North Korean Economy Watch

UPDATE 2 (2016-1-1): According to the Wall Street Journal:

Egyptian tycoon Naguib Sawiris made billions of dollars from a global telecommunications empire that operated in authoritarian states from Zimbabwe to Pakistan. Now he is being dealt a potentially painful setback by one of the global economy’s biggest pariahs: North Korea.

Mr. Sawiris’s Orascom Telecom Media and Technology Holding SAE built a highly profitable mobile phone business with around 3 million customers in the isolated nation, as cellphones became popular with wealthier North Koreans and the state eased restrictions on communications. The business earned around $270 million before taxes and depreciation on $344 million in revenue in 2014.

But in the last few years, a state-run competitor emerged in North Korea, and Cairo-based Orascom hit problems trying to repatriate profits. Orascom said in a November filing in Egypt it had lost control of its 75%-owned North Korean venture, Koryolink, and struck the venture from its balance sheet, removing hundreds of millions of dollars in assets.

Mr. Sawiris, chief executive officer of both Orascom and the North Korean venture, is now trying to negotiate a solution. “We are still hopeful that we will be able to resolve all pending issues to continue this successful journey,” he said in a statement accompanying the filing.

Orascom’s auditor, however, cited the “futility of negotiation” with North Korea over Koryolink’s assets, which the company said were worth $832 million at the end of June, including cash in North Korean won worth $653 million at the official exchange rate. Koryolink, which now accounts for 85% of Orascom’s revenue and profit, says it hasn’t been able to send any funds out of North Korea in 2015 due to local currency controls and international sanctions targeting Pyongyang’s nuclear weapons program.

Mr. Sawiris didn’t respond to requests for comment and Orascom declined to make him available for interview. A spokesman for Orascom reiterated the company’s public statements and didn’t respond to further questions. North Korea hasn’t referred to the dispute in its state media and relevant officials couldn’t be reached for comment.

How North Korea resolves the dispute could bear on its plans to cultivate foreign investment to develop the moribund economy. In recent years, Pyongyang has created more than 20 special economic zones for investors and announced local regulations intended to reassure foreigners.

In November, North Korea state media said foreign firms would be able to repatriate profits from one zone in the far northeast of the country “without restriction.”

The setback for Mr. Sawiris, 61 years old, underscores the risk of doing business in North Korea, where foreign firms have complained that property and profits have been appropriated by the government. In 2012, a Chinese mining company said North Korea arbitrarily took over its metal-processing facility in the country. Pyongyang in turn publicly accused the firm of failing to meet investment commitments.

Orascom says talks with the North Korean government to resolve its difficulties have included a possible merger with the rival carrier, Byol. However, North Korea has indicated it wouldn’t give Orascom management control of the combined entity and those talks have stalled, the Egyptian company said in November board minutes, reviewed by The Wall Street Journal. As a result, “control over Koryolink’s activities was lost” according to accounting rules, the company said in its latest earnings report.

Few companies venture into North Korea. But for the outspoken Mr. Sawiris—who describes himself as a “freedom fighter” on his verified Twitter profile, and who has experience operating in difficult environments—a bet on the hermit kingdom made sense.

Since 1997, Orascom has built and run mobile networks in more than 20 countries across Africa, the Middle East and the Indian subcontinent. Its strategy: Load up on debt to build networks quickly in risky markets with little or no infrastructure, betting on rapid growth and strong returns, then sell when the market matures and more players materialize.

Orascom operated in many politically unstable nations such as Yemen and Bangladesh. In most cases, the gamble paid off. In 2003, Orascom paid $5 million for one of Iraq’s first mobile network licenses. Its local partner faced kidnappings of staff and attacks on property from insurgents, but in 2007 Orascom sold its Iraq operations for $1.2 billion to a Kuwaiti company.

There have been some setbacks. Orascom’s joint venture in Syria with a company run by a cousin of President Bashar al-Assad fell apart in 2002 when a Syrian court handed the Egyptian company’s share of the venture to the local partner.

In 2011, Mr. Sawiris sold most of his telecommunications assets to Russian mobile operator VimpelCom Ltd. in a deal worth $6 billion. Koryolink was one of the few assets he kept.

Orascom’s operations in North Korea began when the country awarded Koryolink the rights to operate its only mobile network from late 2008 through the end of 2012. North Korea had scrapped an earlier project in the country with a Thai firm in 2004, because of fears the network was vulnerable to spies.

