Archive for the ‘Kaesong Industrial Complex (KIC)’ Category

Recent CRS reports on the DPRK

Tuesday, October 7th, 2014

The Congressional Research Service “recently” published two reports which relate to the DPRK:

The U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implementation
September 16, 2014: 2014-9-16-KORUS-Kaesong
June 2, 2011: Imports-from-North-Korea-2011

(Although this report focuses mostly on US-ROK issues, there is detailed discussion of the complex negotiations around the Kaesong Industrial Complex (KIC).)

Iran-North Korea-Syria Ballistic Missile and Nuclear Cooperation 
April 16, 2014: 2014-4-16-Iran-Syria-Missile

You can download most former CRS reports dealing with the DPRK here.

 

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Kaesong Industrial Complex: One year after resuming operations

Friday, September 26th, 2014

Institue for Far Eastern Studies (IFES)

The Kaesong Industrial Complex (KIC) was reactivated on September 16, 2013 after a five-month shutdown due to North Korea’s withdrawal of North Korean workers from the complex. One year has passed without interruption of operations. However, while most of production activities were resumed to pre-shutdown levels, previously discussed agreements between the two Koreas are not meeting expectations in terms of transportation, customs, communications, security for personnel and vehicles, upgrades to meet international standards, and normalization for development of the KIC.

The tentative suspension of the KIC lasted from April 8 to September 16, 2013. During this period, all aspects of both production and export were frozen completely. After restarting operations, gradual progress was made, with production in October 2013 down only 32.7 percent compared to March of the same year (pre-suspension), totaling approximately 30.8 million USD. By May 2014, average monthly production totaled nearly 42.8 million USD, showing a strong recovery to a total of 93.5 percent of pre-suspension production capacity.

After resuming operations, companies at the KIC experienced problems such as loss of capital, cancelled contracts by buyers, order quantity reduction, and other problems which caused uncertainty about the future of the complex. In spite of this, companies at the complex were quickly able to recover due to their own efforts and the support of various related organizations.

However, since the reactivation, not much progress has been made toward achieving the goal of “developmental normalization” of the KIC. This goal is aimed at expanding and improving the complex through cooperation between the two Koreas. Agreements have been made between the North and South to work together to make the complex better than it was before the shutdown by solving several issues related to safe entry and stay of personnel; transportation, customs, and communication in the KIC; and internationalization of the complex.

For some time after restarting operations, the agreements between the North and South were actively being pursued, and the process of developmental normalization progressed steadily. In January 2014, construction of the Customs, Immigration and Quarantine (CIQ) facilities were completed alongside the implementation of a Radio Frequency Identification (RFID) electronic entrance system, and in the following month, progress was made on agreements related to the provision of an Internet service at the KIC.

Furthermore, the joint North-South Commercial Arbitration Committee was created. In March 2014, the committee had its first meeting, which dealt with commercial disputes arising at the complex. Recently, over twenty companies from the United States, Germany, China, Russia and other countries have made inquiries to the South Korean government with regard to investing in the KIC. The Foreign Investor Support Center was also opened to attract and manage investments from abroad.

However, due to the joint ROK-US military exercises, inter-Korean relations have become strained. North Korea also has taken a passive stance toward the Kaesong agreements, leading to a situation where no real progress has since been made. South Korea has been calling out for a subcommittee in order to enforce the RFID card system, continue discussion on the introduction of Internet service, and address the problems of passage, communication and transport at the complex. Seoul has been demanding continuously for North Korean authorities to cooperate on these issues.

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KIC goods and the DPRK’s Choco Pies

Wednesday, September 24th, 2014

According to the Daily NK, the DPRK has developed its own version of the South Korean “Choco Pie”. And it is apparently winning over North Korean consumers:

[…] the once popular South Korean snack Choco Pie is seeing a decline in its asking price. In June, Pyongyang demanded that South Korean companies at the industrial complex stop distributing Choco Pies to workers there, as officials had found it problematic that North Korean workers were saving the snacks and selling them in the markets. More recently, the northern workers have been receiving Chaltteok Pie (찰떡) [a chocolate covered rice cake from the South], individually packaged coffee, yulmucha (율무차)[grainy tea made with Job’s Tears], and candy bars.

