North Korean Economy Watch

In what is certainly not good news for foreign investors, the North Korean government has announced that it is unilaterally canceling agreements with the South Koreans regarding the Kaesong Industrial Zone.

According to the Korea Times:

North Korea announced Friday the nullification of all contracts on rent, salaries and taxes at the Gaeseong Industrial Complex, asking the South to empty the industrial estate unless it honors the North’s wishes to amend related laws and rules.

The notification came about five hours after the two Koreas were unable to set a date for talks due to their wrangling over the release of a Southern worker detained by the North.

The North continued, “We are nullifying contracts and benefits on rent, salaries and taxes that we have offered in the Gaeseong complex in accordance with the June 15 Joint Declaration.”

The report added that the North will begin to adjust laws and rules to meet with the current situation.

“South Korean companies and officials must accept the notification, if not, they can evacuate from the complex,” it said.

In the article, Andrei Lonkov makes the following comment:

“North Koreans are clearly looking for some leverage over the South, and it they come to see the park as a hostage project, they will it use to put forward escalating demands,” he said.

He predicted, “If the South Korean government bows to the pressure and makes concessions, there is no doubt that in weeks or months Pyongyang manipulators will make new demands, probably more outrageous.”

“One can hope that the project will survive. Nonetheless, it will become dangerous if Seoul, in trying to save this important project, starts to succumb to Pyongyang’s blackmail. So, the project should be supported, at a cost to South Korean taxpayers, but not at the cost of unprincipled political concessions,” he added.

This has been a rough year for the Kaesong Zone.  I have kept a running timeline of events in the zone which you can see here.

UPDATES:

1. According to the Choson Ilbo: “North Korea earns some US$33.52 million a year from the Kaesong Industrial Complex, making the inter-Korean joint venture a significant cash cow for the impoverished country.”

2. According to Reuters:

News late on Friday that North Korea was cancelling all wage, rent and tax agreements with South Korea on the joint Kaesong factory park just north of their heavily armed border weighed on stocks in companies that have production units in the factory park, but had a limited impact on the broader market.

“Seoul market participants have become quite immune to North Korea-related news and tend not to react sensitively unless the development has a scale of impact that may affect South Korea’s sovereign rating,” Lee said.

3. NK pointman on South Korea, Choe Sung Chol, allegedly executed.  According to Bloomberg:

North Korea executed a former official in charge of inter-Korean relations, accusing him of allowing the population to develop a favorable image of South Korea, Yonhap News reported.

Choe Sung Chol, who was the point man on South Korea during the Roh Moo Hyun administration that ended in February 2008, was killed last year, the news agency reported last night, citing an unidentified person familiar with North Korean affairs.

While Choe was officially charged with bribery, he was executed for ignoring opponents and pressing ahead with closer ties with South Korea that threatened to make the communist state too dependant on its richer neighbor, Yonhap reported.  

4. The Choson Ilbo reports on the productivity of Kaesong’s Northern workers:

The basic monthly salary of North Korean workers at the complex is US$63.4, consisting of $55.1 in wages and $8.3 in social insurance. In addition, overtime work pay amounts to between $11 to 18.3 a month, and a welfare package subsidizing lunches, snacks and transport costs is provided at a range of between $36.6 and 47.9 per month. In total, the monthly salary of a North Korean worker ranges from $110 to 130, which, the companies argue, is comparable to that earned by workers in China and Vietnam.

A survey of some 40 firms operating at the complex was carried out after the first round of talks on April 25 to discover why these firms were having difficulty accepting North Korea’s demands. According to the survey, the productivity of an individual North Korean worker is just 33 percent that of a South Korean worker. In comparison, the productivity of Chinese and Vietnamese workers is 96 and 85 percent that of South Korean workers, respectively.

The companies also argue that it is difficult to accept North Korea’s demand to pay land use fees from next year, considering the fee they paid for building factories there. The fee for building factories in the Kaesong industrial park was $394 per one sq. m of land, compared to $122 in China and $65 in Vietnam.

5. According to the Korea Business Consultants newsletter (May/June 2009):

South Korea’s point man for North Korea said May 18 that the joint industrial enclave at Kaesong, just across the DMZ in the North, is “in turmoil” after the DPRK voided contracts governing the facility the same day, sending shares in firms that operate there tumbling. The KOSPI fell by 0.44 percent upon receipt of the news.

