North Korean Economy Watch

Yonhap
2/5/2007

The United States may recognize goods produced at a joint industrial complex just north of the border as South Korean if there is a change in circumstances, the top U.S. diplomat here said Monday.

In a one-hour meeting with Unification Minister Lee Jae-joung, U.S. Ambassador Alexander Vershbow said that while it is unrealistic to recognize the goods made in the border city of Kaesong as South Korean, there is room left to negotiate within the proposed free trade agreement (FTA) between the two countries, Unification Ministry officials said.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula. Vershbow said ‘if,’ but he did not elaborate on what kind of change under what kind of circumstances,” said a ministry official who was present at the meeting, but who asked to remain anonymous.

So far, the U.S. has avoided placing the issue on the official agenda of the FTA negotiations, so Vershbow’s remarks could be construed as a slight change in U.S. strategy toward forging a free trade deal with South Korea.

In spite of United Nations sanctions on the North following its nuclear weapon test in October, South Korea has kept two major cross-border joint projects afloat: an industrial complex in Kaesong just north of the border, and a tourism program at the North’s scenic Mount Geumgang.

In the industrial complex, South Korean businesses use cheap North Korean labor to produce goods. Twenty-one South Korean factories employ about 11,160 North Korean workers in Kaesong.

The six-party talks aimed at ending North Korea’s nuclear weapons program, involving the two Koreas, the U.S., China, Japan and Russia, will reconvene in Beijing on Thursday.

US May Accept Kaesong Goods
Korea Times
Ryu Jin
2/5/2007

The United States might recognize goods made at a joint industrial complex in the North Korean border city of Kaesong as South Korean products in a proposed free trade agreement (FTA) if there is a change in circumstances, the top U.S. diplomat in Seoul said Monday.

U.S. Ambassador to Seoul Alexander Vershbow said in a meeting with Unification Minister Lee Jae-joung that, although it seems unrealistic at the moment to recognize the Kaesong products as South Korean, there is room left to negotiate within the proposed FTA.

“Lee stressed that U.S. recognition of the goods produced in Kaesong as South Korean will contribute to bringing about a lasting peace on the Korean Peninsula,” a ministry official said after the meeting. “Ambassador Vershbow said `if,’ but he did not elaborate on what kind of change under what kind of circumstances.”

Vershbow’s remarks could be interpreted as a sign of change in U.S. strategy since Washington has so far refused to deal with the issue as an official agenda item in the ongoing negotiations for a South Korea-U.S. FTA.

Inter-Korean ties have soured in recent years in tandem with the deteriorating North Korea nuclear standoff. But the six-party talks aimed at ending North Korea’s nuclear program is expected to see a substantial progress in the coming round of negotiations.

South Korea has kept afloat its major cross-border projects with North Korea, including the joint industrial park in Kaesong and a tourism program at the North’s scenic Mt. Kumgang, even after Pyongyang’s nuclear test in October.

South Korea has exerted much effort to have its counterparts in FTAs, such as Southeast Asian countries, recognize the Kaesong products as “made in Korea” because it has a significance to further promote the joint industrial project.

A total of 21 South Korean factories are operating in the Kaesong industrial park at present, employing over 10,000 North Korean workers.

Daily NK
2/3/2007

Though the number of North Korean drug smuggling cases is on the decline, a U.S. report claims that the number of Chinese crime gangs reexporting North Korean drugs to 3rd world countries is on the rise.

Radio Free Asia (RFA) conducted an interview with Researcher Raphael Pearl of the U.S. Congressional Research Service (CRS) on the 30th regarding his claims in a report “Drug Trafficking and North Korea: Issues for U.S. Policy.

In the report Pearl spoke of an incident where Australian authorities captured a North Korean vessel “Pongsu” in April 2003 which was amidst transporting $160mn worth of heroin and said that this case had “enhanced international attention” on the issue of North Korean drug smuggling and since then the number of drug smuggling incidents had generally declined.