“In Pyongyang, at the ‘Geumeunsan Trade Company,’ (금운산, Kumunsan Trade Corporation) they have been baking bread for about a year,” the source said, adding, “Of all the different kinds of bread, the most popular are the ones with butter inside, and they are less than 1000 KPW– much cheaper than Choco Pie.”

The trade company is an affiliate of the Military Mobilization Department [Military Manpower Administration in South Korea], which deals with the procurement of military supplies among its many functions. They either directly import the goods or obtain them from military factories in various locations across the country, and oversee the manufacturing of military equipment and machinery.

Geumeunsan Trade Company maintains branches in multiple areas, including Rasun and Cheongjin, and the office in Pyongyang imports ingredients such as flour, sugar, and cooking oil directly from China. According to the source, the raw material prices are cheaper than in the  North’s markets, and the products taste good, allowing it to monopolize the confectionery market there.

“The company has brought in foreign equipment and technology, putting it ahead of the South’s Choco Pie in price and taste,” he said, concluding, “This is why with the introduction of these different breads in Pyongyang, the price of Choco Pie [from the South] has dropped to 500 KPW from 1,200 KPW.”

The same story also reports that goods produced in the Keasong Industrial Complex are selling really well in the DPRK:

“These days, there are all kinds of goods in the markets,” adding that “no matter what kind of foreign products come in, they cannot beat KIC goods, which sell out due to high demand.” In North Korean markets, goods from South Korea, China, Japan, Russia, and elsewhere are brought in either through official or illicit trade routes. The products are then sorted by quality into “good, average, and poor” with corresponding prices.

“With the KIC now back in full operation, products are spilling into the markets,” he explained. “The goods produced there are not found in the Kaesong markets but areas such as Sinuiju [near the northwestern border] and Pyongsong [located an hour North of Pyongyang].”

Merchandise from the joint complex, such as clothes, shoes, and other mass-produced goods, sell for much higher prices compared to those from China, because not only are they new in the market, they are also considered scarce. The hefty price tag is believed to include a premium for the risk of smuggling the goods out of the heavily guarded industrial park and the bribes required to gain entry.

The items most popular with men are hiking boots, especially those made with special materials to withstand cuts from sharp objects like knives, and pants. Women, on the other hand, prefer goods for around the home, such as high-quality and sanitary cutting boards, the source told Daily NK.

“Top-quality pants from China in the Pyongsong market sell for a rather high price of roughly $10 USD, but KIC products sell for $30 USD,” he said. “Although Chinese products use the best material they have, there’s a big difference in the quality and degree of processing,” justifying why those who have used KIC-produced goods will invariably opt for them again, even if it means they need to pay more.

Authorities in the North try to keep a tight lid on goods from KIC trickling into the black market in an effort to prevent people from longing about life in the South. According to the source, this is why sellers or buyers refrain from using the word “Kaesong” and simply say, “Do you have goods from the Complex? Complex pants, or Complex shoes?”

The article does not mention it, but I suspect that not many goods are smuggled out of the KIC. The goods are probably exported from South Korea to China where they are imported back into North Korea.

Read the full story here:
Kaesong Goods Fetch Highest Market Prices
Daily NK
Seol Song Ah
2014-9-24

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DPRK tightens entry rules in Kaesong factory park

Friday, July 18th, 2014

Apparently out of fear that the Keasong Industrial Complex might be used to subvert national security, the DPRK is instituting new rules for South Koreans entering the park. According to Yonhap:

“The North notified the management committee for the Kaesong Industrial Complex of its plan to tighten entry rules starting on Friday,” said the ministry, which handles inter-Korean affairs.

Under the stricter rules, South Korean workers are subject to a one-day entry denial if they are found carrying prohibited materials critical of the North Korean regime or automobile black boxes.

Those who don’t abide by entry rules by failing to cover up their car license plates or deviating from regular entry allowance hours will also be put under entry denial of up to two days, according to the ministry.

The North has also hinted at the possibility of punishing South Korean companies operating in the Kaesong complex, depending on the level of future entry rule violations, the ministry said.

Currently, North Korea fines South Korean workers US$100 for carrying cell phones, while failure to abide by entry hours is subject to a $50 fine.

The toughened rules also came despite Seoul’s pronounced opposition to the unilateral decision.

