North Korean Economy Watch

Joong Ang Daily
12/22/2006
Ser Myo-ja

Amid the ongoing six-party talks and criticism that inter-Korean economic projects have helped North Korea finance its nuclear arms program, South Korea celebrated a cross-border power cable connection yesterday for the Kaesong Industrial Complex.

A ceremony to mark the connection took place yesterday inside the demilitarized zone between the two Koreas. Also yesterday, the nation’s top North Korea policymaker said the economic cooperation programs are crucial to maintaining peace on the Korean Peninsula.

(more…)

Joong Ang Daily
Lee Young-jong
12/13/2006

North shows an interest in Kaesong legal systems

North Korea has shown interest in introducing the legal taxation and accounting systems used in the market economy at the Kaesong Industrial Complex, Vice Unification Minister Shin Un-sang said yesterday.

Speaking at an academic forum sponsored in Seoul by the North Korean Law Research Institute to discuss how to establish the systems in the complex, Mr. Shin said, “North Korean officials’ perceptions in regard to establishing market-economy legal systems for the Kaesong Industrial Complex are changing. In the past, they have shown negative perceptions, but lately they have expressed a high interest and sympathized with the necessity of those systems.”

The vice unification minister said establishing a legal framework in line with international standards is essential for the stable development of the complex.

In the complex, 15 subregulations on taxation, labor and so on have been enacted since it opened in December 2004. Currently, about 10,000 North Koreans work in 18 South Korean companies in the complex.

Meanwhile, Jay Lefkowitz, the United States’ special envoy on human rights in North Korea, said last week that Seoul needed to use the complex as a pretext to pressure Pyongyang on human rights issues by opening it up for international inspection.

He said Seoul was one of the few countries to have enough leverage to pressure the North.

Korea Times
Lee Jin-woo
12/12/2006

Kaesong to Test Market Economy

Vice Minister of Unification Shin Un-sang said Tuesday North Korea is interested in introducing a market-style economy in the joint inter-Korean industrial complex in Kaesong, North Korea.

“It’s been true that North Korea has been quite reluctant about introducing market economy-based regulations,” Shin said during a seminar on inter-Korean relations and North Korean law held in Seoul. “However, they recently agreed on the need to develop new legal conditions for the Kaesong Industrial Complex, especially in terms of taxation and accounting.”

The vice minister said the new regulations for Kaesong have great symbolic meaning in that they would significantly help North Korea better understand the legal system of a market economy, which is different from their Stalinist system.

Shin predicted that if the market system is working successfully in Kaesong, North Korea would expand the capitalist system in the rest of the country although he was unsure when the expansion would be made.

Shin, however, said there would be a number of stumbling blocks that the two Koreas have to deal with, as the two nations’ legal systems differ in many respects.

The two Koreas abide by a special law comprising some 15 lower-level regulations on minimum wages and basic taxation, mainly aimed at the management of the joint inter-Korean venture.

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 last month, according to the Ministry of Unification.

It’s been 34 months since Hyundai Asan, the South Korean developer of the joint industrial park, first hired a group of 42 North Korean construction workers in February 2004, the ministry said.

Korea Times
11/26/2006

A North Korean insurance company compensated a South Korean firm for a car crash at the joint inter-Korean industrial complex in Kaesong, North Korea, for the first time, reports said yesterday.

A bus belonging to the Kaesong Industrial District Management Committee, which legally belongs to the Stalinist North, and a vehicle of the Korea Land Corp., a state-run company of South Korea, collided at the complex on July 12, according to reports.

The South Korean company had its car repaired in the south, but asked a North Korean insurance company to cover the bill, which was estimated to be around 1.1 million won ($1,160).

After consulting both companies, the North’s insurance company decided the bus driver was responsible for 80 percent of the incident, paying some 840,000 won, which was actually paid in U.S. dollars, to the South Korean company on Sept. 21.

