North Korean Economy Watch

Korea Times
8/15/2007

To understand what is at stake, we need to look back at key events in the past that led to North Korea’s isolation in the global economy.

U.S. economic sanctions against North Korea began on June 28, 1950, only three days after North Korea invaded South Korea, when the United States invoked a total embargo on exports to North Korea. Over the years, many more U.S. sanctions have been imposed against North Korea, and North Korean companies. Three of these sanctions have had a significant impact.

The first was the suspension of the Most Favored Nation (MFN) trade status, imposed on September 1, 1951. This sanction, which is still in effect, made it impossible for North Korea to even consider exporting its products to the United States.

The second is the placement of North Korea on the list of countries that support international terrorism. This sanction, imposed on January 20, 1988, followed North Korea’s blowing up of Korea Air Lines 858 on November 29, 1987, off the waters of Thailand.

This sanction has entailed many restrictions, including denial of North Korea’s ability to borrow money from international financial institutions.

The third measure is not a single action, but has taken the form of a tightening grip around the financial network used to fund North Korea’s illicit financial activities.

Although the ultimate target is North Korea, the threat of actual sanctions has been targeted against banks, including Banco Delta Asia, which deal with North Korea’s accounts. These financial sanctions involving Banco Delta Asia have been the focus of recent overt and covert negotiations between North Korea and the United States.

On September 17, 1999, President Clinton agreed to the first significant easing of economic sanctions against North Korea since the Korean War ended in 1953.

The U.S. easing of sanctions against North Korea, announced on June 19, 2000, may have been too little to persuade the leaders of North Korea to give up their prized long-range missile technology. North Korea carried out a nuclear test on October 9, 2006, and the United Nations passed Resolution 1718, further tightening North Korean economy.

There is no doubt that all these sanctions are having an impact on the North Korean economy. For instance, the North Korea’s annual trade deficit has averaged between $800 million and $1 billion in recent years, depending on whether deficits against South Korea are included.

The huge trade deficit is not sustainable, and it will eventually lead to a decrease in North Korea’s trade and gross domestic product. Studies indicate that the entire trade deficit appears to have been financed by weapons sales, illicit activities, and funds flowing from South Korea through joint projects. With the two UN resolutions adopted during 2006 and the tightening of North Korea’s financial transactions that began in 2005, North Korea should find it increasingly more difficult to pay for its trade deficit.

The key issue is not whether North Korea deserves the lifting of all the sanctions imposed against the country on the basis of its behavior since 1950, but how to bring about a peaceful resolution of pending security and humanitarian issues without military confrontation. This brings us to the importance of the upcoming summit between President Roh and North Korean leader Kim.

My assessment is that the collapse of the Soviet Union in 1989 led to an important change in the approach of North Korean leaders toward a better calculation of costs and benefits.

Korea Times
Lee Hwan-hee
8/8/2007

British film director Daniel Gordon will visit Korea Aug. 12-14 to promote the release of his documentary “Crossing the Line” (2006), a film about James Joseph Dresnok, one of the four American soldiers who defected to North Korea during 1960s and the only one who is still living there.

The other three are Charles Robert Jenkins, who made the news in 2004 by turning himself in to the U. S. Army in Japan to face desertion charges, and Larry Allan Abshier and Jerry Wayne Parrish, both deceased.

The film is Gordon’s third documentary on North Korea; the previous ones are “The Game Of Their Lives” (2002), about the North Korean national football team who defeated Italy to advance to the quarterfinals of the 1966 World Cup, and “A State Of Mind” (2004), about two North Korean child gymnasts participating in the “Pyongyang mass games.”

Dresnok and the filmmaker were interviewed by the CBS News Program “60 Minutes” last January and Dresnok told the program, “I really feel at home” in North Korea, and said “I wouldn’t trade it for nothing,” in contrast to Jenkins who likened his stay in North Korea as an extended prison sentence. Jenkins penned a memoir “To Tell the Truth” in Japan, the home country of his wife, in 2005 (translated into Korean the following year).

Four years after his defection in 1962, Dresnok, and the other Americans, sought asylum in the Soviet embassy, unable to endure the hardships of living in North Korea, but the Soviets handed them back to the North Koreans, and Dresnok eventually adjusted, relatively speaking, to North Korean life. He found fame by starring in several North Korean propaganda films, playing villainous Americans. He also translated some of Kim Il-Sung’s writings into English.

