North Korean Economy Watch

BBC
10/16/2006

Australia is to ban North Korean ships from entering its ports in response to its claimed nuclear bomb test, the foreign minister has announced.

Alexander Downer told Parliament the move would help Australia make a “quite clear contribution” to other sanctions agreed by the UN on Saturday.

The UN resolution imposes both weapons and financial sanctions on the North, but despite the unanimous vote, disagreements have emerged between the members of the council.

Beijing has indicated that it still has reservations about carrying out the extensive cargo inspections that Washington says are called for in the resolution.

Ship inspections

Australia is one of the few countries to have diplomatic relations with North Korea, but its trade ties are limited. In 2005, imports amounted to A$16m ($12m).

“If we are to ban North Korean vessels from visiting Australian ports then I think that will help Australia make a quite clear contribution to the United Nations sanctions regime.”

Japan, which banned North Korean ships from its ports last week, is looking at whether it can provide logistical support for US vessels if they start trying to inspect cargo ships going to or from North Korea.

The restrictions imposed by Japan’s pacifist constitution may require the government to pass new laws to allow that to happen.

In a further diplomatic drive, US Secretary of State Condoleezza Rice is due to arrive in Japan on Wednesday.

She reportedly intends to reassure the country that Washington will provide adequate protection in the event that North Korea obtains a viable nuclear weapon – a message she will later take to South Korea.

‘Heavy responsibility’

The UN resolution against North Korea was agreed after lengthy negotiations.

It imposes tough weapons restrictions, targets luxury goods and imposes a travel ban on some North Korean officials.

It also allows the inspection of cargo vessels going in and out of North Korea for banned materials, although the resolution was weakened slightly at China and Russia’s insistence, to make this provision less mandatory.

Beijing’s UN envoy, Wang Guangya, said immediately after the vote that China urged countries to “refrain from taking any provocative steps that may intensify the tension”.

Both Russia and China are concerned that inspections could spark naval confrontations with North Korean boats.

But the US ambassador to the UN, John Bolton, told American television that China had voted for the sanctions and therefore “China itself now has an obligation to make sure that it complies.”

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.

from the Joong Ang Daily:

South Korean workers loading fertilizer sacks yesterday at a dock in Ulsan. The ship and another ship from Yeosu, South Jeolla province, will head today to Haeju Port and Nampo Port to transport the last 20,000 tons of 200,000 tons of fertilizers South Korea promised to send to North Korea. Despite North Korea’s missile tests, the South Korean government decided to send the last fertilizers as a humanitrian aid.

Joong Ang Daily
6/22/2006

In the ground floor ballroom of the Yanggakdo Hotel annex in Pyongyang, the North Korean Chamber of Commerce hosted a trade information and investors’ relations conference on May 16. Senior North Korean trade ministry officials gave presentations on North Korea’s economic policy and investment climate. Rim Tae-dok, chief counselor of the trade ministry, said Pyongyang protected property rights of foreign investors and guaranteed the independence of their management. The North Korean official stressed that foreign investors would enjoy tax benefits and that the legal process of establishing companies in the North has been largely simplified.

Another senior North Korean official, Kim Ha-dong, also gave a presentation about Pyongyang’s export policy. Mr. Kim, a senior researcher at the trade ministry, said the communist country had been issuing permits for exports and imports after only a short review process. He encouraged investors to participate in trade.

The North Korean presentations were not very different from those given in any capitalist country, but the concept of “self-reliance” was prominent.

“We will build a self-reliant economy of Koreans and carry out trade on top of that,” Mr. Kim said. He added that North Korea’s self-reliance must not be damaged or controlled by foreign economies through trade.

During the JoongAng Ilbo’s 10-day survey of the reclusive communist country’s economic sites, Pyongyang’s dilemma ― self-reliant socialism versus economic development by attracting foreign investments ― was apparent. Some North Korean officials showed skepticism about China’s model of partially opening its economy, claiming that their country had to be run in a different manner.

“I have toured special economic zones in China several times,” said Ju Tong-chan, the North’s chairman of the National Economic Cooperation Committee. “But we have different ways of managing our economy than China, and I believe we should run our special economic zones in different ways. We are still researching our options, but we will not do it that [Chinese] way.”

China was able to expand its economy at high speed after the central government opened up the economy. It gave local governments enough independence to run business autonomously in their areas and attract foreign investment. But Mr. Ju was obviously unconvinced by the success of China’s model. The opening of the economy could boomerang, becoming a threat to the North’s system, he worried.

