North Korean Economy Watch

UPDATE 2: According to Yonhap:

North Korean leader Kim Jong-il appointed his loyal aide to the No. 2 post in the National Defense Commission on Friday, state media said, another sign of the aging leader consolidating his circle.

O Kuk-ryol was named the commission’s vice chairman, second only to Kim, said the North’s Korean Central News Agency.

North Korean media have said little about O, considered to be a combat-savvy veteran who served as the North’s air force commander and chief of the operational department of the ruling Workers’ Party.

Baek Seung-joo, a Seoul-based analyst, said O helped Kim Jong-il win support from the military in the early 1980s after he was tapped as successor of his father and North Korean founder Kim Il-sung.

“O is a senior military figure whom Kim Jong-il trusts,” Baek said.

O, 78, replaces Kim Yong-chun, who was recently promoted as minister of the People’s Armed Forces, the counterpart of South Korea’s Defense Ministry.

N. Korean leader promotes loyal aide in military shakeup
Yonhap
2/20/2009

UPDATE: A short biography of Kim Yong Chun (Big h/t again to Mike):

Born 1936, Kangwon Province

Education
Mangyongdae Revolutionary School
Kim Il Sung University

Positions Held
1960: Secretary, South Phyongan Provincial Committee
1980: Alternate Member, CCKWP (October)
1982: Lieutenant General, Korean People’s Army (year presumed)
1986: Director-General, Strategy Department, delegate to 8th SPA (November), and member of CCKWP (6th term, 12th plenary session, December)
1987: Order of Kim il Sung Award (April)
1990: Delegate, 9th SPA, representing Solbong, Kangwon (April)
1992: Appointed General, KPA (April)
1993: Director-General, General Munitions Mobilization Bureau, KPA (October)
1994: Commanding Officer, KPA Sixth Army Corps (March) and member of Kim il Sung Funeral Committee (July)
1995: Member of O Jin-u Funeral Committee (February), appointed Vice-Marshal and Chief of Staff, KPA (October)
1998: Delegate, 10th SPA (July), appointed to the NDC (September)
2007: Elected Vice Chairman of the NDC, at the ninth session of the 11th SPA (April)
2009: Appointed as Minister of People’s Armed Forces (February)

Ongoing: Member of the CCKWP and the State Funeral Committee

According to KCNA, Ri Young ho was last promoted in 2002:

Pyongyang, April 14 (KCNA) — Kim Jong Il, Supreme Commander of the Korean People’s Army, issued order no.00152 to raise the military ranks of KPA commanding officers on the occasion of the Day of the Sun. According to the order dated April 13, Kim Yun Sim, Kim Jong Gak and Ryo Cyun Sok were promoted to generals.

The military rank of colonel general was conferred on Paek Sang Ho, Kang Yong Ho, Ri Thae Il, Kim Yang Jom and Pak Sung Won and that of lieut. General on Ri Yong Ho, Ri Yong Gil, Hwang Hong Sik, Pak Su Chol and Pang Kuk Hwan. Ri Yong Rae and 39 others were promoted to major generals.

Coincidentally, on that same day  in 2002 KCNA announces that Jang Song Taek’s brother was given a military promotion:

Military rank of KPA vice marshal conferred on Jang Song U

Pyongyang, April 14 (KCNA) — The military rank of vice marshal of the Korean People’s Army was conferred on Jang Song U, according to the April 13 joint decision of the Central Military Commission of the Workers’ Party of Korea and the DPRK National Defence Commission.

ORIGINAL POST:
According to KCNA yesterday: 

Minister of People’s Armed Forces and Chief of General Staff Newly Appointed in DPRK

Pyongyang, February 11 (KCNA) — A decision of the DPRK National Defence Commission and the Central Military Commission of the Workers’ Party of Korea was released on February 11 in the name of Kim Jong Il, chairman of the DPRK National Defence Commission and chairman of the WPK Central Military Commission.

Vice Marshal of the Korean People’s Army Kim Yong Chun was appointed as minister of the People’s Armed Forces of the National Defence Commission of the DPRK and KPA General Ri Yong Ho as chief of the KPA General Staff, according to the decision.

Former Defense Minister, Kim il Chol, was 70 when he was appointed to the post in 1998.  According to the media at the time:

North Korean leader Kim Jong Il has picked Vice Marshal Kim Il Chol, a close confidant, as defense minister, virtually completing a reorganization of the military, the official Korean Central News Agency (KCNA) reported Tuesday.

