North Korean Economy Watch

From the JongAng Daily:

The government is being criticized for easing conditions on loans funded from the inter-Korean cooperation funds that were given to the Korea National Tourism Organization for Mount Kumgang tour projects. On Monday, the government decided to lower the interest rate on a loan given to the organization in June 2001 by 2 percent.

The organization originally received a loan of 90 billion won ($93.7 million) with an interest rate of 4 percent and repayment over a five-year period, after a three-year deferment. However, the payback period has now been extended to 10 years at an interest rate of 2 percent.

The Unification Ministry said yesterday that the organization asked the government to make changes to the conditions of the loan, arguing that under the tours’ current profit structure it was unable to repay the funds. This request was acceded to.

The ministry said that after an accounting firm had reassessed the loan, the decision was made with all relevant government organizations involved agreeing to make changes to its conditions.

Nevertheless, the argument that the profit level is too low for the organization to make its payments seems weak as the number of tourists taking trips to the North’s Mount Kumgang has increased over the years.

Only 57,000 people made the trip in the year the loan was granted but by last year the number of visitors had increased to 301,000.

The organization paid the 90 billion won to Hyundai for operating rights to the Kumgang hot springs and resort. Hyundai made a payment of 29 billion won to the North, for which it had been in arrears.

In response, some civic groups argued that public funds should not be used to finance such projects in the North.

You know you have arrived when you are covered by the Washingon Post:

Two Koreas Learn to Work as One: New Industrial Park Matches South’s Capital and Know-How With North’s Low-Cost Labor
By Anthony Faiola, Washington Post Foreign Service
Tuesday, February 28, 2006; Page A10

Here are the highlights:

Layout

• Kaesong Industrial Park is two-thirds the size of Manhattan.  Only a fraction of its real estate currently developed.  15 factories already operating. One is called Shinwon Textile Factory. (Source)
• A South Korean telephone company has installed the first 340 of 10,000 planned phone lines.  Because of the communist state’s chronic shortages of electricity, the South Koreans have had to run power lines across the border to serve their factories.  The goal (starting next month) is 154000 kilowats (source).
• Some company representatives concede that the North Koreans are not always ideal business partners.
• A tall green wire fence marks the zone’s 8.6-kilometer-long boundary (Source)
• South Korea is assuming all the financial risk, having invested more than $2 billion  (source). Kim Dong-keun, president of the South Korean Committee, which co-manages the zone, says the 489 South Koreans who work in Kaesong receive special training on interacting with North Koreans.   For South Korean managers, Kaesong is considered a hardship posting.  As a result, many of them receive as much as $2,500 extra pay per month (Source). No South Korean money is accepted here, even at a Family Mart convenience store set up for the exclusive use of South Korean employees (Source).
• 50 year leases were auctioned off last summer. On Average, there were 4 South Korean companies vieing for each spot. 

