North Korean Economy Watch

From the BBC: 

The Japanese government is stepping up pressure on the DPRK by introducing legislation to impose formal economic sanctions.

North Korea has admitted kidnapping 13 Japanese citizens in the 1970s and ’80s to train its spies. Five have been allowed to return. Japan has demanded proof of what happened to the others. It is sceptical about North Korea’s insistence that they are dead. It also believes more of its citizens may still be held by the government there.

Pyongyang and Tokyo have no diplomatic ties, but there is some trade between the two countries. (Chongryun)

This new bill would require the government to impose sanctions on North Korea unless it gets the answers it wants.  The punishments would include a ban on the docking of North Korean ships at Japanese ports, and stopping private individuals in Japan from sending money to Pyongyang.

Two years ago Japan passed a law setting out a range of similar measures that could be imposed. The new legislation is designed to strengthen that policy.  Japan has up to now stopped short of imposing sanctions, preferring instead to pursue the matter through occasional talks, but there has been little progress.

Pyongyang has always said any imposition of economic sanctions would be regarded as an act of war.

Korea Times
4/27/2006

South Korea’s state-run resources development corporation on Thursday announced the opening of a joint graphite mine in North Korea.

The 50-50 joint venture between the Korea Resources Corp.(KORES) and a North Korean firm can produce 3,000 tons of graphite per year.

Of that, South Korea will import 1,830 tons every year for the next 15 years. This amount is equivalent to 20 percent of the South’s domestic demand.

The corporation has invested $10.2 million into the mine in Chongchon, South Hwanghae Province. It is estimated to hold 6.25 million tons of graphite.

Graphite from the mine can be used in batteries, brake-lining for cars and flame-proof or heat-resistant materials. The first batch of graphite is to arrive in South Korea in the second half of the year.

The joint development pact was signed in March 2003 with a formal deal signed four months later. South Korea transferred mining materials and other equipment to the mine in early 2004 and development got underway shortly afterwards.

According to Yonhap:

The number of North Korean workers at a South Korean-run industrial complex in the North Korean border city of Kaesong rose 22 percent every month over the past one and a half years, the South’s Unification Ministry said Wednesday.  Production increased 36 percent every month due largely to a rise in the number of South Korean factories operating in the complex, according to the ministry.

As of Friday, a total of 6,859 North Korean workers, including 1,047 construction workers, were registered at the complex.

South Korea hopes to promote the Kaesong complex as a role model for inter-Korean economic partnership, while officials in Washington express concern over its possible negative impact on the multilateral efforts to end North Korea’s nuclear weapons program.

The US Secret Service, which is part of the Treasury Department, has the responsibility to track down counterfit US currency, and becuase of a quirk of history, also protects the President of the USA.

According to Yonhap, the Secret Service has collected up to $50 million of “supernotes,” first discovered sixteen years ago and believed to come from North Korea….

But the latest trend shows the communist regime depends heavily on counterfeiting cigarettes for major income, smuggling at least one 40-foot container every month into the U.S., they said.

Testifying before the Senate in the first Congressional hearing on Pyongyang’s illicit financial activities, Michael Merritt, deputy assistant director of the U.S. Secret Service, gave statistics gathered from a global investigation.

There were more than 170 arrests involving more than 130 countries since the supernote was first detected in 1989 by a Central Bank cash handler in the Philippines, he said.

“Our investigation has revealed that the supernote continues to be produced and distributed from sources operating out of North Korea,” he said.

“These new versions show corrections or improvements in the flaws which are used by banking and law enforcement to detect them,” he said.

“A major source of income to the regime and its leadership, we believe, is the counterfeiting of cigarettes,” he said.

The U.S. government is seeking $5 million in criminal forfeitures in several of these indictments, according to the official.

I was told on my last visit to the DPRK that Marlboro Reds were popular in the DPRK and many astute smokers could taste the difference between the American and European versions–and prefered the American product. 

According to Yonhap, the US State Department has reported to the US Senate (who controls its funding) that it does not have “sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.”

According to the Article:

Peter Prahar, a director at the [State] [D]epartment’s bureau for international narcotics and law enforcement, told a Senate hearing that the U.S. does not yet have sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.

He said indictments are unlikely at this point, since they require “a certain level of evidence that I don’t believe exists,” he said.

Asked if North Korea might be put on the major drug trafficker nation list, Prahar said it is something his department considers “on a regular basis.”  But he cited inability to confirm reports of massive opium cultivation in North Korea, or find evidence that the country’s drug transiting is impacting the U.S.

“But this is something…that we consider regularly within the Department of State, and if we have information that will substantiate that finding, that is a recommendation we are going to make,” Prahar said.

Kim Seong-min, a former North Korean director, claimed it is certain that Pyongyang continues to produce opium.  “Youngsters are used to collect extract from opium,” he told the hearing.  As much as 70 percent of three North Korean counties are set aside to cultivate poppy seeds, totaling some 30,000 hectares, he claimed.

Prahar also stressed alarm at North Korea’s counterfeiting of pharmaceuticals which is “still sketchy” so its magnitude cannot be measured.

According to the Associated Press, the Chongryun have once again begun shipping service between their homes in Japan and Wonsan, DPRK.

I remember seeing this very ship when I visited Wonsan in August 2004.  I did not get to walk aboard or anything, I just got a glance as my bus zoomed by….unfortunately too fast to take a picture.

Shipping from North Korea was severly curtailed by the Japanes Authorities in response to public outcry over the kidnapping issue.  Although Japan was coy enough to avoid an outright trade embargo, leaving the door open to future talks, they did place insurance and safety requirements on ships in their ports…requirements very few North Korean ships can meet.

