North Korean Economy Watch

From Joong Ang:

Hyundai Asan Corp., a Korean company spearheading inter-Korean economic projects, said yesterday it is pushing to expand its tour program for a scenic North Korean mountain resort open to South Koreans.

North Korea has opened the outer part of Mount Keumgang on its east coast to South Koreans since 1998. Hyundai officials said the North has agreed to consider opening the inner side as well to South Koreans.

Before developing full-fledged tours to the inner side of the mountain, or Naegumgang, Hyundai Asan plans to hold an experimental tour to the area on May 27.

Hyundai Asan hopes that the new tours will help it bring more South Korean tourists to the North. More than 1 million South Koreans have visited the resort since 1998 but it was not enough to break even.

Hyundai Asan executives, including Hyundai Group chairwoman Hyun Jeong-eun, and North Korean officials will join the test tour.

The new tours to be developed cover 50 kilometers of trails dotted with ancient temples and valleys that would give visitors a new sense of the beauty of the craggy resort, Hyundai Asan officials said.

From the Donga:

On May 16, Korea and the Association of Southeast Asian Nations (ASEAN) reached an agreement on the modality for freeing their goods, a core part of a free trade agreement (FTA). Under the agreement, the goods produced in North Korea’s Gaesong industrial complex will be recognized as Korean if the products meet certain terms.

The Office of the Minister for Trade announced that Trade Minister Kim Hyun-jong and trade ministers from nine ASEAN members signed an agreement on FTA goods trade on this day in Manila, the Philippines, leaving out Thailand for the time being.

The Korean government plans to ask the National Assembly to ratify the agreement in the regular session in September so that it can take effect within this year.

Only 100 items out of the products made in Gaesong industrial complex will be recognized as “Made in Korea,” as long as more than 60 percent of the materials from which they are made are of South Korean origin or if the added value of South Korean materials put in the product is more than 40 percent.

Kim Han-soo, FTA bureau chief, said, “If needed, Korea can make a request for a change in the items recognized as Korean made.”

According to the agreement, Korea and ASEAN are bound to remove tariffs on 90 percent of the number of import items and of the import amount respectively by 2010.

Tariffs on “sensitive items” including squid, mushroom, and pumpkin will be lowered to 0 ~ 5 percent by 2016. “Highly sensitive items” will be excluded from the market opening and be protected by means of a limited level of tariff cut by 2016 or a tariff rate quota.

Forty-five items such as rice, chicken meat, live or frozen fish, and most fruits are protected from the opening.

The Office of Minister for Trade said, “This is the first FTA which Korea signed with the fifth largest export market.” And it also predicted, “In the mid to long term, the FTA with ASEAN is expected to increase Korean exports to the ASEAN region by $10 billion and trade surplus by about $6 billion annually.”

A group of 72 South Korean businessmen, government officials, academics and journalists toured a manufacturing company in the capital of communist North Korea yesterday, the second day of their visit. The delegates also visited the Korea Computer Center and the Grand People’s Study Hall ― the country’s central library ― and attended an investment promotion session conducted by the North’s Trade Ministry.

During their visit to the Pyongyang March 26 Cable Factory, the group surveyed production lines and automated manufacturing facilities as well as finished products. They were allowed to speak to the factory managers, who oversee 1,500 workers producing 10,000 cable products. With $2 million investment from pro-Pyongyang Koreans overseas, the factory upgraded its facilities recently.

“We hope to adopt the more advanced technology of the South in the future,” Kim Seok-nam, head manager of the plant, said. “I want to nurture this factory, one of the most representative plants in Pyongyang, as a global manufacturer.”

Mr. Kim said the factory is operated 24 hours a day in three shifts. “We purchased a Swedish wire drawing machine recently and that reduced our electricity consumption and increased production.”

The South Korean visitors expressed surprise that the North Korean factory was better equipped than they had expected it to be.

“There is still room for improvement, but the North’s manufacturing facilities are much more modernized than I thought,” said Hwang Eun-yeon, a manager with Posco. “With South Korea’s support and cooperation, the North will be able to make improved products.”

The South Koreans toured the Korea Computer Center, a state-run software developer. The North’s word processor program and a medical test program were presented to the rare South Korean visitors. A cerebral vessel measurement machine, developed by the computer center, is currently on sale in the South at the price of $20,000 per unit. Among the delegates, the businessmen showed particular interest in a Korean version of the Linux operation system that had been developed by the North.

“We have sent 200 specialists to China for training and joint development,” Kim Chol-ho, vice president of the computer center, said. “We want more active exchanges with South Korean information technology companies.”

The computer center was built in 1990 with funding from North Korean residents in Japan, and the Cabinet’s software industry bureau has been overseeing the institute since 2002. The center employs about 1,500 elite graduates of North Korea’s science schools with special funding from the government.

