance.

The factory is located outside of the Kaesong industrial complex where 13 South Korean manufacturers operate under the protection of a special law ensuring their investment.

Since it agreed on the joint venture with the North in April, Taerim has invested some $2.95 million for the construction project.

Taerim said the factory will process granite and marble stones collected from North Korean mountains using cheap labor.

With a floor space of 3,300 square meters, the factory will have the capacity to produce some 80,000 tons of stone products annually, it added.

From Yonhap:
Seoul to resume aid for N. Korea as soon as six-party talks resume: minister
9/22/206

South Korea’s Unification Minister Lee Jong-seok said Friday his country would resume humanitarian assistance for North Korea as soon as it returns to international negotiations over its nuclear ambitions.

“(The government) plans to resume shipments of rice and fertilizer aid to the North if (the North) says it will return to the six-party talks,” Lee said in a special lecture for representatives of the presidential National Unification Advisory Council.

Lee had said the country could resume its humanitarian aid for the impoverished North when “signs of resumption” of the nuclear disarmament negotiations begin to emerge. But this is the first time the minister has explicitly offered to resume the assistance in return for Pyongyang’s return to the stalled talks.

Seoul suspended shipments of its regular humanitarian aid, which included rice and fertilizer, to the North shortly after the communist state test-fired seven ballistic missiles in early July.

The unification minister said he would not have suspended the government aid for North Korea, but he had no other options “to show our people’s firm stance against the North’s missile launches.”

Inter-Korean relations quickly deteriorated after Seoul refused to provide additional assistance to the North in retaliation for the missile tests. The minister said the government had no plans to revise its North Korea policy.

“It would be most ideal if we could have enough leverage on North Korea to tell it not to play with missiles and the North would listen to us. We are working to reach that day,” he said.

“I wish we could see a day when North Korea would decide not to develop nuclear weapons” due to South Korea’s opposition, he said. “But we have yet to reach that point.”

Pyongyang has been refusing to return to the nuclear talks, also attended by South Korea, Japan, China, Russia and the United States, since November, citing what it claims to be U.S. hostility toward its regime.

The nuclear impasse has also brought challenges for the South Korea-U.S. alliance as the two remain apart on how to bring Pyongyang back to the negotiations.

Washington wants to maintain or increase pressure on the communist state so the North has no other option but to return to the negotiating table, while Seoul wishes to lure it back to the talks through carrots.

The unification minister acknowledged that differences exist between the two sides, but that the alliance was strong enough to iron out any differences.

“The United States cannot feel the same about North Korea as South Korea does because South Korea faces 1.1 million North Korean troops only 40 kilometers (from its capital) while the United States is thousands of kilometers away,” Lee said.

“Coordinating different views and narrowing differences is what cooperation is about,” he said.

Joong Ang Daily:
9/22/2006

South Korea has decided to postpone expansion of a joint industrial complex in Kaesong with North Korea amid heightened tension over the communist state’s nuclear ambitions, Unification Ministry officials said yesterday.

At the beginning of this month, Seoul indefinitely suspended its plans to begin receiving applications from South Korean companies that wished to move into the joint industrial complex in the North’s border town of Kaesong in June. The decision came amid concerns that North Korea was planning to test-fire another missile. Pyongyang test-fired seven ballistic missiles, including a long-range Taepodong-2, on July 5.

The South Korean government refused to halt or suspend the inter-Korean project despite the North’s actions, which prompted a UN Security Council resolution prohibiting any missile-related dealings with North Korea.

Unification Minister Lee Jong-seok, the country’s point man on North Korea, has also defended the joint business venture, claiming inter-Korean cooperation may one day provide the key to the reunification of the divided Koreas.

The ministry again sought to receive applications from South Korean businesses this month or early next month, according to the ministry official. But it decided to postpone the schedule again due to unfavorable conditions.

“Because the most important thing is market conditions, [the government] is saying we will do it when [the market conditions] are most appropriate, but I believe there has been no specific pressure or request from the North Korean side,” Mr. Lee said in a regular press briefing yesterday.

He said it would not take too long for the planned expansion to be realized, but “it would not be appropriate for now to say when the right time would come.”