On factories and farms, North Koreans were still caught up – or at least gave the outward appearance of being caught up ― in a personality cult centered on the nation’s founding family. At cooperative farms and factories, the senior managers’ introductory briefings were always about the lessons taught by Kim Il Sung, North Korea’s first president, and Kim Jong-il, who succeeded him but did not assume the title of national president. These managers’ presentations began with the number of visits by the Kims to the site. There were always paeans to the communist regime’s “military first” policy and slogans to that effect were emblazoned everywhere, making it clear that the military and politics take priority over the economy.

North Korean officials were also reluctant to lay out all pertinent information to investors and journalists.

Kim Yong-il, 45, the manager of the port at Nampo on the country’s west coast, refused to cite specific numbers about the port’s freight-handling capacity. He said only that it could deal with “large amounts” of cargo.

Mr. Rim, the trade ministry chief counselor, said North Korean politics were extremely stable, which guaranteed the security of foreign investments. He gave no data or examples to support that claim of stability, however, and completely ignored the question of North Korea’s nuclear programs and how they might or might not affect stability.

Reacting to the journalists’ remarks that South Korean firms were reluctant to invest in the North because it has been difficult to make profits there, Mr. Ju, the chairman of the National Economic Cooperation Committee, said, “Why is money the priority? Inter-Korean business must be about something more than just monetary calculations.”

He was also visibly upset about Seoul’s policy on economic cooperation. “We made extremely sensitive military restricted areas at Mount Kumgang and Kaesong available to the South,” Mr. Ju said. “But the South has just given us a lot of excuses and failed to cooperate.”

He continued, “To nurture the Kaesong Industrial Complex into a world-class production facility, electronic and advanced technology industries are crucial. But labor-intensive industries are the majority in Kaesong. In this information era of the 21st century, the South has failed to bring in computers for administrative use in Kaesong.”

He also vented some spleen about the United States, asking the journalists why Seoul was so careful not to irritate Washington. He cited the U.S. restrictions on the re-export without prior approval of so-called “dual-use” goods, those with civilian and military applications, to countries it has blacklisted, including North Korea. Other international accords, such as the Wassenaar Agreement, also prevent South Korea from providing the North merchandise and commodities that have “strategic” applications.

But Mr. Ju sounded firm about continuing operations at Kaesong. “It is the nucleus of inter-Korean economic cooperation, and we must make it a success first. Then we can move on to other projects.”

He also dismissed the U.S. concerns that workers in Kaesong were laboring under harsh working conditions, but seemed to sidestep the basic question. “It is a matter that we should deal with,” Mr. Ju said. “Since we manage businesses differently, we are trying to come up with the best resolution to make direct [wage] payments to the workers.”

South Korean economists and businessmen who listened to similar presentations and looked at some of the North’s accounts were troubled by Pyongyang’s rigidity in opening up the economy. That, they said, coupled with the simmering nuclear weapons problem, is the most serious obstacle to attracting foreign investments. Unless U.S. diplomatic ties with North Korea are established, investing in facilities in North Korea and selling “made in North Korea” products on global markets would be difficult and risky, they agreed.

“If a foreign investor wants to visit a factory in the North that he has put money into, he has to obtain an invitation every time, and his schedule and movements in the North are strictly controlled,” said Kwon Yeong-wuk, the trade promotion director at the Korea International Trade Association of Seoul. “Under such circumstances, the North should not expect much in the way of foreign investments.” He said Pyongyang had a “my way or the highway” approach to the economy: If you’re here, follow our rules. The rigidity, he reiterated, is a serious obstacle to investors.

Other experts and businessmen in South Korea said Pyongyang’s attitude toward inter-Korean business in particular makes it hard to earn profit. They complain about the stress North Korean officials put on the concept that business between the two Koreas should be based on the maxim “blood is thicker than water” and not on market principles. An official at North Korea’s National Reconciliation Council argued that South Korean conglomerates should make large investments there based on that concept.

A South Korean businessman who has been looking for business opportunities in the North said he has run into a series of dead ends. “South Korean firms are doing businesses in the global market,” he said. “The largest market is the United States, and not many people would want to give that up to do business with the North.” He added that North Korea’s cheap but skilled manpower is an attractive point, but that poor infrastructure, extremely low purchasing power and the difficulty of obtaining raw materials make China and Vietnam much more attractive investment locales. Kim Yeon-chul, an academic at Korea University in Seoul, agreed with that assessment. “Large companies in South Korea have already automated their production facilities, so labor costs are not important in deciding on investments,” he said. “North Korea must improve other conditions instead of stressing the merits of its manpower or blaming outside causes.”

