North Korean Economy Watch

Yonhap
1/25/2007

North Korea on Thursday rejected a U.S. allegation that it misused funds from the United Nations Development Program (UNDP), accusing Washington of conducting a smear campaign to increase pressure on Pyongyang.

The United Nations announced this week that an audit will be conducted of the UNDP operations in North Korea after Washington alleged it had funneled immense cash payments to Pyongyang.

The UNDP aid projects in North Korea “have been carried out strictly in conformity with the U.N. regulations and in a transparent way,” a spokesman for Pyongyang’s Foreign Ministry said in an answer to a question by the Korean Central News Agency, the North’s official media outlet.

U.S. deputy ambassador Mark Wallace alleged last week that the UNDP’s operation in the North had been run “in blatant violation of U.N. rules” for years and that millions of dollars ended up in the hands of North Korean leader Kim Jong-il. The UNDP denied the U.S. allegation, while U.N. Secretary General Ban Ki-moon, a South Korean, announced an external audit of U.N. programs on Monday.

“Nevertheless, the United States is kicking up another anti-DPRK racket over not much aid funds of the UNDP from the outset of the year to meet its dirty political aims,” the spokesman said.

North Korea said it will continue to develop its cooperative relations with the UNDP.

“However, it will not allow any attempt to politicize the aid project nor accept conditional or unjust aid at all. The U.S. will be wholly accountable for all consequences to be entailed by its ongoing reckless campaign against the DPRK,” the unidentified spokesman said.

Korea Times
Chang Se-moon
1/23/2007

Obviously, it is important to know the correct answer to this question. Sanctions that have no impact on North Korea’s economy will not change the behavior of North Korean leaders. If sanctions do have a significant impact, the possibility that North Korean leaders may be tempted to resolve the pending security issues through negotiations exists.
In answering the question, however, we need to keep in mind what the British economist John Maynard Keynes (1883-1946) said: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor draw correct conclusions.’’ In plain English, Keynes stressed an unbiased economic way of thinking that could help us draw correct conclusions. In other words, until we review all the facts with an open mind we should not make up our minds.

This is exactly what we will do by assessing the impacts of economic sanctions on North Korea.

The first question that comes to mind is which sanctions are we talking about. If we review U.S. sanctions on North Korea since the outbreak of the Korean War in 1950, there would be too many sanctions imposed on North Korea to be practical. There are three important sanctions that are still in effect, however. One is the U.S. denial of a Most Favored Nation (MFN) trade status on North Korea’s exports.

This sanction was imposed on North Korea’s exports to the United States on September 1, 1951, following the outbreak of the Korean War. MFN tariffs are the lowest tariffs that are levied on imports to the U.S. Over 99 percent of imports to the United States qualify for the MFN tariffs. Without MFN status, tariffs on North Korean exports to the United States are so high that North Korea simply cannot even imagine exporting anything to the United States.

The second of the three important sanctions stemmed from the bombing of Korean Air 858 by North Korean agents on November 29, 1987. The explosion killed 115 innocent passengers and crew members. On January 20, 1988, North Korea was placed on the list of countries that supported international terrorism according to the U.S. Export Administration Act of 1979.

The importance of this sanction is that placement on the list has made it impossible for North Korea to borrow money from international financial institutions including the World Bank and the International Monetary Fund. Like the denial of MFN status, the placement of North Korea on the list of countries supporting international terrorism continues to this date.

The third of these three key sanctions relates to tightening of North Korea’s illegal financial transactions, which culminated in Banco Delta Asia’s termination of business dealings with North Korea as of February 16, 2006. You may know that Banco Delta Asia had long been suspected of handling North Korea’s illicit activities overseas such as laundering of counterfeit U.S. dollars and sales of illegal drugs

Banco Delta Asia is located in Macao, which is a Special Administrative District of China. Tightening of North Korean financial transactions was extended to North Korean trade during 2006. This added pressure on North Korea originated from U.N. Resolution 1540 following North Korea’s test-launching of long-range missiles on July 5, 2006, as well as from U.N. Resolution 1718 which followed North Korea’s nuclear test on October 9, 2006.

Are these sanctions having an impact on North Korea’s economy? Perhaps, a more accurate question is whether these sanctions are placing enough pressure on North Korean leaders to reconsider the possibility of returning to the negotiation table?

One aspect is the status of North Korea’s trade deficit. As you probably know, North Korea buys from other countries much more than it sells to other countries. When the amount of imports exceeds the amount of exports it’s called a trade deficit. North Korea’s annual trade deficit averaged about $800 million from 2003 to 2005. This figure does not include North Korea’s trade deficit against South Korea, since South Korea appears to consider any financial support to the North as a long-term investment rather than a trade deficit.

How has North Korea been paying for the trade deficit? The ways have been unique. Almost the entire deficit appears to have been financed by weapons sales, illicit activities, and funds flowing from South Korea through joint projects.

In fact, a study by the Korean Institute for Defense Analysis indicates that full implementation of U.N. Resolution 1718 would cause North Korea to lose just about the same amount ($700 million to $1 billion) by stopping exports of weapons and illegal drugs and counterfeit money.

