Archive for the ‘Kaesong Industrial Zone’ Category

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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Labor Standards and South Korean Employment Practices in North Korea

Tuesday, March 11th, 2014

Marcus Noland and the US-Korea Institute at Johns Hopkins have published an interesting report on South Korean labor practices in the DPRK.

You can download the report here (PDF). Noland’s blog post here.

You can watch the paper release talk:

Here is a summary of the paper:

By 2012, South Korean firms employed more than 50,000 workers in North Korea. Survey data indicate that the North Korean government has successfully circumscribed exposure of North Korean citizens both to South Koreans and to more market-oriented economic practices. South Korean investment in North Korea may well be beneficial both for the firms and the workers involved, but evidence of the sort of broader spillovers that proponents of engagement sometimes assert is not evident.

In the new USKI report, “Labor Standards and South Korean Employment Practices in North Korea,” Marcus Noland, Executive Vice President and Director of Studies at the Peterson Institute for International Economics and Adjunct Professor of Korea Studies at Johns Hopkins SAIS, examines key questions about the nature of South Korean employment practices in North Korea both inside and outside the Kaesong Industrial Complex and whether this interaction is likely to encourage North Korean economic transition. He also examines the international legal obligations of both Koreas to implement fair and equitable labor standards and suggests ways to encourage better labor practices by South Korean government and firms in North Korea.

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2013 Inter-Korean trade

Monday, February 24th, 2014

According to Yonhap:

Trade between South and North Korea fell to its lowest level in eight years in 2013 due to their strained relations, data showed Sunday.

Inter-Korean trade reached US$1.15 billion last year, down a whopping 41.9 percent from the previous year’s $1.98 billion, according to the data from the Korea International Trade Association (KITA).

South Korean exports to the North nose-dived 41.1 percent on-year to $531.8 million, with imports from the communist country sinking 42.5 percent to $617.2 million.

The 2013 inter-Korean trade volume was the lowest since 2005, when the figure came to $1.06 billion.

In contrast to the plunge in trade with South Korea, the North’s trade with China, its chief ally and largest benefactor, jumped 10.4 percent on-year to a record high of $6.54 billion last year, according to the data.

Between 2009 and 2014, North Korea’s trade volume with China, the world’s second-largest economy, had been growing an annual average of more than 40 percent, the data showed.

 

According to the Choson Ilbo:

Inter-Korean trade fell to 18 percent of the North’s trade with China, the lowest since 2005.

South Korea’s imports of textile goods and electric and electronic products from the North fell 45 percent and 43 percent, while the North’s imports of mineral and textile products from China increased 15 percent and 33 percent.

Of course inter-Korean trade was down due to the DPRK’s closure of the Kaesong Industrial Complex (KIC). Once the complex was reopened, trade began to recover.

More on China-DPRK trade in 2013 here.

Read the full stories here:
Inter-Korean trade hits 8-year low in 2013
Yonhap
2014-2-23

N.Korean Trade with China Grows
Choson Ilbo
2014-2-24

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A new electronic entry system launched for the Kaesong Industrial Complex

Thursday, February 6th, 2014

Institute for Far Eastern Studies (IFES)
2014-2-6

A pilot operation of the new electronic entry system, or radio frequency identification system (RFID), to facilitate the travel to and from the Kaesong Industrial Complex (KIC) was completed on January 15 and pilot operation began from January 28, 2014.

According to a Ministry of Unification (MOU) official, “The construction of the system began from December 11 last year and it was completed this month on the 15th. The trial operation period will begin from the 28th.”

The RFID system was agreed upon last September at the second meeting of the South-North Joint Committee for the Kaesong Industrial Complex in order to improve the South Korean companies’ access to the KIC.

The new RFID system will replace the paper document inspection with an electronic card system and personnel screening will be reduced to 5 seconds from 13 seconds while vehicle screening time will be reduced to 7 seconds from 15 seconds.

In particular, the reduced inspection time will facilitate the travel and ease the heavy traffic during Monday mornings and Friday afternoons: for personnel screenings, from 17 minutes to 5 minutes; for vehicle inspections, from 19 minutes to 8 minutes.

However, the existing personnel and vehicle access to the KIC which requires a 3-day advance notice still remains in effect, and the mobility of personnel and vehicles will still be strictly monitored and chaperoned by the North Korean military.

On the other hand, the fourth round of the sub-panel meeting was held on January 24 to discuss the operation of the RFID system, Internet connectivity, and simplification of customs process at the KIC.

In regards to the streamlining of the customs process, the two countries agreed to change it from ‘complete’ to ‘selective’ examination, but differences still remain over the ratio to be applied to the selective probe.

