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Recap: South Korea’s economic plans for North Korea

Monday, May 28th, 2018

Benjamin Katzeff Silberstein

In this post, I’ll be collecting news and information on Moon Jae-in’s plans and ideas for economic development in North Korea. I’ve had to take a little break from blogging for the past couple of weeks due to travel, so the articles here won’t necessarily be recent or up-to-date, especially since up-to-date regarding the Korean peninsula these days seems to extend only to the last five minutes or so.

For the contents of the Panmunjom Declaration that have to do with the North Korean economy, feel free to check out this post, where I make the case (which still holds, I would argue) for why infrastructure is the most plainly obvious as of now for economic cooperation with North Korea in the wake of the latest warming of ties.

Infrastructure was an important component of the famed USB-stick that Moon handed to Kim at the first inter-Korean summit this year. Hankyoreh:

South President Moon Jae-in ordered a joint inter-Korean research effort to examine future economic cooperation ahead of the anticipated lifting of international sanctions against North Korea following an upcoming North Korea-US summit, which will follow up the inter-Korean summit that was held on Apr. 27.

Speaking on Apr. 30 at the first Blue House senior secretaries’ and aides’ meeting since the inter-Korean summit, President Moon said he “look[ed] forward to us being able to carry out a joint inter-Korean research effort for implementation of the Oct. 4 Summit Declaration [of 2007] and inter-Korean economic cooperation,” a key Blue House official reported.“He was saying we need joint research to examine what kinds of economic cooperation the South and North can engage in ahead of [sanctions against North Korea] being lifted,” the official explained.

During their summit, President Moon also personally gave North Korean leader Kim Jong-un a pamphlet on his “new economic vision” and a USB device containing a presentation video, the Blue House reported.

The materials reportedly contained details on power plant construction and other economic cooperation measures that could be implemented once inter-Korean relations gain momentum and sanctions against North Korea are lifted.During the Apr. 30 meeting, President Moon described the Panmunjeom Declaration as “a peace declaration proclaiming to the world that there will be no more threat of war or nuclear weapons on the Korean Peninsula.”

Article source:
South Korean President Moon Jae-in orders joint research effort for inter-Korean economic cooperation
Seong Yeon-cheol
Hankyoreh
2018-05-01

New York Times noted the somewhat ironic fact that Kim received Moon’s plan on a USB-stick, an item whose use by its own citizens the North Korean regime has long cracked down on:

For years, Kim Jong-un, North Korea’s leader, has been cracking down on USB flash drives that activists smuggle into his isolated country to poison his people’s minds with outside influences, like South Korean K-pop music.

But last month, when he met with the South’s president, Moon Jae-in, Mr. Moon handed him a USB drive that contained quite a different message.

In charts and video clips, Mr. Moon’s memory stick laid out a “new economic map for the Korean Peninsula,” including new railways and power plants for the impoverished North, should Mr. Kim abandon his nuclear weapons, according to South Korean officials.

Mr. Moon based his sales pitch on the belief that Mr. Kim wants to become the North Korean equivalent of Deng Xiaoping, who oversaw the economic liberalization of China. In this view, Mr. Kim may be willing to transform his pariah state by trading in his nuclear arsenal for diplomatic and economic incentives he needs to achieve prosperity.

[…]

“Kim Jong-un’s desire to develop his country’s economy is as strong as, and even stronger than, his desire for nuclear weapons,” said Lee Jong-seok, a former unification minister of South Korea. “But he knows he cannot achieve the kind of rapid economic growth in China that he envisions for his country while keeping his nuclear weapons — because of the sanctions.”

[…]

Vilified as he was, however, Mr. Kim has also shown signs of being a reformer, granting farms and factories more autonomy, allowing more markets to open, and setting off a building boom in his showcase capital, Pyongyang. He exhorts his country to follow “international development trends” and “global standards” and even admits failing to deliver on his promise that his long-suffering people would “no longer have to tighten their belts.”

“My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability,” Mr. Kim said in a nationally broadcast speech last year, a startling admission for a member of the family that has ruled North Korea with the help of a personality cult since its founding in 1948.

After meeting him, Mr. Moon called Mr. Kim “open-minded and practical.”

Nowhere is Mr. Kim’s dilemma better seen than in his policy of “byungjin,” or parallel advance, which seeks a nuclear arsenal and economic development simultaneously. Under that policy, Mr. Kim has rapidly developed his country’s nuclear weapons and ballistic missile programs, arguing that a nuclear deterrent would make his country feel secure enough to focus on rebuilding the economy. But the world has responded by imposing crippling sanctions.

[…]

If Mr. Kim pursues the route of economic reform, energy and transportation are the two areas where he most needs outside help. In his meeting with Mr. Moon, Mr. Kim admitted to the “embarrassing” condition of his roads and railways, South Korean officials said.

Trains running on electricity remain North Korea’s main means of transport, carrying 90 percent of its cargo and 60 percent of its passenger traffic, according to Ahn Byung-min, a senior analyst at the South’s government-funded Korea Transport Institute. But its rail systems are so decrepit that its fastest train, which runs to the Chinese border from Pyongyang, travels at 28 miles an hour. Other trains run at less than half that speed, Mr. Ahn said.

