North Korean Economy Watch

From the Joong Ang Daily:

First flood aid leaves for North
August 04, 2006

South Korea’s first aid package to help North Korean flood victims left Incheon yesterday, a Seoul-based international relief organization said. The eight containers full of goods include 100 tons of flour, 37,500 packs of instant noodles and 2,660 candles.

The Join Together Society, a relief agency founded by the Buddhist civic group Jungto Society, plans to send three more shipments to North Korea. Yesterday’s package, worth 120 million won ($124,262), will arrive in the North’s Nampo Harbor today, the aid group said. The aid packages will be given to flood victims of South Pyongan province, where the damage was reportedly severe.

The second shipment will include $50,000 worth of medicine and other goods including blankets and dishes, the group said. The goods will be purchased in China and sent to the North by trucks. The third and fourth shipments will be food aid, to be shipped from Incheon to Nampo.

More non-governmental groups said yesterday they will initiate fundraising drives to support flood victims in both South and North Koreas. The South Korean Committee for Implementation of the June 15 Joint Declaration, an alliance of civic, social, religious and political groups, said its members will provide contributions from today till Tuesday to raise $100,000. The fundraising drive will expand to the public by the end of next month, and the money will be spent to help flood victims of both Koreas, the committee said.

A relief agency for North Korea under the National Unification Advisory Council also announced its plan to provide aid packages to support flood victims in the North. The organization said 50 million won worth of goods, including 300 hand carts, will depart Incheon on Wednesday for Nampo. Additional goods, including medicine, will be provided, and the group planned site surveys in North Korea at the end of this month to see if the victims need further assistance, the group said.

The United Nations and the Red Cross were conservative about the North’s suffering after the July floods. The United Nations estimated at least 154 North Korean deaths and 127 missing, while the Red Cross said 141 were killed and another 112 were missing. A South Korean civic group said earlier this week that up to 10,000 were missing or dead.

Meanwhile, international media reported yesterday that the North has refused aid offers from the World Food Program and Red Cross.

From the Korea Herald:
August 2, 2006

A South Korean civic group announced yesterday that it will send 130 million won ($138,000) worth of flood relief to North Korea tomorrow.

This is the first time that humanitarian aid is being sent to the North after it suffered heavy damage from the latest torrential downpours, the group said.

The Join Together Society said it shipped 100 tons of flour, 38,000 packs of instant noodles and living necessities such as clothes, shoes and candles.

JTS is a relief and development organization founded in 1994, and headed by well-known Buddhist monk Ven. Pomnyun.

The ship will leave Incheon tomorrow and will reach the North’s western port of Nampo tomorrow at the earliest, said the Seoul-based civic group.

The move came after the South Korean government stopped aid packages as the North test-fired seven missiles into the East Sea last month. However, civic groups here have urged Seoul to revive its humanitarian aid as food shortage problems in the North got worse in the aftermath of the massive downfall.

JTS said that the flood relief will be sent to an organization that helps North Koreans residing overseas. The goods will be used to relieve flood victims in the Yangduk county of Pyeongan Province, northwest of Pyeongyang, it added.

Red Cross In S. Korea Says North Rejects Aid
Washington Post
Kwang Tae Kim
Associated Press
Thursday, August 3, 2006; Page A18

SEOUL, Aug. 2 — The South Korean Red Cross said Wednesday that its North Korean counterpart had rejected an offer of aid for flood victims.

North Korea “expressed thanks for Seoul’s offer” but said “it will handle the recovery efforts from recent floods by itself,” a senior North Korean Red Cross official said, according to the South Korean Red Cross.

Floods caused by heavy rains in mid-July killed at least 154 North Koreans and left more than 127 missing, according to the United Nations. North Korea’s official media have said the disaster caused hundreds of deaths and cut off roads, bridges, railroads and communications.

However, the Good Friends group, a Seoul-based aid organization for North Korean refugees, said in a statement Wednesday that about 10,000 people were dead or missing and 1.5 million were left homeless by the floods.

The project coordinator for Good Friends, Lee Seung Yong, declined to identify sources for the information, but previous reports of activities in North Korea from the group have since been confirmed.

North Korea has relied on foreign donations of food since the 1990s, when natural disasters and decades of mismanagement led to the deaths of as many as 2 million people.

South Korea, a key provider of rice and fertilizer to the North, recently suspended aid shipments to protest the county’s refusal to discuss its missile launches in early July. The tests drew international condemnation and raised regional tensions.

North Korea protested the South’s decision and cut off government-level exchanges. But civilian-level exchanges remain intact, leading the North to seek civilian assistance from the South for flood victims while rejecting the offer of aid from the government-run Red Cross.

The South’s Korean Council for Reconciliation and Cooperation, which is composed of civic groups and ruling Uri Party members and is partly funded by the government, said it would send aid to the North by next weekend. It said the aid would probably be accepted but declined to give details.

