You can read the full report here (PDF).
Since I am behind on numerous commitments at the moment, I am not going to write much about this. However, the report’s contents have been widely covered:
1. North Korea Tech (Martyn Williams) and here.
2. Reuters
Post 37 (2012-2-27): The Daily NK reports on details being discussed in the pipeline talks:
The Republic of Korea Ambassador to Russia, former chief nuclear negotiator Wi Sung Lac, says there has been progress on a gas pipeline connecting Russia, North Korea and South Korea.
“At the moment it is at the stage of enterprises discussing commercial conditions, and I am aware that there has been progress. North Korea and Russia are also discussing issues of transit and transit fees via working-level consultations,” he explained to reporters on a visit to Seoul today.
Wi would not be drawn on what kind of progress has been achieved, saying, “It’s about commercial details and so is hard to explain, but it appears there has been progress on supply quantities and supply conditions.”
Post 36 (2012-2-20): Gazprom reports “progress” in talks with North Korean government. According to Bloomberg:
OAO Gazprom, Russia’s natural gas exporter, said it made progress in talks to supply Korea Gas Corp. (036460) through a pipeline across North Korea, the Moscow-based company said today in an e-mailed statement.
Gazprom and Kogas, as the Korean company is called, plan to meet again in Moscow next month to continue talks, Gazprom said.
Post 36 (2012-1-27): Yonahp reports from anonymous sources that despite the death of Kim Jong-il, the DPRK leadership is still interested in pursuing the pipeline. According to the article:
Top North Korean officials have vowed to move ahead with an ambitious project to build a pipeline through their isolated country to ship Siberian gas to South Korea.
The North Korean officials reaffirmed their commitment to Russia following the death last month of their former leader Kim Jong-il, according to a diplomatic source in Moscow, without identifying the North Korean officials.
The Russians also claim the pipeline deal is still a go. According to Business Week:
North Korea’s new leader, Kim Jong Un, supports an agreement to build a natural-gas pipeline from Russia to South Korea via his communist state, the Russian envoy in Pyongyang said.
“All these existing agreements are supported by the new leadership in North Korea,” Russian Ambassador Valery Sukhinin said in a phone interview today from the North Korean capital. “Talks now are taking place between the parties implementing the project, from our side Gazprom, and from the North Korean side, the oil industry ministry.” OAO Gazprom is the state-run Russian gas-export monopoly.
Post 35 (2011-11-17): According to RIA Novosti, the DPRK looks to reap $100 million per year in transit fees:
North Korea will get $100 million annually if it becomes a transit country for Russian gas supplies to South Korea, the Russian president’s envoy to the Far East said on Thursday.
In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.
“It [$100 million] would be a huge sum for a country with annual gross product of $10 billion. Moreover, the country would have to make no big effort to get it,” Presidential plenipotentiary envoy to the Russian Far East Victor Ishayev said.
Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.
Supplies of Russian gas to South Korea are expected to be started in 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.
Post 34 (2011-11-16): According to the Daily NK, Russia has agreed to guarantee deliveries of gas via the pipeline:
Responding to fears over the possible risks that may come with the proposed three-way gas pipeline from Russia to South Korea via the North, Russian Ambassador to the Republic of Korea Konstantin Vnukov reaffirmed again on Tuesday that Moscow is ready to shoulder that burden.
Delivering the keynote address at a forum held by the Korean Council for Reconciliation and Cooperation in central Seoul, Ambassador Vnukov asserted that Russia is in a position to “guarantee the risks arising from the North Korea pipeline.”
The ambassador’s words mirror an earlier pledge given by President Dimitry Medvedev during a summit meeting with President Lee Myung Bak in St. Petersburg on November 2nd, in which the Russian president revealed that his country would be willing to assume responsibility for the security risks associated with the project.
Vnukov also reaffirmed the benefits of the project for South Korea, saying, “Russian natural gas is coming into South Korea at the moment, but if imports were to be brought in via a pipeline, the cost would fall by 20-30%.”
He further noted that there is already a gas pipeline network in Russia stretching as far as the Russia-North Korea border region, meaning that “practical discussion about this can be had,” although he noted that it would require greater tripartite cooperation.
“Russia is pushing forward with joint projects including not only the gas pipeline but also the railways project,” he concluded, “These projects offer benefits to all of the North, the South and Russia, and help with the security of the Korean Peninsula and the normalization of inter-Korean dialogue.”
Post 33 (2011-11-4): According to the Donga Ilbo, the ROK is planning to offer the DPRK a natural gas power plant (rather than cash) in return for pipeline transit rights. The article reports:
South Korea plans to build a natural gas power plant in North Korea in return for the latter letting a gas pipeline linking the South and Russia pass through North Korean territory, a source said Thursday.
According to the source from the ruling Grand National Party of South Korea, if the pipeline goes through the North, the South is considering building a power plant rather than offering cash that Pyongyang could misuse.
“North Korea has no reason to reject this offer considering its dire power shortages,” the source said.
South Korean President Lee Myung-bak agreed with Russian leader Dmitry Medvedev to closely cooperate to ensure success of the pipeline, so debate has risen in Seoul on how to compensate Pyongyang. Certain voices warn that if Seoul pays between 100 million U.S. dollars and 200 million dollars in cash, Pyongyang might use the money to expand its nuclear and military facilities.
Without transparency in the North`s use of the funds, others say, South Korea and the U.S. could even argue over the pipeline project in addition to conservatives in Seoul.
“The key issues in the pipeline project are safety and the passage fee,” told Won Hee-ryong, a member of the ruling party`s supreme council, at a party meeting. “Public consensus is necessary since public opinion will be divided if Russia gives the money paid by the South to the North in cash.”
Therefore, Seoul and Moscow will likely include specific details on the proposed power plant in the North when they sign a contract for the pipeline and gas supply. Seoul`s plan is to pay cash to Moscow for the pipeline, while the latter will use part of the money to build a natural gas plant in the North.
The South would then provide part of the natural gas from Russia to the North, which would use the gas to generate power.
The source said it was in the same vein that Medvedev promised that Russia will take complete responsibility for the risks of the pipeline going through North Korea.
