KCNA
5/23/2006
An agreement on trade between the governments of the DPRK and Brazil was signed here on Tuesday. The agreement was inked by DPRK Minister of Foreign Trade Rim Kyong Man and Brazilian Ambassador to the DPRK Luiz Augusto de Castro Neves.
From the Daily NK:
On the 15th, Tokyo Shinbun reported that “At the inspection on board by Japanses Maritime Safety Department, it has been confirmed that fake Japanese cigarettes produced in North Korea have been delivered to South Korea and Taiwan”.
Although the US has recently announced that the most profit-making illegal activity that North Korea is involved in is production of fake cigarettes, it is the first time that physical evidence is obtained.
Japanese Maritime Safety Department analyzed the testimony of the crew and information obtained by reconnaissance satellite, and concluded that ships dock at Wonsan, Chongjin and Najin to leave with fake cigarettes. It is suspected that the goods are transferred to ships that belong to Taiwanses or South Korean mafia on the sea of Taiwan or Busan.
There are tens of different kinds of fake cigarettes, including Japanese such as Mild Seven, Seven Star and American, such as Marlboro.
Production of Fake Cigarettes started with Growing Opium
When and how did production of fake cigarettes start?
It is almost the time of order to “grow poppy” by Kim Jong Il in November 1992 that production of fake cigarettes started.
At the time, much effort was put into creating a cigarette-production base in North Hamkyung Province. Grain Factory at Hoeryong changed its name to ‘Hoeryong Food United Company’ and the cigarette factory under it was expanded. After 1994, soldiers discharged from their duty were put into ‘4.25 farm’ where they produced the raw material for cagarettes. 4.25 farm was built where #22 political prison camp used to be, in Changpyong, Hoiryeong City.
The area centered around 4.25 farm is known for the good quality of cigarettes in North Hamkyung Province. Especially, “Poisonous” cigarette (contains high nicottine) in Ryonggye, Saebyul, near 4.25 farm is known to be the best of the best.
The average cigarette in South Korea “THIS” has 0.65mg of Nicottine, while the ‘poisonous cigarette’ has about 1.5mg. Even a habitual smoker needs to mix in tobacco. Well-known tobacco is produced in Yunsa, North Hamkyung Province.
The poisonous cigarette from 4.25 farm and tobacco from Yunsa have potential to be the raw material for high quality cigarette such as Mild Seven and Seven Star. However, it seems that it has been hard to produce high quality fake. It has been heard that raw material is imported from foreign countries.
“North Korea Is Fit For Production of Fake Cigarettes”
North Korea is fit for production of fake cigarettes in terms of domestic and international environment. In other countries including China, production of fake goods is strictly controlled and is illegal. However, it is not so in North Korea. A brandname for North Korean cigarette ‘Sweetbrier’ produced in Pyongyang factory is also made in Soonchun cigarette factory in South Pyongan Province and other thousands of domestic factories.
Domestic factory means a co-op where goods are produced using the leftovers from factories. Kim Jong Il started the movement on 3 August 1984, which is why the movement is called ‘August the 3rd Movement for Production of Goods By The People”.
In North Korea, the order from Kim Jong Il turned itself into a commercial activity where fake goods are produced and sold to the people. Accordingly, production and transaction of fake goods are not illegal in North Korea.
Main customer for the fake cigarettes is foreign small and middle scale businesses. Especially in China, as the regulation has gotten stricter, the fake cigarette producing factories turned to North Korea. North Korea smuggled machines and raw materials from China to cigarette factoriesin places such as Pyongyang and Hoeryong to produce fake cigarettes.
Production of Fake Cigarettes Was Run By the Government From The Beginning
North Korea supplies labor and factory, while Chinese companies took charge of supply of raw material and circulation. It is hard for fake cigarettes to be circulated through legal procedure. Therefore, the deal needs to be made with international mafia.
The analysis coincides with the testimony of a North Korean defector (51) who has delivered raw material for cigarette from foreign countries to Pyongyang cigarette factory. He did not want to reveal his identity, but he said he clearly saw a cigarette paper and packs with foreign language on them in 1996.
Japanese Maritime Safety Department said North Korea started producing fake cigarette when it became difficult for them to produce and smuggle stimulants such as opium, which is not a correct analysis.