Read more below:
N. Korea Scraps Gaeseong Contracts
Korea Times
Kim Sue-young
5/15/2009

N. Korea declares inter-Korean contracts on Kaesong venture invalid
Yonhap
5/15/2009

N. Korea scraps contracts with South on joint venture amid tension
Yonhap
Kim Hyun
5/15/2009

Cabinet reshuffle
NKeconWatch.com

N.Korean Kaesong Workers’ Productivity Lags Far Behind S.Korean Workers
Choson Ilbo
5/19/2009

This week, The South Korean government announced that if the North unilaterally files formal charges against a detained South Korean worker it will reevaluate regulations for its citizens to enter the zone which would require each border crosser to obtain a written guarantee of his safety from Pyongyang before leaving South Korea.  Although the number of South Korean workers allowed to cross the DMZ was reduced after the North’s missile launch, this would effectively prevent South Korean managers from entering the Kaesong Zone and would likely bring an end to operations there.  According to Yonhap:

South Koreans may be barred from visiting North Korea if the communist country takes legal action against a Hyundai Asan employee who has been unlawfully detained by Pyongyang, a government source said Sunday.

The Hyundai employee, who works at the Kaesong Industrial Complex and is identified only by his family name of Yu, has been held for 28 days for allegedly criticizing Pyongyang’s political system and trying to lure a North Korean female worker to defect to the South.

The worker in his 40s has yet to be interviewed by South Korean authorities to determine the exact nature of the detention.

“Under the special arrangement governing the Kaesong complex, the two Koreas must reach an understanding on how to deal with serious offenses involving South Koreans (that carry punishments) exceeding warnings, fines and expulsions,” the source, who declined to be identified, said.

“If Pyongyang takes unilateral action to indict the worker, it will be a violation of the fundamental rules related to cross-border interactions and will compel Seoul to rethink its stance on allowing South Korean to visit the North,” the source stressed.

The bilateral agreement makes clear that Pyongyang should respect the rights of South Korean workers, dwellings and property in Kaesong and the special tourist region in Mount Kumgang on the east coast. The latter has been closed since the shooting death of a female tourist by North Korean guards last July.

He said that if protection for South Koreans nationals cannot be ensured, Seoul will be compelled to review its policies on allowing visits from scratch.

“If this is the case, even employees working at Kaesong will have to get individual, written permission from North Korea that they will not be detained,” the official said.

Such a move could effectively make it hard for South Koreans to go to North Korea, crippling normal operations at the complex just north of the demilitarized zone that separates the two countries.

As of March, 101 South Korean factories operated in the complex, employing about 39,000 North Korean workers. The Kaesong park opened in 2005 and produces labor-intensive goods such as clothing, kitchen wares and watches. (Yonhap)

Given the trajectory of North-South relations this year, it is no surprise that inter-Korean trade dropped 30% in March.  According to Yonhap:

Monthly trade between South and North Korea fell more than 30 percent on-year in March, as tensions ran high over South Korea-U.S. joint military exercise, government data showed Monday.

The two Koreas exchanged goods and services worth US$108.74 million over the last month, down 31.1 percent from $157.9 million in the same period in 2008, the data from the Unification Ministry said.

North Korea sealed the border three times in March, disrupting South Korean production in a joint industrial complex in the North’s border town of Kaesong. Pyongyang imposed the ban in retaliation against a joint military exercise South Korea staged with the United States from March 9 to 20 south of the border.

Pyongyang blasted the joint exercise as a rehearsal for a “second Korean War,” while the two allies say the annual drill is purely defensive.

More than 100 South Korean firms operate in the Kaesong industrial venture, just an hour’s drive from Seoul, joining their capital and technology with North Korea’s cheap but skilled labor.

North Korea demanded the South raise wages, pay fees for land use and revise existing contracts for the Kaesong venture during inter-Korean government talks last week, the first official dialogue in more than a year. Seoul is gathering opinion from South Korean firms and plans to respond to the North Korean demand as early as this week.

Hyundai Asan, which has seen a dramatic reversal of fortune in the last year, has launched a new tourism project to make up some of its lost revenue.  Unable to offer trips to Kaesong and Kumgangsan, they are still trying to capitalize on the mystery of the DPRK:

Hyundai Asan said its new programme includes one-day tours costing 46,000 won (34 dollars) per person to border areas at Paju and Yeoncheon, north of Seoul.

Two-day tours to the border area at Yanggu, 175 kilometres northeast of Seoul, and to Mount Sorak on the east coast, will cost 118,000 won.

“Along with trips to front-line fences, tourists will be allowed to see wildlife and other places which remained untouched for decades,” a Hyundai Asan official told AFP.

Visitors will not be allowed inside the DMZ itself.

Hyundai Asan said the new programme would help ease its financial woes, which began when a South Korean woman tourist was shot dead when she strayed into a military zone at Kumgang last July.

The Seoul government halted tours to Kumgang after the shooting, while Pyongyang barred the one-day tours to Kaesong city as relations worsened.

The company’s other major joint project, the joint industrial complex near Kaesong city, is also facing problems due to sour cross-border ties.

The communist North has expelled hundreds of South Korean staff and restricted access to the Seoul-funded complex.

On March 30 it detained a Hyundai Asan employee for allegedly criticising the North’s regime and trying to persuade a local woman worker to defect.

