North Korean Economy Watch

Yonhap
1/12/2007

North Korea has established a consultation office to provide legal services for foreign investors, according to the North’s official media Friday.

The office, called Pyongyang Law Office, is to give advice with regards to the foreign investment law, the Kaesong Industrial Complex, the Mount Geumgang tourism law and the North’s legal system, the Korean Central News Agency (KCNA) said.

The services will be provided for not only foreign investors, but also overseas Koreans, institutions, business entities and residents in the communist country, KCNA added.

“Before they decide to make an investment in the DPRK, foreign investors will be able to use the legal services, so it will be very useful in terms of investment safety,” said Heo Young-ho, chief of the office.

KCNA
1/11/2007

The Pyongyang Law Office, an independent corporate body, has started its operation to provide services for the solution of legal matters arising in various sectors. Ho Yong Ho, chief of the office, told KCNA that his office provides legal services upon application and assignment by foreign-invested businesses (equity or contractual joint ventures and wholly-foreign owned enterprises) and Koreans in overseas as well as by the institutions, establishments, organizations and citizens at home.

As for the categories of services, he said:

It introduces the laws and regulations of the DPRK on foreign-related matters, Kaesong Industrial Zone, Kumgangsan Tourist Zone and others.

It also holds legal consultations concerning the selection of the investment project, establishment and operation of foreign businesses, dissolution and bankruptcy of businesses, concerning documents of legal nature including feasibility study reports and memorandum of association, concerning trade, transport, finance, insurance, intellectual property, real property and concerning civil law relations between corporate bodies, corporate body and individual and so on.

Legal services are offered on the principle of fairness, promptness and legality and on the basis of the facts, laws and contracts, while the service performer is held accountable before the party concerned and the law for the service offered.

Application for the legal service may be made in person or written form, or by means of communications device. Foreign investors are well advised to consult the office prior to their investment in the DPRK, which will prove a wise choice for the guarantee of their investment security.

Korea Times
Lee Jin-woo
1/11/2007

Unification Minister Lee Jae-joung said Thursday that some 40 small factories, mostly clothing manufacturers, will move into the joint industrial complex in North Korea this year.

But he said it would take more time for the ministry to fully resume the halted expansion of the Kaesong Industrial Complex.

Last September, the South Korean government decided to hold off expanding the inter-Korean business venture because of heightened tension on the Korean Peninsula after the North’s launching of ballistic missiles in July. After the Stalinist state’s first-ever nuclear test on Oct. 9, tensions increased further.

“We’ve decided not to postpone helping small South Korean manufacturers, which have been struggling with adverse domestic business conditions, especially high wages,” Lee said during a press briefing at the ministry.

The manufacturing companies will move into a new five-story building constructed by the state-run Korea Industrial Complex Corp. involved in a pilot project for the industrial complex.

Construction of the building will be completed by June. It is not related to the postponed sale of the second section of the industrial complex, the minister said.

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

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, however, said more progress in the stalled six-party talks is necessary for the government to resume expansion of the project.

He said he will continue discussing the matter with the Korea Land Corp., a state-run land developer, which has been involved in the Kaesong project, and Hyundai Asan, the business arm of Hyundai Group that handles the Mt. Kumgang tourism project.

Lee said the government would not provide medical aid to the Stalinist state to help stem the spread of scarlet fever, an infectious disease.

“Scarlet fever is not a fatal infectious disease. Given the significance of the disease, we believe that North Korea itself will be able to solve the problem,” Lee said.

The ministry considered providing medical aid to the North after scarlet fever broke out in the northern part of North Korea last October.

Earlier, South Korean humanitarian aid groups shipped 36 types of medicine including penicillin and other antibiotics to Pyongyang.

