North Korean Economy Watch

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.

Yonhap
5/8/2007

South Korea will provide some US$2 million worth of insecticide and equipment to North Korea to stem the spread of an infectious pine disease in the communist country, the Unification Ministry said Tuesday.

The South also agreed to send tree specialists to the North to make on-site inspections to assess the damage and share information needed to prevent the pine wilt disease, it said.

The agreement was made at the end of working-level talks held in the North Korean border city of Kaesong. The one-day meeting was held at the request of North Korea.

“The list of aid equipment and the schedule for the on-site visit will be decided in the form of the exchange of a document,” the ministry said in a statement.

The South Korean delegation was led by Oh Ki-pyo, chief of the team for forest blight prevention at the Korea Forest Service, while his counterpart was Chang Yong-chol, deputy director of the North’s forest service bureau.

Joong Ang daily
5/7/2007

South Korea agreed late Friday to send North Korea raw materials that it can use in its light industries, but scheduled it to happen June 27 ― after next week’s scheduled test-run of an inter-Korean railroad, the Unification Ministry said.

The South could halt the shipment if the North cancels the test, as it has done several times in the past.

“At the economic talks for the light industry projects and the railroad projects, North Korean officials repeatedly said the train tests will occur this year,” a South Korean official who refused to be named said yesterday. “I am not sure if they had reached a consensus with the military or not, but their statements were very decisive.”

The two Koreas will hold general-level military talks from Tuesday to Thursday to guarantee the safety of passengers and trains that will travel across the demilitarized zone.

On Friday, South Korea agreed to begin the shipment of raw materials, worth $80 million, on June 27.

Yonhap
5/23/2007
Koreas fail to agree on details for swapping of raw materials, resources

South and North Korea on Wednesday failed to settle remaining differences over how to boost cooperation in light industry and natural resource development, the Unification Ministry said.

“The two sides just agreed to continue to discuss details regarding the issue,” the ministry said in a statement. The ministry did not provide details about when they will meet again.

Working-level officials could not agree on the list and price of raw materials the South is to provide the North in exchange for the right to develop natural resources in the communist country.

The North called for more than the South has earmarked for the shipment on the last day of the two-day talks held in the North Korean border city of Kaesong, according to South Korean officials.

Last month, South Korea agreed that it will provide raw materials to the North in June to help revive its threadbare light industry in return for the North’s natural resources. The two Koreas reached a similar swapping agreement in 2005, but it has not been implemented due mainly to the North Korean nuclear dispute.

In the agreement, the rice shipment, which will consist of 150,000 tons of domestic rice and 250,000 tons of imported rice, will be sent to the North late this month in the form of a loan to be paid back over the next 30 years with a 10-year grace period. Seoul hopes to link it with Pyongyang’s promise to take initial steps toward nuclear disarmament.

Last Tuesday, the South Korean government endorsed the spending of funds needed to provide rice and raw materials for light industry to North Korea. The South’s planned shipment of 400,000 tons of rice is worth US$170 million, while the provision of raw materials for light industry is worth $80 million.

In 2005, South Korea agreed to offer raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean railways in May last year, apparently under pressure from its powerful military.

Last Thursday, two trains crossed the Military Demarcation Line for the first time since the end of the 1950-53 Korean War. But critics said the test run of two railways, one in the east and the other in the west, is not likely to lead to the formal opening of the railways or to rail services for a joint industrial complex in Kaesong or for tours of the North’s Mount Geumgang.

As part of efforts to accelerate the formal opening of the inter-Korean rail service, the South plans to sound out the possibility of providing raw materials via reconnected railways during the working-level dialogue or the upcoming ministerial talks.

Koreas hold talks on swapping of raw materials for light industry
Yonhap
5/22/2007

South and North Korea on Tuesday held talks to work out details for boosting cooperation in light industry and natural resource development, the Unification Ministry said.

The aim of the working-level dialogue, being held in the North Korean border city of Kaesong for two days until Wednesday, is to focus on procedures for the South’s shipment of raw materials to the North in exchange for the right to develop North Korea’s natural resources.

During the talks, South and North Korea are scheduled to exchange agreement documents, which will then take effect immediately since the two sides successfully conducted test runs of cross-border railways, a precondition for the implementation of the accord, government officials said.

The South also plans to sound out the possibility of providing the materials via reconnected railways in a prelude to the formal opening of the inter-Korean rail service, according to sources.

“We are studying various ways of speeding up the formal opening of the Gyeongui (Seoul-Sinuiju) and Donghae (East Coast) tracks. The use of the tracks for the promised shipment of light industry raw materials could be an option,” a government source said, asking to remain anonymous because of the sensitivity of the issue.