He has been married three times; twice in North Korea, to an Eastern European woman, and the daughter of a Korean woman and an African diplomat; and has three children. His eldest son, James, considers himself a Korean.

Gordon will attend a screening and have a question and answer session with audience members during his visit. The film was shown at the 2006 Pusan International Film Festival, as well as the 2007 Berlin International Film Festival and the Sundance Film Festival.

Asia Times
Sunny Lee
8/8/2007

Hurry if you’re in the mood to travel to one of the least traveled countries on the planet. North Korea says it will admit foreign tourists this year only until October 10.

That’s the latest schedule Walter Keats received from Pyongyang. Keats heads Illinois-based Asia-Pacific Travel, the only travel company in the United States authorized by Pyongyang. The reclusive country opens itself to foreign tourists only for a limited period of the year. Restrictions on Americans are even stricter. In fact, Americans are allowed into North Korea only during the Arirang Festival, a birthday party for the late leader Kim Il-sung.

As a US citizen who is not part of a diplomatic or humanitarian aid mission on North Korea, Keats has had the rare experience of visiting the secretive country 10 times in the past 12 years, starting in 1995. During the period, Keats saw the country “definitely” changing.

“I don’t know if that’s the question of being closed or open. Things are still very restricted. But the people we deal with, at least, are more flexible, more friendly, and more open now,” Keats said in an interview in Beijing before he was to fly with Pyongyang-bound American tourists last weekend.

North Koreans’ flexible attitude is reflected, for example, in the tour scheduling. In the past, the North Koreans decided every itinerary. But Keats told them some places are not really interesting for Americans, while some are more interesting. Now they are more willing to listen.

Besides, the North Korean guides are more willing to accommodate impromptu requests from foreign tourists now such as visiting a local elementary school, even if that was not part of the original travel itinerary.

The changes are also noticeable in the North Korean tour guides themselves as well. They used to be rather solemn and less spontaneous, but these days they even crack jokes in English. Keats sees it as a “nice” change.

“One of the purposes of this tour is to break down the barriers to show that we are human beings and they are also human beings. We’re not both devils fighting each other. So it’s nice to see the humanity in both sides. Humor is a good medium,” Keats said.

North Korea and the US are still technically at war with each other as a legacy from the Korean War. However, today American tourists in North Korea are not subject to any of the anti-American sentiment and rhetoric that Keats experienced during some of his previous visits.

However, all foreign tourists to the Stalinist nation must go on guided tours and must have their tour guides with them at all times. Photography is strictly controlled, as is interaction with the local people. Besides, tourists holding US passports are not usually granted visas. But exceptions were made in 1995, 2002, 2005 and this year.

Some observers are inclined to view the timing of these exceptions as coinciding with a softening in US relations with North Korea. But that actually may not be the case, because North Korea gave the green light for US tourists in 2002 – just after President George W Bush lumped it in with a group known as the “axis of evil”.

On his part, Keats has to remind his fellow American tourists that visiting North Korea is “very different” from visiting any other country in the world and tells them to be mindful of following a few rules. These include refraining from attempting to strike an unauthorized conversation with local people.

In general, the North Korean people would not appreciate foreign tourists coming up to them because “frankly, it endangers them”, Keats said. Somebody could later ask them why they talked to the foreigners, what they said to the foreigners, what the tourists gave to them.

“So I advise our people to refrain from such approach. Of course, you’d like to talk to somebody there. But most of them don’t speak English anyway. So, if you do so, you’d be putting them at risk for no reason.”

Unfortunately, Keats observed, it’s not just the country that has changed over the years, but the tourists themselves have shown some changes as well. In the early days, tourists came with some research, reading about the society before they visited North Korea. The early tourists were more knowledgeable and inquisitive. But “today’s tourists are more interested in making sure that they’ve been to this place”, Keats said.

Keats believes the idea of going to North Korea as merely going on an “exotic tour” should be discouraged. “We get phone inquiries from people who say they don’t want to be in a group, want to go out and meet local people in North Korea. If you’re so ignorant about how the society there works, you’d think you can just go and talk to somebody on the street. That’s very dangerous.