Koryolink started with around 18 foreign staff based at a hotel in the capital city, according to Madani Hozaien, Koryolink’s chief financial officer from late 2008 to mid-2009. North Korea’s tight restrictions on travel made it difficult to manage network facilities and deals with local counterparts were hard to put together, he said.

“Once we had an agreement with one group, another team would appear and we’d have to start again,” he said.

Ihab Shafik, a human resources and administration manager for Koryolink from 2009 to 2012, said the company’s North Korean staff sometimes operated independently. “They built GSM [Global System for Mobile communications] towers without informing us and we discovered them later,” he said.

North Korean authorities gradually from 2008 allowed most members of the public to sign up for mobile service, although they can only make domestic calls and don’t have Internet access.

While mobile phones remain very expensive for most North Koreans, visitors to Pyongyang report that they’re a common sight. Defectors from the country say they have become increasingly important information tools for traders as North Korea’s unofficial market economy has grown in recent years. North Korea state media has even touted the country’s own smartphone, although it is generally considered a rebranded Chinese model.

Orascom’s problems in North Korea appear to have built during the final year of its exclusivity clause in 2012. Koryolink’s annual report for the year noted “restrictions on cash transfers from local currency” in explaining a $272 million cash balance held inside the country, that more than doubled to June 30.

The company’s board meeting to ratify first quarter results in 2015 was postponed by over a month “due to the delay of the negotiations with the North Korean side to solve the problems arising out of the transfer of dividends, the currency exchange rates and the operational problems that has recently emerged,” minutes from the meeting reviewed by the Journal said.

Orascom’s share price fell sharply on the Egyptian stock exchange after the company announced it was removing the North Korean operations from its consolidated earnings. The price has risen recently after Orascom announced plans to buy two financial companies, part of Mr. Sawiris’ effort to move away from telecommunications.

Experts on the North Korean economy say Orascom’s difficulty in repatriating funds is largely due to North Korea’s inability or reluctance to convert Koryolink’s cash to foreign currency from North Korean won at the official exchange rate. North Korea suffers constant shortages of foreign exchange and its own currency is worthless outside its borders.

In 2013, Orascom also was caught up in U.S. sanctions on North Korea, when a bank it had set up with a North Korean partner, which Koryolink uses for financial transactions, was barred from accessing the U.S. financial system.

Here is additional coverage in the Chosun Ilbo.

UPDATE 1 (2015-12-11): Orascom CEO claims to still control KoryoLink, but cannot obtain hard currency or get it out of the country.

ORIGINAL POST (2015-11-20): Martyn Williams broke the story here.

The first problem is that Orascom could not repatriate its profits:

Orascom’s efforts to get its profits out of North Korea have been unsuccessful, partially because of international sanctions imposed on the country but mainly by the government’s refusal to let the money go.

To transfer money out of North Korea, Orascom needs permission from the government and it hasn’t been granted, despite it being a partner in the joint venture.

The government hasn’t acted because it can’t afford to.

The profits are held in North Korean won, but the currency isn’t traded internationally and the government’s official rate is set artificially high, at 100 won to the U.S. dollar. At that rate, Orascon’s holding at the end of last year was worth $585 million.

But at the black market exchange rate, which is effectively the real value of the currency in North Korea, the cash is worth only $7.2 million. And therein lies the problem. The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. So the two sides have spent months locked in talks about what to do.

Secondly, the DPRK government launched a second cell phone network to compete with KoryoLink, and efforts to merge the companies have been successful:

The issue came to light in an auditor’s report in June, and a month later Orascom dropped a bombshell: It said the North Korean government — supposedly its close partner — had set up a second carrier to compete with Koryolink.

With its options limited, Orascom entered merger talks to combine Koryolink with the new carrier. The North Korean government has agreed to the move in principle, but so far nothing has happened.

What’s more, the North Korean government has apparently proposed that it be the majority partner in any new venture that’s formed.

That led to a dramatic statement from Orascom when it reported its financial results Monday — “in the group management’s view, control over Koryolink’s activities was lost.”

Sawiris appears to hold out hope, but he might be out of moves.

“We are very proud of the success of our operation ‘Koryolink’,” he said in a statement. “We have around 3 million people today carrying our phones in the DPRK. We are still hopeful that we will be able to resolve all pending issues to continue this successful journey.”

