North Korean Economy Watch

Hankyoreh
4/6/2007

At first reclusive, North’s workers are smiling, eating together with Southern counterparts

Two years after the Gaeseong (Kaesong) Industrial Complex began operations, the attitude of North Korean workers toward their South Korean employers has significantly changed for the better, according to heads of South Korean plants located in the joint Korean industrial park.

Ra Sang-jin, 66, the plant chief of Daehwa Fuel Pump, which started operations at Gaeseong in June 2005, said North Korean workers’ attitude toward their South Korean employers has changed. When Ra came to Gaeseong, North Koreans disliked South Korean employees coming to restaurants for the Northern workers, for at Gaeseong, the restaurants are divided along the lines of ’North’ and ’South,’ as the North Korean workers were at first reluctant to dine with Southerners. Currently, however, Ra frequently visits North Korean restaurants and is asked by North Korean workers to join in a a meal.

“It seemed to take seven to eight months to remove the wall,” Ra said. North Korean workers are also adapting to the lifestyle at Gaeseong at a faster pace than before. “Recently, some North Korean workers are smiling after only three or four months,” Ra said.

North Korean workers’ reclusive habits – having not met any South Koreans before – have changed, as well. Hwang U-seung, 46, the plant chief of Shinwon, said, “When I meet a North Korean worker on the street and ask which company she is working for, she answers me. That was impossible in the early days [of the Gaeseong complex],” Hwang said. Baek Yeong-ho, 59, the plant chief of Pyeonghwa Shoes, “In early days, the North Korean workers didn’t go to the bathroom alone,” like some sort of old-fashioned social habit. “But they do now. They also don’t step aside when South Koreans are passing.”

Some Korean cowerkers are picking and choosing from the language of the other country, as the language in the North and South has been rendered different after more than 50 years of separation. For example, some South Korean workers call a toilet ‘wisaengsil,’ the North Korean term, and Some North Korean workers call the toilet ‘hwajangsil,’ the South Korean term.

Meanwhile, at first only North Koreans used their common phrase, “Ileopseupnida,” which to them means “no problem” but has a slightly rude meaning in South Korea, akin to “I don’t care.” Now, Northerners and Southerners alike use the phrase. A South Korean who has been working alongside North Koreans at Gaeseong said that “my family in South Korea sometimes tells me my accent has become a little strange.”

Yonhap
4/5/2007

Commercial trade between South and North Korea rose 40 percent to US$187.08 million year-on-year in the first quarter, a top unification official said Thursday.

The increase was mainly attributed to an influx of zinc bullion, sand, fishery items, shoes, clothing and watches into a joint industrial complex in the North Korean border city of Kaesong.

“But noncommercial trade between the two sides rose a mere 6.7 percent to $278.11 million in the first quarter because of the halt in government and civic aid to the North,” Vice Unification Minister Shin Un-sang said in a press briefing.

Last week, South Korea sent the first batch of its promised 300,000 tons of fertilizer aid as well as flood relief supplies to the North.

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.

In March, the two Koreas 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.

Yonhap
4/3/2007

Incoming Prime Minister Han Duck-soo said Tuesday that goods produced in a joint industrial complex in North Korea will benefit from a free trade pact agreed upon with the United States the previous day.

Denying reports that the free trade agreement put aside the country-of-origin issue for future negotiations, Han said that the two countries cleared the way for treating goods produced in the Kaesong Industrial Complex as made in South Korea.

“The media reports that the Kaesong Industrial Complex was put on as a ‘built-in’ agenda are not true,” Han, who took office early in the day, told reporters in his inaugural press conference at the government building.

A “built-in” agenda refers to a negotiating scheme for sensitive issues in which the countries involved agree to put them on hold and discuss them in the future. Local reports have called the Kaesong issue “built-in,” as Seoul has been pushing for its inclusion in the trade deal despite Washington’s objection.

Under the deal, the two sides agreed to establish a “committee on outward processing zones on the Korean Peninsula” to discuss the Kaesong issue as part of their trade liberalization. But they also stipulated that such a step will be made under specific circumstances, such as the progress in denuclearizing North Korea, according to a statement by the Ministry of Foreign Affairs and Trade.

Han said the agreement is in line with South Korea’s constitution that its territory is the entire Korean Peninsula, and it does not recognize North Korea as a state.

Han also said the government will make public all of the contents of the agreement in mid-May when it is expected to be completed, and all the documents related to the agreement will be released three years later.