Yonhap:
9/21/2006

The South Korean government decided to postpone expansion of a joint industrial complex with North Korea amid heightened tension over the communist state’s nuclear ambitions, Unification Ministry officials said Thursday.

The decision follows an earlier delay of the planned expansion as a result of North Korea’s launching of missiles in July.

Seoul was to begin receiving applications from South Korean companies that wished to move into the joint industrial complex in the North’s border town of Kaesong in June, but the plan was suspended indefinitely due to signs of North Korean missile tests since the beginning of the month. Pyongyang test-fired seven ballistic missiles, including a long-range Taepodong-2, on July 5.

A ministry official said the decision comes despite repeated requests from North Korea for an early expansion of the complex.

“North Korea has consistently asked the government, even after it launched the missiles, to move ahead with the scheduled expansion of the complex at the earliest date possible,” the official, speaking on condition of anonymity, told Yonhap News Agency.

The South Korean government had refused to halt or suspend the inter-Korean project despite the North’s provocation, although it prompted a U.N. Security Council resolution prohibiting any missile-related dealings with North Korea.

Unification Minister Lee Jong-seok, the country’s point man on North Korea, has also defended the joint business venture, claiming inter-Korean cooperation may one day provide the key to rapprochement or reunification of the divided Koreas.

The ministry again sought to receive applications from South Korean businesses this month or early next month, according to the ministry official. But it decided to postpone the schedule again due to unfavorable conditions.

The unification minister said North Korea has made no specific requests for an early expansion of the joint complex, but now was not the best time for the plan.

“Because the most important thing is the market condition, (the government) is saying we will do it when (the market condition) is most appropriate, but I believe there has been no specific pressure or request from the North Korean side,” Lee said in a regular press briefing.

He said it would not take too long for the planned expansion to be realized, but “it would not be appropriate for now to say when the right time would come.”
The second delay comes amid concerns, mainly from the United States, that an expansion of the inter-Korean industrial complex may help funnel funds to the North’s missile and weapons programs.

Washington denies asking Seoul to suspend the inter-Korean project, but a number of ranking U.S. officials, including special ambassador for North Korean human rights Jay Lefkowitz, have raised concerns that South Korean companies operating at the joint complex may be aiding the North’s missile and nuclear weapons program while exploiting the North’s cheap labor.

“The government decided to consider installing additional factories at a later time due to the unfavorable situation,” the ministry official said.

The official denied any direct links between the postponement and the apparent opposition from Washington, but said it was “one of the elements considered.”
An additional 250 South Korean companies were expected to move into the industrial complex, where 37 businesses are already operating or soon expected to do so, when the planned expansion was complete.

There were nearly 8,300 North Korean employees at the joint industrial park as of the end of August, according to Goh Gyeong-bin, the ministry official in charge of the inter-Korean development project.

But ministry officials say the amount of money paid to the North Koreans is still insignificant, even for the impoverished North.

From US$500,000 to $600,000 in wages is paid each month to the workers at the Kaesong complex, whose minimum monthly salary is set at $57, according to Goh.

From the Joong Ang Daily:
9/21/2006
Lee Young-jong

Contrary to its statement on Tuesday, the Unification Ministry pressured Woori Bank to consider allowing North Korea to open a bank account, government documents obtained by a Grand National Party lawmaker showed yesterday.

A Unification Ministry official who asked not to be named said it was just a discussion and not formal pressure against the bank. He said the bank made its own decision, without being pressured by the ministry.

Representative Kwon Young-se obtained a copy of correspondence that the Unification Ministry sent to Woori Bank on March 28, and provided it to the JoongAng Ilbo.

According to the letter, the ministry tried to stretch the laws governing inter-Korean projects to grant the North’s wish. The North, in September of last year, asked the bank, which operates a branch in Kaesong Industrial Complex, to open an account under the name of the Kaesong Industrial District Management Committee, headed by a South Korean official. The bank informed the Unification Ministry and consulted with it.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there.

Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

The bank, however, was opposed to opening an account for North Korea, citing South Korea’s financial laws and the U.S. Treasury Department’s anti-terror law. The bank also cited expected opposition from the Financial Action Task Force on Money Laundering in turning down the North’s request, the minutes said.
 

