North Korean Economy Watch

KCNA
2/6/2007

Great efforts are being directed to the geological prospecting in the Democratic People’s Republic of Korea. The State Bureau for Direction of Natural Resources Development has recently dispatched geological experts, IT technicians and prospectors to the areas of Komdok and Kapsan to find out more nonferrous metal ore resources. 

While concentrating forces on the survey of the foundations of major construction objects, the bureau is pushing ahead with the work of finding out more reserve coal and ore mines with abundant deposits and securing the sites for detailed prospecting.  

The South Hwanghae Provincial Geological Prospecting Administration Bureau has surveyed the ingredients of sand in western coast areas in detail and secured quality sand resources available for hundreds of years. 

The South Phyongan and North Hamgyong Provincial Geological Prospecting Administration Bureaus also found out more anthracite and bituminous coal fields in western and northern areas.

Geological corps under the North and South Hwanghae, Jagang and Kangwon Provincial Geological Prospecting Administration Bureaus have intensified geological prospecting work in their provinces, thus opening up a bright vista for excavating larger amount of non-ferrous metal ore.

The South Hamgyong Provincial Geological Prospecting Administration Bureau has completed in a short span of time the foundation survey and designing for major projects of national significance, and the Sumun and Paekam Geological Prospecting Corps under the Ryanggang Provincial Geological Prospecting Administration Bureau have also registered successes in the survey work for the construction of the Paektusan Songun Youth Power Station and other projects.

Korea Herald
Lee Joo-Hee
1/30/2007

Officials from Washington and Pyongyang are in Beijing today for their second round of talks on U.S. financial sanctions against North Korea.

The discussions are likely to set the tone for the upcoming round of six-party talks scheduled to resume early next month.

The agenda is thought to include North Korea’s acknowledgement of illicit financial activity, a pledge to prevent any reoccurrence, and the lifting of a U.S. embargo on North Korean accounts at a Macau bank.

Washington imposed financial restrictions against Banco Delta Asia after charging the bank with helping North Korea launder counterfeit dollars and funds raised from smuggling restricted goods. The move prompted Pyongyang to boycott the six-party talks process in 2005.

Upon returning to the six-party process in December last year, North Korea demanded it must first solve the financial issue before discussing the nuclear question.

The United States remains adamant that the financial measures were separate from the nuclear issue but has offered to discuss it on the sidelines of the nuclear talks.

The U.S. side is led by Daniel Glaser, the Treasury Department’s deputy assistant secretary for terrorist financing and financial crimes.

The North Korean team is led by Oh Gwang-chul, president of the Foreign Trade Bank of Korea, the reclusive regime’s window for foreign banking.

The two delegations are likely to discuss the technical aspects of the issue, which North Korea claims was a political gesture by the United States as part of its hostile policy.

On Sept. 15, 2005 the U.S. Treasury Department banned all American banks from dealing with Banco Delta Asia for allegedly helping North Korean companies launder money from smuggled cigarettes and counterfeit $100 bills.

Washington and Pyongyang have been exchanging questions and information regarding the measures since their first discussion in Beijing on the sidelines of the six-party talks last month.

N. Korean financial officials arrive in Beijing for talks on U.S. sanctions
Yonhap
1/30/2007

A group of North Korean financial experts arrived in Beijing Tuesday for talks with their U.S. counterparts on removing U.S. financial sanctions on the North, a major hurdle to six-way negotiations on the communist nation’s nuclear weapons program.

The U.S.-North Korea financial talks come ahead of a new round of six-nation negotiations next week aimed at persuading North Korea to give up its nuclear weapons program.

The Chinese Foreign Ministry said Tuesday the new round of the nuclear disarmament talks will start Feb. 8.

The North Koreans, headed by O Kwang-chol, president of the North’s Foreign Trade Bank, arrived in the Chinese capital at 9:30 a.m. The North Koreans were expected to hold talks with a U.S. financial team led by Daniel Glaser, a deputy assistant secretary at the U.S. Treasury Department.

Upon arriving from Pyongyang, the head North Korean delegate said the sides would hold talks at their countries’ embassies here.

The two last met here on the sidelines of a December round of the nuclear talks, also held in Beijing. The working-group financial meeting seeks to remove U.S. sanctions imposed in September 2005 on a Macau bank suspected of laundering money for the North, which Pyongyang used as an excuse to stay away from the nuclear talks for 13 months.

Expectations of progress from the financial discussions, as well as the nuclear talks, have been significantly raised following a three-day meeting of top U.S. and North Korean nuclear negotiators in Berlin earlier in the month, at which the two agreed “on a number of issues,” according to Christopher Hill, the top U.S. nuclear envoy.

Hill said Monday (Washington time) that the next round of the nuclear talks could produce an agreement similar to a 1994 pact in which North Korea agreed to freeze its nuclear activities in return for economic and energy assistance. The 1994 Agreed Framework became defunct when the ongoing dispute over the North’s nuclear ambitions erupted in late 2002.