Lacking cash for oil imports, North Korea produces all its electricity from hydroelectric dams and coal-burning power plants. But the country’s power industry is trapped in a vicious cycle, energy experts say. Chronic electricity shortages make it difficult to produce coal and transport it to power plants. People in search of firewood for heat and cooking have denuded their hills, causing floods and droughts and making silt pile up at dams. That cuts down hydroelectric generation.

North Korea’s electricity generation amounts to only 4.4 percent of South Korea’s, according to Park Eun-jeong, an analyst at the South’s Korea Development Bank. The country prioritizes supplying electricity to lighting statues of Mr. Kim’s father and grandfather, who had ruled before him, while passengers wait for hours in trains unable to move because of power shortages, according to defectors from the country.

“Electricity is the Achilles’ heel for North Korea,” said Lee Jong-heon, an energy analyst in Seoul.

Mr. Moon’s proposal to modernize the North’s roads and railways and link them to the South’s is not meant to help just North Korea.

South Korean policymakers say that the two Koreas must first integrate their economies to make an eventual reunification less chaotic. They also envision building trans-Korean railways to find faster and cheaper routes to export South Korean goods to China, Russia and Europe, and bring Russian oil and gas into the South through pipelines for its power-hungry economy.

Full article and source:
South Korea Hands Kim Jong-un a Path to Prosperity on a USB Drive
Choe Sang-hun
New York Times
2018-05-10

Moon’s plan consists of three “economic belts”, as South China Morning Post notes, with infrastructure links that carry great potential gains for China and Russia as well:

President Moon Jae-in gave the North’s leader Kim Jong-un a USB drive containing a “New Economic Map of the Korean Peninsula” at the fortified border village of Panmunjom on April 27.

The initiative included three economic belts – one connecting the west coast of the peninsula to China, making the region a centre of logistics; one connecting the east coast to Russia for energy cooperation and one on the current border to promote tourism.

Whilst sources at the South Korean presidential office did not give further details about the information contained in the drive, they confirmed that the plan was in line with Moon’s “Berlin speech” last year when he outlined his basic approach to the north on a visit to the German capital.

During last year’s presidential election campaign, Moon pledged to merge the two Koreas’ economies in a single market to lay the foundations for unification.

Park Byeong-seug, a South Korean lawmaker from Moon’s ruling Democratic Party of Korea, said the proposal was in line with Moon’s campaign promises.

“The concept of the three belts was one of President Moon’s pledges during the election last year,” Park said.

“The new economic map includes railway links between the two Koreas and China’s northeast stretching all the way to Europe.”

One part of the plan would involve the construction of a rail link starting in Mokpo on the southwest tip of the peninsula, passing through Seoul and Pyongyang and the North’s Special Administrative Region of Sinuiju, before reaching Beijing.

Beijing is likely to welcome Seoul’s proposal as it accords with the core Chinese national interest of enhancing sustainable economic development and boosting the country’s northeastern rust belt.

Cheng Xiaohe, a deputy director at the centre for international strategic studies at Renmin University said Beijing may try to incorporate the plan into its Belt and Road Initiative.

“The northeast has been China’s weakest link and seen poor economic development for years. A rail link could make a real difference to the region,” Cheng said.

Improving the area’s logistics would also benefit China as its access to the open seas in that part of the world is physically blocked by the Korean peninsula and Russia’s far east.

North Korea’s economy is also closely tied to the northeast of China and opening up the reclusive state’s markets could provide new opportunities for the Chinese provinces on its border.

Lu Chao, a research fellow at Liaoning Academy of Social Sciences, said: “The plan would have a huge impact on China’s northeastern region as it would transform the region as a centre of logistics in East Asia, which could function as a driving force for the rapid economic growth of the region.”

“The northeast is the region with the greatest economic potential in China. A railway connection would bring a myriad of investments from overseas and would help the economy take off.”

[…]

South Korea would have to allow its allies and the UN to mediate any easing of sanctions before it could establish any economic cooperation with the North.

Moon Chung-in, a special foreign affairs and national security adviser in Seoul, said last month that Seoul’s economic incentives would compensate Pyongyang for freezing its missile programme, disclosing its nuclear capacity and allowing international inspections within its borders.

Full article and source:
Seoul offers Kim Jong-un grand bargain to link North and South Korean economies with China
Lee Jeong-ho
South China Morning Post
2018-05-07

Not surprisingly, Hyundai Asan is hoping to get in on whatever action may come. CNN:

Hyundai Group said Tuesday [May 8th] that it’s setting up a task force to prepare for the potential restarting of economic projects in North Korea.

The announcement comes shortly after a historic summit between South Korean President Moon Jae-in and North Korean supreme leader Kim Jong Un at which they committed themselves to rebuilding ties after years of tensions.

Hyundai Group, which split from the Hyundai Motor Group in 2000, was involved in various business projects in North Korea in the past, including a mountain resort and the Kaesong industrial complex, where North Korean workers made goods for South Korean companies.

“Hyundai needs to be ready when/if the two Koreas agree on terms and inter-Korean economic cooperation resumes,” a company spokesman said.

Hyundai will be closely monitoring the planned summit between Kim and US President Donald Trump that’s expected to take place in the coming weeks, as well as any potential changes to the heavy sanctions in place on North Korea’s economy, the spokesman said.

