North Korean Economy Watch

According to Kyodo (via Breitbart):

Police are set to arrest two company presidents Tuesday on suspicion of illegally exporting to North Korea machines which can be used in the development of weapons of mass destruction, investigative sources said.

Fukuoka and Kumamoto police have decided to arrest the two in the Kyushu region, southwestern Japan, for the alleged violation of the foreign trade control law as the machines in question include a power shovel, which falls under Japan’s “catch-all control” regulation requiring export license, the sources said.

The Japanese government decided in May to strengthen coordination between its ministries to rein in surreptitious exports to North Korea in the wake of the sinking of a South Korean warship that Seoul has blamed on Pyongyang.

A power shovel is designated among items subject to the export control regulation as it could be converted into delivery means and launch pads for ballistic missiles such as Rodong and Taepodong missiles.

Earlier this month, a trader and his wife in Shimonoseki, Yamaguchi Prefecture, were arrested on suspicion of violating the foreign trade control law by illegally exporting cosmetics to North Korea despite a ban on the export of “luxury” items to the country.

Read the full article here:
2 firm heads to be arrested for alleged illegal exporting to N. Korea
Kyodo (via Breitbart)
6/22/2010

According to the Choson Ilbo:

North Korea will receive at least US$10 million from FIFA for fielding its national team in the World Cup. The figure amounts to three month’s wages for the over 43,000 North Koreans working in the joint Kaesong Industrial Complex.

FIFA gives the 32 teams playing in the World Cup $1 million each for preparation costs. After playing three matches in the first round, each team is given an additional $8 million no matter if it advances to the next round or not. From this year, every club that has a player in the World Cup receives $1,600 per day, per player. The paid period begins two weeks before the opening of the tournament and ends a day after the final match of each contending team.

For North Korea, the period lasts until this Saturday as it plays its final first-round match against Cote d’Ivoire on Friday. Less the three players who play for foreign football clubs — Jong Tae-se, An Yong-hak and Hong Yong-jo — the North will be given a combined $960,000 for the remaining 20 players on its team. Mostly soldiers, they are affiliated with six domestic clubs. FIFA’s payment is made to each club, but as the North’s are all state-run clubs, Pyongyang has secured at least $9.96 million so far.

If North Korea makes it into the qualifying round it will be awarded an additional $9 million. The teams playing in the quarter-final receive $14 million each and those in the semi-final $18 million each, while the winner takes home $30 million.

With its national team playing in this year’s World Cup, North Korea has also signed a $4.9 million deal under which Italy-based sports apparel maker LEGEA will provide the North with jerseys and training gear for four years.

Read the full article here:
N.Korea to Earn $10 Million for World Cup
Choson Ilbo
6/21/2010

Lankov provides a rhetorical argument against the feasibility of sanctions leading to policy changes in the DPRK.  Writing in the Korea Times:

As everybody repeats these days, the “Sunshine Policy” of engagement and unilateral concessions is dead. After the Cheonan sinking, all Seoul talks about is sanctions and pressure ― and this position finds some understanding in Washington.

It is not likely that talks of tougher sanctions will actually produce tougher punishment against the North. In all probability the attempts to put pressure on Pyongyang will be quietly (or not so quietly) sabotaged by China, perhaps with some Russian support.

This will be disappointing news for many Korean and American hardliners, but they should probably not be that upset: in the very unlikely case of a truly vigorous sanctions regimen being implemented, it is not going to succeed in influencing North Korea’s behavior. The peculiarities of the North Korean regime make it essentially immune to sanctions.

How does a sanctions regimen normally work? When a country is subjected to international sanctions, it does not mean that the leaders suffer from malnutrition ― in all probability, their daily intake of caviar and cognac does not go down a lot, and the fuel tanks of their Jaguars are still full.

Contrary to the lofty rhetoric of diplomats, in nearly all cases it is the common population and lower reaches of the elite who feel the brunt of the sanctions.

Depending on the time and place it might mean anything from surviving for years on a starvation diet to a mere inability to buy a new car, but at any rate people do not take the noticeable decline in their living standards lightly.

So, the dissatisfaction begins to build up, and people start feeling bad about the policy which brought the sanctions upon them (and also toward the government which initiated such a policy).