Labor Relations and Statistics

• After the first busloads of North Korean workers arrived at the gates 16 months ago, weeks passed before people from the two societies could even understand each other’s dialect.  They had to explain virtually every aspect of modern life to his fresh-faced communist charges — down to how to use the factory’s Western-style toilets.
• The workers put in long hours at often grueling tasks, but life here nonetheless seems a cut above the poverty that is common in most of North Korea. 
• Although the zone currently employs about 6,000 North Koreans here, officials in Seoul project that an additional 15,000 North Koreans will start work as more than 20 South Korean companies move in. By 2012, plans call for as many as 700,000 employees — 4.5 percent of North Korea’s entire workforce.
• Thousands of workers live in on-site dorms, while others arrive by bus from Kaesong. South Koreans are not permitted beyond a bright green perimeter fence that is guarded by armed soldiers and separates the complex from nearby towns.
• North Korean workers are paid a fixed salary of $57.50 a month. That is about 20 times less than the pay of a South Korean worker of the same skill level, but it is a welcome sum in North Korea.  It is unclear how much of that money actually goes to the North Korean workers. The dollar-denominated checks issued by the South Korean companies are paid to a North Korean government agency. Na Un Suk, director general of North Korea’s Central Special Economic Zone Control Agency, said the government makes deductions for room and board provided to the employees before paying them varying amounts in North Korean currency.  The Los Angeles Times reports that workers get $8/month.  About double the average salary (Source).
• Although South Korean managers have some say in promoting workers, they have little role in choosing who arrives on their doorstep. Many employees are from Kaesong city — the ancient capital of the Goryeo kingdom that first united much of the Korean Peninsula. But all are picked by officials from the North Korean government.
• North Korean workers are forbidden from any contact with South Koreans except when necessary on the job.  They enter and leave the zone through a single checkpoint manned by North Korean soldiers. (Source)
• Managers from South Korea live in single-story temporary quarters that resemble military barracks. Typically, they go home twice a month.  “It’s very difficult,” says Kim Ki Hong, general manager of a branch of the only South Korean bank in the zone. “We cannot go outside,” says Mr. Kim. “We are almost prisoners.”(Source). Southerners also have their own cafeteria and their own medical clinic, all off limits to the North Koreans (Source). 
• In response to queries about their wages, a young North Korean woman murmurs, “I cannot say anything,” and another says only, “We get enough.”
• Everyone here has at least a high school education. Many of them are college grads. But the most convenient is the fact that they all speak Korean. It’s easier to train them,” said Ryu Nam-Ryul, a section manager at Taesung Industry
• North Korean patriotic music in praise of Kim blares over the loudspeakers.

Taxes

• Gaesong has also exempted foreign companies from corporate income taxes in the first five years, and gives a 50 percent reduction for three more years. (source)
• Independent labor unions are banned.

Production

• Taesun Hata is exporting compact casings for Clinique and eye shadow holders for Bobbi Brown from its multimillion-dollar plant.
• Southern companies make shoes, textiles, auto parts and kitchen implements
• A branch of a major South Korean bank is open for business, as is a Family Mart convenience store staffed by two North Korean women.
• Inter-korean trade surged 50% since last year, over $1 billion.

Political goals

• The Zone is also key to South Korea’s strategy for lessening what is bound to be a massive economic jolt if it reunites with the North. North Korea’s per-capita income is roughly $1,800 a year, 10 times less than the South’s.
• Officials say Kaesong is also meant to keep on course a program of market-oriented restructuring that the North is undertaking in its domestic economy.
• South Korean companies have received low-interest loans and security guarantees from the South Korean government to locate in Kaesong.
• South Korea no longer has to go to south east Asia for manufacturing.  they can undertake low-cost production in North Korea and undercut Chinese prices.(Source).  It takes only three hours to deliver the products from Gaesong to the South Korean warehouse, whereas it would take more than one week from China.(source)
• “Our workers here are not motivated by material satisfaction. We are motivated by the fact that this is a national business project. We are one nation, and this is an important part of our unification process,” Na Un-Suk, director general of the Central Special Economic Zone Control Agency.

Future plans

• South Korea’s state-run Korea Land Corp. and Hyundai Asan, the North Korea business arm of Hyundai Group, said Tuesday they plan to build a hotel at an industrial complex in the North by June next year. The two companies will invite a private enterprise to construct the hotel to resolve a shortage of accommodation at the complex in the North Korean border city of Kaesong.  To that end, the state land developer and Hyundai Asan will set up a joint venture to take charge of the hotel, they said. (Yonhap)
• To grow as planned, the park will have to win access to world markets. South Korea hopes that products made here will be eligible to enter the United States under any free-trade pact that may be negotiated with the United States (Source).

I Updated the information on Kimsoft:

The DPRK UN Mission in New York does not issue any visas at all under an agreement reached with the United States. Visas to Americans are issued by the DPRK Embassy in Beijing. You may contact Mr. Kim Ryong Hwan (A representative in Beijing of the Korea International Travel Company, Fax 011-86-1-532-4862) for visa or travel information.
Non-Koreans can reach Pyongyang by train or air by way of Moscow or Beijing. Some Japanese and Koreans resident in Japan are allowed to come to Wonsan by ship.