The Kaesong complex, just north of the inter-Korean border, is one of two flagship projects the South operates in the spirit of reconciliation with the North following the historic inter-Korean summit in 2000. Over 11,000 North Korean workers are employed by dozens of South Korean companies there, where they produce garments, utensils and other labor-intensive goods. Another reconciliation project is the operation of tours to the North’s scenic Mount Geumgang.

South Korean companies operating in Kaesong say the inclusion of the goods in the FTA is crucial, as this will allow them to export goods to the world’s largest market, as well as provide a template for future trade deals with other countries. 

U.S. Accepts Kaesung Industrial Complex as an “Outward Processing Zones”
Daily NK
Kim Song
4/3/2007

A press conference was held following the conclusion of the Korea-U.S. Free Trade Agreement (FTA) on the 2nd where Korea’s Trade Minister Kim Hyun Chong announced, “The U.S. agreed to recognize the Kaesung Industrial Complex as a remote location.” By this he meant that goods manufactured in Kaesung complex would be accepted as goods made in Korea.

As annexes to the agreement, Committee on Outward Processing Zones on the Korean Peninsula must be established. Undeniably, the article also states that the contents would have to be approved by the U.S.

It seems that both sides agreed that this approach would be the U.S.’s minimal request and compromise on the Kaesung issue and a built-in tactic to keep the negotiating flame burning rather than a deal-breaker.

Previously, the U.S. made concessions regarding Outward Processing Zones with Singapore and Israel’s FTA. As for Korea, these preferential tariffs, not only acknowledges goods manufactured from Kaesung by the FTA, but sets a standard to other sectors in the world such as the European Free Trade Association and ASEAN.

It appears that the recognition of Kaesung as an Outward Processing Zone was based on an agreement that the Korean Peninsula would advance towards denuclearization.

The denuclearization of the Korean Peninsula will eventually lead to the removal of laws that will further eliminate hostile diplomacy and trade between the U.S. and North Korea. It is possible that denuclearization will establish the normalization of U.S.-North Korea relations and solve the issue of Kaesung naturally, in due time.

However, the denuclearization of the Korean Peninsula is not something to be solved within a short time. As a U.S. official once revealed, amity between the U.S.-North Korea can only be possible when North Korea decides to comply with the rules of the international community. In the bigger picture of the Korean Peninsula and economic conglomerate, Kaesung in relation to denuclearization is only a long-term sketch.

Furthermore, there is one minor glitch. Kaesung complex does not match the international standards accepted by the U.S. in relation to labor requirements and such. At any opportunity given, Jay Lefkowitz, U.S. Special Envoy on Human Rights in North Korea, has continuously targeted wage issues at Kaesung complex. Additionally, there have been many criticisms on pay issues regarding North Korean laborers working even within the nation, as well as violations to contracts of employment.

Throughout the FTA, President Roh Moo Hyun has been striving to protect rice while trying to negotiate the Kaesung Industrial Complex. Though President Roh argues that political calculations were omitted from the negotiations, these two issues contradict his words.

Some argue that the future will depend on South Korea’s attitude to the U.S. It is even possible that this is a political attempt by the U.S. to lure North Korea into denuclearization.

Yonhap
4/2/2007

North Korea has welcomed the just-signed free trade agreement between the South and the United States on Monday, seeing its possible role of promoting an inter-Korean industrial complex in its territory, Pyongyang’s management body of the complex said.

In the trade pact, the two sides agreed to hold further negotiations on goods produced in the Kaesong industrial complex, which Seoul wants to be treated as made in South Korea.

Pyongyang sounded upbeat that the pact has left room for the inclusion of Kaesong goods in the trade deal.

“We welcome sincerely (the fact) that the South Korea-U.S. FTA agreement has prepared the foundation for the goods from the Kaesong industrial complex to be treated as made in South Korea,” the Kaesong Industrial District Management Committee, which oversees the joint project between South and North Korea.

The Kaesong complex, just a few kilometers north of the inter-Korean border, is one of two flagship projects the South operates in the spirit of reconciliation with the North following their historic summit in 2000. Over 11,000 North Korean workers are employed by dozens of South Korean companies producing garments, utensils and other labor-intensive goods. Another reconciliation project is the operation of tours to the North’s scenic Mount Geumgang.

South Korean companies operating in Kaesong say the inclusion of the goods in the FTA is crucial, as this will open the doors for their exports to the world’s largest market and will also provide a template for future trade deals with other countries.