Production of cigarette in North Korea started when Kim Jong Il order to grow poppy in November 1992. Production of cigarette was not started in order to replace the production of opium, but was managed by the government from the beginning.
From Yonhap:
North Korea continues to buy raw materials and components from various foreign sources for ballistic missiles despite announcing in 1998 that it would suspend missile tests, according to a recent U.S. intelligence document.
“North Korea is nearly self-sufficient in developing and producing ballistic missiles, yet continues to procure the required raw materials and components from various foreign sources,” the report said.
The “Report to Congress on the Acquisition of Technology relating to Weapons of Mass Destruction and Advanced Convention Munitions” was submitted by the office of the director of national intelligence to Congress earlier this month.
The report said that in 2004, North Korea continued to abide by its voluntary moratorium on flight tests adopted in 1998 and reaffirmed in May a pledge made in September 2002 to extend the moratorium beyond 2003.
The 15 intelligence services, including the Central Intelligence Agency (CIA), also expressed caution about the kind of sensitive material North Korea could potentially sell.
“We remain concerned about North Korea’s potential for exporting nuclear materials or technology. At the April 2003 trilateral talks in Beijing, North Korea privately threatened to export nuclear weapons. During the third round of six-party talks on the North Korean nuclear issue in June 2004, Pyongyang included a ban on nuclear transfers in its nuclear freeze proposal,” the report said.
It added that inspectors from the IAEA (International Atomic Energy Agency) recovered two tons of uranium hexaflouride from Libya in May 2004 that was linked to the North.
PYONGYANG ― In a rare visit to this reclusive communist country, a group of South Korean government officials, journalists, businessmen and economic experts attended a series of investment promotion events arranged this week by the North Korean government.
At a trade fair, South Koreans toured bustling booths set up by North Korean and foreign firms, and witnessed North Koreans buying goods there with U.S. dollars in their hands ― an indication that Pyongyang’s limited foray into capitalism, which began in 2002, is slowly progressing in the North’s strictly controlled economy.
The delegates on Wednesday visited the 9th Pyongyang International Trade Fair, where 196 companies from 12 countries set up booths. The delegates were allowed to look around the fair freely. Of the participating firms, 21 were from North Korea and the rest came from 12 other countries, including China, Russia, Spain, Sweden, Syria, Italy and Thailand.
At the fair, Jeil Trust Bank, a North Korean bank, advertised its savings account programs for foreign currency deposits. Cars, bicycles, tires and machinery made in the North were also displayed.
About 1,000 Pyongyang residents and North Korean businessmen also attended the fair, and most flocked around the sales booths of Chinese appliances. Some North Koreans purchased handbags, pots and other goods, making payments with dollars.
The 72-member delegation also visited a glass manufacturing facility southwest of Pyongyang on Wednesday. Daean glass factory, completed in October, was built with a $20 million investment from China. About 30 Chinese technicians are also training North Korean workers at the plant.
“In early 2000, North Korea decided to shut down all its glass factories, and decided to build a new plant,” Pak Jong-ung, deputy manager of the plant, said. “China learned about the plant and invested in it.”
The South Koreans also toured a ship repair plant in Nampo, South Pyeongan province. At the Yongnam factory, Cha Son-mo, senior North Korean maritime affairs official, gave a presentation. “Last year, we finished the second dock, capable of repairing a 50,000-ton ship,” Mr. Cha said. “Please use our facility to promote inter-Korean economic exchange.”
Jeong Nam-su, senior planning manager of STX Corporation, a South Korean ship maintenance firm, said the facility was better equipped than he expected. “It is also surprisingly modernized,” Mr. Jeong said. “I am considering asking the North Korean factory to repair one or two ships after I return to the South.”
On Tuesday, the group attended an investor-relations session hosted by the North’s Trade Ministry, with simultaneous translations into Chinese and English available. About 70 foreign investors attended. It is the first time South Koreans were invited to such an event. Rim Tae-dok, the trade ministry’s councilor, gave the presentation, promising tax benefits and land leases at low prices.
The delegation visited Kim Chaek University of Technology and Kim Il Sung University and toured Mount Myohyang. The group, which began its trip on Monday, will return to Seoul Saturday.
From Joon Ang daily:
South and North Korea have agreed in principle to conduct test runs on the Gyeongeui and Donghae railway lines across the Demilitarized Zone and will settle the essential military security procedures at general officer talks tomorrow. If the two sides agree and the test runs do take place, their meaning and effects will be significant.