1. Short-term teaching or other works in N Korea: A letter of recommendation or introduction from Graham Bell, the Eugene Bell Foundation, the Carter Center or a Christian church organization may enhance the chances. If you are a Korean compatriot, all you have to do is either to make a stopover at the UN Mission and identify yourself or to send a letter to the Overseas Compatriots Aid Committee in Pyongyang.

A. Contact the DPRK New York UN Mission by email or smail or phone or Fax or go to New York to visit the mission:

Permanent Representative of the Democratic People’s Republic of Korea to the United Nations
515 East 72nd Street, 38-F, New York, N.Y. 10021
Telephone: (212) 972-3106
FAX (212) 972-3154

B. Write a letter direct to his or her target university or institution in North Korea, offering to teach English, history, engineering and etc. Upon receiving a positive response or letter of invitation, you are to visit the North Korean Embassy in Beijing (Phone: 532-1186 visa section: 532-4148 or 6639).

2.  Travel to the DRPK:
*Koryo Tours: http://www.koryotours.com/
*I visited with the Korean Friendship Association: http://www.korea-dpr.com/

A. AIR KORYO, Flughafen Schoenefeld, D-12521, Berlin, Germany: Fax: +49 (0) 30 – 60 91 36 65.
B. Korea Publications Exchange Association, Ri Chang Sik, Fax: +850-2-3-814 632.
C. National Directorate of Tourism, Central District, Pyongyang, DPR Korea Tel: (2) 381 7201. Fax: (2) 381 7607.
D. Kumgangsan International Tourist Company, Central District, Pyongyang, DPR Korea, Tel: (2) 814 284. Fax: (2) 814 622.
E. General Delegation of the DPRK, 104 boulevard Bineau, 92200 Neuilly-sur-Seine, France, Tel: (1) 47 45 17 97. Fax: (1) 47 38 12 50. Telex: 615021F.
F. Regent Holidays UK, 15 John Street, Bristol BS1 2HR, Tel: (0117) 921 1711. Fax: (0117) 925 4866. 
G. David Hunter — Edwards and Hargreaves Holidays Ltd, Portland House, 1 Coventry Road, Market Harborough, Leicestershire, England LE7 7HG, Fax 01858 433427 Tel: 01858 432123
H. Mr. Pak Gyong Nam, Manager — SAM Travel Service, Korea International Travel Company, Central District, Pyongyang, DPR of Korea, Tel: 850-2-817201, Telex: 5998 RHS KP, Fax: 850-2-817607
I. North Asia Consultancy & Services Co, Ltd is in a position to organise business missions into NK for European businessmen.NACS is organising on a regular basis sectorial fact finding missions to North Korea on behalf of the European Union Chamber of Commerce in (South) Korea.

3. Information:
The European Union Chamber of Commerce : Tel : 822-543-9301~3; Fax : 822-543-9304; E-Mail : eucck@eucck.org

Young Koreans United of the USA, P.O. Box 12177, Washington, DC 20005-0677, tel. 202-387-2420

International Korean Alliance for Peace and Democracy, 2530 1/2 South Crenshaw Blvd., Los Angeles, CA 90016, tel. 213-733-7785.

Travel Time email, 1 Hallidie Plaza, Suite 406, San Francisco, CA 94102, USA ; phone +1-415-677-0799, fax +1-415-391-1856, 1-800-956-9327 (1-800-9-LOW-FARE) toll-free in the USA

Chugai (Phone: 81-3-3835-3654, Fax: 81-3-3835-3690) based in Tokyo. It is affiliated with Chongryun, the General Association of Korean Residents in Japan. It arranges package tours to Pyongyang every month.

The Kumgangsan International Group ( email or Web Page) handles investments in N Korea. This group also makes travel arrangements. It is operated by Ms. Park Kyung Youhn, a Korean-American woman, who is not associated with Chongryon.

Ryohaengsa Korea International, Pyongyang, Korea; Tel. (850) 2-817 201, Fax (850) 2-817 607

The DPRK Committee for the Promotion of External Economic Cooperation, Jungsongdong, Central District, Pyongyang. FAX 011-850-2-3814664 and Tel: 011-850-3818111,2,3 & 4.