Read the full stories below:
Gov’t warns it can bar S. Koreans from visiting N. Korea
Yonhap
4/26/2009

Inter-Korean trade drops 30 percent in March during political tension
Yonhap
4/27/2009

South Korean firm to start tours along North Korea border
Channel News Asia
4/27/2009

According to Yonhap (excerpts):

The two Koreas met Tuesday for their first government-level talks in more than a year, during which the North demanded negotiations begin on operational changes at the joint complex in its border town of Kaesong. Pyongyang said it will reconsider all “special benefits” that have been granted to South Korean firms, such as low wages for North Korean employees and free land use.

The proposed measure, if actualized, is expected to deal a serious blow to more than 100 South Korean firms in Kaesong, mostly small manufacturers producing garments, utensils, watches and other labor-intensive products and already struggling to survive the global economic downturn.

Under a contract signed between Hyundai and the North Korean government in 2000, South Korean firms pay their North Korean employees between US$70-$80 on average a month, but the wages are wired directly to North Korean government bank accounts. The annual wages last year amounted to $26 million, according to ministry data. About 39,000 cheap but skilled North Korean workers are employed there.

North Korea also said it will begin charging land fees starting next year. North Korea initially set a 10-year grace period on rent when the complex opened, allowing the South Korean firms to use its land in Kaesong for free until 2014.

The [South Korean Unification] minister criticized North Korea’s prolonged detention of a South Korean worker as “against justice.” Pyongyang officials did not answer questions about the Hyundai Asan employee during Tuesday’s talks, he said.

The inter-Korean talks opened after a half-day delay due to procedural disputes but lasted only 22 minutes, during which the two sides exchanged documents laying out their demands and positions.

Read the full story here:
S. Korea reviewing N. Korea’s call to revise industrial contracts: minister
Yonhap
4/22/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-4-22-1
2009-04-22

Since 3G cellular phones were first offered in North Korea last December, more than 20,000 customers have signed up for service. According to a recent report by the Choson Sinbo’s Pyongyang correspondent, the North’s cellular network is capable of providing voice and SMS services to as many as 126,000 customers in the Pyongyang area and along the highway between Pyongyang and Hyangsan, and is available to North Korean residents as well as foreigners in the North.

Anyone can procure a cell phone in the North by submitting required information on an application to a service center, along with an application fee of 50 Yuan, or approximately one Euro, or 130 Yen. Currently, telephones are selling for between 110 Euros for basic handsets, to as much as 240 Euros for phones with cameras and other functions. When a phone is turned on, a white ‘Chollima’ horse graphic appears over ‘Koryolink’ in blue, all with a red background. The trademark is said to mean, “The Choson spirit, moving forward at the speed of the Chollima to more quickly and more highly modernize the information and communication sector.”

To use one’s phone, a pre-paid phone card must be purchased. Three types of phone cards are sold for 850 won (A), 1700 won (B), and 2500 won (C), with ‘B’ and ‘C’ cards offering 125 and 400 minutes ‘free air time’, respectively. In order to see to it that its customer base continues to grow, the communications company plans to adjust prices, and offer services such as television and data transmission. Video and picture transmission and other technological preparations have already been made.

As has been previously reported, the service is provided by CHEO Technology Joint Venture Company, owned by the Choson Posts and Telecomm Corporation (KPTC) and Egypt’s Orscom Telecom Holding. There are now two service centers within Pyongyang. In December of last year, only one International Communications Center was established, but as service grew, a temporary sales office was set up in mid-March. The North Korean government purports to provide cellular service as part of its plan to improve the lives of the masses, and the number of subscribers is climbing daily. CHEO Technology plans to extend the coverage area to every major city, along all highways and along major rail routes throughout the country by the end of the year, with the ultimate goal of providing cellular service to every residential area in the nation by 2012. 

Writing in Reuters, Lucy Hornby and Tom Miles point out that the DPRK faces greater economic uncertainty from falling commodity prices than from new sanctions.  Below I have posted excerpts and charts:

Lower commodity prices may prove more painful to North Korea than the tightened sanctions, which will likely blacklist certain firms known to deal in military goods.

“Sanctions won’t have a big effect, they won’t change their actions,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

“There will be no impact on trade with China, which is mostly grains and basic materials … Sanctions may have some influence on luxury goods, but only a weak effect on overall trade volume.”

The isolated country’s $2 billion annual trade with China, equal to about 10 percent of the North’s annual GDP, is its most important economic relationship.

North Korea profited from strong prices for minerals and ores over the last few years, ramping up exports of zinc, lead and iron ore to resource-hungry China.

Most of those exports have dropped again since last summer, in line with sharp decreases in metals prices buffeted by the global economic crisis.

The North’s mineral deposits could be worth $2 trillion, according to an estimate by the South’s Korea Resources Corporation. But dilapidated infrastructure and a broken power grid hinder mining and the transport of minerals out of the country.

The irregular pattern of North Korea’s alumina imports implies that its smelter only runs in fits and starts. Other ore exports are equally ragged, possibly indicating that North Koreans are only digging the easily accessible ores.