This is bad news for the government. If a country has relatively free and fair elections, chances are that the government will be voted out of power. In less liberal regimes, a revolution is a likely outcome.

And, last but not least, the factions of the ruling elite might seize the opportunity and use the public discontent to stage a coup. At any rate, a government which is too stubborn faces a very real risk of losing its power because of popular discontent.

However, this mechanism is clearly not what is going to work in North Korea. None of the above-mentioned scenarios of regime change can be realistically expected there.

Needless to say, the North Koreans do not vote ― well, they vote with a predictable 100 percent approval rate for the sole candidate, appointed by the government long before elections.

A popular uprising is not likely either. In the late 1990s North Korea suffered a disastrous famine which killed between half a million and a million people. To a large extent it was brought about by the policy of the government which refused to implement reforms out of fear of instability.

But even the famine victims died quietly, with little, if any, resistance. The North Korean population was too terrified and disorganized to stage any efficient resistance movement. The North Koreans did not know much about available alternatives to their regimented existence. Nowadays the situation has changed to some extent, but not that much.

In other words, the North Korean political system does not receive feedback. The economic prosperity and even survival of the population is not high on the regime agenda, and the population itself has neither violent nor peaceful ways to influence the government policy.

It seems that sanctions supporters pin their hopes largely on a coup orchestrated by the dissatisfied elite, so it makes sense to dwell on this scenario a bit longer. Their logic runs like this: Kim Jong-il uses his funds to bribe top officials, providing them with cars, hi-tech gadgets and luxury goods.

If they do not get these giveaways, they will become resentful of Kim Jong-il and his policies and will probably demand changes or even stage a coup ― in order to have a reliable supply of Hennessy.

But will they? This logic would probably work in some Latin American dictatorships of the 1960s and 1970s where the change of the dictator would not lead to a collapse of the entire system, so ambitious colonels were always looking for an opportunity to get rid of the aging generals. This is not the case in North Korea.

The North Korean leaders understand that any attempt to rock the boat is dangerous. A sight of disunity at the very top might send a dangerous signal to the hitherto docile and terrified populace, and the collapse of the entire system becomes a probability (East Europe of the early 1990s demonstrated once again how sudden revolutions can be).

The god-like status of the Kim family complicates the situation further. The top leaders might have more realistic ideas about the dictator, but they understand that for the populace the sight of a god being removed from power will come as a huge shock. After that, people might become ungovernable.

But, unlike most other countries, North Korea is a part of a divided nation, and an outbreak of instability there might bring about unification with the South ― the ultimate nightmare of the present day elite. If that happens, the top officials and generals have no chance of keeping their privileges, and they are seriously afraid of being prosecuted for their past misdeeds.

It is not incidental that Kim Il-sung, Kim Jong-il’s father and founder of the regime, in the early 1990s made sure that all members of his entourage watched the footage of the execution of Ceausescu, a Romanian strongman who was the closest analogue to the Kims, and the violent Romanian revolution.

His message was: if I am removed from power, you will lose everything, including, probably, your lives. The message was not lost, more so since it appears to be correct.

So, the North Korean generals and dignitaries can survive on a reduced amount of Scotch whisky if the most likely alternative seems to be a lifelong survival on prison rations ― or worse. Kim Jong-il is seen by those people as a guarantee of stability, and none of them will challenge his supremacy.

Thus, if by some unlikely miracle China sincerely joins the sanctions regimen and puts serious pressure on North Korea, the immediate result will be neither revolution nor coup, but simply a dramatic increase in the mortality rate ― in other words, a lot of dead farmers.

Perhaps some breaking point exists and can even be reached if sanctions are applied systematically and for a long time, but this breaking point seems to be too many corpses away.

Fortunately for the average North Korean, it is not going to happen. Driven by fear of instability (and decisively unenthusiastic about unification) China does not want to see North Korea cornered, and will not allow any efficient sanctions to be applied.

Read the full story here:
Sanctions against North Korea
Korea Times
Andrei Lankov
6/17/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-06-17-1
6/17/2010
 
As North Korea’s food shortages worsen and reports of starvation continue to grow, the Workers’ Party of Korea have acknowledged the failure of the central food ration program. Since the end of May, the Party has permitted the operation of 24-hour markets, and the regime has ordered the people of the North to provide for themselves.

