North Korean Economy Watch

From Naenara:

The DPRK government adopted the “Regulations of the DPRK on Certification” on June 30, 2003 by Decision No. 37 of the Cabinet, and is enforcing them with an aim to establish the scientific quality management system in all organs and enterprises, and to upgrade the quality of products for improving the people’s livelihood and facilitating foreign trade.

The regulations consist of 37 articles in four chapters: Chapter 1. General provisions (Article 1–8), Chapter 2. Quality certification bodies (Article 9–18), Chapter 3. Assessment on quality certification (Article 19–31) and Chapter 4. Supervision and control (Article 32–37).

Chapter 1. General Provisions

The management and guidance in quality certification shall be undertaken in a unified way by the State Administration for Quality Management (hereinafter referred to as SAQM).

The SAQM shall publish the products that are subject to compulsory certification step by step in accordance with the urgent requirements. The compulsory certification products can be exported only under certification.

The compulsory certification products exported to and imported from foreign countries which concluded certification agreement with our country are not subject to quality inspection at trade ports, border railway stations, airports and frontier transit points.

The term of validity for certification shall be three years. The quality certification bodies and certified organizations shall fall under surveillance and reassessment within the period defined by the SAQM.

The SAQM shall promote exchange and cooperation with international organizations and foreign bodies in the field of quality certification.

Chapter 2. Quality Certification Bodies

The quality certification bodies shall take charge of the assessment of quality management system of the organizations applying for certification. The quality certification bodies shall be designated by the SAQM.

The quality certification bodies shall undertake product certification, assessment and registration of quality management system, personnel certification, certification testing and training of certification assessors.

Chapter 3. Assessment on Quality Certification

The organizations and individuals who will be certified shall submit the written applications confirmed by their upper body to the relevant central organ to which the quality certification bodies belong.

The applications for product certification and registration of quality management system include the description of quality management system of a product or its production process and the confirmation of the relevant quality supervision body. The application for personnel certification shall comprise the confirmation of the organization to which the applicant belongs.

Upon the receipt of application, the relevant central organ shall confirm whether the application is formulated or not as required by the regulations and send it to its affiliated certification body in time.

In regard to the product certification assessment, the quality certification body shall examine mainly samples and document as well as the quality management system of processes which may affect the quality of products.

The assessment of product certification shall be completed within 60 days.

The assessment of quality management system consists of the document review and on-site assessment.

The document review aims at identifying whether the documents related to quality management system are properly made or not. The on-site assessment aims at ensuring the conformity of quality management system with the contents of the documents and their effectiveness. The registration of quality management system shall be completed within 90 days from the notification of assessment to the applicant.

The quality supervision organs may commit the organizations to inspect the quality of their products which have been certified and registered.

The quality certification bodies and the certified organizations shall use the relevant marks.

Chapter 4. Supervision and Control

The supervision and control on quality certification shall be exercised by the SAQM and the relevant supervision and control organs.

In case of any incidents in sale and export of the certified products or products manufactured through the certified process, the SAQM shall investigate them and take the necessary measures.

In case of any errors in quality certification due to irresponsibility of the quality certification organ and its official, the SAQM shall take strict sanctions such as disqualification and deprivation of authority against them.

In case the relevant organization and personnel violate the regulations and the order concerning quality certification, the SAQM and quality certification bodies may deprive it/him of its/his certificates and marks already issued.

In case of encroachment on the interests of the State and people or damage to the dignity of the country, the person concerned shall suffer from administrative and judicial sanctions according to the degree of seriousness.

Judging by this presentation it seems that by 2004 western consultants had already made their way to Nampo:

Click on the image to see the powerpoint presentation.

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Institute for Far Eastern Studies (IFES)
NK Brief No. 08-1-10-1
1/10/2008

The net worth of inter-Korean exchanges totaled 1,797,890,000 USD in 2007, up 33% from the 1.35 billion USD in the previous year. Exchanges between the two Koreas began in 1989, and topped one billion dollars for the first time in 2005. The almost 1.8 billion dollars in trade recorded in 2007 is the highest to date, and is equal to 65 percent of North Korea’s non-Korean trade volume of 2.996 billion USD in 2006.

Inter-Korean commercial trade was worth 1,431,170,000 USD, 54 percent higher than the 928 million USD in 2006, while non-commercial trade fell 13 percent, from 421,660,000 dollars in 2006 to only 366,720,000 dollars last year. Overall, commercial trade made up over 80 percent of cross-border exchanges, proving that inter-Korean exchanges continue to grow based on commercial transactions. Commercial trade growth was centered around the mining and fishery sectors (52 percent) and increased production in the Kaesong Industrial Complex (48 percent). Textiles and other goods processed on commission also grew by 30 percent.

