North Korean Economy Watch

Joong Ang Daily
Lee Yang-soo and Brian Lee
5/16/2007

With an eye on future transportation infrastructure, both Russia and China are courting North Korea to get in on the development of Najin port, in the far north of the country near the Russian border.

A Foreign Ministry official said yesterday that Russian Railways President Vladimir Yakunin is scheduled to visit North Korea to discuss launching a project aimed at improving and repairing a railroad from Najin to Khasan, just across the border into Russia.

Yakunin told former Prime Minister Han Myeong-sook, who visited Russia last month, that President Vladimir Putin had great interest in the project and Russia was hoping for the active participation of South Korean companies, the official said. The railway official visited Seoul in July last year to discuss the project with South Korean companies. The issue was also discussed in March at a bilateral meeting with Russia on economic cooperation.

A government official said that Russia wants to use Najin port as a logistics hub, but is also intending to develop the port into a base for future development of oil and natural gas in Siberia. The ultimate goal would be to connect the trans-Siberian railway with an inter-Korean railway system.

Beijing also has its eye on the North Korean port, which it envisions as part of its grand design to build a transport network that stretches from the Indian Ocean to the North Pacific.

“Najin Port is near the Jilin area and China’s own ports in the area have already reached their full capacity,” a government official said yesterday.

Beijing has recently notified Pyongyang that it is willing to spend $1 billion to develop port facilities, build railroads connecting the port to China and improve existing infrastructure such as highways, the official said.

In a report published earlier this year, Cho Myung-chul, a researcher at the Korea Institute for International Economic Policy, predicted that China would use investments in the North’s ports and railroads to extend its own infrastructure for export and import purposes. China has made similar investments in Burma and Bangladesh, among others.

Joong Ang Daily
Lee Young-jong
5/15/2007

With a one-time test run of an inter-Korean railroad set this week, South Korea’s Ministry of Unification said yesterday it will create an organization designed solely to provide $80 million worth of raw materials to North Korea.

The South promised to provide the materials, for light industry, in return for security assurances over the inter-Korean train line.

South Korea hopes the line will be permanent, but North Korea has only agreed to one test run.

The new organization will be jointly operated by related South Korean government agencies, Unification Ministry spokesman Kim Nam-sik said in a briefing yesterday. The agency will also represent South Korea in talks with the North over the joint development of a mine in North Korea.

The government is scheduled today to hold a meeting hosted by Unification Minister Lee Jae-joung to endorse a 2 billion won yearly budget for the organization, Kim said. The money will come from the Inter-Korean Cooperation Fund.

“The fund the government will provide to the organization is a kind of commission for doing state affairs instead of the government,” Kim said.

Joong Ang Daily
Brian Lee
5/12/2007

After four days of marathon negotiations, the North’s military gave its blessing for a trial run of an inter-Korean railroad system.

At least once.

South Korea failed to get a permanent security assurance from Pyongyang, fearing that North Korea would try to wrangle concessions every time the train passes the world’s most heavily fortified border.

Most recently, Seoul agreed to give the North $80 million in raw materials for light industry following the test run of the train.

After the long negotiations, several issues were left undecided.

In a joint press release issued yesterday, the two Koreas said, “The two sides share the view that preventing military conflicts and creating a joint fishing zone in the Yellow Sea is an issue to be urgently resolved in the course of easing military tensions and establishing peace.”

The test run of the train is scheduled Thursday.

It would be the first in more than half a century, since an armistice ended the Korean War.

Seoul views the train crossings as a crucial building block to reduce tension on the Korean Peninsula and draw the reclusive state of North Korea more out into the open.

South Korea has built two rail crossings, one on the country’s east coast and another about 60 kilometers (40 miles) northwest of Seoul.

A planned test run in May of last year was cancelled at the last minute. Speculation ran high that the North’s military balked due to its own security worries.

The militaries of the two countries, who are still technically at war, agreed to meet again in July.

The two sides agreed to discuss the issue of establishing a joint fishing zone in the Yellow Sea and look into the possibility of allowing North Korean commercial vessels going to and from the North’s Haeju Port, which is located near the Northern Limit Line that serves as a demarcation line in the Yellow Sea, to directly pass through the border.

The two sides also agreed to try to have defense-minister level talks in the future.

The last and only one took place in September of 2000.

Meanwhile, the Unification Ministry said yesterday that delegations from both sides would meet in Kaesong today to finalize the details of the train test run.