Chinese companies that have tried to invest in North Korean mines complain of constant changes in regulations and report that the North tries to tie mining access to commitments to build mills and other industrial projects.

“China and North Korea are friendly neighbors and we will continue to develop friendly cooperative relations with North Korea,” Chinese foreign ministry spokeswoman Jiang Yu said on Tuesday after the North’s withdrawal from the six-party talks.

Diplomats’ expectations that China might use trade to influence its prickly neighbor rose when China cut off crude oil shipments in September of 2006, as North Korea prepared to test a nuclear bomb. It had tested ballistic missiles that July.

In fact, energy trade data shows that China is reluctant to apply trade pressure. Increased oil products shipments offset the brief cut in crude supplies in 2006.

“The imposition of these sanctions (in 2006) has had no perceptible effect on North Korea’s trade with the country’s two largest partners, China and South Korea,” wrote Marcus Noland, of the Washington-based Peterson Institute for International Economics.

Data since early 2006 show that Chinese crude shipments have in fact been overwhelmingly consistent, at 50,000 tons a month.

North Korea has imported very little Chinese grain since the 2008 harvest, reflecting the better harvest. Flooding and a disastrous harvest in 2006 and 2007 required heavy imports of grains from China in those years.

Chinese corn shipments to North Korea since August have dropped to 2,670 tons, from 136,595 tons in the previous twelve months and 32,186 tons in the year before that.

Rice and soybean shipments show a similar pattern.

Read the full story below:
Little leverage left for North Korea sanctions
Reuters
4/14/2009
Lucy Hornby and Tom Miles

According to Radio Free Asia:

Following North Korea’s April 6 rocket launch, South Korea began limiting the number of its citizens allowed to cross the border to the Kaesong Industrial Zone, which was set up just inside North Korea amid thawing relations between the two sides in 2004.

“We plan on maintaining the minimum personnel needed to run the Kaesong operations,” South Korean Unification Ministry spokeswoman Lee Jong-joo said.

“The South Korean government has requested enterprises invested in Kaesong to maintain their staff at the minimum level necessary to avoid disruption of production and business operations in the complex.”

South Koreans trying to travel to Kaesong this week were surprised to find their entry permits revoked by the South in the wake of the rocket launch, with the number of South Koreans working in the zone cut to a little above the minimum needed for basic operations.

“Eight persons initially received permission to travel to Kaesong, but eventually only three were allowed to take the trip, and actually most South Korean managerial staff had to stay behind,” a Kaesong-based South Korean entrepreneur said.

‘Skills gap’
“The big issue here is that the skill level of North Korean workers is insufficient, and that’s why South Korean management is essential.”

He warned of negative economic consequences if management personnel were unable to reach the zone from the South.

“Banning South Korean managerial staff from traveling to Kaesong will inevitably have a negative impact on production in the complex,” the entrepreneur said.

Tensions have further escalated over the March 30 detention of a South Korean employee of the Kaesong-based Hyundai Asan factory, allegedly for encouraging North Koreans to defect and criticizing the communist regime.

Hyundai’s company president visited Kaesong for a second time this week to press North Korean officials for the employee’s release, but he was refused permission to see the employee, identified only by his surname, Yoo.

Unification Minister Hyun In-taek warned that Seoul wouldn’t tolerate further detention of the employee.

Warning to North
“In the case of Mr. Yoo, the Hyundai Asan employee in the custody of the North Korean authorities, we will react vigorously to any unreasonable extension of the detention of the South Korean,” Hyun told a foreign affairs, trade, and unification committee in Seoul.

He also warned against “any punitive measures exceeding what was agreed upon between the two Koreas, such as a warning or expulsion to South Korea.”

The South has ruled out the possibility of closing the joint industrial park despite rising tensions with the North, however.

In March, in protest against a joint South Korea-U.S. military exercise, the North blocked the border crossing to the industrial complex several times, affecting production in some factories.

Experts have called for bilateral talks to hash out a clear framework for the running of Kaesong, to prevent economic fallout from political events in future.

“South and North Korea need to discuss and consult on the relevant systemic and legal issues associated with inter-Korean economic cooperation in the area,” said Hong Ik-pyo, researcher at the Korea Institute for International Economic Policy.

Read the full story here:
Korean Tensions Hit Zone
Radio Free Asia
J.W. Noh
4/10/2009

Writing in the Wall Street Journal, Evan Ramstad offers some information on China’s investments in North Korea:

The diplomatic minuet is taking place after China increased trade with North Korea over the past four years. Last year, trade between China and North Korea jumped 41% to $2.79 billion, with most of that coming from increased exports by China.

 On Tuesday, truck traffic between the two countries resumed after a break Monday for a Chinese holiday. Dozens of trucks made the crossing in Dandong, a major city along the North Korean border.