The KCNA report monitored in Tokyo said Kim Il Chol, about 70 years old, was promoted from first vice minister to minister of the People’s Armed Forces.

The post of defense minister had been vacant since the death of Choe Kwang in February 1997.

Kim Jong Il issued the order Monday in his capacity as chairman of the National Defense Commission (NDC), a post which makes him North Korea’s head of state under the revised Constitution.

The Supreme People’s Assembly, the North’s parliament, revised the country’s 1972 Constitution on Saturday, abolishing the state presidency.

Kim Il Chol was a frequent companion of Kim Jong Il, the supreme commander of the North Korean army.

These changes come at the same time as other personnel changes are announced.  See related posts here and here.

Hat tip to Mike.

Although the P.R. of China and the DPRK are supposed to be as close together as “lips and teeth,” we have seen a couple of interesting stories emerging from Taiwan in the last few days.

Case 1: On Jan 8, the Straits Times reported that former Taiwanese president Chen Shui-bian embezzled money intended for the DPRK.

Case 2: Last Friday, the AFP reported that the US Treasury Depratment was moving on a Taiwanese couple who were allegedly facilitating shipping to the DPRK:

The US Treasury moved Friday to freeze the assets of a Taiwanese couple and their companies, linking them to North Korean weapons proliferation.

Alex HT Tsai and his wife Lu-chi Su were accused of providing support to the Korea Mining Development Trading Corporation (KOMID), identified by Washington as a proliferator four years ago, the Treasury said in a statement.

Tsai was last year indicted by Taiwanese authorities for forging shipping invoices and illegally shipping restricted materials to nuclear-armed North Korea, it said.

“He has been involved in shipping items to North Korea that could be used to support North Korea’s advanced weapons program,” the statement said.

The companies controlled by the couple Global Interface Co and its subsidiary Trans Merits Co. were sanctioned by the Treasury action.

“Proliferators depend on access to the international financial and commercial systems to support their dangerous trade,” said Stuart Levey, Treasury under secretary for terrorism and financial intelligence.

“Our action today exposes a North Korean procurement channel, and we urge governments and companies worldwide to cut this channel off entirely,” he said.

Rad the full story here:
US freezes assets of Taiwanese couple and their companies
AFP
1/16/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-12-8-1
12/8/2008

The North Korean online magazine ‘Our Nation (uri minjokkiri)’ emphasized on January 1 that development of national defense industries would be prioritized, stating that it was “the best way to move forward and harden a strong national defense while at the same time developing the entire economy.”

In an article titled, “The Path to Economic Construction of the Military-first Era,” the website reminded the reader of the goal of building a strong and prosperous nation by 2012, and stated that Kim Jong Il had said that building up the economy was the “main line of construction for the building of a Strong and Prosperous Nation.” It went on, “Today’s era is the era in which the national economic strength is determined by the amount of development of the national defense industries,” and, “National defense industries are in a leading position, while the independent establishment of the core economic structure is necessary, and a strong economic base can be constructed.”

The magazine emphasized, “The might of heavy industry can be further strengthened following the completion of the basis of the national defense industries, also ceaselessly developing light industry and agriculture.” The article also stressed that as North Korea’s national defense industries are at a comparatively high level internationally, matching that of the United States, and that he national economy overwhelming potential is easy to see.

The article noted that today’s military competition between nations is practically scientific and technological competition, and, “strengthening of national defense in every way based on science and technology, and establishing a framework of science and technology and deciding to quickly develop a strong and prosperous nation by focusing on science is really the path for building the economy in the Military-first Era.”

The magazine emphasized that this military-first era economic building plan was “truly for the people, and was the most civic path to prepare national economic strength for public services.” “In accordance with changes in the political atmosphere and actual conditions, the amount of energy applied to building of national defense and economic construction, citizens’ livelihoods, or other realms could vary, but the true requirement of the building of the socialist economy is to ceaselessly raise the level of the livelihoods of the people, and ultimately, this goal can never waver.”

Although many would assume that North Korea’s economic isolation would insulate it from recent global financial instability, this does not appear to be the case.  According to the Wall Street Journal:

North Korea does little trade with the rest of the world — about $2 billion annually — and now it’s being hurt by lower prices paid by its biggest trading partner, China, according to report from a South Korean institute that specializes in North Korea research.

