North Korean Economy Watch

Ruediger Frank
Asian Perspective, Vol. 30, No.3, 2006 pp. 536

PDF Here: DPRK sanctions.pdf

Abstract:
This article explores sanctions as a policy tool to coerce North Korea’s behavior, such as by discontinuing its nuclear weapons program. It discusses the characteristics of sanctions as well as the practical experience with these restrictions on North Korea. It becomes clear that the concrete goals of coercion through sanctions and the relative power of the sending country to a large extent determine the outcome. Nevertheless, the general limitations of sanctions also apply, including the detrimental effects of unilateral and prolonged restrictions. It appears that the imposition of sanctions against the DPRK is unlikely to succeed. As an alternative way of changing the operating environment for North Korea, assistance deserves consideration. Despite many weaknesses, this instrument is relatively low in cost and risk, and can be applied continuously and flexibly.

Highlights below the fold:
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Korea Times
Kim Yon-se
2/26/2007

Hyundai Asan is considering building three golf courses in Kaesong, North Korea, by 2012 as its first round of development projects at the Kaesong Industrial Complex have almost been completed.

According to sources, the inter-Korean tourism operator of Hyundai Group is in talks with the North to build an 18-hole golf course in the North Korean city by 2010 and two more by 2012.

A Hyundai Group official said the proposed golf course would be the second of its kind. One golf course has already been developed near Mount Kumgang and is scheduled to open to South Korean tourists later this year.

In a statement, however, Hyundai Asan predicted that it will take some time before the plan is realized as the North’s stance has yet to decided.

The company said talks between the two countries for the second development project would be possible after the first project is completed.

North Korea has stirred controversy by negotiating with a small South Korean company, Unico, to build a golf course despite its initial contract with Hyundai Asan to develop golf courses around the Kaesong Industrial Complex.

Since last July, the North has banned South Korean visitors to the industrial complex from visiting the city’s downtown area including historic sites.

Hundreds of South Koreans, mostly businesspeople and government officials, had been allowed to make an excursion to the city of Kaesong during their visit to the industrial complex.

Hyundai had signed a memorandum of understanding (MOU) with Emerson Pacific Group, which has been constructing golf courses at the scenic resort area at Mount Kumgang, for the project in Kaesong.

Reuters (Hat tip DPRK studies)
2/26/2007

Senior officials from South and North Korea resume talks on Tuesday, seven months after dialogue broke down in acrimony over Pyongyang’s missile tests.

Following are key points in the ties between the two:

STILL AT WAR

– An armistice ending the 1950-53 Korean War dominates the relationship between the two Koreas. Nearly 1.2 million North Korean soldiers and South Korea’s 680,000 troops remain in a tense military standoff despite political and commercial ties that have warmed since 2000.

– The two have enough missiles and artillery pointed at each other to largely destroy major cities on both sides of the Korean peninsula.

POINTS OF EXCHANGE

– An industrial park in Kaesong just a few minutes’ drive from the heavily-fortified border is home to 21 companies employing about 12,000 North Korean workers.

– About 1.4 million South Koreans have visited the Mount Kumgang resort in the North just above the border on the east since the tours began in 1998. Roughly a quarter of a million made the visit in 2006 even as tension spiked following the North’s missile and nuclear tests.

– About 102,000 people crossed the border last year, not including Kumgang tourists and most of them South Koreans visiting the North for business. The total exchange of people was 269,336 as of the end of 2006.

TRADE

– Cross-border trade was $1.35 billion in 2006 up from $1.05 billion a year ago, largely from the strength of the Kaesong industrial park.

HUMANITARIAN AID

– South Korea has supplied between 200,000-350,000 tonnes of fertiliser a year to the North since 2000.

– It has also shipped up to 500,000 tonnes of rice a year to the North in the form of low-interest, long-term loans. Food aid has been suspended since the North’s missile tests in last July.

REFUGEES, PRISONERS OF WAR AND ABDUCTEES

– South Korea believes more than 1,000 of its people are still alive in the North either as civilian abductees or as prisoners captured during the Korean War.

– North Korea has said 10 South Korean POWs and 11 civilians were alive there.

– More than 1,000 North Koreans each year have fled hunger and persecution in the North and sought refuge in the South. In the first six months of last year, 854 arrived in the South for a total of 8,541. (Source: South Korean Unification Ministry, Kaesong Industrial District Management Committee, Reuters)

Yonhap
2/25/2007

Wages paid for North Korean labor in an industrial complex in the North’s western border town of Kaesong surged nearly 50 percent in the second half of last year, despite the communist country’s missile and nuclear tests, government data showed Sunday.

According to a report submitted by the Unification Ministry to the National Assembly, North Korean employees’ wages in the Kaesong industrial complex amounted to US$4.23 million in the second half of last year, up 48 percent from the first half’s $2.87 million.

