North Korean Economy Watch

From Yonhap:
8/4/2006

S. Korean drug companies to send medical aid to N. Korea

SEOUL– An association of South Korean drug companies said Friday that it will send medical supplies to flood-devastated North Korea.

Torrential rains pounded the communist country in mid-July, leaving hundreds of people killed or missing, according to United Nations and other international aid workers operating in the country. The floods also wiped out arable land that could lead to the loss of 100,000 tons of crops, they said.

From Joong Ang Daily:

With bipartisan nod, Seoul to fund NGO flood aid
8/5/2006

Prompted by bipartisan recommendations from political parties that the government should send medicines and emergency food to flood victims in the North, a government official said yesterday it will provide financial support upon request for humanitarian assistance projects by non-governmental groups.

“The Grand National and the Democratic Labor parties said [Thursday] that humanitarian aid programs should resume, and we welcome such a position,” Uri Party chairman Kim Geun-tae said yesterday. “Humanitarian aid to the North must not be blocked by politics.” He urged the government to resume its humanitarian aid to the North unconditionally.

After North Korea fired seven missiles and refused discussions about the launch with the South last month, Seoul withheld previously promised rice and fertilizer aid in protest.

A senior Unification Ministry official said yesterday that the government would participate in the provision of relief goods to help North Korean flood victims through non-governmental groups. The Roh Moo-hyun administration is seriously considering funding relief groups when they seek government help.

“We believe that civic groups will make their requests for help next week,” the official said. “Because it is an emergency relief program, the government will participate.”

The non-governmental groups’ aid package includes rice, and the government is expected to fund the food in the aid package. The Grand Nationals, however, said earlier that relief food to the North should not include rice.

While no accurate flood damage assessment in the North is available, the Food and Agricultural Organization said yesterday that torrential rains in July flooded about 5,000 hectares (19.3 square miles), or 2 percent of the farmland in North Korea, adding that the country, which was still recovering from years of famine, lost about 1,000 tons of corn and beans from the disaster.

A spokesman for an alliance of South Korean civic groups, the South Korean Committee for Implementation of the June 15 Joint Declaration, said its delegation may be able to get more accurate information about the flood damage by next week. Committee members will meet with their North Korean counterparts at the Mount Kumgang resort on Friday to discuss the canceled inter-Korean celebration of Liberation Day, the Aug. 15 anniversary of Japan’s surrender in 1945. The North called it off earlier this week, citing severe flood damage. At the meeting, the two sides are expected to talk about humanitarian aid for flood victims.

Meanwhile, the flood disaster in the North rang alarm bells in the South about the potential for an epidemic as the number of patients with malaria in the North reportedly increased after last month’s flooding. Earlier this month, a South Korean activist group, Good Friends, said that an increasing number of malaria patients have been found in Kaesong and Haeju in the North after the flood.

The Korea Center for Disease Control and Prevention said mosquitoes could fly from North Korea to South Korean regions near the Demilitarized Zone. According to the center’s data from January to June, 333 patients with malaria were reported to the center, up 47 percent from 226 patients in the same period last year. The western parts of the DMZ, Gimpo and Paju in Gyeonggi province and Ganghwa in Incheon, are likely to be infested by malaria mosquitoes, flying up to 18 kilometers from Kaesong, Jangpyong, and Tosan in North Korea, the center said.

From the Joong Ang Daily:

Experts say money squeeze on North is working

For 10 months, Washington has enforced a systematic plan to clamp down on cash going into North Korea. The measures are working, experts say.

Nam Sung-wook, a North Korea expert at Korea University, estimated yesterday that the recent measures have led to a 40 percent decline in North Korean leader Kim Jong-il’s income.

Since the 1980s, Kim Jong-il has regularly collected money from four sources: forged bank notes, arms sales, drug trafficking and money coming from ethnic Koreans living in Japan who acquire money by operating legal gambling casinos there.

Mr. Kim used the money to cement his hold on the North Korean elite, such as the military. Those in the right position received from the “Dear Leader” gifts ranging from German luxury cars to Japanese electronics.