On Thursday, trains crossed the Military Demarcation Line for the first time since the end of the 1950-53 Korean War. But critics said the test run of two railways, one in the east and the other in the west, is not likely to lead to the formal opening of the railways or to rail services for a joint industrial complex in Kaesong and tours of the North’s Mount Geumgang.

Earlier this month, South Korea said it will ship the first batch of light industry materials to the North via ship on the Incheon-Nampo route, but the mode of transportation for the rest has yet to be decided.

Last month, South Korea agreed that it will provide raw materials to the North in June to help revive its threadbare light industry in return for its natural resources. The two Koreas reached a similar swapping agreement in 2005, but it has not been implemented due mainly to the North Korean nuclear dispute.

In the agreement, the rice shipment, which will consist of 150,000 tons of domestic rice and 250,000 tons of imported rice, will be sent to the North late this month in the form of a loan to be paid back over the next 30 years with a 10-year grace period. Seoul hopes to link it with Pyongyang’s promise to take initial steps toward nuclear disarmament.

Last Tuesday, the South Korean government endorsed the spending of funds needed to provide rice and raw materials for light industry to North Korea. The South’s planned shipment of 400,000 tons of rice is worth US$170 million, while the provision of raw materials for light industry is worth $80 million. The approval will be promulgated on Tuesday.

In 2005, South Korea agreed to offer raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of the railways in May last year, apparently under pressure from its powerful military.

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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Yonhap
5/1/2007

The U.N. Development Program (UNDP) has completed the process of wrapping up all of its operations in North Korea, a Washington-based radio station reported Tuesday.

At the request of North Korea, the UNDP’s two remaining staff members are supposed to leave Pyongyang on May 3.

But the pullout will have no influence on the ongoing external audit of all U.N. operations in North Korea, which began in March amid U.S. allegations that U.N. aid money was being diverted to the North’s regime, David Morrison, spokesman for the UNDP, said in an interview with Radio Free Asia.

The agency suspended operations on March 1 because North Korea failed to meet conditions set by its executive board following suspicions that the aid money might be diverted for illicit purposes, including development of nuclear weapons. It withdrew seven of its nine international staff in mid-March.

U.N. Secretary-General Ban Ki-moon ordered an external audit of all U.N. operations in North Korea which began on March 12.

The audit is being made of the related documents and the UNDP made sure that inspectors get all the copies needed for the audit, the spokesman said. Currently, the deputy resident representative and the operations manager are the only UNDP officials in North Korea to support the independent external audit.

The UNDP’s office equipment and materials will be turned over to North Korea, another UNDP official said.

Austrailian Associated Press
4/27/2007

Australia will provide almost $4 million in humanitarian aid to a hungry and malnourished North Korea.

Millions of the 23 million people in the communist country are living in poverty.

Foreign Minister Alexander Downer said Australia’s $4 million commitment will focus on improving the health, hygiene and nutrition of North Koreans.

“Thirty-seven per cent of North Koreans suffer from chronic malnutrition, and two-thirds of North Korean children do not receive enough food because of a one million tonne food shortfall,” Mr Downer said in a statement.

“Many North Koreans also lack access to clean water and sanitation.”

Mr Downer said Australia’s assistance will be provided through a number of United Nations agencies and the International Red Cross.

About $1.5 million will go towards UNICEF’s water and sanitation program.

A further $1.5 million will provide food for 1.9 million people through the World Food Program.

The rest of the money will be spent on emergency health and essential medicines, disaster management, water supply and sanitation.

Yonhap
4/22/2007

South and North Korea on Sunday agreed to conduct test runs of cross-border railways next month and make efforts to ensure a military guarantee for their safe operations.

The South also agreed to provide 400,000 tons of rice to the impoverished North in late May, but the accord reached by the two sides did not include a commitment by North Korea to take steps toward dismantlement of its nuclear programs, said pool reports from Pyongyang, the venue of the talks.

The Koreas announced a 10-point agreement on test runs of cross-border railways, rice aid and expanded economic cooperation after they engaged in marathon talks. The four-day talks stretched into an extra day as the two sides failed to thrash out differences by the deadline.

“The two Koreas will hold working-level talks to discuss operations of cross-border railways in Kaesong on April 27-28,” the agreement said. They agreed to make efforts to secure a military security guarantee prior to conducting the test runs on May 17.

The security issue was a main sticking point as South Korean officials contended that the test runs will be “meaningless” if there is no safety guarantee on the part of the North Korean military.

In May 2006, North Korea abruptly called off the scheduled test runs under apparent pressure from its hard-line military.

The two sides were originally scheduled to issue a joint press statement at 2 p.m. on Saturday, but they held a series of overnight negotiations to settle remaining differences and work out the wording for a final draft of a joint statement.

On Thursday, the North Korean delegation stormed out of the conference room to protest the South’s call for the North’s quick implementation of a denuclearization agreement, but talks resumed later as scheduled.