Korea Herald
5/12/2007

South and North Korea have agreed to guarantee security for test runs on cross-border rail connections. The accord will make it possible for trains to resume operations across the Demilitarized Zone after the Korean War stopped the railway service more than five decades ago.

But South Korea may not be 100 percent assured that the test runs will proceed as scheduled, given that North Korean commitments have more often than not proved unreliable. Actually, North Korea withdrew its security guarantee on the eve of the railway test runs that had been scheduled for May 25 last year.

Moreover, the security accord is flawed because it will not apply to commercial operations that will follow the test runs. South and North Korea will have to negotiate enduring rules governing inter-Korea railway transportation in the near future.

At the four-day general-level talks that ended on Friday, the North Korean military withheld a security guarantee for commercial operations for the incomprehensible reason that construction of a southern part of the eastern rail link has yet to be completed. Given that the part in question could be reconnected anytime, the North Korean military no doubt has ulterior motives, including extracting concessions from the South in exchange for a security guarantee.

It goes without saying that North Korea is misguided in refusing to guarantee security for commercial operations. It is North Korea that stands to benefit much more from the rail connections.

But South Korea should also be held accountable for the North’s irresponsible behavior. It made the wrong decision when it decided to provide the North with $80 million worth of intermediate materials for the manufacture of necessities and 400,000 tons of rice in exchange for railway test runs.

When negotiating the terms of commercial operations next time, South Korea will have to avoid making similar mistakes. It has no reason to accept being played for a fool when offering a helping hand.

Korea Herald
5/12/2007

South and North Korea agreed yesterday to provide military security guarantees for the upcoming railway test runs across their border, and to take long-term measures to ease tension on the peninsula.

The deal, struck during unusually lengthy military talks, marked a significant breakthrough in Seoul’s seven-year-old policy of engagement with Pyongyang. Despite growing economic cooperation and other exchanges between the two Koreas, their armed forces remained locked in a tense stand-off.

“The two sides have shared the view that preventing military conflict and creating a joint fishing zone in the West Sea is an issue to be urgently resolved in the course of easing military tension and establishing peace,” read a joint press release issued after an unscheduled fourth-day session of the talks held in the truce village of Panmunjom.

South and North Korea are at odds over their western sea border.

The United Nations forces unilaterally drew the Northern Limit Line (NLL) in the West Sea at the end of the 1950-53 Korean War, but the North has called for a shift of the line southward.

North Korean fishing vessels and naval patrol ships often cross the line illegally. Two major deadly naval clashes occurred in 1999 and 2002.

The North also demanded that commercial vessels going to and from the North’s Haeju port near the NLL be able to pass through the sea border. Currently, North Korean ships have to take a long route through international waters to avoid the line.

The Koreas have agreed to discuss the issue after creating mutual military trust, according to the release signed by two-star generals.

The agreement on principle, however, lacks a concrete plan for taking the trust-building steps, with the two sides only saying they will continue related consultations.

The next round of general-grade talks is slated for July, and the specific date and venue will be fixed later, according to the release.

The two Koreas also adopted a separate statement of agreement on supporting the test runs of trains to run on two reconnected cross-border tracks on May 17. It will be a tentative step for the event, however.

South Korea called for a long-standing agreement to allow the safe passage of trains and vehicles across the heavily-armed Demilitarized Zone, but the North rejected the offer.

“The two sides have decided to discuss the issue of adopting a statement of agreement on military security for the operations of railways and roads,” the joint press release read.

The inter-Korean railroad was severed in 1951 and has been reconnected as a result of the historic summit between the leaders of the two Koreas in 2000.

During the test runs on May 17, a train carrying 100 people is scheduled to run from Munsan to Kaesong on a 27.3-kilometer line of the western section, and from Kumgang and Jejin on a 25.5-kilometer line of the eastern section – all across the Military Demarcation Line dividing the two countries.

Joong Ang daily
5/7/2007

South Korea agreed late Friday to send North Korea raw materials that it can use in its light industries, but scheduled it to happen June 27 ― after next week’s scheduled test-run of an inter-Korean railroad, the Unification Ministry said.

The South could halt the shipment if the North cancels the test, as it has done several times in the past.

“At the economic talks for the light industry projects and the railroad projects, North Korean officials repeatedly said the train tests will occur this year,” a South Korean official who refused to be named said yesterday. “I am not sure if they had reached a consensus with the military or not, but their statements were very decisive.”