Anna Fifield also followed up in the Washington Post and reported on the name of the new KoryoLink competitor:

This comes after Orascom discovered that North Korea was starting a competitor to Koryolink called Byol, and then began discussions about merging it with Koryolink, thus presumably extracting even more money from Orascom.

Byol (별) translates to English as “Star”.

Here is the OTMT financial report which explains the company’s position (PDF).

Here are screen shots of the relevant sections in the report:

And

A small correction needs to be added to the OTMT report, the Central Bank does not set the official exchange rate. That is set by the Foreign Trade Bank.

As Marcus Noland and I have pointed out, North Korea needs a big FDI win to inspire more large-scale foreign investment and modernize its investment regulatory framework, but debacles like this, Xiyang, and the KIC (referring here to the fact that it was too entangled in political risk to be a reliable investment without official subsidies and guarantees) reinforce the view that the DPRK is still too risky to become an attractive investment hub–and this excludes additional problems owing to the country’s weapons programs and human rights abuses.

Andray Abrahamian has published a report with the US-Korea Institute on developments in the Tumen Triangle.

Here is the report description:

The Tumen Triangle region-where North Korea, China and Russia meet-is, in many ways, the story of regional integration being held back by the political concerns of Pyongyang, Beijing and Moscow. There are long-term forces at work here, such as Moscow’s concerns over Chinese dominance in the sparsely populated Russian Far East. This legacy of mistrust frames cross-border interactions and despite recent warm relations, major cross-border cooperation remains limited.

In this USKI Special Report, Andray Abrahamian, Director of Research at Choson Exchange examines historical legacies, contemporary relations and shifting strategic priorities between the three countries. The report then focuses trade and investment in the Tumen Triangle region, particularly how the Yanbian Korean Autonomous Prefecture and Primorsky Krai interact with and affect Rason Special City, the center of the Rason Special Economic Zone.

You can download the report here (PDF).

By Benjamin Katzeff Silberstein

Yonhap reports about a seemingly interesting forum that has taken place in Beijing, sourcing Global Times reporting. The article is an interesting illustration of the divergent ways in which Chinese and North Korean scholars/analysts seem to view North Korea’s economic situation and business environment (my emphasis):

Scholars from North Korea and China recently held a forum where they remain at odds over whether the isolated North could attract foreign investors and protect them, according to state-run Chinese media.

North Korean scholars insisted that their country offer a raft of legal and financial incentives for foreign investors, but Chinese scholars raised doubts over the North’s efforts, as it is under U.N. sanctions over its nuclear and missile programs.

The three-day forum, held in the Chinese border city of Yanji, ended on Sunday, state-run Global Times newspaper reported on Tuesday.

Paik Il-sung, a legal professor at North Korea’s Kim Il-sung University, said that the North’s laws protect the property rights of foreign investors. Even if the rights of foreign investors undermine North Korea’s national interests, an “unavoidable confiscation” of their property would be carried out in accordance to laws, Paik said.

Choe Su-gwang, an economics professor at the North Korean university, said that North Korea allows foreign investors to arbitrate conflicts with the state throughout an arbitration panel.

Besides geopolitical risks, poor infrastructure was cited by Chinese scholars as one of main reasons for deterring foreign investment in North Korea.

Lin Jinshu, a professor from China’s Yanbian University, said China intends to build infrastructure in the North’s Rason special economic zone, but a lack of relevant accords prevents Chinese investors from doing so.

Rason was designated by North Korea as a free trade zone in 1991, but efforts by the North to bring life to the zone have failed amid geopolitical concerns.

A monthly usage fee for the Internet in the Rason economic zone is 7,000 yuan (about US$1,089), but the Internet there is slow as a “turtle’s pace,” Lin told the forum.

Zhang Huizhi, a professor at China’s Jilin University, also raised the question how North Korea could protect property rights of foreign investors in the event of a war.

Aside from the comment about an arbitration panel, it is notable that the emphasis by the North Korean side of the discussion, at least as reported in this piece, lies very heavily on legal text. It’s enough if written laws are good, seems to be the attitude, which is of course not the way most potential investors see things.

Read the full article:

Yonhap News

N. Korean, Chinese scholars at odds over investment in N. Korea

09-23-2015

Institute for Far Eastern Studies (IFES)

North Korea recently promoted its cooperation with foreign companies, highlighting a North Korean cement company that has received investment from a French corporation. This is viewed as a strategy by North Korea to attract foreign investment by publicizing examples of foreign capital in the country.