4. Research and Other Scholarly Works: At present, no institution, center, school or university in the DPRK is ready for “official exchanges” with American counterparts. Such exchanges will likely come only after the two ‘enemy’ countries have signed a peace treaty and established diplomatic relations. However, Kim Il Sung University has established a sister rela tionship with Seton Hall University. American scholars and authors are allowed to examine North Korean archives on an individual basis. Contact the Society for Cultural Relations with Foreign Countries, Kim Il Sung University, the Party Revolutionaly History Institute or the Asia-Pacific Peace C ommittee.

5. Check with the DPRK UN Mission for the phone and fax number of other agencies: The DPRK UN Mission is not the only gate to North Korea. Americans and other foreigners are being invited to visit the DPRK by way of many other organizations in the States, Japan and other parts of the world.

North Koreans are being invited to visit the United States not necessarily through the good offices of the New York mission. Any American host can establish a direct access to North Korea by mail, fax, and phone or by personal courier.

Warning: There are ‘horror’ stories of bureaucratic bungling by the DPRK Beijing Embassy vis-à-vis invited American guests. They are partly true and partly untrue. A possible explanation is a poor communication between the prospective visitor, th e UN mission and the DPRK. The DPRK Embassy in Beijing makes it the iron rule not to issue a visa even to a carrier of a written invitation from a DPRK organization unless it has been instructed to do so by the Foreign Office in Pyongyang.

The prospective visitor is advised to make it double sure with the host organization or the UN mission that the host organization has arranged for issue of a visa through the Foreign Office and that a visa is ready in Beijing (Phone: 011-86-1-6532-1186 or 1189, FAX: 011-86-1-6532-6056. Visa Section: 011-86-1-6532-4148 or -6639).

Kyodo News:

China has reached an agreement with North Korea to let the private sector, rather than the government, take the initiative in providing economic aid to Pyongyang and to respect market principles, sources familiar with China-North Korea relations said Saturday. According to the sources, the market-based approach is contained in a cooperation agreement in economy and technology signed by the two countries when Chinese President Hu Jintao visited North Korea in late October.

One of the objectives of North Korean leader Kim Jong Il’s visit to China in January was to confirm this approach, the sources said.

The sources also said a cooperation agreement in economy and technology signed by a Chinese delegation led by Vice Premier Wu Yi during their visit to North Korea in early October is separate from the agreement with the same name signed during Hu’s visit later that month.

The earlier agreement calls on China to continue providing materials and technological cooperation for the Da’an Friendship Glass Factory near Pyongyang. It also allows North Korea to export glass products made at the factory.

A New  report, Hungry for Peace: International Security, Humanitarian Assistance, and Social Change in North Korea, compiled by Hazel Smith, a former adviser to U.N. humanitarian agencies who lived in North Korea for two years, claims that the right kinds of aid could have the effect of opening up the country…becuse the place has already opened up quite a bit.

This view contrases with this one, which says that outside efforts to leverage foreign aid to gain concessions will fail because China and South Korea provide all sorts of assistance that requires no quid pro quo.

From the Press Release:

“There are too many analyses of North Korea that assume that this is a society that never changes and that it’s monolithic.  The influx of hundreds of aid workers in the late 1990s, followed by South Korean businessmen, has made old images of the North outdated. Massive social change resulted from the famine that killed a million people made a bankrupt socialist government unable to stop the marketization of the economy.”

The bottom-up erosion of rigid social controls allowed junior officials and some of the population of 23 million people to become exposed to United Nations and other aid workers, diplomatic missions and South Koreans, Smith told Reuters.

While the hard-line communist government of leader Kim Jong-il has resisted any kind of political liberalization, she said, “party officials at the middle level no longer pay so much attention to what the state tells them.”

“There’s a big fragmentation in the country these days,” Smith said, describing a fight between officials who want to restore a command economy and those who think the North must follow China in adopting a market economy.

The more senior leaders believe they can use South Korean and Chinese aid, and maintain North Korea’s political system in a federation with the South. Smith says this is impossible.