“Even after the North’s missile tests and nuclear test (in October), the hard currency, which the international community takes issue with, continues to end up in the hands of the communist regime while the payment for the Kaesong workers also is expanding,” said Chin Young, a lawmaker of the main opposition Grand National Party, who released the report.

The Kaesong industrial complex is one of two major cross-border projects along with a joint tourism project at the North’s scenic Mount Geumgang.

In the joint industrial complex, South Korean businesses use cheap North Korean labor to produce goods. More than 20 South Korean factories employ a total of 11,189 North Korean workers in Kaesong.

The North, meanwhile, conducted missile tests in July and its first nuclear test in October in defiance of opposition from the international community.

Those incidents prompted a setback in inter-Korean relations and raised concerns that the money paid to the North in the industrial park could be funneled to the communist regime, an allegation that Pyongyang denied.

The report showed wages paid to the North Korean workers have been on the increase in the past few years. In 2004, they stood at $390,000 but rose to $2.76 million in 2005 and $7.10 million in 2006.

Korea Times
2/22/2007

Former U.S. Secretary of Defense William James Perry on Thursday called an inter-Korean industrial complex in Kaesong, North Korea, as the “future of the Korean Peninsula.’’

He made the remarks after a half-day visit to the joint venture.

Perry described the Kaesong complex as a very positive and impressive project to promote peace and prosperity on the Korean Peninsula, an official of the Ministry of Unification who accompanied Perry on the visit, said.

He also praised North Korean officials, calling them “frontiersmen,’’ the official said.

He led a five-member delegation including Stephen Warren Bosworth, former U.S. ambassador to Seoul, Kim Jeong-hun, a Korean-American businessman, and Ashton Baldwin Carter, a professor at Harvard University.

The American delegation was briefed by Kim Dong-keun, the president of the complex’s management committee, and it looked around two factories, including that of clothing manufacturer ShinWon.

During their four-day visit to Seoul, which ended Thursday, they met with Minister of Foreign Affairs and Trade Song Min-soon and leading presidential hopefuls including former Seoul Mayor Lee Myung-bak. The presidential poll is slated for Dec. 19.

The South Korean government plans to resume the expansion of the Kaesong site no later than mid-April.

Last Tuesday, the ministry said it plans to parcel out a 530,000-pyong lot for South Korean manufacturers. One pyong equals 3.3 square meters.

The land is the remainder of a lot of 1 million pyong that the two Koreas have been jointly developing since the first phase of the inter-Korean project. Under the project, a 20 million-pyong industrial base will be built for South Korean companies by 2012.

When fully expanded by 2012, the complex is expected to house about 2,000 South Korean manufacturers employing about half a million North Koreans, according to the ministry.

The industrial complex is one of two major cross-border projects South Korea has kept afloat despite the chilly inter-Korean relations. The two Koreas are also running a joint tourism project at Mount Kumgang in the communist North.

Korea Times
Lee Jin-woo
2/20/2007

Unification Minister Lee Jae-joung said Tuesday the ministry would resume the halted expansion of a joint industrial complex in the North Korean city of Kaesong no later than mid-April.

Last September, the South Korean government decided to hold off expanding the Kaesong complex because of heightened tension on the Korean Peninsula after the North’s test-firing of seven missiles in July. After Pyongyang’s first-ever underground nuclear test on Oct. 9, tensions increased further.

Minister Lee had been negative about the expansion of the joint business venture, saying more progress in the six-party talks as a prerequisite condition to proceed with the plan.

“We’ve already completed preparing some 3.3 million square meters of land there with almost perfect water and electricity supply,” Lee said in a press briefing at the ministry in Seoul. “Considering its important role for small- and medium-sized South Korean companies, I believe we should resume the expansion plan late next month or mid-April at the latest.”

The Kaesong site is one of two major cross-border projects South Korea has kept afloat despite the chilly inter-Korean relations. The two Koreas are also runing a joint tourism project at Mt. Kumgang in North Korea.

When fully expanded by 2012, the complex is expected to house about 2,000 South Korean manufacturers employing about half a million North Koreans, according to the Ministry of Unification.

The minister also said another inter-Korean summit would be a very useful tool to boost a more reconciliatory atmosphere on the Korean Peninsula, but said the government is not making any efforts to prepare for one.

“Just like the historic summit in June 2000 did, another inter-Korean summit would play a crucial role in bringing peace and prosperity between the two Koreas without a doubt,” Lee said.

“However, an agreement between the leaders of the two Koreas is necessary to realize another summit. We’re not currently working on the issue with North Korea.”