The Kaesong complex, a symbol of cooperation between the two Koreas, was closed as relations deteriorated in 2016. More than 120 South Korean companies had a presence there, employing tens of thousands of North Koreans and providing a steady stream of foreign currency to the regime in Pyongyang.

Hyundai also previously operated a tourist resort at North Korea’s Mount Kumgang, near the border with South Korea. It was shut down in 2008 after a South Korean tourist was killed by a North Korean soldier.

The company’s ties to North Korea go back to Hyundai’s late founder, Chung Ju-young, who was born there.

Last week, South Korean Deputy Prime Minister Kim Dong-yeon said the country’s government was “considering various scenarios” for economic cooperation between the two Koreas.

“The government is preparing response plans to different scenarios in terms of how and how fast to pursue [economic cooperation] and how to procure the resources for it,” he said.

South Korea’s government has allocated about $900 million to fund economic projects that involve both countries this year, according to the minister.

Full article and source:
Hyundai Group is getting ready to do business in North Korea again
Daniel Shane
CNN
2018-05-08

To be sure, preparations and planning are well underway in Seoul. Reuters:

South Korea’s finance minister said on Wednesday [May 2nd] the government was discussing how to finance possible economic projects with North Korea, although any projects with Pyongyang must first be approved by the international community.

“We’re internally carrying out preparations, in terms of what to prepare, and how to cooperate with the international community, and how to finance (possible inter-Korea projects),” Kim Dong-yeon told reporters in Sejong.

“But we need support from the international community and need to watch the (upcoming) summit between the United States and North Korea,” Kim said, without elaborating on specifics of any government financing.

Kim’s comments come after South Korean President Moon Jae-in and his North Korean counterpart Kim Jong Un agreed last Friday on a common goal of a “nuclear free” peninsula, and to “adopt practical steps towards the connection and modernization of the railways and roads”.

Many speculate that the two Koreas will start joint infrastructure projects as soon as international sanctions on North Korea are lifted. Currently, North Korea is under sanctions imposed by the U.N. Security Council to stop its nuclear weapons and missiles programs.

Kim also said there was a rise in the number of Chinese tourists in March although the services sector has not yet recovered from a drop in such visitors due to tensions between the two countries.

“The number of Chinese tourists is noticeably increasing since March, although it hasn’t recovered to the pre-Thaad level,” Kim said.

Tourist numbers plunged last year after South Korea angered China by deploying a U.S. Terminal High Altitude Area Defence (THAAD) system that features radar which Beijing believes could be used to penetrate its territory.

Full article and source:
South Korea considers financing of possible inter-Korea projects: finance minister
Reuters
2018-05-02

To be continued and updated…

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Posted in Economic reform, Foreign direct investment, International Aid, International trade, South Korea | Comments Closed

Weekend reading recommendation: North Korea’s Shackled Economy, 2018

Friday, March 23rd, 2018

By Benjamin Katzeff Silberstein

The National Committee on North Korea (NCNK) has published a report by William Brown, and I urge all those with an interest in the North Korean economy to read it. It is a pragmatic take on the North Korean economy in 2018, noting both the progress and the limits of the changes in its economic system over the past few years. Brown is pessimistic (or perhaps just realistic) about North Korean economic resilience in the face of sanctions, but also notes the great potential for economic development that exists in North Korea’s human capital and skilled labor. Brown’s analysis of the country’s currency situation, one of the most opaque topics in already opaque field, is particularly interesting. Below is an excerpt from the executive summary:

The North Korean economy remains weak and vulnerable, but its structure is changing as it confronts major internally- and externally-generated pressures. Ironically, as UN sanctions have tightened in recent years, the economy has become more decentralized and productive, as weakening state controls have allowed the spread of market activities, providing incentives for individuals and families to work in their own self-interest. Central planning is weakening as money replaces the once ubiquitous ration coupon, and self-reliance on both a national and localized level is increasing as foreign trade and foreign aid dwindle. However, the state-run economy has not withered away, and Pyongyang dictates perhaps half of all economic transactions, a far larger share than does the central government in any other country. The state and its enterprises and the huge farmers’ collectives still own most capital and property, and through their extensive regulations and police powers extract large rents from individuals and families.

The full report can be found here.

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“Maximum pressure” and the North Korean economy: what do market prices say?

Friday, March 9th, 2018

By Benjamin Katzeff Silberstein

With the news today about a summit between Kim Jong-un and Donald Trump tentatively planned for the end of May, there has been much debate about the role of the US policy of “maximum pressure” through economic sanctions.

The efficacy of the policy is difficult to evaluate, particularly since it often takes many months or even years for the full effect of sanctions to play out. Whether the policy has been effective or not depends on, well, how you judge success or failure. There is little doubt that North Korea’s exports have taken a significant hit not primarily from the sanctions themselves, but from China’s enforcement of them. This is the single biggest difference between how sanctions have hit the North Korean economy during the past year, versus previous years. It seems fairly indisputable that sectors of the economy have suffered, with export industries taking the biggest hit.

But what has been the impact on the economy as a whole? It’s difficult to say, but we have two important indicators: prices of rice and foreign currency on North Korean markets. The data on these two indicators is far from perfect, and it is difficult, if not impossible, to draw firm conclusions from it. (For an explanation of this data, and the rationale for using rice prices in lieu of the formal goods basket used to measure inflation in other countries, see this article, for example). Nevertheless, neither of the two indicators suggest a situation out of the ordinary on North Korean markets during the period that “maximum pressure” has been applied.