But below them are younger, pragmatic technocrats who are “very aware that the regime as it stands is not sustainable and admire what South Korea has done,” she said.

The competition between economic modernizers and old guard security officials gives potential leverage for the United States and other countries at the six-party talks aimed at convincing North Korea to abandon its nuclear weapons.

“There are avenues for negotiation because there are economic outcomes which the North Koreans want,” said Smith.

Dangling economic incentives would help modernizers win, Smith said. South Korea’s modest investments to support nascent civil society and bring North Korea into the outside world was “the best of all the feasible options”.

South Koreans who deal with North Korea “know this is not a very militarily strong country — it’s a weak country, it’s very vulnerable and its people are fed up with the past decade and a half of poverty,” said Smith.

Daily DK did a survey of prices in the DPRK this January, 2006.

Official Wages for a North Korean workers labor are 2,000 won to 3,000 won per month (about $1).

– When examined, bribery is not necessary
– When getting a medical certificate or medicines, bribery is necessary
– Bribery: one box of tobacco/ as for medicines for 1,000 won, 7000 won

– Every month, the following costs should be paid to schools: kindergartens – 1,000 won/ elementary schools- 2,5000 won/ middle and high schools- 4,000 won
– Every month, the following stuffs should be provided to schools: scrap irons, glass 15kg and 40 bundles of timbers
– In an irregular basis, the following stuffs should be provided to school: vinyl, wastepaper, paints and gasoline

According to the Korea Times, 02-10-2006, the Kumgang tourist zone is being expanded.  Here are some stats:

• The Extended tour zone will reach Wonsan (Where the Japanese Chongryun ships come in)
• There are plans to finalize a “master plan” of development for the area (lakes, nursing homes, beaches).
• Since opening in 1998, 1.2 million south Koreans have visited
• Hyundai Asan hopes to channel 2.3 trillion won ($2.37 billion) into the project through domestic and foreign investors.
• Besides the tour-related issues, the two sides also agreed on a payment of $400,000 to the three victims of a traffic accident that happened late last year. It wish I could track that $400,000.  It will end up in interesting places for sure.  The accident happened on Dec. 27 in the tourist area, and North Korea called at first for at least $1 million in compensation. In an earlier traffic accident that killed a North Korean soldier in June 2001, $6,000 in compensation was paid.

According to the Daily NK (2006-2-13):

A high-level internal source in North Korea reported on the 12th that North Korea is in the process of restarting the development of Shinuiju Special Administrative Region.

According to the source, a mass number of residents were moved to rural areas, plans were set to move administrative offices and plans were carried out to build the road to Dandong, China is under expansion construction. They are also coming up with measures to better control the usage of cellular phones as well as other political measures.

Such recent development activities in Shinuiju mainly took place after Kim Jong Il’s visit to China, which seems to be part of North Korea’s reformation and liberalization plan.

Driving Out the Residents and Their Number

The source reported, “They are planning to move the Shinuiju residents of about 7,000 families (25,000 to 30,000 people) to close cities and rural areas. Their plan is to strictly sort out those from “bad families” and those who have committed political errors (wrongdoings) and move them to Chulsan-gun [Cholsan], Donglim-gun [Tongrim], Yomju-gun, and Taechun-gun[Thaechon] of North Pyongan province.”

In September of 2002, North Korea announced Shinuiju as the Special Administrative Region and nominated Yang Bin, president of Ouya Group at the time, who was the invited minister of the Shinuiju Special Administrative Region. He said, “We will move the current 200,000 Shinuiju residents to another place.”

At the time, the North Korean government started to build 3 m high fence around the designated region, which clearly showed its preparation to make Shinuiju an isolated Special Administrative Region.

Kim Eun Chul, president of Backdu-Halla Association, a young adults defectors organization and a former Shinuiju resident, said, “Chulsan-gun, Donglim-gun, Yomju-gun, and Taechun-gun are agricultural areas where there is no military or manufacturing production facilities, thus they are adequate places to move the residents.”