“I don’t think you have a right to create a situation where somebody there might get into trouble because of your need to go back home and brag that you talked with North Korean people. I think it’s immoral for somebody, particularly from our [US] culture, to do so.”

Keats said no American on his tour so far has been rejected an entry visa to North Korea, but added that people with certain professions would have difficulty getting in. He took an example of journalists. He said he was specifically told by the North Koreans that he would be fined a minimum of US$1,000 per journalist, if found.

For him, however, that’s not the only business risk he has to bear in dealing with the North Koreans. Last year, he suffered a financial setback after the scheduled trip was abruptly canceled after more than 200 Americans had signed up for it.

Understandably, he was not very happy about it. “The problem is that they make changes all the time,” he said. In fact, the travel-permit dates for this year were already a third revision.

Keats said the North Koreans would simply change the dates for foreign visitors and say the foreigners needed to change their arrival dates. “They don’t seem to understand that in some peak travel seasons, changing dates on the air tickets could cost additional money. I don’t think people at the top [in North Korea] really understand how the market works.”

These days, a tour to North Korea usually comes as a four-day-three-night package. That may sound reasonable for a country that is roughly half the size of Minnesota. But the devil is in the details. The first day counts from the day the tourists’ airplane departs from Beijing to Pyongyang. (Foreign travelers usually arrive in Pyongyang via Beijing.) And on the last day, the foreigners have to leave the country at 8am. But that is still technically counted as “one day”.

So, to save time, once arrived, going to the hotel usually becomes the last itinerary of the first day. After stopping by a few places on the way from the airport, tourists go directly to see the Arirang performance, which starts at 7pm.

The Arirang Festival, the high point of any visit to North Korea, is a performance by 100,000 synchronized gymnasts inside the world’s largest stadium, occasioned for a celebration of the birth of the late “Great Leader” Kim Il-sung. It depicts two separated lovers, symbolizing the two Koreas, culminating with their reunion.

In North Korea, among the lists of “must-sees” is Mansu Hill, where a Korean War memorial and statue of Kim Il-sung is located. Others include the Arch of Triumph, Geumsu-san Memorial Palace and Kim Il-sung Mausoleum, a film studio in Pyongyang, and the Korean Central History Museum. Keats has found that these are the places American tourists find particularly interesting.

He said it’s also worth watching how the local people pay their respect to Kim Il-sung at his mausoleum, who is regarded as a deity there. “From a foreigner’s eye, that would be quite a cultural experience.”

Last year, the reclusive country accepted about 20,000 visitors from abroad. The majority were Chinese and South Koreans. Fewer than 2,000 Westerners visited North Korea last year.

So, at the end of having the rare opportunity to see the secretive country, “people are pretty amazed”, Keats said.

“North Korea is a unique system. I think most of the visitors leave with a positive view of the tour, which doesn’t necessarily mean that they get to have a positive view of the country. But they learn more about the country by being there. Seeing it first-hand gives them a much better sense of what is going on there.”

Choson Ilbo (hat tip One Free Korea)
7/20/2007
 
A Korean American businessman has been arrested by the U.S. Federal Bureau of Investigation on charges of hiding his activities as a spy for the South Korean government, AP reported Thursday. According to court documents obtained by the wire agency, Park Il-woo, also known as Steve Park, was a legal resident in the U.S. for the past 20 years and conducted business with North Korea. Park provided information he obtained from his frequent trips to North Korea to the South Korean government in return for payments.

U.S. law requires anyone acting as an agent of a foreign government to register with the U.S. government and disclose the nature of the activity. The FBI met with Park three times to ask about his activities between 2005 and 2007. But each time, Park denied his contacts with or knowledge of certain South Korean officials. Park was expected to appear in court Thursday afternoon.

PR Newswire
7/19/2007

To: NATIONAL EDITORS

Contact: Yusill Scribner of the Office of United States Attorney Michael J. Garcia, Southern District of New York, +1-212-637-2600

NEW YORK, July 19 /PRNewswire-USNewswire/ — Park Il Woo, a/k/a “Steve Park,” was arrested today on charges that he repeatedly lied to FBI agents about his activities in the United States on behalf of the Republic of Korea (commonly known as South Korea), from 2005 to the present, announced Michael J. Garcia, the U.S. Attorney for the Southern District of New York, and Mark J. Mershon, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (FBI).