However, since 2002, when the Bush administration started to tackle the issue with its North Korea Working Group, the situation changed and has squeezed the North. The U.S. group is composed of 14 government organizations, including the U.S. treasury department. Washington’s efforts against counterfeit money have yielded results: At the end of last year Irish national Sean Garland and six others were indicted for distributing North Korean-manufactured “supernotes.”

The North is believed to have produced annually $15 million to $25 million of forged money.

As a result of international pressure, one government official said it would be harder for the North to print new forged bank notes and circulate them.

The arms trade is also an important money maker for the North. However, since it sold 15 Scud-type missiles in December 2002 to Yemen, Pyongyang has not inked another arms deal. Sources said yesterday Pyongyang tried last year to sell missiles to African nations, but in light of Washington’s international call to prevent the transfer and sales of weapons of mass destruction, cautious African nations have distanced themselves from Pyongyang.

In the international arms market, Chinese-manufactured AK-47 assault rifles and other cheaper alternatives are being preferred over North Korean-made ones. The North’s drug trafficking is reportedly giving Pyongyang an annual income of $100 million. From 1998 to 2002 Japanese authorities seized 1,500 kilograms (3,300 pounds) of North Korea-manufactured philpone, a methamphetamine.

Nevertheless, a continued crackdown has narrowed the avenues of sales to organized crime groups such as the Japanese yakuza.

Money sent from the North Korea- backed Chongryon, the General Association of Korean Residents in Japan, amounted to 2 billion yen ($1.7 million) to 3 billion yen annually until 2002 with the money being shipped by a North Korean ferry.

However, since 2003, Tokyo has imposed regulations on the ferry, dropping the money flow to 1 billion yen per year. With the recent missile launch, Tokyo is now considering cutting off the money flow even more by strengthening the monitoring of insured postal parcels above a certain amount.

from the BBC:

Japan’s government says it has begun work on its own set of sanctions on North Korea, in addition to those agreed by the UN Security Council. 

Chief Cabinet Secretary Shinzo Abe says he has instructed officials to put in place procedures to ban cash remittances to the impoverished North.

After days of talks the UN Security Council unanimously passed a resolution on Saturday which condemned the tests.

But it was a milder document than Japan’s original draft.

The resolution was tabled in response to North Korea’s decision to test-fire seven missiles earlier this month, including a long-range Taepodong-2, which is believed capable of reaching Alaska.

In the immediate aftermath of the test-firings, Japan imposed limited sanctions against North Korea, including a decision to ban a North Korean trade ferry from Japanese ports and a moratorium on charter flights from Pyongyang.

But now Chief Cabinet Secretary Shinzo Abe has asked for an investigation into possible further sanctions.

“We have started preparations to properly achieve necessary steps involving financial restrictions,” Mr Abe told a news conference on Tuesday, although he added that Japan would consult with other nations before making a final decision.

He said he had instructed officials to start procedures to ban cash remittances by Koreans living in Japan who are sympathetic towards Kim Jong-il’s government – an important source of foreign currency for North Koreans.

Indications that Tokyo was about to take further steps against Pyongyang were reported in Japanese media on Monday, but now Mr Abe has made his intentions official in a press conference.

Japan could also place bans on bilateral trade and freeze North Korean assets, according to the newspaper reports.

Japan is one of North Korea’s most vehement critics – and takes a more hardline stance on Pyongyang’s activities than other countries in the region.

Chapter Seven dropped

The UN resolution passed over the weekend demands that North Korea suspend its ballistic missile programme, and bars all UN member states from supplying Pyongyang with material related to missiles.

It was passed unanimously by the Security Council after being revised to drop any mention of Chapter Seven of the UN Charter, which is legally binding and can authorise military action. The changes were made to appease China and Russia, which took a softer line than Japan and the US. China had threatened to veto the resolution in its original form.

As soon as the resolution was passed, North Korea’s ambassador to the UN rejected it and left the chamber.

A day later Pyongyang angrily denounced the resolution in a foreign ministry statement, and said it would continue to build up its military arsenal.