Since 1976, there have been a total of 50 cases where 20 different countries were caught in foreign relations with North Korea for drug trafficking. However, within the last 2 years, the majority of cases of drug smuggling were found in China’s Shenyang, Dalian and Dandong. Further, links to North Korean authorities have yet to be verified regarding these cases.

Pearl said that despite the fact North Korean drug trafficking has declined on the whole there have been cases where North Korean drugs were mistaken for drugs made in China. Also, he said that through the intervention of Chinese crime gangs, North Korean drugs were being reexported to 3rd world countries.

Some argue that the reason drug incidents have declined is due to the fact North Korean authorities have reduced their direct participation in the manufacture of goods. However, more and more Chinese crime gangs are intervening in the manufacture of North Korean drugs and smuggling, he said. In other words, there is a high possibility that North Korean drugs are being reexported through the intercession of China.

Pearl said that North Korean authorities are attempting to compensate the losses from a decline in drug smuggling with the manufacture and smuggling of fake cigarettes, medicines and small weapons. He also emphasized and confirmed the pivotal role of illegal acts such as exporting fake cigarettes and drugs in contributing to North Korea’s economy and income.

In the report, Pearl expressed his concerns on North Korea, giving the example that parts of farming areas had been used to cultivate drugs even amidst a poverty stricken country and indicated that the money from illegal acts such as drug smuggling and counterfeit currency could further add to the development of missiles and nuclear weapons.

He also expressed concern over the issue of segregating North Korean authorities especially with foreign groups being associated with North Korean drug smugglers.

Choson Ilbo
2/2/2007
 
Russia is trying to strengthen ties with North Korea, citing a “China threat” in Korea and the Far East. The Gudok, the daily newspaper of Russian Railways, said in an article Tuesday, “If China takes control of Najin port in North Korea, Russia may suffer huge losses in the project to link the TKR (Trans-Korea Railway) and the TSR (Trans-Siberian Railway).”

Gudok is published by Vladimir Yakunin, the president and CEO of Russian Railways and one of the closest allies of Russian president Vladimir Putin. Sources say the report can be viewed as Russia’s official position as it tries to expand its influence with Pyongyang.

“China has completed feasibility studies for Najin port and is now doing repairs and upgrades to wharfs and container unloading facilities,” the article said. It said that because the port lies at the start of the Najin-Hasan Railway and does not freeze throughout a year, Russia must take hold of it.

“China has already requested that the UNDP, or UN Development Program, give the Chinese the right of free passage in the UNDP-initiated Tumen river development project. What China aims to achieve is to establish its own port in North Korea as a foothold to advance into the Pacific Ocean,” the article said. The newspaper urged the Russian government to respond aggressively.

Sources with the Korean government said Thursday, “The Russian government suggested late last year that it would pursue a railway modernization plan on a 54km stretch of the Najin-Hasan line with its own money, without support from South Korea, if we expand container transportation on the route between Busan and Najin.”

Currently only North Korean trains are in service on that stretch of railway. Russia has been working on the line since July, converting its narrow gauge to the standard that supports container transportation.

North Korea, which has sent around 10,000 construction workers and loggers to the Far East region, is welcoming closer cooperation with Russia. When president Putin announced last Saturday that Russian would spend 100 billion rubles (W3.7 trillion) to hold the Asia Pacific Economic Cooperation summit in Vladivostok in Russia, North Korean consulate-general Shim Kuk-ryeong in Nachodka said, “North Korea is ready to join major construction projects as soon as Vladivostok’s infrastructure development project starts.”

Russia’s efforts to expand its influence with North Korea can be seen as falling within the context of Putin’s recent emphasis on the Far East. Late last year, Putin said, “Russia’s security is now being threatened with the illegal migration of Chinese into the Far East.”