Agents also executed a search warrant at Park’s Manhattan residence simultaneous to the arrest. According to the complaint and search warrant affidavit, incorporated by reference in the complaint:

Park, 58, a lawful permanent resident of the United States, engaged in conduct in the United States on behalf of the South Korea by, among other things, obtaining information from officials of another foreign government and providing that information to South Korean officials in exchange for payment.

For example, during a recorded telephone call, Park relayed to a South Korean official working in Manhattan that officials of the other foreign government had asked Park to help them obtain certain items, including insecticides and anesthetics. However, the complaint alleges, on three occasions in 2005 and 2007, Park gave false information to FBI agents regarding his contacts with or knowledge of certain South Korean officials.

For example, on March 20, 2007, FBI agents showed Park photographs of certain South Korean officials working in Manhattan, and Park stated that he did not know two of the officials. Park then drove directly from that FBI interview to a restaurant in New Jersey, where he met with one of the South Korean officials he claimed not to know.

Park is scheduled to appear this afternoon before U.S. Magistrate Judge Ronald L. Ellis in Manhattan federal court. Mr. Garcia praised the efforts of the FBI for their efforts in this continuing investigation.

Assistant U.S. Attorneys Jennifer G. Rodgers and Stephen A. Miller are handling the prosecution.

The charges and allegations contained in the complaint and documents incorporated by reference are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

SOURCE U.S. Department of Justice

Wall Street Journal
Melanie Kirkpatrick
7/20/2007

Of all the evidence turned up by the U.S. concerning irregularities in the United Nations Development Program’s operations in North Korea, some of the most disturbing concerns the transfer of dual-use technology.

As reported last month, the U.S. has uncovered documents showing the UNDP procured and delivered to North Korea in May 2006 technology that could be used for military purposes: global positioning system (GPS) equipment, a portable high-end spectrometer and a large quantity of high-specification computer hardware. According to packing lists and confirmation receipts, the items were intended for a “GIS” — geographic information system — project.

The equipment “is the type of technology subject to (U.S.) export controls,” says a spokesman for the Commerce Department’s Bureau of Industry and Security, which is responsible for issuing export licenses. So how did it end up in Pyongyang? It would seem more than passing strange that Commerce would have issued the requisite export licenses. The answer is: It didn’t.

U.S. officials, led by Ambassador Mark Wallace at the U.S. mission to the U.N., have spent a year looking into the UNDP’s operations in North Korea. Now, at the request of the State Department, Commerce searched its archives and found no record of any application for export licenses for the GPS, spectrometer or other equipment for the GIS project in North Korea.

Over the past 10 years, Commerce has received more than 200 license applications to export U.S. technology for U.N. projects in North Korea. Of those applications, the UNDP was named in a grand total of two, including one for software for the same GIS project that was equipped last year. That application was rejected.

Previously undisclosed documents show that the UNDP had been trying to equip the GIS project since at least 1999, when the application for an export license for mapping software was denied. Commerce cited concerns over the lack of safeguards in the project that could result in the software being diverted to the North Korean government and used for military purposes.

Yet seven years later, the UNDP procured and transferred sensitive technology to the same, unsafeguarded project — this time without bothering to apply for a license. And while there’s no evidence the UNDP went ahead and purchased the software for which it had been denied a license, that possibility must be considered, since GPS equipment is useless in such a project without mapping software.

The denial notice for “Case Number: Z177037” is dated Sept. 18, 1999. The “consignee in country of ultimate destination” is listed as the UNDP in Pyongyang. The one-page notice is written in prose that is clear and unambiguous: “The Department of Commerce has concluded that this export would be detrimental to U.S. foreign policy interests.”

The 14 items on the UNDP’s wish list were all classified “EAR99,” which means they are subject to Commerce jurisdiction but didn’t specifically appear on the Commerce Control List of items restricted for export. In discussions over the past several weeks with State Department officials, Commerce officials who examined the archives explained their agency’s decision to deny the export license. During the interagency review of the UNDP request, they say, questions were raised about whether the software would stay in North Korea after the UNDP international staff left and whether North Koreans would have access to the software.