The statement described the resolution as the product of a hostile American policy and said Pyongyang would not be bound by it, and would “bolster its war deterrent” in every way.

Joong Ang Daily
7/19/2007

The Bush administration is weighing the reinstatement of trade sanctions on North Korea that were lifted during the Clinton administration. A visiting U.S. Treasury Department official, Stuart Levey, described Washington’s policy direction to Korean government policymakers during a visit here from Sunday through Tuesday. Yesterday, a government official described those discussions to journalists, and the Treasury posted a cautious statement by Mr. Levey on its Web site.

The Treasury’s undersecretary for terrorism and financial intelligence had planned his visit before the July 5 North Korean missile tests, but the incident added urgency to the consultations. Giving no details of the content of the discussions, Mr. Levey said in his statement he and Korean officials had discussed issues including “the new United Nations Security Council resolution that requires all member states to prevent the transfer of any financial resources in relation to DPRK’s missile or WMD programs.”

Mr. Levey is also stopping in Tokyo, Hanoi and Singapore on his swing through Asia. Seoul was his first stop. The trip came at a time when Japan is planning its own sanctions, perhaps including a ban on cash remittances to the North.

A government official said yesterday that the undersecretary met with Vice Foreign Minister Yu Myung- hwan and officials from the Ministry of Finance and the Blue House. The official stressed that the meeting was not a consultation on policy toward the North. He said the topics included many international financial issues, but did not touch in any detail on Seoul’s participation in the Kaesong Industrial Complex and tourist trips to Mount Kumgang, both of which are revenue sources for North Korea.

Another official said Mr. Levey responded only with a nod to explanations of the purposes and justifications for those inter-Korean projects.

The Korean officials said the U.S. sanctions Mr. Levey mentioned had been lifted in 1999 by President Bill Clinton as U.S.-North Korea tensions eased. They included trade restrictions and licensing requirements and strict limits on the amount of money U.S. travelers to North Korea could spend there.

Well, since the ROK has suspended further food/fertilizer aid to the DPRK in response to the current missle situation, the DPRK has suspended family reunions.

From the Joong Ang:

In a tit-for-tat reaction to Seoul’s decision to suspend rice and fertilizer aid, Pyongyang yesterday canceled a separated family reunion and said future ones were in jeopardy.

The Korea Central News Agency broadcast a letter from the North Korean Red Cross to its counterpart in Seoul. The letter said Seoul had refused to talk seriously about a family reunion the North had proposed be held during the Chuseok holidays in October. “Furthermore,” the letter continued, “the South refused to ship rice and fertilizer, one of the inter-Korean humanitarian projects that are conducted on the basis of reciprocity.” Pyongyang, the letter went on, sees no reason to continue family reunions.

“We want to make clear that the video conference call reunion, scheduled to mark August 15, and the construction of a reunion venue at Mount Kumgang will be terminated,” the letter concluded. The Japanese surrendered on Aug. 15, 1945, to end World War II. Both Koreas celebrate a Liberation Day holiday on that date. Although reunions have been held frequently at Mount Kumgang, the two Koreas had agreed to build a permanent reunion site there rather than using tourist hotels.

The Unification Ministry said it would do its best to restart the reunions. It said it anticipated that reaction by Pyongyang but regretted it.

And from the BBC:

The North accused the South of “sacrificing” humanitarian co-operation under pressure from Japan and the US.

Seoul announced the suspension of rice and fertiliser deliveries after inter-Korea talks collapsed last week.

The talks followed North Korea’s missile tests on 5 July, which have raised international concern.

Pyongyang test-fired seven missiles, including a long-range Taepodong-2 believed capable of reaching Alaska.

South Korea says it will not discuss further humanitarian aid with its neighbour until progress is made on resolving issues relating to the missile tests and the North’s nuclear ambitions.

After the high-level talks in Busan fell apart last week, the delegation from Pyongyang issued a statement warning of consequences for inter-Korean ties.

In the latest statement, North Korea’s Red Cross head Jang Jae-on accused the South of “abusing the humanitarian issue for meeting its sinister purpose to serve the outsiders”.