The two Koreas will hold general-level military talks from Tuesday to Thursday to guarantee the safety of passengers and trains that will travel across the demilitarized zone.

On Friday, South Korea agreed to begin the shipment of raw materials, worth $80 million, on June 27.

Yonhap
5/4/2007

North Korea Saturday examined its side of railways that run across the heavily-fortified inter-Korean border as the divided Koreas are set to test them on May 17, a Defense Ministry official said.

“As North Korea notified our side Friday, (its officials) inspected the tracks inside the Demilitarized Zone (DMZ) early Saturday and returned,” the official said, adding a one-carriage North Korean train came to within a “few hundred meters” from the Military Demarcation Line (MDL) after departing from a station located some 2 kilometers north of the border and returned after the test run. The DMZ stretches two kilometers each to the north and south from the MDL.

The North told the South Friday that it will “check the tracks in the northern section” of a railroad connecting Seoul to the North’s northwestern city of Sinuiju for two hours from 10 a.m. Saturday.

The Seoul-Sinuiju railway was reconnected two years ago for the first time since the end of 1950-53 Korean War. Another railway connecting South Korea’s eastern Kangwon Province and North Korea’s Mount Geumgang is new.

The Koreas had agreed to conduct trial runs of passenger trains on the railways last year, but no train from either side has crossed the border amid opposition from the North Korean military, which fears possible exposure of its sensitive military installations along the tracks.

The sides have agreed to conduct a test run on the railways on May 17 following high-level military talks next week to discuss security guarantees and other issues related to the test.

Joong Ang Daily
5/4/2007

At Jejin Station on the east coast of South Korea, railroad officials yesterday checked a train to be used in the scheduled test of the restored inter-Korean railroads on May 17. In the pilot operation to reconnect the East Coast Line and the Gyeongui Line, trains from both sides will cross the demilitarized zone. North Korea has broken a promise to hold similar trial runs three times in the past.

Korea Times
Kim Yon-se
5/3/2007

President Roh Moo-hyun has expressed his willingness for economic cooperation with Russia, including linking the Trans-Korean Railway (TKR) and the Trans-Siberian Railway (TSR), by sending a letter to Russian President Vladimir Putin, a Chong Wa Dae official said.

But cooperation with North Korea would be required for the railway connection between Seoul and Moscow, government officials said.

Though experts from South Korea, North Korea and Russia have held a series of meetings to discuss the railway project over the past several years, it has lingered on due to a series of politically negatives surrounding the Korean Peninsula.

According to government officials, North Korea has won Russian pledges of economic aid by agreeing on the project, which will generate huge profits for Russia.

During the Kim Dae-jung administration, many hoped the railway project would provide a momentum for the reunification of the two Koreas.  Since 2001 when North Korean leader Kim Jong-il and Russian President Vladimir Putin agreed on the reconnection of the TKR and TSR, the project to restore the Gyeongui line which links Seoul to Pyongyang and Shinuiju in the North, was expected to recommence.

Reconnection of the Gyeongui railway was agreed upon during the inter-Korean summit talks in June 2000.

But the North withdrew its workforce and equipment from the area in 2001, while the South has completed more than 70 percent of the Southern part of the line.

When the TKR and TSR are connected, transportation costs will be cut and the time taken to ship cargo to Europe will be reduced to 20 days from 45 days, bringing a significant change to the logistics system in Northeast Asia.

In addition, the connection of the railways is expected to increase both countries’ revenues, as North Korea and Russia are likely to collect $100 million and $400 million in tolls, respectively.

“The letter to Putin did not contain anything new on the railway project, though the issue was included in suggestions for economic cooperation,” said Cheong Wa Dae spokesman Cheon Ho-seon.

He added that there has been no reply from Putin to Roh.

In the letter delivered by former Prime Minister Han Myeong-sook, Roh also proposed to hold a summit with Putin. Han traveled to Moscow on April 25 to attend the state funeral of former Russian President Boris Yeltsin.

Yonhap
5/23/2007
Koreas fail to agree on details for swapping of raw materials, resources

South and North Korea on Wednesday failed to settle remaining differences over how to boost cooperation in light industry and natural resource development, the Unification Ministry said.

“The two sides just agreed to continue to discuss details regarding the issue,” the ministry said in a statement. The ministry did not provide details about when they will meet again.

