North Korean Economy Watch

AFP (Hat Tip DPRK Studies)
Simon Martin
5/23/2007

The managers of this capitalist enclave in communist North Korea are appealing for the world’s support, saying their experiment in free markets can pave the way for regional peace.

Diplomats who toured the Kaesong Industrial Complex Tuesday were urged to set aside worries over the North’s nuclear programme and to invest in the complex adjacent to the world’s last and heavily fortified Cold War frontier.

“I know you are concerned about the political situation on the peninsula but I strongly believe inter-Korean projects can help reduce tension,” Kim Chul-Soon told lunch guests of diplomats and reporters who toasted the project with North Korean “Wild Flower” wine to the strains of Mozart.

Kim is executive vice-president of Hyundai Asan, the South Korean firm which since 1998 has invested 1.2 billion dollars in Kaesong and in the North Korean tourist resort of Mount Kumgang on the east coast.

Work began at Kaesong in 2005 and the complex now has 22 factories with five more under construction. The workforce totals some 12,100 North Koreans, including construction workers, and 700 from the South.

Ambitious plans, strongly backed by the South Korean government, call for some 2,000 companies employing 350,000 people by 2020.

A management committee of the two sides touts Kaesong as “the hope for the future” of the two Koreas, which had almost no economic exchanges until a groundbreaking summit in 2000.

Committee chairman Kim Dong-Kun noted that Kaesong was one of the battlegrounds of the 1950-53 war which cemented the peninsula’s division.

“I am confident it will pave the way for peace and stability in the Korean peninsula and Northeast Asia but I realise this will only be through strong international support,” he told diplomats.

Visitors to Kaesong are greeted by a portrait of North Korea’s “Great Leader” Kim Il-Sung, who died in 1994, as they pass through the heavily fortified frontier zone.

But the fenced-off complex, funded almost entirely by the South, is otherwise a propaganda-free zone. North Korean officials refer to “South Korea” rather than the “south side,” as official media terms its neighbouring nation.

Pictures of North Korea’s Kim dynasty are not in evidence, apart from on lapel badges, and presentations praise the private sector.

Managers say they want to emulate Shenzhen, the special economic zone bordering Hong Kong which kick-started China’s economic boom. But unlike in Shenzhen, North Korean workers — described as diligent, well-educated and eager to learn — cannot spend their wages as they wish.

Companies pay the basic wage, 57 dollars and 50 cents a month for a 48-hour working week, to North Korean officials.

The officials, on average, return 15-20 percent to the worker in North Korean won and the remainder in the form of food and other essentials.

Given the North’s crumbling command economy and persistent food shortages, jobs at Kaesong are still apparently desirable.

“Because North and South Korea are working together, it feels great because unification will come sooner,” said one female worker at the ShinWon textile factory in a typical response.

Asked how much she earns, she told AFP through an interpreter that “we earn enough to make a living and keep our stomachs full.”

Kaesong’s supporters say it will narrow the huge economic gap between North and South but they seek foreign support. Apart from one Japan-invested joint venture, all factories at present are owned by South Korean companies which enjoy tax breaks to invest.

Six sites have been set aside for overseas firms in the first phase.

Goods are labelled “Made in Korea” and are covered by Seoul’s free trade deals with Southeast Asia. But the United States, which sealed an FTA with South Korea recently, agreed only to consider the Kaesong issue later.

The aim is also to revitalise South Korea’s small- and medium-size firms, especially textile companies which are struggling against competition from cheaper Chinese labour. Textiles account for almost half of Kaesong’s total production worth 115 million dollars since it opened.

Joong Ang Daily
5/22/2007

President Roh Moo-hyun said yesterday that his government will accelerate investment in North Korea’s Kaesong industrial park, regarding it as part of South Korea’s “unification expenses.”

“My government has not sped up the pace of its investment in the Kaesong industrial complex due to political risks. I now regret that,” the president said in an interview with the Maeil Economic Daily and its cable news affiliate MBN.

“Uncertainties surrounding investment in Kaesong will prove to be far less than expected, as the North Korean nuclear problem is certain to be settled through dialogue and confidence-building measures. Economic benefits from the Kaesong project are immeasurable.”

The president stressed that smooth operations of the industrial park will help South Korea’s external economic credibility and small businesses struggling with rising labor costs.