China has been North Korea’s chief political and economic sponsor since the Soviet Union collapsed nearly 20 years ago. For much of that time, it served as donor of last resort, making up the difference when energy, food and donations to North Korea dropped off from other countries. That often amounted to $100 million to $200 million in aid.

China broke from that pattern in 2005 by boosting its exports and widening its trade surplus with North Korea. Outside experts view China’s trade surplus as the chief measure of its economic aid to North Korea because North Korea has no measurable debt instrument and little ability to narrow the trade gap.

Chinese companies, sometimes with help from the Chinese government, are investing heavily in North Korea’s mining industry, construction and light manufacturing such as textiles. Chinese consumer goods line store shelves and market stalls in North Korea.

Many executives of Chinese companies in North Korea say it’s a difficult place to operate. Among the challenges: getting money out of the country. China helped Panda Electronics Group, based in Nanjing, start a computer assembly factory with Taedong River Computer Corp. in North Korea five years ago.

North Korea’s currency, the won, can’t be converted. To move money out of the country, Panda must buy commodities in North Korea and sell them in China for cash, an executive said.

The increased business activity in North Korea reflects China’s desire to treat North Korea more as a “normal country” rather than a socialist brother entitled to unlimited assistance, scholars and analysts in China say. They say China also hopes its companies in North Korea will encourage the North’s government to open its economy as China began to do in the 1980s.

Wang Kai, a manager of Liaoning Fuxin Tianxin Technology and Development Co., says the company decided to build a pipe-making factory in North Korea because the country’s economy has few places to go but up.

“North Korea’s situation and economic status are pretty similar to China’s before the start of the opening up and reform policy,” Mr. Wang said in an interview before the rocket launch.

Others note China’s desire is to prevent North Korea’s collapse, which might pour refugees into China’s northeast.

The increased business is yielding a payoff in political influence for China in Pyongyang that’s become more important since North Korean dictator Kim Jong Il was incapacitated by illness in August. One signal that Mr. Kim was back in control came when he met in late January with a delegation of visiting diplomats from Beijing.

Read the full story here:
Economic interests shape Beijing’s Pyongyang Policy
Wall Street Journal Online
Evan Romstad
4/8/2009

Over the last few years, the European Union has pursued an engagement policy with North Korea.   MEP Glyn Ford makes regular trips to Pyongyang to facilitate diplomatic progress; the German Freidrich Naumann Foundation runs economic education courses; European donors founded the Pyongyang Business School; and a small group of European ex-pat businessmen formed a de facto chamber of commerce, the European Business Association in Pyongyang.  Although European companies have experienced mixed success in the DPRK they continue to look for new opportunities. 

This morning, however, Felix Abt, a Swiss director of the PyongSu Pharmaceutical Joint Venture Co. in Pyongyang informs me that his life insurance policy (purchased from a European company) has been cancelled. 

“A European life insurance company cancelled my life insurance because I am a dangerous person living in a dangerous country. Credit card organisations cancel credit cards for such persons in such countries, health insurance companies come up with other reservations and limitations and the latest organisation that has just expelled me is LinkedIn with a very curious explanation.”

I am unsure how the cancellation of life insurance policies could impact other Europen investments in the DPRK, but the marginal effect cannot be positive.  Mr. Abt has been a resident of Pyongyang for years where he manufactures Western-quality pharmaceuticals.  Needless to say, the DPRK is very much in need of his services, so it is a shame that after all this time he is now considered a liability by his insurer.

Mr. Abt also forwarded his rejection from the business networking site LinkedIn, which is posted below:
 

Apparently LinkedIn‘s legal department considers logging into the server as “receiving goods of US origin” (the software I presume), and so it prohibits account holders, or even logging in, from Cuba, Iran, North Korea, Sudan and Syria—even if they are Swiss.

Institute for Far Eastern Studies (IFES)
(NK Brief No. 09-3-3-1)
3/3/2009

INTER-KOREAN RELATIONS
As February began, North Korea continued to publicly warn that the two Koreas were on a path toward war, stating on February 1 that downward spiraling relations between the two Koreas were brought on by ROK President Lee Myung-bak The (North) Korean Central News Agency (KCNA) printed that Lee’s policies toward the North were “the very source of military conflicts and war between the North and the South,” and warned that tensions on the peninsula “may lead to an uncontrollable and unavoidable military conflict and war.”

Poll results released by the Korea Economic Research Institute on February 2 indicated that 68.4 percent of South Koreans support President Lee Myung-bak’s aid-for-denuclearization policy toward the North, and a separate poll by Gallup Korea showed on February 23 that 62 percent of South Koreans blame North Korea for strained inter-Korean relations.

A South Korean official stated on February 4 that 3,000 tones of steel plates that were to be sent to North Korea as part of the energy aid-for-denuclearization deal reached in 2007 would be delayed due to the North’s recent saber-rattling. According to the official, “It is hard to predict when we will send the steel plates. For now, we are not even seriously considering the timing…North Korea should first change its attitude.”