Yonhap
Kim Hyun
3/28/2007

South Korea’s major opposition Grand National Party showed flexibility Wednesday in dealing with the United States over an inter-Korean industrial park in North Korea as negotiations for a free trade agreement (FTA) go down to the wire.

The Kaesong industrial complex is one of the sensitive issues dividing Seoul and Washington in their final negotiations, which end Friday. Seoul wants to have goods produced in the joint industrial complex treated as South Korean-made products, but Washington is against it.

The pro-government Uri Party has been prioritizing the country of origin issue in the talks, while its conservative rival, the Grand National Party (GNP) says the dispute over the Kaesong project “is not a big problem.”

The made-in-Kaesong label will make its way abroad when North Korea earns its international credit, and should not be treated as crucially as the issues of rice or beef in the negotiations, the GNP said.

“When inter-Korean relations get on a normal track, it will naturally become much easier (for the South) to operate the Kaesong industrial complex,” Rep. Yun Kun-young, the leader of the party’s special committee on the free trade talks, told reporters.

In a tougher stance, the pro-government Uri Party has put the inter-Korean project as the No. 1 item on its must-have list. In a letter to the main U.S. representative in the talks, Susan Schwab, on Tuesday, the liberal party asked Washington to accept the Kaesong complex in the deal, along with other key demands, such as the exclusion of rice.

“We stress that ratification of the Korea-U.S. FTA in the National Assembly will be determined by the manner that the above demands are integrated into the agreement,” the party said in the letter.

The Kaesong complex, just a few kilometers north of the inter-Korean border, is one of two flagship projects the South operates in the spirit of reconciliation with the North following their historic summit in 2000. Over 11,000 North Korean workers are employed by dozens of South Korean companies producing garments, utensils and other labor-intensive goods. Another reconciliation project is the operation of tours to the North’s scenic Mount Geumgang.

South Korean companies operating in Kaesong say the inclusion of the goods in the FTA is crucial, as this will open the doors for their exports to the world’s largest market and will also affect future trade deals with other countries.

The Assembly is expected to vote on ratifying the deal in August or September if it is signed as scheduled this week. Currently, a majority of lawmakers support the proposed deal.

Sources say the South Korean government has agreed with the U.S. to include the Kaesong complex in a “built-in agenda” in the deal, allowing both sides to hold further negotiations on the issue after reaching a deal.

The issues that the two biggest parties agree are not open to negotiation in the FTA deal are the exclusion of rice, the immediate and complete lifting of tariffs on South Korea’s key exports, such as cars, and the assurance of customers’ rights in medicine and sanitary areas.

Aside from the main parties, however, dissenters and members of minor parties are protesting the FTA. A group of liberal lawmakers, including some presidential hopefuls, have gone on a hunger strike against the deal.

“I cannot possibly sit by idly watching the government unilaterally push for the negotiations and ignore the national interest,” said Rep. Kim Geun-tae, a former health minister and a presidential contender from the pro-government Uri Party, launching his hunger strike at the parliament on Tuesday.

Moon Sung-hyun, chairman of the progressive Democratic Labor Party, continued a hunger strike Wednesday in front of the presidential office that has entered its 21st day.

Korea Times
Kim Sue-young
3/25/2007

South Koreans will now be more easily able to visit the Kaesong area in North Korea as an invitation from the North is not required, officials of the Unification Ministry said.

For visit to the joint inter-Korean industrial complex in the city, the North Korean association on economic cooperation used to issue an invitation but an admission ticket from the Kaesong Industrial District Management Committee (KIDMC) is now sufficient, they said.

“Recently, North Korean authorities which manage the complex and the committee agreed to abolish the invitation system during a discussion over rules on entry and stay,’’ an official said on condition of anonymity. “Instead, visitors should get a pass from the committee and long-term visitors who will stay for more than seven days should register at North Korea’s immigration office.’’

The two Koreas are talking over details to simplify the entry but have difficulties narrowing differences on the amount of charges that visitors should pay for the pass and registration, he said.

Officers of South Korean companies in the area, however, expressed worries over North Korea’s possible demand for expensive fees.

“Under the previous rules, visitors had to pay some amount of money when they obtained documents for stays, extended expiration dates or changed their addresses,’’ another official said asking to remain anonymous.

“Companies in the complex, however, may face problems doing business in the complex if the burden from those fees are heavier than the convenience brought by dropping the invitation system.’’

As for the worries from resident companies in Kaesong, the ministry official said, “It is unavoidable to impose some amount of money for guaranteeing a person’s identity.’’