According to research by experts, the railways would enable North Korea to earn $300 million-$400 million annually from freight and service charges. Also, if Pyongyang could modernize its railroad facilities with outside help, it could be an opportunity for North Korea’s industry to record rapid growth.
For South Korea, the opening of the railroads could reduce logistics costs with the North by one-third, and it would help Seoul to emerge as a hub of northeast Asian logistics. The event also holds great symbolic meaning as it allows Korea to become a point of contact with continental Asia. The agreement is the first step to a project that could benefit both Koreas.
The question is North Korea’s attitude in the future. During the past two years, Pyongyang has agreed on the inter-Korea railway test runs only to go against its word later. This time the North agreed on a test run again and even fixed a date. Some analysts have suggested that the past promises were broken because North Korea demanded massive raw material aid from the South in exchange for agreeing to the tests.
But we do not want to pay unnecessary attention to matters of the past. Pyongyang, however, must bear in mind that unreasonable requests, like asking for Seoul’s concession on the Northern Limit Line in the Yellow Sea, will not be tolerated. It must also refrain from considering the test runs as a one-time event to get some additional aid.
The agreement was made during a period of increasing tension between South Korea and the United States regarding the application of pressure on North Korea.
Considering Washington’s financial sanctions on North Korea and its acceptance of North Korean refugees, there is little chance that the Bush administration will welcome the recent decision.
It is different here. But while welcoming advances in relations with North Korea, the majority of Koreans also believe that conflict with the U.S. is undesirable. Therefore, the government must have a responsible explanation to the people about the correlation between the agreement and relations with the Bush administration.
From the Korea Herald:
“The train wants to run further.” A sign bearing these words has stood for decades at the point on a western railway line where the track between Seoul and Pyongyang had been cut. Nearby, the rusting skeleton of a steam locomotive decays with the passage of time.
Following the 2000 Pyongyang summit between former President Kim Dae-jung and North Korean leader Kim Jong-il, work started to re-connect the Gyeongeui Line and another link along the East Coast. The delicate process of clearing numerous landmines in the heavily fortified border area attracted worldwide attention. The actual tracks, however, were only laid last December, evidence of the tardy pace of progress in inter-Korean relations.
Finally, the two Koreas last week agreed to conduct test runs of trains on the restored lines next Thursday. A South Korean train will travel from Munsan to Gaeseong in the North and a North Korean train from Mt. Geumgang will journey to Jejin in the South. Still, this does not signify the actual beginning of a railway service between the Koreas for passenger and cargo transportation, not even on a small scale.
The North Korean military is said to be standing in the way of opening the border-crossing rail route because they fear the exposure of military facilities along the tracks. But the real reason must be that Kim Jong-il is not ready to accept South Korean overtures for speedier and broader inter-Korean exchanges which would follow the completion of the railway link program.
Opening an inter-Korean railway link is of more than symbolic importance. Widely touted as “the iron silk road” during North-South dialogue, it would connect South Korea to the trans-Siberian and trans-China railways and enable cheaper and faster transportation of goods originating from the Pacific basin to Europe via land routes. North Korea could earn substantial income in the form of passage charges and expect foreign investment in logistics and other sectors.
The Pyongyang leadership is asked to make a wise, practical decision concerning the railway project which will be the first major step to integrate the North into the world economy.
From the Joong Ang Daily:
A group of 60 South Korean businessmen and government officials arrived here yesterday to attend the Pyongyang International Trade Fair and inspect other factories and businesses in North Korea.
During the six-day visit, the delegates will also listen to investment presentations at a seminar conducted by Pyongyang officials.
The visit of the South Korean team was linked informally by its sponsors, the Korea Development Institute and the JoongAng Ilbo, to an agreement in April 2002 between the two governments to exchange economic survey missions. Reporters from the newspaper were also allowed to accompany the delegation, a somewhat unusual gesture by the North Korean authorities.
A team from North Korea did conduct such a tour in the South in October 2002, but that visit has not been officially reciprocated. Although not sponsored by the South Korean government, Seoul officials on the delegation said, it could be considered an economic survey team.
The group from Seoul will be the first to attend the Pyongyang International Trade Fair, the ninth of its kind.
