Archive for the ‘South Korea’ Category

South Korea to ease regulations on DPRK ventures

Thursday, May 22nd, 2008

Institute for Far Easter Studies (IFES)
NK Brief No. 08-5-22-1
5/22/2008

Earlier this month, the South Korean government announced that it would seek to relax regulations concerning cooperative ventures and exchanges with North Korea. Currently, South Korean companies, organizations or individuals wishing to enter into business agreements with North Korean partners were required to get government permission not only for the project, but for the individuals involved in the project.

On May 8, the Ministry of Unification announced plans to abolish the system granting (or denying) permission to individuals involved in these ventures, and to maintain only the system through which it grants authority to carry out specific projects.

Cross-border traffic faced similar red tape, as permission was required not only for goods being imported or exported, but for the importers and exporters themselves. The new plan includes measures for these import and export regulations to be loosened so that it is only the goods that need review, not the people involved in the trade. In addition, trucks and other equipment used to carry goods across the border will be certified for a period of five years, more than twice as long as the current two-year licensing system.

The government is also moving to ease requirements calling for South Korean citizens to report all contact with North Koreans, and instead to require reports on conversations only if the topic falls outside that of the approved project.

Reflecting the growing amount and diverse nature of inter-Korean cooperative projects, and the ROK government’s policy of encouraging such exchange, this new proposal is aimed at reducing the red tape and paperwork hassles necessary to launch and carry out these projects by reducing the amount of information required by the applicant and the volume of cross-checking required by government offices. At the same time, the proposal calls for the introduction of fines for those found to be filing false applications or reports.

If this proposal does not get mired in the Cabinet or other committees, it is expected to reach the floor of the National Assembly sometime in June.

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Food shortage coping strategies

Saturday, May 10th, 2008

With the likelihood that food is coming into short supply in North Korea, the authorities and individuals alike have implemented strategies to minimize the adverse effects.

I am keeping a running list of official and civil responses here as they appear in the media.

1. The DPRK supposedly ended rations for mid-level cadres (party and state employees), though food can still be purchased in markets. Unless the government is hoarding its grain supplies, this probably has the effect of improving food distribution (transferring food stocks outside Pyongyang), though not to the satisfaction of those who were used to receiving it for “free.”

2. The DPRK asked China for food aid. (Requested 150,000: tons of corn. Received: 50,000 tons on their first ask)

3. Propaganda extolling people not to waste food has been distributed to workers.

4. The DPRK has started cracking down on liquor production/sale.

5. Lets grow potatoes!

6. Distributing food stocks to military families from military warehouses.  This will hopefully take some of the pressure off the price of grains in the markets.

7. Solicit food aid from the US.

8. Officials begin to demand more bribes!

9.  The KPA halts military exercises to assist in farming.

10.  Propaganda campaign to educate the population about alternative foods (Good Friends via OneFreeKorea)

11. China increases food export quota

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South donates anti-malaria supplies to North

Friday, May 2nd, 2008

Even as realtions sour between North and South Korea, the South plans to donate US$1.18 million worth of anti-malaria supplies to the North via the UN World Health Organization.

Seoul has made similar anti-malaria donations since 2001, reducing the DPRK’s malaria cases to about 7,500 last year from some 300,000 in 2001.

Read the full article here:
South Korea to provide anti-malaria supplies to North Korea
Associated Press
5/2/2008

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South Korea cuts Kaesong subsidies with predictable results

Wednesday, April 30th, 2008

The Daily NK reports that South Korean businesses have delayed moving into the zone, or canceled their plans outright:

78.5 percent of those firms which received lots at the Kaesong Industrial Complex in the second round of the first stage of distribution in June last year have not begun construction of their facilities. 62.4 percent of them have not even hired a firm for construction,” said the Korea Federation of Small and Medium Business (KFSB) in a report released on April 27. For the report, the KFSB selected 85 firms out of all those firms which received lots and conducted a survey on how these firms are preparing their move into the Complex.

Companies distributed with lots in June last year are required to begin construction of their facilities within two years after the initial distribution contract. It is true that these firms have enough time to build their facilities. However, a number of firms have expressed that they would not move into the Complex.

The report says, “13 out of a total of 167 firms have already told the KFSB that they would not move into the Complex, and five of them have canceled the contract.”

59 percent of the firms including those 13 said that they would relinquish their rights to move into the complex because they are unable to raise enough money. 64 percent of these firms said that the reduced government funding has contributed to their financial difficulties.