“The most important factor [involving Kaesong] is unification expenses. One of the surest ways to reduce the expense of unification is to make the Kaesong project successful. We have to expand our investment in Kaesong as soon as the North Korean nuclear problem is settled,” said Roh.

The industrial park is one of two flagship projects South Korea operates to promote reconciliation with North Korea, along with tours of the North’s scenic Mount Kumgang. Over 13,000 North Korean workers are now employed in Kaesong by 23 South Korean firms.

But opposition parties and other conservatives in the South are accusing the Roh government of having blindly offered excessive aid to the Kaesong complex and other inter-Korean cooperation projects.

Roh also reiterated his determination to pursue an FTA with China.

“A free trade deal with China is inevitable. But we’ll conclude it after completing the restructuring of our agricultural sector through the FTA with the U.S.”

Commenting on South Korea’s economic growth potential, Roh said the nation’s economic growth rate will soon rise again to the 7 percent level from under 5 percent due to positive effects from FTA deals and massive planned investments in the construction of new administrative, business and public corporation towns across the nation, which are estimated to reach 54 trillion won by 2010.

Reuters (Hat tip to DPRK Studies)
5/22/2007

The park is located in the North Korean border city of Kaesong about 70 km (45 miles) – (Reuters) – The Kaesong industrial complex in North Korea is set to grow by leaps and bounds in the next few years despite political problems in the wake of the communist state’s nuclear test last year, a South Korean executive said.

Here are some key facts about the Kaesong Industrial District:

LOGISTICS

The park is located in the North Korean border city of Kaesong about 70 km (45 miles) northwest of Seoul. A brand new highway runs through the Demilitarized Zone border taking workers from the South and finished products from the North.

Kaesong is the first cooperative manufacturing venture where South Korean firms use North Korean labour. It is run by Hyundai Asan, part of the Hyundai group, along with Korea Land Corp.

EMPLOYMENT

As of May 21, more than 14,000 North Koreans were employed at 23 South Korean factories producing items such as textiles, watches and cosmetic cases.

The minimum monthly wage is $50 for each employee as well as $7.50 for social insurance. The wages are paid to the North Korean state and not directly to workers.

CHARGES OF EXPLOITATION

In May 2006 Jay Lefkowitz, the top U.S. official for human rights in North Korea, raised concerns about possible worker exploitation at the complex. Lefkowitz said the well-intentioned project may simply end up providing funds that prop up the North Korean regime. South Korea rejects the criticism as biased.

DUTY-FREE EXPORT?

South Korea and the United States agreed to set up a joint committee to study allowing Kaesong products duty-free status in the U.S. market under a free trade deal struck in April. South Korea says future projects in the North will be entitled to the same privilege. Washington is less enthusiastic.

FUTURE PLANS

South Korea’s vision for the Kaesong project, which began in June 2003 with first batch of goods shipped to South Korea in 2004, includes more than half a million North Koreans employed by 2,000 firms and with hotels, golf courses and a “peace park”.

Daily NK
Kim Yong Hu
5/17/2007

Companies in Kaesung Delegate Management over to North Korea

Most of the factories in Kaesung Complex are facing financial problems, a report on the “Situation on 22 factories in Kaesung Industrial Complex” revealed by the Forum for Inter-Korea Relations.

According to the report, most of the companies in Kaesung Complex are facing entrepreneurial difficulties due to restraints in contracts and inadequate resources.

The Forum for Inter-Korea Relations (co-representative Kim Kyu Chul) has been monitoring the South-North economic cooperation. The forum released a report on the 15th which revealed that two companies leasing areas in Kaesung, Moonchang Industry and SJ Tech were facing management difficulties and handed over the right of management to North Korea’s managers. The companies have invested a total of 9bn won.

The Forum bases its evidence on result provided by legal representatives for the 22 companies in Kaesung, collected over a period of 2 years and a North Korean document on the business circumstances in Kaesung to collect difficulties of South Korean managers.

Mr. Kim said, “We confirmed through representatives of two companies leasing areas in Kaesung Complex, Moonchang Industry and SJ Tech that problems were being experienced due to insufficient human resources and freedom of enterprise” and revealed, “Moreover, these companies are facing such severe management difficulties that they have apparently designated the right of management over to the North.”