Two points: First, this plan seems to be taking the proposal to route gas to the DPRK through South Korea seriously. See the map below for more details, but the bottom line of the proposal is that if Pyongyang carries through with a course of action that leads to the disruption of gas supplies, Pyongyang itself would pay a direct economic price for their behavior. The offer to build a gas power plant, in this sense, can be seen as an effort to coax North Korea into an economic game in which it faces a strong economic incentive to control its future behavior.
Secondly, every country’s budget is fungible. Offering to build a power plant instead of cash might reduce the quantity of funds the DPRK devotes to activities the international community considers undesirable, however, it will not zero them out. If the South Koreans and Russians build and maintain a power plant int he DPRK, this will free up significant resources in the DPRK budget for other activities, some of which may be considered unacceptable by its neighbors.
Post 32 (2011-11-3): The Korea Herald also reports on the Medvedev-Lee talks in St. Petersburg:
The two leaders agreed that once the security problem was dealt with, they could consider supplying surplus electricity as well as gas from the Russian Far East to South Korea via the North, Choe said.
A tentative agreement reached between Korea Gas Corp. and Russia’s Gazprom calls for starting the construction of a pipeline through North Korea in 2013 in order to begin gas supply in 2017.
The two state-funded companies agreed on the roadmap in September, Nikolai Dubik, head of Gazprom’s legal department, said at the Korea-Russia Dialogue forum in St. Petersburg Wednesday.
The roadmap calls for the completion of commercial negotiations on the basic conditions related to the pipeline gas project by January and the signing of a deal between January and April.
The two sides will then draft the gas pipeline route between March next year and September 2013, start the construction right away and complete it by December 2016 to begin supply in January 2017, Dubik said.
Chief executives Choo Kang-soo of KOGAS and Alexey Miller of Gazprom signed on to the plan in September during Choo’s visit to Moscow.
Alexander Medvedev, head of Gazprom’s export, said in an international management forum in Tokyo late last month that his staff were in talks with their Korean counterpart on the main conditions related to the gas supply.
He said they plan to complete the discussions by January and sign a basic agreement in mid-2012.
Lee said intensifying Korea-Russia cooperation in Siberia and the Russian Far East region was highly encouraging for the future of the two countries as well as Northeast Asia in a speech at the closing ceremony of the Korea-Russia Dialogue forum earlier Wednesday.
“I visited Siberia and the Russian Far East a number of times when I was a businessman, confirmed the infinite potential of the region with my own eyes and have sought bilateral economic cooperation since,” Lee said at the second annual KRD forum in St. Petersburg.
Post 31 (2011-11-2): The Korea Times reports on the Medvedev-Lee summit in St. Petersburg:
President Lee Myung-bak and Russian President Dmitry Medvedev agreed Wednesday to work closely together to push a pipeline project to send Russian gas to South Korea via North Korea.
During a summit here, Lee and Medvedev shared the view that the three sides involved will benefit if the project goes ahead.
Russia could send as much as 10 billion cubic meters of gas to South Korea a year if the trans-Korea pipeline is built.
South Korea could purchase quality Russian gas at a reasonable price — at nearly a 30 percent discount compared to current prices — while North Korea can earn an estimated $100 million a year in transit fees.
The gas pipeline was on top of the agenda for the Lee-Medvedev summit.
Although they agreed on the benefits, Lee addressed the political risks of the project. He said he was concerned with the possibility of North Korea, which was responsible for two attacks last year, “playing games” with the pipeline.
If that problem is resolved, Lee said Seoul could consider cooperating with Moscow on sending electricity from the Russian Far East to South Korea through North Korea as well.
Although the two leaders shared the need for cooperation on the project, no concrete agreement signaling a development in the matter was announced after the talks.
The state-run Korea Gas Corporation signed an exploratory blueprint with its Russian counterpart Gazprom in September.
Russia has been talking with North Korea over the pipeline project after Medvedev and North Korean leader Kim Jong-il agreed to construct the gas pipeline during a summit held in Sakhalin in August.
In an interview with French daily Le Figaro, Lee said the three sides involved may be able to sit down together some time in the future to discuss the trilateral project.
“But there are several conditions that need to be met before this happens,” he said.
Post 30 (2011-11-2): The Korea Times reports that South Korean officials are downplaying the importance of the roadmap:
South Korean officials on Wednesday downplayed the significance of a roadmap it had agreed with Russia to build a massive gas pipeline linking the two countries via North Korea, saying the project still has a long way to go.
On Tuesday, a senior Russian official said the two countries hope to start construction of the transnational gas pipeline in 2013 and transport Siberian gas through the connection in 2017.
The timeline was part of a memorandum of understanding South Korea’s state-run gas firm Korea Gas Corp. signed in September with its Russian counterpart Gazprom on the project, said Nikolai Dubik, chief of Gazprom’s legal department.
On Wednesday, South Korean officials downplayed the plan’s significance, saying it is not legally binding and little more than wishful hopes for now. They stressed the two sides have not made any progress since September, and that any meaningful progress can come only after Russia and North Korea agree on pipeline transit fees.
“There has been no progress since the MOU in September,” a government official said on condition of anonymity. “Russia has not yet made any commercial proposals to us, such as gas prices or terms of construction. Once proposals are made, we have to hold negotiations.”
The ambitious project, which has been discussed for about 20 years but never materialized due in part to security tensions, gained momentum after North Korean leader Kim Jong-il expressed his willingness to permit the envisioned pipeline to go through the nation during summit talks with Medvedev in August.
South Korean President Lee Myung-bak and Russian President Dmitry Medvedev were expected to discuss the project during summit talks in Russia’s second-largest city of Saint Petersburg Wednesday, along with efforts to end Pyongyang’s nuclear ambitions.
“I doubt today’s summit will produce any specific results (about the pipeline),” the government official said.
The project has drawn keen media attention because it could help reduce tensions on the divided peninsula. Lee has also said that the project is workable as it would benefit all parties involved.
But in an interview with the French newspaper Le Figaro published Tuesday, Lee also said there is a long way to go before the project comes to fruition.