The human rights organization Good Friends reported this move on June 14. According to Good Friends, the Workers’ Party organization and guidance bureau handed down an order on May 26 titled ‘Relating to Korea’s Current Food Situation’ that allowed markets to stay open and ordered North Koreans to purchase their own food. This order, recognizing that the food shortages in the North have continued to worsen over the last six months, since the failed attempts at currency reform, acknowledged the difficulty of providing government food rations. It calls on those who were receiving rations to now feed themselves, while also calling on the Party, Cabinet, security forces and other relevant government agencies to come up with necessary countermeasures. Now, authorities officially allow the 24-hour operation of markets, something that most had already tacitly permitted, and encourage individuals, even those not working in trading companies, to actively import goods from China.

It has been reported that government food rations to all regions and all classes of society, even to those in Pyongyang, were suspended in April. The last distribution of food was a 20-day supply provided to each North Korean on April 15, the anniversary of the birth of Kim Il Sung. Because of the difficulty of travelling to markets, the suspension of rations caused many in farming communities to starve to death. When Kim Jong Il’s recent visit to China failed to secure expected food aid, the Workers’ Party had no choice but to hand down the ‘May 26 Party Decree’. While the suspension of rations has considerably extended the economic independence of North Korean people, the regime has significantly stepped up other forms of control over society. Public security officers have begun confiscating knives, saws and other potential weapons over 9 centimeters long in an effort to stem murder and other violent crimes. Additionally, state security officials are cracking down on forcefully resettling some residents of the age most likely to defect, while sending to prison those thought to have contacted relatives in South Korea.

According to Daily NK, North Korean security officials are pushing trading companies to continue trading with China, while calling on Chinese businesses to provide food aid. It also appears that North Korean customs inspections along the Tumen River have been considerably eased, and there is no real attempt to identify the origin or intended use of food imported from China. Sinheung Trading Company has asked Chinese partners investing in the North to send flour, corn and other foodstuffs. The Sinheung Trading Company is operated by the Ministry of State Security, and is responsible for earning the ministry foreign capital. It appears that food acquisition is now a matter of national security, as North Korea is expecting South Korea and the rest of the international community to economically isolate the country.

Download the report here.

According to the Daily NK:

The U.S. Department of State released its 10th “Trafficking in Persons Report (TIP)” yesterday, once again classifying North Korea as “Tier 3,” meaning it is a country whose government does not “fully comply with the minimum standards” and is “not making significant efforts to do so.” The North joins Cuba, Kuwait, Sudan, Zimbabwe and another eight countries in Tier 3, the lowest on the list.

North Korea has been in Tier 3 since 2003, when it first appeared on the TIP.

The TIP recommends that Pyongyang move to “improve the poor economic, social, political, and human rights conditions in North Korea that render North Koreans highly vulnerable to trafficking; recognize human trafficking as a problem in North Korea; cease the systematic punishment of trafficking victims in forced labor camps and others.”

However, the report defines North Korea as a place which has made “little, if any, efforts to combat trafficking in persons through law enforcement efforts over the last year, and continued to severely restrict the movement of its citizens internally and across its borders.” It also adds, “The North Korean government continues to deny the existence of trafficking as a problem. Little information is available on North Korea’s internal legal system.”

The report explains that the most common form of trafficking involves North Korean women and girls who are forced into marriage or prostitution in China. Another form is the forced labor which is a key part of the North Korean system of political repression. As an example, the report mentions “labor mobilization campaign such as the ‘150-Day Battle’ and ‘100-Day Battle’ in 2009.”

North Korea’s notorious prison camps also come up in the report, which says, “An estimated 150,000 to 200,000 persons are held in detention camps in remote areas of the country; many of these prisoners were not duly convicted of a criminal offense. In prison camps, all prisoners, including children, are subject to forced labor, including logging, mining, and farming for long hours under harsh conditions.”

Meanwhile, the TIP also designates China as a country on the State Department’s “Tier 2 Watch List”, just one level above North Korea, and recommends that it “cease the practice of forcibly repatriating North Korean trafficking victims,” pointing out that repatriated North Koreans face harsh punishment upon their return.