Supporting documents show that the answer to both questions was yes. A letter dated April 5, 1999, from the software manufacturer that was seeking the export license on behalf of the UNDP, explains: “The project is supposed to be completed in three (3) years and the software will be left with the state agencies.”

Emails from the UNDP to Commerce offer further information about the UNDP’s security controls — or lack thereof. An Aug. 3, 1999 email from the UNDP’s Shankar Manandhar, in response to a Commerce query, says, “We would like to inform you that the North Korean nationals will have access to the computer in the project office in [the] presence of UNDP staff.” In another email, Mr. Manandhar notes that the software will be “utilized in the project office.”

The Defense Department recommended to Commerce that the application be denied. In a memo dated July 20, 1999, Defense explains that “These items could pose both national security and proliferation issues for the US and allies if diverted to the North Korean military.” Among the list of potential military applications cited are “planning a nuclear weapons infrastructure or missile launch sites.” And, “it could also be used for targeting.” In the end, as one Commerce official explained, since this type of mapping software can be used for military purposes, it was deemed to be “too great a risk of diversion.”

The Commerce official also says the case notes for the denial specify that several earlier licenses granted to the UNDP in North Korea had been conditioned in such a way that no North Korean nationals were to have access to the licensed items. Oh, really? Based on the UNDP’s replies to Commerce’s questions regarding the 1999 application, the official says that the licensing officer at the time believed it was “highly likely” that the UNDP was violating the terms of its previous licenses by allowing North Koreans access to licensed items. We now know — as confirmed by the U.N.’s preliminary audit of the UNDP’s North Korea operations — that the agency’s local staff were Ministry of Foreign Affairs employees assigned to the UNDP by the government.

It’s also worth noting the year these events took place: 1999. That is, the denial notice originated in Bill Clinton’s Commerce Department, part of an administration that was “conducting a one-sided love affair with North Korea,” in the felicitous phrase of Christopher Cox, then a Republican congressman closely monitoring Asian issues. On Sept. 17, 1999, the day before the issuance of the denial notice, the administration announced it would ease economic sanctions on North Korea. But approving the sale of sophisticated mapping software was a bridge too far even for the Clinton administration.

Since the U.S. went public in January with evidence of the UNDP’s lack of oversight of its programs in North Korea, the agency hasn’t exactly been forthcoming. At first, the UNDP denied that it had purchased dual-use equipment for North Korea, referring instead to “rice husk removers” and “plotters to help the [Korean] authorities more accurately produce maps for environmental monitoring.”

Next it look the line that the GPS equipment, portable spectrometer and computers delivered in May 2006 “do not represent state-of-the-art technology,” as Ad Melkert, the No. 2 UNDP official, put it in a June 28 letter to Zalmay Khalilzad, U.S. ambassador to the U.N. An annex to Mr. Melkert’s letter describes the technology as “not high-end or sophisticated” — an assessment at odds with the representations of the manufacturers. Trimble, for example, maker of the GPS GeoXT Handheld sent to North Korea, describes its product as having “a powerful 416 MHz processor running the most-advanced operating system available.” Mr. Melkert says in the annex that the UNDP is investigating “whether the vendors [in the Netherlands and Singapore] were required to obtain export permits for these items” — which sure sounds like an effort to shift responsibility.

Since January, when the U.S. concerns were made public, the UNDP has pulled out of North Korea and the U.N. audit has confirmed extensive violations of U.N. rules regarding hiring practices, the use of foreign currency and site inspections. The latest U.S. revelations raise far more serious questions about the UNDP’s oversight. Under the most generous interpretation, the agency was negligent of its legal responsibilities to keep dual-use technology out of a country that is on the U.S. list of terror-sponsoring states. At worst, it deliberately transferred the technology, knowing it was breaking U.S. law and helping to strengthen Kim Jong Il’s military dictatorship.

These questions — and many more concerning the UNDP’s record in North Korea — highlight the need for an independent, external inquiry of the UNDP’s programs world-wide. The U.S. first went public with its concerns in January, after months of pressing the UNDP for more transparency. If anything, as the latest U.S. evidence shows, things are worse than anyone thought.

Ms. Kirkpatrick is a deputy editor of the Journal’s editorial page.