From the Joong Ang Daily:

A senior maritime official in North Korea told visiting journalists from the JoongAng Ilbo that his government wants to modernize and open Hungnam Port on the nation’s east coast to expand inter-Korean economic exchanges. Since 2000, a sea route connecting Incheon with the North Korean port of Nampo has been open for direct shipping along the west coast; Pyongyang evidently wants to replicate that success on the east coast, perhaps in a bid to increase investment or to reduce logistics problems in distributing aid shipments from South Korea.

Hungnam is about 10 kilometers (6 miles) from Hamhung, North Korea’s second-largest city.

“We put priority on one port on the west coast and another on the east coast,” said Cha Son-mo, the maritime operations director of the North Korean Ministry of Land and Sea Transportation. He spoke to the journalists on May 12, during a tour of North Korean economic sites arranged by the newspaper with North Korean authorities.

The comments were the first public indication of Pyongyang’s interest in such a project. Mr. Cha is the equivalent of an assistant minister in South Korea.

“Chongjin and Rajin are essential for freight to and from China and Russia,” he said. “For inter-Korean maritime cooperation, Hungnam should be modernized first. We also plan to upgrade facilities at other places.”

He also confirmed reports that North Korea has been negotiating with China to attract investment to modernize the Rajin and Chongjin ports, both in North Korea’s extreme northeast.

“Through Rajin, China wants to ship goods produced from its three northeastern provinces to South Korea, Japan and Europe,” Mr. Cha said. “And Rajin alone may not be enough, so it wants to modernize and expand operations at Chongjin.” He added that China had proposed to build roads connecting China with the two ports; negotiations are in progress, he said.

Mr. Cha also greeted the visiting journalists during their tour of a ship repair facility in Nampo two days later, giving a detailed briefing on the Yongnam Ship Repair Factory. “While we are focusing on repair operations, our next goal is ship cannibalization and shipbuilding,” he said. “We strongly hope that the two Koreas can cooperate in this field.”

He said North Korea had invested $100 million in the factory, a huge amount in this cash-strapped country. The plant had been modernized to allow it to repair one 50,000-ton ship and two 20,000-ton ships simultaneously.

The shipworks also recently found a partner in the South. Responding to a bid by North Korea last July, Hanaro Shipyard was set up in South Korea in December by Jeong Chan-bae, specifically to work with the Yongnam repair yard.

“South Korean ships all use repair bases in China and Vietnam because there is no place to repair vessels,” said Jeong Chan-bae, the president of Hanaro Shipyard. “But repair prices in China went up sharply recently, so we decided to use the North Korean facility.”

Citing North-South maritime cooperation accords, Mr. Cha also said there was no legal problem to concern South Korean ship owners about using repair services in the North. He is also the chief negotiator for the maritime talks between the two Koreas. “Our repair service prices will be an average of 30 percent less than those in China,” he said.

He also appeared on the scene to guide a separate group of South Korean economists and businessmen who visited the factory on May 17. After that tour, Jeong Nam-su, an executive of South Korea’s STX Shipbuilding, was cautiously positive about the facility. “It is hard to find a place to repair ships in South Korea,” Mr. Jeong said. “The quality and technology of the Yongnam factory has not yet been evaluated, but it has some positive prospects.”

Australia Broadcasting Corporation (Reuters)
3/29/2006

North Korea hinted at seeking compensation from Australia for seizing and sinking the Pong Su, that was used to transport drugs, according to a state media report.

Last week, two Australian fighter jets bombed and sank the impounded North Korean cargo ship in what Foreign Minister Alexander Downer said was a strong message to Pyongyang about its suspected involvement in drug running.

The official KCNA news agency cited a relatively obscure pro-North Korean group as saying Australia needs to compensate North Korea.

“The Australian authorities should make an honest apology to it according to the results of the trial and compensate to the ship and its crewmen for the human, material and mental damage done to them,” KCNA reported the Federation of Koreans in the United States as saying in a commentary.

There was no official demand for compensation from North Korea but analysts have noted that since the government controls the media, it only permits approved comments to appear.