From Yonhap:
N. Korean request to open account with S. Korean bank in Kaesong rejected
Byun Duk-kun
9/19/2006

North Korea sought to open an account with a South Korean bank at an inter-Korean industrial complex in its border town of Kaesong last year, but the South Korean bank rejected the request, officials at the Unification Ministry said Tuesday.

The report comes amid U.S. financial sanctions against the communist state for its alleged involvement in illegal activities, including counterfeiting, laundering and the proliferation of weapons of mass destruction.

Ministry officials, however, dismissed suspicions that North Korea may have tried to use the South Korean bank to evade, or find a safehouse from, the U.S. financial sanctions.

“North Korea first filed its request to open an account with the Woori Bank on Sept. 14, 2005, one day before” Washington imposed sanctions on a Macau bank suspected of aiding the North launder counterfeit U.S. dollars, ministry spokesman Yang Chang-seok told reporters.

A spokesman for the South Korean bank said the bank first heard of the North’s request in December, but did not rule out the possibility that North Korea may have filed its initial request with the South Korean government as early as September.

Goh Gyeong-bin, the ministry official in charge of the inter-Korean project to develop an industrial complex in Kaesong, said an account with the South Korean bank, if one was opened, would not have provided a safe haven for the communist state.

“The North said it wished to open an account at the Woori Bank branch in Kaesong and collect the wages of its workers at the industrial complex through the account,” Goh said.

He said the South Korean bank remained reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request. Woori Bank officials confirmed Goh’s statement.

“The North said it understood the bank’s position and that’s when the situation was concluded,” Goh said.

Nearly 8,300 North Korean laborers are currently working for 13 South Korean firms operating in the joint industrial complex, producing some US$5 million worth of goods a month, according to Goh.

A number of U.S. officials, including Jay Lefkowitz, a special envoy for North Korean human rights, have expressed concerns over possible violations of the North Korean workers’ human rights there and the diversion of their wages to help the North’s weapons program.

Seoul dismisses the concerns, saying the amount of money paid in wages is insignificant even for the impoverished North.

About $600,000, in U.S. dollars, are paid each month to North Korean workers there, whose minimum monthly wage is set at $57, according to Goh.

The joint industrial complex is expected to house some 2,000 South Korean firms, employing as many as half a million North Koreans, when it is in full swing in 2012, according to the Unification Ministry.

From the Korea Herald
9/20/2006

A bank spokesman said Woori serves South Korean companies and their employees from the South producing goods there.

“We rejected the request because we are not regulated to handle transactions with North Korea,” said Cho Seong-kwon.

The request was made last December, Cho said. It came after the U.S. strengthened its crackdown on firms it suspected of aiding Pyongyang in illicit activities such as counterfeiting.

Washington imposed sanctions on a Macau bank in September, accusing it of helping North Korea launder counterfeit U.S. dollars.

A month later, the United States also froze U.S.-based assets of eight North Korean firms on suspicions of illegal activities, including counterfeiting, laundering and proliferation of weapons of mass destruction.

The Unification Ministry, however, said the North’s request had nothing to do with the U.S. sanctions, saying an account with Woori Bank, if one were opened, would not have been used for such illegal financial activities.

“The North said it wished to open an account at the Woori Bank branch in Gaeseong and collect the wages of its workers at the industrial complex through the account,” Goh Gyeong-bin, ministry official in charge of the joint industrial complex project, said.

Goh said the South Korean bank was reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request.

The complex is run by an affiliate of the South’s Hyundai Group. The South sees the park as a model of economic integration that can serve as an example of the path for future unification of the peninsula.

From the Joong Ang Daily:
Ministry says North sought bank account with Woori
Ser Myo-ja, Shin Eun-jin
9/20/2006

North Korea attempted last year to open an account with a South Korean commercial bank at the Kaesong Industrial Complex, but the request was rejected, the Ministry of Unification said yesterday.

In response to a report by the Dong-A Ilbo newspaper, the ministry said a North Korean agency made a verbal inquiry to the Kaesong Industrial District Management Committee on Sept. 14, 2005 about opening an account with Woori Bank. In December, the agency submitted a written request.