“There have been rumors about moving those people with unclear backgrounds out of the region every time they talked about making the Special Administrative Region.”

Provincial Administrative Offices to be Moved

The source reported, “The provincial offices located in Shinuiju city are rebuilt in South Shinuiju and roads to Dandong, China are under construction to be expanded.”

Shinuiju’s administrative offices refer to provincial offices of North Pyongan Province, including Provincial Party (office), People’s Committee, and Administrative Committee. Plans to move these offices to South Shinuiju had been announced when the government announced the plan for the Shinuiju Special Administrative Region in September 2002. South Shinuiju is located about 3 km away from downtown Shinuiju and when Shinuiju becomes a Special Administrative Region, administrative work will be divided and South Shuinuiju will take charge of provincial administrative work.

Yet another source said, “Among the Shinuiju residents, rumors are spreading that Kim Jong Il’s visit to China was for iron and oil trade.” Shinuiju relied on Chinese aid or trade for most of the industrial facilities and as an example, currently, Baekmawon Oil Factory in Shinuiju is receiving oil aid of 1,500,000 tons per year from China.

Additional posts on the Sinuiju SAR can be found here.

Read the full story here:
Shinuiju Special Administrative Region Plan Propelled Once Again
Daily NK
Kwon Jeong Hyun
2006-2-13

Asia Times
Lora Saalman
2/8/2006

On January 10, North Korean leader Kim Jong-il traveled in a luxury train to China’s Guangdong province to sample socialist-flavored capitalism. Just a few months earlier, the North Korean Workers Party introduced reform measures granting foreign investors tax cuts and allowing them to sell goods produced in North Korea without tariffs.

For an economy that ostensibly issued halting economic reforms in 1984, these new measures constitute a revolution, albeit one with Chinese characteristics. In accordance with its giant neighbor’s model, North Korean economic reform is predicated as an alternative to the instability of political liberalization. Unforeseen social and political shifts are to be cushioned by financial solvency to keep the regime intact. With China’s assistance and unofficial aid, sustainable growth may one day be achieved in North Korea. Yet a darker side to North Korea’s economic awakening remains.

Kim Jong-il’s visit comes on the heels of accounts of North Korean money-laundering in Macau and the US decision last June and again in October to freeze the assets of various North Korean companies and financial institutions. While many of these firms are beyond the reach of US sanctions, implied misconduct has already led to runs on the North Korean-affiliated financial institution Banco Delta Asia in Macau.

As allegations swirl of money-laundering through counterfeit cigarettes and currency, a less-known story has emerged on British American Tobacco’s previously undisclosed four-year-old joint venture in North Korea. It presents the dilemma of doing business in a country in desperate need of revenue but with a poor track record of allocating resources to its people. This cautionary tale begs the question as to where exactly Pyongyang’s joint-venture profits are going.

For North Korea, which lacks many of the basic laws for financial transparency and good governance, capital investments are more than economically precarious. Shared contact information and dubious management practices among North Korean companies are ubiquitous.

Daesong-BAT is one of a handful of Western joint ventures in North Korea. The far-reaching tentacles of its North Korean partner illustrate the complexity of verifying the background and connections of any North Korean entity. Like many of its compatriots, North Korea’s Sogyong General Trading Corp (Sogyong) boasts circuitous and often indirect ties to entities engaged in proliferation, international trade, shipping, and money-laundering. These indicators point to larger concerns as to whether joint ventures, particularly Western ones, can be manipulated by North Korea for illicit financing of the regime or even to sustain its alleged WMD (weapons of mass destruction) programs.

Joint ventures and front companies
In establishing Daesong-BAT, British American Tobacco teamed up with Sogyong General Trading Corp, a Pyongyang-based state trader best known for its carpet exports. Sogyong, however, also exports such products as handicrafts, furniture and agricultural produce, while importing machinery, electronics, fishing tackle, chemicals and fertilizer. It is not uncommon for North Korean state-run enterprises to deal in everything from machinery to fishing tackle. Yet eclectic product lists make trade in illicit drugs and weapons all the more difficult to track. Cigarettes are just one more product in the Sogyong export-import pantheon.