Some 21 South Korean firms operate factories, using cheap but skilled North Korean labor in the complex, which opened in June 2004. The number of North Koreans at the complex exceeded 10,000 last week, according to the Ministry of Unification.

Joong Ang Daily
11/8/2006

Amid continued concern that money spent on the Kaesong inter-Korean industrial complex fuels Pyongyang’s military, the Unification Ministry said yesterday that most of the wages paid by South Korean companies buy daily supplies and food for North Korean workers.

Song Yong-deung, 66, a Korean-Australian who operates a Kaesong-based food and supply company jointly owned by North Korea, told the ministry that his company regularly provides goods to North Korean workers, according to a press release from Goh Gyeong-bin, an official in charge of the complex. Song’s company gets money from North Korean authorities, who in turn accept the wage payments from the South Korean companies operating the complex. The North Korean workers do not directly receive their salaries.

According to data provided by Mr. Song and the ministry, South Korean firms pay an average of $600,000 per month in wages, of which about 45 percent is deducted for fees such as insurance and taxes. In March, after the deductions, a total of $295,000 was paid to the North, of which $219,000 went to Mr. Song’s company to purchase goods, such as rice, for the workers.

Unification Ministry officials said yesterday the bulk of the information provided by Mr. Song matched Seoul’s own assessment on how the money sent to the North is being used. Asked why the ministry has not tried in the past two years since the complex opened to verify how the money sent for wages was being used, Yang Chang-seok, a ministry spokesman, said Seoul has repeatedly asked the North to provide a detailed account of the cash flow, but other than stating the workers bought supplies, little information has been provided.

“Given the nature of the North’s closed society, confirmation itself is problematic,” the spokesman said.

The efforts by Seoul to cast a light on the flow of the money being paid to the North comes at a time when Washington is pushing Seoul to curb inter-Korean projects, citing transparency issues over money sent to the North. Over the weekend, President Roh Moo-hyun vowed to continue with inter-Korean projects in a policy speech addressed to the National Assembly. Currently, there are 15 companies operating at the complex employing 9,632 North Koreans.

The announcement came as U.S. delegation visited Seoul this week to discuss how to implement the United Nations sanctions resolution against the North.

From Joong ang Daily 
10/25/2006
Rah Hyun-cheol

The tour program to Mount Kumgang and the Kaesong Industrial Complex are certain to be affected by the crisis over North Korea’s recent nuclear test.

But they’re not the only ones ― South Korea has hundreds of smaller companies that have business deals with the North, with some actually operating inside the country.

And they were at a loss when the South Korean government announced it would “proceed with economic cooperation projects, but private companies are to decide on their own about their future investment plans in the North.”

According to the Ministry of Unification and the Korea International Trade Association, companies with records of trade with North Korea totaled 515 as of last year. That figure includes 379 trading firms and 136 companies that process imported materials, trading $420 million worth of products with the North. That amount accounted for 40 percent of South Korean trade with the North for the year, compared with 16.7 percent from the Kaesong Industrial Complex and 8.2 percent from the tour program to Mount Kumgang. Over the first eight months of this year, 395 companies have participated in trade with the North.

“It’s hard to predict what North Korea will come up with, and the South Korean government seems to be lost in its policy decision-making. Besides, the United States and China display different opinions. It’s nearly impossible to foresee the future,” said a head from one of those companies, who declined to be named. “I tried to grasp the real situation in the North by visiting on my own but had to give up the trip as China Southern Airlines shut down the route linking Beijing and Pyongyang.”

What the businesses fear the most is the possibility that trade with North Korea will be abruptly suspended if the North conducts additional nuke tests or economic sanctions against the country intensify.

A senior executive from Hanabiz.com, a firm in charge of dispatching North Korean workers in information and technology to Korean software companies in Dandong, China, said, “The recent nuclear test by North Korea has not dealt a serious blow yet to my company. However, it has become difficult to send cash to North Korean business partners after some Chinese banks restricted money transfers to the North.”