“There will be a point in time where the South, the North and Russia hold three-way discussions,” Lee said in the interview. “But before reaching that stage, a lot of conditions must be fulfilled. Discussions on the gas pipeline project could proceed swiftly, or not. It is difficult to predict for now.”
Post 29 (2011-10-24): The Korea Economic Institute and the National Committee on North Korea co-hosted a presentation with Georgy Toloraya on the current dynamics of North Korea – Russia relations and how their diplomatic efforts affect approaches to solving important issues involving North Korea. You can watch the presentation here.
Post 28 (2011-10-24): Russia, South Korea discuss gas pipeline. According to RIA Novosti:
A Russian delegation has left for Seoul for a meeting of the intergovernmental commission on gas supplies to South Korea and construction of a pipeline via North Korea, a source in the Russian Energy Ministry said on Monday.
“A meeting of the intergovernmental commission will be held tomorrow. A large Gazprom delegation has set off there and I hope they will reach an agreement,” the source said.
The source said that three-party negotiations would start only after all necessary agreements with South Korea were concluded. “We are looking forward to holding tripartite talks,” the source said.
In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.
Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.
Supplies of Russian gas to South Korea are expected to be started n 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.
Post 27 (2011-10-5): Stephan Haggard links to a fantastic report (in the Korean Yonhap) which offers an economic solution to the DPRK’s credible commitment problem with regards to pipeline contract enforcement: build the pipeline to Pyongyang via South Korea.
In this scheme (above left), if Pyongyang cuts off the gas in the pipeline, Pyongyang can be cut off as well. This is basically a form of bonding (insuring) the investment in the absence of a credible third party contract enforcer.
Haggard offers the following information from the Korean report:
South Korean demand will always be larger than North Korean demand, creating asymmetries in bargaining power. But this scheme requies that North Korea have some skin in the game beyond simply collecting transit fees. This idea creates a classic—and beneficial–mutual hostage situation: “you hold me up, I hold you up.”
Kwon’s cost estimate for the project–$2.2 billion—is slightly lower than what Kogas’ Russian subsidiary (Kogas Vostok) has estimated ($2.5 billion). But the project would increase Russia’s share of the South Korean market from 6 to nearly 30 percent. While the Kogas Vostok official stated that the pipeline option is more efficient than either compressed or liquefied natural gas (CNG or LNG), he also admitted that the pipeline involved “unavoidable” political risks.
According to Yonhap:
South Korea will next week start repairing a road used by North Korean commuters to reach an inter-Korean industrial complex in the North, an official said Thursday amid signs of a thaw in bilateral relations.
The 4.5-kilometer road linking North Korea’s border city of Kaesong to the nearby industrial park is used by more than 47,000 North Korean workers who are employed by some 120 South Korean firms operating in the zone. South Korean officials earlier said the road was damaged in summer’s torrential rains, prompting the South to conduct an on-site survey.
“After signing an agreement (with the North), we expect to start repair work next week,” said an official at the Unification Ministry, which handles inter-Korean relations in the South.
“It will likely take about three months to complete the work, unless the weather becomes too cold, and cost us around 1.8 billion won (US$1.59 million),” the official said, speaking on condition of anonymity.
The repairs will involve restoring damaged paved sections and filling in holes on unpaved sections. Repairing the road is expected to save time for North Korean commuters and reduce traffic accidents.
The Daily NK offers some additonal information:
A government official explained today that the decision was made pursuant to agreement between the Kaesong Industrial Complex Management Committee, LH Construction and the North Korean authorities.
“The agreement has not yet been signed, but we are hoping to start the construction at the beginning of next week,” the official explained.
“Our side has taken on responsibility for planning the road repairs and supervising the construction,” he went on. “The weather could change things, but the construction should require three months and is expected to cost 1.8 billion South Korean won.”
Aside from the aforementioned construction, there are also plans to reconstruct two turning points for buses serving the complex. The human resources for the construction will be provided by North Korea.
Read the full story here:
Seoul to start repairing road leading to Kaesong complex next week
Yonhap
2011-11-3
Pictured above (Google Earth): The towns mentioned in the article below from which the Kaesong Industrial Zone could draw more labor: Pongchon (봉천), Kumchon (금천), and Phyongsan (평산).
Institute for Far Eastern Studies (IFES)
2011-10-20
According to South Korea’s Ministry of Unification (MOU), the “May 24 Sanctions” that went into effect after the sinking of the naval boat Cheonan was relaxed and began to permit the resumption of construction of businesses in the Kaesong Industrial Complex (KIC). In addition, plans to build fire stations and emergency medical facilities in the area are also currently underway.
After South Korean Grand National Party chairman Hong Jun-pyo visited KIC on September 30, 2011, the ROK government has reached the following decisions: 1) to allow the resumption of halted factory constructions; 2) to build a fire station and emergency medical facility; 3) to resume repair work for commuting roads for KIC employees; and 4) to extend the operations of commuter buses.
This means seven companies that received permits in the past to begin construction but stopped after the sanctions went into effect would be able to resume the halted construction projects.
According to the Ministry of Unification, the seven companies include three metal and machinery, three textile, and one electronic factories, taking up a total area of 103,527 square meters. The total site of production facilities of stage 1 businesses in the KIC reaches 2,171,900 square meters, in which the currently operating 123 companies take up 783,471 square meters. With the sanctions lifted, the total area of businesses in operation will reach 885,950 square meters.
In addition, five companies awaiting construction for expansion will have to wait a little longer. The authorities announced to discuss this issue at a later date, looking positively on their construction to resume shortly as well.
Also the MOU announced to push forward with the establishment of fire stations and emergency medical facilities, “to protect the properties and health of businesses and employees of the KIC. The plans to break ground for fire station will begin in mid-November and is expected to be completed by late next year.”
The layout for the KIC fire station was completed in December 2009 and 3.3 billion USD has been budgeted to fund the construction. The station will be constructed on a steel frame on a 3,305 square-meter lot with the total floor space to be around 2,182 square meters.
The Kaesong Management Committee has been operating a “fire/police station” from April 2005. But with occurrences of accidental fires since last winter, it has reinforced the number of fire engines and manpower – currently at a total of eight fire trucks and 36 fire fighters.