Regarding this, Director of SJ Tech Lim Hwang Yong said in a conversation with the DailyNK on the 15th, “There is absolutely no evidence to the claim that the companies in Kaesung have handed their business permits over to the North,” strongly denying the act. Similarly, an affiliate of Moonchang Industry commented that the claim was groundless.

In addition, many companies such as Sonoko Cuisineware, Daehwa Fuel Pump, Bucheon Industrial Company made large investments in equipment to manufacture and produce goods, but then again some companies are known to have begun other production such as paper folding. In order to recover from the entrepreneurial ditch, another company has begun manufacturing shopping bags. The total amounts invested by these companies exceed around 17bn won (US$18.3mn).

Regarding this, an affiliate of Sonoko Cuisineware said, “We are merely using our pre-existing equipment to manufacture shopping bags.”

Furthermore, according to the document, a shoe manufacturer Peace Company is using it’s materials initially designed for shoes to produce slippers as it faces management problems during this time. It seems that Peace Company is not able to utilize 100% of its factory materials due to a lack of human resources. Meanwhile, Samduk Comapny has actually made a loss of $1.8mn as a result of 10 different claims made following its entry in Kaesung complex.

Other companies including TS Precision, JC Com, Solu Tech, Magic Micro, HOSAN A.C.E which based their manufacture on electrical parts are currently deliberating in producing other goods, as the goods were found to be below standard due to lack of training and skills by North Korean workers.

An affiliate of TS Precision said, “Our company asked that the workers have basic understanding of maths and English. But no matter how many times we teach the North Korean workers, they do not understand” and revealed, “Currently, only a third of the factory is in operation, while the other materials are being considered to manufacture other goods.”

Lee Hyun Suk of JC Com said, “It is true that the produced goods are of low quality. This is because North Korean workers lack skills as a result of inadequate training” and asserted, “It has been two months since we asked for workers but still we have not been provided with the workers demanded.”

However, he added, “In order to overcome this issue, we are training the North Korean workers ourselves” but refused to comment on whether other goods were being considered for manufacture.

Of all the businesses experiencing management difficulties, Artrang, Pyongan and Sonoko Cuisineware are known to be preparing factory leases.

Mr. Kim revealed, “Companies finding it difficult to increase production with the original factory equipment are known to be leasing areas to other companies.”

He added, “Not only is it illegal for businesses to manufacture goods other than the items listed in the initial contract, it is also illegal to lease the areas to other companies.”

In relation to this, an affiliate of Sonoko Cuisineware said, “Companies other than Sonoko Cuisineware are using the location but after receiving a permit from the Ministry of Unification” and remarked, “However, these companies have not leased the area to help recuperate mismanagement but are rather producing goods needed for our business.”

On the other hand, 7 other companies are showing a glimmer of hope as they conduct regular operations. These companies include Good People, Shinwon, Cotton Club, Taesung Industrial, Sunghwa Trading, Jeil Sangpum and Grubig International Co.

Mr. Kim said, “Though many outsiders perceive Kaesung Complex as a success, the truth of the matter is that most of the companies are experiencing hardships” and asserted, “Unless management, employment, personnel and freedom of contract increases, it is unclear whether these companies will or will not succeed.” 

There has been a plethroa of articles on the ROK/DPRK train crossing.  Here is a grab-bag of facts and sources:

Joong Ang Daily
5/15/2007
Unification Minister Lee Jae-joung expressed hope that regular inter-Korean rail services would transport workers to an industrial complex in the North’s city of Kaesong as well as serve as a mode of transportation for South Korean tourists at the Mount Kumgang resort.  However, North Korea has only agreed to one test run.

The sticking point was the number of passengers aboard the trains. South Korea stressed the need for an equal number of North Koreans, but North Korea declined the offer, citing unspecified reasons, ministry officials said. The two sides will exchange passenger lists via an inter-Korean economic office in Kaesong tomorrow.

The two Koreas are set to conduct test runs on a 27.3-kilometer (17-mile) line between Munsan Station and Kaesong Station in the western section, and on a 25.5-kilometer line between Jejin Station and Kumgang Station in the eastern section.