JTS Korea, a private relief agency based in Seoul, also said Tuesday that it would ship emergency goods to the North. The agency’s spokeswoman, Hyun Hee Ryun, said North Korea had specified what kind of supplies it needed, suggesting that the aid would be accepted.

N. Korea declines aid from Red Cross after flooding
Korea Herald

North Korea, which was hit by torrential rain and flash floods last month, declined offers of aid from the International Red Cross and its South Korean branch, an official said.

“We asked the North Korean government what it would need in terms of relief aid to help in their efforts to recover after last month’s heavy rains,” said Kim Hyung-sup, a spokesman at South Korea’s National Red Cross. “North Korean authorities replied that while they appreciate the offer, they are able to manage on their own. I seriously doubt that.”

The International Committee of the Red Cross – to which the South Korean Red Cross belongs – also offered aid, which North Korea declined, Kim said.

Hundreds of people are dead or missing in North Korea after the rains, the country’s official Korean Central News Agency said on July 21. Floods last week also damaged farmland, tens of thousands of shelters and public buildings. Hundreds of roads, bridges and railways were destroyed, it said. South Korea was also hit and damages in the South are estimated at around 2 trillion won ($2.1 billion).

North Korea canceled two festivals this month, citing relief efforts. It postponed its Arirang Festival, featuring its mass games, as well as an annual festival with South Korea to mark their independence from Japanese colonial rule at the end of World War II.

“The biggest problem for North Korea will be food shortages, especially in winter and next year, because most of its farmlands were flooded,” Kim said. “Water and medical supplies are likely to be in demand, either because of the wounded as well as concerns of infectious diseases that may spread in the aftermath of the rains.”

A South Korean civic group said Tuesday that it plans to provide emergency aid to North Koreans.

The Join Together Society, a humanitarian aid group in Seoul, said it will send eight TEUs filled with relief goods, including 100 tons of flour, to the North from Aug. 3-9. TEUs, or 20-foot equivalent units, are a measure of containerized cargo capacity.

It is the first time that a South Korean civic group is providing aid to the communist state since Seoul stopped all efforts in the wake of the North’s recent missile tests and its ongoing boycott of six-way nuclear talks.

North Korea has depended on outside aid since the 1990s. More than a million people have died from famine because of years of flooding, drought and economic mismanagement. One in three North Koreans is chronically malnourished and many are forced to scavenge for food, resorting to ferns, acorns, grass and seaweed.

International food aid for North Korea reached 1.08 million tons last year, the world’s second largest after Ethiopia’s 1.1 million tons, according to the United Nations’ Food and Agriculture Organization. South Korea sent 394,000 tons of food aid to North Korea last year.

Daily NK:

It has been learned that serious damage has been incurred in North Korea due to heavy rain, which has also led to the cancellation of the Arirang festival.

Due to the heavy rain, hundreds of people have died, and 100,000 tons of food was lost. The Food and Agriculture Organization (FAO) estimated that necessary food aid would amount to 830,000 tons between November 2006 to October 2007.

High production agruicultural areas such as Hwanghae and South Pyongan provinces have already complained about likely food shortages next year. North Korean traders from China said that, “due to the damage from the heavy rain, the whole country will face loses”. Many international organizations have voiced a desire to aid the North Korean people after learning of the flooding, keeping the missile conflict a separate issue.

Although international organizations, including the International Red Cross, have offered to aid the North Korean people, North Korea has refused the aid. The World Food Program (WFP) offered to provide 74 tons of food to the Yeungsan district of North Hwanghae province, but due to the WFP condition of monitoring distribution of the food aid, North Korea has refused to accept it.

It was also confirmed that North Korea refused aid offered by the International Red Cross offices in Europe and the U.S., and has not yet responded to an offer of aid made by the Korean National Red Cross. It seems unlikely that the North will accept the aid, as the government has firmly refused external aid, in order to keep the international community ignorant to the situation in the North.

If the North Korean government continues to take this attitude, the number of victims will no doubt increase, particularly as the international community increases the level of isolation against North Korea.

Last December, when the U.N. General Assembly passed the North Korean Human Rights Resolution, North Korea asked the U.N. office in North Korea to withdraw. During that time, when North Korea refused food aid from the WFP, it was criticized as using its people as hostages to pressure the international community.

The South Korean government officially took the stand that it would not aid North Korea. Although some people have said that ignoring the need for aid is a bad decision, others believe that sending aid when the North did not request it would only it would only invite misunderstanding.

If the government rushes to aid North Korea, it will be criticized for supporting the North, while leaving domestic flood sufferers to fend for themselves.

However, many people point out that even though they maintain an alliance against the North in regard to the missile conflict, the South Korean government should still offer humanitarian assistance. Cooperation through international organizations, such as the WFP, with monitoring of distrubution, could ensure that the North Korean people receive the aid that they need.