However, Hill made it clear that the goal of the six-party negotiations is to carry out a 2005 agreement in which Pyongyang agreed in principle to completely and verifiably dismantle its nuclear program in return for economic and diplomatic benefits.

“Whatever emerges in the next round, our job will not be finished until the full joint statement is finally realized and implemented,” Hill told Reuters in Washington.

“I am not too worried whether something might look like the Agreed Framework because we’re only looking at part of what we’re aiming at,” Hill added.

The top U.S. envoy to the financial talks Tuesday also expressed hope for progress.

“We are prepared to go through these talks as long as it takes for us to get through our agenda,” Glaser was quoted as telling reporters in Beijing. “I am hopeful we’ll make progress.”

Treasury officials have so far refused to confirm it, but recent reports said the United States may unfreeze part of North Korea’s assets at the Macau bank to help move the nuclear negotiations forward.

Pyongyang has about US$24 million in 50 accounts at the Macau bank, Banco Delta Asia, and as much as $13 million is believed to belong to legitimate accounts.

Donga
1/27/2007

Recently, rumors have been spreading in North Korea that Jeong Ha Cheol (74-year-old), the propaganda secretary of the Workers’ Party, has defected from North Korea, stirring public sentiment.

Party officials have been going door-to-door to remove traces of Jeong from publications without giving any reason. Officials are painting over Jeong’s face with black ink on any pictures that show Jeong accompanying North Korean leader Kim Jong Il or its former leader Kim Il Sung. They are also censuring his name with black ink if there are any passages that include his name and sealing the book. Moreover, writings by Jeong have been torn to pieces. All households which have a few dozens of those books now are required to get rid of them since most North Korea publications are propaganda books.

Jeong Ha Cheol, who studied philosophy at the Kim Il Sung University, was one of the most successful propaganda officials. He served as the editorial chief of the state-run newspaper Rodong Sinmun and the chairman of the Central Broadcasting Station before becoming the propaganda secretary of the Workers’ Party. It is a key post that oversees all the propaganda activities in North Korea, and Kim Jong Il also served in this post before being named as Kim Il Sung’s successor in the mid 1970s.

Jeong, who was considered as one of the closest aides of Kim Il Sung, accompanied Kim every time he paid a state visit to China and even received the Kim Il Sung Decoration, the most highly recognized medal in North Korea at that time.

In fact, rumors about Jeong erupted in December 2005. Some media outlets reported that Jeong has stopped appearing in public since October 2005. There were no news reports on his exile.

Some sources said that he was imprisoned at a concentration camp in North Pyongan Province because his faults were revealed during an intensive investigation into the staff of Central Broadcasting who was caught drinking during the daytime.

According to the sources, Jeong was sentenced as “a traitor against the party and revolution,” and was ordered to be erased from all the records, including publications. In short, he is unlikely to regain his power since he has been completely shunned by North Korean society.

All these people were involved in the so-called, “August Clan Incident.” The names of the children of Kim Sung Ae, Kim Il Sung’s third wife, who fell from political power and Seo Gwan-hee, former agricultural secretary of the Workers’ Party, who was shot to death on charges of espionage, were also removed from publications. You can see black marks quite often on North Korean political books. In North Korea, it is a principle that if one is accused of a serious crime, his or her family members and relatives (father’s side: up to second cousins, mother’s side: up to first cousins) are also sent to concentration camps or deep in the mountains, as it happened in the feudal age.

The most common cause that North Korean committee officials consider as a serious crime is a drinking bout. Criticizing Kim Jong Il or the communist regime after having some drinks can not be tolerated in the North, and that is likely the case with Jeong. It is a felony to shake the regime. Recently, Joo Dong Il, a high ranking official in charge of electricity, was dismissed for suggesting to Kim Jong Il on a private occasion, “How about we use the electricity used for unattended guest houses all across the country for the economic sector?”

However, some analysts speculate possibilities of Jeong’s involvement in serious corruption considering that North Korea lavishly spend money to purchase equipment from overseas for propaganda purposes every year.

Choi Yong Hae, the chairman of the League of Socialist Working Youth and who prepared the 13th World Festival of Youth and Students, was also found guilty of grave corruption. Although Choi was dismissed, his name was not censured with black ink. Chang Sung Taek, a senior official of the Workers’ Party, was also blamed of serious corruption, but he was recently pardoned. Corruption charges are far more lenient compared to criticizing the regime or Kim Jong Il.

Jeong’s case is a good example that illustrates how insecure the power that top North Korean officials have once they lose the trust of Kim Jong Il. If North Korean officials are not cautious all the time, like walking on thin ice each day, they can be out of Kim Jong Il’s favor.

NK Secretary Jung Ha Chol Politically Banished
Daily NK
Han Young Jin
1/29/2007

A rumor has spread alleging that a former secretary for the Propaganda Department of the Chosun Worker’s Party Jung Ha Chol (74) has escaped North Korea, reported the Donga Ilbo on the 27th.