Rare experience aboard N. Korean train across the border
Yonhap
Sohn Suk-joo
5/17/2007

At the urging of North Korean conductors, 100 South Koreans and 50 North Koreans boarded a five-car train at 11:25 a.m. With no speaker system at Kumgangsan Station at the North’s scenic mountain along the east coast, conductors repeated “Please board the train” through a loudspeaker mounted upon a South Korean-made Hyundai Starex utility vehicle.

Painted green on the main body and the roof a faint gray, the facade of the train was far from modern. “The train looks like South Korea’s obsolete third-class train, but its ability is better than that,” said Lim Jong-il, a South Korean official at the Ministry of Construction and Transportation.

South Korean Construction Minister Lee Yong-sup, Kim Yong-sam, the North’s railway minister, and some 20 South and North Korean journalists crowded into the second car of the train. The smell of new paint assailed the nostrils upon ascending the steps, while a pair of portraits of Kim Il-sung and his son Kim Jong-il hung on the wall above the door.

The seating arrangement was face-to-face, and refreshments for passengers were set on a small table in front of the window — one lemon-lime soda, one strawberry juice, one bottled water, two apples and a pear. North Korean female attendants served a cup of ginseng tea for passengers later.

The upright, ivory-colored vinyl seats were a little bit uncomfortable and did not recline, but the cushions were softer than they appeared to be.

Outside the window, a uniformed North Korean conductor waved a red flag and goose-stepped past the train, which signaled the impending departure. A few North Korean security officers came inside to check the number of passengers and asked journalists jostling for position to sit down.   

At 11:27 a.m. a long whistle sounded, reminiscent of an old-time steam locomotive. The train spluttered back and forth several times and then slowly started forward. “North Korean trains usually whistle a lot,” a South Korean transportation official said. 

North Korean middle school students, who attended a ceremony, started to wave their hands, and South Korean passengers responded in kind. The train moved out of Kumgangsan Station at the speed of 10 kilometers per hour, and North Koreans working nearby just looked at the train without reacting in a friendly manner.

Some 50 meters away from the railway on the right side, a paved road appeared as the scenic Mount Geumgang faded from sight. Rice paddies were waiting for rice seedlings to be planted, but no peasant was seen working outside.

Unexpectedly, well wishers were South Korean tourists traveling to the Mount Geumgang resort in a convoy of eight buses. “At this time of the day tourist buses go to the resort,” a South Korean official said.

At 11:30 a.m. the stretch of hills and mountains continued, and the clouds moved quickly against the blue sky, cleansed from the previous day’s rain.

A few Toyota jeeps driven by soldiers, military jeeps and trucks drove parallel with the train and then fell behind. North Korean soldiers were stationed at the checkpoints of major intersections.

Then the track turned sharply, a rare occurrence on South Korean track. The sharp turns came again and again, and a woman peeked outside the window at a nearby village.

The overall atmosphere was friendly, a throwback to a picnic in the 1970s-80s on a slow, squeaking train. Hills and mountains passed by, and splendid pine trees of all kinds of shapes. After awhile the Nam River appeared on the right side of the train. At one village, some 10 residents came out and looked over the communal wall to watch the passing train.

At 11:50 a.m. the train passed Samilpo Station. The painted name on the station was very small, like Kumgangsan Station, and an oversized portrait of Kim Il-sung hung on the front of the station, along with pro-communist and cult propaganda slogans.

The train crossed the river on a bridge restored with steel plates provided by South Korea. Outside the window, North Korean tourist attractions such as Haegumgang and Samilpo were seen a little farther away.

At 11:50 a.m. some passengers pushed up the windows, and the unpolluted air coming through the open windows refreshed them. A group of 10 North Korean soldiers stood guarding a storage house of diesel engine trains built for the railway test run. There was no other train in sight.

The train slowed down at Kamho Station, where North Korean customs officials were stationed. It was 11:55 a.m.

Around 12:00 p.m. four customs officials and two conductors boarded each car of the train. One of them shouted, “We fervently welcome you who have become the first passengers of the train! Now we will start customs clearance procedures.”

Conductors checked the identities of the passengers and digital cameras. They asked a passenger to delete a photo of portraits of Kim Il-sung and Kim Jong-il that had been blurred from the shaking of the camera.

At 12:15 p.m. the conductors suddenly moved to the exit and disembarked. They must have gotten orders to let it pass, as the inspection took longer than expected. The train started to move again right away.