In recent weeks, the Chinese companies that buy North Korean ores and minerals like zinc, which are some of its biggest exports, have slashed the prices they’re willing to pay. That’s forced some North Korean mining firms to halt production and even produced a drop in the smuggling of ore and scrap, trade that’s illegal in the North but is believed to play an important role in supporting the impoverished country.

Lim Eul-chul, a professor at the Seoul-based Institute for Far Eastern Studies who wrote the report issued Thursday, said he learned about the commodity-trade problems from North Koreans doing business in China

“Chinese companies that are affected by global trends don’t want to pay as much as they used to for North Korean raw materials or resources,” Mr. Lim said. “Thus, North Korean merchants can’t make profits from trade.”

The price pressure exerted by Chinese traders on North Korean companies is in line with the broader drop in commodity prices in recent months. But it has imposed new burdens on North Korea in what is shaping up to be a terrible year there.

Official North Korean media have published reports saying the global financial crisis will ruin the U.S. and other industrial powers. But in the report, the Institute for Far Eastern Studies said “North Korean people are becoming very anxious over the possibility of the international economic crisis having a long-term impact.”

Below is the IFES report mentioned in the Wall Street Journal:

Global Financial Crisis hits DPRK economy by way of China 
NK Brief No. 08-10-29-1
10/29/2008

Contacts within North Korea are reporting that the North Korean people are becoming very anxious over the possibility of the international economic crisis having a long term impact as not only exports have dropped, but even cross-border smuggling is taking a hit.

Recently, as Chinese traders have more than halved the price of North Korea’s main export goods such as minerals and scrap iron, North Korea’s markets and even construction industry have felt the blow.

As North Korean state-run media outlets report the current financial crisis as the ruin of the United States and other capitalist world powers, they report as if North Korea were completed unaffected by it. On the 20th, the Rodong Sinmun emphasized that the the U.S.’ financial management system was ‘like a candle in the wind.’

However, it has been leaked that since last week, businesses in North Korea have been shutting their doors as a result of the financial crisis. In particular, the value of the North Korean Won has dropped sharply against the Chinese Yuan, and combined with Chinese traders’ reluctance to purchase North Korean goods and calls to lower prices, very little business is being conducted. This has led mines in Hyesan to halt exports of lead and zinc, and with the drop in legitimate exports, of course smuggling has dropped of, as well.

Furthermore, as raw materials from China are not being supplied, construction projects in the North are also grinding to a halt. 

(UPDATE) Barbara Demick reports in the Los Angeles Times:

Despite efforts to keep North Korea’s extreme poverty out of view, a glance around the countryside shows a population in distress. At the root of the problem is a chronic food shortage, the result of inflation, strained relations with neighboring countries and flooding in previous years.

Aid agencies say the level of hunger is not at the point it was in the 1990s, when it was defined as a famine, although they have found a few cases of children suffering from kwashiorkor, the swollen belly syndrome associated with malnutrition. Mostly what they are seeing is a kind of collective listlessness — the kind shown by the people on the streets of Nampo.

“Teachers report that children lack energy and are lagging in social and cognitive development,” reported a group of five U.S. humanitarian agencies in a summer assessment of the food situation. “Workers are unable to put in full days and take longer to complete tasks — which has implications for the success of the early and main harvests.”

Hospitals complained to aid workers of rising infant mortality and declining birth weights. They also said they were seeing 20% to 40% more patients with digestive disorders caused largely by poor nutrition.

The U.N. World Food Program reached similar conclusions. In a recent survey of 375 households, more than 70% were found to be supplementing their diet with weeds and grasses foraged from the countryside. Such wild foods are difficult to digest, especially for children and the elderly. The survey also determined that most adults had started skipping lunch, reducing their diet to two meals a day.

These are some of the same signs that augured the mid-1990s famine, which killed as many as 2 million people, 10% of the population.

“The current situation hasn’t reached the famine proportions that it did during the 1990s. Our hope and goal is to keep it from going over the precipice,” said Nancy Lindborg, president of Mercy Corps, one of the U.S. aid organizations working in North Korea. “You have a number of factors that have conspired to create a really tough food situation.”

In Pyongyang, the capital, residence in which is reserved for the most politically loyal North Koreans, plenty of food is available on sale. A grocery inside the Rakwon Department Store carries Froot Loops and frozen beef. At open-air markets, you can find mangoes, kiwis and pineapples

But the products are far too expensive for most North Koreans, whose official salaries are less than $1 a month — 60 to 75 cents monthly for the workers surveyed by the World Food Program. And the farther you get from Pyongyang, the poorer are the people.