First, a look at rice prices. If sanctions were truly devastating the North Korean economy, there is a whole host of reasons why one should expect rice prices to increase.

One of them is expectations of worse times to come as importing inputs for agriculture as well as food becomes increasingly difficult. Another is that if importing food products in general* becomes more difficult, perhaps because Chinese traders anticipate that their North Korean counterparts won’t be able to pay, consumers would be expected to switch more of their consumption to domestically sourced goods, increasing demand and thus prices. In general, anxiety about worsening times often leads to inflation.

This does not seem to have happened. In fact, rice prices have been remarkably stable over the past year (if the graph looks strange, click for full image):

There may well be other forces at work, too. Increased smuggling of cheaper Chinese rice, for example, may well have contributed to the price stability. But this is in itself a sign of the resiliency of the North Korean economy; when some supply decreases, there are ways of compensating through other means.

Exchange rates are another important metric. If the inflow of foreign currency (in this case US dollars) decreases, its price – the exchange rate – should go up. Expectations matter here, too: if the market expects that foreign currency supply will dry up in the future, it tends to act in the present and make purchases today to hedge for tomorrow. As with rice prices, exchange rates have been remarkably stable over the past year (again, click for better image):

In sum, we have little or no hard evidence that the North Korean economy, on the whole, has suffered significantly and harshly from sanctions thus far. That may itself not be an argument against sanctions, since again, it may take much longer than just a year for their full impact to play out. But it does call into question the claims that “maximum pressure” is the chief reason for Kim Jong-un’s outreach to Donald Trump.

*This likely holds true regardless of the level of self-sufficiency in North Korea’s agricultural production.

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North Korean markets insulated from sanctions, but not forever

Wednesday, March 7th, 2018

Posted by Benjamin Katzeff Silberstein

Analysis at Daily NK:

In 2017 alone, the United Nations Security Council passed four major sanctions resolutions against North Korea: Resolutions 2356, 2371, 2375, and 2397. Under the measures, the North’s crude oil imports were restricted, and coal and mineral exports were banned. Additionally, the North was prohibited from sending its laborers to work abroad – one of the key ways in which the regime earns foreign currency.
“One cannot say that, on a macro level, sanctions against North Korea have been ineffective,” said Lee Seok Ki, a senior researcher at the Korea Institute for Industrial Economics and Trade (KIET). “Since around August or September of 2017, the North’s exports have dropped significantly, and we have seen a major impact from sanctions on their industrial output. The country’s anthracite (coal) exports are down 66% compared to the previous year, which is a devastating hit to their mining sector, and the trend is expected to continue.”
Lee added that while most indicators point to declining imports, it remains difficult to conclude that sanctions have had the same effect on the North Korean manufacturing sector. Despite this, Lee noted that “sanctions are having an effect on the trade sector and we will continue to see both quantitative and qualitative effects in the long term.”
Other experts support the opinion that sanctions are working against the North’s overall trade. “North Korea’s exports to China are down 37%, which has led to a further 1.8% drop in growth for the North’s economy over the last year,” said Kim Byung Yeon, a professor at the Department of Economics at Seoul National University.
“If the North is unable to get sanctions lifted, the growth rate for their economy could drop to as low as minus 5% in the next year,” Kim added, explaining that the effects on economic growth will be significant due to the structure of the North’s economy and the relatively high proportion that exports contribute to it.
Kim said that citizens working in the trade sector have been most affected by sanctions, though he points to the government as taking the most damage. “Most trade has been conducted by state-owned and party- or military-run companies, meaning that the elite class and government officials take a big hit from sanctions,” Kim said. “Kim Jong Un relies heavily on trade as a source of income (for his regime), which means that the person most impacted by sanctions is none other than Kim Jong Un.”
But while sanctions appear to be having a significant effect on the North’s trade and industry, experts are noting that the local markets in the country have not been affected as heavily.
“When you look at the price of rice or the exchange rate over time, it’s hard to see any major effect of sanctions (on local markets),” KIET researcher Lee said.
Daily NK’s own research has come to the same conclusion, finding that the price of rice in North Korea’s markets has remained steady at around 4,000 to 5,000 KPW per kg since the beginning of the recent surge in international sanctions.
“People have been relying on themselves, actively participating in the markets and smuggling since the end of the Arduous March (great famine of the 1990s), which means that sanctions do not yet seem to be having an effect on the markets,” said a source in North Hamgyong Province, pointing to the steady availability of consumer goods as evidence.
“Kim Jong Un has instituted improvements in the quality of domestic-made goods, leading to these products in many cases pushing out Chinese versions from the markets,” said Lee Geun Young, Professor at the Yanbian University Department of Political and Public Administration. “There are now fewer items being brought in from China, so these products are having less influence on market prices.”
However, experts also believe that the damage inflicted by sanctions will inevitably reach the markets. “It’s not easy to precisely predict when the effect of sanctions will reach the markets,” Professor Kim said. “But one thing is clear: because many items rely on some form of importation, the long-term effects of a continuing decline in trade will inevitably lead to a reduction in the volume of available goods and a decrease in consumer purchasing power.”
Article source:
North Korean markets insulated from sanctions, though not forever
Jang Seul Gi
Daily NK
2018-03-07
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US prepares maritime interdiction to stop North Korean sanctions evasion