“Now you will see an outpost about 200 meters. It is the Military Demarcation Line,” said Kim Kyong-jung, chief of the inter-Korean railway team at the Ministry of Construction and Transportation.

A sharp whistle blew, and the train picked up speed, double its previous pace. The shaking was palpable, but not enough to affect the bottles on the small table. With the speed increasing, the frequency of the whistle’s call also increased.

In five minutes, the train passed the Northern Limit Line and went into the Demilitarized Zone. At 12:21 p.m., it passed the Military Demarcation Line to roars of applause. The train slowed a bit and the passengers became quiet, awaiting arrival.

At 12:25 p.m., a South Korean tourist observatory appeared, and some 200 tourists on the porch waved their hands eagerly, welcoming the North Korean train. Wide paved roads came into view and the train arrived at Jejin Station five minutes later. Amid the loud sound of a welcoming brass band and the cheering crowd, the train stopped at a South Korean station for the first time in more than half a century.

Trains cross inter-Korean border for first time in over 50 years
Yonhap
5/17/2007

A North Korean train traveling on reconnected track along the east coast of the Korean Peninsula on Thursday crossed the heavily armed border to return to its point of departure after a brief stay here.

At the same time, a South Korean train returned to the South in the west of the Korean Peninsula.

Earlier in the day, the two trains, one carrying 100 South Koreans and the other 50 North Koreans, crossed the Military Demarcation Line (MDL) dividing the two countries for the first time in more than half a century.

“It took more than half a century to cross this short, approximately 20-kilometer distance. We have to prevent anyone from blocking the railways. They were so hard to reconnect,” Kim Yong-sam, North Korea’s railway minister, said in a luncheon speech after arriving here.

In response, South Korean Construction Minister Lee Yong-sup hailed the test run of the cross-border railways, suggesting South and North Korea cooperate in promoting the mutual interest and prosperity of the Korean people.

At 11:30 a.m., Lee, who led the 100-member delegation to North Korea Thursday morning, boarded the North Korean train in Kumgangsan Station near the scenic Mount Geumgang resort for a test run on a 25.6-kilometer track in the eastern section of the peninsula.

At the same time, Kwon Ho-ung, chief councilor of the North Korean Cabinet, who had led the 50-member delegation to the South, boarded the South Korean train at Munsan Station in the western side of the peninsula on a restored 27.3-kilometer track, along with his South Korean counterpart, Lee Jae-joung.

Before the trains departed, South and North Korea held ceremonies to mark the historic event at Kumgangsan and Munsan stations, respectively.

“I hope it will contribute to forming a joint economic community and making balanced development on the Korean Peninsula. A new curtain of peace has been raised on the peninsula,” Lee said in a commemorative speech.

In his speech, Kwon said that North Korea will make every effort to make sure that the “train of unification” runs along a “track” of inter-Korean collaboration, with its emphasis on peace and understanding.

“Right at this moment, however, the challenge from divisive forces inside and outside is continuing. We should not waiver or be derailed from the track of national sovereignty and inter-Korean collaboration,” Kwon said.

The one-time test run came only after North Korea reluctantly agreed to provide military security arrangements last week. The tracks have been set to undergo tests since they were restored in 2003, while a set of parallel roads has been in use since 2005 for South Koreans traveling to the North.

In May 2006, North Korea abruptly called off the scheduled test runs, apparently under pressure from its hard-line military. The cancellation led to the mothballing of an economic accord in which North Korea would receive US$80 million worth of light industry raw materials from the South in return for its natural resources. North Korea’s subsequent missile and nuclear weapons tests further clouded hopes of implementing the agreement.

The reconnection of roads and train lines severed during the 1950-53 Korean War was one of the tangible inter-Korean rapprochement projects agreed upon following the historic summit between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in 2000.

South Korea hopes to use the restored railways to help North Korean workers commute to a joint industrial complex in the North Korean border city of Kaesong as well as to transport South Korean tourists to the North’s scenic Mount Geumgang.

The Gyeongui (Seoul-Sinuiju) line cutting across the western section of the border was severed on June 12 in 1951, while the Donghae (East Coast) line crossing the eastern side was cut shortly after the outbreak of the Korean War.

South and North Korea used radio communication between Dorasan Station in the South and Panmun Station in the North for the western rail line, and between the South’s Jejin Station and the North’s Kamho Station for the eastern one. The stations are closest ones to the border on both sides.