The Economist Intelligence Unit is quoted to have estimated in 2003 that “North Korea earned as much as $100 million a year from counterfeit money, while in 2005, a U.S. task force estimated that “$45 million to $60 million in Pyongyang’s counterfeit currency (primarily in U.S. $100 bills) is in circulation,’’ reportedly, including some in Seoul’s Namdaemun Market.

Assuming that recently added sanctions will cause North Korea to lose about $800 million that it has been earning overseas each year, the next interesting question is how North Korea will pay for the annual trade deficit of $800 million in the future? If North Korea does not pay for its imports, other countries will refuse to sell products to North Korea and the North Korean economy will suffer.

North Korea cannot borrow from world financial institutions because of the 1988 U.S. sanctions that branded North Korea as one of countries supporting international terrorism. They cannot use the money from foreign direct investment because China and Korea are the only two countries that have been willing to invest in North Korea, but the combined amount is not even close to paying for the annual trade deficit.

Think of it this way. If you borrow money every year, and lenders believe that your ability to pay off the debt is rapidly declining, will lenders continue to lend you money? Not likely. With sanctions adversely affecting North Korea’s ability to pay for imports, North Korea will find it increasingly difficult to buy what it needs. The breaking point may not be imminent, but the future is predictable.

This is what I think will happen. North Korea will ask China to increase its foreign direct investment in North Korea by giving China more incentives for such investment. These incentives may include low taxes and free land. North Korea will ask South Korea to send more money.

For instance, as of July 1, 2004, Hyundai Asan and North Korea set the entrance fee to Mt. Kumkang at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1, 2005, these fees were raised to $15, $35, and $70. On July 1, 2006, these fees were raised again to $30, $48, and $80. This is just one way.

North Korea may also ask South Korea to lend it a large sum of money with an empty promise of paying it back. This explains in part why it is so important for North Korea to have leaders of the South Korean government who are friendly to North Korea.

These desperate acts are likely to be very short of paying for the majority of the annual trade deficit. If sanctions continue to be effective, the likelihood of North Korea returning to the negotiation table increases. Economics is rarely boring, especially when it deals with real problems.

Christian Science monitor
Donald Kirk
1/22/2007

More than a century after American mining engineers first opened up North Korea’s gold mines, a fortune in gold and other metals and minerals offers the prospect for North Korea to ease the pressures of financial sanctions.

The question, however, is whether North Korea can navigate around a US Treasury order that forbids institutions doing business in the United States from dealing with Banco Delta Asia in Macao, the main avenue for North Korean financial dealings.

The Treasury ban, first promulgated in 2002, has effectively frozen the North’s efforts to conduct international business. While it doesn’t extend to gold, market experts say that US officials have made it clear that banks should not buy North Korean gold.

“The US has been using coercion, innuendo, and sheer force to intimidate banks from dealing with North Korea,” says Colin McAskill, chairman of Koryo Asia Ltd., which invests in North Korea through the Chosun Development & Investment Fund. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely. We’re at a very delicate stage.”

North Korea, says Mr. McAskill, “wants to move back into legitimate business.” Selling gold on the London market – the world’s largest – “is one way they can prove that,” he adds. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

One indication of North Korea’s need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North’s central bank as a “good deliverer” of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank’s listing was suspended 2-1/2 years ago when it failed to respond to LBMA requests for “proactive monitoring.”

The LBMA said it does not “take into account any political criteria,” and will keep the bank on its rolls for another three years without monitoring.

Despite the listing, market experts say the big banks that are major buyers of gold – and form the LBMA’s core membership – are not likely to flout the spirit of the US Treasury order against Banco Delta Asia, through which North Korea exported gold prior to the ban.

“The fact that they’re on the list does not mean they can deliver to the London market,” says Stewart Murray, the LBMA’s chief executive. “When we have sanctions, none of the facilities will accept delivery from a company or a country that is subject to these sanctions,”

Trying to build momentum for talks

The reluctance of buyers in London to deal in North Korean gold, widely seen as the likeliest legal way to mitigate the impact of the banking ban, adds urgency to another effort at six-party talks on North Korea’s nuclear weapons.

The chief US negotiator, Christopher Hill, has been traveling through northeast Asia, stopping off here, in Tokyo, and in Beijing after talks in Berlin last week with his North Korean counterpart, Kim Kye-Gwan. The Chinese are expected to set a date for renewing the talks, which broke off before Christmas amid North Korean demands for the US to lift the ban on Banco Delta Asia.

North Korea raised hopes for renewed six-party talks, saying “a certain agreement” was reached in Berlin last week. Neither Mr. Kim nor Mr. Hill have provided details, but analysts suspect that the two discussed the financial issue and its relationship to the ultimate purpose of six-party talks: getting North Korea to give up its nuclear weapons.

North Korea has been renewing its drive to sell gold for the past year since submitting to the LBMA’s monitoring requirements. At the same time, the North has sold relatively small amounts of gold in Thailand, with which it has developed a strong trading relationship in recent years. Last spring, North Korea exported 1.3 tons of gold to Thailand for nearly $30 million while also looking for markets elsewhere in the region.

“Why would you go to the trouble of going to London,” asks Roger Barrett, whose firm, Korea Business Consultants in Beijing, is helping to develop gold mining in North Korea. “They’re totally entitled to sell their gold.”