The delegates also attended an investment relation session hosted by the North’s Trade Ministry in the afternoon. The group is scheduled to attend the International Trade Fair and visit a glass product manufacturer today.

From Yonhap: 

South Korea’s state-run industrial complex operator on Wednesday began work on a manufacturing and residential facility in this North Korean border city that will house 40 labor-intensive companies from the South.

The “factory apartment” will be completed in June 2007 and cost 21.1 billion won (US$22.3 million), the Korea Industrial Complex Corp. (KICOX) said.

The five-story building will have manufacturing areas, living quarters for workers, a training center for North Koreans and other amenities.

When completed, the landmark project is expected to provide 3,100 jobs to both South and North Koreans and annual production will top 22 billion won, it said.

A total of 15 firms have set up operations in the park or plan to move there. North Korea designated Kaesong as a special economic zone in 2002 to make it easier for South Korean companies to do business in the area.

The groundbreaking ceremony was attended by more than 200 officials and businessmen from the two Koreas. The South Korean representatives included Commerce and Industry Minister Chung Sye-kyun, KICOX President Kim Chil-doo, Hyundai Group Chairwoman Hyun Jeong-eun and STX Corp. Chairman Kang Duk-soo.

“The new project promises benefits for all sides, with South Korean companies benefiting from enhanced competitiveness as a result of cheaper manufacturing costs, while the North gets new jobs and chance to acquire important skills,” Chung said.

The minister stressed the South Korean government will do its part so that the ongoing process will continue.

In response, Ju Dong-chan, head of North Korea’s special zone management agency, said the North also wanted to make Kaesong into a world-class industrial complex. He said that despite difficulties, mutual goals of prosperity can be attained if the two Koreas work together.

KICOX said the facility would have considerable advantages over other plants in Kaesong in efficiency and cost savings and help the companies harness cheap but skilled North Korean labor.

“Providing comprehensive support for small companies under a single roof will help cut operational costs to a considerable degree,” a top executive involved in the project said, adding that pooling electricity, water, training and other logistical requirements will cut costs.

Making full use of favorable conditions provided by the new factory is expected to raise the competitiveness of companies that have to compete in the South Korean market with cheap imports from China and Southeast Asia.

The corporation said the 40 resident companies will be selected in the second half of the year and that many companies are likely to vie for factory space.

In addition to the groundbreaking ceremony, the Ministry of Commerce, Industry and Energy brokered the signing of 16 deals between companies operating in Kaesong and South Korean retailers and large manufacturers in an effort to help market their products.

Conglomerates such as Hyundai Mobis Co., South Korea’s top auto parts maker, and tech giant Samsung Electronics Co. agreed to purchasing contracts with companies based in the North Korean city, the ministry said.

“The latest pacts are expected to help boost sales of companies operating in Kaesong,” a ministry official said.

From the Joong Ang daily:

North Korea and China have agreed to jointly build two hydroelectric power plants on the Amnok River, also known as the Yalu River in China, on the border between the two countries, Chinese media reported yesterday. The site is where the ruins of a 2,000-year-old walled city and 2,360 “massive tombs” of Korea’s ancient Goguryeo kingdom were recently found.

According to the local newspaper Jilin Daily, North Korean delegates from the Ministry of Power and Coal Industries and China’s central government, along with Jilin provincial officials, signed the agreement at Changchun, the capital city of Jilin province, on Sunday.

North Korea and China had planned in 1995 to construct the two power plants. According to the accord, China and North Korea will each build a dam with a power plant.

China will begin construction on its dam as early as late this year, Chinese media said. The North is expected to build its dam about 16 kilometers south of the Chinese power plant.

From Joon Ang daily:

South and North Korea have agreed in principle to conduct test runs on the Gyeongeui and Donghae railway lines across the Demilitarized Zone and will settle the essential military security procedures at general officer talks tomorrow.  If the two sides agree and the test runs do take place, their meaning and effects will be significant.

According to research by experts, the railways would enable North Korea to earn $300 million-$400 million annually from freight and service charges. Also, if Pyongyang could modernize its railroad facilities with outside help, it could be an opportunity for North Korea’s industry to record rapid growth.

For South Korea, the opening of the railroads could reduce logistics costs with the North by one-third, and it would help Seoul to emerge as a hub of northeast Asian logistics. The event also holds great symbolic meaning as it allows Korea to become a point of contact with continental Asia. The agreement is the first step to a project that could benefit both Koreas.