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.

From Joong Ang Daily:

A high-level Korean government official yesterday suggested that the Kaesong Industrial Complex issue be dealt with seperately from the free trade talks with the United States.

“It would be appropriate to discuss the matter on whether products manufactured from Kaesong Industrial Complex in North Korea should be recognized as South Korean in origin in a separate discussion from the free trade negotiation between South Korea and the United States,” said Chin Dong-soo, deputy finance and economy minister.

Mr. Chin said that even though Korea has persistently brought up the issue during the second round of talks, which took place earlier this month in Seoul, there has been no detailed discussion between the two parties.

“If we continue to push the matter while there is no response from the U.S. party, other issues that are being discussed at the free trade talks will likely be jeopardized,” Mr. Chin said.

From Korea Times:

Control on Sensitive Materials to NK Tightened

South Korea’s Ministry of Commerce, Industry and Energy has issued a warning to 80,000 local companies against any shipments of strategic materials to North Korea, officials said Wednesday.

In an e-mail message sent to trading companies, the ministry said international pressure was mounting to prevent Pyongyang from acquiring materials that can be used for the production of weapons of mass destruction. North Korea has been condemned by many countries as well as the U.N. Security Council for firing a series of missiles into the East Sea on July 5.

The ministry also said that with U.S. lawmakers poised to pass a law that penalizes foreign companies that ship dual-purpose materials to North Korea, Washington is expected to strengthen its international monitoring activities.

The message said it could lead to sanctions being imposed on all violators discovered by the U.S. surveillance.

In addition, the ministry said South Korean firms should be careful of shipping products to China and some Southeast Asian countries that could be resold to North Korea.

“If companies have any doubts about whether or not their shipping of products violated the strategic material export rules, they should not hesitate to ask the government,” an official said. He added that companies that ship products to the inter-Korean industrial complex in the North Korean city of Kaesong, just north of the demilitarized zone separating the two Koreas, should be particularly careful.

South Korea is a signatory to the Wassenaar Arrangement, a multilateral pact that restricts the export of commercial products that can be used to make weapons to certain countries. The United Nations has also stressed the need to monitor such trade.

Authorities here have said they will step up efforts to detect and penalize violations.

From Korea Times:

Inter-Korean Economic Projects Not Worrisome’ 

By Park Song-wu, Lee Jin-woo

Inter-Korean economic cooperation programs are not a worry to the United States as the money ending up in North Korea is not likely to be used for developing weapons of mass destruction (WMD), a ranking U.S. finance official said.

In an interview with the Voice of America on Tuesday, U.S. Undersecretary of Treasury for Terrorism and Financial Crimes Stuart Levey said what Washington worries about is the North attempting to abuse international financial institutions to secure funds for its development of WMD.

He said the Kaesong industrial park project and the Mt. Kumgang tourism program _ the two examples of cross-border cooperation _ are not the concerns the U.S. government has in mind to safeguard the international financial system.

In a related development, the Kaesong complex is expected to churn out products worth a record high of $6 million this month, despite security concerns on the Korean Peninsula caused by the North’s missile launches on July 5, an official at the Unification Ministry said.

Denying a negative outlook for South Korean factories in Kaesong, Ko Gyoung-bin, who is in charge of supporting the project, said “everything is going perfectly okay.”

“The total production amount is expected to reach $6 million for the first time since its opening in June 2004, almost 100 percent up from $3 million of last December,” he said during a press briefing in Seoul on Wednesday.

Ko said the export volume of Kaesong products has also been steadily increasing from $1.1 million in May to $1.6 million in June.

“I don’t agree with recent reports which tried to link North Korea’s missile threats with the Kaesong complex,” he said. “I met a few working-level North Korean officials involved in the project last week and they were determined to continue this project.”

As for concerns whether the North Korean government properly pays their workers the wages sent by South Korean firms, Ko said he is confidant that the money has not been diverted for other purposes.

“South Korea has paid some $500,000 to $600,000 for those 7,800 workers and their families each month,” he said. “I don’t think there’s enough room for North Korean authorities to use part of the relatively small amount of money for other purposes.”

He added the number of North Korean workers in the complex would reach 8,000 this month.

A North Korean worker there earns $64 in wages and allowances a month. Most of the money is paid on the 10th of the month. This month, it was paid as scheduled.

South Korea paid $6 million to rent the complex site for 50 years in 2004.

Earlier this month, the Korea Land Corp., a state-run land developer, which has been involved in the Kaesong project, decided to postpone the sales of some 516,000 pyong (1.7 million square meters) of land in the industrial complex to both South Korean and multi-national companies.