No reports of exports since July

Yet there have been no reports that North Korea has exported any gold since testing seven long-range missiles in July. Since the North conducted an underground nuclear test in October, which resulted in deeper sanctions from the UN Security Council, dealers have reportedly been even more reluctant to buy North Korean gold.

Estimates of North Korea’s gold reserves range as high as 2,000 tons, but mining has been sporadic since British, American, and then Japanese interests mined for gold beginning in the 19th century. With foreign expertise, North Korean mining may return to the period between 1983 to 1993, when its central bank sold an average of one ton a month on the London market.

“What we’re doing is normal business,” says Mr. Barrett in Beijing, explaining the efforts at reviving the mining industry. “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

From Fox News
George Russell
1/19/2007

U.S. State Department Reveals North Korea’s Misuse of U.N. Development Program Funds and Operations

Has North Korean leader Kim Jong Il subverted the United Nations Development Program, the $4 billion agency that is the U.N.’s main development arm, and possibly stolen tens of millions of dollars of hard currency in the process?

According to a top official of the U.S. State Department — using findings made by the U.N.’s own auditors — the answer appears to be a disturbing yes, so far as UNDP programs in North Korea itself are concerned.

And just as disturbingly, the U.N. aid agency bureaucracy has kept the scamming a secret since at least 1999 — while the North Korean dictator and his regime were ramping up their illegal nuclear weapons program and making highly publicized tests of intermediate range ballistic missiles.

Nothing was disclosed even to the UNDP Executive Board, which oversees its operations and is composed of representatives of 36 nations — including the United States and, this year, North Korea itself.

That fact is sure to be a bombshell at the Executive Board’s regular annual meeting, which begins Friday and extends through Jan. 26. Among the main items to be discussed is the $18 million, two-year UNDP budget in North Korea.

Moreover, the period of scandal and secrecy in the UNDP’s North Korean operations coincided in large measure with the tenure of Mark Malloch Brown, most recently Deputy Secretary General of the United Nations itself, as administrator of the UNDP.

[…edited…]

From at least 1999 to at least 2004, it appears the UNDP, and the U.N. itself, had no idea what Kim Jong Il did with the aid agency’s money, ostensibly intended for aid programs ranging from development of energy programs and small and medium sized businesses, and for environmental protection.

But the UNDP had plenty of warnings from auditors it had contracted to look at the program during that period, and who signaled loudly that something was badly awry.

In a letter sent to the UNDP on Jan. 16, Mark Wallace, the U.S. State Department ambassador at the U.N. for management and reform, wrote that the auditors’ testimony shows it is “impossible” for the U.N. aid agency to verify whether its funds “have actually been used for bona fide development purposes or if the DPRK [North Korea] has converted such funds for its own illicit purposes.”

Ironically enough, neither Wallace nor the U.S. government has been allowed to obtain copies of the audits, which are deemed “management tools” by UNDP bureaucrats and therefore not even available to governments that pay for the organization.

Their contents came to light only after Wallace and the U.S. demanded an opportunity to view the audits at UNDP headquarters, and took careful notes based on the documents. Wallace reiterated the contents in his letter, addressed to Ad Melkert, the UNDP’s No. 2 official.

The difficulties in finding out what the UNDP was doing in North Korea were apparently something that U.S. diplomats and UNDP auditors shared.

Wallace relates in his letter that whenever the auditors, contracted from the consulting firm KPMG, tried to discover what was going wrong, they were either limited in what they were allowed to investigate, or they were forced to accept “sham” audits done by the North Koreans themselves.

The picture painted by the auditors, according to Wallace, shows a U.N. agency that “operated in blatant violation of U.N. rules.”

The UNDP allowed members of Kim’s regime to “dominate” local UNDP staff, who were apparently first selected by the North Korean government itself, the auditors said, and added that Kim’s operatives even ran “core” financial and managerial functions directly.

The regime also demanded cash payments from the aid agency in violation of U.N. rules, and kept UNDP officials from visiting many of the sites where development projects were supposed to be underway.

On at least three occasions, in 1999, 2001 and 2004, the KPMG auditors filed reports that brought troubling aspects of the situation to the attention of UNDP headquarters, recommending “timely corrective action.” There is no evidence that any such action took place.

Just exactly how much money the UNDP funneled into North Korea in all those years is not revealed in Wallace’s letter. But he notes that in 1999 there were 29 ongoing UNDP projects in North Korea, with a total budget of $27.86 million. Two-thirds of the programs were so-called “National Execution programs” run by North Korea directly, using UNDP money. The other third was ostensibly run by UNDP itself.

But that may not have made a difference. The auditors complained that even UNDP-run programs paid for everything in cash, which is against UNDP policy, at prices set by the Kim regime, and to suppliers that the regime designated. There were not even any purchase orders involved. The regime provided no audits of the programs under its own direct control.

In his letter to Melkert, Wallace called for a “full independent and outside forensic audit” of UNDP’s programs in North Korea, going back to at least 1998.

Only “the bright light of real oversight” would allow the UNDP’s overseers to decide whether any or all of the programs should be continued, he said.