In March, the two Koreas agreed to put humanitarian and economic inter-Korean projects back on track just days after North Korea promised to take the first steps toward its nuclear dismantlement in return for energy aid and other concessions from the other five members of the six-party talks.

South and North Korea are still technically at war, as the Korean War ended in an armistice, not a peace treaty.

Korean Train Crossing Seen as Sign of Progress
New York Times
Choe Sang-Hun
5/17/2007

[excerpts]

South Korea has long dreamed of building a trans-Korea railroad that would connect its train network to China and to the Trans-Siberian Railway in the former Soviet Union, creating a so-called Iron Silk Road.

North Korea blocks overland access to Asia, which makes South Koreans “feel as if we live in an island,” the South Korean transportation minister, Lee Yong Sup, said yesterday.

A trans-Korea railroad would offer a faster and cheaper way for South Korea to bring exports that are now shipped by sea to China and Europe. It would also provide a shortcut for Russian oil and other natural resources transported to South Korea. Such a rail system would save South Korea $34 to $50 a ton in shipping costs, said Lim Jae Kyung, a researcher at the Korea Transport Institute.

But before the dream of a trans-Korea rail system comes true, transportation analysts and government officials say, years of confidence-building talks and billions of dollars in investment in North Korea’s decrepit rail system will be needed.

Officials acknowledge that such a dream will not be made real until after North Korea gives up its nuclear weapons and improves its human rights record. Those moves would help build public support in South Korea for large investments across the border and would open the way for international development aid.

South Korean officials say a trans-Korea railroad would invigorate inter-Korean trade, which tripled from $430 million in 2000 to $1.35 billion last year.

It would also bring cash to North Korea, which could collect an estimated $150 million a year in transit fees from trains that pass through its territory, according to some estimates.

But it is unclear whether or when North Korea might agree to regular train service across the border.

Procuring international aid to renovate the rail network and letting trains from one of Asia’s most vibrant economies, carrying exports and tourists, rumble through its isolated territory could threaten the North Korean regime, analysts and others say.

The agreement came after South Korea promised to send North Korea 400,000 tons of rice, as well as $80 million worth of raw materials for shoes, soap and textiles.

South Korea has spent 544.5 billion won, or $589 million, on reconnecting the rail system, including 180 billion won in equipment, tracks and other material loaned to North Korea.

South Korean policy makers have called for patience in working toward reconciliation with the North. They have often been accused by conservative politicians and civic groups of giving in to North Korea’s strategy of extracting economic aid for every step toward reconciliation.

“This is a precious first step for a 1,000-mile journey,” Mr. Lee, the unification minister, said today.

South Korea has seen some tangible results in its overtures to the North in recent years.

The North Korean military cleared mines and moved some of its weapons to make room for the rail system and the Gaesong industrial complex. In addition, South Korean factory managers commute from Seoul to Gaesong using a road that was reconnected in 2004, and South Korean buses regularly take tourists to the Diamond Mountain resort in the North.

Joong Ang daily
5/15/2007

Seoul expects a response on the Kaesong issue at the next round of free trade talks, scheduled to start on July 16.

South Korea wants the European Union to include goods made at a North Korean industrial park in a proposed free trade agreement, casting a potential shadow over their trade negotiations, according to a South Korean negotiator yesterday.

The issue of the products from the Kaesong Industrial Complex was brought up during the first round of free trade talks last week between South Korea and the European Union.

Korea raised the issue in its recently concluded free trade talks with the United States, but the two sides agreed to discuss the matter later.

South Korea considers the industrial park, located just north of the world’s most heavily fortified border, as a model for inter-Korean economic cooperation. More than 10,000 North Korean workers have been employed by 15 South Korean companies in the pilot project, the Ministry of Unification said on its Web site.

“We asked the EU side to positively think over the Kaesong matter during the first round,” South Korean negotiator Nam Young-sook said in an interview with KBS radio. “A good result may be possible if we explain the matter’s symbolic nature well.”

The EU made no particular response to the South Korean request, Nam said, adding, “We will wait for a response in the second round.”

During the 10 months of free trade negotiations between South Korea and the United States, the industrial park was one of the thorniest issues, partially due to the North’s nuclear test in October of last year.