Friday, February 23rd, 2018

By Benjamin Katzeff Silberstein

As the Winter Olympics with all its inter-Korean contacts wind down, the US is preparing to place Coast Guard forces to stop and search vessels in Asia-Pacific waters, to prevent North Korean sanctions circumvention. Reuters:

Washington has been talking to regional partners, including Japan, South Korea, Australia and Singapore, about coordinating a stepped-up crackdown that would go further than ever before in an attempt to squeeze Pyongyang’s use of seagoing trade to feed its nuclear missile program, several officials told Reuters.

While suspect ships have been intercepted before, the emerging strategy would expand the scope of such operations but stop short of imposing a naval blockade on North Korea. Pyongyang has warned it would consider a blockade an act of war.

The strategy calls for closer tracking and possible seizure of ships suspected of carrying banned weapons components and other prohibited cargo to or from North Korea, according to the officials, who spoke on condition of anonymity. Depending on the scale of the campaign, the United States could consider beefing up the naval and air power of its Pacific Command, they said.

The U.S.-led initiative, which has not been previously reported, shows Washington’s increasing urgency to force North Korea into negotiations over the abandonment of its weapons programs, the officials said.

North Korea may be only a few months away from completing development of a nuclear-tipped missile capable of hitting the U.S. mainland, despite existing international sanctions that, at times, have been sidestepped by smuggling and ship-to-ship transfers at sea of banned goods, according to officials.

“There is no doubt we all have to do more, short of direct military action, to show (North Korean leader) Kim Jong Un we mean business,” said a senior administration official.

The White House declined official comment.

The effort could target vessels on the high seas or in the territorial waters of countries that choose to cooperate. It was unclear, however, to what extent the campaign might extend beyond Asia.

Washington on Friday slapped sanctions on dozens more companies and vessels linked to North Korean shipping trade and urged the United Nations to blacklist a list of entities, a move it said was aimed at shutting down North Korea’s illicit maritime smuggling activities to obtain oil and sell coal.

Tighter sanctions plus a more assertive approach at sea could dial up tensions at a time when fragile diplomacy between North and South Korea has gained momentum. It would also stretch U.S. military resources needed elsewhere, possibly incur massive new costs and fuel misgivings among some countries in the region.

The initiative, which is being developed, would be fraught with challenges that could risk triggering North Korean retaliation and dividing the international community.

China and Russia, which have blocked U.S. efforts at the United Nations to win approval for use of force in North Korea interdiction operations, are likely to oppose new actions if they see the United States as overstepping. A Chinese official, speaking on condition of anonymity, said such steps should only be taken under United Nations auspices.

China’s Foreign Ministry, in a statement to Reuters, said they did not know anything about the plan, but that in principle China believes U.N. resolutions on North Korea should be fully and thoroughly implemented.

“At the same time, we hope relevant countries act in accordance with Security Council resolutions and international law,” it added, without elaborating.

Full article:
Exclusive: U.S. prepares high-seas crackdown on North Korea sanctions evaders – source
Phil Stewart, David Brunnstrom
Reuters
2018-02-23

I won’t go into the strategic and political implications, but when it comes to sanctions circumvention, a plan like this, thoroughly executed, would likely raise the costs of North Korean sanctions circumvention. Even with what sanctioned trade still goes on, there’s likely a substantial premium charged by traders that deal with North Korea because of the risks involved. As those risks go up, so should the premium. No measures can make circumvention fully impossible, but it can get a whole lot more expensive.

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Is North Korea scaling back winter exercises because it lacks fuel and food?

Tuesday, January 30th, 2018

By Benjamin Katzeff Silberstein

Much has been made of North Korea’s apparent decision to scale back its annual winter military exercises. Some have concluded it’s a sign that sanctions are working: the army lacks both fuel and food, and has therefore had no choice but to change the scale of the exercises.

While this may be true, I haven’t seen anything in the data that proves it. Take food prices, for example. The average rice price among three North Korean cities, according to the latest observation by Daily NK, is 4853 won per kg. It’s declined pretty strongly over the past few months, which isn’t unusual for this time of year. In the comparable period last year, the same price was exactly 800 won lower. In other words, food prices, as measured by rice prices, often used instead of a CPI-basket for the North Korean market, are 20 percent higher today than they were in the comparable period last year.

That isn’t negligible, but I would still say a large part of the price difference falls within the margin of error. Prices can fluctuate heavily on the North Korean market, and the results might have been different even had prices been measured on a different day. And for most of the past few months, prices have pretty much looked seasonally normal.

Lack of fuel is a much more plausible explanation. Prices have steadily climbed since early 2017 and according to data from NK PRO continue to rise. But part of the reason for the increased prices is, likely, that the military has been soaking up more fuel than usual from the market. I don’t think there’s much reasonable doubt that fuel has been more difficult to acquire since sanctions began to be enforced more strictly by China. But we also know that North Korea has continued to import fuel by circumventing sanctions. Some of these methods have been publicly exposed by US intelligence but there’s likely much more going on that we don’t see. If full-scale military exercises were a priority for the leadership, I doubt that it would be impossible for agents and enterprises further down the line to somehow acquire the fuel it needs.