Both sides are still discussing reasonable charges, he added.

Meanwhile, the North is pushing to establish a special economic zone on two islets located near the border of China. The zone is aimed at gaining China’s investment and reviving the declining economy, another source said.

Pyongyang is seeking to create a free trade zone on the Bidan and Wihwa islands on the Yalu River bordering China and has sounded out South Korean companies on their investment plans for the project, the source said.

The economic zone would specialize in areas such as trade, distribution, light industries and tourism, it added.

Yonhap
3/25/2007

South Korea will begin preparations for the development of a 2.5-million-pyeong area in the inter-Korean industrial complex in Kaesong, North Korea in the second half of this year, the Unification Ministry said Sunday. One pyeong equals 3.3 square meters.

The government will measure and conduct a geological survey of the land in the western North Korean border town for the second-stage construction of the industrial complex, the ministry said.

The construction project aims to build a 20-million-pyeong industrial base in three stages for South Korean companies by 2012. The complex, if completed, is expected to employ as many as half a million North Koreans to work for about 2,000-3,000 South Korean manufacturers.

The government originally planned to embark on the second-stage project last year, but had to put it off amid inter-Korean tension caused by the North’s missile and nuclear tests.

The ministry also said it plans to parcel out a 530,000-pyeong lot for South Korean manufacturers late next month. The land is the remainder of the 1-million-pyeong lot the South and North Korean governments have been jointly developing in the industrial complex.

The Kaesong industrial complex is one of the two major cross-border projects that South Korea has kept afloat in spite of U.S. opposition. The two Koreas also run a joint tourism project at the North’s scenic Mount Geumgang.

In the industrial complex, South Korean businesses use cheap but skilled North Korean labor to produce goods. Currently, 21 labor-intensive South Korean factories employ about 11,160 North Korean workers.

But U.S. hard-liners criticize the complex, claiming that the factories where North Korean workers earn about US$60 a month are actually channels to funnel much-needed hard currency to the tyrannical North Korean regime.

Korea Times
Lee Jin-woo
3/19/2007

North Korea has demanded that South Korean visitors or residents at a joint inter-Korean industrial complex in Kaesong, just north of the Demilitarized Zone (DMZ), pay registration fees, the Ministry of Unification said Monday.

The ministry, however, withheld the exact amount of money that Pyongyang demanded.

“I want you to understand it as a visa fee. It’s natural for one country to ask visitors from another nation to pay a certain amount in registration fees,’’ Unification Minister Lee Jae-joung told reporters.

Another ranking official also declined to reveal the amount of money proposed by the North, only saying there is a certain gap between the two sides.

Under an agreement on the operation of the Kaesong site signed in December 2003, South Korea is supposed to pay fees in accordance with the period of residence.

It defines a short-term stay as within 90 days and a long-term stay as more than 90 days. A South Korean who stays in the complex for over a year is defined as a resident.

South Koreans, however, have not paid any registration fees to the North Korean authorities because there has been no detailed regulation since the agreement was signed.

Currently, about 800 South Korean residents live at the complex, where South Korean businesses use cheap North Korean labor to produce goods. Some 21 South Korean factories employ about 11,160 North Korean workers there.

Meanwhile, Minister Lee marks his 100th day in office today. He took office on Dec. 11 last year despite vehement opposition from the main opposition Grand National Party (GNP).

After more than a seven-month chill, inter-Korean relations have been restored recently with several talks between the two Koreas underway to improve the reconciliatory atmosphere on the Korean Peninsula.

Asked to choose the most satisfying moment he had in the past 100 days, Lee picked the 20th inter-Korean Cabinet meeting held earlier this month in Pyongyang.

During the four-day ministerial talks which ended March 2, the two Koreas agreed on several principles including the resumption of family reunions using video links from March 27 to 29.

In inter-Korean Red Cross talks, the two sides recently agreed to resume construction of the reunion center beginning March 21.

Daily NK
Kim Song A
3/12/2007

Inter-Korean Economic Cooperation “Motive on driving a stable complex”

A claim has been made suggesting that North Korea will reallocate 3,000 workers from Pyongyang to Kaesung Industrial Complex.

Representative Kim Kyu Chul of the Citizen’s Solidarity for Inter-Korean Economic Cooperation revealed on the 11th, “North Korea’s Guidance Bureau for Developing Central Special Economic Zone informed the plan to the South Korean government and enterprisers who are moving in the zone and asked them to provide employees with accommodation.”