Seoul held about four meetings to talk about the issue, the ministry said, but the matter was basically up to Woori Bank.

The North Koreans were quoted by the ministry as saying they wanted to collect income taxes from South Korean workers at the inter-Korean industrial complex.

The North also said it wanted the convenience of collecting salary payments for North Korean workers from their South Korean employers.

North Korean officials must visit the office of each South Korean factory in Kaesong every month for all financial transactions.

Woori Bank has continued to reject the North’s requests. Under Korean law, the bank said, the scope of its operations was limited to South Korean companies that operate factories in Kaesong and their South Korean employees.

The bank has not sought permission from the South Korean government to extend operations to North Koreans in order to meet Pyongyang’s request, the Unification Ministry said.

North Korea threatened Woori Bank that it would shut down the branch, but gave up in March, the ministry said.

From Joong Ang Daily:
9/18/2006
Seo Ji-eun

Hyundai Asan Corp., a Hyundai Group affiliate with the exclusive right to the North Korean tourism business, plans to take advantage of air routes to ratchet up its tourism operation at Mount Kumgang.

The company signed a memorandum of understanding with Jeju Air Co. yesterday to develop tour packages to Mount Kumgang using an air route between two South Korean cities ― Gimpo in Gyeonggi province and Yangyang in Gangwon province, near the border with North Korea. Buses will ferry travelers to Mount Kumgang from Yangyan.

Flying between the two cities will shorten the travel period by almost three hours, from the six hours needed to reach Mount Kumgang by road.

The flights will run twice daily and may increase to three times a day within this year, said Yoon Man-joon, chief executive officer of Hyundai Asan, in a meeting with reporters.

The chief executive forecast that easier access to the North Korean tourist attraction will boost the number of tourists.

“Mount Kumgang travelers using the Yangyang Airport will be given discounts on air fees and travel package expenses,” he added.

He also revealed that Hyundai Asan and North Korea are in discussions to allow tourists to fly directly from Gimpo to Wonsan, a North Korean port city on the East Coast, about 110 kilometers from Mount Kumgang. That route would reduce the travel time to North Korea even further.

“We’ve had a large number of potential customers who gave up on the Kumgang tour because of the long land trip,” Mr. Yoon said.

He stressed that having tourists be able to take airplanes to North Korea has been a long-held dream of the company. He added that the realization of that dream would help the Mount Kumgang tourism business firmly establish itself as a cash cow for Hyundai Asan.

From Yonhap:
9/14/2006

South Korea’s vice unification minister on Thursday said his country would continue its economic cooperation with North Korea, adding that increased cooperation between the divided Koreas is the key to peace and stability on the Korean Peninsula.

“Economic cooperation between the North and the South is playing a key role in various ways to manage the situation on the Korean Peninsula stably,” Vice Unification Minister Shin Un-sang said.

The remarks came as part of a congratulatory speech at the opening of a symposium here on inter-Korean economic cooperation, co-hosted by the Citizens’ Coalition for Economic Justice and the National Unification Advisory Council.

Shin said inter-Korean economic cooperation has significantly reduced tension on the Korean Peninsula by replacing, or removing, the North’s heavy artillery unit in the border town of Kaesong with a joint industrial complex for South Korean firms.

He also claimed the North would now have to think twice before performing any acts that could heighten or cause tension on the Korean Peninsula as increased economic cooperation gives it a greater interest in pursuing peace and stability.

“Inter-Korean economic cooperation is playing a role in preventing additional tension (on the Korean Peninsula). Various forms of economic cooperation between the two, including the Kaesong industrial complex, are helping the North and South Korea to move toward (promoting their) mutual interests,” Shin said.

Relations between the Koreas improved significantly after their leaders met in an historic summit in Pyongyang in 2000. The amount of inter-Korean trade increased to over US$1 billion last year from $290 million in 1995, according to Kim Chun-sig, director of the ministry’s inter-Korean economic cooperation bureau, who also joined Thursday’s symposium.

The government believes that economic cooperation with the North also helps open the reclusive state to the outside world by offering chances for its people to meet with South Korean officials and businesspeole, as well as being an opportunity to witness the South’s advanced economy.