Joong Ang Daily
Lee Jung-min
1/9/2007

One of North Korea’s capitalist experiments may be awakening from hibernation. “The North’s National Economic Cooperation Federation and Tumen River Development Limited Company of South Korea have reached an agreement to build a heavy and chemical industry complex in Rajin-Sonbong district,” Oh Myoung-hwan, the president of the South Korean company, said yesterday. “We also agreed to carry out jointly a Mount Paektu tour project.” A letter of intent will be signed in Vladivostok, Russia, today, Mr. Oh said.

Mr. Oh, whose company is headquartered in Vladivostok, said Russian natural resources would be processed by North Korean workers in plants built with South Korean capital and technology. He added that he has informed the Unification Ministry in Seoul of his plans.

The National Economic Cooperation Federation is a North Korean foreign economic agency. Mr. Oh said Ryo So-hyon, the federation’s Vladivostok office head, will sign the letter of intent for the North Koreans.

A government official in Seoul speculated that North Korea is looking for new projects because its nuclear test in October triggered a drop in the number of South Korean tourists visiting Mount Kumgang and U.S. criticism of the Kaesong Industrial Complex has grown.

Mr. Oh said that when the new complex is running, train tours to Mount Paektu would be the next step. Tourists would travel by ship from Sokcho on South Korea’s east coast to Hoiryong and Musan, two harbors in the Rajin-Sonbong area of North Korea’s far northeast.

North Korea established the Rajin-Sonbong Free Economic and Trade Zone in 1991 on the western side of the Tumen River to attract foreign investment. It has been a near-total failure in attracting foreign investment. Mr. Oh said work on the new project would begin in 2-3 months.

Korea Times
1/4/2007

The number of inter-Korean cross-border visits climbed 15.1 percent last year from a year earlier despite escalating tensions over North Korea’s test-fire of missiles and the underground detonation of nuclear devices, the Ministry of Unification said Thursday.
A total of 101,708 South and North Koreans visited each other’s country, compared with 88,341 in 2005, according to the ministry.

It said the number did not include South Korean tourists to scenic Mt. Kumgang in the North. Last year, 234,446 South Koreans traveled to the mountain resort, down 21.4 percent from 2005.

The ministry said that 100,838 South Koreans visited the North, while 870 North Koreans visited the South.

It added that the increasing inter-Korean economic exchanges drew 87,845 South Korean visits to the North.

The inter-Korean trade volume jumped 27.8 percent year-on-year to $1.3 billion last year, according to the ministry.

Korea Times
Kim Yon-se
12/29/2006

Hyundai Group is struggling to normalize its inter-Korean businesses, including tours to Mt. Kumgang and operation of the Kaesong Industrial Complex in North Korea.

Due mainly to North Korea’s nuclear test last October, the number of South Korean tourists to Mt. Kumgang stood at less than 250,000 this year, falling short of the group’s initial goal of 400,000.

The figure is smaller than 301,822 posted in 2005 and 272,820 posted in 2004.

Furthermore, Hyundai Asan, the tourism unit of the group, had to conduct manpower restructuring and delayed monthly payments to some employees amid worsened profitability this year.

The Mt. Kumgang tours accounts for about 70 percent of the total sales of Hyundai Asan and the company expects it will manage to avoid seeing operating losses, compared with operating profits of 5.6 billion won last year.

Amid political factors, such as complaints from the United States about the inter-Korean business, company officials are concerned that Hyundai Asan is facing another deficit.

It reported operating losses of 10 billion won or more per annum over the past few years _ 29.04 billion in losses in 2001, 38.54 billion won in 2002, 57.34 billion won in 2003 and 10 billion won in 2004.

Regarding the Kaesong Industrial Complex, the U.S. had speculated that payments to North Korean employees there are flowing into military funds to produce weapons. But the allegations have been said to be groundless after the Ministry of Unification made public relevant documents.

A major difficulty is that the South’s conglomerates including Samsung have little willingness to invest in the complex amid the growing uncertainties.

Expressing anxiety over external and internal difficulties, a Hyundai Group official said, “We don’t care about interference from the U.S. The development of inter-Korean businesses and relations are assignments for Koreans in the South and North. No group except us will do that.’’

