North Korean Economy Watch

Who ever would have thought that the North Koreans would find a way to make money off the Dokdo Island controversy.  Entrepreneurship is alive and well in the DPRK?

From the Korea Times:

NK Dokdo Stamp for Sale in S. Korea

A South Korean distributor began receiving orders this week for postage stamps featuring a set of South Korean islets in the East Sea printed by North Korea, in an apparent protest against Japan’s continued claim to the islets, the distributor said Friday.

The South Korean company said it is receiving orders for sets of nine stamps priced at 18,000 won ($19), through its Web site, www.dprkpost.com, until Sept. 2.

The stamps are to be imported by a Hong Kong contractor to the communist state, Ko Sun Film Video Trading Co., Ltd

From NK Zone:

Few details are available, but the zone will be in the Namyang Workers’ Zone in Unseong county, Hamgyeong Bukdo province in the extreme north of North Korea, opposite the Chinese city of Tumen

The report notes that there are roads and railways crossing the border and the area is a transit point for Chinese, Korean and Japanese goods and that citizens of third countries have access.

The agreement was signed at the Chinese embassy in Pyongyang between the head of the foreign affairs department of Hamgyeong Bukdo, Kim Cheol-geun, and the Chinese consul-general, Sun Xianyu

The report does not say if the agreement has NK central government approval, which is apparently a sticking point in the much bigger deal under which the Chinese city of Hunchun will lease the NK port of Rajin.

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.

Nautilus Institute
Nathaniel Aden
August 2006

Paper here: Nautilus-Aden.pdf
web link here

Abstract:  China is North Korea’s largest international trading partner. Since 1995, energy and fuels have dominated bilateral trade between allies.  North Korea is a net importer of Chinese crude oil and oil products; however, it became a net exporter of electricity and coal to China in 2003.  Whereas North Korean coal and electricity exports are sold at sub-market “friendship prices,” Chinese coal and oil products have been sold to North Korea at premium prices.  Over the past ten years, North Korea’s imports have become increasingly energy-intensive, while exports have become more labor-intensive.  Chinese customs data suggest that Beijing is taking a pragmatic, market-oriented approach to trade with its reclusive neighbor, while the increasingly asymmetrical energy embodiment of bilateral trade may reflect dilapidation of North Korea’s non-military industries.

Bullet Points:
1.  In 2005, bilateral trade with the PRC accounted for 39% of North Korean international trade by value.

2. North Korean trade data are compiled by partner-country Customs Bureaus, the United Nations, and the Internaitonal Monetary fund (IMF).  China and South Korea provide the best “mirror” statistics.  Customs data do not include aid shipments, official development assistance, direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, trade in military equipment.

3.  The DPRK has spent an increasing amount of money on diminishing quantities of energy imports, particularly Chinese crude.  The decline of energy import volumes in the face of increasing overall imports and trade may reflect demand sensitivity to increased international market prices and/or North Korea’s lack of hard currency with which to purchase imported energy and fuels.

4. The DPRK has significant, ongoing refining capabilities.

5. Between 1985 and 2002, the DPRK domestic coal production has declined from 37.5 million tons to 21.9 million tons.  Nonetheless, North Korea increased its export quantity to 2% of total domestic production since 2002. 

6.  Starting in May 2005, North Korea has been an uninterrupted monthly electricity exporter.  Hydropower may account for much of the DPRKs surplus electric power.

7.  Energy prices reflect the pragmatic, market-oriented character of China’s economic relationship with North Korea.  North Korea may be providing China coal at subsidized prices, below those of China’s other trading partners.

8.  North Korea coal export prices show an awareness of market prices starting in 2002.

9.  The DPRK has consistently paid premium prices for Chinese oil product exports over the last ten years.

10. Aside from politically-determined prices, several conditions could explain this: 1.  Real factors (transport costs, demand, goegraphy) 2. Pyongyang’s insulation from market realities 3.  No DPRK leverage.

11. In 2005, North Korea imported $2omillion worht of trucks, $2 million worth of cars, $1 million of tractors.  The transport sector has not grown significantly since 1995.

12.  Shift of DPRK trade towards energy-intensive imports and labor-intensive exports suggests deterioration of non-military industry.

From Joong Ang Daily:

A high-level Korean government official yesterday suggested that the Kaesong Industrial Complex issue be dealt with seperately from the free trade talks with the United States.

“It would be appropriate to discuss the matter on whether products manufactured from Kaesong Industrial Complex in North Korea should be recognized as South Korean in origin in a separate discussion from the free trade negotiation between South Korea and the United States,” said Chin Dong-soo, deputy finance and economy minister.

Mr. Chin said that even though Korea has persistently brought up the issue during the second round of talks, which took place earlier this month in Seoul, there has been no detailed discussion between the two parties.