The 4,000-tonne ship the Pong Su had been impounded since 2003, when it led the Australian navy on a 1,100 kilometre chase off the south-eastern coast after being spotted unloading part of a 150 kilogram shipment of heroin at a secluded beach.

Eight crew members were charged with drug smuggling.

The captain and three officers were sent back to North Korea earlier this month after being found not guilty of aiding the drug operation. Four other men have been found guilty of drugs charges relate to the case.

The United States has said it suspects North Korea of engaging in illicit activities such as counterfeiting and drug trafficking as a way to secure funds for its anaemic economy.

KCNA
3/24/2006

A commissioning ceremony of the Dock No. 2 of the Ryongnam Ship Repairing Factory took place on the spot on Friday. With the building of the large computer-aided dock capable of repairing tens of thousands of tons of several ships simultaneously at the factory the capacity of ship repairing has remarkably increased and firmer material and technological foundations have been laid to develop the shipping industry of the country as required by the new century. A message of thanks sent by the Central Committee of the Workers’ Party of Korea to officials and builders of the Ministry of Land and Marine Transport who performed great labor feats in the construction of Dock No. 2 was conveyed at the ceremony. The message said that the officials and builders of the ministry who turned out as one true to the behests of President Kim Il Sung on further increasing the capacity of the factory and the militant tasks of the WPK performed the great labor feats in completing the construction of Dock No. 2 in a big and bold way with their own efforts in a short span of time.

It highly appreciated the officials and builders of the ministry for displaying intense loyalty to the Party and the leader and patriotic devotion and successfully building Dock No. 2 as a monumental edifice of the Songun era.

Speeches were made at the ceremony.

Present there were Vice-Premier of the Cabinet Ro Tu Chol, Minister of Land and Marine Transport Kim Yong Il and other officials concerned.

Korea Times
Andrei Lankov
10/4/2005

During the 50-odd years that followed the armistice of 1953, both Korean states have been locked in an intense rivalry. It was a local cold war, a minor version of the global Cold War, but much more emotional since it was a war between the same people. During some periods, this cold war became very hot. Indeed, those decades were an era of daring raids, complicated intrigue, botched and successful assassinations and, of course, of covert naval warfare.

The major role in this quiet warfare was played by North Korean infiltration craft, used to land agents on the South Korean coast. There are three major types of vessels used by the North Korean navy for this purpose. Throughout the history of quiet naval warfare, two ships of each type were lost due to enemy action.

The most unusual and imaginative contraptions are the semi-submersible boats. These can be described as a poor navy’s submarines. They are small boats, with a displacement of some 5-10 tons and a top surface speed of 40-50 knots. They have ballast tanks, and when these tanks are filled with water, the craft submerges almost completely with only the small conning-tower visible above the water. In this semi-submerged state, the craft is much slower, but it is also almost invisible both to both human eyes and radar. Perhaps it is not as good as a real midget submarine, but it is much cheaper and easier to maintain, and it can carry up to six people.

The first battle with such a craft took place in December 1983, when one was discovered not far away from Pusan, and after a chase was sunk by the South Korean navy.

Another semi-submersible was lost in action in 1998. The South Korean signal intelligence discovered the semi-submersible near Yosu in the early hours of the morning of Dec. 18. The South Korean Navy mobilized a number of planes and ships, which approached the boat, demanding that the crew surrender. But North Korean special forces are famous for their unwillingness to give themselves up alive, so they opened fire using small arms. There was no possible doubt about the outcome: the boat was hit by artillery shells and it sank, to be salvaged the following year.

A semi-submersible infiltration boat cannot operate at a great distance from its base, and in most cases it is carried close to the target destination aboard a specially designed mother ship. Such ships are disguised as fishing boats, but they have powerful engines and a built-in dock for a semi-submersible or a more conventional speedboat. The dock is equipped with outward-opening double doors on the stern, allowing the boat to be safely hidden inside the hull.

There have been two cases in which such a ship has been discovered and sunk by hostile forces. The first incident of this kind happened in August 1983, when a South Korean patrol boat discovered just such a ship operating near Ullung-do Island. The ship was sunk after a short shootout.

Another incident took place in December 2001, and this time, the ship was found by the Japanese navy near the Japanese coast. This was not the first discovery of this kind, but on previous occasions, the North Koreans ships managed to flee using their superior speed. This time, however, the ship could not move fast enough _ perhaps the disintegration of economy has influenced the navy as well. As to be expected, the ship’s crew refused to surrender and opened fire, injuring two Japanese sailors. They returned fire and in less than four minutes the ship sank with its entire crew.