Medical facilities in the KIC will also be completed by the end of 2012 once the construction begins early next year. About 3 billion USD is set for this project.
Currently at the KIC, Green Doctor’s Cooperation Hospital is in charge of providing medical and health services in the KIC, with South Korea Green Doctor’s Kaesong Hospital treating the South Korean employees and North Korean Comprehensive Clinic treating the North Korean employees exclusively. The South Korea Green Doctor’s Kaesong Hospital is currently operated by volunteers at a clinic level. The hospital was in the process of improving the facilities to more than ten beds. However, this project was halted after the May 24 sanctions went in effect.
On another note, the MOU also announced that maintenance work for the road connecting Kaesong City to the KIC would begin. The road is normally used by North Korean employees of the KIC. It was also announced that the number and operation of commuter buses would increase to help with the commute. The buses operate in the 20 km radius; the plan is to increase that to 40 km. Since September 2010, the number of buses increased to 400.
There are plans to extend the service to cover the areas of Kumchon, Bongchon, and Pyongsang. However, the roads to these areas are unpaved and extension of transportation services to these areas will require negotiations with the North Korean authorities.
Although these measures will alleviate some of the problems faced by the businesses in the KIC, the MOU still stands firm on its position that North Korea must take responsibility and make formal apology for the Cheonan incident in order for a fundamental resolution of the situation to occur.
UPDATE 6 (2011-10-19): I finally received a list of companies participating in the first Rason International Trade Fair. Below is a picture of the names of participating companies listed on a display at the show and a PDF of their names (in English). I apologize for any typos:
Here is a PDF of the company names in English.
Most are obviously Chinese companies, though there appears to be at least one American company listed in the mix, White Stone Corporation Co., Inc. USA!
UPDATE 5 (2011-8-22): KCTV produced video footage from the fair.
UPDATE 4 (2011-8-25): KCNA announces the closing of the first Rason International Trade Fair:
First Rason International Trade Fair in DPRK Closes
Rason, August 25 (KCNA) — The first Rason International Trade Fair was closed with due ceremony on Thursday.
Present there were Jo Jong Ho, chairman of the Rason City People’s Committee, officials concerned and exhibitors of different countries and regions.
In a speech a speaker referred to the fact that the fair was successfully progressed and an advance was made in conformity in favor of mutual interests in economy, exchange of science and technology and trade through wide-ranging contacts.
Diplomas were awarded to the exhibitors who presented excellent goods at the closing ceremony.
UPDATE 3 (2011-8-25)): KCNA publishes a short article advertising the economic advantages of Rason:
Rason Economic, Trade Zone with Bright Prospect of Development
Pyongyang, August 25 (KCNA) — Rason City, the DPRK, is situated in an important area which can link China’s three northeast provinces and Russia’s Far East region, both full of natural resources, and many Asia-Pacific nations with each other.
Rajin, Sonbong and Ungsang ports in Rason and Chongjin Port adjacent to the area provide good conditions for transit trade for Northeast Asia and other continents.
The sea off the ports does not freeze in winter, so they are not subject to seasonal restriction.
The reconstruction projects of the Rajin-Khasan railway and Rajin Port launched in Juche 97 (2008) will make it possible to reduce the transport distance from Asia to Europe, sharply cutting down the transport fee.
The Rajin-Khasan railway will serve as a transport route between the DPRK and Russia and between Asia-Pacific and European nations.
Rason City has seafood, agricultural product and wild vegetable processing bases operated by Korean trading companies. The city also boasts of many ponds, lakes and bays favorable for fresh-water fish culture and offshore farm.
Its natural and geographical environment is suitable to an international tourist resort. There are sea-bird, seal and other animal sanctuaries in the area with beautiful islets, like Pipha and Sol.
Some foreigners have already launched business in the area and an increasing number of investors are interested in the zone.
Rason City with amazing geographical and economic conditions is likely to greatly contribute to the development and prosperity of Northeast Asian nations.
UPDATE 2 (2011-8-21): The first Rason International Trade Fair opens Monday. Some interesting information below:
Pictured above (Google Earth): The Rason International Trade Fair Exhibition Hall (See in Google Maps here)
Also, a reader sent in this promotional flyer which is full of information on the trade fair:
See images of the flyer here: Part 1, Part 2, Part 3.
Video footage of the trade fair can be seen here.
UPDATE 1 (2011-8-17): The First “Rason International Product Exhibition” to be Held in Rajin-Sonbong Special Economic Zone
Institute for Far Eastern Studies (IFES)
Rajin-Sonbong or “Rason Special Economic Zone” is a co-development project developed by North Korea and China. The Rason SEZ International Product Exhibition is scheduled to take place from August 22nd to 25th — an exhibition targeted to attract foreign investors to the region.
According to the KCNA article released on August 14, “The exhibition will display a wide array of items from various countries including vehicles, pharmaceutical and clothing products.” It was said that the exhibition promises be an important event to encourage cooperation and exchange with various countries in trade, economic and science, and technology sectors.
This event is expected to not only bring Chinese but also European and other foreign companies into the economic zone, pushing investment into the area.
There is also talk of developing Rason into an international tourism zone to attract tourists from China, Russia, and Japan.
After the closing ceremony of the exhibition, visits to Rajin Harbor, Mangyongbong ferry, and the amusement park are scheduled in order to provide sightseeing tours for the participants to the exhibition.
Mangyongbong ferry, well-known in the past for transporting North Koreans living in Japan back to North Korea, is gaining special attention itself as a new tourist attraction. This cargo-passenger ferry is expected to be utilized further for tourism in the near future, including bringing Chinese tourists from Dairen and other harbors in China to Nampo Harbor close to Pyongyang.
In the late 1950s, Mangyongbong ferry began to shuttle North Koreans in Japan from Niigata Harbor to Wonsan Harbor near Pyongyang. From 1984, it was used to transport cargo into Japan, but this was halted in 2006 due to economic sanctions against North Korea which followed in response to North Korea’s missile and nuclear tests.
There are two ferries in North Korea with the name Mangyongbong. The Mangyongbong-92 will be introduced in Rajin Harbor to maximize the demonstration effect. The Mangyongbong, weighing 3,500 tons, is much smaller and older and inadequate to be used as a ferry.