Additional manufacturing by companies entering the KIC, as well as the installment of equipment used to increase output by those manufacturers already established in the first phase of the complex, saw a great jump last year. Additionally, South Korea loaned the North 80 million USD for equipment, cloth, soap, polyester fibers, synthetic leather, and other materials to be used in light industry, while the North repayed 2.4 million USD (3 percent) of the loan by delivering 1,000 tons of zinc. This was the first example of the North repaying funds to the South, and shows opportunities for the two Koreas to fulfill each other’s needs and carry out friendly economic cooperation in the future.

With increases in domestic use and export of Bukhan Mountain’s minerals and timber, improvements in communications, customs, and transport issues at the KIC and a growing number of companies moving into the complex leading to an increase in production and manufacturing activity, inter-Korean exchanges are expected to continue to grow in the future.

Yonhap (Jan 7, 2008) reports that newly elected South Korean president Lee Myung-bak will revisit the agreement struck between former President Roh and Chairman Kim Jong il last fall.

(excerpt) Projects under review will be the construction of a shipyard complex and its infrastructure in [Haeju] North Korea, along with the establishment of a “peace zone” along the disputed [Northern Line Limit] border in the West Sea, the site of deadly naval clashes between the two Koreas in 1999 and 2002.

“Humanitarian projects, such as the reunion of family members living separately in the two Koreas, and rice and fertilizer aid can be continuously pushed for, but economic cooperation projects should be carried out in parallel with the pace of North Korea nuclear talks,” a key member of the team was quoted as saying at the briefing.

——

Projects in the North are not the only things potentially headed for the chopping block–so it seems is the South Korean Ministry of Unification itself, which could potentially be merged with the South Korean Foreign Ministry. 

The incoming president, however, did suggest a carrot to go with his sticks.  Yonhap reported on January 4 that the new administration plans to launch a USD$40 million fund to promote economic growth in North Korea. 

(excerpt from Yonhap) The planned fund is in line with Lee’s ambitious plan to help increase the impoverished North’s per capita income to $3,000 within a decade if it makes the bold decision to abandon its nuclear program and open its market, said the team’s spokesman Lee Dong-gwan. There are no accurate data on the reclusive nation’s economy but some estimates put its per capita income at around $1,300.

Korea Times
Ryu Jin
12/28/3007

Hyundai Asan, the South Korean operator of various cross-border economic projects with North Korea such as Mt. Geumgang tourism program, said Friday that its operating profit this year is estimated to exceed 10 billion won (roughly $10.6 million).

“We saw a great upturn for our profits this year thanks to an increase in the number of tourists to Mt. Geumgang,’’ a ranking company official said. “According to our tentative calculation, the operating profit is expected to surpass 10 billion won.’’

Hyundai Asan, which began another tour program to North Korea’s border city of Gaeseong this year, expects that the company’s annual sales will reach 300 billion won this year, a notable increase from 220 billion won last year.

According to the firm, some 350,000 people crossed the border to the North to visit the mountain resort on the eastern part of the peninsula, up from last year’s 240,000, largely thanks to the launch of a new route up the inner part of the mountain in June.

Company officials anticipate that the tours will further prosper next year, as it plans to start a fresh tour program to Mt. Baekdu on the border between China and North Korea next May.

Founded in February 1992, Hyundai Asan has suffered losses for a long time. But its large-scale investment in the poverty-stricken Stalinist state is paying off at last. In 2005, the company went into the black with 5.7 billion won in operating profit for the first time.

Yonhap
12/28/2007

The total output of a South Korea-built industrial complex in North Korea’s border town of Kaesong totaled over US$180 million this year, shooting up 150 percent from a year ago, Seoul’s Unification Ministry said on Friday.

“The total production by businesses at the Kaesong industrial complex recorded an estimated $185 million this year, up about 150 percent from $74 million last year,” the ministry said in a press release.

Yonhap
12/27/2007

South Korea plans to develop two resource rich regions in North Korea that can benefit both countries and fuel cross-border economic cooperation, the government said Thursday.

The blueprint calls for more funds to be funneled into North Korea so prospective developers can conduct geological surveys and compile detailed data for future reference, the Ministry of Commerce, Industry and Energy said.

Resource-poor South Korea imports most raw materials to operate its heavy industry-centered economy. Lack of social infrastructure and mining knowhow have prevented North Korea from fully developing resources.

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Korea Times
Yoon Won-sup
12/25/2007

The two Koreas began four-day talks in the southern port city of Busan Tuesday to discuss ways of establishing shipbuilding areas in North Korea, according to the Unification Ministry.

A sub-committee for shipbuilding and marine cooperation, part of an agreement reached at the inter-Korean prime ministers’ meeting last month, convened for the first time to map out the details of the shipbuilding project.