Representative Kim informed “In the past, the North has employed workers from other regions to maintain stable human resources… For the first time, workers from Pyongyang will be employed at Kaesung Industrial Complex. These people will be amongst the 18,000 skilled workers already working at Kaesung.”

Furthermore, Representative Kim disclosed his opinion, “The motive behind the North’s recent plan is its determination to establish a more stable Kaesung Industrial Complex and to minimize insecure business aspects related to human resources.”

In response, a South Korean governmental official said “The issue of worker’s accommodation has been a case continuously faced by the North” and added “We cannot know the North’s specific intentional plan for human resources but we will keep in contact to discuss these practical affairs.”

Presently, 11,740 North Korean and 689 South Korean full-time employees are working at Kaesung Industrial Complex. In the case a 3,305km square of factories site on the first phrase is completed as scheduled for this year, then 300 or so companies will be able to lease the area. Consequently, the number of North Korean workers needed at Kaesung Complex will exceed 80,000.

In addition to this, the Korea Industrial Complex Corporation announced that apartments approx. 22.5km square would be on the market until the 14th, for 40 or so companies interested in the factory complex. The Korea Land Corporation will also begin inspections next month in order to find a location for a 1,752km square factory site.

Korea Times
Park Hyong-ki
3/7/2007

The outlook for inter-Korean trade this year seems bright, as North Korea agreed to dismantle its nuclear weapons programs at the six-party talks in Beijing last month.

According to a survey conducted by the Korea International Trade Association (KITA), about 45 percent of South Korean companies doing business with North Korea were optimistic that the volume of inter-Korean trade will grow this year. The survey was conducted on 150 firms in February.

Some 35 percent believe that the bilateral trade will remain the same as last year’s, while only 15 percent showed negative responses toward this year’s trade, saying that the volume will “drastically” decrease.

Only two companies said they will pull out of North Korea this year, while five companies were undecided.

Last year, inter-Korean trade amounted to about $1.3 billion, up 28 percent from 2005. Key trading commodities were agricultural, chemical and textile products.

Despite North Korea’s nuclear and missile tests as well as chilly inter-Korean relations last year, South Korean companies operating in the Kaesong Industrial Complex saw their sales grow 69 percent to $298 million.

The Kaesong site is one of the major cross-border projects symbolizing economic ties between the two Koreas, which utilize North Korea’s cheap labor and South Korea’s technological skills.

The Ministry of Unification is hoping to attract about 2,000 manufacturers to Kaesong by 2012. Currently, there are 55 South Korean firms operating in the joint economic zone, which account for 22 percent of overall South-North business, according to the trade association.

The other joint business _ the Mt. Kumgang tour managed by Hyundai Asan _ suffered from the aftermath of North Korea’s nuclear weapon test. The tourism project recorded only $57 million in sales, down 35 percent from the year before.

Specifically, a total of 477 South Korean companies participated in inter-Korean trade last year, down from 523 firms in 2005, due to heightened risks following Pyongyang’s nuclear test.

About 44 percent of those surveyed said that the test had negatively affected their business with the North. The report showed that only 39 percent reaped a “little” profit last year while doing business with North Korea.

Half of firms upbeat for North trade
Joong Ang Daily
3/8/2007

Almost half of South Korean companies doing business with North Korea said they have a bright outlook for inter-Korean trade this year due to expectations for better ties with the North, a poll said yesterday.

According to a survey of 67 companies conducted by the Korea International Trade Association, 45 percent of the respondents said inter-Korean trade will likely increase this year. Thirty-five percent expected trade to remain at the same level as last year while 15 percent said it will likely decline.

The poll also said 75 percent of local companies operating in the industrial park in the North’s border city of Kaesong had an optimistic outlook for trade. The industrial complex, mainly for smaller South Korean firms, is considered a model for reconciliation and cooperation between the two Koreas. Currently, 21 garment and other labor-intensive South Korean plants are operating there, employing about 11,000 low-paid North Korean workers.

The survey said among the firms that forecast inter-Korean trade to rise, 17 percent said their continued trust in North Korean firms was the reason for their upbeat outlook, while 16 percent and 14 percent said it was a rise in new orders and expectations for inter-Korean reconciliation. The survey was conducted before a deal on dismantling North Korea’s nuclear program was reached, reflecting that local firms have maintained a positive view toward inter-Korean trade. The agreement calls for Pyongyang to shut down and disable its main nuclear reactor and dismantle its atomic weapons program.