“During the talks, we made clear that it will be difficult to provide rice unless North Korea acts to fulfill the Feb. 13 agreement,” Chin Dong-soo, chief of the South Korean delegation, said in a press briefing held in Pyongyang after the announcement of the agreement.

South Korea also agreed to provide raw materials to the North to help it produce clothing, footwear and soap in June in return for its natural resources. A South Korean delegation will visit envisioned development sites in the North that month. Working-level negotiations on this issue will be held in the North Korean border city of Kaesong on May 2-4.

Shortly after the North conducted missile tests in July, the South suspended food and fertilizer aid. But fertilizer aid was resumed in late March, a few weeks after the two sides agreed to repair their strained ties.

During the talks, the North called for receiving raw materials from the South in exchange for providing its natural resources “close to the time when railway test runs are conducted,” the pool reports said.

But the South made clear that it will provide the North with US$80 million worth of raw materials only after the two sides conduct the test runs.

The reconnection of severed train lines 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.

The tracks, one line cutting across the western section of the border and the other crossing the eastern side, were completed and set to undergo test runs. A set of parallel roads has been in use since 2005 for South Koreans traveling to the North.

In 2005, South Korea agreed to offer raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented as North Korea cancelled the test runs of the railways last May.

The pool reports said the South pushed to include the use of overland transportation in a clause of the agreement, but the two sides failed to see eye-to-eye on the issue. They agreed to hold talks in Kaesong to discuss ways of advancing into third countries in the field of natural resource development.

The next economic cooperation meeting will be held in the South in July 2007, and the two Koreas agreed to reach an agreement on the prevention of flooding in shared areas near the Imjin River and implement it after exchanging a document in early May.

The latest inter-Korean agreement came just a week after the communist nation failed to meet the April 14 deadline to shut down and seal its nuclear facilities under a six-nation agreement signed in Beijing in February.

North Korea has said it would take the first steps toward nuclear dismantlement as soon as it confirms the release of its funds frozen in a Macau bank since September 2005.

Macau’s financial authorities unblocked the North’s US$25 million in Banco Delta Asia, but the deadline passed with no word from the North on whether it has confirmed the release of the funds or when it will start implementing the initial steps.

Under the Feb. 13 agreement, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

The U.S. promised to resolve the financial issue within 30 days, but failed to do so because of technical complications.

Yonhap
4/20/2007

South Korea sustained a loss of some US$3 million on Friday as its contract for fuel oil aid to North Korea expired, the Unification Ministry said.

South Korea had planned to send 50,000 tons of heavy fuel oil to the North unless the communist country missed last Saturday’s deadline for taking initial steps toward its nuclear dismantlement under a landmark deal signed in February.

“The contract between the procurement authorities and GS Caltex expired today. The exact amount of penalty money is not clear, but it will amount to some 3.6 billion won given the cost of loading and storage,” the ministry said in a statement.

On Feb. 13, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

North Korea could receive another 950,000 tons in fuel aid if it disables the reactor irreversibly and declares a list of all nuclear programs to the International Atomic Energy Agency. The cost of the aid will be equitably distributed among the other countries in the six-nation talks.

But the North failed to shut down and seal its nuclear facilities by last Saturday, saying it would take first steps toward nuclear dismantlement as soon as it confirms the release of its funds frozen in a Macau bank since September 2005.

Macau’s financial authorities unblocked the North’s US$25 million in Banco Delta Asia, but the North has neither withdrawn the funds nor said when it will start implementing the initial steps.

“The contract was signed with an eye on the Saturday deadline and the IAEA’s nuclear inspection, but the unexpected Banco Delta Asia issue delayed the implementation of the agreement, costing us the penalty,” a ministry official said, asking to remain anonymous.

The official added that a new contract for heavy fuel oil will be made in consideration of the progress in the six-nation talks, involving the two Koreas, the United States, China, Japan and Russia.

Korea Times
Jung Sung-ki
4/20/2007

A National Assembly panel Friday approved a bill to give full-fledged support to domestic firms operating in the inter-Korean industrial park in the North Korean border city of Kaesong under South Korean law.

The Assembly’s Unification, Foreign Affairs and Trade Committee endorsed the bill under which South Korean companies in the Kaesong complex are to receive financial support from the government.

Under the bill, companies concerned will get government funds for infrastructure in the industrial zone and be subject to tax reduction in case of investment in the North.

South Korean insurance acts and other labor-related laws will cover employees under the bills.

The complex is a symbol of the South’s engagement policy toward the North and cross-border reconciliation, along with the South-led tourism program at Mt. Kumgang in North Korea.

About 20 South Korean firms are operating in the joint complex employing more than 13,000 North Korean workers.