“Our side is, therefore, of the view that it has become impossible to hold any discussion related to humanitarian issues, to say nothing of arranging any reunion between separated families and relatives between the two sides,” he said.

A video reunion meeting scheduled for 15 August would not take place and the planned construction of a reunion centre in the North’s Mt Kumgang was “impossible”, he said.

The reunions bring together families divided by the partitioning of the Korean Peninsula in 1953. The policy has been a key part of reconciliation efforts between the two Koreas.

Earlier, South Korean President Roh Moo-hyun told a meeting of security advisers that Pyongyang’s missile tests were “wrong behaviour” that increased regional tensions.

But he warned against overreacting, saying: “An excessive response to North Korea’s missile tests creates unnecessary tensions and confrontation.”

On Tuesday, the Japanese government said it had begun work on its own set of sanctions for North Korea, in addition to those agreed by the UN Security Council.

The council unanimously passed a resolution on Saturday which condemned the missile launches, but it was softer than the draft initially proposed by Japan.

Japan would look into banning cash remittances to the North from Korean residents, Chief Cabinet Secretary Shinzo Abe told reporters.

But on Wednesday, Japanese Prime Minister Junichiro Koizumi said he would not rush to impose more sanctions.

“We should wait and see for a while whether North Korea will seriously respond to the (UN) resolution,” he said.

From the Korea Times:

South Korea’s economic assistance to North Korea in the first half of this year topped 141 billion won ($148 million), while the total government aid to the impoverished state since 1995 exceeded 1 trillion won ($1 billion).

According to government statistics on Sunday, the Unification Ministry gave assistance worth 141 billion won to the North in the first half of the year, the highest ever on a yearly basis. Last year’s assistance reached around 123 billion won, including rice aid.

The 2005 winners of the Nobel Prize in Economics were selected for “having enhanced our understanding of conflict and cooperation through game-theory analysis”.  I would check out thier work in order to make sense of the current DPRK/ROK diplomatic posturing.

From the Washington Post:

South Korea on Thursday suspended humanitarian aid to North Korea until it agrees to return to international nuclear disarmament talks.

The action infuriated visiting North Korean officials, who immediately cut off high-level talks in South Korea and stormed back home.

The decision to postpone consideration of a North Korean request for 500,000 tons of rice marked the South’s first punitive action against its impoverished communist neighbor since it defied the international community and test fired seven missiles, including a long-range Taepodong-2, on July 4.

The move came as the administration of South Korean President Roh Moo Hyun has come under sharp public criticism at home for what many there viewed as a weak response by Seoul to the North’s missile tests.

South Korea on Thursday reiterated its deep opposition to a push by Japan and the United States to impose broader sanctions on North Korea through a draft resolution at the United Nation’s Security Council. Seoul has also vowed to maintain its “sunshine policy” of engagement, which has fostered the warmest ties between the Stalinist North and capitalist South since the Korean War divided them in two more than half a century ago.

But the decision to follow through with a previous threat to suspend food aid if North Korea tested missiles — a threat many experts doubted the South Koreans would stick to — displayed a new willingness by the South to use its significant economic clout to apply pressure on the North.

The North Koreans — for whom economic assistance by South Korea is topped only by China — appeared jolted by the decision. At talks being held in the South Korean city of Pusan that were originally scheduled to end Friday, Pyongyang’s delegation abruptly departed Thursday afternoon.

South Korea’s Yonhap news service reported that the North Korean officials left after circulating a statement calling the rupture the result of “reckless” attempts by South Korea to raise “irrelevant issues.” Those issues, South Korean officials said, were the recent missile tests and the North’s refusal to return to six-party talks on its nuclear programs.

The North bitterly condemned Seoul’s decision to suspend food aid, saying “the South side will pay a price before the nation for causing the collapse of the ministerial talks and bringing a collapse of North-South relations.”

South Korean officials, who in recent years have rolled out the red carpet for their visiting North Korean kin, this time offered them a simple meal and welcome bereft of customary sightseeing excursions and photo opportunities. When the North’s representatives understood they would not be returning with promises for more food aid, they simply left.