Korea Times
2/2/2007

Kim Jong-il, the idiosyncratic leader of North Korea, may be dispensing Hennessy cognac and Cartier watches to his cronies for a little while longer, thanks to a 300-year-old territorial dispute between the United Kingdom and Spain, the Financial Times reported Thursday.

The times said the precise status of Gibraltar, a hunk of British-owned rock at the mouth of the Mediterranean, has caused a new row between London and Madrid that is delaying a European Union (EU) ban on luxury goods sales to Pyongyang.

The ban was agreed by the United Nations last October as one of a series of sanctions against North Korea, following its Oct. 8 underground nucear weapons test.

The aim was to deprive Kim and his supporters of some of the finer things in life, including thoroughbred horses, luxury vehicles, watches, pearls and musical instruments, the daily said.

The sanctions were adopted by EU foreign ministers in November, but they are still not in force across the bloc, according to the world-renowned finacial newsppwer.

“If Kim is wondering why, he need look no further than the War of the Spanish Succession and the 1713 Treaty of Utrecht that ended it _ handing Gibraltar to Britain,’’ the times said.

Problems arose when Madrid spotted that the EU regulation needed to implement the sanctions contained a reference to the “competent authorities’’ responsible for enforcing them: listed in the small print was Gibraltar.

Spain’s foreign ministry wants the reference to Gibraltar deleted before the EU regulation can come into force.

“We do not recognize Gibraltar’s authority in international policy,’’ the daily quoted the ministry as saying, “The UK is the only competent authority in this respect.”

The times quoted British diplomats as saying that there would be a legal hole in the sanctions if Gibraltar was not included.

It said both sides are trying to resolve the dispute and insist it is a hiccup in improving relations over the colony.

The newspaper said that in September the two countries, along with Gibraltar, signed an agreement on airport access, telecoms and border controls, hailed as the beginning of a new era of cooperation.

Choson Ilbo (hat tip One Free Korea)
2/2/2007
A sand supplier under virtual control of the North Korean army has notified its South Korean customers that the price of sand exported to South Korea would be going up by 60 percent.

On Thursday, the Korea International Trade Association, the Korean Aggregates Association and importers of North Korean sand said that the North recently sent an unexpected notice that it would raise the price of sand next month by W900 (US$1=W937) from US$1.6 (W1,500) to 2 euros (W2,400) per cubic meter.

Exports of North Korea’s sand, which is extracted mainly from seaside areas around Haeju, Hwanghae Province, are virtually controlled by the Ministry of People’s Armed Forces, the command authority of the North Korean People’s Army.

Chun Seong-whun, a senior research fellow with the Korean Institute for National Unification, said, “It would seem cash-strapped North Korea is trying to obtain foreign currency by raising the price of sand, which is quite flexible.”

Last year around 9.09 million cubic meters of sand were imported from the North. If the same amount of sand is imported this year, the North will see an additional W8.2 billion. In addition, experts believe that the North wants to change to euros because it is under suspicion of counterfeiting dollars. An increase in sand prices could seriously undermine profits for around 20 aggregates firms in South Korea.

Yonhap
2/2/2007

China has made little investment in North Korea since the North conducted its first nuclear device test in October last year, but their two-way trade volume rose 21.6 percent year-on-year over the past few months, informed sources said Friday.

“Over the three months since the October test, China made no investment in the North except in some low-budget mining development. But North Korea’s dependence on China in terms of trade increased sharply,” a senior government official said, asking to remain anonymous because of the sensitivity of the information.

Another source said from October to November in 2006, the trade volume between North Korea and Japan declined 75 percent year-on-year to US$7.9 million, illustrating the full range of the impact from United Nations sanctions over the North’s surprise nuclear test, they said.

Japan has shown the strongest response to the North’s nuclear test and long-range missile launches last year, banning North Korean goods and citizens from entering the country as well as barring its ships from Japanese ports.