Park Ha-yeon, a spokeswoman of the EU’s delegation in Seoul, couldn’t immediately be reached for comment.

Last week, South Korea and the EU finished their first round of free trade talks in Seoul, with both sides saying they made good progress.

South Korean negotiators said both sides agreed to target eliminating at least 95 percent of the tariffs on goods within 10 years of implementation.

A second round of negotiations will take place the week of July 16 in Brussels.

The EU is South Korea’s second-largest trading partner after China. Two-way trade between South Korea and the EU totaled $79.4 billion last year, and Europe is the largest foreign investor in Seoul, with $5 billion invested in 2005 alone.

Korea Herald
5/12/2007

South and North Korea have agreed to guarantee security for test runs on cross-border rail connections. The accord will make it possible for trains to resume operations across the Demilitarized Zone after the Korean War stopped the railway service more than five decades ago.

But South Korea may not be 100 percent assured that the test runs will proceed as scheduled, given that North Korean commitments have more often than not proved unreliable. Actually, North Korea withdrew its security guarantee on the eve of the railway test runs that had been scheduled for May 25 last year.

Moreover, the security accord is flawed because it will not apply to commercial operations that will follow the test runs. South and North Korea will have to negotiate enduring rules governing inter-Korea railway transportation in the near future.

At the four-day general-level talks that ended on Friday, the North Korean military withheld a security guarantee for commercial operations for the incomprehensible reason that construction of a southern part of the eastern rail link has yet to be completed. Given that the part in question could be reconnected anytime, the North Korean military no doubt has ulterior motives, including extracting concessions from the South in exchange for a security guarantee.

It goes without saying that North Korea is misguided in refusing to guarantee security for commercial operations. It is North Korea that stands to benefit much more from the rail connections.

But South Korea should also be held accountable for the North’s irresponsible behavior. It made the wrong decision when it decided to provide the North with $80 million worth of intermediate materials for the manufacture of necessities and 400,000 tons of rice in exchange for railway test runs.

When negotiating the terms of commercial operations next time, South Korea will have to avoid making similar mistakes. It has no reason to accept being played for a fool when offering a helping hand.

Yonhap
5/9/2007

Despite lingering tension over North Korea’s nuclear weapons program, inter-Korean commercial trade surged 43 percent in the first quarter of this year, compared with the same period a year earlier, the Unification Ministry said Wednesday.

Commercial trade between the two Koreas increased to US$346.99 million in the January-April period, up from $243.36 a year ago, thanks to an influx of zinc bullion, sand, fishery items, shoes and clothing into a joint industrial complex in the North Korean border city of Kaesong.

The industrial complex is the crowning achievement of a landmark summit between the leaders of the two Koreas in 2000. South Korean businesses use cheap North Korean labor to produce goods in Kaesong where 21 South Korean factories employ about 11,160 North Korean workers.

“Non-commercial trade between the two sides dropped 24 percent during the same time span, so the total inter-Korean trade rose 25.5 percent to $411 million,” the ministry said in a statement.

In late March, South Korea started to send fertilizer aid and flood relief supplies to the North.

The shipment came weeks after the two sides agreed to resume humanitarian aid and family reunion events, just days after North Korea promised to take steps to shut down its main nuclear reactor and eventually disable it in return for energy aid from South Korea, the United States, China, Russia and Japan.

Shortly after the North conducted missile tests in July, the South suspended food and fertilizer aid along with its emergency aid to the impoverished North. In retaliation, the communist nation suspended inter-Korean talks, family reunions and the construction of a family reunion center.

American Enterprise Institute Book forum
4/17/2007

A couple of weeks ago, I had the opportunity to attend a book forum at the American Enterprise Institute on Nicholas Eberstadt’s new book, The North Korean Economy: Between Crisis and Catastrophe.  It was very informative to hear three different perspectives on the direction of North Korea’s economic reform.

Panelists included:

Nicholas Eberstadt, AEI
Andrei Lankov, Kookmin University
Deok-Ryong Yoon, Korea Institute for International Economic Policy

In summary, Mr. Eberstadt and Mr. Lankov are pessimistic about the North Korean leadership’s desire to enact reforms–knowing that information leakages will undermine their political authority.  As Mr. Lankov pointed out, the North Korean nomenklatura are all children and grandchildren of the founders of the country who are highly vested in the current system.  They have no way out politically, and as such, cannot reform.