The Mangyongbong-92 was built in 1992 to commemorate the 80th birthday of Kim Il Sung. The ship was built with funds collected from Chongryon (i.e., the General Association of Korean Residents in Japan). It was estimated to cost over 4 billion JPY at the time, weighing about 9,700 ton with a capacity to hold 350 passengers.
On another note, the fourteenth annual Pyongyang Spring International Product Exhibition held this May hosted over 280 companies from 10 countries. 100 Chinese companies participated in the exhibition. Since then, Chinese corporations from Liaoning and Dandong are reported to have placed contract orders worth 800,000 USD.
ORIGINAL POST (2011-8-15):
Pictured above (Google Earth): Rason geographic border (in red) and security perimeter fence (Yellow).
According to KCNA:
First Rason International Trade Fair to Be Held
Pyongyang, August 14 (KCNA) — The first Rason International Trade Fair will be held in the DPRK from August 22 to 25.
Vehicles, medicines, garments, etc. presented by companies of different countries and regions including the DPRK will be displayed at the fair.
The fair will contribute to boosting cooperation and exchange among countries and regions in fields of trade, economy, science and technology.
The DPRK is no stranger to trade fairs. By my calculations, the DPRK has hosted the Pyongyang Spring International Trade Fair since 1998 and the Pyongyang Autumn International Trade Fair since 2005. These events, which draw vendors from across the planet, are held at the Three Revolutions Exhibition in Pyongyang.
This is the first trade fair of which I am aware that is being held outside of Pyongyang. The Rajin-Sonbong area was the site of the DPRK’s first experiment with special economic zones. Although it did not generate the expected level of interest, North Korean authorities are hoping that this time around they will be able to capitalize on their proximity to the Chinese market (see here and here).
Additional Information:
1. Previous posts on Rason here.
2. Previous Posts on the Pyongyang International Trade Fair here.
3. The Chinese have been upgrading the road that links the Rason port with the Chinese border.
4. A few days ago I posted a preliminary list of DPRK trade companies published in Foreign Trade magazine. I imagine that more than one of them will have a presence at the trade fair.
Institute for Far Eastern Studies (IFES)
2011-10-5
Dai Yulin, secretary of the Dandong Committee of the Communist Party of China, said in his interview with the China Daily on September 28 that concrete plans for the joint development projects between China and North Korea in the Hwanggumpyong and Rajin-Sonbong regions will be announced at the end of the year.
This past June, Dai stated both countries agreement to jointly develop Hwanggumpyong and Rajin-Sonbong as an economic development zone and reported smooth progress in its plans.
According to Secretary Dai, “The joint management committee between China and North Korea has already been formed to promote the Hamggumpyong development project. Both countries are getting up steam to advance the project.”
In addition Dai explained, “China has secured 10 square kilometers of national land to be used to support the joint development of Hamggumpyong.” He also added, “A think tank comprised of 72 experts was also established to advise and buttress the project.”
When DPRK Cabinet Premier Choe Yong Rim visited China last month, Dai commented, “Choe’s visit to China is underlined with North Korea’s strong interest in economic reform. All the high level officials in the economic sectors accompanied him on the trip.”
While visiting China for five days, Choe met with Premier Wen Jiabao and expressed strong motivation for strengthening trade and cooperation with China, especially to improve its infrastructure. He stated, “For those Chinese companies investing in North Korea, we will provide special accommodations to encourage more investments.” In response, Wen Jiabao commented, “China will do all it can to support North Korea, so that they may seek development method most appropriate for them.”
After the meeting between the two top officials, the two nations came to an agreement to cooperate in trade, investment, and infrastructure, resources and agriculture development.
Prior to meeting with Wen, Choe visited Lanxing Chemical Industrial Machine Co. After he paid his courtesy visit to President Hu Jintao of China in Beijing, he continued to make economic related visits to Baoshan Steel Group, Bailian Xijiao Goods Purchasing Center, and industrial facilities in Jiangsu Province.
After North Korea designated Hwanggumpyong Island as a free trade zone, China has signed a 50 year-lease agreement to develop the island. Despite being a “joint development” in name, in actuality, China has the exclusive development rights based on Chinese capital.
However, North Korea is requesting for revision of the name to “co-development between China and the DPRK,” a request that China is expressing some uneasiness over. The initial agreement was to “lease Hwanggumpyong Islands to China,” which gave exclusive and autonomous development and management rights to China in the zone.
China has articulated on many occasions the Hwanggumpyong project must be strictly based on market principles and expressed apprehension that Chinese businesses may be unwilling to invest in the area if North Korea continues to pursue to change it as a joint development.
In an email from Paul Tija:
In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea could be an interesting option. It is opening its doors to foreign enterprises, its labor costs are the lowest of Asia, and its skilled labor is of high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, agro business, fishing, shipbuilding, logistics, mining/rare metals and Information Technology that can be considered for trade and investment. Most of the North-Korean trade is currently taking place with its neighbours and the amount of production of the South-Korean factories in North-Korea continues to increase. The trade between North-Korea and China jumped from US$1,97 billion in 2007 to $3,47 billion in 2010. A growing number of European firms are exploring the country as well – for example companies currently producing in China, and where the wages are rising fast.
In early November, I will lead a Dutch business mission to North-Korea (already fully booked), but a second mission will take place as well, from 13 – 19 November. Do you want to explore new business opportunities for your company? Then join me on this unique trade and investment mission. The program includes individual matchmaking, company visits, network receptions and dinners. Furthermore, we will meet European business people who are working and living in North-Korea. At the beginning of the tour, in Beijing, we will take part in the seminar: “Doing business with DPRK” (tentative). After the trip to Pyongyang, we will return to Beijing, where you can take a connecting flight or extend your stay in China.
The program of this mission has been attached. In case you are interested to participate: please contact us as soon as possible, so we can start the visa-application procedure. If you are not able to join, then it is also possible for us to do marketresearch and to take part in local meetings in Pyongyang on your behalf.
See the Brochure and itinerary here (PDF).