The South Korean government has shot down a project by an ROK journalist organization that would allow the exchange of news with North Korea. It was reported on February 4 that a Unification Ministry Spokesman Kim Ho-nyoun stated, “There are concerns that the exchange of news articles may undermine national security, public order and the interests of the general public.”

On February 16, it was reported the ROK Defense Minister Lee Sang-hee has mandated field commanding officers in all branches of the South Korean military to immediately respond to any North Korean provocation without first seeking permission from superiors. This has further heightened concerns over the possibility of a naval confrontation in the Yellow Sea around the disputed Northern Limit Line.

On February 19, North Korean media warned, “Now that the political and military confrontation between the North and the South has gone into extremes, a physical clash may break out at any moment,” and, “North-South relations have reached such a pass that there is no way to improve them or bring them under control.”

INTER-KOREAN TOURISM
Hyundai Asan, the South Korean company running the Kumgang Mountain tourist resort and the Kaesong City tours in North Korea is on the brink of bankruptcy. A Hyundai representative stated on February 4, “We are reaching a critical situation…unless the tours resume by April, it will be difficult for us to stay afloat.” Hyundai Asan brought in 255.5 trillion Won, or approximately 170.3 million USD, through tour sales in 2007, but in 2008, the company sold only 228.8 billion Won, or 152.5 million USD-worth of tours in 2008. The company employed 1,084 workers when tours were in operation, but has cut back to 479 employees. Of those, approximately 20 percent are receiving only 70 percent of their wages while they work from home. The tours have been on hold since a South Korean tourist was shot and killed at the Kumgang resort last summer.

ROK lawmaker Song Hun-suk stated on February 22, “Since the suspension of the [tourism] program, dozens of South Korean businesses and approximately 1,000 travel agents that offered organized trips to the North have gone to the brink of bankruptcy,” and he reported that approximately 30,000 North and South Koreans were on the verge of unemployment due to the travel ban, with 80 percent of shops and restaurants in South Korea’s Gosung, Gangwon Province, which is near the border, have been forced to close due to the absence of tourists passing through.

INTER-KOREAN TRADE
On February 3, the Korea International Trade Association (KITA) launched a new website, “Inter-Korean Economic Cooperation Information Center”, at http://interkoreatrade.kita.net. The website is designed to provide information and education on North Korean investment and inter-Korean cooperation

On February 8, South Korea’s Unification Ministry released statistics for 2008 regarding the Kaesong Industrial Complex. According to the ministry, production in the complex was up 36 percent over the previous year, reaching a value of 251.42 million USD. The total value of goods produced in the complex since it began operations in 2005 comes to 524.84 million USD.

The Economic Times ran an article on February 15 titled, “Ever heard of Gaesung? Gear up for its products,” in which it reports that the India-South Korea Comprehensive Economic Partnership Agreement (CEPA) soon to be signed will mean that India recognizes goods produced in the Kaesong Industrial Complex as South Korean goods.

ROK UNIFICATION MINISTER
On February 12, Korea University Professor of Political Science Hyun In-taek was sworn in as the new South Korean minister of unification. At his inauguration, Hyun stated that he is willing to meet with North Korean counterparts “at any time, at any place” in order to repair inter-Korean relations. Hyun has been criticized as being a hardliner, and an architect of the Lee Myung-bak administration’s “Vision 3000: Denuclearization and Openness” policy. Hyun was a key advisor during Lee’s presidential campaign, at which time Lee introduced the Vision policy, and was also a member of Lee’s presidential transition team, which at one point had advocated the shuttering of the Ministry of Unification.

U.S.-DPRK RELATIONS
A group of high-ranking former U.S. officials now advising the Obama administration on the DPRK visited North Korea during the first week of February. The group included Stephen Bosworth, Jonathan Pollack, Morton Avramowitz, and Leon Sigal. The delegation reported that North Korea does not appear to be rushed, and that they had taken a “wait and see” attitude in Pyongyang. Bosworth stated that “[North Korean officials] understand the Obama administration will need some time to sort itself through the policy review and the expressed patience, there is no sense of alarm or urgency.” He also noted that the officials were willing to move forward with denuclearization talks.

Leon Sigal stated on February 1, just prior to his visit to the North, “the Obama administration should promptly send a high-level emissary, perhaps former President Bill Clinton or former Secretary of State Henry Kissinger, to Pyongyang.” Sigal also wrote in an online opinion piece that Obama should “hold a summit meeting with Kim Jong-il in return for North Korea disposing some of its plutonium.”

On February 2, the U.S. State Department announced that it would impose sanctions on three North Korean companies for missile export violations. In accordance with the Arms Export Control Act, the Export Administration Act of 1979, the International Emergency Economic Powers Act, the National Emergencies Act, Executive Order 12851 of June 11, 1993, Executive Order 12938 of November 14, 1994, the Korea Mining and Development Corporation, the Mokong Trading Corporation, and Sino-Ki are subject to Nonproliferation Measures and Category II missile sanctions.