North Korean company product lists also rarely convey their full range of trade. Seemingly innocuous industries are often manipulated as front companies. Last year, for example, Japan’s Ministry of Economy, Trade and Industry (METI) listed what appeared to be an innocuous North Korean food manufacturer, Sosong Food Factory, for its participation in nuclear, missile, chemical and biological-weapons proliferation. Cigarettes, like food, have been used at times to mask the real objects being transferred. In one case, Japan in 2002 seized a Chinese vessel and found that the declared store of cigarettes on board actually contained drugs thought to have come from North Korea.

While not as licentious as drug or human trafficking, even the black-market trade of cigarettes could have a tangible impact on North Korea’s financing, as seen in Eastern European illegal cigarette rings. These factors highlight the danger of taking a North Korean food or even carpet manufacturer at face value.

North Korea’s network
Among the elements of obfuscation, the company name Daesong-BAT merits attention. Rather than combining or modifying the titles of the two partner companies to form Sogyong-BAT, Daesong-BAT combines British American Tobacco’s acronym with a name that could either point to North Korea’s Daesong district or Daesong General Trading Corp (Daesong). If it turns out to be the latter, Japan and other governments have prominently featured Daesong for its ties to missile and nuclear proliferation.

Incidentally, Daesong maintains one of the most extensive and convoluted North Korean networks, with more than 10 subsidiaries. It also is suspected of falling under Bureau 39, which earns foreign currency for North Korea. A direct connection between Daesong-BAT and the sinewy Daesong franchise has yet to be established but, as illustrated below, nothing is clear cut in North Korean business relations.

Because of the lack of transparency and convoluted nature of North Korean companies, contact information often serves as the first stencil for tracing overlap between industries. In the case of Daesong, the US Central Intelligence Agency’s Open Source Center follows the use of the same fax number to establish potential business and branch linkages. If the same logic is applied to Sogyong, another pattern emerges. Sogyong shares common fax numbers with at least two companies, Korea Foodstuffs Trading Corp (Foodstuffs) and Korea Kwail Trading Corp (Kwail). These companies in turn share fax numbers with nearly 100 companies in North Korea.

Among North Korean firms sharing contact information with Sogyong-linked entities, Japan’s METI and official European export monitors have listed at least six as end-users associated with North Korean WMD programs. In October, the US government targeted one in particular, Korea Ryonha Machinery Joint Venture Corp (Ryonha), freezing its assets under US jurisdiction and placing it on the US Specially Designated Nationals and Blocked Persons list. Ryonha is a prime example of the complex web of North Korean subsidiaries. Last June, the US Treasury Department also targeted the assets of its parent company Korea Ryonbong General Corp, formerly known as Lyongaksan, which heads five other US-designated entities.

Ryonha is not an aberration among companies converging with Sogyong. Among other Foodstuffs and Kwail-connected entities, Korean company databases list Korea Pyongyang Trading Corp as a distributor of methane gas derived from animal excrement. Apparently, effluent is not its only fetid source of income. The Japanese government has listed the very same company, along with subsidiaries of two other firms tracing back to Sogyong, namely Korea Ryonhap Trading Corp and Korea Jangsu Trading Corp, for nuclear, missile, chemical and biological weapons proliferation.

Proliferation networks may not be the only mechanisms at Sogyong’s fingertips. Contact information also links the two Sogyong-connected associates with at least four North Korean financial institutions. Among these, Koryo Bank and Korea Joint Bank have alleged ties to the now-infamous Banco Delta Asia in Macau. Banco Delta Asia’s own purported involvement in counterfeit-currency distribution and counterfeit-cigarette smuggling does not bode well for Daesong-BAT, no matter how convoluted their connections. Banco Delta Asia may have three degrees of separation between it and Sogyong, but in North Korea’s fishbowl of finance this does not preclude cooperation.