Seoul has previously expressed its opposition and demanded the changes be discussed bilaterally, but the North has unilaterally issued the notification, officials said.

Read the full story here:
N. Korea tightens entry rules in Kaesong factory park
Yonhap
2014-7-18

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Farewell Choco Pie?

Tuesday, July 1st, 2014

News media reports claim that the DPRK has banned the use/possession of Choco Pies in the Kaesong Industial Complex.

According to the Washington Post:

By some estimates, as many as 2.5 million Choco Pies were traded monthly — though it’s unclear who exactly was so assiduously following Choco Pie markets.

Regardless of its volume, the trade will now surely be shrinking.

According to recent reports in the South Korean press, North Korean authorities have now banned the South Korean-produced Choco Pie at the Kaesong Industrial Complex following a lengthy crackdown on the chocolate treat that has made it scarce in Pyongyang.

Before, workers could pocket as many as 20 pies every night of work. But now, South Korean factory staff said they’ll instead get sausages, instant noodles, powdered coffee or chocolate bars as a bonus.

You can read the full story here.

More information here and here.

Previous posts on the Kaesong Industrial Complex here.

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Data on Kaesong’s cumulative performance

Thursday, June 12th, 2014

According to Yonhap:

Cumulative production of the inter-Korean industrial park has come to US$2.3 billion as the most salient outcome of rapprochement between the Koreas marks its 10th anniversary of operations this week, the unification ministry said Thursday.

The joint factory complex in the North Korean border town of Kaesong opened a decade ago following the first inter-Korean summit meeting in 2000, in which their leaders adopted a joint declaration calling for closer cooperation and exchanges.

On June 14, 2004, a group of 15 South Korean groups signed contracts to operate factories in the then-newly built complex, inaugurating the era of the Kaesong Industrial Complex. In December that year, the joint complex saw its first batch of goods produced in its factories.

In the first full year of operations in 2005, annual output reached $14.9 million before jumping by more than 30-fold to $469.5 million in 2012, according to the unification ministry.

But yearly output nearly halved last year from 2012 after Pyongyang suspended operations of the Kaesong complex for five months from April amid inter-Korean tensions. The figure rose to $168.1 million in the first quarter of this year.

The value of inter-Korean trade through the park came to an accumulated $9.45 billion, according to the ministry.

A total of 940,000 people have visited the inter-Korean economic zone, with 125 South Korean firms currently operating in the complex designed to match deep-pocketed South Korean companies with cheap North Korean labor.

Among the firms, 73, or 58.4 percent, are textile firms, while another 24 firms are machinery or steel makers. The complex is also home to 13 electronics makers and 9 chemicals firms, the ministry noted.

The Kaesong complex also saw the number of North Korean workers grow from around 6,000 in 2005 to 52,000 as of recently, along with monthly salary more than doubling from $50 to more than $130.

Although this story reports salaries of $130, a separate story released just a couple of days ago claims the monthly incomes are just $70. I am not sure why the discrepancy.

Read the full story here:
Cumulative output of Kaesong park reaches US$2.3 bln
Yonhap
2014-6-12

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German firm to set up in Kaesong Zone

Tuesday, June 10th, 2014

According to the Wall Street Journal:

A German industrial needle maker will open an office in the joint inter-Korean industrial complex inside North Korea, South Korea said Tuesday.

The move will mark the first non-Korean business entity inside the plant but falls short of Seoul’s goal to bring in manufacturing operations from foreign companies to help ensure North Korea doesn’t unilaterally close the complex again.

The plant was shuttered for five months last year after Pyongyang withdrew its labor force during a sharp escalation in threatening rhetoric. Seoul officials in recent years have mulled over the possibility of attracting foreign companies, which they say would help the factories run without interruption.

Seoul’s Unification Ministry, which handles inter-Korean affairs, said Groz-Beckert, a maker of industrial needles and other tools for textile manufacturers, will open a sales office inside the facility, located a few miles north of the border. The ministry didn’t specify a schedule.

Here is coverage in AFP.

Here is coverage in Voice of America.

Read the full story here:
German Firm to Open Sales Office Inside North Korean Complex
Wall Street Journal
Jeyup S. Kwaak
2014-6-10

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Seoul to raise wages of Kaesong workers

Monday, June 9th, 2014

The actual headline should read “Seoul increases payments to DPRK goverment by 5% for each Kaesong worker” since it is no secret that “employees” receive little if any of their wages.