Unlike the present South Korean firms in Kaesong, which benefited from the inter-Korean cooperation fund with low interest rates and a three-year grace period to pay back borrowed money, companies which wish to newly join the project will be required to get loans from commercial banks after getting credit guarantee notes issued by the state-run Korea Credit Guarantee Fund (KODIT).

The industrial complex is expected to house about 2,000 South Korean companies employing nearly half a million North Koreans when it comes into full swing in 2012, according to the ministry.

From Yonhap:

Seoul to expand inter-Korean economic project despite U.S. concerns: official

A ranking South Korean official on Wednesday said the government may expand a joint industrial complex in North Korea’s border town of Kaesong at an early date despite concerns that money paid to North Korean laborers there may be used to build missiles.

“The Kaesong industrial complex is a project that runs strictly on the mechanism of a market system,” Goh Gyeong-bin, head of the office for the inter-Korean economic project at the Unification Ministry, told reporters.

He said the government may begin the next phase of the Kaesong development project as early as August or September, which would include leasing out 1 million pyeong of land at the joint complex to South Korean companies. One pyeong equals 3.3 square meters.

The remarks are in line with Seoul’s earlier stance that it does not need to halt the inter-Korean project despite concerns, mainly from the United States, that wages paid to North Korean workers may be forfeited and diverted by Pyongyang to build missiles and weapons of mass destruction.

The apparent opposition from Washington, although still tacit, intensified after North Korea launched seven ballistic missiles, including a long-range Taepodong-2 believed capable of hitting the U.S. west coast, earlier in the month, while the U.N. Security Council unanimously approved a resolution prohibiting missile-related dealings with the North.

South Korea’s point man on North Korean affairs, Unification Minister Lee Jong-seok, however, has refused to halt or suspend the economic project with the communist state, claiming the U.N. resolution does not require his or any other country to cut normal, legal economic relations with the North.

“What the international community, including the U.S., is worried about is the North making or taking money through illegal means,” Lee told a National Assembly committee on Monday.

Currently, 13 South Korean companies are operating at the industrial complex, where about 7,800 North Korean laborers are getting paid US$57 a month on average, according to Goh.

The ministry official said there was no way of knowing for sure whether the North Korean government was taking any of the wages, but claimed it wasn’t happening.

“There is no possibility. The amount tells us that,” Goh told Yonhap News Agency in a later telephone interview.

“Even though North Korea is an extremely poor state, it would take at least 50,000 (South Korean) won (about $50) on average to feed a family of four for a month,” he claimed.

He said the South Korean companies are paying about $500,000 to $600,000 a month to 7,862 North Korean employees.

“The issue (of possible diversion of funds) may become significant when the amount grows to a significant level through second and third phases (of the development project), but it really is not an issue at this time,” he said in the press briefing.

Between 300 to 800 South Korean companies, depending on the size of each business, are expected to move into the joint complex when the next phase of the development plan is completed, according to Goh.

The industrial complex is expected to house about 2,000 South Korean companies employing nearly half a million North Koreans when it comes into full swing in 2012, according to the Unification Ministry.

UPDATE: Contrary to a previous post (Listed below), South Korea is now insisting that goods made in the Kaesong Industrial Zone be labeled “Made in South Korea” for trade with the US, and the US is insisting that this will not be possible under the proposed FTA.  I hope someone will blink because reduced trade barriers will be good for both countries.

From the Joong Ang:

U.S. reaffirms its stance against Kaesong in FTA
7/25/2006
 
Franklin Lavin, the U.S. Department of Commerce international trade undersecretary, has reiterated the American position not to include goods produced in the Kaesong Industrial Complex in North Korea in the free trade agreement with South Korea.

“The simple fact is that a bilateral agreement is between two countries,” Mr. Lavin said in a lecture organized by the American Chamber of Commerce yesterday.

“We have no negotiating authority, no congressional authority, to include any other economic entity in that bilateral agreement.”

Koreans negotiators, pushing to include Kaesong products in the FTA with the U.S., cited earlier free trade pacts with Chile and Singapore, which accepted the offer, as a precedent. 

From the KBS:

Seoul Not to Compromise Kaesong Label
Friday, July 21, 2006

A top aide to South Korean President Roh Moo-hyun said Friday the South Korean government will not compromise on the issue of labeling goods manufactured in the inter-Korean industrial complex Kaesong as ‘South Korean-made’ in the ongoing talks for a free trade agreement (FTA) with the United States.

Senior presidential secretary for economic affairs Chung Moon-soo said that Seoul will never yield to Washington regarding the country-of-origin issue for South Korean products made in the Kaesong Industrial Complex.

South Korea’s Trade Minister Kim Hyun-chong also expressed a similar stance on the issue.

Earlier in Washington, U.S. Congress International Relations Committee Chairman Henry Hyde reportedly urged the U.S. government not to regard products made in Kaesong as South Korea-made.