Pyongyang announced a series of cautious economic reforms in July 2002, and although some important ones, such as throwing food distribution open to private sellers, have been reversed, businessmen here have not had an opportunity to see what’s going on in the North Korean economy.
Seoul officials and businessmen here have cited that uncertainty and lack of information as a major reason for holding back investments. The group includes delegates from 36 businesses and research institutes and 15 government officials from nine ministries.
Conglomerates such as SK, Posco, Kumho Asiana, Hanwha, CJ and TongYang are represented in the group, as are a handful of smaller companies.
From the Joong Ang Daily:
During the last two years, Japanese maritime police officers have frequently caught foreign ships leaving North Korean ports trying to smuggle fake cigarettes, the Japanese newspaper Tokyo Shimbun reported.
Citing intelligence data from satellites, the newspaper said that the fake cigarettes were at times transferred onto other ships waiting in the South Korean port of Busan or near Taiwanese waters. The foreign ships were from Cambodia, Mongolia and Taiwan.
The top cigarette brand forged by North Korea was the American Marlboro. Japanese brands, such as Mild Seven and Seven Star, as well as British tobacco brands were also included in the list.
The Japanese newspaper said in its report over the weekend that North Korean manufactured cigarettes use high-quality wrapping paper, while the tobacco leaves used in the forged cigarettes are inferior to the genuine products.
Japanese authorities did not confiscate the goods because they were not intended to be smuggled into Japan. Nevertheless, authorities have notified foreign intelligence organizations. The Japanese Maritime Police is conducting security checks on all ships that pass through Japan’s exclusive economic zone.
Experts say a crackdown on forged cigarettes in China has led to an influx of machinery used for making those cigarettes into the North, which has started to manufacture them on a mass scale. Increased production of fake cigarettes by the North is said to make up for decreased profits from drug trafficking due to a crackdown by governments. Washington recently reported that the North earns more money selling fake cigarettes than it does on any of its illicit activities.
From the Donga:
North Korean imitations of Japanese cigarettes being transported to South Korea and Taiwan were verified by a foreign vessel inspection by the Japanese maritime security force.
The Japanese maritime security force did not confiscate the North Korean imitation cigarettes, however, since they were not being smuggled into Japan. Instead, they traded information with foreign authorities.
Two kinds of cigarettes from Japan, Mild Seven and Seven Star, and several more American and English cigarettes such as Marlboro were found aboard a ship sailing from North Korea. These cigarettes have different packaging, but consist of the same ingredients.
America has recently pointed out imitation cigarettes as North Korea’s biggest source of illegal profits. Japan’s maritime security force’s view is that as smuggling drugs or stimulants became difficult, North Korea chose imitation cigarettes as a new source to obtain foreign currency.
The maritime security force gave chase to a North Korean vessel in 2001, when it neglected orders to stop and fled in front of Kagoshima Island. After this incident, it has executed maritime inspections against foreign vessels sailing within its exclusive economic zone (EEZ).
According to the maritime security force, imitation cigarettes have been found on Cambodian, Taiwanese, and Mongolian ships sailing from North Korea since two years ago.
Information from reconnaissance satellites and sailors’ statements leads us to believe that imitation cigarette carriers load their goods at North Korea’s Wonsan, Cheongjin, or Najin harbors and transfer them to Taiwanese or Korean mafia vessels in the Taiwanese or Busan sea.
Hundreds of thousand of packs of cigarettes are loaded onto every ship, and these are sold at 60% of the price of authentic ones. The profit from these cigarettes, minus the cost of materials reaches up to tens of millions of yen.
A Japanese newspaper commented that due to the Japanese goods circulation system that uses vending machines at a fixed price, imitation cigarettes are not brought into Japan.
The Mild Seven series is a popular brand that was the most sought-after cigarette in Taiwan last year, and is among the five most popular cigarettes in Korea. Marlboro, which had the most loadage in imitation cigarettes, was exposed thirteen hundred times between 2002 and 2005.
Mass production of cigarettes supposedly began when China’s cigarette producing machines flew into North Korea as crackdowns on cigarettes in China became harsher.