Banco Delta Asia is also reported to maintain a close business relationship with Macau-based Zokwang Trading, which its own vice general managing director claims is a part of North Korea’s Daesong General Trading Corp. Daesong, as mentioned earlier, has a pervasive proliferation record. It also has reported links to Changgwang Sinyong Corp (Changgwang), which has been repeatedly sanctioned by the United States for its missile-proliferation activities and sales to Iran and Pakistan. Zokwang in turn deals in missiles and nuclear-power-plant components, all the while maintaining a partnership with the notorious Changgwang. Combined with Sogyong’s branch in the joint \-venture hub Shenyang, China, even indirect ties to Macau suggest that Sogyong has the ability to tap into proliferation, industrial and financial networks in China and beyond.

Proliferation, industry and finance mean little without the means to transport goods and technology. Sogyong-associated entities Foodstuffs and Kwail share fax numbers with North Korea’s national airline Air Koryo, which has also been cited by official European monitors for proliferation. A 2003 Far Eastern Economic Review article even named Air Koryo as the transportation mechanism for Daesong’s suspected military assistance to Myanmar. Sogyong’s own shipping vessels Sogyong 1 and 2, which were detained in Japan on safety violations in December 2004 and January 2005, complete the final leg of the contact-linked proliferation, financing and shipment triangle. This network belies a much more intricate set of alliances than the domestic-consumption-based joint venture touted by British American Tobacco and Sogyong General Trading Corp.

Standards of business conduct
British American Tobacco’s website advocates transparency in international business and laudably eschews bribery, corruption, illicit trade, and money-laundering. In October, BAT executives further contended in The Guardian that the company’s North Korean cigarette joint venture fuels only domestic consumption, not exports to China or elsewhere. In spite of these reassurances, BAT is no stranger to the dangers of black-market cigarette production and transshipment. A February 2000 article in The Guardian even accuses BAT of complicity, by knowingly allowing illicit smuggling of its cigarettes to occur.

In the case of Daesong-BAT, British American Tobacco officials have admitted to knowing little of the company’s North Korean joint-venture operations. Ominously, BAT has stated that an unnamed Singapore division controls its North Korean joint venture. Lack of oversight combined with a dubious North Korean offshore mechanism for managing an ostensibly domestic industry raises significant warning signs. The incestuous relationship between state-run North Korean entities that share fax numbers of companies and banks listed for WMD procurement and money-laundering through counterfeit tobacco should also elicit concern. These are not simply dilemmas for British American Tobacco, but pose challenges to any companies forming joint ventures in North Korea.

Economic integration, as in China’s case, may bring North Korea more into step with international norms and standards. Ironically, engagement that is likely to lead to greater future transparency may also be manipulated for North Korea’s short-term illicit gains.

In 2003, the British government pressured BAT to close down its cigarette factory operations in the military dictatorship of Myanmar because of concerns over that country’s lack of human rights. Given the legion of obstacles impeding transparency in North Korea, BAT and other Western firms could be contributing to the worsening of more than human rights. They could be aiding and abetting illicit North Korean financing that is alleged to fuel Kim Jong-il’s slush fund and WMD programs.

From the Korea Times:

Tuesday, February 7, 2006

By Hwang Si-young

KT Corp., the country’s No. 1 fixed-line telecom and broadband operator, will build a gigantic communications center at the Gaeseong Industrial Complex in North Korea by 2007, the company said yesterday.

“Many local companies are expected to set up plants in Gaeseong in a few years. To meet a growing demand for fixed-line telephone and internet services, we decided to build a large communications center, approximately 9,900 square meters in size,” said KT’s Gaeseong District Office director Joung Youn-kwang.

There are currently 11 companies based in Gaeseong Complex. They are permitted and approved by the Ministry of Unification and Korea Land Corporation to do their businesses in Gaeseong.

The size of the industrial complex currently stands at 92,400 square meters, but according to KT, it will be expanded more to around 3,300,000 square meters by 2007, housing 300 or more companies.

As of now, KT operates a small communications center using a two-story temporary building in Gaeseong.

The company is likely to build a center after the overall industrial complex expansion is completed, Joung said.

KT will soon begin negotiating with its North Korean counterpart to secure land and bring additional telecommunications equipment, the company said.