In addition, Deputy U. S. Trade Representative Karan Bhatia has made clear that any deal that is beneficial to North Korea would run counter to the U.S. government’s position.

From the Korea Times:

Korea May Not Insist on Kaesong
By Park Hyong-ki
7/20/2006
 
Kim Jong-hoon, chief of Korea’s negotiating team with the United States on a free trade agreement (FTA), Thursday hinted that Seoul may not insist on including the Kaesong issue in the bilateral trade pact.

“We have not decided on which areas we will defend at all costs,’’ Kim told economic editors of newspapers and broadcasting stations. “I will consult decision-makers on the list.’’

Kim’s remarks came after last week’s negotiations in Seoul where the U.S. delegation, led by Wendy Cutler, rejected Seoul’s request for the exemption of tariffs on products made in the South Korean-led industrial complex in the North Korean town, in the event Kaesong-made goods are exported to the U.S.

The U.S. has reportedly been sensitive to transfers of cash to North Korea for fear they may sustain Pyongyang’s programs of weapons of mass destruction. About 6,000 North Korean workers work in Kaesong for about $60 per month. Kaesong is still in a developing stage so if more companies move in to set up shop, it would spell larger cash flows into the financially-strapped communist state.

Regarding Seoul’s decision to halve “screen quota’’ or its mandatory 146-day viewing of Korean films at theaters before FTA talks began, Kim said, “It provided an atmosphere conducive to the start of FTA negotiations.’’

He said that previous efforts to establish a bilateral trade pact with the United States were thwarted over the screen quota issue.

“We believed that if the screen quota remained intact, it would hobble any agreement at the last minute,’’ he said. “Besides, culture is a two-way street. We can’t just keep on insisting our position.’’

Talking about the rupture of the second round talks, Kim said that Wendy Cutler, chief U.S. negotiator, didn’t have authority to make spot decisions so had to consult with Washington, costing a lot on negotiating time.

The two sides are scheduled to meet for the third round in September in U.S.

Here is the position of the US (From the Donga)

The dissensions that had grown between Korea and the U.S. over the Gaesong Industrial Complex and tourism of Mt. Geumgang show signs of evolving into serious rifts.

At the U.S.-Korea Inter-Parliamentary Exchange Council press conference held at Rayburn House in Washington on July 18, the American chairman Edward Royce (Republican) emphasized the importance of where the profits from the industrial complex end up, stating the concern that the North Korean leadership may use the cash it earns for developing weapons of mass destruction such as missiles,

Officials from the Bush administration also recently noted that three laws on terrorism must be amended if the U.S. was to allow tax-free imports of goods produced in countries that support terrorism, such as North Korea, adding that such revision would be impossible for the U.S. Congress to accept. In effect, the U.S. will not be including products made in the Gaesong Industrial Complex in the Korea-U.S. Free Trade Agreement negotiations, because of the inconsistencies with existing laws and regulations.

Stuart Levey, U.S. Treasury`s undersecretary for terrorism and financial intelligence who visited Korea on July 16-18 is also reported to have met with Korean government officials and expressed a deep interest in whether a U.N. Security Council Resolution controlling the shipping of military supplies into North Korea would conflict with Mt. Geumgang tourism and the Gaesong complex.

In his statement upon departure from Seoul, disclosed on the U.S. Treasury website on July 18, he declared that they had discussed “issues of common interest, including the new United Nations Security Council Resolution that requires all member states to prevent the transfer of any financial resources in relation to DPRK`s missile or WMD programs.”

On July 18 Levey visited the Ministry of Finance and Economy (MOFE) and requested to know the Korean government’s position on the recent Security Council’s Resolution against North Korea; however a senior MOFE official replied that as the issue lies with the Ministry of Unification, MOFE was not in a place to provide an answer.

“We explained it [to Undersecretary Levey before he asked] because some concerns had been raised that the U.N. Security Council Resolution could clash with the Mt. Geumgang tourism and Gaesong Industrial Complex,” said Song Min-soon, chief presidential secretary for unification, foreign and security policy.

He went on to deny allegations that tensions had arisen between the two countries over the issue, stating that “Korean government officials had expressed there was no problem with the two enterprises regarding the purpose and range of domestic statutes, judicial judgement or international law mentioned in the Security Council Resolution, and Undersecretary Levey had responded that he understood well.”

While Washington has not demanded outright for South Korea to stop its industrial and tourism enterprises in the North, it has been reported to have conveyed strong concerns over the businesses bringing cash into North Korea.

However, a senior Korean official displayed a firm determination in pursuing the Gaesong project. “The Gaesong Industrial Complex is the epitome of the [current administration’s] North Korean policies. We will carry on with it no matter what difficulties are to be faced,” he said.