They argue that the economic reforms enacted in 2002 were primarily efforts to reassert control over the de facto institutions that had emerged in the collapse of the state-run Public Distribition System, not primarily intended to revive the economy.  Lankov does admit, however, that North Korea is more open and market-oriented than it has ever been, and  Mr. Yoon was by far the most optomistic on the prospects of North Korean reform.

Personally, I think it makes sense to think about North Korean politics as one would in any other country–as composed of political factions that each seek their own goals.  Although the range of policy options is limited by current political realities, there are North Koreans who are interested in reform and opening up–even if only to earn more money.  In this light, even if the new market institutions recognized in the 2002 reforms were acknowledged only grudgingly, they were still acknowledged, and their legal-social-economic positions in society are now de jure, not just de facto.  The North Korean leadership might be opposed to wholesale reform, but that is economically and strategically different than a controlled opening up on an ad hoc basis–which is what I believe we are currently seeing. Anyway, dont take my word for it, check out the full commentary posted below the fold:

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Daily NK
Han Young Jin
5/1/2007

There is great interest over May 1st in North Korea. Every year, laborers from factories and businesses gather to unite and celebrate the special day.

The origin of May Day is well known throughout North Korea. Indifferently, in North Korea, the 1992 Korean Dictionary published by the Social Science Institute based on Pyongyang even states that May 1st was founded to commemorate the day in 1889 when the working class battled against the capitalists inciting a rally between the two classes in Chicago. This riot as we know today is the Haymarket Riot.

Unfortunately, this is propaganda used by North Korea is contradictory to the reality behind North Korea’s sweat shop labor. Even if North Korean laborers work every day for a month, they are not given rations properly yet their wages are extremely low.

According to wage specifications received last November for the wages of North Korean laborers in Kaesong Industrial Complex, each worker is entitled to 7,000won monthly. This includes wage and day-off allowances as well as “bonuses.” On the black market, US$1 equals 3,000won, so in actual each worker receives no more than US$2 a month.

The $57 sent by South Korean enterprises for each individual worker somehow falls into the hands of North Korean authorities. For this reason, some argue that South Korean businesses should develop a system to stop the exploitation of North Korean workers by paying workers directly.

Workers sent overseas are no different. Defector, Kim Tae San who was once the owner of a shoe factory in Czechoslovakia said, “North Korea laborers working in the Czech shoe factoriy generally have a ‘Loyalty to the authorities fund’ and this is where most of their money is pocketed. Most of the workers are merely left with $10~13 to live on a month.”

If this is the case for individual laborers in foreign countries, we can only fathom what the situation may be like for workers within North Korea.

In reality, the actual monthly wage for laborers in North Korea is approx. 5,000won. While the distribution system remains still, this amount of money is soon depleted after the purchase of 5kg of rice, as each kilo is worth 1,000won. Though miners are paid a little extra, the amount of money received is nonetheless insufficient.

The idea of exploitation by the capitalist is taking a new form in North Korea. The General Federation of Korean Trade Union which is supposed to represent the rights of a worker has merely become a sub-branch of the North Korean Workers’ Party.

Even the managers in the factories are governmental officials and deliberately antagonize the laborers. They are not concerned about the welfare of North Korean laborers nor do they have interest in better working conditions of laborers. Rather, they are too busy living off the money produced by the workers.

A defector in South Korea said, “In North Korea, the jobs without distributed rations and rice are spread everywhere. The People’s Safety Agency regulates people by forcing them to work in such factories.”

As it was in the past May Day’s principle is the guarantee for the exclusive rights of workers for a basic standard of living. In celebration of the upcoming May Day, a petition will be signed in Changwon city, South Kyungsang in South Korea for South-North Korean laborers and a May 1st workers unification rally for South and North Korean laborers as a symbol of the 6.15 Mutual Declaration.

Instead of raising their voices at political problems, they have to combine their voices for the preservation of rights of North Korean laborers according to the basic principles of May Day.

No doubt the biggest priority for laborers in North Korea is to solve the issue of living standards. Democratic Unions, a South Korean labors’ union must unite to pave the way and ensure the basic livelihood of North Korean workers. By doing this, we will be helping North Korean laborers.