The North Korean Navy also possesses a number of submarines, including the Yugo class vessels. These are specially designed midget submarines whose major task is infiltration. The Yugo boats are small, with a displacement of merely 70 tons when submerged.

Such a submarine was caught in a fishing net near Sokcho on the east coast on June 24, 1998. Its propeller and periscope had been fouled. The vessel was captured by the South Korean navy but sank while being towed. The submarine was soon salvaged but all crew and commandos (nine of them – more than usual for a submarine of this type) were found dead after committing group suicide.

Larger Sango class submarines are also sometimes used for infiltration. It was this submarine that was involved in the most high-profile case of military confrontation between the two Koreas in the 1990s. In mid-September 1996, a North Korean Sango submarine was on a routine infiltration mission: a group of commandos were to conduct surveillance of the military installations on the east coast. However, in the early hours of Sept. 18, the submarine ran ashore and was discovered by a taxi driver. The crew and commandos attempted to breakthrough to the DMZ. A long spy hunt ensued, with heavy losses of life on both sides (among the victims there were farmers whom the commandos killed as dangerous witnesses) as well as with the usual group suicide of the North Korean soldiers.

Indeed, one of the most remarkable features of this quiet war is the unwillingness of the North Korean soldiers to surrender. Few sailors and commandos have ever been taken alive. Does this reflect the exceptional valor of the North Korean warriors? To some extent it may, but also there are other reasons behind such behavior. But that is another story…

BBC
6/2/2003

Video of the ship’s sinking on Youtube: 1, 2

Tourists in Tokyo are flocking to visit the salvaged remains of a suspected North Korean spy ship, sunk after a gun battle with the Japanese coast guard in December 2001.

The unusual tourist attraction in the fashionable O-Daiba area attracted more than 20,000 people in its first weekend on display to the public.

Exhibits included an underwater scooter and a portable missile launcher, as well as the bullet-scarred hull.

The spy ship was put on display by the coastguard in order to raise awareness of the threat from North Korea, whose alleged nuclear programme has severely strained its foreign relations with Japan in recent months.

Some visitors said that the exhibit confirmed their view that Tokyo was too soft on Pyongyang.

“Japan is just too wimpy,” 60-year-old Goro Masuda told Reuters news agency. “We must take a stronger line.”

But others thought that the Japanese coastguard was trying to manipulate the public.

“I think the coast guard had its own reasons for wanting to show us this,” said Akihiko Nishimura.

The ship was disguised as a Chinese fishing boat when it was intercepted by the Japanese coastguard.

It was sank after a six-hour chase and fire fight with Japanese patrol ships.

The vessel, which was said to have failed to heed Japanese warning shots and an order to stop, fled in the direction of China before it sank.

After salvaging the wreckage, coastguards found a small button labelled “self-destruct” on board, which they believed was used by the crew to scupper the boat rather than be captured.

Ten bodies were recovered from the ship, although officials said that the array of equipment on the ship meant that there were probably several more North Koreans on board.

BBC
12/11/2002

US Defence Secretary Donald Rumsfeld has condemned North Korea over its apparent attempt to deliver a shipment of Scud missiles to Yemen.

Acting on American intelligence, the Spanish Navy intercepted and boarded the freighter So San in the Arabian Sea on Monday.

US naval forces then conducted a search of the vessel and discovered 15 Scud missiles and warheads hidden under a cargo of cement, along with a quantity of chemicals.

Yemen has now confirmed that it ordered the missiles, and has protested to the US and Spain over the ships’s seizure.

While the Yemeni Government is not regarded as an enemy by the US, there are fears that such military hardware could fall into the hands of radical Islamic groups operating in the country.

Mr Rumsfeld said: “North Korea doesn’t like to hear me say it, but they continue to be the largest proliferator of missiles and ballistic missile technology on the face of the Earth.

“They are putting in the hands of many countries technology and capabilities which have the potential for destroying hundreds of thousands of people.”

Legal questions

Mr Rumsfeld declined to comment on whether the missile shipment constituted a violation of international law, but said there were legal issues surrounding efforts to conceal the weapons.

Questions about the legality of the seizure have already been raised.

US naval forces have taken charge of the ship and are escorting it to Diego Garcia island.

The current US administration has branded North Korea part of an “axis of evil”, along with Iraq and Iran.