The question is North Korea’s attitude in the future. During the past two years, Pyongyang has agreed on the inter-Korea railway test runs only to go against its word later. This time the North agreed on a test run again and even fixed a date. Some analysts have suggested that the past promises were broken because North Korea demanded massive raw material aid from the South in exchange for agreeing to the tests.
But we do not want to pay unnecessary attention to matters of the past. Pyongyang, however, must bear in mind that unreasonable requests, like asking for Seoul’s concession on the Northern Limit Line in the Yellow Sea, will not be tolerated. It must also refrain from considering the test runs as a one-time event to get some additional aid.
The agreement was made during a period of increasing tension between South Korea and the United States regarding the application of pressure on North Korea.

Considering Washington’s financial sanctions on North Korea and its acceptance of North Korean refugees, there is little chance that the Bush administration will welcome the recent decision.

It is different here. But while welcoming advances in relations with North Korea, the majority of Koreans also believe that conflict with the U.S. is undesirable. Therefore, the government must have a responsible explanation to the people about the correlation between the agreement and relations with the Bush administration.

From the Korea Herald:

“The train wants to run further.” A sign bearing these words has stood for decades at the point on a western railway line where the track between Seoul and Pyongyang had been cut. Nearby, the rusting skeleton of a steam locomotive decays with the passage of time.

Following the 2000 Pyongyang summit between former President Kim Dae-jung and North Korean leader Kim Jong-il, work started to re-connect the Gyeongeui Line and another link along the East Coast. The delicate process of clearing numerous landmines in the heavily fortified border area attracted worldwide attention. The actual tracks, however, were only laid last December, evidence of the tardy pace of progress in inter-Korean relations.

Finally, the two Koreas last week agreed to conduct test runs of trains on the restored lines next Thursday. A South Korean train will travel from Munsan to Gaeseong in the North and a North Korean train from Mt. Geumgang will journey to Jejin in the South. Still, this does not signify the actual beginning of a railway service between the Koreas for passenger and cargo transportation, not even on a small scale.

The North Korean military is said to be standing in the way of opening the border-crossing rail route because they fear the exposure of military facilities along the tracks. But the real reason must be that Kim Jong-il is not ready to accept South Korean overtures for speedier and broader inter-Korean exchanges which would follow the completion of the railway link program.

Opening an inter-Korean railway link is of more than symbolic importance. Widely touted as “the iron silk road” during North-South dialogue, it would connect South Korea to the trans-Siberian and trans-China railways and enable cheaper and faster transportation of goods originating from the Pacific basin to Europe via land routes. North Korea could earn substantial income in the form of passage charges and expect foreign investment in logistics and other sectors.

The Pyongyang leadership is asked to make a wise, practical decision concerning the railway project which will be the first major step to integrate the North into the world economy.
 

From the Joong Ang Daily:

A group of 60 South Korean businessmen and government officials arrived here yesterday to attend the Pyongyang International Trade Fair and inspect other factories and businesses in North Korea.

During the six-day visit, the delegates will also listen to investment presentations at a seminar conducted by Pyongyang officials.

The visit of the South Korean team was linked informally by its sponsors, the Korea Development Institute and the JoongAng Ilbo, to an agreement in April 2002 between the two governments to exchange economic survey missions. Reporters from the newspaper were also allowed to accompany the delegation, a somewhat unusual gesture by the North Korean authorities.

A team from North Korea did conduct such a tour in the South in October 2002, but that visit has not been officially reciprocated. Although not sponsored by the South Korean government, Seoul officials on the delegation said, it could be considered an economic survey team.

The group from Seoul will be the first to attend the Pyongyang International Trade Fair, the ninth of its kind.

Pyongyang announced a series of cautious economic reforms in July 2002, and although some important ones, such as throwing food distribution open to private sellers, have been reversed, businessmen here have not had an opportunity to see what’s going on in the North Korean economy.

Seoul officials and businessmen here have cited that uncertainty and lack of information as a major reason for holding back investments.  The group includes delegates from 36 businesses and research institutes and 15 government officials from nine ministries.
Conglomerates such as SK, Posco, Kumho Asiana, Hanwha, CJ and TongYang are represented in the group, as are a handful of smaller companies.

http://www.kaesong.org/#

I am not sure yet if they are posting jobs!

Well, I discovered this series of events that really peaked my curiosity.  The Friederick Naumann Foundtaion has hosted two conferences on DPRK economic reform in Pyongyang. 

From the Foundtaion’s web site:

Since 2004, the Friedrich Naumann Foundation has been organizing seminars and workshops in North Korea in order to transfer knowledge on market economy. The first EU-DPRK workshop, which was held in August 2004 focused on economic transition processes and the changes in the DPRK since 2002. This second meeting had a more specific focus on practical issues that were raised last year such as the role of the state in economic management, strategies to attract foreign direct investment and the restructuring of state-owned enterprises and agriculture.