From the article:

The Mangyongbong-92 was inspected by Japanese authorities as nearly 500 police guarded the area. Officials found six minor problems with the vessel, including ones related to fire prevention and communications, but issued no corrective orders, according to the Transport Ministry.

The ferry from Wonsan to Niigata has been a catalyst for Japanese protests. As the only regular passenger service between the two countries, its visits provide the isolated North with a crucial link to the outside world.

The vessel, which was to depart from Niigata on Wednesday, is scheduled to make 18 more visits through October, according to Transport Ministry official Hajime Nakamura.

In late March, police raided the Osaka office of a chamber of commerce for North Korea on suspicion that its top officials were involved in one kidnapping.

In March, Japan passed a law requiring all foreign ships over 100 tons entering Japan to be insured against oil spills, losses and other damage.

Few North Korean ships were believed able to meet the requirement, and officials acknowledged the measure was intended to increase pressure on the North.

From the BBC:

A recent report for the US Congress estimated that $45m of the notes are in circulation worldwide. South Korean police this month uncovered a haul of 700 fake $100 bills. “They’re about 95% identical to the real thing,” said Suh Tae-suk, South Korea’s leading expert on counterfeit currency, “but there’s a slight difference in the texture of the paper and the make-up of the chemicals, so experts can still spot them.”

Most of the notes are brought in from China; and organised crime networks are reported to be distributing them in Asia, and through Russia into Europe. American officials say they have no doubt the notes are manufactured in North Korea.   High-level North Korean defectors back up some of Washington’s claims that Pyongyang is involved in counterfeiting and other illicit activities.

One former North Korean diplomat painted a picture of cash-strapped embassies that are expected to finance themselves, and of diplomats racking their brains for new ways to raise money. He asked not to be identified because he had left family behind in Pyongyang, who he now considers hostages of the regime. “We were each given a quota of foreign currency that we had to raise each year to show our loyalty to the state,” he explained. “I was expected to produce $100,000 a year and remit it to a bank in China”.

The former diplomat, who has lived in Seoul since his defection, said a superior once handed him fake US bank notes, mixed in with the real thing, to conduct a trade deal in South East Asia. He said he raised money from kick-backs on trade deals, but would also smuggle gold and “currency by the kilogramme” in diplomatic bags.

And there were other scams: Trading in tax-free cars, smuggling liquor into Islamic countries, and trafficking horns and ivory out of Africa to sell to Chinese businessmen.

At the centre of much of the trade is North Korea’s top-secret Bureau 39, which defectors say was set up in the 1970s to create a personal slush fund for Kim Jong-il.

“Bureau 39 has a monopoly on earning foreign currency,” said Kim Dok-hong, who worked for 17 years alongside the bureau’s agents at the North Korean Workers’ Party Central Committee.   “Bureau 39 has a monopoly of trade in high-quality agricultural products like pine mushrooms and red ginseng. They also control the drug trade. Opium is produced across the country and then refined into heroin. Their other main role was distributing the supernotes,” he said.

North Korea denies the charges of counterfeiting.  It accuses the US of counterfitting its own currency and trying to blame the DPRK. 

North Korea has also asked the government of Switzerland to investigate the authenticity of a U.S. claim that Pyongyang secretly keeps US$4 billion in Swiss bank accounts, and then release a report on its findings.

The North Korean embassy in Switzerland sent a statement to Yonhap News Agency, branding the U.S. allegation a “conventional scheme to damage the image of our republic.”
North Korea has “made an official request to the Swiss government to investigate this matter and release the results of the probe on purpose to guarantee objectivity,” the statement said.

Economic Reform and SEZ as Survival Strategy of DPRK
PDF: Deok Ryong Yoon.pdf
Deok Ryong Yoon

Introduction to & implications of Gaesong Industrial Complex Project
PDF: kaesong.faqs.pdf
Ministry of Unification

Gaeseong Industrial complex: Past, Present and Future
PDF: Dong-geun Kim.pdf
Speech by Dong-geun Kim, Chairman of Gaeseong Industrial District Management Committee

Gaeseong Industrial Complex : Frequently Asked Questions (FAQs)
PDF: kaesong.faqs1.pdf
Ministry of Unification, ROK

From the Daily NK:

Workers in the Kaesong Industrial Complex are officially paid $57.50/month.

North Korean workers only receive 4500W ($1.5/month) after various deductions. So North Korean workers only take 2.6% of their wage home. This is still twice of the wage of normal North Korean workers, so they are satisfied.

North Korean workers in Kaesong Industrial Complex might not recognize that this is a problem. They are used to obeying the government. 

I would not be happy paying 97.4% income tax.  I try to avoid getting out of my relatively low American taxes as it is.   I would not work (above ground)…unless I was really hungry.
 

Discussion from the Korea Times:

“Yes” Reasons:
-Prolonging the life of the Kim Jong-il regime at the expense of its people
-The North cheats its own workers by not giving them their full pay. There are no unions in Kaesong Industrial Park and workers are expected to work unpaid overtime regularly
“No” Reasons:
-Mini-Marshall Plan
-Workers there earn $58 per month and work under excellent conditions and are much better off than North Korean workers elsewhere.

Other factoids:
Kim Dong-Keun, president of the complex’s Industrial Management Committee said “The North Korean workers are very diligent with high manual skills. Their productivity level is on average 80 percent that of their South Korean counterparts.”

A manager at Hyundai claimed, “Workers’ income at the complex is about 5-10% that of South Korean workers, which is much more than North Koreans generally earn. And they work under better conditions, too”