In all of 2006, the trade volume between North Korea and China rose 7.5 percent year-on-year to $1.69 billion, while two-way trade between North Korea and Japan decreased 34 percent to $119 million in the first 11 months of last year, the source said.

“North Korea can make financial dealings only via Russia and a few other countries because it has a lot of trouble in doing financial transactions and wooing investments since the United States imposed financial sanctions on the North in September 2005,” he said.

The U.S. cut off Macau-based Banco Delta Asia’s access to the U.S. financial system, alleging that North Korea used the bank to counterfeit U.S. dollars and engage in other financial wrongdoing.

North Korea boycotted the six-party talks on its nuclear disarmament until December, saying that the U.S. should discuss ways to lift the sanctions on the sidelines of the six-nation talks involving the two Koreas, the U.S. China, Japan and Russia.

Yonhap
2/1/2007

North Korea has intensified efforts to stem the spread of South Korean pop culture in the communist state, even as South Korean movies and TV dramas gain popularity there, informed sources said Thursday.

“This year, North Korean authorities waged what they call ‘psychological warfare’ against ‘exotic lifestyles’ by cracking down on South Korean pop culture,” a senior government official said, asking to remain anonymous because of the sensitive nature of the issue.

According to a survey conducted on recent North Korean defectors to the South, South Korean video tapes and CDs enter North Korea via China. North Koreans having TVs, video players or personal computers at home watch them, and then swap the programs among peers or friends, another source said.

The popularity of South Korean media has been so great that a lead actress’s line in the hit South Korean movie “Sympathy for Lady Vengeance” became a household word in the North, while some North Korean youth are glued to such mega-hit TV dramas as “Fall Fairy Tale” and “Immortal Admiral Yi Sun-shin,” the sources said.

They further explained that the wave of South Korean pop culture does not stop at movies and videos. North Korean youth also enjoy sporting South Korean hairstyles and fashion, preferring tight pants and long front hair.

Since the 1950-53 Korean War, about 9,300 North Koreans have defected to South Korea, including about 1,578 in 2006 alone. The sealed border between the two Koreas has nearly 2 million troops deployed on both sides.

Wave of South Korean Trends in North Korea
Daily NK
Park Hyun Min
2/1/2007

A wave of South Korean actors and trends such as Jang Dong Gun, Bae Yong Joon and Won Bin which has washed throughout China, Japan and Taiwan has finally hit North Korean shores. Consequently, North Korean authorities are racking their brains trying to find a solution to this problem.

This wave of South Korean trends in North Korea comes from an influx of foreign movies and dramas in the form of VCD’s and videos. In particular, the phrase “worry about yourself!” from a Korean movie “Sympathy of Lady Vengeance” has become the latest catchphrase to spread throughout the country.

Regarding this, a South Korean government official said on the 31st “North Korean youths are becoming infatuated with popular South Korean dramas such as “Autumn in my heart” and “General Lee Soon Shin’” and revealed “Defectors say that people who do not watch South Korean dramas are treated as outcasts.”

In fact, according to a survey from Hanawon, an educational training centre for defectors, a growing number of travelers now cross the boarder possessing video tapes and C.D.’s. These goods then circulate amongst families in possession of T.V.’s videos and computers, particularly Pyongyang, where South Korean dramas and music are often heard.

Popular South Korean dramas have gradually infiltrated North Korea since the late 90’s. At the time, dramas such as “The Sandglass” describing the S. Korean Kwangju affair in 1980 and “Asphalt man” gained much popularity and since 2000, dramas such as “Winter Sonata” and “Stairway to heaven” have caught the attention of North Korean youths.

These South Korean movies and dramas do not stop at mere entertainment but rather are influencing the hairstyles and fashion of young North Koreans. Nowadays, many North Korean youth adopt “knife hair,” a hairstyle with thin sharp fringe points and “drainpipe trousers” are also a hit item.