Nampo is 25 miles southwest of the capital, on the Yellow Sea. It used to be a thriving port city, but nowadays its harbor is used mostly for shipments of humanitarian aid. On a weekday morning, many people sit along the sidewalk watching the few cars pass by. They appear to be unemployed or homeless.

North Koreans say that the food situation is improving and that a good harvest is expected this autumn, as a result of improved weather conditions. The last two years were disastrous because of heavy flooding.

“There was a problem before, but it is getting better. We expect a bumper harvest,” said Choe Jong Hun, an official of the Committee for Cultural Relations With Foreign Countries.

North Korea experts, however, are skeptical. “One good harvest is not really going to alter the picture,” said Stephan Haggard, a UC San Diego professor who has written widely on the North Korean famine.

The World Food Program and the U.S. aid organizations are providing food for the most vulnerable, including children and pregnant women. A U.S. ship carrying more than 27,000 tons of bulk corn and soy is slated to arrive in Nampo within days.

International agencies have been trying to raise money to expand their food aid to the general population. Many urban North Koreans are dependent on food rations, which have dwindled to 150 grams a day, or a little more than 5 ounces.

Even in Pyongyang, one can see signs of scarcity behind the facade of what is supposed to be a showcase capital. Foreign residents say they have seen homeless children in the last few months — a notable sight in a totalitarian country where nobody is supposed to wander away from their legal residence. (Los Angeles Times)

Read the full Wall Street Journal articles below:
North Korea Feels Effects of the Crisis
Wall Street Journal
Evan Ramstad and Sungha Park
10/31/2008

North Korean facade of self-sufficiency can’t hide signs of hunger
Los Angeles Times
Barbara Demick
11/2/2008

Daily NK
Choi Choel Hee
10/21/2008

With Kim Jong Il’s condition an issue, there has been a lot of talk about North Korea’s government system in the post-Kim Jong Il era.

Due to the strengthened military influence caused by the military-first policy, one prediction is that a military-based collective leadership system may take power after Kim Jong Il.

However, a defector who used to be a high-ranking official in North Korea pointed out that this prediction comes from an incorrect understanding about the relationship between the Party and the military.

Hwang Jang Yop, who is a former Secretary of International Affairs of the Workers’ Party, has said that not military authorities but the Party would likely grasp power after Kim Jong Il’s death.

I. Chosun (North Korea) People’s Army Is the Army of the Party

According to the Regulations of the Workers’ Party, the Chosun People’s Army is defined as “the revolutionary military power of the Workers’ Party.” Separate from the regular chain of command in the Army, Party members are assigned to each unit to command them. That is, there are two command structures: a military chain of command and the Party’s organizational system.

The People’s Army is controlled by the Party Committee of the Chosun People’s Army under the Military Committee of the Central Committee of the Workers’ Party. The chief secretary of the Party Committee of the Chosun People’s Army is Cho Myung Rok, who also holds the position of Director of the General Political Bureau of the Ministry of the People’s Armed Forces. His roles are to inform the Army of the Party’s instructions and regulations and to monitor and supervise the Army to make sure it adheres to the Party’s will and regulations.

At the same time, the highest political apparatus in the military, the General Political Bureau, is under surveillance of the Guidance Department of the Central Committee of the Party. Therefore, a Vice-Director of the Guidance Department of the Central Committee presides over the military while the military command system is always subordinate to the Party command system.

Regarding this relationship between the Party and the military, Hwang Jang Yop, the former Secretary of International Affairs of the Party, gave as an example “the Sixth Corps’ Coup d’état case,” and said that, “The suspected leaders of the coup were shot at once in a hall. The figure who ordered and carried out the massacre of the conspirators was Kim Young Choon, the Vice-Director of the National Defense Commission, but the political manager behind everything was Jang Sung Tae, Director of the Ministry of Administration, one of the departments under the Central Committee of the Party. This implies that there are different management systems overseeing the military — those of the military itself and those of the Party.”

II. The Right of Personnel Management and of Inspection Over the Military

The reason why the Director of the Guidance Department holds such a powerful influence is that the Director has the right to manage personnel and inspect the military.