Working-level officials could not agree on the list and price of raw materials the South is to provide the North in exchange for the right to develop natural resources in the communist country.

The North called for more than the South has earmarked for the shipment on the last day of the two-day talks held in the North Korean border city of Kaesong, according to South Korean officials.

Last month, South Korea agreed that it will provide raw materials to the North in June to help revive its threadbare light industry in return for the North’s natural resources. The two Koreas reached a similar swapping agreement in 2005, but it has not been implemented due mainly to the North Korean nuclear dispute.

In the agreement, the rice shipment, which will consist of 150,000 tons of domestic rice and 250,000 tons of imported rice, will be sent to the North late this month in the form of a loan to be paid back over the next 30 years with a 10-year grace period. Seoul hopes to link it with Pyongyang’s promise to take initial steps toward nuclear disarmament.

Last Tuesday, the South Korean government endorsed the spending of funds needed to provide rice and raw materials for light industry to North Korea. The South’s planned shipment of 400,000 tons of rice is worth US$170 million, while the provision of raw materials for light industry is worth $80 million.

In 2005, South Korea agreed to offer raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of inter-Korean railways in May last year, apparently under pressure from its powerful military.

Last Thursday, two trains crossed the Military Demarcation Line for the first time since the end of the 1950-53 Korean War. But critics said the test run of two railways, one in the east and the other in the west, is not likely to lead to the formal opening of the railways or to rail services for a joint industrial complex in Kaesong or for tours of the North’s Mount Geumgang.

As part of efforts to accelerate the formal opening of the inter-Korean rail service, the South plans to sound out the possibility of providing raw materials via reconnected railways during the working-level dialogue or the upcoming ministerial talks.

Koreas hold talks on swapping of raw materials for light industry
Yonhap
5/22/2007

South and North Korea on Tuesday held talks to work out details for boosting cooperation in light industry and natural resource development, the Unification Ministry said.

The aim of the working-level dialogue, being held in the North Korean border city of Kaesong for two days until Wednesday, is to focus on procedures for the South’s shipment of raw materials to the North in exchange for the right to develop North Korea’s natural resources.

During the talks, South and North Korea are scheduled to exchange agreement documents, which will then take effect immediately since the two sides successfully conducted test runs of cross-border railways, a precondition for the implementation of the accord, government officials said.

The South also plans to sound out the possibility of providing the materials via reconnected railways in a prelude to the formal opening of the inter-Korean rail service, according to sources.

“We are studying various ways of speeding up the formal opening of the Gyeongui (Seoul-Sinuiju) and Donghae (East Coast) tracks. The use of the tracks for the promised shipment of light industry raw materials could be an option,” a government source said, asking to remain anonymous because of the sensitivity of the issue.

On Thursday, trains crossed the Military Demarcation Line for the first time since the end of the 1950-53 Korean War. But critics said the test run of two railways, one in the east and the other in the west, is not likely to lead to the formal opening of the railways or to rail services for a joint industrial complex in Kaesong and tours of the North’s Mount Geumgang.

Earlier this month, South Korea said it will ship the first batch of light industry materials to the North via ship on the Incheon-Nampo route, but the mode of transportation for the rest has yet to be decided.

Last month, South Korea agreed that it will provide raw materials to the North in June to help revive its threadbare light industry in return for its natural resources. The two Koreas reached a similar swapping agreement in 2005, but it has not been implemented due mainly to the North Korean nuclear dispute.

In the agreement, the rice shipment, which will consist of 150,000 tons of domestic rice and 250,000 tons of imported rice, will be sent to the North late this month in the form of a loan to be paid back over the next 30 years with a 10-year grace period. Seoul hopes to link it with Pyongyang’s promise to take initial steps toward nuclear disarmament.

Last Tuesday, the South Korean government endorsed the spending of funds needed to provide rice and raw materials for light industry to North Korea. The South’s planned shipment of 400,000 tons of rice is worth US$170 million, while the provision of raw materials for light industry is worth $80 million. The approval will be promulgated on Tuesday.

In 2005, South Korea agreed to offer raw materials to the North to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals, such as zinc and magnesite, after mines were developed with South Korean investments guaranteed by Pyongyang.

But the economic accord was not implemented, as North Korea abruptly cancelled the scheduled test runs of the railways in May last year, apparently under pressure from its powerful military.