Lee also said South and North Korea should play a leading role in forming a separate peace forum among nations participating in the nuclear disarmament talks. The establishment of the peace forum was mentioned in an agreement made in Sept. 19, 2005, which laid out the course for North Korea’s eventual denuclearization.

“I’m not sure exactly how many nations will take part in the forum to guarantee peace on the Korean Peninsula. It could be four including the two Koreas, the United States and China,” Lee said. “However, Seoul and Pyongyang should play a leading role in preparing the forum.”

Lee said, if last week’s agreement in the six-party talks is carried out as planned, the two Koreas should begin to set up the peace forum at the same time.

On Feb. 13, the North pledged to take the first steps toward dismantling its nuclear program in return for energy aid and other humanitarian assistance during the six-party talks.

Land for S. Korean companies in Kaesong complex on sale next month: ministry
Yonhap
2/20/2007

South Korea’s Unification Ministry said Tuesday that it plans to parcel out a 530,000-pyeong lot for South Korean manufacturers in the inter-Korean industrial complex in Kaesong late next month. One pyeong is 3.3 square meters.

The land is the remainder of the 1-million-pyeong lot which the South and North Korean governments have been jointly developing in the western North Korean border town in the first phase of the inter-Korean project which is to construct a 20-million-pyeong industrial base for South Korean companies by 2012. The complex, if completed, is expected to employ as many as half a million North Korean workers for some 2,000-3,000 South Korean manufacturers.

The government originally planned to sell the lot in three stages last year, but had to put it off amid inter-Korean tension caused by the North’s missile and nuclear tests.

“I believe it’s proper to sell the lot as early as the end of next month,” Unification Minister Lee Jae-joung said, citing his report submitted to President Roh Moo-hyun on Feb. 6 on his agency’s business for this year.

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 per month are actually channels to funnel much-needed hard currency to the tyrannical North Korean regime.

Korea Times
Lee Jin-woo
2/9/2007
 
A group of 17 people including high-level executives from Moody’s Investors Service and Goldman Sachs made a half-day visit to the joint industrial complex in the North Korean border city of Kaesong on Friday, the Ministry of Unification said.

Three executives from each company were accompanied by officials from the Ministry of Finance and Economy as well as the Ministry of Unification.

The short trip was part of the foreign rating agencies’ annual meeting on South Korea’s sovereign rating.

During the visit, they received a briefing from officials of the Kaesong Industiral District Management Committee, which manages the site’s development process, and looked around the first completed district of the industrial complex.

The government has had to hold off its plan to sell the first batch of some 1 million pyong (3.3 million square meters) of land to South Korean companies that wished to move into the industrial complex.

The plan was initially scheduled in June last year, but was suspended indefinitely due to signs of a North Korean missile test. Pyongyang pushed ahead with its plan and test-fired seven ballistic missiles on July 5, which was then followed by its first-ever nuclear test on Oct. 9.

Moody’s upgraded South Korea’s rating to A3 in March 2002, its seventh-highest investment grade.

Officials, however, were cautious about the chances for a higher sovereign rating.

“It remains to be seen whether Moody’s will upgrade South Korea’s credit rating, but it’s true that they react quite sensitively to geopolitical issues related to North Korea,” said a ranking official of the finance ministry.

Another official expected a positive effect from the visit, saying “The outcome of the ongoing six-party talks in Beijing is most important without a doubt, but this trip will help officials of the foreign rating agencies have a better understanding of our efforts and faith in inter-Korean business projects.”

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 late last year.

By 2012, the complex is expected to house about 2,000 South Korean manufacturers employing about half a million North Koreans, according to the Ministry of Unification.

Korea Times
Lee Jin-woo
2/6/2007

High-level executives from Moody’s Investors Service and Goldman Sachs will visit a joint industrial complex in the North Korean border city of Kaesong on Friday, the Ministry of Unification said Tuesday.

The delegation includes Thomas Byrne, a senior credit officer for Korean affairs at the global credit appraiser Moody’s.

Three executives from each financial company will visit the Kaesong Industrial Complex accompanied by officials from the Ministry of Finance and Economy.

The half-day visit is part of the foreign rating agency’s annual meeting on South Korea’s sovereign rating. The Moody’s delegation will visit Seoul from Feb. 9-14.

The visit is aimed at observing North Korea’s economic situation and attitude toward economic reform, sources said.

North Korean officials are positive about the visit, a source said. The Stalinist state has not issued an invitation for the delegation as of 2 p.m. Tuesday.

Moody’s delegates will meet with officials from the Finance Ministry, the National Assembly, the Bank of Korea and other government offices in Seoul from Feb. 12-14.

In the meetings, the two sides will discuss South Korea’s macroeconomic policies, fiscal stability, ongoing negotiations on a U.S.-South Korea free trade agreement and the North Korean nuclear issue.