Even the right to implement personnel management within the Army goes to the Secretariat of the Central Committee of the Party. The members of the Secretariat are the Director of the Ministry of the People’s Armed Forces, the Army Chief of Staff, the Director of the General Political Department, the Director of the Operations Department, and, in some cases, the commander of the Defense Security Command of the Army is included.

The Guidance Department of the Party maintains the right to inspect the Army. The scariest inspections for the military are the ones by the Guidance Department. On a rumor that the Guidance Department is coming, a few military officials are usually purged.

The fact is well known that Kim Jong Il himself also holds power over the military through controlling the Guidance Department.

The posts in charge of the military within the Guidance Department are the No. 13 Life Guidance Department and the No. 4 Cadre Department. Department #13 directly controls and instructs the operations of the Army Committee of the Central Committee of the Party and General Political Department of the Party.

III. Department #13 and Department #4 of the Guidance Department

The roles of these two departments are to monitor how well the Army follows the ideology and the leadership of Kim Jong Il, and whether or not party organizations and political organizations within the Army are operated well by the Party leadership. The Army Committee of the Party and the General Political Bureau doesn’t have the authority to make decisions, so it has to consult with Department #13 before taking action.

The Vice-Director of the Guidance Department is in charge of Department #13. The offices of Department #13 are located in the building of the Ministry of the People’s Armed Forces due to its association with the General Political Department of the People’s Army.

It also oversees the Army Committee of the Central Committee, the General Political Department, and the Army Committee. Department #13 participates in the major military meetings including the ideological struggle meeting. It hosts an annual fifteen-day-long Guidance Department lecture of the Party for military officials.

The No. 4 cadre department has the final say over personnel matters regarding high military officials. Officials whose rank is higher than brigadier general must be approved by the Guidance Department. After the Guidance Department signs off, posts and military title can be granted by the order of the supreme commander of the People’s Army. Therefore, the Guidance Department of the Party holds absolute control over the Army through exercising its right of personnel management of the officials.

North Korea Uncovered: Version 12
Download it here

About this Project: This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, energy infrastructure, political facilities, sports venues, military establishments, religious facilities, leisure destinations, national parks, shipping, mining, and railway infrastructure. It is continually expanding and undergoing revisions. This is the 12th version.

Additions include: Tongch’ang-dong launch facility overlay (thanks to Mr. Bermudez), Yongbyon overlay with destroyed cooling tower (thanks to Jung Min Noh), “The Barn” (where the Pueblo crew were kept), Kim Chaek Taehung Fishing Enterprise, Hamhung University of education, Haeju Zoo, Pyongyang: Kim il Sung Institute of Politics, Polish Embassy, Munsu Diplomatic Store, Munsu Gas Station, Munsu Friendship Restaurant, Mongolian Embassy, Nigerian Embassy, UN World Food Program Building, CONCERN House, Czech Republic Embassy, Rungnang Cinema, Pyongyang University of Science and Technology, Pyongyang Number 3 Hospital, Electric Machines Facotry, Bonghuajinlyoso, Second National Academy of Sciences, Central Committee Building, Party Administration Building, Central Statistics Bureau, Willow Capital Food House, Thongounjong Pleasure Ground, Onpho spa, Phipa Resort Hotel, Sunoni Chemical Complex (east coast refinery), Ponghwa Chemical complex (west coast refinery), Songbon Port Revolutionary Monument, Hoeryong People’s Library, Pyongyang Monument to the anti Japanese martyrs, tideland reclamation project on Taegye Island. Additionally the electricity grid was expanded and the thermal power plants have been better organized. Additional thanks to Ryan for his pointers.

I hope this map will increase interest in North Korea. There is still plenty more to learn, and I look forward to receiving your contributions to this project.

Version 12 available: Download it here

I have updated the list of Congressional Research Service (CRS) reports published on North Korea and posted them here.  I have also added a hyperlink under “pages” on the menu tab to the right.

Updates include:
US Assistance to North Korea: July 31, 2008
North Korean Ballistic Missile Threat: January 24, 2008
North Korea’s Nuclear Weapons Program: January 21, 2008
North Korea’s Abduction of Japanese Citizens and the Six-Party Talks: March 19, 2008
The Kaesong North-South Industrial Complex: February 14, 2008
The North Korean Economy: Leverage and Policy Analysis: August 26, 2008

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.  Additionally, this file is getting large and may take some time to load.