A source told Donga Ilbo “Though the reason has not yet been revealed, North Korean elite officials have recently been erasing remnants of Secretary Jung in published materials” and informed “Secretary Jung’s face has been deleted from all photos taken with Kim Il Sung or Kim Jong Il.” In addition, Secretary Jung’s name is being erased from all written materials and sealed with tape, and materials directly written by Secretary Jung are being deleted altogether.

With Kim Il Sung’s May 25th teaching in 1967, “North Korea’s revolutionary culture” arose and excluding statements and instructions of Kim Il Sung, any foreign editions and all publications displaying anti-authority or conflict with Kim Il Sung were either burned or erased.

Hence, we can surmise that secretary Jung has already been purged from North Korea’s political arena based on the evidence that his photo and name is being obliterated from published materials.

Secretary Jung graduated from the Kim IL Sung University majoring in Philosophy and worked as an editor for the Rodong Newspaper and Head of the Central Broadcast Agency. In 2001, he became the director and secretary for the propaganda department which following the secretary for the Chosun Workers Party is the next best position. Secretary Jung was even selected as Kim Jong Il’s entourage on his visit to China and was even awarded the Kim Il Sung honorary medal.

However, in December 2005 inspectors discovered one of Secretary Jung’s private parties held at a rural village during an agricultural supporting activity. In addition, there had been rumors that the First Minister for the Chosun Workers Party Lee Jae Kang and Secretary Jung had been in conflict. Whatever the unknown reason, whether it was Secretary Jung conducting parties, occurrences or comments made at the party or personal feuds, Secretary Jung was ultimately imprisoned at a concentration camp in South Pyongan, Buk Chang province.

The Donga Ilbo informed “Secretary Jung has been condemned as an anti-revolutionist and is being banished from North Korean society. His existence being deleted from all records indicates that his power will not be reinstated to him.”

“One the main reasons elite officials are ostracized in North Korea is for reproaching Kim Jong Il or the system at parties” and “It is likely Secretary Jung fell into this category” prospected the newspaper.

Another speculation suggested that Secretary Jung had been corrupted. As North Korea carelessly spends vast amounts of foreign currency on propaganda every year, it is possible Secretary Jung made a foolish decision.

However, even Choi Young Hae, former director for Socialist Youth League who swindled vast amounts of foreign currency while preparing for the 13th International Youth and Students Festival in 1989 did not get “deleted” from all publication but just simply demoted. This was the same for Jang Sung Taek who was once overthrown but his position eventually reinstituted. To criticize or compare Kim Jong Il or the regime is an enormous criminal offense. Hence, for Secretary Jung’s existence to be deleted from all published materials denotes that he could never return to the political areana.

Though there is no real evidence to prove that Secretary Jung Ha Chol has defected overseas, he has undeniably been obliterated from politics.

At present, Jung Ha Chol’s position as secretary of the Chosun Worker’s Party has been reassigned to Kim Ki Nam.

Yonhap
1/25/2007

North Korea has called upon South Korea to implement an earlier agreement to help revive its light industry in return for tapping into the communist nation’s natural resources, a senior unification official said Thursday.

During Unification Minister Lee Jae-joung’s first visit to the Kaesong Industrial Complex since he took office in December, Ju Dong-chan, head of the North’s Kaesong development agency “asked the minister to honor the agreement, saying it is not an aid, but only swapping of natural resources and raw materials,” the official said anonymously.

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

But the agreement was never carried out as North Korea abruptly cancelled scheduled tests of two cross-border railways in May 2006. North Korea’s subsequent missile and nuclear weapons tests further clouded hopes to implement the accord.

“Lee agreed in principle to honor the accord, but he held the position it is more important to create a favorable environment for carrying out the agreement,” the official told reporters.

Asked about the North’s denial of reports that it scrapped plans to change its partner for tours of Kaesong, the official said it is purely a matter of business, which does not require the intervention of the government.

Just hours after Lee returned to Seoul from Kaesong, an unidentified spokesman for the Korean Asia-Pacific Peace Committee (KAPPC) said the North “has no formal agreement with the Hyundai side over the issue of tour of Kaesong.”

Despite its earlier contract with Hyundai Asan, North Korea requested a new deal with Lotte Tours Co. in 2005. However, the South Korean government said the change can happen only when Hyundai Asan voluntarily concedes or pulls out of the business.

Korea Times
Donald Kirk
1/24/2007

Gold fever is rampaging through the ruling elite of North Korea in the quest for relief from seemingly incurable economic malaise exacerbated by more than a year as a total outcast from the international financial community.

Word from Pyongyang is that trading companies and even individuals are offering payments in gold for imports from across the border with China and also in barter deals for products imported from elsewhere. Gold also has become a form of currency in the internal reward system of payoffs and bribes manipulated by Dear Leader Kim Jong-il to guarantee the loyalty of high-ranking officials.