Moody’s upgraded South Korea’s rating to A3 in March 2002, its seventh-highest investment grade.

Moody’s Investors Service is a credit rating, research and risk analysis company. It has more than 9,000 customer accounts and employs more than 2,400 people, including more than 1,000 analysts, according to its Web site.

The Seoul branch of Goldman Sachs did not provide much detail on the scheduled visit.

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 late last year.

In 2012, the complex is expected to house about 2,000 South Korean manufacturers employing about half a million North Koreans, according to the Ministry of Unification.

Korea Times
2/5/2007

Hyundai Asan, the company specializing in inter-Korean business cooperation, Monday marked its eighth anniversary.

The affiliate under the Hyundai Group, led by Hyun Jung-eun, the widow of Chung Mong-hun, the successor of the group founder Chung Ju-yung, said that this year it plans to attract 400,000 tourists to Mt. Kumgang, the North Korean scenic mountain on the East Coast.

Hyundai Asan also said that it also will push ahead with tours of Kaesong, a historic North Korean city near the inter-Korean border that is home to a South Korean-invested industrial complex, this year so as to meet its sales target of 300 billion won.

Under its plan, Hyundai plans to hold working-level meetings with North Korea so as to hasten the start of the Kaesong tours.

However, industry observers say that Hyundai may find it difficult to meet this year’s sales goal because of the nuclear confrontation between Pyongyang and the international community. Last year, Hyundai set its target for tourists at 400,000 but fell short at 240,000 after a series of provocative actions by the North starting with its test of a nuclear device.

That worsened the financial situation of Hyundai Asan, forcing it to make 10 percent of its work force at its headquarters work from home in a restructuring move.

Hyundai officials said that this year the situation may improve, but this would be unlikely to have any direct bearing on its bottom line.

Yonhap
2/5/2007

The United States may recognize goods produced at a joint industrial complex just north of the border as South Korean if there is a change in circumstances, the top U.S. diplomat here said Monday.

In a one-hour meeting with Unification Minister Lee Jae-joung, U.S. Ambassador Alexander Vershbow said that while it is unrealistic to recognize the goods made in the border city of Kaesong as South Korean, there is room left to negotiate within the proposed free trade agreement (FTA) between the two countries, Unification Ministry officials said.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula. Vershbow said ‘if,’ but he did not elaborate on what kind of change under what kind of circumstances,” said a ministry official who was present at the meeting, but who asked to remain anonymous.

So far, the U.S. has avoided placing the issue on the official agenda of the FTA negotiations, so Vershbow’s remarks could be construed as a slight change in U.S. strategy toward forging a free trade deal with South Korea.

In spite of United Nations sanctions on the North following its nuclear weapon test in October, South Korea has kept two major cross-border joint projects afloat: an industrial complex in Kaesong just north of the border, and a tourism program at the North’s scenic Mount Geumgang.

In the industrial complex, South Korean businesses use cheap North Korean labor to produce goods. Twenty-one South Korean factories employ about 11,160 North Korean workers in Kaesong.

The six-party talks aimed at ending North Korea’s nuclear weapons program, involving the two Koreas, the U.S., China, Japan and Russia, will reconvene in Beijing on Thursday.

US May Accept Kaesong Goods
Korea Times
Ryu Jin
2/5/2007

The United States might recognize goods made at a joint industrial complex in the North Korean border city of Kaesong as South Korean products in a proposed free trade agreement (FTA) if there is a change in circumstances, the top U.S. diplomat in Seoul said Monday.

U.S. Ambassador to Seoul Alexander Vershbow said in a meeting with Unification Minister Lee Jae-joung that, although it seems unrealistic at the moment to recognize the Kaesong products as South Korean, there is room left to negotiate within the proposed FTA.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula,” a ministry official said after the meeting. “Ambassador Vershbow said `if,’ but he did not elaborate on what kind of change under what kind of circumstances.”

Vershbow’s remarks could be interpreted as a sign of change in U.S. strategy since Washington has so far refused to deal with the issue as an official agenda item in the ongoing negotiations for a South Korea-U.S. FTA.

Inter-Korean ties have soured in recent years in tandem with the deteriorating North Korea nuclear standoff. But the six-party talks aimed at ending North Korea’s nuclear program is expected to see a substantial progress in the coming round of negotiations.

South Korea has kept afloat its major cross-border projects with North Korea, including the joint industrial park in Kaesong and a tourism program at the North’s scenic Mt. Kumgang, even after Pyongyang’s nuclear test in October.

South Korea has exerted much effort to have its counterparts in FTAs, such as Southeast Asian countries, recognize the Kaesong products as “made in Korea” because it has a significance to further promote the joint industrial project.

A total of 21 South Korean factories are operating in the Kaesong industrial park at present, employing over 10,000 North Korean workers.