North Korea’s foreign trade amounted to a total of 3,001 million USD, a 5.1 % increase on a year-on-year basis from the previous 2,857 million USD in 2004. Its export recorded 998 million USD, a 2.1 % decrease from 1,020 million USD in 2004. The imports totaled 2,003 million USD, a 9.1 % increase from 1,837 million USD in 2004. As a result, the balance of trade recorded a deficit of 1,005 million USD, a slight increase compared to that of 2004, which recorded 817 million USD.
The status of the North’s trade with its five largest trading partners is as follows.
80% of the North’s trade was conducted with countries in the Asia and Pacific regions. The transactions with the EU countries totaled 292 million USD, showing a 12 % increase on a year-on-year basis, compared to 261 million USD in 2004.
The rise in the North’s foreign trade can be attributed to an increase in exports of raw materials to China and Thailand and crude oil price hikes. North Korea is expected to seek expansion of trade with the major trading countries and diverse trading partners.
Well, I discovered this series of events that really peaked my curiosity. The Friederick Naumann Foundtaion has hosted two conferences on DPRK economic reform in Pyongyang.
From the Foundtaion’s web site:
Since 2004, the Friedrich Naumann Foundation has been organizing seminars and workshops in North Korea in order to transfer knowledge on market economy. The first EU-DPRK workshop, which was held in August 2004 focused on economic transition processes and the changes in the DPRK since 2002. This second meeting had a more specific focus on practical issues that were raised last year such as the role of the state in economic management, strategies to attract foreign direct investment and the restructuring of state-owned enterprises and agriculture.
I have reconstructed this short agenda with links to relevant papers:
Opening: Kung Sok Ung, Vice Minister of Foreign Affairs of the DPRK (in attendance: almost 100 DPRK officials from economic ministries, institutions, and universities as well as reps from the EU)
Session 1: The Role of the State in Economic Management
Dr. Ari Kokko, professor at the Stockholm School of Economics
Paper: Economic Systems and the Role of the State
Dr. Dusan Triska, former deputy Minister of Finance, Czechoslovakia
Paper: Redefining the role of the state: public planning and management tools
Mr. Max van der Sleen, Chairman of ECORYS Netherlands
Paper: Macro-economic tools of the State to manage the economy
Session 2: Conditions and Strategies to attract investment: experiences of the new member states of the EU
Dr. Andrea Szalavetz, Senior Research Fellow, Hungarian Institute for World Economics
Paper: Mobilizing foreign capital to promote catching-up and modernization: The Hungarian experience
Dr. Jacek Mironski, researcher at the Warsaw School of Economics
Paper: Human Resource Management and Investment in Human Capital
Mr. Han Dok Son, DPRK’s University of National Economy
Paper: Actions for Modernization of National economy in DPRK
Session 3: Restructuring state-owned enterprises and agricultural sector: Methods and implementation.
Mr. Ju Yong Seol, Economic Research Institute of the Cabinet
Paper: New economic measures taken by the DPR Korea and the experience gained from their implementation
Dr. Bruno Dallago, University of Trento
Paper: Creation and development of small and medium-sized enterprises (SME)
Dr. Brigitta Kauers, Head of Division at Germany’s Federal Ministry of Finance
Paper: Experiences with the Treuhand agency in Germany
Dr. Michael Cuddy, National University of Ireland
Paper: Some thoughts on agriculture and rural development in the DPRK
from Yonhap:
The U.S. Treasury’s ban on owning or operating North Korea-flagged vessels took effect as of Monday, the latest punitive action against a state accused of counterfeiting American currency and cigarettes.
The amendment to the Foreign Assets Control Regulations (FACR), announced on April 6, prohibits “U.S. persons” from owning, leasing, operating or insuring any vessel flagged by North Korea.
U.S. persons refers to U.S. citizens and permanent residents, U.S. entities, including their foreign branches, and any person in the U.S.
The move is in addition to an action taken last September designating Macau-based Banco Delta Asia as a primary money-laundering concern abetting North Korean front companies.
These companies are suspected of circulating bogus U.S. dollars and exporting items used for weapons of mass destruction.
The U.S. has had broad economic sanctions imposed against North Korea since 1950, when the Korean War (1950-1953) broke out, under the Trading with the Enemy Act.
The sanctions were eased in June 2000 when the U.S. amended FACR in return for Pyongyang’s moratorium on missile tests.
At least 11 U.S. vessels are affected by the new measure, and they had all been notified to take appropriate steps before Monday.