As for the issue of Internet connection, it is still in the infant stage and the two sides agreed to resume the negotiation on February 7.

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Koreas promoting Kaesong Industrial Center to foreign investors

Thursday, December 19th, 2013

According to the Associated Press:

North Korea allowed about 30 foreign government officials, central bankers and diplomats to tour the industrial complex in Kaesong. The foreigners were in Seoul, South Korea, for a conference of the Group of 20 countries.

“This is an authoritarian regime with a very nasty way of punishing anybody … who is against the regime,” said Paola Subacchi, director of international economics research at Chatham House, an independent policy institute based in London. “There’s no transparency, no accountability, nothing that could make an international investor happy and willing to invest.”

But Subacchi said the complex’s expansion might bring positive changes to North Korea because it would provide jobs and help feed North Korean workers and their families.

Hong Yang-ho, South Korean chairman of the committee that oversees management of the park, estimated the complex would create jobs for about 120,000 North Korean workers if it is fully occupied with factories. About 40 percent of the complex is currently being used.

The industrial park combines South Korean capital and technology with cheap North Korean labor. Currently around 53,000 North Koreans are working in the complex at some 120 companies. North Korea is estimated to have received $80 million in workers’ salaries in 2012, an average of $127 a month per person, paid in U.S. dollars, according to South Korea’s Unification Ministry.

The invitation to visit Kaesong was the first concrete step that the two Koreas have taken toward opening the complex to overseas investors since they agreed to restart the park in September.

Operations had been halted in April when North Korea withdrew its workers amid tension over its threats of nuclear war. The complex reopened after North Korea toned down its rhetoric and began pursuing diplomacy with South Korea.

The two Koreas also agreed to work toward attracting overseas investment and discuss other ways to improve business, including better communication and allowing people and goods to move more freely to and from Kaesong.

Domenico Lombardi, a think tank director, said he would not build a factory in Kaesong if he were a businessman because of the risks and high uncertainty.

But he said it was a positive sign that North Korea was eager to show the park to foreigners.

“This is the first step of what a more open North Korea would be one day,” said Lombardi, director of the Global Economy program at the Center for International Governance Innovation, based in Ontario, Canada.

The next challenge for North Korea will be “making their own economy more accessible to foreign investors,” Lombardi said.

Read the full story here:
Inter-Korean Factory Park Tough Sell to Outsiders
Associated Press
Youkyung Lee
2013-12-19

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Inter-Korean trade begins to recover in Q4 2013

Sunday, November 24th, 2013

According to Yonhap:

Inter-Korean trade has gradually been returning to normal levels following the reopening of a joint industrial park in North Korea’s border city of Kaesong in September, government data showed Sunday.

According to data from the Ministry of Unification and the Korea Customs Service, two-way trade between South and North Korea amounted to US$152.15 million last month. The amount is equivalent to 80.9 percent of total bilateral trade in the same month last year.

“Exports have grown with the entry of large amounts of raw materials, production facilities and food supplies as (the Kaesong complex) prepares to resume operations in earnest,” a ministry official said, speaking on condition of anonymity.

The complex, which ground to a halt in April amid high security tensions on the Korean Peninsula, reopened in September. Inter-Korean trade is limited to the joint factory park because all other economic exchanges have been banned since May 2010 due to North Korea’s sinking of a South Korean warship in March of that year.

“The Kaesong Industrial Complex is gradually recovering to previous levels,” the official said.

The complex, a key outcome of the first-ever inter-Korean summit in 2000, combines South Korean capital and technology with cheap North Korean labor to produce clothes, utensils, watches and other labor-intensive goods.

The project serves as a key source of cash for the impoverished country.

My compendium of stories related to the closure and reopening of the Kaesong Zone can be found here.

Read the full story here:
Inter-Korean trade recovers following reopening of Kaesong complex
Yonhap
2013-11-24

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Kaesong Industrial Complex: 2013 crisis timeline compendium

Wednesday, November 13th, 2013

UPDATE 91 (2014-1-14): ROK spends 1/3 of DPRK budget for FY 2913. According to Yonhap:

South Korea spent less than one-third of its fund intended to boost exchange and cooperation with North Korea last year, the unification ministry said Tuesday.

South Korea spent 296.4 billion won (US$280 million) last year, or 27 percent of the 1.09 trillion won earmarked, for the inter-Korean cooperation fund, according to the ministry, which handles inter-Korean affairs.

The figure represents the highest level in six years as the government paid insurance money to small South Korean companies that operate plants in the North’s border city of Kaesong.