On September 1, 2015, North Korea uploaded an article on its foreign website ‘Naenara’ promoting the Pyongyang Sangwon Cement Joint Venture, which the French cement company Lafarge has invested in. President of the company Yun Chae Hyok was quoted as saying, “Through each other’s efforts the company is raising the quality of cement by expediting the modernization of the production process as well as increasing production to contribute actively to the country’s primary construction targets.”

Regarding the Sangwon Cement Joint Venture, the Naenara article stated, “The quality of limestone is good, the reserves are plentiful, and from a transportation perspective, the location is good […] The production process is automated, and the company is using supplementary materials, including limestone, in production, so the outlook is very good.” The article also introduced the company Lafarge. “The French building materials company Lafarge, which has more than 200 cement factories, is a corporation that specializes in the production of cement and plaster as well as aggregate and concrete,” it explained.

Naenara also reported that in 2014 the joint venture company built ‘Affiliate Furnace No. 1,’ and according to a decision made by the board of directors in June 2015, next year it will complete construction of ‘Affiliate Furnace No. 2.’ It is believed that North Korea’s intent in promoting the Sangwon Cement Joint Venture is to attract investment from other foreign companies by publicizing examples of foreign capital in the country.

The Pyongyang Sangwon Cement Joint Venture was created when Lafarge invested in North Korea’s Sangwon Cement Complex. In 2007 the Egyptian company Orascom, which is currently invested in North Korea’s Koryolink, acquired 50% of the shares in Sangwon Cement and prepared to invest in the company, but in December of that year it passed its shares and the related mining rights to Lafarge. At the time Lafarge commented, “Given the rapidly growing demand for cement in North Korea, the potential for Sangwon Cement Factory is large.” The company went on to update factory equipment and expand investment in machinery and facilities.

According to the PCV web page:

As a result of irreconcilable differences between the board of Phoenix and the local management, Phoenix Commercial Ventures Ltd has terminated its association with Hana Electronics JVC with immediate effect.

Hana Electronics JVC was a 50/50 joint venture between Phoenix Commercial Ventures Ltd and the trading department of The Ministry of Culture.

Phoenix has no further connection with Hana or any interests (direct or indirect) in its operations.

According to NK News:

A Chinese-state affiliated and Singaporean investment group, the latter of which is allegedly directly connected to the DPRK, is calling for large-scale investment in 12 projects spanning nearly every major sector in North Korea, from transport to mining to internet and cable television development.

The ambitious plans, outlined in an August 2 press release from China Railway Investments Group, welcome foreign participation in 12 “world class opportunities” in North Korea.

“The Democratic People’s Republic of Korea (DPRK) through its window company Daegian Pte Limited of Singapore in cooperation with China Railway Investments Group Ltd (CRIG) has established a joint venture investment company in Hong Kong,” the press release says.

The joint venture, called Heuimang Investments Group Limited, will be capable of providing a “direct and exclusive conduit to the highest levels of decision making in the government of the DPRK,” the release continues. “Only the most significant of opportunities will be available through this channel which can only be accessed through Heuimang/Han Wang.”

Here is a PDF of the press release posted to the China Railway Investment Group Web Page.

Here is the full text:

韩旺投资集团有限公司
Heuimang Investments Group Ltd (In Chinese pinyin Han Wang Touzi Jituan Youxian Gongsi)
公告 Announcement:
发布时间：2015-8-2

朝鲜民主人民共和国（朝鲜）致力于大力推进其经济发展，并欢迎外国投资参与该国的世界级的机会, 促进经济发展.
The DPRK is committed to progressing its economic development, and welcomes the participation of foreign companies in investing in world class opportunities in the country.

朝鲜欢迎中国的公司投资参与. 朝鲜通过它在新加坡注册的窗口公司Daegian 私人有限公司, 与中铁多经投资集团有限公司合作在香港建立了融投资平台—招商公司.
The Democratic People’s Republic of Korea (DPRK) through its window company Daegian Pte Limited of Singapore in cooperation with China Railway Investments Group Ltd (CRIG) has established a joint venture investment company in Hong Kong.

朝鲜政府已正式批准Daegian 与中铁多经投资集团有限公司(CRIG)合作成立旺投资集团有限公司.
The DPRK Government has formally approved the joint venture between Daegian and CRIG and their joint venture company called Heuimang (or Han Wang in Pinyin Chinese) Investments Group Limited.