With best regards, Paul Tjia (director)
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
tel: +31-10-4254172
fax: +31-10-4254317
Website: www.gpic.nl
Twitter: twitter.com/PaulTjia
LinkedIn: nl.linkedin.com/pub/paul-tjia/1/445/958
Pictured above, the DPRK’s local cola logo. Image source here.
UPDATE 1: Stephan Haggard believes this is a non-story.
ORIGINAL POST (2011-10-5): According to Forbes:
Global capital is an inherently lonely trade, but as Gabriel Schulze ambles into the conference room of Yanggakdo International Hotel, a towering edifice separated by a ring of water from the rest of Pyongyang, the most impenetrable capital in the world, it’s hard to imagine a more isolated business meeting.
“We warmly welcome you, the Coca-Cola delegation, with Mr. Schulze as your leader,” says Park Chol Su, the president of North Korea’s Taepung International Investment Group, singling out the 6-foot-7 American from his entourage of four people. “I hope this will be a good opportunity to make progress in the relations between the U.S. and Korea.”
Why is a U.S. businessman in Pyongyang pitching America’s most iconic consumer brand to the world’s most inhospitable marketplace? Because, surprisingly, the Democratic People’s Republic of Korea is ready to buy, and eager enough to flex its atrophied capitalistic muscles that it let a FORBES reporter follow along–and record everything–as the Coca-Cola discussions heated up.
Park says his Taepung Group, established by Kim Jong Il himself, wants to bring market principles to a planned economy, even down to setting what price a bottle of Coke made in Pyongyang would go for–sort of. “Costs are based on the demands of the market, but we will respect your price,” Park tells Schulze’s delegation. “If the price is too high, it will be restricted.”
North Korea, the most hidebound and repressive of socialist states, is slowly inviting not only China but also the wider Western World to invest in its near-moribund economy. Officials claim the country is open for business with outsiders, and that the political stripes of the investors do not matter as much as the money in their pockets and the willingness to deal. Chinese companies have signed a number of multimillion-dollar deals to extract resources and build and repair infrastructure, such as making port improvements in the northeastern region of Rason and paving a road from there to the Chinese border. Taepung also claims to have inked billiondollar contracts, including one to develop a huge coal mine, but those deals haven’t been nailed.
American signature brands may actually be most welcome, despite or perhaps because of decades of propaganda casting the U.S. as the devil incarnate. Pyongyang’s economic representatives made clear in this and other meetings, with focus and determination, that they want Yum Brands to open up KFC franchises.
Extreme wishful thinking though this may be, it’s linked to a planned ten-year revamp of the North Korean economy to expand national GDP from a meager $30 billion last year to $1 trillion by 2020. (The country can’t even feed its people; there is severe malnutrition in the countryside.) That all but impossible goal cannot be approached without an unshackling of enterprise, which may never occur, and massive help from the outside world, which may never come. The expression “reform and opening,” so familiar in China, is not yet politically acceptable language in Pyongyang. But North Korea’s courtship of the West has begun.
“Coke is strategic. I hope that Coke will serve as a bridge for relations between the two governments,” says Park, a slight man with a toothy smile and a taste for liquor, over a traditional Korean hot pot lunch and beer. Then, perhaps, sanctions could be lifted and more substantial investments could follow. “The door will be open to the whole world, not only China–even the U.S., even Western countries.”
But so far the West hasn’t come calling. North Korea remains in the dysfunctional totalitarian grip of Kim Jong Il. The regime is a defiant nuclear provocateur linked to proliferating weapons, drugs and counterfeit cash abroad, while operating a terrifyingly effective police state at home. Western companies will require more than the usual amount of persuasion. They will want something the North Koreans can’t possibly provide: a blessing from the White House.
That’s where Gabriel Schulze, scion of the Newmont Mining fortune, with a prospector’s taste for risk and opportunity, comes in. He has been surveying this forbidden market on the strength of informal connections to Coke and one of its bottlers, SABMiller, without either company’s toplevel approval–a Cold War-style mission that affords the higher-ups plausible deniability.
SABMiller sent a regional executive, at Schulze’s invitation, to the May meeting with Taepung Group, adding in a statement for this story, “We have no plans to invest in North Korea.” Coke turned down a request from Taepung Group (via Schulze) to visit this summer, and distanced itself from the remotest hint of soft-drink summitry with this statement: “No representative of the Coca-Cola Co. has been in discussions or explored opening up business in North Korea.”
Coke’s skittishness is striking from a company with a history of selling into almost any market–including such villainous or pariah states as Hitler’s Germany in the 1930s, Franco’s Spain and Pyongyang’s historical sponsors, China and the Soviet Union, in the 1980s (though Pepsi got to the Soviet Union first). North Korea is one of the last frontiers. “That is your task, to become a pioneer,” says Jang Gwang Ho, the senior North Korean official in the coterie greeting Schulze’s group.
Tall, blue-eyed and devout, Schulze is full-blooded pioneer. The great-great-grandson of Newmont founder William Boyce Thompson, he runs a family investment office out of Beijing, Schulze Global Investments, which specializes in China and difficult emerging markets.
While he has close ties to Republicans in U.S. politics, Schulze’s forays abroad, such as a cement plant in Ethiopia, are far from conservative. Schulze Global seeks “double bottom-line returns,” he says, profiting while helping poor emerging markets develop. Bringing Coke to North Korea would be historic, but he knows engagement with Pyongyang might be seen as a folly back home, both financially and politically.
“We understand that there’s a high likelihood that there could be all sorts of trouble and that we could end up losing money,” Schulze tells me after his trip. “There’s a lot of [U.S.North Korea] mistrust, there’s a lot of gamesmanship, and for us it’s not about pretending that that’s not there. We’re not in a little bubble of happiness.”
Would it even be legal for Coca-Cola to do business in North Korea, given international and U.S. sanctions? Those sanctions have proven to be narrow and permissive in practice, and there is no stricture against soft drinks (a sip of CocaCola is already imported, mostly from China, and sold to the few with disposable hard currency).
Hundreds of foreign businesses, most of them Chinese, have come into North Korea despite cautionary tales of investments gone bad, of officials changing the terms or the rules, soliciting bribes, demanding substantially higher payments or expropriating joint ventures.