The rush to sell gold – and, to a lesser extent, silver – has sharply escalated in the 16 months since the US Treasury Department blacklisted Banco Delta Asia (BDA) in Macau, banning all firms doing business with US firms from dealings with that bank. The Treasury Department charged that the BDA had been the principal conduit through which North Korea was shipping counterfeit US$100 “supernotes” printed on a highly sophisticated Swiss-made press in Pyongyang.

It’s well known that the US ban forced the BDA to impose a freeze on North Korean accounts totaling $24 million, but less well known that the bank also stopped purchasing gold produced by North Korea’s historic gold mines, in operation, sporadically, since the late 19th century.

Output of the mines, in mountains about 160 kilometers north of Pyongyang, fell sharply in the late 1990s as a result of flood and famine but, with foreign expertise, has begun to pick up in the past few years.

The impact of the ban, moreover, goes far beyond a single bank in Macau. Although North Korea last spring sold $38 million in gold and silver in Thailand, Pyongyang has been frustrated in reviving its presence on the London bullion market, the world’s largest marketplace for precious metals, amid increased US pressure on the large international banks that are the major buyers of gold.

It was in the aftermath of the ban on the BDA that North Korea’s Chosun Central Bank coughed up the information required by the London Bullion Markets Association (LBMA) for listing as a “good deliverer” of gold. North Korea from 1983 to 1993 had been in the LBMA’s good graces, averaging a ton a month in sales to London buyers that included some of the world’s leading banks, but had slipped off the list after failing to keep up deliveries.

The fact that the Chosun Central Bank again is listed with the LBMA, however, is no guarantee North Korea will be able to sell its gold. The US Treasury ban on dealings with the BDA – as well as sanctions unanimously imposed by the United Nations Security Council after North Korea conducted an underground nuclear test in October – has spooked buyers in London.

While the LBMA disavows “political criteria” in deciding on eligibility for its “good delivery list”, an LBMA memorandum leaves no doubt how buyers are likely to respond to overtures from a country or company on an international blacklist. None of them, according to Stewart Murray, the LBMA’s chief executive, is willing to take delivery from a company or country that is subject to sanctions.

Or, as the LBMA memorandum puts it, “If, for instance, a bullion custodian considered that it was bound by national or international sanctions that were in force against a particular country, it would have to refuse to accept bars from a refiner in that country.”

The memorandum, moreover, does not mince words when it comes to stating the importance of a “good deliverer” rating. “Given the status of London as the world’s leading center for bullion trading,” it says, “the LBMA List has become the de facto world list of quality refiners and Good Delivery accreditation is a highly sought-after accolade.”

In recent years, “the List” – capitalized in the memo – “has grown primarily due to the listing of refiners in China and Russia” and now totals 77 refiners in 31 countries.

Investors see North Korea as competing on a world stage once sanctions are lifted. “What we’re doing is normal business,” said Roger Barrett, whose firm, Korea Business Consultants, operates in North Korea from headquarters in Beijing. By reviving old minesand developing new ones, he argued, “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Barrett also believes North Korea may somehow get around the sanctions by finding new markets. “Why would you go to the trouble of going to London?” he asked. “They’re totally entitled to sell their gold.” The fact is, however, that London remains the place to sell gold in significant quantities on a regular basis.

Under the circumstances, Colin McAskill, chairman of Hong Kong’s Koryo Asia Ltd and the guiding light of the Chosun Development and Investment Fund, dedicated to investing in North Korea, accused top US Treasury officials of waging a campaign to make sure the ban on banks dealing with the BDA extends to gold and silver.

McAskill accused US officials, led by Treasury Secretary Henry Paulson and Stuart Levey, under secretary for terrorism and financial intelligence, of “using coercion, innuendo and sheer force to intimidate banks from dealing with North Korea”.

Among the victims of the US campaign is one of Koryo Asia’s projects, the Daedong Credit Bank, the only foreign bank based in North Korea, set up primarily to deal with accounts of foreign firms and embassies in Pyongyang. The freeze of North Korean accounts in the BDA, according to McAskill, includes about $7 million funds of Daedong Bank customers.

McAskill avidly supports North Korean demands for the US to lift the ban on the BDA – a move that would not only open up the frozen North Korean accounts but would provide the opening needed for Pyongyang to trade in a wide range of products around the world.

The financial issue is assumed to have ranked at the top of an agenda discussed in meetings in Berlin between the chief US envoy, Christopher Hill, and his North Korean counterpart, Kim Kye-gwan. Hill, reporting on the Berlin talks in stop-offs in Seoul, in Tokyo and Beijing, seemed hopeful about “progress” in the next round of six-party talks on North Korea’s nuclear weapons, expected to open in Beijing next month, after the failure of negotiators to get anywhere in the last round before Christmas.