UPDATE:  (Reuters) Secretary of State Condoleezza Rice told Japan that Washington would not remove North Korea from a US list of state sponsors of terrorism on the initial deadline of Monday, Japan’s foreign minister said.

ORGINAL POST: Marcus Noland comments in a Newsweek International op-ed how recent US policy changes towards North Korea (delisting the DPRK as a state sponsor of terror and exempting sanctions under the Trading with the Enemy Act) amount to very little:

Lifting the trade restrictions will have a minimal impact. North Korea will remain one of a few countries that does not have normal trade relations with the United States, meaning its exports will continue to be subjected to punitive tariffs of up to 90 percent.

Removing North Korea from the terrorism list means that Washington can now legally support it for membership in international financial organizations such as the World Bank. But the White House is under no obligation to actually do so. North Korea also remains excluded from US government programs that encourage trade and investment.

North Korea’s declaration will trigger a reconvening of the Six-Party Talks, which includes China, South Korea, Japan, and Russia. The inadequate nature of the declaration guarantees there will be yet another round of negotiations in which North Korea will reveal a bit more in return for further concessions. It is no accident that up to 50,000 metric tons of US food aid is expected to arrive in North Korea early this month. 

Writing in 2004 (yet relevant today), Marcus Noland wrote about these issues in depth.  Below are excerpts from his op-ed on US tariffs:

US importers of DPRK products are required to obtain prior approval from the US Treasury’s Office of Foreign Assets, certifying that the products were not produced by North Korean entities designated as having engaged in missile proliferation. Subject to this condition, approval is routine. US government officials report that they receive only a handful of such requests each year. Their impression is that business conditions in the DPRK pose a greater impediment to bilateral trade than the regulatory regime.

…

So, at present, with the exception of military-related products, there are few specific legal restrictions on the ability of Americans to export to or invest in the DPRK. Imports are subject to a prior approval process, but this is based on a transparent and narrowly delineated certification requirement.

Yet there is little trade between the United States and the DPRK. North Korea is among the few countries that the United States does not grant normal trade relations (NTR) status to, and North Korean exports are subject to the so-called column 2 tariff rates established by the infamous Smoot-Hawley Tariff Act of 1930. These tariffs tend to be the highest on labor-intensive products such as garments, in which North Korea is conceivably competitive. Though their incidence is an accident of history, and not an intentional slap, the column 2 tariffs represent a serious potential impediment to trade. Some countries, notably China, have successfully exported to the United States despite being subject to the higher column 2 tariffs (though even China eventually gained NTR status on a year-to-year basis). Most countries that have recently obtained permanent NTR, such as China, have done so through the World Trade Organization (WTO) accession process. The DPRK has shown no interest in joining the WTO.

This disinterest is unfortunate. The United States does not grant the DPRK quotas under the Multi-Fibre Arrangement (MFA), a worldwide network of bilateral trade quotas on textiles and apparel (due to expire in 2005), and WTO accession could aid the DPRK in this regard. In the case of the similarly diplomatically problematic Burmese government, the US government found it politically easier to accept an increase in Burmese exports to the United States than to negotiate publicly a textile agreement under WTO auspices with the repressive regime. WTO membership has its privileges. In any event, the DPRK is one of the rare countries that chronically do not fill their MFA quotas in Europe, where there are no sanctions, suggesting that the problem lies in DPRK’s inability to compete, not in trade barriers.

However, should the DPRK obtain NTR status, the United States would likely classify it as a nonmarket economy (NME) and subject it to onerous antidumping rules on the Chinese template. The point is that improved diplomatic relations is no panacea—the United States can be protectionist on purely economic grounds, regardless of politics.

Conversely, the United States trades with some low-income countries preferentially, unilaterally granting them limited tariff-free access through the Generalized System of Preferences (GSP), subject to standards concerning workers’ rights, intellectual property protection, and drug trafficking. Given North Korea’s disregard for internationally accepted labor standards, it is inconceivable that the United States would grant North Korea GSP privileges under current practices, even if diplomatic relations were normalized. Yet China, which has never received GSP privileges, vividly demonstrates that it is quite possible to prosper without such advantages.

Today, internal conditions and practices in North Korea, not legal restrictions, greatly impede bilateral trade. However, with sufficient reform and improvement in competitiveness, a broad range of policy issues would become increasingly relevant. In this regard, DPRK accession to the WTO would be advantageous. In the meantime, rather than complaining about US policy, North Korean officials would be better served by redoubling their reform efforts.