“If we continue to push the matter while there is no response from the U.S. party, other issues that are being discussed at the free trade talks will likely be jeopardized,” Mr. Chin said.

From Xinhua via NKZone:

China and North Korea have signed an agreement to facilitate transportation through and environmental protection of a border river.

According to the agreement inked last Friday in Changchun, capital of northern China’s Jilin Province which neighbors North Korea, the two sides will cooperate on the management of navigation buoys and the dredging of part of the Yalu River.

During a nine-day meeting, traffic officials from both sides also discussed measures to prevent environmental damage caused by the dredging works.

The two sides also agreed to tighten management of cargo ships plying the river, according to sources who attended the meeting.

UPDATE: Contrary to a previous post (Listed below), South Korea is now insisting that goods made in the Kaesong Industrial Zone be labeled “Made in South Korea” for trade with the US, and the US is insisting that this will not be possible under the proposed FTA.  I hope someone will blink because reduced trade barriers will be good for both countries.

From the Joong Ang:

U.S. reaffirms its stance against Kaesong in FTA
7/25/2006
 
Franklin Lavin, the U.S. Department of Commerce international trade undersecretary, has reiterated the American position not to include goods produced in the Kaesong Industrial Complex in North Korea in the free trade agreement with South Korea.

“The simple fact is that a bilateral agreement is between two countries,” Mr. Lavin said in a lecture organized by the American Chamber of Commerce yesterday.

“We have no negotiating authority, no congressional authority, to include any other economic entity in that bilateral agreement.”

Koreans negotiators, pushing to include Kaesong products in the FTA with the U.S., cited earlier free trade pacts with Chile and Singapore, which accepted the offer, as a precedent. 

From the KBS:

Seoul Not to Compromise Kaesong Label
Friday, July 21, 2006

A top aide to South Korean President Roh Moo-hyun said Friday the South Korean government will not compromise on the issue of labeling goods manufactured in the inter-Korean industrial complex Kaesong as ‘South Korean-made’ in the ongoing talks for a free trade agreement (FTA) with the United States.

Senior presidential secretary for economic affairs Chung Moon-soo said that Seoul will never yield to Washington regarding the country-of-origin issue for South Korean products made in the Kaesong Industrial Complex.

South Korea’s Trade Minister Kim Hyun-chong also expressed a similar stance on the issue.

Earlier in Washington, U.S. Congress International Relations Committee Chairman Henry Hyde reportedly urged the U.S. government not to regard products made in Kaesong as South Korea-made.

In addition, Deputy U. S. Trade Representative Karan Bhatia has made clear that any deal that is beneficial to North Korea would run counter to the U.S. government’s position.

From the Korea Times:

Korea May Not Insist on Kaesong
By Park Hyong-ki
7/20/2006
 
Kim Jong-hoon, chief of Korea’s negotiating team with the United States on a free trade agreement (FTA), Thursday hinted that Seoul may not insist on including the Kaesong issue in the bilateral trade pact.

“We have not decided on which areas we will defend at all costs,’’ Kim told economic editors of newspapers and broadcasting stations. “I will consult decision-makers on the list.’’

Kim’s remarks came after last week’s negotiations in Seoul where the U.S. delegation, led by Wendy Cutler, rejected Seoul’s request for the exemption of tariffs on products made in the South Korean-led industrial complex in the North Korean town, in the event Kaesong-made goods are exported to the U.S.

The U.S. has reportedly been sensitive to transfers of cash to North Korea for fear they may sustain Pyongyang’s programs of weapons of mass destruction. About 6,000 North Korean workers work in Kaesong for about $60 per month. Kaesong is still in a developing stage so if more companies move in to set up shop, it would spell larger cash flows into the financially-strapped communist state.

Regarding Seoul’s decision to halve “screen quota’’ or its mandatory 146-day viewing of Korean films at theaters before FTA talks began, Kim said, “It provided an atmosphere conducive to the start of FTA negotiations.’’

He said that previous efforts to establish a bilateral trade pact with the United States were thwarted over the screen quota issue.

“We believed that if the screen quota remained intact, it would hobble any agreement at the last minute,’’ he said. “Besides, culture is a two-way street. We can’t just keep on insisting our position.’’

Talking about the rupture of the second round talks, Kim said that Wendy Cutler, chief U.S. negotiator, didn’t have authority to make spot decisions so had to consult with Washington, costing a lot on negotiating time.

The two sides are scheduled to meet for the third round in September in U.S.

Here is the position of the US (From the Donga)

The dissensions that had grown between Korea and the U.S. over the Gaesong Industrial Complex and tourism of Mt. Geumgang show signs of evolving into serious rifts.