The South Korean companies received insurance money worth 177.7 billion won due to the months-long shutdown of the inter-Korean joint factory park in Kaesong last year.

In 2008, the ministry spent 18.1 percent of the inter-Korean cooperation fund. The ratio dropped to 8.6 percent and 6.5 percent in 2009 and 2012, respectively, as inter-Korean relations soured.

The factory park resumed operations in September, more than five months after the North unilaterally closed it in anger over joint annual military exercises between South Korea and the United States. In August, Pyongyang pledged not to shut the park down again “under any circumstances.”

More than 44,600 North Koreans work at 120 South Korean firms operating in the park to produce clothes, shoes, watches and other labor-intensive goods. The project serves as a major legitimate revenue source for the impoverished communist country.

UPDATE 90 (2013-12-30): The ink has barely dried before the DPRK has seemed to breech it.  This time the DPRK has demanded that the firms in the KIC pay back taxes. According to Yonhap:

North Korea has demanded that South Korean firms operating in a jointly run factory park in the communist nation pay taxes to North Korea, an official said Monday, in an apparent breach of a September deal.

The North said in a notice last week that the firms in the factory park in the North’s western border city of Kaesong should pay taxes incurred between Jan. 1 and April 8, according to the official handling the issue at the unification ministry.

The ministry, which handles inter-Korean affairs, said the North’s demand did not make any sense, and it was in talks with North Korea over the issue.

The move comes three months after North Korea agreed not to collect taxes from the South Korean firms for 2013 to make up for their losses following its unilateral closure of the factory park on April 9.

In September, the sides resumed the operation of the factory park, a month after the North pledged not to shut it down again “under any circumstances.”

Although the North Korean government took a loss on “tax revenue” it still made plenty of money from the confiscated wages of its workers. According to the article:

The North earned US$80 million in wages for its workers last year.

UPDATE 89 (2013-11-24): Inter-Korean trade has started to recover.

UPDATE 88 (2013-11-13): The Korea Times reports that the Kaesong firms are getting loan payments deferred and a new round of talks is underway.  According to the article:

The government said Wednesday it will allow companies with factories at the inter-Korean Gaeseong Industrial Complex (GIC) to delay payment of loans due within the next six months.

“The due date for loans taken out from the state-run inter-Korean cooperation fund will automatically be pushed back six months,” said Park Soo-jin, vice-spokeswoman of the Ministry of Unification that handles inter-Korean affairs, Wednesday, during a regular briefing. “The amount equals to 46 percent of all loans provided by the fund.”

According to the ministry, 28 out of the total 123 companies, which have taken out loans totaling 9.7 billion won ($ 9 million), will benefit from this measure.

Up to date, companies that have factories in North Korea’s border city of Gaeseong altogether borrowed about 21.3 billion won ($ 19.9 million) from the cooperation fund.

The move by the government is aimed at easing the pressure on GIC companies strapped for cash in the face of declined production as a consequence of the five-month hiatus of operations because of heightened tension on the Korean Peninsula earlier this year.

In the same article, the Korea times reports on the latest round of talks between the DPRK and ROK over the management of the KIC:

Meanwhile, on the same day, working-level officials from the South and North met to discuss ways of better protecting investment at the GIC and promote its internationalization.

The meeting of two sub-panels of the Gaeseong joint management committee were held in the North’s border city, the ministry said.

“The two sub-panel meetings, the first since Sept. 26, are designed to bolster the overall global competitiveness of the GIC,” a ministry official said.

There are altogether two sub-panels under the larger GIC joint management committee that has taken charge of running the complex since operations resumed in September.

During the investment protection panel meeting, the two sides reportedly discussed the establishment of an official dispute settlement regime coupled with how to attract more foreign investors into the GIC.

Previously, the two Koreas agreed to hold an IR session on Oct. 31 but it was canceled when little headway was made in a separate sub-panel meeting to change rules dealing with travel, communication and customs at the joint complex in North Korea.

The ministry also said another meeting to discuss the rights and safety of South Koreans working in Gaeseong will be held today.

But the date for the travel and communication meeting has yet to be fixed because of its sensitivity.

Read previous posts below:

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DPRK making counterfeit Choco Pies?

Friday, September 20th, 2013

Ryongsong-foodstuff-factory-2013-11-21

Pictured Above: Ryongsong Foodstuff Factory, Ryongsong District, Pyongyang (Google Earth)

According to the Daily NK:

The price of a North Korean own-brand “Choco Pie” fell to just 500 won in domestic markets following news that the Kaesong Industrial Complex (KIC) was to reopen, Daily NK has learned. The local version of the chocolate snack, which is made by Orion in South Korea, had previously risen to 3000 won on the back of the protracted KIC closure.