For more information, read the full articles below:
Partially True Confessions: How Big is the North Korea Deal?
Marcus Noland, Peterson Institute
Newsweek (Link via the Peterson Institute)
7/7/2008

The Legal Framework of US–North Korea Trade Relations
Op-ed in JoongAng Ilbo, via the Peterson Institute web site.
Marcus Noland
4/27/2004

As reported earlier this year by the Daily NK, Kim Jong il’s brother in law, Jang Song Taek, was leading an anti-corruption campaign in North Korea’s northern provinces along the Chinese border. Aside from controlling financial leakages, these efforts could be interpreted as attempts by Kim to gain control over military-owned trade companies.

According to a past report:

The inspection group withdrew all trade certificates with exception of those certificates belonging to the families of anti-Japanese guerrilla fighters, and those certificates issued by the Ministry of Finance or the Shinuiju Municipal Administrative Committee.  Therefore, presently at Shinuiju Customs, all import items without trade certificates issued by the above mentioned three groups have to be sent back to China.

Jang’s efforts, though seemingly effective at reasserting financial control of the region, had apparently taken their toll on local commerce:

In Hyesan, Yangkang Province, markets have been significantly reduced in size and scope recently, due to the anti-socialist group’s inspections[.]

[T]he merchants were at unease when under inspection by the National Security Agency (NSA) and other governmental organizations which govern the jangmadang [markets].

For example, transportation of goods by traders has withered away since last year, as the authority of the People’s Safety Agency (PSA) [controlled by Jang] rose and [it] launched [] a strict crackdown on traders’ belongings.

The source explained the situation in Hyesan, that “Hyesan had become the city where Chinese goods were traded for the cheapest value because Chinese goods [enter the country] at Hyesan[.] [During] the (PSA) inspection period [goods] could not be transported inland due to the inspection of trains and cars. Lives of the common people became even tougher than before, since goods could not be circulated through the jangmadang in spite of their low prices.”

“The more stringent the regulation became, the more bribes cadres received and worsened were the lives of people,” the source added.

(NKeconWatch: I have “cleaned up” some of the grammar here to make it more readable.  If you want to see the original version, click here.)

And in Sinuiju:

The intensive inspection of Shinuiju, in which over 70% of Chinese-North Korean commercial traffic occurs, caused several aftereffects inside North Korea: commercial traffic passing through Shinuiju and Dandong decreased by half compared to the past, and the aftermath of the inspections in Shinuiju added fuel to the fire of price rises in jangmadang goods across the country.

For instance, sugar, which is a raw material for doughnuts or candies that are consumed the most by average civilians in the jangmadang, carried a price of around 1,500 won per kilogram before the inspections, but in mid-May, it rose to 2,100 won and vegetable oil hiked from 5,500 to 7,500 won per kilogram. Such an increase in prices also caused a significant threat to the survival of citizens who made a living off the jangmadang trade.

But the final result of the evaluation of the Shinuiju inspection, which caused quite a stir externally, has purportedly been negligible.

The source said, “The volume of trade has decreased over several months and the number of visitors to China has also been reduced by half. The results of the inspection have not produced too much difference, except for the execution of 14 corrupt officials.”

The source further noted, “The only change which has been visible to the eye is the rise in the cost of bribes offered to North Korean customs from 40 to 80 dollars per hundred kilograms of goods. There was a rumor that the loading volume carried into the North would be fixed at 120kg, from 360kg, but this has not been done yet.”(Daily NK)

The Daily NK now reports that in the wake of these developments, Kim Jong il’s National Defense Commission (NDC) has moved in and directly taken over the inspections—and economic conditions have improved:

[Markets] have become lively again in the past few days as inspections by the National Defense Commission (NDC) have gotten underway.

A source in North Korea reported to Daily NK on Friday that “Merchants in Hyesan these days are fish in water. They say that they would not mind at all going through such inspections for an entire the year!”

Part of the reason for the turn around has been a change in focus.  Whereas Jang’s work hit many “ordinary” North Koreans (particularly those working for the wrong trading companies), NDC inspections are focused on controlling the mid- to upper-level cadres.  It is entirely speculatory to ask whether Kim’s strategy was to unleash Jang to get control of the region and afterwards assert direct control himself, or whether complaints from locals forced the NDC to end Jang’s campaign.

Of course this is all unverified information from inside North Korea, so who knows how much of it is correct!