A defector who entered South Korea in 2004 said “If a person is caught circulating any copies of capitalist materials, he or she may be dragged to the political gulags. However, if a person is found to be a viewer, then he or she may receive re-education or sent to the labor training camp or the re-educational camp for 6 months.”

In response to foreign culture which is finding its way into North Korea, authorities are aiming to strengthen public propaganda in order to block foreign ideologies. In particular, North Korean authorities have began considering mobilizing its groups of military youths for rearmament.

North Korea is concerned about the balance of its regime with the demands of the whole society increasingly changing. In preparation for this, it seems that North Korea is actively investing more in the light industry in an effort to stabilize public welfare.

U.S. Federal Register (Hat Tip OneFree Korea)

Here are the highlights:

DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Parts 732, 738, 740, 742, 746, 772 and 774

[Docket No. 070111012-7017-01]
RIN 0694-AD97

North Korea: Imposition of New Foreign Policy Controls
AGENCY: Bureau of Industry and Security, Commerce.
ACTION: Final rule.
———————————————————————–

SUMMARY: In accordance with recent United Nations (UN) Security Council resolutions and the foreign policy interests of the United States, the United States Government is imposing restrictions on exports and reexports of luxury goods to the Democratic People’s Republic of Korea (North Korea), and is continuing to restrict exports and reexports of nuclear or missile-related items and other items included on the Commerce Control List (CCL). To this end, the Bureau of Industry and Security (BIS) is amending the Export Administration Regulations (EAR) to impose license requirements for the export and reexport of virtually all items subject to the EAR to North Korea, except food and medicines not listed on the CCL.
    BIS will generally deny applications to export and reexport luxury goods, e.g., luxury automobiles; yachts; gems; jewelry; other fashion accessories; cosmetics; perfumes; furs; designer clothing; luxury watches; rugs and tapestries; electronic entertainment software and equipment; recreational sports equipment; tobacco; wine and other
alcoholic beverages; musical instruments; art; and antiques and collectible items including but not limited to rare coins and stamps.
    BIS will continue to generally deny applications to export and reexport arms and related materiel controlled on the CCL and items controlled under the multilateral export control regimes (the Missile Technology Control Regime, the Nuclear Suppliers Group, the Australia Group, and the Wassenaar Arrangement). This includes items specified in UN documents S/2006/814, S/2006/815 and S/2006/853. BIS will also generally deny applications to export and reexport other items that the UN determines could contribute to North Korea’s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programs.
    BIS will also generally approve applications to export or reexport: non-food, non-medical humanitarian items (e.g., blankets, basic footwear, heating oil, and other items meeting subsistence needs) intended for the benefit of the North Korean people; items in support of United Nations humanitarian efforts; and agricultural commodities and medical devices that are determined not to be luxury goods.
    BIS will review on a case-by-case basis applications to export and reexport all other items subject to the EAR.

DATES: This rule is effective January 26, 2007.

The following further amplifies the illustrative of list luxury goods set forth in Sec.  746.4(c):
    (a) Tobacco and tobacco products
    (b) Luxury watches: Wrist, pocket, and others with a case of precious metal or of metal clad with precious metal
    (c) Apparel and fashion items, as follows:
    (1) Leather articles
    (2) Silk articles
    (3) Fur skins and artificial furs
    (4) Fashion accessories: Leather travel goods, vanity cases, binocular and camera cases, handbags, wallets, designer fountain pens, silk scarves
    (5) Cosmetics, including beauty and make-up
    (6) Perfumes and toilet waters
    (7) Designer clothing: Leather apparel and clothing accessories
    (d) Decorative items, as follows:
    (1) Rugs and tapestries
    (2) Tableware of porcelain or bone china
    (3) Items of lead crystal
    (4) Works of art (including paintings, original sculptures and statuary), antiques (more than 100 years old), and collectible items, including rare coins and stamps
    (e) Jewelry: Jewelry with pearls, gems, precious and semi-precious stones (including diamonds, sapphires, rubies, and emeralds), jewelry of precious metal or of metal clad with precious metal
    (f) Electronic items, as follows:
    (1) Flat-screen, plasma, or LCD panel televisions or other video monitors or receivers (including high-definition televisions), and any television larger than 29 inches; DVD players
    (2) Personal digital assistants (PDAs)
    (3) Personal digital music players
    (4) Computer laptops
    (g) Transportation items, as follows:
    (1) Yachts and other aquatic recreational vehicles (such as personal watercraft)
    (2) Luxury automobiles (and motor vehicles): Automobiles and other motor vehicles to transport people (other than public transport), including station wagons
    (3) Racing cars, snowmobiles, and motorcycles
    (4) Personal transportation devices (stand-up motorized scooters)
    (h) Recreational items, as follows:
    (1) Musical instruments
    (2) Recreational sports equipment
    (i) Alcoholic beverages: wine, beer, ales, and liquor