Washington Post, Page A18
Colum Lynch
6/24/2007

Over the past six months, the Bush administration has repeatedly criticized the U.N. Development Program for channeling millions of dollars in hard currency into North Korea to finance the agency’s programs, warning that the money might be diverted to Pyongyang’s nuclear weapons program.

But the United States also has funneled dollars to Kim Jong Il’s regime over the past decade, financing travel for North Korean diplomats and paying more than $20 million in cash for the remains of 229 U.S. soldiers from the Korean War. And in a bid to advance nuclear talks, the Bush administration recently transferred back to North Korea about $25 million in cash that the Treasury Department had frozen at Banco Delta Asia, a Macao-based bank that the United States had accused of laundering counterfeit U.S. currency on behalf of North Korea.

Such transactions emphasize philosophical differences in the administration over the wisdom of engaging with North Korea and highlight the compromises that the United States, the United Nations and others face in dealing with Pyongyang.

“The U.S. has no moral high ground,” said Michael Green, a former special assistant to President Bush who served as senior director for Asian affairs in the National Security Council. “In terms of bribing Kim Jong Il, UNDP is a minor offender.”

North Korea’s regime has skillfully extracted hundreds of millions of dollars in bribes from foreign companies and governments, and has persuaded South Korea and China to supply billions of dollars’ worth of food and fuel with virtually no oversight. South Korea reportedly paid hundreds of millions to bribe the North Korean leader to attend a 2000 summit, and China agreed in 2005 to build a $50 million glass factory for North Korea in exchange for its participation in six-nation nuclear talks.

Such payments are “part and parcel of doing business in North Korea,” said L. Gordon Flake, executive director of the Mansfield Foundation, a nonprofit organization that promotes U.S. relations with Asian countries.

Since 1995, the United States has provided the North Korean regime with more than $1 billion worth of food and fuel in the hopes of forestalling famine — and of restraining Kim’s nuclear ambitions. In an effort to promote diplomatic contacts between the two countries, the Energy Department has channeled money to U.S. nonprofit agencies and universities, including a $1 million grant to the Atlantic Council to cover travel costs for informal talks between U.S. and North Korean diplomats.

U.S. military officials routinely traveled to North Korea’s demilitarized zone between 1996 and 2005 to give cash to North Korean army officers for the recovery of the remains of 229 of the more than 7,000 U.S. troops missing in North Korea since the Korean War. “There was a painstaking transfer process: cold, hard cash, counted carefully, turned over carefully,” said Larry Greer, spokesman for the Pentagon’s Prisoner of War/Missing Personnel Office.

Greer insisted that the payments, which covered labor, material and other expenses, were in line with recovery operations in other parts of the world. But he and other officials said North Korea frequently tried to inflate the costs and once requested that the U.S. military build a baby-clothing factory. The United States demurred, he said.

The Bush administration dramatically scaled back U.S. assistance to North Korea in 2002, but it continued to finance the effort to recover remains of Korean War veterans until 2005, when the U.S. military said it could no longer ensure the safety of U.S. recovery teams. Between 2002 and 2005, the United States flew a seven-member North Korean team, at a cost of $25,000 a year, to Bangkok for discussions about future recovery missions, according to the Congressional Research Service.

“It’s pretty close to a ransom of remains,” said James A. Kelly, U.S. assistant secretary of state for East Asian and Pacific affairs, adding he had little confidence that Washington could account for how the money was spent. “I personally didn’t like it, but I didn’t feel it was enough to get into a big squabble with the veterans organizations that felt strongly about it.”

Mark D. Wallace, the U.S. representative to the United Nations for administration and reform, lambasted the U.N. Development Program earlier this year for engaging in similar practices. For instance, he faulted the UNDP for flying a North Korean official in business class to New York at a cost of $12,000 to attend a meeting of the U.N. agency’s board of directors.

His complaints triggered a preliminary U.N. audit this month that confirmed that the UNDP had failed to abide by its rules by hiring workers handpicked by the North Korean government and paying them in foreign currency.

The UNDP operated for years “in blatant violation of U.N. rules [and] served as a steady and large source of hard currency” for the North Korean government, Wallace said. The UNDP’s efforts, he added, have been “systematically perverted for the benefit of the Kim Jong Il regime, rather than the people of North Korea.”