Yonhap
10/23/2006 

North Korea plans to use a light-industry university in its border town of Kaesong to train technicians for an inter-Korean industrial complex in the town, a pro-Pyongyang newspaper in Japan said Monday.

“One of the demands by South Korean businesses operating in the Kaesong industrial complex is hiring competitive manpower from North Korea,” reported the Choson Sinbo, organ of the General Association of Korean Residents in Japan, citing an unnamed official of the Kaesong City People’s Committee.

“North Korea plans to nurture such talented people in Koryo Songgyungwan in Kaesong,” the official was quoted as saying.

To this end, the North is building a new campus to house more students on a site next to the existing Songgyungwan building, the newspaper said.

The industrial complex, located a few kilometers north of the inter-Korean border, is home to 15 South Korean companies that make goods for South Korean and foreign markets. They employed about 8,700 North Korean workers as of the end of last month.

As many as half a million North Koreans are expected to be working at the joint industrial complex by 2012, when it could likely house up to 2,000 South Korean companies, according to the Unification Ministry.

Seoul hopes its free trade agreement now under negotiations with the United States will recognize products made in Kaesong as South Korean-made, but Washington is against the idea.

Washington has also expressed skepticism about the inter-Korean project calling it a channel for North Korea to earn much-needed hard currency for its weapons of mass destruction development.

The Kaesong complex is one of the joint economic achievements the Koreas have so far made in the wake of their historic summit talks in June 2000.

From the Choson Ilbo:
10/23/2006

N.Korean Party ‘Takes 60 Percent of Kaesong Wages’
 
More than half the salaries paid to North Koreans working at the inter-Korean Kaesong Industrial Park go to the North Korean Workers’ Party, a document written by a team in charge of inter-Korean economic cooperation at the Ministry of Commerce, Industry and Energy shows. The team reported to the unification minister.

Grand National Party lawmaker Kim Gi-hyeon made the document public on Sunday. According to the memo, US$30 out of the monthly pay of $57.50 goes to the Workers’ Party. With $17.50 spent on insurance and other costs, North Korean workers at the complex are left with only $10 a month.

The Unification Ministry has publicly claimed that workers get $66 on average, with 30 percent spent on benefit packages of workers, like housing and medial expenses, and 70 percent going to the workers. A Unification Ministry official on Sunday denied the report. “It is the first I’ve heard about $30 going to the party,” he said. “How could the Industry Ministry know about something that the Unification Ministry didn’t know? We have no idea.”

From the Joong Ang:
Ministry: North got $1 billion since 1998
10/18/2006
Lee Young-jong
Ser Myo-ja

The Unification Ministry yesterday defended itself against accusations that the Roh Moo-hyun administration and its predecessor, that of Kim Dae-jung, were at least partly responsible for giving the North the cash it needed to fund its nuclear weapons programs.

Ministry data released yesterday said that South Korea sent nearly $1 billion in cash to the North from March 1998 until August of this year. The ministry said those payments were in connection with “legitimate economic activities.” Nearly half of that cash flow, it said, was from tourism receipts at North Korea’s Mount Kumgang resort, and almost all the remainder was a $500 million payment by Hyundai Group to North Korea for exclusive rights to run the tours.

When Hyundai Group first began the tour program in 1998, Lim Dong-won, then the Blue House senior secretary for security affairs, ordered the Unification Ministry to devise ways of monitoring the payments to ensure that they were not diverted to military uses. But a Unification Ministry official recently admitted the obvious: “There was and is no way to see how the North spent the money,” he said.

The same is true in the other inter-Korean programs, although the amounts are relatively smaller. Nearly $21 million has been paid to the North in the Kaesong Industrial Complex project, including the wages of 800 North Korean workers there. The few million dollars remaining in the total were payments for South Koreans to attend events such as the annual Arirang Festival.