South Korean media said North Korea had agreed to shut down its five-megawatt reactor at its nuclear complex Yongbyon in return for the US promise of massive aid, the crux of the 1994 Geneva Framework Agreement that blew up in 2002 amid US charges of a separate, secret North Korean program for developing warheads from enriched uranium.

There was no assurance, however, that the US is ready to relent on the BDA or that the UN Security Council will consider lifting its own sanction – enough to dissuade banks in London from buying North Korean gold regardless of the US ban on the BDA.

McAskill believes the rationale for the crackdown on the BDA is flawed. He questions the validity of the counterfeit charge and, in any case, says most of the frozen funds are not those of the North Korean government, even though they’re tired up in North Korean accounts. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely,” he said. “We’re at a very delicate stage.”

Whatever happens, McAskill sees North Korea as ripe for investment, with precious metals high on the list of potential exports. “North Korea wants to move back into legitimate business,” he said. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

Well it seems that reports of the deal were premature–Hyundai Asan is not a shoe in.  the updated report is below.  The original story in the Korea Times is posted belw it.

N.K. denies report it will keep Hyundai Asan as partnerfor Kaesong tour
Yonhap
1/24/2007

North Korea on Wednesday denied reports that it withdrew plans to change its partner for tours of Kaesong, a border town, and collaborate with Hyundai Asan Corp., the operator of tours to the North’s Mount Geumgang, the North’s official media reported.

According to the Korean Central News Agency, a spokesman for the Korean Asia-Pacific Peace Committee (KAPPC) said it “has no formal agreement with the Hyundai side over the issue of tour of Kaesong and, moreover, there was no agreement with the latter in this regard in recent days.”

“The KAPPC’s stand (on the Kaesong tour project) is consistent and it feels no need to examine or consider any change,” it added.

Korea Times
1/21/2007
Lee Jin-woo

North Korea has hinted that it is willing to start the long-delayed Kaesong tourism project with Hyundai Asan instead of Lotte, a Unification Ministry official said on Sunday.

“When former Unification Minister Lee Jong-seok visited the Kaesong industrial complex on Dec. 8, North Korean officials said they have finalized their decision to carry out the project with Hyundai,” said the official on condition of anonymity due to the sensitivity of the issue.

The former minister stepped down from the post on Dec. 11. His successor, Lee Jae-joung, has not made any specific comment on the issue.

The official also said North Korea’s Asia Pacific Peace Committee has given a positive signal to Hyundai Asan Chairman Yoon Man-jun during Yoon’s visit to a joint inter-Korean tourist site at Mt. Kumgang in North Korea.

Pyongyang has not issued any official document to confirm the verbal promise of the committee, according to the ministry and Hyundai.

Pyongyang has asked Seoul several times to accept Lotte Tour, a subsidiary of Lotte Group, in place of Hyundai Asan, the North Korea-related business arm of Hyundai Group.

The South Korean government, however, has rejected the request, saying, “The contract signed between the North and Hyundai is still effective and legally binding unless the two sides agree to nullify the deal.”

On June 30, the former unification minister met with Lotte Tour Chairman Kim Ki-byung, asking the chairman not to get involved in the inter-Korean business.

Experts said the North and Hyundai are expected to have a tug-of-war over the Stalinist state’s request for a payment of $150 per tourist to Kaesong, the capital of the Koryo Kingdom (918-1392).

Pyongyang has set the higher admission fee, nearly 20 times more than the $20 Hyundai pays to North Korea for every South Korean traveler to Mt. Kumgang. Hyundai has claimed the demand is outrageous.

Since July 1, the North has banned South Korean visitors to the Kaesong inter-Korean industrial complex from visiting the city’s downtown area including historic sites.

Hundreds of South Koreans, mostly businesspeople and government officials, had been allowed to make an excursion to Kaesong during their visit to the industrial complex.

The Stalinist state also stirred much controversy by signing an overlapping contract with a small South Korean company, Unico, in 2005 despite its initial contract with Hyundai Asan to develop golf courses at the Kaesong Industrial Complex.

Hyundai signed a memorandum of understanding (MOU) with Emerson Pacific Group, which has been constructing golf courses at the scenic resort area at Mt. Kumgang, for the project in Kaesong.

Hyundai plans to develop a total of 66 million square meters of land by 2012, including information-technology complexes and residential districts at the industrial complex. The project commenced at an historic inter-Korean summit in June 2000.

Christian Science monitor
Donald Kirk
1/22/2007

More than a century after American mining engineers first opened up North Korea’s gold mines, a fortune in gold and other metals and minerals offers the prospect for North Korea to ease the pressures of financial sanctions.

The question, however, is whether North Korea can navigate around a US Treasury order that forbids institutions doing business in the United States from dealing with Banco Delta Asia in Macao, the main avenue for North Korean financial dealings.

The Treasury ban, first promulgated in 2002, has effectively frozen the North’s efforts to conduct international business. While it doesn’t extend to gold, market experts say that US officials have made it clear that banks should not buy North Korean gold.