Read the full article here:
South Korean Firms Postpone Their Move into the Kaesong Industrial Complex
Daily NK
Choi Choel Hee
4/28/2008

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South Korea continues imports of DPRK coal

Monday, April 14th, 2008

From Yonhap:

A North Korea-registered cargo ship carrying coal arrived in South Korea’s port city of Ulsan Sunday amid increased cross-border tensions, according to maritime police.

The 2,496-ton freighter Changseong carrying a 29-member crew docked at the port, South Gyeongsang province, around 10:20 a.m. earlier in the day.

The ship carried 4,000 tons of coal, the first batch of 12,000 tons to be delivered by April 25, the police said.

And how much are they paying? IFES has the answer…

North Korea, in keeping with rising international coal prices, appears to have hiked up the export price of heating briquettes twice in the last three months. A North Korea insider in Shenyang, China recently reported, “North Korea’s Trade Bureau Price Control Division raised export prices at least twice as this month came around, so the export price soared up to 50 USD per ton,” and, “As the rising international coal price trend continues, there is a high probability that North Korean heating briquette prices will also rise further.”

Last year, North Korean heating briquettes were exported at 30 USD per ton, but as 2008 rolled around and international prices suddenly shot up, DPRK coal prices rose by over 50 percent, putting a significant burden on Chinese importers. However, Chinese importers still prefer DPRK briquettes as shipping costs from alternatives such as Vietnam or Indonesia still make North Korean imports relatively inexpensive.

It has been reported that the DPRK Trade Bureau has approved the export of briquettes to China at below-official prices of 44~45 USD per ton in cases in which there is Chinese capital or equipment has been invested in the coal mine. These charcoal briquettes are North Korea’s largest export item, with China importing 170 million USD-worth in 2007 alone.

So if South Korea was lucky enough to get China’s price (an assumption that might not be the case): 12,000 tons (by April 25) x USD$50/ton= $600,000

Read the full articles here:
N. Korean cargo ship visits Ulsan  
Yonhap
4/13/2008

DPRK coal briquet export prices jump this year
Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-4-10-1)
2008-04-10

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When food and politics collide

Sunday, April 13th, 2008

News of the DPRK’s food shortages began to surface several weeks ago when Good Friends reported:

North Korea’s chronic food shortage has worsened to affect even some of the country’s elite citizens in the capital, a South Korean aid group said Thursday.

The communist nation has not given rice rations to medium- and lower-level officials living in Pyongyang this month after cutting the rations by 60 percent in February, the Good Friends aid agency said in its regular newsletter.

Pyongyang citizens are considered the most well-off in the isolated, impoverished country, where the government controls most means of production and operates a centralized ration system. Only those deemed most loyal to Kim Jong Il’s regime are allowed to live in the capital.

The food situation is more serious in rural areas, with residents in many regions in the country’s South Hwanghae province living without food rations since November, the aid group said. (AP)

Why was this the case?

Floods last August ruined part of the main yearly harvest, creating a 25 percent shortfall in the food supply and putting 6 million people in need, according to the U.N. World Food Program.

Over the winter, drought damaged the wheat and barley crop, according to a recent report in the official North Korean media. That crop normally tides people over during the summer “lean season” until the fall harvest.

North Korea’s ability to buy food, meanwhile, has plunged, as the cost of rice and wheat on the global market has jumped to record highs, up 50 percent in the past six months.

China also appears to have tightened its food squeeze on North Korea for domestic reasons. In order to meet local demand and control inflation, Beijing slapped a 22 percent tariff on grain exports to the North. (Washington Post)

So North Korea’s domestic agricultural production has fallen and so have commercial food imports (international inflation, OECD government subsidies for bio-fuels, and increasing fuel prices have combined to raise the prices of commodities such as rice and pork up to 70% in the course of a year). 

Compounding this problem, however, agricultural aid from North Korea’s two most reliable benefactors (China and South Korea) has dried up.

[China] has quietly slashed food aid to North Korea, according to figures compiled by the World Food Program. Deliveries plummeted from 440,000 metric tons in 2005 to 207,000 tons in 2006. Last year there was a slight increase in aid, but it remained far below the levels of the past decade. (Washington Post)

And strained relations with the new Lee government in South Korea have not helped:

The South typically sends about 500,000 tonnes of rice and 300,000 tonnes of fertiliser a year. None has been sent this year and without the fertiliser, North Korea is almost certain to see a fall of several tens of tonnes in its harvest (Reuters)

So what will be the mitigating factors that prevent another humanitarian emergency?