According to a report from the US Commerce Department, the US registered just $3,000 worth of exports to the DPRK, and it seems that it was just a single shipment of publicaitons.   This number does not count trade through third countries, and it does not count the occasional tourist or businessman who manages to get a visa.

US/DPRK trade would have been much higher this hear if the DPRK had gone through with the Arirang Mass Games last August.  Just about every tour company that offers trips to the DPRK was sold out with Americans eager to visit one of the most isolated countries in the world.

This story should be sobering to those who are trying to promote regime change in the DPRK through economic sanctions.  I personally think that the sanctions should be lifted for three reasons.  Firstly, only through increased trade will a constituency of elite North Koreans be able to consolidate resources and leverage their political influence for greater openness to international intergration.  Of course these things take time, but there are politicians in the DPRK who want this.  Blockades only strenghen the military and those prone to isolationist tendencies. Secondly, as far as I know, sanctions have never resulted in regime change.  Recent examples include Cuba, Iraq, South Africa, Lybia, Iran, and North Korea.  Sanctions punish the people who have no political recourse and entrench the ruling elites.  Thirdly, trade will promote the flow of information into the DPRK (which combined with non-militarism) will improve the domestic climate for opening up.

Here is the trade story:
Yonhap
12/4/2006

Bilateral trade between the United States and North Korea reached a mere US$3,000 in the first nine months of this year, a sharp drop from a year earlier, a state-run trade agency said Monday.

In the January-September period, the United States registered no imports from the communist country, with the only export item being publications, the Korea Trade Investment Promotion Agency (KOTRA) said in a report, citing the U.S. Commerce Department. The U.S. exported humanitarian food aid to North Korea worth $5.8 million last year.

From Businessweek:
Joe McDonald
11/5/2006

In the midst of tensions over North Korea’s nuclear program, a Western company is there searching for oil. Another just bought a bank.

“North Korea is hungry for business,” said Roger Barrett, the British founder of Beijing-based Korea Business Consultants, who recently took 11 Asian and European clients to Pyongyang to play golf and make contacts.

A small group of Westerners are taking on the challenge of doing business in the isolated North, hoping to get in on the ground floor as its communist rulers experiment with economic reform.

The obstacles are daunting. A Stalinist dictatorship, bureaucracy and language barriers. Foreign sanctions that block most financial transfers, making it hard to get paid and to get supplies. And now worries that United Nations sanctions imposed after North Korea’s Oct. 9 nuclear test could be expanded to a general clampdown on trade.

But the Westerners talk positively about the North as a business environment, with skilled workers and leaders who they say welcome foreign investment.

“They are very skillful and hardworking,” said Felix Abt, a Swiss businessman who oversees two ventures in Pyongyang, one that makes business and game software for sale in Europe and another that makes antibiotics and painkillers for the domestic market. “It’s sometimes faster to get licenses and necessary approvals here than it is in China or Vietnam.”

Barrett said that even as the U.N. Security Council debated the latest sanctions on the North, he got inquiries from investors interested in its rich mineral resources and low-cost manufacturing work force.

“Investors are rushing into China, but labor costs there are escalating, and companies are looking for an alternative,” Barrett said. North Korea “has absolutely the capabilities to take off like South Korea.”

So far the largest foreign business community in North Korea is from China, its main source of trade and aid.

South Korea accounts for most of the North’s foreign investment, with stakes totaling $620 million in an export-manufacturing zone and a resort for foreigners. China’s investments total just $31 million, according to the Chinese Commerce Ministry.

U.S. regulations allow American companies to trade with North Korea under limited conditions, though tensions between the governments and lack of diplomatic relations raises the risk of doing business. Britain, Germany, Sweden and other Western governments, meanwhile, have official relations with Pyongyang.

North Korea’s foreign trade has risen sharply, though the total was less than $4 billion last year, according to South Korean and Chinese government figures. Trade with the South soared by more than 50 percent in 2005 to just over $1 billion.

Most trade is carried out by North Korean state companies, not private entrepreneurs. And some partners are shying away. Trade with Japan, once the North’s No. 1 trading partner, tumbled from $1.3 billion in 2001 to just $200 million last year amid tensions with Tokyo over North Korea’s abduction of Japanese nationals in the 1970s and ’80s.

The Europeans’ chamber of commerce in Pyongyang had 12 members when it was launched last year. They include delivery company DHL Express, an Italian law firm and a German venture founded in 2003 to provide Internet access to foreign businesses in Pyongyang.

This tentative foothold follows the slow pace of economic reform in North Korea. Only in 2002 did North Korean leader Kim Jong Il allow limited free enterprise to revive a decrepit economy, which teetered in the 1990s following the loss of Soviet aid and then collapsed amid widespread food shortages. Still, foreign observers say officials are reluctant to give up control, despite prodding from Beijing, which wants faster reforms to reduce its ally’s dependence on aid.

Abt, the Swiss businessman, moved to Pyongyang in 2002 after seven years working in Vietnam, another Asian communist economy in the throes of reform.

“I heard that some economic reforms were in the pipeline, and I was quite thrilled to experience the beginning,” said Abt.