The controversy led the UNDP to suspend its North Korean operations in March after the government refused to allow it to independently hire staff members. The World Food Program and the U.N. Children’s Fund — which also pay government-supplied workers in foreign currency — remain active in North Korea.

Wallace has expanded his inquiry, alleging in congressional briefings that North Korea diverted nearly $3 million in UNDP cash to purchase real estate in France, Britain and Canada. He also contended that the UNDP received tens of thousands of dollars in counterfeit U.S. currency and imported sensitive “dual use” equipment into North Korea that could be used for a weapons program. The United States claims to possess internal UNDP documents to back up the claims but has refused to turn them over.

UNDP spokesman David Morrison said that the allegations “don’t seem to add up” and that the United States has not substantiated its assertions. He said the agency can account for the $2 million to $3 million it spends each year on its North Korea programs. UNDP officials said the dual-use equipment — which included Global Positioning System devices and a portable Tristan 5 spectrometer available on eBay for $5,100 — was part of a weather forecasting system for flood- and drought-prone regions.

“We have been subject to all manner of wild allegations about wide-scale funding diversion,” Morrison said.

U.S. officials said there is no link between criticism of the UNDP and U.S. efforts to restrain North Korean nuclear ambitions. “If I were a conspiracy theorist, I would think that way, but there is really no connection,” said a senior U.S. official who tracks the issue.

Joong Ang Daily
6/13/2007

A U.S. congressman on Monday demanded changes to a tentative free trade agreement with South Korea, which he said could allow the Asian trading partner to export North Korea-made goods to the United States.

Rep. Sander Levin (D-Michigan) sent a letter to U.S. Trade Representative Susan Schwab raising questions about a draft FTA annex that deals with “outward processing zones” on the Korean Peninsula.

South Korea and the U.S. had maneuvered around the sensitive issue of the inter-Korean joint economic venture, the Kaesong Industrial Complex, by agreeing to discuss in the future whether to include products from such “zones” in their FTA.

Kaesong houses a manufacturing complex where South Korean capital is combined with North Korean cheap labor to produce price-competitive goods. Seoul strongly pushed to have Kaesong covered by the FTA, but the U.S. balked at the idea of importing products made in a country with such a poor human rights record.

Levin, who has already vowed opposition to the FTA, citing unsatisfactory provisions in the auto sector, said Annex 22-C on the zones applies labor standards different from those agreed on between the Congress and the U.S. administration.

The annex directs the committee to examine the standards with “due reference to the situation prevailing elsewhere in the local economy and the relevant international norms.”

“To apply any lesser or different standard for goods from North Korea,” Levin wrote, “would be wholly inconsistent with… basic international labor standards.”

Yohnap
6/12/2007

The chief executive officer of the world’s largest drugmaker, Pfizer Inc., plans to visit a hospital in North Korea this week, the company’s South Korean subsidiary said Tuesday.

Jeff Kindler, along with around 40 Pfizer officials, is scheduled to visit the Kaesong Hospital in the inter-Korean industrial park in Kaesong on Thursday, Pfizer Pharmaceutical Korea said in a statement.

The chief executive officer was to arrive in South Korea later in the day for a three-day visit. He is to meet with local health officials and sign a memorandum of understanding with the Health Ministry during his visit.

During his first trip to South Korea, Kindler also plans to visit local research centers, including the state-run Korea Research Institute of Bioscience and Biotechnology, to discuss possible joint projects for development of new drugs, the statement added.

The New York-based company manufactures the world’s No. 1 selling blood cholesterol drug Lipitor and the well-known erectile dysfunction drug Viagra. Kindler took the helm of the company in February.

Korea Times
Lee Jin-Woo
5/30/2007

U.S. Ambassador to Seoul Alexander Vershbow said on Wednesday Washington is prepared to move forward toward the establishment of normal relations with North Korea.

“We are ready to begin the process of removing North Korea from the list of state sponsors of terrorism and from the application of the Trading with the Enemy Act,” Vershbow said at a symposium in Seoul.

But progress on all these tracks depends on achieving the complete elimination of Pyongyang’s nuclear weapons programs, he said.

“We’re not ready to settle for a partial solution. It is only with complete, verifiable and irreversible denuclearization that we can contemplate the full normalization of relations,’’ he said.