“The US has been using coercion, innuendo, and sheer force to intimidate banks from dealing with North Korea,” says Colin McAskill, chairman of Koryo Asia Ltd., which invests in North Korea through the Chosun Development & Investment Fund. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely. We’re at a very delicate stage.”

North Korea, says Mr. McAskill, “wants to move back into legitimate business.” Selling gold on the London market – the world’s largest – “is one way they can prove that,” he adds. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

One indication of North Korea’s need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North’s central bank as a “good deliverer” of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank’s listing was suspended 2-1/2 years ago when it failed to respond to LBMA requests for “proactive monitoring.”

The LBMA said it does not “take into account any political criteria,” and will keep the bank on its rolls for another three years without monitoring.

Despite the listing, market experts say the big banks that are major buyers of gold – and form the LBMA’s core membership – are not likely to flout the spirit of the US Treasury order against Banco Delta Asia, through which North Korea exported gold prior to the ban.

“The fact that they’re on the list does not mean they can deliver to the London market,” says Stewart Murray, the LBMA’s chief executive. “When we have sanctions, none of the facilities will accept delivery from a company or a country that is subject to these sanctions,”

Trying to build momentum for talks

The reluctance of buyers in London to deal in North Korean gold, widely seen as the likeliest legal way to mitigate the impact of the banking ban, adds urgency to another effort at six-party talks on North Korea’s nuclear weapons.

The chief US negotiator, Christopher Hill, has been traveling through northeast Asia, stopping off here, in Tokyo, and in Beijing after talks in Berlin last week with his North Korean counterpart, Kim Kye-Gwan. The Chinese are expected to set a date for renewing the talks, which broke off before Christmas amid North Korean demands for the US to lift the ban on Banco Delta Asia.

North Korea raised hopes for renewed six-party talks, saying “a certain agreement” was reached in Berlin last week. Neither Mr. Kim nor Mr. Hill have provided details, but analysts suspect that the two discussed the financial issue and its relationship to the ultimate purpose of six-party talks: getting North Korea to give up its nuclear weapons.

North Korea has been renewing its drive to sell gold for the past year since submitting to the LBMA’s monitoring requirements. At the same time, the North has sold relatively small amounts of gold in Thailand, with which it has developed a strong trading relationship in recent years. Last spring, North Korea exported 1.3 tons of gold to Thailand for nearly $30 million while also looking for markets elsewhere in the region.

“Why would you go to the trouble of going to London,” asks Roger Barrett, whose firm, Korea Business Consultants in Beijing, is helping to develop gold mining in North Korea. “They’re totally entitled to sell their gold.”

No reports of exports since July

Yet there have been no reports that North Korea has exported any gold since testing seven long-range missiles in July. Since the North conducted an underground nuclear test in October, which resulted in deeper sanctions from the UN Security Council, dealers have reportedly been even more reluctant to buy North Korean gold.

Estimates of North Korea’s gold reserves range as high as 2,000 tons, but mining has been sporadic since British, American, and then Japanese interests mined for gold beginning in the 19th century. With foreign expertise, North Korean mining may return to the period between 1983 to 1993, when its central bank sold an average of one ton a month on the London market.

“What we’re doing is normal business,” says Mr. Barrett in Beijing, explaining the efforts at reviving the mining industry. “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Daily NK
Yang Jung A
1/22/2007

Oh Kwang Chul, President of the North Korea Trade Bank and North Korea’s chief delegate in the Banco Delta Asia financial sanction talks will visit Beijing on the 23rd, Asahi Newspaper reported on the 22nd.

The newspaper, informed by a source in North Korea-China, reported that President Oh is scheduled to travel from Beijing to Pyongyang on a direct route on the 23rd to speak with the Chinese.

Indifferent to the fact that the next financial talks were to reconvene in New York says the U.S., North Korea is requesting that the talks be resumed in Beijing similar to the former meeting. It appears that President Oh’s trip to China will be to explain North Korea’s position to the Chinese and gain understanding and cooperation from the Chinese, claimed the newspaper.

The source revealed that developments made in Berlin, where the chief delegates of the six party talks met to discuss the North Korea financial issues and related issues is linked to Oh Kwang Chul visiting China.

The source also predicted that the North will shortly announce the reconvening of the six party talks.

Contrastingly, China’s Foreign Minister Wu Dei and U.S. Assistant-Secretary Hill met in Beijing on the 21st inciting to the press, the possibility of the next financial talks being held after the 29th.

Asia Times
Bertil Lintner
1/18/2007

While the West and Japan have targeted North Korea’s overseas bank accounts to curtail its weapons program, Pyongyang has recently turned to more ingenious ways of maintaining its international businesses through substantial exports of gold, silver and other valuable metals.

Pyongyang has apparently found a willing conduit to global buyers through its many business connections in Thailand, which has recently emerged as the isolated state’s third-largest trading partner after China and South Korea. According to official Thai Customs Department statistics, North Korea shipped 500 kilograms of gold worth 398 million baht (US$11 million) to Thailand last April.