Now his Vietnamese wife takes their 14-month-old daughter to play at an international school. After work, he goes out to sing karaoke with North Korean co-workers.

But Abt has felt the bite of efforts to pressure the North.

Foreign banks have been leery since Washington last year sanctioned Macau’s Banco Delta Asia, which the U.S. said helped the North launder money. China told its banks this month to curtail financial transfers to or from the North.

“It’s getting difficult to make bank transfers to suppliers or to get money from customers,” Abt said.

He worries that the factory might have to shut down if U.N. sanctions block imports of required chemicals on the grounds that they also could have military uses.

Barrett said his clients have lost access to $11 million in Banco Delta Asia accounts that were frozen by the U.S. sanctions.

Colin McAskill, a British businessman who has done business with the North since the 1970s, is lobbying Washington to fine-tune its sanctions so the bank’s customers can withdraw money that was made legally.

McAskill is chairman of Hong Kong-based Koryo Asia Ltd., which said in September it was buying a 70 percent controlling stake in Daedong Credit Bank, North Korea’s first foreign-owned financial institution. The bank, which is 30 percent owned by a North Korean bank, serves foreign companies and has accounts at Banco Delta Asia.

North Korea also has turned to Western investors in hopes of developing oil resources and reducing its near-total reliance on China for fuel. It awarded a 20-year exploration concession last year to Aminex plc, a London firm.

Aminex is helping the North Korean government deal with other foreign companies, and in exchange gets to pick where it will drill for oil, its chief executive, Brian Hall, said by phone from London.

Aminex hasn’t felt any effects from the nuclear tumult, Hall said.

“We have good relations and no problems with the agreements but are closely watching the political situation,” he said.

From the New York Times:
10/17/2006

Even at 64 years old and in failing health, James Dresnok projects an imposing figure. Six-foot-five with a huge frame and giant jowls, he speaks into the camera with a firm, distinct Southern accent. Metal teeth glint as he talks. “I will give you the truth; I’ve never told anyone before,” says Mr. Dresnok, a former soldier, a defector and, for the last 44 years, a resident of Pyongyang, North Korea.

Mr. Dresnok is at the center of Daniel Gordon’s documentary “Crossing the Line,” along with the stories of three other American defectors who crossed the 2.5-mile, landmine-strewn demilitarized zone to live in North Korea. The documentary is Mr. Gordon’s third look inside the secretive Democratic People’s Republic of Korea. The first, “The Game of Their Lives,” examined the 1966 World Cup soccer team that defeated the Italian team and made it, against all odds, to the Cup’s quarterfinals. Then “A State of Mind” followed two young girls participating in the North’s overwhelming Mass Games.

The director met his co-producer, Nick Bonner, in 1997 while researching the North Korean soccer team. Mr. Bonner has been working with North Korea from Beijing for 14 years as the director of Koryo Tours, a travel agency. “The Game of Their Lives” made the two men minor celebrities in North Korea. “We have taken an apolitical viewpoint, with interviews from both sides of the spectrum,” Mr. Gordon wrote in an e-mail message. “Our previous films have been shown both in North and South Korea,” a testament to the neutrality of the films, he wrote.

But “Crossing the Line,” which had its world premiere on Monday night at the Pusan International Film Festival in South Korea, explores more political and controversial territory. “This was the story that we thought we could never tell,” Mr. Bonner said in an interview after the film’s premiere. “But we said to the North Koreans, if someone does not make this film soon, you won’t ever have any record.”

Mr. Dresnok was born poor in Norfolk, Va., in 1941. His parents divorced when he was 9. His father then abandoned him, and he ended up bouncing through a series of foster homes. On his 17th birthday he enlisted in the Army. When he returned from service in Germany, his wife wanted a divorce. Even now, decades later, the memory makes him cry. “I’m just thankful we never had any kids, because I swore I would never leave my children,” he says as he breaks down in the film.

Soon after, he re-enlisted and was assigned to South Korea, but his bitterness led him to spend his money on prostitutes and drinking. “I was fed up. If I died or I lived, I didn’t care.” At noon on Aug. 15, 1962, with a court martial looming for forging a pass, Pfc. James Dresnok took the 12-gauge shotgun he was cleaning and, wearing his fatigues, walked across the DMZ in broad daylight.

Once in the North, he joined Pvt. Larry Allen Abshier, who had defected three months earlier. In December 1963, Specialist Jerry Wayne Parrish also defected, and then Sgt. Charles Robert Jenkins in January 1965. Together, the four became propaganda heroes for the North.

After a couple of years in North Korea, though, the cultural differences felt overwhelming, so in 1966 the four fled to the Soviet Embassy in Pyongyang, asking for asylum. But the Russians turned them over to the North Koreans. Mr. Dresnok braced for a horrible punishment. But, he says, none came. They were ordered to undergo more “education,” Mr. Dresnok said, and he decided he would try to fit in. “Man is the master of his life, and little by little I came to understand the Korean people,” he said.

By 1972, Mr. Dresnok was considered rehabilitated and was granted North Korean citizenship. He married an Eastern European woman and had two children. After that wife died, he remarried and had another child. He started appearing in propaganda films in 1978 and acted in more than a dozen over the next decade. Many North Koreans still call him Mr. Arthur, after a character he played in one film.