“The North Korean side expressed their position that additional negotiations would be unnecessary under the circumstance that additional humanitarian aid they need would be impossible,” Lee Kwan Se, a South Korean Unification Ministry official, told reporters.

For the United States and Japan, both pushing for a strong draft resolution at the United Nations that would ban international trade of North Korean missile and other military technology, the South Korean action was a rare diplomatic bright spot.

Christopher Hill, Washington’s top envoy on North Korea, left Beijing for Washington on Thursday after it became clear that Chinese efforts to persuade the Pyongyang government to come back to the six-party talks had apparently failed.

Before leaving, Hill said there was no indication that the North Koreans had changed their position to boycott the talks, which have been stalled since last November.

Japan, which has been deeply rattled by the North’s missile tests, vowed to continue pushing for a tough resolution that would impose sanctions on the North Koreas. But China and Russia back their alterative U.N. resolution unveiled on Wednesday. That draft would censure North Korea for its missile tests, but would endorse only voluntary measures aimed at restraining Pyongyang’s ballistic missile and nuclear weapons programs.

“The Chinese are as baffled as we are,” Hill told reporters in Beijing before departing. “China has done so much for that country and that country seems intent on taking all of China’s generosity and then giving nothing back.”

By Anthony Faiola
Washington Post Foreign Service

From the Korea Times:

You may be surprised to hear that North Korea is either in violation, or the target, of more than 13 U.S. laws, which include laws dealing with transfer of missile technology to other countries and human rights issues. Three of these laws, however, have direct bearing on U.S. economic sanctions against North Korea.

The first is the U.S. Export Control Act of 1949 that became the basis for the U.S. invoking a total embargo against North Korea on June 28, 1950, only three days after North Korea invaded South Korea. The second is the Trade Agreement Extension Act of 1951 that was the basis for banning the most favored nation (MFN) tariffs on North Korea’s exports to the United States. As you know, all member countries of the World Trade Organization have to abide by the MFN regulation that requires these nations to levy the same low tariffs to all member nations of the WTO. Without MFN, there is no way for North Korea to export anything to the U.S. because higher tariffs make them impossible to compete. The MFN is so widely spread that it is now known as the normal trade relation (NTR). North Korea was denied MFN tariff status on September 1, 1951.

The third is the Export Administration Act of 1979 that allowed North Korea to be branded as a terrorist state when its agents blew up KAL 007 on November 19, 1987. At the time of the explosion, Korean Air Lines 007 was in flight from Bagdad (Iraq) to Bankok (Thailand). The explosion killed 115 passengers and crew. On January 20, 1988, North Korea was placed on the list of countries supporting international terrorism.

Placement on the list made it impossible for North Korea to borrow development funds from international financial institutions such as the World Bank and the International Monetary Fund.

On May 25-28, 1999, former U.S. Defense Secretary William Perry visited North Korea and delivered a U.S. proposal. On September 13, 1999, North Korea responded positively by pledging to freeze long-range missile tests. On September 17, 1999, President Clinton agreed to the first significant easing of economic sanctions against North Korea since the end of the Korean War in 1953 by announcing the lifting of most export restrictions applied to North Korea in response to North Korea’s willingness to cease long-range missile testing.

Details of eased U.S. economic sanctions on North Korea were announced on June 19, 2000. Key provisions included that the ban on exports to North Korea had ended, that U.S. passports were valid for travel to North Korea, and that U.S. travel service providers were authorized to organize group tours to North Korea. Among the notable U.S. sanctions that were not lifted are the denial of MFN status and the placement on the list of countries supporting international terrorism.

You may wonder what more economic sanctions can be levied against North Korea beyond the three already in place. To answer this question, you need to know the extent of North Korea’s foreign trade.