“The reason for the mass starvation that occurred in late 90s is that North Korea faced natural disasters without expanding the market’s capability to substitute for the broken planned economy capability, and so the damage to North Korean citizens was inevitably large.”

“The market in North Korea has expanded in the last 10 years. The supply and demand structure of daily necessities, including food items, has been formed.”

“Because the market capacity has expanded, the possibility of a mass-scale starvation occurring is no longer high. In actuality, the change in food prices is being monitored at the market.”

-Dong Yong Seung, the Samsung Economic Research Institute’s Economic Security Team Chief, speaking at the 19th Expert Forum sponsored by the Peace Foundation (Daily NK)

Mr. Dong’s analysis addresses the improved efficiency of DRPK’s market supply chains but does not address the effects of an adverse supply shock. 

The UN seems ready to help, although it has not been asked:

Institutionally, mechanisms are in place in North Korea to ring the international alarm bell before hunger turns into mass starvation. The World Food Program monitors nutrition in 50 counties, and the Kim government has become expert in asking for help.

“The North Koreans know that they are facing a difficult situation and have made it increasingly clear in the past few weeks that they will need outside assistance to meet their growing needs,” the U.N. official said, asking not to be identified because of the sensitivity of the issue.

North Korea, which even with a good harvest still falls about 1 million tonnes, or around 20 percent, short of what it needs to feed its people, relies heavily on aid from China, South Korea and U.N. aid agencies to fill the gap.

The UN official said it was clear from a variety of sources that the food security situation was worsening in North Korea and that it needed to be addressed.

Last month Kwon Tae-jin, an expert on the North’s agriculture sector at the South’s Korea Rural Economic Institute told Reuters that if South Korea and other nations did not send food aid, the North would be faced with a food crisis worse than the one in the 90s.

The U.N. Food and Agriculture Organisation said in late March it sees the North having a shortfall of about 1.66 million tonnes in cereals for the year ending in October 2008.

The North will start to feel the shortage the hardest in the coming months when its meagre stocks of food, already depleted by flooding that hit the country last year, dry up and before the start of its potato harvest in June and July. (Washington Post)

The UNWFP, however, will be under pressure from its donors to monitor food aid and make sure it is not diverted to non-emergency uses.  Under these conditions, it is not likely that they will be asked to provide much aid until a catastrophy is already underway.  So with the UN out of the picture, who is best positioned to prevent the reemergence of a humanitarian crisis in North Korea today? China.  

Despite China’s own food probelms, however, it is always likely to capitulate, at least in part, to North Korea’s emergency requests.  China does not want to deal with another North Korean famine, particularly during the Olympic season, and they certainly do not want to deal with any political instability that could result. 

Yonhap reports that the DPRK has asked the Chinese for 150,000 tons of corn this year.  Chinas says they will give 50,000 tons–and that is just initially. (Yonhap)

UPDATE 4/14/2008: I still have not seen any reports in the media of Noth Korea seeking suport from Russia.

UPDATE 6/9/2008: China increases grain export quota to North Korea to 150,000 tons

(more…)

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Haggard-Noland on North Korea’s economic integration

Tuesday, April 8th, 2008

Stephen Haggard and Marcus Noland published a piece focusing on North Korea’s economic integration.  Download it here: petersoninstitute.pdf

Although not the focus of the piece, here is an excerpt:

A first corollary of the injunction to avoid top-down approaches is that any collective development assistance must be extended in support of economic reform. Experience throughout the developing world demonstrates that assistance will have only marginal effects and may even have negative consequences if not coupled with policy changes. It is not simply that aid sustains the regime; since aid is fungible, even purely humanitarian aid will have that effect. The problem is that too much aid can delay or even undermine the reform process. Whatever the multilateral mechanism that ultimately emerges, it should encourage reform and economic opening in the North.

A second corollary of the injunction against top-down approaches is the importance of engaging the private sector: through trade, foreign direct investment, private capital flows (including remittances), and sheer expertise. Economic rehabilitation will require investment in social overhead capital, which will be led primarily by the public sector. But if North Korea is to evolve toward a self-sustaining market-oriented economy, private-sector involvement will be crucial. Participation of foreign firms means that projects are subject to the market test of profitability, and it encourages North Korean authorities to think of economic engagement in terms of joint gain rather than as political tribute.