Mr. Dresnok could barely contain his disgust when he talked about Mr. Jenkins, who left North Korea in 2004 and gave a series of high-profile interviews about the wretched life he endured in his four decades there. Mr. Dresnok calls him a liar and bore. As for Mr. Jenkins’s claim that Mr. Dresnok used to beat him sadistically, Mr. Dresnok responds that they once fought, but there were only two punches: “I hit him and he hit the ground.” After a few minutes he becomes visibly agitated and asks to change the subject.

Mr. Dresnok says he is a true believer in the North Korean system. “I wouldn’t trade it for nuthin’,” he states emphatically. He is proud that two of his three sons attend the prestigious Foreign Language School in Pyongyang, saying he could never have afforded such an education in the United States. “I don’t want my sons to be an illiterate old man like me.” But he is a celebrity in North Korea, and although Pyongyang is poor by Western standards, it is the city of the elite for North Koreans. “Anyone living in Pyongyang is privileged,” Mr. Bonner said. “But the main force behind us was human interest.”

But privilege is probably not the answer to understanding why Mr. Dresnok and the other American defectors decided to build their lives in North Korea; belief is. Three of the four American defectors, with the exception of Mr. Jenkins, came from broken homes, with missing or abusive fathers. They made homes in the most extreme totalitarian state in the world, where Kim Il-sung is portrayed at the ultimate father figure for the entire nation. Even though Mr. Dresnok has numerous health problems (mostly related to his smoking and drinking, which he refuses to stop), the North Korean government provides for him and his family.

Which leads into the second time Mr. Dresnok cries in the film. While talking about the North Korean famines of the 1990’s, he says that despite the hundreds of thousands who died, the North Koreans never cut his rations. “Why? Why do they let their own people starve to death to feed an American?” he asks as he tears up. “The Great Leader has given us a special solicitude. The government is going to take care of me until my dying day.”

From AFP:
10/9/2006

The US already has broad sanctions in place against North Korea, giving it little additional economic and trade leverage to bring to bear following Pyongyang’s defiant nuclear test explosion.

Washington imposed a near total economic embargo on North Korea at the start of the Korean War in June 1950, only beginning to ease the sanctions slightly from 1989 amid efforts to draw the reclusive Stalinist regime into the international community.

A series of measures aimed at encouraging North Korea to not develop nuclear arms culminated in a June 2000 Executive Order legalizing most transactions between US and North Korean nationals.

The order allowed many products to be sold to North Korea, though sanctions affecting trade in military, so-called dual-use and missile-related items remained in place.

But imports from the country remain under tight restrictions, managed by the Treasury Department’s Office of Foreign Assets Control, and North Korean assets frozen since 1950 remained frozen.

While restrictions on US investments in North Korea and on the travel of US citizens to North Korea were also eased under the 2000 measure, the two countries have no formal diplomatic relations and have never officially ended the Korean War.

Most forms of US economic assistance, other than purely humanitarian aid, remain prohibited and North Korea does not enjoy “Normal Trade Relations” with the United States, so allowable exports are hit by high tariffs.

The State Department acknowledges that “US economic interaction with North Korea remains minimal” and that Washington’s leverage over the reclusive regime is limited.

“There’s not a lot to grab hold of,” commented a senior State Department official about the hunt for ways to impact the North Korean economy bilaterally.

North Korea receives the bulk of its imports over the Chinese and Russian borders and relies on hefty aid from South Korea, giving those three governments far greater potential leverage in economic sanctions.

Washington did find one powerful pressure point last year when the Treasury Department slapped sanctions against a Macau-based bank, Banco Delta Asia, which US officials charged was the main conduit for bringing North Korean counterfeit dollar bills into the international system.

Washington and its allies have long contended North Korea uses counterfeiting, drug trafficking and sales of weapons to prop up its ailing economy.

The US decision to designate the Banco Delta Asia a “primary money-laundering concern” left the bank teetering and could foreshadow similar action targetting other financial transactions by the North.

Many analysts pointed to the banking sanction as possibly the main reason North Korea went ahead with its nuclear test shock at this time.

The North Koreans were “feeling under a great pressure from the United States and the sanctions that were being imposed, particularly the financial sanctions,” said David Albright, a former UN nuclear weapons inspector.

“I think this test is coming from that sense of being backed into a corner,” he said.

Joong Ang Daily
Ser Myo-ja, Lee Sang-il
9/20/2006

Japan and Australia yesterday announced new sanctions against North Korea in another sign of increased financial pressure on the communist state, which has declared it possesses nuclear arms.

The announced purpose of the sanctions was to push Pyongyang back to six-party talks in Beijing to disarm the country in return for diplomatic recognition and financial aid.

In Washington, U.S. officials also signaled that additional sanctions against the North may be in store.

In Tokyo, the cabinet approved a partial freeze on North Korean assets in Japan, imposing restrictions on 15 North Korean agencies or companies and one individual.

“This shows the resolve of the international community and Japan,” said Shinzo Abe, the chief cabinet secretary and heir-apparent to Prime Minister Junichiro Koizumi.

The restrictions on financial transactions were directed, Tokyo said, at figures related to North Korea’s missile and nuclear programs.