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The August 5th UNSC sanctions on North Korea: new scope, but same old tools. Will this time be any different?

Sunday, August 6th, 2017

By Benjamin Katzeff Silberstein

On Saturday August 5th, the UN Security Council passed yet another resolution, 2371, following North Korea’s missile tests. Like resolution 2270 that was passed in March 2016, 2371 also takes aim at North Korea’s mineral exports. The new resolution also bans imports of seafood products from North Korea, and bans member states from hiring new North Korean laborers, but they do not need to fire ones already hired, so it is questionable whether this source of income will decrease and/or disappear, or merely stop increasing.

Unlike 2270 last year, it does not appear to contain a humanitarian exemption or any other loophole for mineral imports. In sum, the new resolution appears much more holistic than its predecessors in fully cutting off North Korea’s most central export revenues.

But while the content of the resolution is different, the tools remain the same. Its efficacy still hinges upon implementation by UN member states, and of course, above all, by China, and it is difficult to see why such implementation would be more likely this time. Both President Trump and the US ambassador to the UN, Nikki Haley, have made a big number of China’s and Russia’s vote in favor of the resolution. WSJ reports:

U.S. Ambassador Nikki Haley praised the council?s solidarity, saying more days like this one were needed at the United Nations. She also personally thanked China for helping move the resolution from talk to action. The U.S., which had drafted and put forward the resolution, negotiated for more than a month with China over the text and final measures targeting Pyongyang.

?This resolution is the single largest economic sanctions package ever leveled against the North Korean regime,? said Ms. Haley, adding the council had put the country and its leadership ?on notice? and ?what happens next is up to North Korea.?

President Donald Trump?said on Twitter, ?The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!?

However,?both China and Russia voted in favor of UNSC 2270 as well, and there are still abundantly clear signs that China did little to implement the ban on imports of North Korean minerals. Had UNSC 2270 been implemented in full, North Korea’s export revenues would already have been badly hit.

Meanwhile, South Korea’s Bank of Korea announced a few weeks ago its estimate that the North Korean economy grew by close to four percent last year. One should read those numbers with a very,?very?hefty dose of skepticism, given the difficulty in estimating anything relating to the North Korean economy, but at the very least, we can safely conclude that the North Korean economy is not in dire straits. Its foreign trade increased by close to five percent last year, according to KOTRA. Though there have been several reports suggesting difficulties for companies involved in cross-border trade between China and North Korea over the past year, there are no indications that China has implemented the near-blanket-ban in minerals trade that the UNSC resolution from March last year mandates.

So why would this time be any different? My guess is that it won’t be. It is very difficult to imagine that China would have voted in favor of a resolution that would hit North Korea’s economy so badly if it would really have believed that such a resolution would be fully implemented. The basic political dynamics remain: China does not want North Korea to crumble, and China craves geopolitical stability above everything else.

As always, only time will tell. But those who applaud this resolution as a new and radical turn on the global stage in the North Korea issue may want to look back at historical precedent, and moderate their expectations.

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UN security council adopts sanctions banning imports of wide range of North Korean goods

Saturday, August 5th, 2017

Benjamin Katzeff Silberstein:?

On Saturday August 5th, the United Nations Security Council approved a resolution banning member states from importing North Korean export goods such as minerals and seafood products, and from hiring North Korean laborers. Wall Street Journal:

U.S. Ambassador Nikki Haley praised the council?s solidarity, saying more days like this one were needed at the United Nations. She also personally thanked China for helping move the resolution from talk to action. The U.S., which had drafted and put forward the resolution, negotiated for more than a month with China over the text and final measures targeting Pyongyang.

?This resolution is the single largest economic sanctions package ever leveled against the North Korean regime,? said Ms. Haley, adding the council had put the country and its leadership ?on notice? and ?what happens next is up to North Korea.?

President Donald Trump?said on Twitter, ?The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!?

Both China and Russia urged a return to talks with North Korea and told the Security Council that the U.S. must abandon?its military exercises with South Korea?and dismantle?the missile-defense system in South Korea known as Thaad?because North Korea perceived that as a threat and it undermined the security of the region.

?We stress that additional restrictions cannot be an end to themselves, they need to be a tool to engage in dialogue,? said Russia?s new ambassador to the U.N., Vassily Nebenzia.

The nine-page resolution steps up trade restrictions with Pyongyang by aiming to cut off a third of its $3 billion annual export revenue. It bans North Korea from trading coal, iron, lead, iron and lead ore, and seafood.

The resolution also prohibits countries from hiring North Korean laborers and bans countries from entering or investing into new joint ventures with Pyongyang.

Diplomats and sanctions experts have long warned that export revenues, even remittances from foreign workers, are cycled back to North Korea?s military and nuclear programs.

A Security Council diplomat offered this estimate on North Korea?s foreign revenue earnings in 2017: $295 million from seafood; $251 million from iron and iron ore, and $400 million from coal trade.

North Koreans work in China, Russia and the Arab countries in the Persian Gulf in a variety of businesses ranging from factories to restaurants and nightclubs and are estimated to send home several billion dollars in revenue, a large portion of which the government claims, according to U.N. sanctions experts.