The following month, another 800kg of gold worth 635 million baht landed in Thailand courtesy of North Korea. Also, in June, 10 tons of silver worth 148 million baht was sent from North Korea to Thailand, followed by 12 tons worth 166 million baht last October.

In sum, North Korea exported 1.35 billion baht – or nearly $40 million – worth of precious metals to Thailand last year.

That is a substantial figure for North Korea, a country with an estimated gross domestic product of about $22 billion and whose total exports amounted to just over $1 billion, according to official statistics. Thailand is bound by the international sanctions imposed last October against North Korea by the United Nations in response to Pyongyang’s exploding an atomic bomb.

According to official Thai statistics, the gold and first consignment of silver were shipped to Thailand before the UN sanctions were imposed. But there is nothing illegal in North Korea exporting precious metals, unless, of course, the income from the sale can be tied directly to the country’s controversial weapons programs, which anyway would be extremely hard to prove.

Untapped riches
North Korea’s gold and silver mines remain largely untapped. According to Tse Pui-kwan, a Chinese-American chemist who joined the US Bureau of Mines in 1990, North Korea has significant deposits of copper, gold, graphite, iron, lead, magnesite, tungsten and zinc. When the Cold War ended and North Korea lost large amounts of foreign aid from both the Soviet Union and China, its mining industry fell into disrepair and extraction activities sharply declined.

But with new foreign cooperation, production has resumed, which the recent exports to Thailand clearly demonstrate. North Korea’s main gold mine is in Unsan county in North Pyongan province, about 150 kilometers north of Pyongyang. It was originally opened by a US firm in 1896, when Korea was still an independent and unified kingdom, and was later taken over by a Japanese company when the peninsula became a colony ruled by Tokyo in 1910.

Nearly a century later, consultants from Clough Engineering of Australia in 2001 inspected the same mine under the sponsorship of the United Nations Office for Project Services. They estimated that Unsan held 1,000 tons of gold reserves, which if true would make it one of the world’s major gold mines. Silver is also mined in the same area, while iron ore and magnesite are found in North and South Hamgyong provinces in the northeast.

North Korea’s extraction techniques are sometimes controversial. According to witnesses interviewed by the US Committee for Human Rights in North Korea for its 2003 report “The Hidden Gulag: Exposing North Korea’s Prison Camps”, there is a gold-mining labor camp near Danchun in South Hamgyong province, where thousands of prisoners are being held and forced to work under abysmal conditions.

In that same report, several witnesses claimed that “some of the mine shafts dated back to the early days of the Japanese occupation of Korea in the early 1900s. Accessing the veins of minable gold required descending and, later, ascending a wooden staircase 500 meters in length, using gas lanterns for light. Deaths from mining accidents were a daily occurrence, including multiple deaths from the partial collapse of mine shafts.”

The first attempt to modernize North Korea’s gold-mining industry was made by an Italian financier and former Foreign Ministry official, Carlo Baeli, who traveled to the country in the early 1990s and claims to be the first Westerner to do business with Pyongyang since the Korean War. He later wrote a book called Kim Jong-il and the People’s Democratic Republic of Korea, which was published in Pyongyang in 1990, obviously with official permission as it was printed by the state-owned Foreign Languages Publishing House.

Apart from painting a flattering portrait of the North Korean leader, the book describes Baeli’s first trip to Pyongyang in 1990, of which he wrote, “We were interested in investing in the mining industry, mainly in the extraction of gold and granite.” Baeli later signed a contract for a loan of $118 million to purchase mining equipment, and the goal was to resurrect no fewer than six gold mines across North Korea. The money was to be provided by international banks such as Midland Bank and the Naples International Bank. He also arranged for the mining equipment to be shipped from Italy.

But heavy flooding in the mid-1990s damaged both the equipment and the mines and, according to a 2006 report in Forbes magazine, Baeli today works as an adviser to the Pyongyang government at a tire-recycling plant. The car and truck tires are imported from Japan, get ground into granulate in North Korea, and are sold to China for road resurfacing, car mats and shoe soles. A lucrative business, perhaps, but not quite the golden dream Baeli had when he first arrived in Pyongyang nearly 17 years ago.

Another unusual partner in North Korea’s gold trade may have been the late Philippine dictator Ferdinand Marcos. In August 2001, the right-wing South Korean newspaper Munhwa Ilbo published a story claiming that Marcos in September 1970 had deposited 940 tons of gold bars at a Swiss bank in the name of the late North Korean dictator, Kim Il-sung. The report came from a former Marcos aide, and Munhwa Ilbo carried a copy of the bank-account certificate on its front page. The alleged gold bars were part of what a Japanese army general had looted from Asia during World War II, Munhwa Ilbo claimed.

That report was never independently confirmed, but it nevertheless reflects the mystique and speculation that still surround North Korea’s gold industry – and how little the outside world actually knows about it.