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Yonhap
Byun Duk-kun
12/19/2007

Lee Myung-bak, almost certain to be South Korea’s next president, will likely continue engaging North Korea through economic cooperation, but the extent should rely deeply on Pyongyang’s commitment to full denuclearization, unlike his predecessor who has often been under fire for granting unconditional aid to the North, analysts said Wednesday.

Closer ties with Washington will also be prioritized by the incoming administration of conservative Lee, who has criticized President Roh Moo-hyun for alienating the U.S. in dealing with the nuclear-armed communist North.

The entrepreneur-turned-politician says he can and will increase the communist nation’s per capita income to US$3,000 in 10 years, if Pyongyang completely abandons its nuclear ambitions.

“There will be no immediate changes to the country’s North Korea policy if the North continues to move down the path of denuclearization,” Kim Woo-sang, a political science professor at Seoul’s Yonsei University and a key advisor to the president-elect for security and foreign policy, said in an earlier interview with Yonhap News Agency.

Under a six-nation deal, North Korea has to disable its key nuclear facilities and disclose all its nuclear programs by the end of the year in return for economic and energy assistance and political benefits.

North Korea began disabling the Yongbyon complex early last month, but has yet to make a full declaration of its nuclear programs amid a five-year dispute between Pyongyang and Washington over the existence of a secret nuclear weapons program in the North.

The nuclear crisis erupted in late 2002 when the U.S. accused the North of running a uranium enrichment program. North Korea denies having any uranium program.

Seoul has regularly provided hundreds of thousands of tons of food and other humanitarian aid to the North since the historic inter-Korean summit between then President Kim Dae-jung and North Korean leader Kim Jong-il in 2000.

The Lee administration will continue to provide such assistance strictly based on humanitarian views, but economic cooperation between the divided Koreas will suffer significant reduction should the communist nation choose not to give up its nuclear weapons, Kim noted.

Further development or continuation of “ongoing economic cooperation projects, such as the Kaesong industrial complex, will be left to the market,” Kim said.

“The government will no longer try to encourage South Korean businesses to move into the industrial complex by providing subsidies and other benefits as it currently does, but will try to foster a better environment so the businesses and foreign investors will invest voluntarily,” he added.

At an October summit in Pyongyang, President Roh Moo-hyun and the North Korean leader agreed to launch various other reconciliatory projects, but Lee has said some of those projects will be subject to reconsideration.

Another visible change in policy towards North Korea will come in the way Seoul deals with the nuclear issue, the Yonsei professor said.

“Mr. Lee puts more weight on the six-nation denuclearization process than anything else, so the new administration will never try to take its own initiative or try to pressure China to convince North Korea to denuclearize,” he said.

While seeking more international cooperation in denuclearizing the North, Lee is expected to move closer to the United States, an ally Lee says has served as a capstone for Seoul’s security and economic development since the end of 1950-53 Korean War.

“The governments of Kim Dae-jung and Roh Moo-hyun neglected Korea’s relationship with the United States. China and Japan are important partners, but the next government will be moving in a different direction, focusing on Korea’s traditional relationship with Washington,” Lee had said in September.

The 65-year-old Lee has also noted his administration may try to push back the timing of taking back the wartime operational control of South Korean troops from the United States, which is currently scheduled to occur in 2012.

“As Mr. Lee has repeatedly said, there will be no renegotiation of the transfer of wartime operational control, but the scheduled timing of the transfer could become very sensitive depending on security conditions surrounding the Korean Peninsula in 2012,” said Kim.

Bloomberg
Lucian Kim
12/18/2007

OAO Russian Railways plans to build a $100 million container terminal in North Korea as the world’s largest rail company tries to create a land transport corridor linking Asia to Europe.

State-run Russian Railways wants to turn the North Korean port of Rajin into a hub capable of handling 320,000 containers a year for shipment across Russia to Europe, the company said in a statement distributed to reporters today.

The investment is part of a plan that originated in 2001, when North Korean leader Kim Jong Il traveled by rail from Pyongyang to Moscow to visit President Vladimir Putin. As the first step in linking the Korean peninsula to the Trans-Siberian Railway, Russian Railways is upgrading 54 kilometers (34 miles) of track from the border south of Vladivostok to Rajin.

Russian Railways will spend 1.75 billion rubles ($70 million) on improving the track, the company said. Another $100 million will be needed to turn Rajin port into a terminal capable of loading containers shipped from South Korea on to freight trains bound for Europe. The proposed terminal will be operated by a Russian-North Korean joint venture.

Delays over financing and feasibility have plagued the plan for an “Iron Silk Road.” Russian Railways Chief Executive Officer Vladimir Yakunin previously said the rail link to Rajin would be completed by the end of 2006.

The two Koreas opened regular freight train service across the demilitarized zone on Dec. 11.