At the U.S.-Korea Inter-Parliamentary Exchange Council press conference held at Rayburn House in Washington on July 18, the American chairman Edward Royce (Republican) emphasized the importance of where the profits from the industrial complex end up, stating the concern that the North Korean leadership may use the cash it earns for developing weapons of mass destruction such as missiles,

Officials from the Bush administration also recently noted that three laws on terrorism must be amended if the U.S. was to allow tax-free imports of goods produced in countries that support terrorism, such as North Korea, adding that such revision would be impossible for the U.S. Congress to accept. In effect, the U.S. will not be including products made in the Gaesong Industrial Complex in the Korea-U.S. Free Trade Agreement negotiations, because of the inconsistencies with existing laws and regulations.

Stuart Levey, U.S. Treasury`s undersecretary for terrorism and financial intelligence who visited Korea on July 16-18 is also reported to have met with Korean government officials and expressed a deep interest in whether a U.N. Security Council Resolution controlling the shipping of military supplies into North Korea would conflict with Mt. Geumgang tourism and the Gaesong complex.

In his statement upon departure from Seoul, disclosed on the U.S. Treasury website on July 18, he declared that they had discussed “issues of common interest, 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.”

On July 18 Levey visited the Ministry of Finance and Economy (MOFE) and requested to know the Korean government’s position on the recent Security Council’s Resolution against North Korea; however a senior MOFE official replied that as the issue lies with the Ministry of Unification, MOFE was not in a place to provide an answer.

“We explained it [to Undersecretary Levey before he asked] because some concerns had been raised that the U.N. Security Council Resolution could clash with the Mt. Geumgang tourism and Gaesong Industrial Complex,” said Song Min-soon, chief presidential secretary for unification, foreign and security policy.

He went on to deny allegations that tensions had arisen between the two countries over the issue, stating that “Korean government officials had expressed there was no problem with the two enterprises regarding the purpose and range of domestic statutes, judicial judgement or international law mentioned in the Security Council Resolution, and Undersecretary Levey had responded that he understood well.”

While Washington has not demanded outright for South Korea to stop its industrial and tourism enterprises in the North, it has been reported to have conveyed strong concerns over the businesses bringing cash into North Korea.

However, a senior Korean official displayed a firm determination in pursuing the Gaesong project. “The Gaesong Industrial Complex is the epitome of the [current administration’s] North Korean policies. We will carry on with it no matter what difficulties are to be faced,” he said.

Fears have been raised that in case North Korea follows its arbitrary announcement on July 19 that it will no longer permit meetings of separated families with further measures to step up tension on the peninsula, South Korea and the U.S. could come to serious troubles over the Gaesong and Mt. Geumgang projects.

Meanwhile, a group of 56, comprised of people from credit assurance companies and from corporate banking divisions of banks such as Kookmin, Shinhan, Hana, Woori, Korea Development Bank (KDB), Kiup, City Bank Korea, Daegu, Busan, Kwangju, Jeonbuk and Kyongnam will be visiting the Gaesong Industrial Complex on July 21, sponsored by the Ministry of Unification.

From the Financial Times:

China’s food aid to North Korea soars
By Mure Dickie in Beijing
July 21 2006

China’s soaring cereal shipments to politically isolated North Korea made it the world’s third largest food donor last year, according to the United Nations World Food Programme.

The scale of China’s supplies of wheat, flour and coarse grains highlights the sensitive issue of Beijing’s support for a Pyongyang regime whose recent missile test launches have drawn international opprobrium.

It is likely to spur calls from the US and elsewhere for China to do more to push North Korea to rejoin international talks aimed at ending its nuclear weapons programme.

Pyongyang received more than 90 per cent of the 576,582 tons of cross-border food aid provided by China in 2005, according to data from the WFP’s International Food Aid Information System.

The shipments meant China’s total food donations climbed 260 per cent year-on-year and were surpassed only by those of the US and EU.

Beijing has long been North Korea’s most important supplier of fuel and food, but the World Food Progamme figures suggested a sharp increase in Pyongyang’s reliance on its traditional communist ally.

Chinese officials argue that they have little influence over Pyongyang, as shown by the limited results of their years of effort to persuade North Korean leaders to emulate Beijing’s economic reform and opening policies.

However, food aid from China and South Korea, which supplied nearly 400,000 tons, last year allowed North Korea to order international aid agencies out of the country, curtailing the work of the WFP itself. Seoul recently suspended shipments of humanitarian aid to the North in a response to the missile tests that was also linked by some observers to Pyongyang’s ejection of aid groups. Fears have since grown of another food crisis in North Korea, after typhoons and floods that have wiped out crops in some areas.

Chinese officials yesterday declined to comment on their plans for food donations to North Korea, with one official of the Ministry of Commerce saying: “I can’t tell you. It’s a state secret.”

From the New York Times:

The biggest recipient of [UNWFP aid] was Ethiopia, followed by North Korea and Sudan. The report is at www.wfp.org/interfais.

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.