Fears have been raised that in case North Korea follows its arbitrary announcement on July 19 that it will no longer permit meetings of separated families with further measures to step up tension on the peninsula, South Korea and the U.S. could come to serious troubles over the Gaesong and Mt. Geumgang projects.

Meanwhile, a group of 56, comprised of people from credit assurance companies and from corporate banking divisions of banks such as Kookmin, Shinhan, Hana, Woori, Korea Development Bank (KDB), Kiup, City Bank Korea, Daegu, Busan, Kwangju, Jeonbuk and Kyongnam will be visiting the Gaesong Industrial Complex on July 21, sponsored by the Ministry of Unification.

This is big news.  The Bank of China has frozen DPRK-owned bank accoounts for one of two reasons:

1.  The Bank of China plans to list on the New York Stock Exchange (NYSE), as a result, it has to comply with western regulations and concerns…making its role as the new faciltator of DPRK monetary transactions more difficult to accept.  

2.  The Chinese now suspect the DPRK of counterfeiting the Chinese Yuan.

I am not sure of the real reason just yet.  Anyway, here is the coverage in the South Korean press: 

From the Joong Ang Daily:

Bank of China freezes North’s money accounts
Lawmaker, citing U.S. official, blames counterfeiting concerns
by Brian Lee 

The state-run Bank of China has frozen its North Korean bank accounts due to concerns over counterfeit money, a Grand National Party lawmaker claimed yesterday.

Lawmaker Park Jin said his information came from a former senior U.S. government official of the Bush administration, who served at the White House.

Nevertheless, an official with the Foreign Ministry said yesterday that there was no information in regard to Mr. Park’s claim while the Chinese Embassy to Seoul said it was not in a position to comment.

Mr. Park visited in Washington recently with ruling and opposition lawmakers.

The lawmaker said that after Washington initiated an operation called “Smoking Dragon” in September of last year, which was designed to target North Korean counterfeit activities, a Macao-based bank was put under financial sanctions and North Korea moved its bank accounts to China in response.

Mr. Park said the former official told him that continuing probes by Washington led to the measure taken by the Chinese bank.

Mr. Park said yesterday that the Chinese bank was opting to list its stock at the New York Stock Exchange and was told it had little choice but to freeze the accounts.

The lawmaker said he didn’t know the exact timing of when the Chinese bank had frozen the North Korean accounts but speculated that a recent rift between Beijing and Pyongyang was due in part to that incident.

China agreed to a UN resolution passed earlier this month that was drafted in response to North Korea’s missile launch, which occurred despite Beijing’s efforts to stop it.

Mr. Park asserted that Pyongyang is also forging Chinese yuan currency. However, Unification Minister Lee Jong-seok who was asked about it yesterday at a briefing to the National Assembly’s Unification, Foreign Affairs and Trade Committee, said Seoul had no information one way or the other about the forging.

From the Korea Times:

China freezes N.K. accounts: lawmaker
By Lee Joo-hee

A South Korean lawmaker yesterday claimed that the Bank of China froze its North Korean accounts in relation to the alleged counterfeiting activities of the communist regime.

Citing former and incumbent Washington officials, Grand National Party lawmaker Park Jin said the latest move by China was connected with the United States’ financial measures against North Korea’s counterfeiting and laundering of money.

“This is a virtual ban against dealing with North Korea by China, leaving North Korea all the more devastated,” Park said. Park was in Washington to attend a seminar that started on July 15.

Last September, the U.S. Treasury Department cautioned American banks from dealing with Banco-Delta Asia, a Macau-based bank, which allegedly helped circulate North Korea’s counterfeit U.S. dollars.

The measure eventually forced the Macau bank to freeze the North Korean accounts, which amounted to $24 million.

North Korea immediately protested the move and has since boycotted the six-party talks.

“According to U.S. officials, although the $24 million may not appear to be a large sum, North Korea is sensitive to this issue because most of the funds are used for bribery and purchases of weapon components,” Park said.

Park said that following the freeze of BDA, the U.S. Treasury Department trained their radars onto other banks in Macau. North Korea has moved its accounts into banks in China since, he said.

Washington is currently evaluating the data from BDA for proof that North Korea counterfeited U.S. dollars.

North Korea is apparently concerned that the BDA measure could also affect some $200 million to $300 million accounts that are scattered in Singapore, Austria, Switzerland and Russia.

In yesterday’s parliamentary session, Park questioned Unification Minister Lee Jong-seok over North Korea’s counterfeit currency.

Park contended that North Korea was also counterfeiting Chinese yuan, but Lee responded that he did not have any specific information about it.

Reports in Tokyo yesterday said Japan was contemplating revising foreign exchange and trade laws, as part of its additional sanctions on North Korea over its missile launches.

The revisions are likely to require about 300 Japanese-based companies with business ties with North Korea to suspend exports of about 40 materials to destinations that are believed to be linked to the North’s missile program, the Yomiuiri newspaper reported.