The new resolution restricts North Korea?s technology trade and tightens enforcement of sanctions on North Korean vessels by banning violators from entering ports around the world.

Under the resolution, North Korea?s Foreign Trade Bank, which handles foreign exchange, will be added the U.N.?s sanctions list that freezes the assets of targeted entities.

It remains to be seen whether the new sanctions will deter North Korea?s pursuit of advanced ballistic missiles and nuclear weapons or bring its leader Kim Jong Un to the negotiating table.

North Korea?s economy has managed to stay afloat largely because China, its main trade partner, and Russia and some African nations haven?t fully enforced existing U.N. sanctions. The U.S. Treasury in June sanctioned Chinese entities?primarily banks and shipping companies?and individuals for violating sanctions and conducting trade that contributed to North Korea?s military and nuclear program.

China?s Ambassador Liu Jieyi said his country denounced unilateral sanctions by the U.S. and said action against North Korea must be through the U.N. mechanism. Mr. Liu told the council he welcomed the U.S. position that it wasn?t?seeking regime change in North Korea.

?China has always been firmly opposed to chaos and conflict in the [Korean] peninsula,? Mr. Liu said.

Although China and Russia have pushed for a resumption of the six-party talks with North Korea, disagreement remains on how to bring Washington and Pyongyang to the table. China and Russia have called for a freeze-for-freeze plan under which North Korea would halt any more military or nuclear action and the U.S. would end its military exercises with South Korea.

Full article here:
North Korea Hit by $1 Billion Sanctions After Missile
Farnaz Fassihi
Wall Street Journal
2017-08-5

 

The UN summary of the resolution reads as follows:

The Security Council today further strengthened its sanctions regime against the Democratic People?s Republic of Korea, condemning in the strongest terms that country?s ballistic missile launches and reaffirming its decision that Pyongyang shall abandon all nuclear weapons and existing nuclear programmes in a complete, verifiable and irreversible manner.

Unanimously adopting resolution?2371?(2017) under Article?41, Chapter?VII of the United Nations Charter, the 15-nation Council decided that the Democratic People?s Republic of Korea shall not supply, sell or transfer coal, iron, iron ore, seafood, lead and lead ore to other countries.

Expressing concern that Democratic People?s Republic of Korea nationals working abroad were generating foreign export earnings to support the country?s nuclear and ballistic missile programmes, it also decided that all Member States shall not increase the total number of work authorizations for such persons in their jurisdictions, unless approved by the Security Council Committee established pursuant to resolution?1718?(2006).

Through the text, the Council decided that States shall prohibit the opening of new joint ventures or cooperative entities with the Democratic People?s Republic of Korea entities and individuals, or expand existing joint ventures through additional investments.? In addition, it decided that Pyongyang shall not deploy or use chemical weapons and urgently called for it to accede to the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and Their Destruction.

Also through the resolution, the Council named nine individuals and four entities to be subject to a travel ban and asset freeze already in place, as well as to request that the International Criminal Police Organization (INTERPOL) issue special notices with respect to designated individuals.

In addition, it reaffirmed that its provisions were not intended to have adverse humanitarian consequences for the civilian population of the Democratic People?s Republic of Korea, and that the Security Council Committee established pursuant to resolution?1718 (2006), on a case-by-case basis, exempt from sanctions those activities that would facilitate the work of international and non?governmental organizations engaged in assistance and relief activities for civilian benefit.

Furthermore, through the text, the Council called for the resumption of the Six-Party Talks between China, Democratic People?s Republic of Korea, Japan, Republic of Korea, Russian Federation and the United States towards the goal of a verifiable and peaceful denuclearization of the Korean Peninsula.

Speaking after the resolution?s adoption, the representative of the United States said the Council had put the Democratic People?s Republic of Korea?s dictator on notice by increasing the penalty of its ballistic missile activity to a whole new level.? All Member States must do more to put more pressure on that country, she said, adding that the United States would take defensive measures to protect itself and its allies, including through joint military exercises.

China?s representative said that, while today?s resolution had imposed further sanctions, it did not intend to negatively impact such non-military goods as food and humanitarian aid.? Calling on all parties to implement the resolution?s provisions fully and earnestly, he recalled that China and the Russian Federation on 4?July had put forward a road map to resolve the issue through two parallel tracks ? denuclearization and the establishment of a peace mechanism.? Recalling that the United States had recently indicated that it was not pushing for regime change or for the Korean Peninsula?s reunification, he said an escalation of military activities would be detrimental to all countries of the region.

Japan?s delegate said the sheer number and frequency of the Democratic People?s Republic of Korea?s nuclear and ballistic missile tests ?show how unprecedented and unacceptable these provocations are?.? Not only was the quantity outrageous, but the qualitative advancements were alarming.? Noting that today?s resolution would reduce the Democratic People?s Republic of Korea?s revenue by approximately $1?billion, he said all Member States must demonstrate renewed commitment to implement the Council?s decisions.

The Russian Federation?s representative, while calling on the Democratic People?s Republic of Korea to end its banned programmes, said progress would be difficult so long as it perceived a direct threat to its security. ?Emphasizing that military misadventures risked creating a disaster, he said sanctions must be a tool for engaging Pyongyang in constructive talks rather than to seek the country?s economic asphyxiation.