In the free trade agreement (FTA) talks between South Korea and the U.S., the latter said it will not regard goods from Kaesong as free trade deal items.

Joong Ang Daily
12/21/2006
Choi Hyung-kyu, Kwon Hyuk-joo

Half of the $24 million in North Korean assets held in the frozen Banco Delta Asia accounts came from the Hyundai Group of South Korea, sources here told the JoongAng Ilbo yesterday. Other sources said North Korea will be able to access some of the frozen holdings next week, because the money had been proven “legitimate.”

The Macao-based bank froze the North Korean holdings last year after the U.S. government accused Pyongyang of financial crimes, such as money laundering and counterfeiting U.S. dollars. Since then, the North has made the unfreezing of those assets a precondition for the nuclear disarmament negotiations.

A U.S. source who requested anonymity said yesterday the $12 million was a part of Hyundai Group’s payments to North Korea for inter-Korean businesses. The money was wired in several payments, the source said. The payments were initially sent to other bank accounts that deal with North Korea, the source said, and then forwarded to the Banco Delta Asia accounts from there.

To deposit a large sum, an account holder must inform the bank in Macao about the source of the money and its purpose. The source showed North Korean account holders’ statements which claimed the deposits came from Hyundai.

Another source well informed about Banco Delta Asia affairs also said the money came from Hyundai.

“It is not easy to distinguish how much of the North Korean assets was earned from legitimate economic activities,” a senior South Korean government official said. “To sort the matter out, the United States and North Korea should meet and discuss the issue.”

In Beijing, O Kwang-chol, the president of the Foreign Trade Bank of Korea, has been meeting with U.S. Deputy Assistant Treasury Secretary Daniel Glaser since Tuesday.

Signs also pointed to a thawing of the freeze on the accounts in the near future. Other sources said Pyongyang has dispatched officials to the city of Zhuhai in China with papers necessary to withdraw the $12 million from the bank in Macao. They said access will likely be granted Tuesday or Wednesday of next week.

Hyundai Asan, Hyundai Group’s North Korea business arm, said yesterday it has not sent any money to a Banco Delta Asia account. The Mount Kumgang tour program began in 1998.

The company said it has wired $1 million a month to an overseas bank account designated by North Korea.

A senior official with Hyundai Asan said North Korea frequently changed the account. “I don’t know if our payment was later wired to BDA accounts or not, but I think that could be possible,” he said.

Hyundai Group provided $500 million to North Korea on the eve of the 2000 inter-Korean summit by wiring the money to a North Korean account with a foreign bank, but the sum currently frozen at the Banco Delta Asia accounts is not connected to that, the sources said.

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.

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Mount Kumgang tour goal to fall well short of 400,000
Joong Ang Daily
12/18/2006

The number of South Korean tourists to a scenic North Korean mountain resort is expected to fall far short of the initial target of 400,000 for this year due to inter-Korean tensions, South Korean tour organizers said yesterday.

About 1.3 million South Koreans have visited Mount Kumgang since the communist North opened the area to outsiders in 1998 to earn badly needed hard currency.

The South Korean tour operator, Hyundai Asan Corp., had planned to attract 400,000 tourists to the area this year, but the number is expected to reach slightly more than half of the the target, company officials said.

The sharp drop in the number of tourists to the resort can be attributed to recurring tensions caused by the North’s multiple missile tests on July 5 and its first-ever nuclear weapons test on Oct. 9, they said.

“We had aimed for 400,000 visitors for the year, but the North Korean nuclear crisis caused a significant problem,” a Hyundai Asan official said, citing the North’s missile and nuclear tests.

According to Hyundai Asan, a total of 230,224 people, mostly South Koreans, visited the resort in the first 11 months of the year, and the number of visitors in December is not expected to be more than 10,000.

The North’s mountain resort is reachable from South Korea by bus within an hour.

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.