U.S. Secretary of State Hillary Clinton stated on February 13 that the Obama administration would be willing to normalize bilateral relations with North Korea if the North is genuinely prepared to completely and verifiably eliminate its nuclear weapons program. She stated that the U.S. would have a “great openness” to North Korea, and added, “It’s not only on the diplomatic front,” but that Washington had a “willingness to help the people of North Korea, not just in narrow ways with food and fuel but with energy assistance.” Two days later, North Korea’s head of state Kim Yong Nam reaffirmed that North Korea would “develop relations with countries that are friendly toward us.”

On February 17, Clinton reiterated the U.S. offer of a peace treaty officially ending the Korean War, normalization of relations, and aid, but stated, “The decision as to whether North Korea will cooperate in the six-party talks, end provocative language and actions, is up to them,” and , “If North Korea abides by the obligations it has already entered into and verifiably and completely eliminates its nuclear program, then there will be a reciprocal response,” indicating that North Korea will have to make the next move.

During a trip to South Korea, Clinton stated that North Korea was “badly miscalculating” if it thinks it can “drive a wedge” between Washington an Seoul, and that “North Korea is not going to get a different relationship with the United States while insulting and refusing dialogue with the Republic of Korea.”

U.S. SPECIAL ENVOY TO NORTH KOREA
Following his return from a trip to North Korea at the beginning of the month, former U.S. Ambassador to South Korea Steven Bosworth was named by Secretary of State Clinton as the Obama administration’s special representative for North Korea. He will remain dean of the Fletcher School of Law and Diplomacy at Tufts University, but will now be responsible for coordinating U.S. policy regarding the DPRK. Special Envoy Sung Kim is responsible for ‘day-to-day’ negotiations with Pyongyang.

UK-DPRK RELATIONS
A British parliamentary delegation arrived in North Korea on February 3, coinciding with a visit to London by a DPRK Workers’ Party of Korea delegation. EU Parliament member Glyn Ford stated that he hoped to reopen dialog that was broken off in 2005 on human rights, and denuclearization, hinting that restarting dialog could lead to the transfer of renewable energy technology to the North.

PRC-DPRK TRADE
It was reported on February 24 that trade between China and North Korea reached 2.78 billion USD in 2008, a 41.2 percent increase over the previous year. DPRK imports were up 46 percent, at over 2.03 billion USD, while its exports to China grew 29.7 percent, to 750 million USD. Mineral resources made up 54.7 percent of North Korea’s exports to China, and machinery and electronics made up the majority of imports.

DPRK NUCLEAR PROGRAM

(NKeconWatch: Although this is simply a reprint of the IFES report, I have been notified by NTI that this report is inaccurate. According to NTI Communications Director Cathy Gwin:

“I am writing to respond to your post that referred to erroneous reports that the Nuclear Threat Initiative (NTI) is preparing to open an office in Seoul ” in order to help prepare DPRK nuclear scientists for peaceful civilian employment.

The Nuclear Threat Initiative (NTI) has worked in the past to develop ideas on how governments could apply cooperative threat reduction (CTR or “Nunn-Lugar”) approaches as part of a solution to the North Korean nuclear challenge.  However, we have no current program to carry out those activities ourselves, nor do we have a program to retrain North Korean scientists.  In addition, we have no current plans to open an office in South Korea, and we do not have branch offices in Ukraine or Kazakhstan.  We have a main office in Washington, DC and a presence in Moscow.

January 31 was the deadline for North Korea to shut down and seal the Yongbyon nuclear reactor as part of 6-Party negotiations, but it failed to meet the deadline. Christopher Hill stated on February 3 that the U.S. would “hold on for a few more days,” but that “we’re not happy that the DPRK essentially has missed this very important deadline.”

On February 2, it was reported that the Nuclear Threat Initiative (NTI) would open a new office in Seoul in order to help prepare DPRK nuclear scientists for peaceful civilian employment. The NTI is in the process of building a program to retrain the North’s experts, and “is also considering ways to support not only nuclear scientists at Yongbyon, but also farmers near Yongbyon who provide them with rice,” according to Roy Kim, a professor at Drexel University.

The U.S. government criticized Pakistan’s decision on February 6 to release Abdul Qadeer Khan from house arrest. Khan as been under house arrest for the past 5 years, after admitting to selling nuclear weapons technology to North Korea, as well as Iran and Libya. In 2004, A.Q. Khan took full responsibility for selling the nuclear secrets, stating that the military and government were unaware of his actions. He recanted this confession last year, stating that he had been a scapegoat.