According to Yonhap:

South Korea will hike the salary of North Korean workers at an inter-Korean industrial complex by 5 percent from this month, the unification ministry said Monday.

The wage hike came after the two Koreas made the agreement about three months earlier than their usual annual wage talks for July.

The countries had annually agreed to a 5 percent wage increase in July, which starts to take effect from August, but this year’s earlier-than-usual wage hike came after the workers missed their annual hike last year due to a temporary suspension of the complex in the North Korean border town of Kaesong.

Amid worsening inter-Korean tension, Pyongyang had suspended the operations of the Kaesong Industrial Complex for five months from April.

The latest 5 percent hike in the North Korean workers’ minimum wage takes effect from their May salary, to be paid in late June, according to the Unification Ministry.

The two sides “agreed to hike the North Korean workers’ wage at the Kaesong Industrial Complex to US$70.35, an increase of 5 percent from now,” unification ministry spokesman Kim Eyi-do said in a briefing.

“So far, the minimum wage had been raised from August, but (we) decided to bring it forth by three months this year in consideration of (South Korean) companies’ opinions at the complex,” Kim said.

Citing the absence of a wage hike last year, Pyongyang had demanded a 10 percent wage hike this year.

About 52,000 North Korean laborers are employed by more than 100 South Korean companies operating in the joint factory park, a major cash cow for the communist country. Each North Korean worker receives up to $150 in monthly wages, including social benefits and overtime.

Read the full story here:
Seoul to raise salary of N.K. workers at Kaesong complex
Yonhap
2014-6-9

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European business leaders tour Kaesong Industrial Complex

Tuesday, April 29th, 2014

According to Yonhap:

More than 40 European businessmen in South Korea traveled across the heavily fortified border into North Korea on Tuesday for a rare trip to an inter-Korean factory park amid tensions on the Korean Peninsula, a unification ministry official said.

A 42-member delegation of the Korean-German Chamber of Commerce and Industry in Seoul plan to tour facilities and South Korean factories in the North’s western border city of Kaesong before returning home later in the day, the official said.

The delegation includes officials of the German engineering giant Siemens AG and BMW, a premium German automaker. It also includes Swiss nationals and Austrians, according to the official.

Separately, about 40 South Korean business leaders from around the world also plan to visit the factory park in Kaesong on Friday, according to the unification ministry official.

In December, about two dozen officials from the world’s G-20 economies toured the Kaesong complex on the sidelines of their global financial meeting in Seoul.

The sprawling enclave in Kaesong is home to 120 small South Korean plants producing garments and other labor-intensive goods. More than 44,000 North Koreans work in the complex.

Read the full story here:
European businessmen visit inter-Korean factory park in N. Korea
Yonhap
2014-4-29

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Russia and DPRK discuss economic opportunities

Saturday, March 29th, 2014

What are the opportunities? Rason port, Iron Silk Road (Rail), Kaesong Industrial Complex, gas pipeline.

According to RIA Novosti:

Russia and North Korea have signed a new protocol to transition to using the ruble for payments between the two countries as part of an effort to boost annual bilateral trade to $1 billion by 2020, Russia’s Far East Development Ministry said Friday.

The announcement came as Russian officials have expressed a desire to explore new markets for the country’s businesses, following the introduction of sanctions by the West in reaction to Moscow’s stance over Crimea. Russian leaders have simultaneously reassured international investors the country remains open for business, and there are no plans to restrict international commerce.

The protocol announced Friday came following a visit of a Russian delegation to the Asian country for a meeting of a standing bilateral commission, timed to mark the 65th anniversary of a cooperation agreement between the Soviet Union and North Korea.

The parties agreed to move towards settling payments in rubles as well as adopting further measures to boost bilateral trade, including easing visa procedures and providing for Russian access to proposed special economic zones in the country, the ministry’s statement said.

The ministry reaffirmed the countries’ mutual interest in joint projects with South Korea, including international connections for railways [Iron Silk Road], gas pipelines and power lines.

The Russian delegation also proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers.

The two sides identified areas for further cooperation, including a transshipment complex at the port of Rason and technical cooperation for the modernization of North Korea’s mining sector, automobile industry and electric power plants.