And these businesses have made money. In a 2007 survey of 250 Chinese operations in North Korea, scholars Stephan Haggard and Marcus Noland found 88% saying they could turn a profit. (A majority also reported paying bribes.) Enterprises routinely encounter difficulties, yet many persist, hopeful for economic liberalization.
At least one American investor has profited in North Korea as well: Schulze Global. Three times in 2008 it made loans of hundreds of thousands of dollars to mining companies to buy equipment and expand, and each was repaid. This summer Schulze lent an additional $1 million to finance a North Korean conglomerate’s purchases of corn to feed its workers. (He consulted with sanctions lawyers in America before making the loans and has filed notices with the U.S. Treasury Department.)
“That opened the doors” to the Coke project, Schulze says. Making the world’s favorite carbonated beverage in Pyongyang would be quite another matter, though. The country still operates on a planned economy and has difficulty even manufacturing plastic bottles and cans. The government barters for sugar from Castro’s Cuba and would probably have to import steel to build a Coke factory. And although the estimated per capita income is $1,200 a year, the Coke factory’s workers would be paid barely more than a dollar a day (low wages are a key selling point to foreign investors). Further, the nation is plagued with persistent food shortages that force the regime to rely on international aid. Does a country this poor have consumers for the iconic American drink?
The answer is yes, at least in the capital. Home to the privileged upper crust, or an eighth of the nation’s 24 million people, Pyongyang has a visibly robust elite economy. The city’s wide Stalinist thoroughfares, bereft of private automobiles five years ago, are now filled with tens of thousands of foreign cars, including American and Japanese brands.
Mobile phone use is common, with more than 300,000 accounts in the capital using the 3G network built by Egyptian telecom Orascom. That includes some of the city’s traffic women, famous for white gloves and powder-blue uniforms. With traffic lights now doing most of their work for them, one was spotted on the sidewalk jabbering into her cellphone.
The city’s new Pothonggang Department Store was fully stocked with imported fare to be had at prices in North Korean won that are affordable only at the black-market exchange rate (2,500 won to the dollar at the time, compared with the official rate of 100 won). Name brands like Heinz Ketchup (the equivalent of $4 a bottle), Mars bars (a little more than $4 per bag) and all manner of high-end liquors and cigarettes are on offer, usually imported from Europe or Asia. On another floor you can find imported sweaters, dresses and shoes.
The checkout lines run briskly in midafternoon, the shopping done mostly by women, many of them likely the wives of government officials and army officers. (Kim Jong Il showcased the store with a visit in December.) Out on the streets the proles shop for snacks and locally made sodas–typically fruity concoctions in glass bottles–at hundreds of kiosks throughout the city, mostly priced at the black market rate of 20 cents to 40 cents.
Those prices would be 25 times higher at government exchange rates and thus out of reach for almost all North Koreans on their official salaries–but hard currency is flowing into the capital, “through this and that channel,” Jang says, and is spent. “Although officially they are not receiving the salaries from the government in hard currency, they have! So they like to spend the hard currency for their children because the children like to drink the Coke,” he explains.
Jang, of course, is not a commoner or for that matter a typical North Korean apparatchik. He speaks fluent if idiosyncratic English, was educated partly in the U.K. and is married to a doctor. First vice president of Taepung Group, he has a dual appointment on a government body overseeing economic development. Over two days of meetings Jang exudes an almost relaxed air of detachment. He typically parries questions with humor and stories while puffing on Dunhill cigarettes and flashing a Longines watch. (The president of Taepung, Park Chol Su, is a Chinese national, chosen in part for his Chinese contacts and experience.)
Do North Koreans like to drink beer? asks Anton van Heerden, a South African who runs SABMiller’s Asian supply chain. Yes, especially a growing cadre of retirees. “I can see so many old men, over 60, normally in the evening if we look around the city, they are making a queue to buy the beer,” Jang says, adding with a laugh: “There are crazy people! A lot of people drink the beer–30 bottles in the evening! I don’t know how.”
Friendly though they are with Schulze, Jang and Park both make clear that they answer to a higher power, the leader they refer to only as “the top man,” “the General” or the “Dear Leader”: Kim Jong Il. Park was born to Korean parents in northeastern China in 1959, as Kim Il Sung’s regime recovered from the Korean War. Park built relationships with North Korean officials by selling them much-needed gasoline in the 1990s. He is a salesman again, puffing up his chest as he blusters about the will of the General to change North Korea’s economy, led by his Taepung Group.
Parse the bombast and you get a rare glimpse inside the complexities of power relationships. Park says he has never met the top man and instead takes his instructions from a close Kim confidant, 73-year-old Kim Yang Gon, who is chief of the United Front Department, an intelligence arm of the Korean Workers’ Party, and chairman of the Taepung Group. Still greater power at Taepung likely lies with another member of the board of directors, Kim Jong Il’s brother-in-law Jang Song Taek, who as vice chairman of the National Defense Commission is considered North Korea’s second-most-powerful man. The National Defense Commission, chaired by Kim Jong Il, is also Taepung’s controlling shareholder.
To some Western analysts the tight control of Taepung signals that Kim’s coterie is not an agent of change and reform but precisely the opposite–a means to tighten its grip over the North Korean economy. The reasoning: Kim wants Taepung to bring in multibillion-dollar deals for resources, power plants, ports and roads, they say, so that he and his cronies can control the spoils.
Schulze hears the skeptics. But he notes that a Coca-Cola investment would be far more symbolic than lucrative. The total ante probably wouldn’t exceed $10 million (with Schulze Global’s share at $2 million)–tiny by comparison with some resource deals. He also argues that the only realistic way to engage with North Korea is precisely through those in power. “People say this is the leadership looking to benefit itself, and I would say yes, that is absolutely true.” But, he adds, “it doesn’t negate the fact that selfish ambition can still drive positive change and development, particularly in the economy, which can make a real difference in the lives of North Koreans.”
His groundwork laid in North Korea, Schulze will continue his quixotic quest to lobby not only Coke but also Capitol Hill and the Obama Administration. He is, in a way, following in the footsteps of his great-great-grandfather Thompson, the mining magnate. Thompson shocked his friends in the business establishment when, after returning from Russia after a trip in the fall of 1917, he urged that the U.S. and Britain engage with the new communist regime there to moderate the impulses of Lenin and Trotsky. No one, obviously, followed that advice.