DPRK MISSILE LAUNCH PREPARATIONS
Several countries have reported intelligence pointing to a launch by North Korea of a Taepodong-2 long-range missile. The U.S. State Department warned on February 3 that “a ballistic missile launch by North Korea would be unhelpful and, frankly, provocative,” while the ROK Foreign Ministry noted that a missile launce would “constitute a clear breach of the UN resolution” adopted in 2006. Chinese Foreign Ministry Spokeswoman Jiang Yu stated, “We hope all the parties can recognize that maintaining stability is in the common interest of the people of the Korean Peninsula.” Preparations appear to be underway at its Musudan-ri base, near the DPRK-PRC border. A Taepodong-2 is thought to have a range of 6,700 kilometers (4,150 miles).

Amid reports that it was preparing the missile launch, North Korea’s Rodong Sinmun printed, “The DPRK’s policy of advancing to space for peaceful purposes is a justifiable aim that fits the global trend of the times. There is no power in the world that can stop it,” and, “ As long as developing and using space are aimed at peaceful purposes and such efforts contribute to enhancing human beings’ happiness, no one in the world can find fault with them.” North Korea continues to deny preparations for a long-range missile launch, and insists that it is preparing to launch a satellite

According to a researcher at the South Korean Agency for Defense Development, if North Korea were to launch a satellite, “given the size of the rocket, the satellite will likely be a low-orbit device,” and low-orbit devices usually need to be fired toward either the North or South Pole in order to successfully reach orbit. This would mean North Korea would need to use Chinese, Russian, Japanese or South Korean airspace.

JAPANESE FIRM, DPRK MISSILES
On February 26, Japanese police raided Toko Boeki, a Tokyo trading company with ties to the DPRK residents’ association in Japan. The company is suspected of trying to export magnetic measuring instruments that could be used to manufacture missiles to North Korea via a third country.

DPRK MOBILE COMMUNICATIONS
It was reported on February 5 that North Korea’s new 3G cellular network, built by the Egyptian company Orascom Telecom, has been very popular. Orascom Telecom Chairman Naguib Sawiris stated, that in the first two weeks of service, “so far we have about 6,000 applications. The important point is that they are normal citizens, not the privileged or military generals or party higher-ups. For the first time, they have been able to go to a shop and get a mobile phone.”

DPRK SPORTS
North Korea’s soccer squad defeated South Arabia 1-0 as it moved closer to the World Cup finals. The North now has seven points in Group 2, after four games, and is in second place, with only South Korea having more points. North Korea has not been in the World Cup finals since 1966.

KIM JONG IL BIRTHDAY CELEBRATIONS
Kim Jong Il’s 67th birthday was marked on both sides of the DMZ. In the North, ceremonies were held throughout the country on February 16, and special rations were provided to the people of the country, with extra noodles, rice and other grains given out to mark the day.

In South Korea, the Abductees’ Family Union marked the day by flying 100,000 leaflets with North Korean currency and criticisms of the North’s leader. South Korean authorities announced plans to investigate, as it is illegal for South Koreans to possess North Korean bank notes without permission.

DPRK SUCCESSION
More rumors were heard in February concerning who might succeed Kim Jong Il as leader of the North Korean regime. Kim’s youngest son, Kim Jong-un has reportedly registered as a candidate for the March 8 parliamentary elections, which would launch his political career. In addition, an editorial marking Kim Jong Il’s 67th birthday stressed the “inheritance of bloodline of Mount Paektu,” further stoking rumors that one of Kim’s sons may be next in line.

DPRK CENSUS
Results of a preliminary census by the United Nations Population Fund were released in February. According to the data, there were 24.05 million North Koreans as of October last year, with 11.72 million males and 12.33 million females. South Pyongan Province was the most populous, with 4.05 residents. 3.26 million people reside in the North’s capital, Pyongyang. This census, conducted by the United Nations Population Fund, was the first in 15 years to be conducted in North Korea.

Following up on a previous blog post, the Choson Ilbo informs us of the DPRK’s new policies designed to collect “back wages” for North Korean workers in the Kaesong Industrial Zone:

South Korean firms will be ordered to close down or pay fines if they delay pay for North Korean staff at the joint Kaesong Industrial Complex, North Korean authorities reportedly told the firms in November.

The Kaesong Industrial Council on Wednesday said North Korea last November notified South Korea’s Unification Ministry and the Kaesong Industrial Complex management committee of 27-point labor rules in the Kaesong Industrial Complex. Under the rules, South Korean firms will be fined up to US$2,000 if they delay a month’s pay and ordered to suspend operations for 10 days and pay an additional 300 percent of basic pay to staff who have worked for more than 24 hours without a break if they delay pay for two months.

The council worries that now firms in the Kaesong complex are receiving fewer orders due to the recession, they could face heavy costs if the rules are strictly applied.

A total of 93 South Korean firms are currently operating in Kaesong. They are paying about $75, including the minimum wage and social security, per month on average to each North Korean worker.

To get a better idea of the context of this story see a previous post here. 

The full article can be read here:
N.Korea Warned Kaesong Firms Over Staff Pay
Choson Ilbo
3/5/2009