It will require the companies to report to the Trade Ministry the details of their exports of targeted materials, including large trucks, titanium alloys and carbon fiber, the Yomiuri said.

Japan is also considering banning cash remittances and freezing North Korean assets in the country.

From Yonhap:

Chinese bank said to freeze N.K. accounts for currency counterfeiting

North Korea is suspected of having printed fake Chinese currency, which prompted the Bank of China (BOC) to freeze all of its North Korean accounts in an apparent retaliation, a South Korean legislator asserted on Monday.

Quoting a number of unidentified U.S. officials, Rep. Park Jin of the main opposition Grand National Party (GNP) said the freezing of North Korean accounts at the BOC is tantamount to virtual imposition of sanctions by Beijing on the North.

“I understand the North is even more frustrated because this means China is in fact imposing sanctions on North Korea,” the opposition lawmaker told Yonhap News Agency in a telephone interview.

Park has just returned to the country after a three-day trip to Washington along with 12 other ruling and opposition party legislators.

The GNP lawmaker claimed Washington may have been aware of the Chinese bank’s move as early as late last year when its Treasury Department imposed sanctions on a Macau bank suspected of circulating counterfeit U.S. dollars printed in the North.

“I suspect (the United States) did not announce the part related to China considering the sensitivity of the issue,” Park said.

He later claimed Beijing may be working with Washington to crack down on Pyongyang’s alleged counterfeiting of Chinese yuan.

“Following U.S. dollars, North Korea is also counterfeiting China’s currency, the yuan,” Park said during a meeting of the National Assembly Unification, Foreign Affairs and Trade Committee.

The claim, if found true, is expected to further complicate the stalled negotiations over North Korea’s nuclear weapons program as the United States has been looking to China to convince the North to return to the multilateral talks.

Pyongyang has been staying away from the talks since November, shortly after Washington imposed sanctions on the Macau bank, Banco Delta Asia.

Say that title five times fast.  From Yonhap:

KEPCO postpones construction of transmission tower in N. Korea indefinitely

Korea Electric Power Corp. (KEPCO), South Korea’s state-run electricity monopoly, has postponed its plan to construct a transmission tower in an inter-Korean industrial park in North Korea indefinitely amid rising tension on the peninsula in the aftermath of the North’s missile launches, the chief of the company said Monday.

“Since the inter-Korean relationship hit a deadlock due to a string of negative factors, such as North Korea’s missile firing, we have decided to put off a groundbreaking ceremony that had been slated for Friday to mark the construction of the transmission tower in the Kaesong industrial complex,” KEPCO’s Chairman & CEO Han Joon-ho said in a meeting with reporters in Seoul.

KEPCO had planned to build a transmission tower capable of sending 100,000 kilowatts of electricity from the South to the industrial park, located just across the demilitarized zone that separates the two Koreas.

The company currently transmits 15,000 kilowatts of electricity via 23 telegraph polls for more than 13 South Korean companies operating there.

The South Korean-built complex is a product of a historic inter-Korean summit in 2000 which set off a series of cross-border projects. About a dozen South Korean garment and other labor-intensive plants are currently in operation in the complex.

KEPCO’s announcement comes amid escalating tension between the two countries, triggered by the North’s missile launches on July 5.

Last week, North Korea withdrew all of its government officials from a joint dialogue office in Kaesong, cutting off the last direct channel for communication with Seoul.

From the Korea Herald: 

North Korea has demanded a change in its business partner for tours to Gaeseong and has been banning South Koreans from entering the border town since the beginning of this month, Seoul government sources said yesterday.

The Gaeseong tour has been a source of dispute between the two Koreas since the North demanded last year that its current partner, Hyundai Asan Corp., be replaced with Lotte Tours Co.

Since last May, the North has delivered messages on three different occasions saying that it has “decided to operate the Gaeseong tour with Lotte Tours Co.,” the Seoul government sources said yesterday.

In what Hyundai Asan calls a breach of contract, the North asked Lotte Tours between August and September last year to launch a tour program to Gaeseong, a city near the inter-Korean border rich in historical attractions. The North said it could no longer discuss the tour with Hyundai Asan. Lotte did not respond to the proposal.

Lotte Tours Co. is South Korea’s third-largest travel company.

At the end of last month, Pyongyang sent an invitation to Lotte to visit North Korea, the sources said. Lotte requested permission on July 5 for the visit but Seoul denied it following the North’s test-firing of seven missiles the same day.

Since the 1990s, Hyundai Group has exclusively led North Korean tourism projects.

However, Hyundai recently fell out of North Korea’s favor after it sacked chief executive of Hyundai Asan, Kim Yun-kyu, over allegations of embezzlement last year. Kim had been Hyundai’s point man for North Korean businesses following the death of Hyundai Group founder Chung Ju-young, who paved the way for economic exchanges with the reclusive state.