Read the full sotry here:
North Koreans Vulnerable to Human Trafficking
Daily NK
Choi Yong Sang
6/15/2010

According to Business Week:

Japan will tighten controls on sending money to North Korea next month as part of additional sanctions in response to a suspected sinking of a South Korean warship.

The cap on undeclared cash transfers will be lowered to 3 million yen ($32,800) from 10 million yen, according to a statement released by the Ministry of Finance.

The ministry also will reduce the amount of money an individual can take into North Korea to 100,000 yen from 300,000 yen. The change will take effect on July 6, the statement said.

Read the full story here:
Japan to Tighten Control on Sending Cash to North Korea
Business Week
Kyoko Shimodoi and Keiko Ujikane
6/15/2010

According to the White House web page:

TO THE CONGRESS OF THE UNITED STATES:

Section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)) provides for the automatic termination of a national emergency unless, prior to the anniversary date of its declaration, the President publishes in the Federal Register and transmits to the Congress a notice stating that the emergency is to continue in effect beyond the anniversary date.  In accordance with this provision, I have sent to the Federal Register for publication the enclosed notice stating that the national emergency declared in Executive Order 13466 of June 26, 2008, is to continue in effect beyond June 26, 2010.

The existence and the risk of proliferation of weapons-usable fissile material on the Korean Peninsula constitute a continuing unusual and extraordinary threat to the national security and foreign policy of the United States.  For this reason, I have determined that it is necessary to continue the national emergency and maintain certain restrictions with respect to North Korea and North Korean nationals.

BARACK OBAMA

THE WHITE HOUSE,
June 14, 2010.

According ot the Daily NK:

People working for North Korean enterprises overseas are concerned by their poor financial performance and excessive requests for remittances since the Cheonan incident and Kim Jong Il’s visit to China.

Cheong is one such businessman. In his 50s now, he has been residing in Shenyang since the early 2000s working on exports of North Korean mineral resources. He has won recognition from home for his efforts, but nowadays he is growing more anxious and says he has lost his composure.

Upon meeting with The Daily NK’s correspondent, who arranged the meeting in the guise of a businessman, Cheong said frankly that life is exceedingly hard at the moment.

“Even though the General (Kim Jong Il) visited China, there were no clear promises of Chinese aid or investment in North Korea,” Cheong says. “Therefore, the authorities are requesting more foreign investment and that money be given to the country in order to get past the situation.”

According to him, the authorities have threatened to merge export offices that do not perform to expectations. He says he plans to avoid this by first gathering around $2,000 to remit to Pyongyang, and then visiting the North Korean capital to check on the domestic situation next month.

He says that the failure of the currency redenomination has affected the credit worthiness of North Korea. China-based traders are anxious about the situation as the number of foreign investments and sales has deteriorated this year.

“Since the route for seafood exports to South Chosun has been blocked, we have been instructed to sell it all in China,” he adds. “Although the quality is quite good, we have to have dumping sales in order to find immediate ways to sell it. Therefore, profits are reduced and we have to compensate for the loss. It is terrible.”

He says he has thought about going back to the North, but his wife bitterly opposes it for their son’s education. She was surprised by Cheong’s thought, he says, since the couple had even devised a method to bring their daughter, who is still in Pyongyang, to China.

He explains, “Even those who are known as old hands and who are seen as very skilled in foreign currency earning business look worried about the need for ‘loyalty funds.’ They are eager to make contacts in powerful positions by whatever means necessary, because background and supporters can be decisive in your life.”

One example, Kang, who is in charge of importing light industrial products in Beijing, dropped by Shenyang on his way to meetings with other branch managers. He became a well-known trader after he made good money supplying air conditioners to the Mansudae Assembly Hall and fabric to the military authorities.

His business is stable because he is known as a “Kim Jong Nam person”, i.e. a close associate of Kim Jong Il’s first son, and his life is also stable; he resides in a luxurious apartment in Beijing and his son is studying in the U.K.

However, even he has grown concerned lately, he says. “Decrees demanding increased ‘loyalty funds’ have been constantly handed down,” he explains. “The amount they request has increased by two or three times. It is awful.”