According to the statement, during the talks Russian Far East Development Minister Alexander Galushka emphasized that achieving such goals would only be possible if stability is maintained on the Korean peninsula.

The next meeting of the bilateral commission is scheduled for June in Russia’s far eastern Vladivostok.

Here is what Yonhap reports:

North Korea and Russia have agreed to boost economic ties by pushing for trilateral projects involving South Korea, including a plan to support Russian companies’ entry into an inter-Korean industrial complex, a media report said Saturday.

The agreement between the two was made earlier this week when Russia’s Far East Development Minister Alexander Galushka visited the North for a five-day run until Friday to explore ways to boost bilateral economic cooperation, according to the Russian news agency RIA Novosti.

“The Russian delegation proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers,” the RIA Novosti reported, citing the ministry.

Officials of Seoul’s unification ministry, which handles inter-Korean affairs, welcomed the agreement between the North and Russia, while stressing the importance of Russia’s prior consultation with the South.

“Russian companies’ making inroads into the Kaesong park is desirable in terms of the internationalization of the complex … It would also prevent the North from unilaterally reversing its agreement with Seoul over the Kaeesong operation,” the ministry official said, requesting anonymity.

Internationalization of the enclave, a symbol of inter-Korean detente, is one of the key topics for inter-Korean meetings aimed at ensuring its normal operations and further invigorating the complex. The Kaesong park resumed operations in September, more than five months after the North unilaterally closed it in anger over Seoul-Washington joint military exercises.

“But it is crucial for Russia to discuss the matter with our side first as it is basically operated by the South Korean authorities,” he added.

A handful of companies from China, Australia and Germany have so far expressed interests in making an investment in the Kaesong complex, prompting the Seoul government to review holding joint presentation sessions with the North to lure investors from overseas, according to another ministry official.

Here is additional information from Yonhap on recent shipments from Russia to the DPRK:

Russia exported US$21.16 million’s worth of jib cranes, machinery used mostly for cargo handling at ports, to North Korea last year, accounting for nearly 22 percent of its total exports to the North, according to the report by the Korea Trade-Investment Promotion Agency (KOTRA). The amount surpasses that of Russia’s traditional export goods such as coal, petroleum and bituminous oil.

There were no records of the machines being exported to North Korea the year before, with the 2011 amount standing at $139,000.

North Korea and Russia maintain economic relations that include a project that would make North Korea’s northeastern port city of Rajin a logistics hub by connecting it to Russia’s Trans-Siberian Railway. North Korea is said to have agreed to a long-term lease of the No. 3 dock at Rajin port to Russia and that it is modernizing facilities there. The cranes may be for such modernization efforts, the KOTRA report said.

Also noteworthy is Russia’s exports of ambulances to the North, amounting to approximately 10.1 billion won ($9.45 million), the fourth largest in terms of value. Ambulances are a relatively new product on the trade list.

KCNA’s reporting of the meeting was much more muted:

DPRK Premier Meets Minister of Development of Far East of Russia

Pyongyang, March 26 (KCNA) — Pak Pong Ju, premier of the DPRK Cabinet, met Alexandr Galushka, minister of the Development of Far East of Russia who is chairman of the Russian side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and his party.

He had a friendly talk with them who paid a courtesy call on him at the Mansudae Assembly Hall on Wednesday.

Minutes of Talks between Governments of DPRK, Russia Signed

Pyongyang, March 26 (KCNA) — Minutes of talks on cooperation in trade, economy, science and technology between the governments of the DPRK and Russia were signed here Wednesday.

Present at the signing ceremony were Ri Ryong Nam, minister of Foreign Trade who is chairman of the DPRK side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and officials concerned, Alexandr Galushka, minister for the Development of Far East who is chairman of the Russian side to the Inter-governmental Committee, and his party and Alexandr Timonin, Russian ambassador to the DPRK.

Ri Ryong Nam and Alexandr Galushka signed the minutes of the talks.

Read the full story here:
Russia, North Korea Agree to Settle Payments in Rubles in Trade Pact
RIA Novosti
2014-3-28

N. Korea, Russia to discuss supporting Moscow firms’ advance into Kaesong park
Yonhap
2014-3-29

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