RIA Novosti (Hat Tip DPRK Studies)
1/29/2007

A suspect in the case of a North Korean national beaten to death in a Russian Far Eastern city has been arrested, an aide to the regional prosecutor said Monday.

The man’s body was found in a hostel housing North Korean construction workers in the Pacific port of Vladivostok, near the North Korean border, Friday. Forensic experts said the man died of a brain injury.

“A forensic psychiatric expert examination has been ordered for the suspect in the case, to determine whether he is sane,” Irina Nomokonova said, adding that the suspect was a Russian citizen.

Witnesses said Friday the victim had returned to the hostel with bruises on his face, saying he had fallen accidentally. But several hours later, his North Korean colleagues found him dead.

Two other people from the Communist nation were battered to death in Vladivostok in December in an attack investigators said was carried out by a group of teenagers.

Local police say attacks on foreigners have become more frequent in the Primorye Territory, which borders on China and North Korea and is home to thousands of migrant workers from those countries.

In 2006, 247 attacks were made on people of foreign appearance in the region, compared to 181 the previous year. The statistics reflect a rise in xenophobic sentiment in the country as a whole.

Bloody interethnic clashes in northwest Russia last fall prompted authorities to impose restrictions on the number of foreign workers, effective as of this year.

Daily NK
Kwon Jeong Hyun
1/25/2007

Since last year, North Korean authorities have been attempting to cut off all kinds of capitalist culture. Hence, another extensive hunt for Korean videos and radio broadcasts continues on.

North Korean authorities formed “109 Inspection Team” consisting of authority officials, inspectors from the National Safety Agency and Social Safety Agency, who have been focusing on regulating the major cities for watching and selling foreign VCDs. As of this year, the regions for inspection has extended to the provinces, an inside source informed. The regulations seem to have become an annual event.

The source from North Korea said “About 50 people who were caught watching foreign videos in the district of Woonsan, North Pyongan and now are being investigated” and “The preliminary hearing for about 10 people with no connections or who could not offer bribes, also the people found to be directly circulating the videos has ended and are now waiting a sentence.”

During the 80’s, video tapes were controlled by intercepting with electricity and any family found with videos in their video players were individually restrained. However, many families with video players also had chargers and so this method was ineffective. Now inspector groups consisting of 10~20 people have search warrants to thoroughly check all parts of the home.

The source said “The people sentenced will probably get sent to the labor training corps but of these repeaters if any person has issues with ideologies or are condemned as responsible for selling the videos, then they will be sentenced to jail.” The source added “People who are sentenced to jail because of videos are normally imprisoned for 4~5 years, but many are released after 2~3 years on special occasions like Feb 16th (Kim Jong Il’s birthday) or April 15th (Kim Il Sung’s birthday).”

On a different note, the latest issue of Democratic Chosun (issued on January 13), the government paper, obtained on the 20th stated “Imperial activists are sticking to us from within until death in order to sow the seeds of capitalist” and ordered a firm response “We must stick to them (capitalists) and austerely cut them off.”