I have reconstructed this short agenda with links to relevant papers:

Opening: Kung Sok Ung, Vice Minister of Foreign Affairs of the DPRK (in attendance: almost 100 DPRK officials from economic ministries, institutions, and universities as well as reps from the EU)

Session 1: The Role of the State in Economic Management
Dr. Ari Kokko, professor at the Stockholm School of Economics
Paper: Economic Systems and the Role of the State

Dr. Dusan Triska, former deputy Minister of Finance, Czechoslovakia
Paper: Redefining the role of the state: public planning and management tools

Mr. Max van der Sleen, Chairman of ECORYS Netherlands
Paper: Macro-economic tools of the State to manage the economy

Session 2: Conditions and Strategies to attract investment: experiences of the new member states of the EU
Dr. Andrea Szalavetz, Senior Research Fellow, Hungarian Institute for World Economics
Paper: Mobilizing foreign capital to promote catching-up and modernization: The Hungarian experience

Dr. Jacek Mironski, researcher at the Warsaw School of Economics
Paper: Human Resource Management and Investment in Human Capital

Mr. Han Dok Son, DPRK’s University of National Economy
Paper: Actions for Modernization of National economy in DPRK

Session 3: Restructuring state-owned enterprises and agricultural sector: Methods and implementation.
Mr. Ju Yong Seol, Economic Research Institute of the Cabinet
Paper: New economic measures taken by the DPR Korea and the experience gained from their implementation

Dr. Bruno Dallago, University of Trento
Paper: Creation and development of small and medium-sized enterprises (SME)

Dr. Brigitta Kauers, Head of Division at Germany’s Federal Ministry of Finance
Paper: Experiences with the Treuhand agency in Germany

Dr. Michael Cuddy, National University of Ireland
Paper: Some thoughts on agriculture and rural development in the DPRK

Report on the Conference

Interesting stuff from the Korea Times:

Military generals of South and North Korea will hold the fourth round of talks from May 16 to 18 on easing tension along the heavily fortified border and avoiding accidental clashes in the West Sea border, the Defense Ministry said on Friday.

The talks, to be held at the truce village of Panmunjom, will also deal with ways to guarantee the safe passage of those using cross-border railways and roads, ministry officials said.

The cross-border passage issue is drawing keen attention as former President Kim Dae-jung hopes to travel to North Korea by using an inter-Korean railway next month amid the prolonged international dispute over Pyongyang’s nuclear programs.

Under a temporary agreement struck in 2003, the two Koreas guarantee the safety of traffic across the Demilitarized Zone (DMZ) on roads, but the pact failed to include the passage on railroads, the officials said.

“The opening of inter-Korean railways and roads has long been on the table,’’ Col. Moon Sung-mook, chief of the ministry’s North Korean affairs, said in a briefing. “The South Korean delegation this time will also try to reach an agreement with the North on the matter, as both sides already share the necessity for it.’’

The South and North have almost completed construction work on reconnecting two railway lines that have been closed for half a century. North Korean military authorities, however, have been reluctant to give the green light to the railway linkage.

The 27.3-kilometer Tonghae line crosses the border at the Korean Peninsula’s eastern line, while the Kongui line, some 25.5 kilometers long, connects the two border cities of Munsan in South Korea to Kaesong in North Korea.

Working-level talks on the railway linkage have been underway since the North accepted the former president’s second trip to the communist nation late last month. The two sides are scheduled to hold a meeting on May 16 at the North’s Mt. Kumgang to discuss details on Kim Dae-jung’s visit to Pyongyang, according to the Unification Ministry.

Establishment of a joint fishing area in the disputed West Sea border and a direct hotline between the two authorities will be on the top of the agenda, Moon added.

The military talks in March ended without substantial progress as the North stuck to its long-held position that the sea border should be remapped.

The Northern Limit Line (NLL) has been controversial since the 1950-53 Korean War, which ended in an armistice, not a peace treaty. Seoul views the NLL as the de facto borderline, while Pyongyang denies it, claiming the U.S.-led United Nations Command unilaterally decided it after the war.

A series of naval clashes over the years in the rich fishing grounds of the West Sea have caused scores of casualties on both sides.

Maj. Gen. Han Min-gu, the ministry’s chief policymaker, will represent the five-member South Korean delegation at the upcoming talks, while the North’s delegation will be led by Maj. Gen. Kim Yong-chul, officials said.

Inter-Korean relations have thawed since the historic summit in 2000. But tension persists along the world’s most fortified border. The South maintains 690,000-strong forces against the North’s 1.1-million military.

In the first two previous talks, the sides agreed on a set of confidence-building measures such as dismantling propaganda facilities along the 248-kilometer land border in phases. Pyongyang, however, has failed to fully implement the agreements after Seoul airlifted 468 North Korean defectors from a third nation. It also criticized the annual joint military drills between South Korea and the United States.