The Republic of Korea?s delegate said that Pyongyang?s missile provocations on 4?and 28?July, together with its nuclear programme, posed a grave threat to international peace and security.? Indeed, such reckless acts of defiance should be met with stronger measures, he said, adding that additional sanctions contained in resolution?2371?(2017) would significantly cut off the inflow of hard currency that would otherwise have been diverted to illicit weapons programmes.

Full article:
Security Council Toughens Sanctions Against Democratic People?s Republic of Korea,?Unanimously Adopting Resolution 2371 (2017)
United Nations Meetings Coverage
2017-08-05

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Posted in China, Foreign direct investment, International trade, Political economy, South Korea, Statistics, UN, USA | Comments Closed

North Korea’s economy grew by almost 4 percent in 2017, says BOK

Friday, July 21st, 2017

Benjamin Katzeff Silberstein

Yonhap reports:

The estimated expansion of the gross domestic product (GDP) represents a sharp turnaround from 2015 when the economy of one of the world’s most isolated countries shrank 1.1 percent due mainly to a drought.

Last year’s growth is the highest since 1999 when North Korea’s economy expanded 6.1 percent, according to the Bank of Korea (BOK).

North Korea’s economy expanded 1.2 percent on average between 2012 and 2016, a sign that its economy is mired in low growth.

There are no indications that the North’s economy has suddenly improved since late 2011 when North Korean leader Kim Jong-un took power on the sudden death of his father and long-time leader Kim Jong-il, an official said.

“North Korea’s economic structure is very fragile and is not really set up for high growth,” the official spoke on the condition of anonymity.

The BOK estimated North Korea’s gross national income (GNI) stood at 36.4 trillion won (US$32.4 billion) in 2016. South Korea’s per-capita GNI stood at 31.98 million won, which is 22.1 times larger than the North’s 1.46 million won.

Related to last year’s growth, the central bank said North Korea’s mining industry grew 8.4 percent, the highest since 1999 when it expanded 14.2 percent.

North Korea’s trade volume came to $6.55 in 2016, up 4.6 percent from a year earlier, the BOK said. The increase came despite tightened U.N. sanctions imposed on North Korea over its repeated nuclear tests and its long-range rocket launches.

The sanctions call for, among other things, a ban on the country’s exports of coal and other mineral resources to cut off North Korea’s access to hard currency.

Still, the provision will not apply if transactions are determined to be exclusively for livelihood purposes and unrelated to generating revenue for North Korea’s nuclear or ballistic missile programs or other activities prohibited by previous U.N. resolutions.

China accounts for nearly 90 percent of North Korea’s foreign trade, and mineral resources are a key part of their bilateral trade.

Full article:

N. Korea’s economy grew 3.9 pct in 2016: BOK

Yonhap News

2017-07-21

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Posted in Bank of Korea, China, Economic reform, Political economy, South Korea, Statistics | Comments Closed

North Korea Sells South Korean Cookware Seized at Kaesong

Monday, February 6th, 2017

Benjamin Katzeff Silberstein

Reports Radio Free Asia:

South Korean cookware seized illegally by North Korean authorities after the Kaesong joint industrial park was closed last year are being found for sale in large quantities in Chinese cities near the North Korean border, sources say.

Formerly viewed as a symbol of cooperation between the two halves of the divided Korean peninsula, Kaesong was closed in February 2016 after North Korea ordered all South Koreans out of the complex, seized South Korean assets there, and declared the area under military control.

The move came a day after South Korea announced it was pulling out of Kaesong in retaliation for North Korean nuclear and long-range missile tests earlier in the year.

Now, electric rice cookers produced by South Korean firms in Kaesong are turning up for sale across northeastern China, a source in Kaifeng, in central China’s Henan province, told RFA’s Korean Service.

“North Korea began to sell South Korean products left behind in Kaesong starting in mid-December,” said the source, familiar with trade in the northeast and speaking on condition of anonymity.

“Their exact number is unclear, but it’s known to be in the hundreds.”

Electric cookers bearing the Kaesong markings “Made in Korea” are among the most popular items offered for sale in Korean stores located in cities in China’s northeast, sources said.

“Those buying the cookers are mainly South Korean businessmen.  Then resell them to Korean merchandise stores located in Shenyang, Yanji, and other places,” RFA’s source in Kaifeng said.

‘A complicated problem’

Speaking separately, the operator of a shop in China near the border with North Korea told RFA that he was approached in early December by four North Koreans he had never seen before.

“They asked if I would be interested in buying electric cookers made in Kaesong for a low price,” the source said, also speaking on condition he not be named.

“They said there were about 6,000 of these that they could sell.”

“At first, I thought that I could make a lot of profit by selling them, but then I refused the offer because I thought this could become a complicated problem for me later on,” he said.

While the same rice cookers are also made in Qingdao, in China, and labeled “Made in China,” those made in Kaesong are more popular with consumers because of their “Made in Korea” markings, he added.

 

Full article:
North Korea Sells South Korean Cookware Seized at Kaesong
Reported by Joonho Kim for RFA’s Korean Service. Translated by Soo Min Jo. Written in English by Richard Finney.
2017-02-06

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Posted in China, Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), South Korea | Comments Closed

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