A source in Pyongyang reported to Daily NK on the 19th, “Sometime around May, Yongseong [Ryongsong] Foodstuff Factory in Pyongyang started selling ‘Choco Pies’ in the markets. People hadn’t seen a Choco Pie since Kaesong stopped, so their reaction was really something.”

“People were surprised because the packets said ‘Choco Pie’ and ‘Choco Rice Cake’ [a similar product with a glutinous rice center], and they couldn’t tell the difference between them and those from the ‘neighborhood below’ [South Korea] unless they checked closely,” the source went on. “Sure, people could tell they weren’t the real thing as soon as they ate them, but they were still pretty satisfied.”

According to the source, after South Korean Choco Pies disappeared from North Korean markets following the closure of the KIC, domestic traders started looking into importing the original South Korean and similar Chinese versions of the popular treat. However, the cost and difficulty of doing so meant that very few ended up crossing the border.

Therefore, attention turned to domestic production. The source explained, “Production volumes were low at first, and the state tried to control the flow of the product into the markets. They were 500 won a piece at the end of the first month; but that had risen to 3000 won by the end of last month. But the price sank back down upon news of the KIC re-start.”

“As soon as Choco Pies stopped coming out of the KIC, Yeongsong Foodstuffs Factory moved quickly and must have made quite a bit of money,” he guessed. “They were trying to imitate the South Korean pies but the product was way too sweet, which is partly why the price collapsed on the news of Kaesong.”

Only 60% (32,000) of the pre-closure North Korean workforce (53,000) returned to work when the KIC re-opened for a “trial run” on September 16th. At the same time, South Korean businesses, many facing financial difficulties after five months of nonproductive shutdown, have reportedly reduced the quantity of Choco Pies and other snacks previously distributed to workers. It is unclear what effect these circumstances could have on the price of goods flowing out of the KIC over the longer term.

Read the full story here:
NK Choco Pie Price Falls on KIC News
Daily NK
2013-9-20

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Inter-Korean trade dries up in May

Monday, June 24th, 2013

According to Yonhap (via Global Post):

Trade between South and North Korea came to virtually zero in May after inter-Korean tensions led to the shutdown of the Kaesong Industrial Complex seen as the last symbol of bilateral economic cooperation, the government said Monday.

The volume of inter-Korean trade reached only US$320,000 last month, which accounts for just over 1 percent of the $23.4 million recorded in April, according to the Unification Ministry, which handles inter-Korean affairs.

The majority of the May trade represents electricity costs the South spent to maintain the plant facilities in the factory park in the North Korean border city of Kaesong, according to the ministry. The South exported about $260,000 worth of electricity while importing $60,000 worth of periodicals from the North last month, the ministry said.

Inter-Korean exchange came to an abrupt halt in mid-April as the North withdrew North Korean workers employed by South Korean firms in the Kaesong industrial zone in protest against South Korea’s joint military drills with the U.S. in March.

The joint factory park made up almost all of the inter-Korean trade as chilly relations cut off other exchanges.

The number of cross-border trips permitted during May came to only seven, the ministry said, adding that they were the last batch of the seven South Korean workers who returned to the South after the closing of the Kaesong complex.

As inter-Korean relations remain frosty, the hiatus in inter-Korean trade is expected to continue, analysts said.

Read the full story here:
Inter-Korean trade comes to almost naught in May
Yonhap (via Global Post)
2013-6-24

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Inter-Korean trade tumbles

Tuesday, May 21st, 2013

According to Yonhap:

Trade between South and North Korea tumbled last month after the North shut down the jointly run industrial park in its border town of Kaesong, government data showed Tuesday.

The monthly inter-Korean trade volume came to US$23.43 million in April, down 88 percent from $194.27 million recorded the previous month, according to the data from the Ministry of Unification in charge of inter-Korean affairs.

The April figure is almost similar to the average monthly trade volume of $23.94 million registered in 1995.

In early April, the North banned the entry of South Korean workers and materials into the Kaesong Industrial Complex and withdrew all North Korean workers employed by South Korean firms there in protest against Seoul’s joint military exercises with the U.S. in March.

Trade between the two countries, which remain technically at war since the 1950-53 Korean War ended in an armistice, had steadily increased since late in the 1980′s to register an annual record of $1 billion in 2005.

Read the full story here:
Tnter-Korean Trade Tumble
Yonhap
2013-5-21

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