The ministry’s statement yesterday said the Hyundai payment of $500 million was made in August 2000. In fact, it was made in June, just before the first inter-Korean summit that month, and a special counsel who looked into the then-secret payment described it as an inducement for North Korea to agree to the summit. Seven persons were later convicted of violating Korea’s foreign exchange laws in connection with the matter.

Critics on the right believe the ministry’s estimates are woefully incorrect; the Grand National Party, for example, has put the amount at $8.4 billion over the past eight years.

The ministry also challenged the Grand National Party’s argument that South Korea had spent nearly 2.2 trillion won ($2.3 billion) for a failed light-water reactor project in North Korea.

The ministry said the figure was only about 1.4 trillion won.

It also noted that that project was an international one and had begun under the Kim Young-sam administration in 1994. Only a tiny part of that funding involved cash payments to North Korea, the ministry said.

From Yonhap:
Suspension of inter-Korean business only hurts S. Korea: official
10/13/2006

Suspending South Korea’s joint business projects with North Korea would do more harm to the South than the North while doing little to convince the communist state to halt additional nuclear tests, a ranking South Korean official said Friday.

“Cutting off (inter-Korean economic projects) now would only show our firm will (to retaliate against North Korea for its claimed nuclear test) by inflicting wounds on parts of our own body,” the official told reporters, asking not to be identified.

“The damage North Korea would suffer would be very insignificant compared to the damages we would suffer,” the official added.

The remarks came amid calls from here and abroad for the Seoul government to immediately halt cross-border business projects with the North in retaliation for the North’s claimed nuclear test on Monday.

The main opposition Grand National Party (GNP) claims the country’s economic cooperation for the impoverished North has helped the North’s missile and nuclear weapons program.

“In the current situation, (South Korea) must strengthen its alliance with the United States and actively participate in U.N. Security Council sanctions on the North while cutting off all of its cash assistance to the North,” GNP floor leader Kim Hyong-o said Friday at a party leadership meeting.

An average of 40,000 South Koreans travel to a scenic resort on North Korea’s Mount Geumgang every month, paying about US$1 million in admission fees to the North, according to Hyundai Asan, the South Korean developer of the resort.

Fifteen South Korean companies also pay about $600,000 a month on average to North Korea in wages for the 8,700 North Korean employees at an industrial complex being developed by the two Koreas near the North’s border town of Kaesong, according to the Unification Ministry.

The government official, however, said the government had no immediate plans to scrap the inter-Korean projects, claiming the money paid to the North through the projects is not aimed at assisting the North’s weapons program and that the amount is insignificant.

He said the country would align its North Korea policy and economic cooperation with a U.N. Security Council resolution when one is passed, but claimed a U.S. draft of the resolution, even if approved by the Security Council, would not call for a suspension or reduction of inter-Korean economic cooperation.

“Vice Foreign Minister Yu Myung-hwan said at the National Assembly Thursday that there is nothing in the U.S. draft resolution” that would call for a suspension of the two cross-border projects, the official said.

Yonhap:
10/11/2006

South Korean civic groups on Wednesday sent humanitarian aid shipments to North Korea despite the heightened tension over North Korea’s declared nuclear test, officials said.

A 2,864-ton ship plying the Incheon-Nampo route departed for a North Korean port with shipments of 14 containers for humanitarian aid and another 45 containers for construction and raw materials to be used at the Kaesong industrial complex just north of the inter-Korean border.

The aid shipments include 2,000 bicycles, two ambulances, blankets and boilers, they said.

Following North Korea’s announcement of its first-ever nuclear test on Monday, the South Korean government suspended a shipment of 7,500 tons of cement to the communist country.

“We hope that the provision of bicycles on humanitarian grounds will contribute to maintaining civilian inter-Korean exchanges and offering a clue to the resolution of the stained inter-Korean relationship,” a local YMCA official said.