(and)

North Korea is in need of depoliticized technical assistance for a whole panoply of issues running from the mundane but critical, such as developing meaningful national statistical capabilities, through basic agricultural and health technologies, to social infrastructure of a modern economy. This infrastructure includes policy mechanisms to manage macroeconomic policy, including through reform of the central bank; specify property rights and resolve commercial disputes; regulate markets, including financial markets as they emerge; establish and implement international trade and investment policies; and so on.

Read the full paper here:
A Security and Peace Mechanism for Northeast Asia: The Economic Dimension
Staphen Haggard and Marcus Noland
Peterson Institute Policy Brief
April 2008

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Chollima Leadership Program announced…

Thursday, March 27th, 2008

This new program, co-sponsored by LiNK and the International Republican Institute (IRI), seeks to invest North Korea’s future by teaching former North Korean citizens  leadership and organizational skills so they may bring benefits to the DPRK when the doors are opened.

Fifteen candidates of different ages, genders, and experiences will be selected on the basis of their potential to benefit from the program.

The three week program will be hosted in Seoul where workshops will be conducted by experts and trainers from various countries and backgrounds.  Topics to be covered include: democracy and governance, rule of law, international human rights, comparative movements, comparative politics, business protocol and etiquette, and leadership development.

All applications must be submitted with all components completed by March 31, 2008. If you feel you, or others you know, would be a good candidate for the Chollima Leadership Program, please contact jane (at) linkglobal.org for more information and an application.

Here is a summary on the IRI web page.

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DPRK demanding $100 USD residence fee at Kaesong Industrial Complex

Monday, March 3rd, 2008

Institute for Far Eastern Studies
NK Brief No. 08-3-7-1
3/7/2008
 
North Korea’s latest demand at the Kaesong Industrial Complex (KIC) is a 100 USD per person registration fee for South Korean workers residing in the complex’s dormitories. The North demanded the fee early in 2007 to cover registration and issuance of registration certificates regarding workers visiting or residing in the complex, and negotiations have been underway the entire year.

An unnamed source close to the South Korean government stated, “At the end of January, the North unilaterally decided on the KIC visiting and residing fees, and when they were not complied with [the North] notified [the South] that they would ban entrance” to the complex, however, “despite this, currently entrance into the complex is freely obtainable.”

The North set a 35 USD fee for registering a short-term stay of up to 90 days, and a 100 USD fee for registering a one-year residency, according to the source. A Unification Ministry official acknowledged, “The fee demanded by the North is not exorbitant, but from the perspective of the businesses in the complex, negotiations on reasonable measures were in progress.”

North Korea is making its demands based on the ‘Kaesong Industrial Zone Entrance, Dwelling and Residence Regulation’ enacted in December 2003. According to this regulation, fees must be paid for issuance and reissuance of registration papers when applying for short term stays up to 90 days, long term visits over 90 days, and residency of one year or more. Currently, there are over 800 South Korean employees who would need to pay fees for visiting or residing at KIC.

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The gratuitous game theory of official support

Friday, February 15th, 2008

Yesterday’s post on accountability and South Korean aid to the North got me thinking about game theory again.

gametheorys.JPG

The South Korean Ministry of Unification has a dominant strategy to lend/give/invest in North Korea for ostensibly two reasons: 1. If the MoU does not, their raison d’etre goes away.  2. South Korea will ultimately see a payoff if a development strategy works in the DPRK.

Contracting with North Korea, however, is essentially a prisoner’s dilemma (see chart above), and North Korea has the ability to cooperate or defect.  However, the North Koreans have rational expectations, so they know the Ministry of Unification has a dominant strategy to cooperate.

Therefore the Nash equilibrium is for the South to keep cooperating and for the North to keep defecting.  In a repeated game, cooperation evolves over time as trust develops and defection decreases.  Because of South Korea’s dominant strategy,however, the North never has an incentive to cooperate–so we end up with an “anti-folk theorum” where defection is the only incentive compatible outcome over time.

Addendum: The game could be radically different for private investors, however, who are in a more credible position to say “no”–leading to defect/defect moves (because South Korean investors are not as politically constrained and can recognize sunk costs).  These moves result in neither gains nor losses for either side, however, because both sides have the ability to bargain, cooperation that is mutually beneficial can evolve over time as it should.

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