But conflicting positions over the price of the tour are the real reason behind North Korea’s refusal to work with Hyundai Asan, some sources suggested.

During a pilot tour program for Gaeseong conducted by Hyundai Asan between the end of August and early September last year, North Korea reportedly wanted as much as $150 for every tourist, almost 10 times it charges to Mount Geumgang on the east coast.

Hyundai Asan refused the price, saying it would never break even.

Seoul said yesterday Hyundai Asan remained the official partner for all tour projects with North Korea.

“The North wants to change partners unilaterally, but the Seoul government’s approval of (Hyundai Asan as the main partner) for the Gaeseong tour remains valid,” a government official said.

Lotte has also acknowledged the present situation and decided not to participate in the Gaeseong tour unless the contract between Hyundai Asan and the North is fully sorted out, the official said.

It is Seoul’s position that it cannot overturn its original approval for Hyundai Asan, but that it could be possible for Lotte to sign a separate contract with the North.

Observers said it could thus be possible for Hyundai Asan and Lotte to join hands in the tour business.

One of the alternatives could be for Hyundai Asan to remain as the main business partner but to pass actual operation authority to Lotte Tours. The Seoul government is positively considering the option as well, sources said.

In a letter to South Korean Unification Minister Lee Jong-seok last month, the North Korean representative for inter-Korean tour projects said that it would ban South Koreans visiting the inter-Korean Gaeseong industrial park from entering the streets of Gaeseong. The industrial complex sits on the outskirts of the border town.

Observers said the entry ban is considered to be North Korea’s pressure on the South to allow Lotte to replace Hyundai Asan.

Hyundai Asan and the North signed a $500 million deal in 2000 for the exclusive rights to seven economic programs, including tours to Gaeseong.

The Seoul government consequently approved Hyundai Asan to be the official tour business partner for Gaeseong in March 2003.

Upon North Korea’s first request in August, Lotte Tours Co. said it will not pursue a tourism business in Gaeseong unless North Korea cleared terms with Hyundai Asan Corp.

By Lee Joo-hee

From the Korea Times on 7/21/2006:

North Stops Kaesong Tours
By Lee Jin-woo

North Korea has banned South Koreans from visiting Kaesong, a city near the inter-Korean industrial complex claiming it wants to replace Hyundai by Lotte as a new partner for arranging tours of South Koreans to the capital of the ancient Korean kingdom.

The Unification Ministry downplayed the shutdown, saying it is unreasonable to link the gridlock of the tourism project to the recent missile crisis.

“North Korea brought up the issue months ahead of the present disputes involving the missile launches on the Korean Peninsula,’’ Kim Chun-sig of the ministry told reporters yesterday.

He said Pyongyang has asked the South three times since May to accept Lotte in place of Hyundai Asan, a North Korea-related business arm of Hyundai Group.

“We believe the contract signed between the North and Hyundai is still effective and legally binding unless the two sides agree to nullify the deal,’’ he added.

He said Unification Minister Lee Jong-seok has asked Lotte Tour Chairman Kim Ki-byung not to get involved in the inter-Korean business during their meeting on June 30.

Lotte has made it clear that it would not join the project unless Hyundai-Asan drops the project.

Hyundai has already arranged three trial tours to the ancient city. However, last October, the North Korean committee abruptly announced it would not initiate the program with Hyundai-Asan, only two months after the sides signed a contract.

The relationship between the two sides turned sour after Hyundai Chairwoman Hyun Jeong-eun dismissed Hyundai-Asan CEO Kim Yoon-kyu. Kim was accused of diverting millions of dollars in corporate funds to an undisclosed source.

In addition, the North wants a payment of $150 per tourist to the city, nearly 20 times more than the $20 Hyundai Asan pays to North Korea for every South Korean traveler to Mt. Kumgang. Hyundai has been reluctant to accept the North’s request.

On June 22, the North announced that from July 1 it would not allow South Korean visitors to the industrial complex to visit the city’s downtown area that includes historic sites.

Hundreds of South Koreans, mostly businesspeople and government officials, have been allowed to visit the city during their visit to the industrial complex.

“In a letter, North Korea’s Asia Pacific Peace Committee said no South Koreans will be allowed to visit the city from July 1,’’ Kim said. “We’ve decided to kept it confidential as we wanted to handle the issue during the South-North ministerial talks that ended poorly in Pusan earlier this month.’’

The director added it is technically incorrect to say the “Kaesong tourism project came to a halt or became suspended’’ as there have been only trial tours to the city.

The communist country test-fired seven missiles earlier this month, including one believed to be capable of reaching parts of the United States.

It also said Wednesday that it would halt family reunions of relatives split by the heavily fortified Korean border after the South refused to discuss aid at recent high-level talks.