Under the Feb. 13 accord in the six-party talks, the United States agreed to begin talks with the communist North over normalizing diplomatic relations. The two countries have had no diplomatic relations since the 1950-53 Korean War, which divided the Korean Peninsula into the two Koreas. The conflict ended in a cease-fire, but no peace treaty was signed.

The ambassador also hinted that the United States might urge the Banco Delta Asia (BDA), a bank in Macau where the North funds have been frozen, to replace its management, who they hold responsible for helping the North with counterfeiting and money laundering.

Meanwhile, U.S. Assistant Secretary of State Christopher Hill said in Beijing North Korea is appeared ready to follow through on the February agreement.

“Once they have their funds from the bank, they are prepared to do their part of the bargain, which is to shut down the Yongbyon plant,’’ Hill was quoted as saying by the Associated Press. The U.S. envoy was referring to the BDA issue.

Hill rejected suggestions that the six-party disarmament negotiations, which have been stalled since February, were dead.

Hill exchanged ideas with his Chinese counterpart Wu Dawei on ways to resolve the stalled nuclear issue but did not give specific details, the AP reported.

Washington Post
Glenn Kessler
5/17/2007

Wachovia Bank Considering State Department Request

Wachovia Corp. said yesterday that it is considering a request from the State Department to transfer tainted money tied to North Korea from an overseas bank blacklisted earlier this year by the Treasury Department.

The State Department has scrambled to persuade banks around the world — including U.S. banks — to transfer the money, but financial institutions have been unwilling to shoulder the risk, because they do not want to run afoul of the Treasury Department. The failure to find a willing bank has left in limbo a deal inked in February that the Bush administration had called a breakthrough in the impasse over North Korea’s nuclear ambitions.

Pyongyang was supposed to shut down its reactor at Yongbyon by April 14, but has refused to do so until $25 million it holds in the blacklisted bank, Banco Delta Asia, is released. The bank is located in the Chinese special administrative region of Macao.

In response to an inquiry, spokeswoman Christy Phillips-Brown of Wachovia said that the Charlotte-based bank had “been asked, on a nonprofit basis, by the U.S. State Department to help them process an interbank transfer of funds held at other banks, which are the subject of negotiations with North Korea,” adding: “We have agreed to consider this request, and our discussions with various government officials are continuing.”

Phillips-Brown said that Wachovia, which had been a U.S. correspondent bank for the Macao bank, is “fully compliant” with sanctions involving North Korea but that “we take any request for assistance from our government seriously and endeavor to cooperate whenever possible.” She added that the bank “would not agree to any request without appropriate approvals from our regulators.”

The United States agreed in February to end a banking investigation that had frozen about $25 million in North Korean money, but in March the Treasury Department cut off the Macao bank from the U.S. financial system. Treasury officials said that nearly half of the money was obtained through illicit activities, such as money laundering and counterfeiting. But in an effort to win North Korea’s cooperation, U.S. officials agreed to return all of the money to Pyongyang. Yet the transfer has proved impossible to arrange.

U.S. government officials first disclosed the request made to Wachovia. Treasury officials declined to comment, but sources said that many officials are dismayed that the administration is now asking a major U.S. bank to work around an order issued two months ago. Some White House officials have also objected to using a U.S. bank, but Secretary of State Condoleezza Rice supports the possible deal with Wachovia.

“I can assure you . . . we are not going to allow $25 million or even $26 million to get between us and a deal that will finally do something about nuclear weapons on the Korean peninsula,” Assistant Secretary of State Christopher R. Hill told the Korea Society on Tuesday. “We are going after this problem until we solve this problem.”

The Treasury Department has not been involved in the effort to find a financial institution to handle the money, leaving the search to the State Department. But Treasury would need to grant significant waivers, such as special permission for a U.S. bank to deal with Banco Delta Asia. One senior U.S. official said that it is not clear “what universe of waivers” would be needed to ease the bank’s concerns that it would not be putting its reputation at risk.

Deputy Russian Foreign Minister Alexander Losyukov told the RIA Novosti news agency yesterday that Russian banks had refused to handle the transfer. “Until the U.S. Treasury lifts restrictions on operations with Banco Delta Asia, no sensible banks will deal with transfers of North Korean funds,” he said.