Read the full story here:
Invading North Korea
Forbes
Gady Epstein
2011-10-5
Andrei Lankov writes in the Korea Times:
In 2010, the volume of trade between these two countries was merely $110 million. As international trade goes, this volume is tiny. By comparison, in the same year North Korea’s trade with China was around $3.4 billion, some 30 times larger than its trade with Russia.
The reason for this inactivity is quite simple: Russian companies have no interest in dealing with North Korea. In the Soviet era, trade flourished because it was subsidized due to geopolitical concerns of Moscow. Currently, when it comes to pure economic considerations, North Korea has almost nothing to offer the new Russian economy.
North Korea has only two resources that can be sold on the international market. First, it has deposits of minerals (coal, iron ore). Second, it has a relatively large quantity of cheap labor ― or to put things in a less cynically capitalist way, there are millions of North Koreans willing to work for $10 a month.
But Russian companies are decisively uninterested in North Korean minerals. These mines may be attractive to resource-hungry China, but not to Russia, which has the riches of Siberia at its disposal. The chronic political instability in which North Korea is immersed is another reason which lessens Russian interest in North Korean minerals.
Cheap labor is more attractive, and indeed Russia has continuously used North Korean labor since 1967 but not in the North itself. Some Chinese companies began to outsource to North Korea, and built small factories there, in order to take advantage of the obscenely low local wages. This approach is not very attractive to Russia, since it is not a major player in producing winter parkas, wool hoods, or running shoes. Russian companies prefer to use North Korean workers inside Russia itself.
These workers are sent to Russia by the North Korean authorities and can be described as indentured labor. Their families are hostages who can be punished if a worker does something improper and the workers are also expected to ‘donate’ a significant part of their wages to the state. Despite these harsh conditions, one should not forget that these jobs are among the best paid regular jobs in the country. North Koreans compete for opportunities to become indentured laborers in Russia.
That said, the scale of these ventures is rather limited, as is the demand for cheap labor in the Russian Far East (the only part of Russia where the use of North Korean laborers really makes practical sense).
Aside from this, North Korea has something else to offer – its geographical location. This country blocks all land routes to the prosperous South. Russia has much interest in the South Korean market, especially when it comes to the sale of natural resources. Impeding this is the existence of North Korea, and the continued strained relations between the two Korean states, making sales of Russian commodities rather difficult.
So it is not incidental that the two most important potential projects are a railway and a gas pipeline. Both projects can hardly be described as “economic cooperation” between North Korea and Russia, since neither has much to do with the North Korean economy itself. North Korea, in these cases, is present merely as a space to be traversed. It would be no different if it were a dessert or jungle. Russia is willing to pay North Korea for facilitating Russia’s economic link with the South, and that is all.
So it is not surprising that an agreement on the pipeline construction was signed after the Russian-North Korean summit. This project is indeed acceptable to the North, since it will mean easy money for transit, it is favorable to Russia, and it will be good for the general situation since it will bind Russia, North and South Korea closer.
Yet, a word of caution is necessary. In spite of all official statements, we should not expect large-scale construction work to begin in the near future. The political risks remain huge, so it is likely that Russian companies will not rush headlong into the project. The recent agreement should rather be seen as a declaration of intent. In all probability, the trans-Korean pipeline and trans-Korean railway will be built eventually. But the completion of these important initiatives will probably take many, many years.
Read the full story here:
Russia-N. Korea Trade
Korea Times
Andrei Lankov
2011-9-25
Institute for Far Eastern Studies (IFES)
2011-9-21
The minimum monthly wage at the Rajin-Sonbong (Rason) Economic and Trade Zone has been set at 80 USD.
The Rason Economic and Trade Zone is a joint development project between China and the DPRK. Recently, a booklet on the “Tax Policy in the Rason Economic and Trade Zone” was published by Rason city’s tax bureau to introduce the zone’s tax policy to foreign investors. The booklet designates the monthly minimum wage for local employees at 80 USD.
The Rason Economic and Trade Zone Law was revised in January 2010, handing to local Rason authorities the jurisdiction to decide on the minimum wage for the North Korean workers working for foreign companies in the region.
With wages in China rising, Chinese firms are tending to look at Vietnam and Indonesia to build factories. The Rason Economic Zone is also becoming an attractive alternative, especially for those investors from companies situated in China’s northeastern provinces.
The monthly minimum wage at Rason will be 25.3 percent higher than the Kaesong Industrial Complex (KIC), which is set at 63.814 USD. However, the minimum wage at Rason still remains below half of the minimum wage of workers in China. According to the (South) Korea Trade-Investment Promotion Agency (KOTRA), the monthly minimum wage in China is 167 USD.
The booklet also provides detailed descriptions of tax related information in the Rason area.
For buildings obtained with one’s own funds, property tax will be exempted for five years. It will also be possible to make inheritance tax payments in installments, if it exceeds 20,000 Euros.
The corporate income tax rates range from 10 to 14 percent. Those companies that invest over 30 million Euros will be exempt from income tax for four years from the year they record a profit. Afterward for the next three years they will receive a 50 percent tax reduction. Other taxes such as sales and transaction taxes are set at 0.6 to 5 and 0.3 to 2.5 percent.
In addition, tax payments are permitted at banks and the tax bureau directly.
Kim Jong Il made a visit to Rason in 2009 where he announced to focus on three main sectors to revive the North Korean economy: manufacturing, transportation, and tourism.
According to a North Korean authority, “Investing in labor intensive industries will be profitable in many ways. Many Chinese and even Taiwanese textile companies are expressing interest in building factories in the Rason area.”
In addition, Rason authorities expressed future plans to attract businesses in the tools, shipbuilding, automobile, and high-tech industries, and are making great efforts to attract foreign investments to the area by promoting the zone’s geographical proximity to China and Russia, cheap labor, and tax benefits.
Additional Information:
1. Read more about the Rason tax and wage policies here.
2. Read previous posts on the Rason Zone here.