Financial pressures
When the US took action against Banco Delta Asia in Macau in September 2005, labeling it a “primary money-laundering concern” for North Korean funds, very little evidence to substantiate the charges was ever produced. North Korea lost $24 million when the accounts it held with the bank in the name of a front company, Zokwang Trading, were frozen. Zokwang, which had been operating in Macau for decades, also closed its office and relocated to Zhuhai province across the border in China proper.

The action against Banco Delta Asia, a privately owned bank that the Macau government later had to prop up to prevent it from collapsing, was the second move against North Korea’s assets abroad. In a much less publicized action, North Korea’s only bank located in a foreign country – the Golden Star Bank in Vienna – was forced to suspend its operations in June 2004. The Golden Star was 100% owned by the Korea Daesong Bank, a state enterprise headquartered in Pyongyang, and was allowed to set up a branch in the Austrian capital in 1982.

For more than two decades, Austrian police kept a close eye on the bank, but there was no law that forbade the North Koreans from operating a bank in the country. Nevertheless, Austria’s police intelligence department stated in a 1997 report: “This bank [Golden Star] has been mentioned repeatedly in connection with everything from money-laundering and distribution of fake currency notes to involvement in the illegal trade in radioactive material.”

Eventually the international pressure to close the bank became too strong. Sources in Vienna believe the US played an important behind-the-scenes role in finally shuttering Golden Star’s modest office on 12 Kaiserstrasse in the Austrian capital. Until then, Vienna had been North Korea’s center for financial transactions in Europe and the Middle East. Visitors to North Korea have noted that euro coins in circulation in the country – the US dollar is not welcome in Pyongyang – invariably came from Austria. (Euro notes are the same in all European Union countries, but coins designate individual member countries.)

Last October, in response to Pyongyang’s nuclear tests, Japan froze a dollar-denominated account that North Korea’s Tanchon Commercial Bank held with an unnamed Japanese bank. The account had a balance of $1,000 and had not been active for nearly a decade, so the move was mainly symbolic: to demonstrate to North Korea that it cannot use banks in Japan for any deposits, big or small.

So it is hardly surprising that North Korea is looking for new ways to manage and maintain its international business interests and for new partners when it is increasingly locked out of most foreign countries. That is where Thailand apparently comes into the picture.

In 2004, trade between Thailand and North Korea for the first time overtook trade between Japan and North Korea. Previously, a string of North Korean-controlled front companies, managed by the Chosen Soren, or the Pyongyang General Association of Korean Residents in Japan, had supplied North Korea with computers, electronic goods and other vital items.

In 2003, North Korea’s total trade volume to Japan was just over $265 million and fell even lower in 2004. At the same time, trade between Thailand and North Korea rose to more than $331 million in 2004. Two-way trade between Thailand and North Korea totaled $328 million in 2005, with Thai exports to North Korea amounting to $207 million and North Korean imports to Thailand totaling $121 million.

During January-November 2006 – the latest statistics available from the Thai Customs Department – trade totaled about $345 million, with Thai exports accounting for $200 million and North Korean imports $145 million. Thai imports of gold and silver have pushed those trade figures higher.

North Korea’s trade with Thailand grew mainly under the previous government of Thaksin Shinawatra, who at one point proposed signing a free-trade agreement between the two countries. In August 2005, Thaksin was formally invited by Kim Jong-il to visit Pyongyang. The visit never materialized, and since Thaksin was ousted last year in a military coup, the future of Thai-North Korean relations is very much in doubt.

But gold and silver are highly fungible and North Korea apparently has lots of the commodities. It appears Kim Jong-il has for now found at least one golden path around the international sanctions imposed against his regime’s nuclear tests.

Well it seemd that the DPRK embassy in Vienna, Austria, is doing its part to promote exports from the fatherland.  It has launched a web-based export business at: http://www.dprkorea-trade.com/.  Althought it looks like the site has not been updated since 2004, they are still offering sales on goods such as:

Calcium Carbonate, Artemisia Herb Oil, Eleutheorcocci Senticosi Extract & Powder,Perilla Herb Oil, Pine Needle Oil, Graphite Brush Plates and Powder, High-Powered Water Purifier, Beauty Appliance MN-63B, Printing Photo Images on Stone Tablets,  Tin-Free, Non-Toxic, Anti-Fouling, Anti-Corrosive, Inorganic Paint, Mechanical Seals, High-Strength Structure Adhesive, Sang-Hwang Mushrooms (Phellinus Linteus), Water-ring Screw Compressor, Technique for Greening of Sandy Soil, Pneumatic Transport Equipment, High-Powered Ultramicro Grinder

Commercial Section,
Embassy of the DPR. Korea in Austria
Schweglerstr. 21/3, A-1150 Vienna, Austria,  
Tel: +43-1-982-2082,  Fax: +43-1-982-2084,
e-mail: info@dprkorea-trade.com