North Korean traders residing in Shenyang generally agree that, in Kang’s words, “In order to survive overseas, Kim Jong Eun is now a lifeline. When chiefs of foreign offices go to Pyongyang, they busy themselves trying to find invisible backers (i.e. Kim Jong Eun) to give a few thousand dollars to.”

Read the full story here:
North Korean Traders Feeling Pinch
Daily NK
Jung Kwon Ho and Shin Joo Hyun
6/16/2010

According to the Choson Ilbo:

North Korea asked China to provide it with the latest J-10 fighter jets and other hardware but was rejected, it emerged Wednesday.

According to a high-ranking source in the North, North Korean leader Kim Jong-il made the request to Chinese President Hu Jintao when he visited China in early May. But Hu apparently told Kim that China will protect and support him if attacked.

Observers guess this is the reason why Kim left a day earlier than scheduled.

One North Korean defector who used to be a high-ranking official said, “Kim is increasingly afraid of an attack by South Korean and U.S. forces” following the North’s sinking of the South Korean Navy corvette in March. The North Korean leader therefore wanted to get his hands on the latest Chinese fighter jets to counter South Korea’s F-15 and F-16 fighter planes.

“Kim wouldn’t have visited China with such a large entourage if he merely wanted economic assistance,” the defector said. Another North Korean defector and former soldier said Pyongyang may have bolstered its so-called asymmetric warfare capabilities by strengthening special forces “but still lags behind South Korea in terms of naval and air force capabilities and feels threatened.”

There is speculation that North Korea is forced to lean on China because it does not have the money to buy expensive Sukhoi fighters from Russia.

Read the full article here:
Kim Jong-il Demands Fighter Jets from China
Choson Ilbo
6/17/2010

According to National Public Radio:

Conventional wisdom holds that the people of North Korea are trapped in a world of rigid conformity, totalitarian discipline and complete isolation from the rest of the world.

But increasingly another picture is emerging: North Koreans are far more aware of the outside world, according to evidence provided by North Korean refugees, South Korean humanitarian aid workers, Chinese traders and others.

It is rare for an American to travel to North Korea, and even rarer for an American to spend much time there. Steven Linton has done both.

“In general I think North Koreans are clearly growing in their awareness of the rest of the world. I think there’s no question about that,” Linton says.

Linton has been going to North Korea for many years. He is engaged in a campaign to combat tuberculosis there, and he says North Koreans are soaking up information about the rest of the world.

“One of the most underrated realities about North Korea is its very dynamic relationship with China, and the amount of information that flows across that border. Students; business people; it’s a continuous stream of traffic,” he says.

With that traffic come thousands of DVDs, CDs, cellular telephones, used computers and videotapes — many of them from China and South Korea.

Traders Fill Information Gap

Kim Heung Kwang came to South Korea from the North six years ago and created a group called North Korea Intellectuals Solidarity. He has his own network of people in both Koreas. Kim says market-oriented traders and smugglers in the provinces of China bordering on North Korea are filling the information gap.

He says that many Koreans in China make a living by setting up satellite TVs at their homes to receive South Korean media. Then, they burn CDs and DVDs of the programs and sell them to North Koreans — for a profit, not propaganda.

These media are so prevalent inside North Korea now that knowledge about South Korea has become commonplace, says Yoo Ho-yeol, a professor at Korea University in Seoul. Yoo regularly talks to students and refugees from North Korea.

“They are telling us that those people living along the border area, all of them know well about South Korean society or daily life,” he says.

Groups such as North Korea Intellectuals Solidarity also have managed to send cell phones across the Chinese border, and now thousands of people can call to South Korea, via cell phone systems in China, to provide news of developments inside North Korea. And they can receive text messages, photos and music via cell phones.

It was through channels such as these that news leaked out of North Korea late last year of the disastrous currency reform the government had imposed and widespread resistance to it.

Impossible To Stop Flow Of News

It is still not risk-free to possess these materials. But, says Kim of North Korea Intellectuals Solidarity, while possessing a videotape from South Korea in years past might bring a three-year prison or labor camp sentence, now the materials are so common that local authorities appear to understand they’ve already lost this battle.

“The efforts are ongoing to inspect and collect everything that they can find. But because the demand is so big and the activities are [going on in the] black market, the government is feeling that it is fundamentally impossible to eliminate all sources. So I feel that they are just going through the motion now,” he says.