Contrary to what you may have heard or believe, latest United Nations trade data indicate that North Korea has trade relations of imports, exports or both with no less than 108 countries, which exclude South Korea because inter-Korean trade is not recorded as trade data in the U.S. trade database. North Korea’s major trading partners in 2004 were, in order of the amount, China ($585,651,972), Japan (164,101,115), Germany ($100,739,000), Brazil ($73,412,125), and Mexico ($47,662,978) for exports, and China ($799,450,316), Russia ($204,818,560), Brazil ($169,921,763), India ($121,080,999), and Netherlands ($120,525,232) for imports. The total amount of North Korea’s exports for 2004 was $1,256,533,361, while the total amount of North Korea’s imports for the same year was $1,937,738,240, with the trade deficit of $681,204,879, representing no less than 54.2 percent of total exports.

Now you have an idea. The new economic sanctions may take the form of a multi-national ban of trade with North Korea. The new economic sanctions may also include a complete ban of any transfer of money to North Korea from many Koreans who live in Japan and support North Korea.

There is no doubt that a complete ban of North Korea’s foreign trade, if imposed, would easily lower the current North Korean GNP to the 1999 level when hundreds of thousands, if not millions, of North Koreans starved to death.

In view of the large number of countries engaged in trade with North Korea, it would be impossible to impose a complete ban on North Korea’s foreign trade without naval blockade, which may escalate tensions on the Korean peninsula so rapidly that China and South Korea may not be willing to go along with multilateral economic sanctions.

From the Donga:

The Japanese media reported on July 10 that the Japanese prosecutors and taxation authorities raided a private organization providing humanitarian assistance to North Korea and a construction company supporting the aid group.

The Tokyo District Public Prosecutors’ Office and the National Tax Agency searched an office of “Rainbow Bridge,” a private group in Tokyo.

The group was established to provide North Koreans with clothes, food, trucks and power generators free of charge in April, 2000. In 2003, the secretary-general of the group drew attention after he visited the Stalinist country, met six offspring of abducted Japanese citizens, and brought and gave their photos and letters to their parents who had arrived in Japan.

The search was reportedly part of an investigation into Mizutani, a construction company on suspicion of tax evasion.

With regard to reasons to support Rainbow Bridge, Mizutani explained to the investigation authorities they considered it as an investment needed to prepare business in North Korea.

From the Joong Ang Daily:

Flows of aid to stop until crisis abates
South willing to meet North only on missiles, weapons
July 08, 2006

A senior government official said that Seoul would withhold promised aid to the North until the missile crisis is over. That decision did not include a delay in the provision of the last promised fertilizer shipment to North Korea, however; a ship left port yesterday bound for North Korea with the last 20,000 tons of that assistance.

Although the Unification Ministry said that it would not cancel the ministerial talks, which are to be held in Busan from Tuesday through Friday, there is no guarantee that they will actually be held. A former senior ministry official noted that Pyongyang could well boycott the talks themselves in a tit-for-tat response to Seoul’s rejection of working-level military talks it proposed two days before it launched seven missiles on Wednesday. In response to those launches, Korean conservatives have also publicly burned the North Korean flag, another sore point with Pyongyang.

The additional promised 100,000 tons of fertilizer and 500,000 tons of rice aid would not be sent to the North. “We made public what we want to address at this meeting so that the North will hear it,” he said. Echoing the former official’s comments, he added, “It is difficult to say whether the North will actually come.”

While Seoul was pondering how to respond to the missile launches, Pyongyang warned against retaliatory sanctions. Kyodo News Agency reported yesterday that Song Il-ho, the North’s representative for normalization talks with Japan, demanded that Japanese sanctions imposed after the missile tests be lifted. From Yonhap:

North Korea warned on Saturday that Japan could face “stronger physical measures” after it banned a Pyongyang ferry from entering its ports for six months in response to the communist state test-firing seven missiles last week.

Song Il-ho, North Korea’s ambassador in charge of normalizing diplomatic ties with Japan, told a pro-Pyongyang newspaper in Japan that, “If anyone tries to put us under pressure, we will have no choice but to take stronger physical measures.”

Regarding the sudden ban on the North Korean ferry Mangyeongbong 92, he said, “Such (an) anti-humanitarian measure is causing a significant anti-Japanese sentiment among our people,” Song was quoted as saying by the Chosun Sinbo.