After North Korea test-launched a barrage of missiles in early July, Tokyo barred the entry of a North Korean ship to its ports for six months and forbade the entry of North Korean government officials into Japan.

Australia, one of the few Western countries that had diplomatic relations with North Korea, acted the same day, imposing similar bans on financial transactions by people and companies it said were involved in North Korean arms programs.

Foreign Minister Alexander Downer told the press, “This supports and complements similar action taken by Japan today and previous actions taken by the United States, and sends a strong message to North Korea.”

In Washington, a State Department official told Korean journalists in a background briefing that the United States might reimpose sanctions lifted after an accord in 1994, which temporarily reduced tensions over the North’s nuclear programs. He said a proposal to restore the sanctions existing before 1994 was being studied. The relaxation was modest; U.S. companies were allowed to offer telephone service to North Korea and import some raw materials.

In Seoul, Song Min-soon, the Blue House senior security advisor, reacted cautiously to the announcements, saying it would be “inappropriate” to comment on sanctions imposed by other governments. He said the matter was one for capitals to decide, based on a United Nations Security Council resolution critical of North Korea’s missile and nuclear programs and those nations’ own laws.

Separately, Beijing rebuffed a U.S. invitation to a meeting Thursday of financial ministers in New York to discuss North Korea.

From the BBC:
New sanctions target North Korea

Japan and Australia have announced new financial sanctions against North Korea, stepping up pressure on the secretive state over missile tests.

The sanctions will freeze the transfer of money to North Korea by groups suspected of having links to its nuclear or missile programmes.

The move, which follows similar action by the US, comes after Pyongyang launched several missiles in July.

South Korea has urged other countries not to push the North into a corner.

The South is worried that the North may retaliate by carrying out a nuclear test, which would destroy any remaining hope of a diplomatic solution to the stand-off.

Japanese government spokesman Shinzo Abe said the new sanctions were in line with a United Nations resolution which denounced the missile tests.

The Japanese measures affect 15 groups and one individual, and will come into effect later on Tuesday, according to Japanese media.

The Australian measures applied to 12 companies and one person, according to Foreign Minister Alexander Downer, who said the sanctions were “consistent with our strong international stand against the proliferation of weapons of mass destruction.”

Media reports said the two lists were almost identical.

Tough stance

North Korea’s decision to test-fire seven missiles in July – including a long-range Taepodong-2 which is believed to be capable of reaching Alaska – angered the international community.

A UN resolution demanded that North Korea suspend its ballistic missile programme, and barred all UN member states from supplying North Korea with material related to missiles or weapons of mass destruction.

In the immediate aftermath, Japan imposed limited sanctions, including a decision to ban a North Korean trade ferry from Japanese ports and a moratorium on charter flights from Pyongyang.

The new measures also called for closer scrutiny of those wanting to send money or transfer financial assets to North Korea.

“By taking these measures, we have demonstrated the resolve of the international community and Japan,” said Chief Cabinet Secretary Shinzo Abe.

“I do not know how North Korea will respond, but I hope North Korea will accept the UN Security Council resolution in a sincere manner.”

The BBC correspondent in Tokyo, Chris Hogg, says there is still some doubt about how effective these sanctions will be.

Although Japan looks to be clamping down on North Korea, other countries that exert a strong influence on the country – notably China and South Korea – are reluctant to impose similar measures.

Following the Japanese announcement, China restated its opposition to sanctions and called for further dialogue.

Nuclear fears

In addition to fears over North Korea’s missile programmes, the international community is also worried about its nuclear intentions.

The United States, China, Japan, Russia and South Korea have repeatedly tried to persuade the North to abandon its nuclear programme.

But the so-called six-party talks have been on hold since November 2005, because North Korea refuses to attend until Washington lifted economic restrictions against it.

Exactly a year ago, North Korea agreed in principle to give up its nuclear weapons programme in return for economic help and security guarantees.

The move was greeted by surprise and relief, but a joint statement issued at the time failed to bridge the wide gulf between North Korea and the US. One year on, the North remains as isolated as ever.

The region remains on alert in case Pyongyang decides to follow up on the July ballistic missile tests with a nuclear test.

Analysts say the North has enough plutonium for several bombs, but has yet to prove it can build a reliable weapon.

From the Joong Ang Daily:
9/21/2006
Lee Young-jong

Contrary to its statement on Tuesday, the Unification Ministry pressured Woori Bank to consider allowing North Korea to open a bank account, government documents obtained by a Grand National Party lawmaker showed yesterday.

A Unification Ministry official who asked not to be named said it was just a discussion and not formal pressure against the bank. He said the bank made its own decision, without being pressured by the ministry.

Representative Kwon Young-se obtained a copy of correspondence that the Unification Ministry sent to Woori Bank on March 28, and provided it to the JoongAng Ilbo.

According to the letter, the ministry tried to stretch the laws governing inter-Korean projects to grant the North’s wish. The North, in September of last year, asked the bank, which operates a branch in Kaesong Industrial Complex, to open an account under the name of the Kaesong Industrial District Management Committee, headed by a South Korean official. The bank informed the Unification Ministry and consulted with it.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there.

Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

The bank, however, was opposed to opening an account for North Korea, citing South Korea’s financial laws and the U.S. Treasury Department’s anti-terror law. The bank also cited expected opposition from the Financial Action Task Force on Money Laundering in turning down the North’s request, the minutes said.
 

From Yonhap:
N. Korean request to open account with S. Korean bank in Kaesong rejected
Byun Duk-kun
9/19/2006

North Korea sought to open an account with a South Korean bank at an inter-Korean industrial complex in its border town of Kaesong last year, but the South Korean bank rejected the request, officials at the Unification Ministry said Tuesday.

The report comes amid U.S. financial sanctions against the communist state for its alleged involvement in illegal activities, including counterfeiting, laundering and the proliferation of weapons of mass destruction.

Ministry officials, however, dismissed suspicions that North Korea may have tried to use the South Korean bank to evade, or find a safehouse from, the U.S. financial sanctions.

“North Korea first filed its request to open an account with the Woori Bank on Sept. 14, 2005, one day before” Washington imposed sanctions on a Macau bank suspected of aiding the North launder counterfeit U.S. dollars, ministry spokesman Yang Chang-seok told reporters.

A spokesman for the South Korean bank said the bank first heard of the North’s request in December, but did not rule out the possibility that North Korea may have filed its initial request with the South Korean government as early as September.

Goh Gyeong-bin, the ministry official in charge of the inter-Korean project to develop an industrial complex in Kaesong, said an account with the South Korean bank, if one was opened, would not have provided a safe haven for the communist state.

“The North said it wished to open an account at the Woori Bank branch in Kaesong and collect the wages of its workers at the industrial complex through the account,” Goh said.

He said the South Korean bank remained reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request. Woori Bank officials confirmed Goh’s statement.

“The North said it understood the bank’s position and that’s when the situation was concluded,” Goh said.

Nearly 8,300 North Korean laborers are currently working for 13 South Korean firms operating in the joint industrial complex, producing some US$5 million worth of goods a month, according to Goh.

A number of U.S. officials, including Jay Lefkowitz, a special envoy for North Korean human rights, have expressed concerns over possible violations of the North Korean workers’ human rights there and the diversion of their wages to help the North’s weapons program.

Seoul dismisses the concerns, saying the amount of money paid in wages is insignificant even for the impoverished North.

About $600,000, in U.S. dollars, are paid each month to North Korean workers there, whose minimum monthly wage is set at $57, according to Goh.

The joint industrial complex is expected to house some 2,000 South Korean firms, employing as many as half a million North Koreans, when it is in full swing in 2012, according to the Unification Ministry.

From the Korea Herald
9/20/2006

A bank spokesman said Woori serves South Korean companies and their employees from the South producing goods there.

“We rejected the request because we are not regulated to handle transactions with North Korea,” said Cho Seong-kwon.

The request was made last December, Cho said. It came after the U.S. strengthened its crackdown on firms it suspected of aiding Pyongyang in illicit activities such as counterfeiting.

Washington imposed sanctions on a Macau bank in September, accusing it of helping North Korea launder counterfeit U.S. dollars.

A month later, the United States also froze U.S.-based assets of eight North Korean firms on suspicions of illegal activities, including counterfeiting, laundering and proliferation of weapons of mass destruction.

The Unification Ministry, however, said the North’s request had nothing to do with the U.S. sanctions, saying an account with Woori Bank, if one were opened, would not have been used for such illegal financial activities.

“The North said it wished to open an account at the Woori Bank branch in Gaeseong and collect the wages of its workers at the industrial complex through the account,” Goh Gyeong-bin, ministry official in charge of the joint industrial complex project, said.

Goh said the South Korean bank was reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request.

The complex is run by an affiliate of the South’s Hyundai Group. The South sees the park as a model of economic integration that can serve as an example of the path for future unification of the peninsula.

From the Joong Ang Daily:
Ministry says North sought bank account with Woori
Ser Myo-ja, Shin Eun-jin
9/20/2006

North Korea attempted last year to open an account with a South Korean commercial bank at the Kaesong Industrial Complex, but the request was rejected, the Ministry of Unification said yesterday.

In response to a report by the Dong-A Ilbo newspaper, the ministry said a North Korean agency made a verbal inquiry to the Kaesong Industrial District Management Committee on Sept. 14, 2005 about opening an account with Woori Bank. In December, the agency submitted a written request.

Seoul held about four meetings to talk about the issue, the ministry said, but the matter was basically up to Woori Bank.

The North Koreans were quoted by the ministry as saying they wanted to collect income taxes from South Korean workers at the inter-Korean industrial complex.

The North also said it wanted the convenience of collecting salary payments for North Korean workers from their South Korean employers.

North Korean officials must visit the office of each South Korean factory in Kaesong every month for all financial transactions.

Woori Bank has continued to reject the North’s requests. Under Korean law, the bank said, the scope of its operations was limited to South Korean companies that operate factories in Kaesong and their South Korean employees.

The bank has not sought permission from the South Korean government to extend operations to North Koreans in order to meet Pyongyang’s request, the Unification Ministry said.

North Korea threatened Woori Bank that it would shut down the branch, but gave up in March, the ministry said.