And there is word of mouth. Humanitarian workers from South Korea who have brought medicine or food to North Korea say simple conversation can be transformative.

Hwang Jae-sung has done agricultural work in North Korea for an aid group from the South called Korean Sharing Movement.

“They saw what we were, and what we do and what we brought. And they go back to [their houses] and they just tell their wives and children and so on. The word spreads, a thousand miles,” Hwang says.

Sanctions Undermine Efforts

Ironically, the policies of the United States can get in the way of the freer flow of information. Some economic sanctions imposed by the U.S. have created problems for the North Korea Intellectuals Solidarity group. It has been sending USB drives that carry books, news articles, music, teaching materials and computer games to North Korea.

But North Koreans need more computers to use them, says Kim, the group’s director.

“The prerequisite for this program is enough computers in North Korea. But there are several regulations in place blocking our efforts. So I think that the United States needs to change its regulations on these matters,” he says.

The number of used computers from South Korea and Japan is enormous. But sanctions make it more difficult to get even these computers and more information into North Korea.

Read the full story and hear audio below:
Awareness Of Outside World Growing In North Korea
National Public Radio
Mike Schuster
6/15/2010

According to Barbara Demick at the Los Angeles Times:

The numbers change daily, but as of early this month, 818 South Koreans were still working alongside roughly 43,000 North Koreans. Despite the supposed ban on North Korean products, South Korea recently accepted delivery of 20 tons of peeled garlic as well as $17,000 worth of clothing and $250,000 of electrical sockets.

Lim, who is in touch with many workers and managers, says that on a human level, relations between the Koreans at Kaesong are not as hostile as one might imagine. He paraphrased North Korean bureaucrats whispering to South Koreans, “We hate Lee Myung-bak’s government but not you as people.”

The South Koreans at Kaesong either commute — downtown Seoul is only 30 miles away — or live for up to two weeks at a time in dormitories attached to the factories. There they can watch South Korean television and make telephone calls home, although they have no access to the Internet.

Since the recent crisis erupted, the South Korean government has ordered Kaesong’s factory owners to reduce their staffing, fearful of what might happen if the war of words were to erupt into an actual war.

South Korean Defense Minister Kim Tae-young said during parliamentary committee meetings last month that there was a “a great possibility” that South Korean workers could be taken hostage by the North Koreans.

To South Korean factory owners, the idea is preposterous.

“People who have never been to Kaesong and who are only watching the television news keep asking our employees, ‘Are you guys all right?’ ” said Park Yoon-gyu, president of South Korean menswear manufacturer Fine Renown, which has operated out of Kaesong since 2008.

“We South Koreans and North Koreans have become very close to each other,” he said. “Yesterday’s enemies are today’s friends.”

But a South Korean worker who spoke anonymously to the conservative Chosun Ilbo newspaper gave a less sanguine account of the atmosphere at Kaesong. He said that armed North Korean soldiers had been seen inside the compound, despite rules forbidding their presence.

The man also said that North Korean employees were stealing food, office supplies and toilet paper, and even grass seeds from a newly planted lawn, apparently following official orders to take whatever they could from South Korean companies.

Both North and South Korea have substantial amounts of money at stake in Kaesong, which lies just south of the 38th parallel — where the peninsula was divided at the end of World War II — but changed hands during the Korean War.

Kaesong is home to 120 South Korean factories, each of which required an investment of as much as $8 million, according to scholar Lim. For cash-starved North Korea, Kaesong is one of the dwindling sources of hard currency. The North Korean workers receive monthly salaries of $70 to $80, of which all but about $20 goes to the government.

Even in the crisis, the industrial park could help defuse tensions. South Korea hasn’t followed through on its threat to resume propaganda broadcasts at the DMZ, in part out of concern about what might happen to workers at Kaesong. Loudspeakers have been installed at 11 locations but remain quiet — for now, at least.

As an aside, Paul Romer is trying to push the founding of charter cities as a new strategy of reducing poverty in the developing world.  A brief summary of his work has been published in The Atlantic and is worth a read.

You can read the full Los Angeles Times story here:
For Koreas, business park remains a neutral zone
Los Angeles Times
Barbara Demick and Ju-min Park
6/13/2010