Daegian和韩旺是朝鲜”走出去“、”引进来“的直接和专属通道，是朝鲜政府最高等决策层的直属机构. 只有最显著的机遇将可通过这一渠道，而且只能通过韩旺办理.
Daegian provides a discrete, direct and exclusive conduit to the highest levels of decision making in the government of the DPRK. Only the most significant of opportunities will be available through this channel which can only be accessed through Heuimang/Han Wang.

朝鲜决定与中方共同搭建经贸等合作更方便更快捷的工作平台，利用香港的优势宣传推广、项目招商、商务服务，支援朝鲜建设。韩旺将在中朝两国间发挥经贸合作的强大和充满活力的桥梁作用.
Heuimang/Han Wang will concentrate on creating a strong and robust platform for economic and trade co-operation between the countries. It will also take advantage of the flexibility afforded to a commercial entity registered in Hong Kong.

各方股东及合作公司将依照国际法和国际惯例运作，在透明的基础上配套韩旺发展.
All parties to this joint venture are committed to supporting Heuimang/Han Wang in operating on a transparent basis within international laws and practices.

其主要目标是优势互补、资源共享、利益均沾、合作共赢、商业运作.
The primary objective is commercial engagement through mutual cooperation for shared benefit.

里程碑:
Milestones:

2015年1月29日: 中铁和Daegian 签订了框架合作协议, 其中确定了互惠和显著利于中国和朝鲜，尤其是基础设施发展的若干项目. 通过韩旺, 中铁致力于引领中国企业组成的联合体参加朝鲜民主人民共和国的经济和基础设施发展.
January 29, 2015: CRIG and Daegian executed a framework cooperation agreement which identified certain projects of mutual and significant benefit to China and the DPRK, particularly infrastructure development. CRIG is committed to lead through Heuimang/Han Wang a consortium of investors from China to participate in the economic and infrastructure development of the Democratic People’s Republic of Korea.

2015年3月20日：中铁和Daegian签署公约设立融投资控股公司，以协调和管理投资朝鲜.
March 20, 2015: CRIG and Daegian signed a convention to establish an investment holdings company to coordinate and manage investment in the DPRK.

2015年4月8日: 朝鲜政府的执行委员会正式批准为创建韩旺作为的中铁和Daegian 之间的合作平台公司.
April 8, 2015: The Executive Committee of the DPRK Government granted formal approval for the creation of Heuimang/Han Wang as the joint venture company between CRIG and Daegian.

这是中国- 朝鲜最高领导人讨论2010年5月的巅峰之作, 于经贸合作，成立一个指导委员会，共同开发和管理提名的项目, 包括特别经济贸易区.
These represent the culmination of China-DPRK economic and trade cooperation discussions dating back to May 2010, when the top leaders of both countries established a steering committee to jointly develop and manage nominated projects,including special economic trade zones.

基本的经济发展计划是底层要求支持能力建设，机构规划和物流相关立法的起草工作。此外，为提高海关程序，通信和赞助农业和其他指定项目在朝鲜.
Fundamental to the programme is the underlying requirement to support capacity building, institutional planning and logistics and the drafting of relevant legislation. Also, to improve customs procedures, communications and sponsor agriculture and other specified projects in the DPRK.

中国和朝鲜都致力于取得进展的合作和友谊通过鼓励基于一个企业的市场经济的互利两国人民.
China and the DPRK are committed to progressing their cooperation and friendship by encouraging an enterprise based market economy for the mutual benefit their two peoples.

韩旺利用中国政府鼓励中国企业“走出去”、以及建立境外经济贸易合作区的各种优惠政策，支持朝鲜建设，开发前述项目。
In supporting the DPRK in the development of the nominated projects (see below), China Railway will be taking advantage of the preferential policies of the Chinese Government’s ‘Go Global’ strategy and its model of ‘co-operation between nations’ to create Economic and Trade Cooperation Zones.

提名项目:
Nominated Projects:

下面的项目已被选定为首批发展:
The following have been selected for initial development:
1. 罗先经济贸易区等经济贸易区
Rason Economic Trade Zone and other Special Economic Trade Zones
2. 罗津港, 运输和物流
Rajin Port, Transport and Logistics
3. 东海岸高铁和互连服务
East Coast High-speed Rail and interconnecting services
4. 发电厂和服务
Power Generation
5. 国家石油和天然气战略计划，包括
National Oil and Gas Strategy, including
a. 现有的两个炼油厂和技术升级翻新
Refurbishment of the two existing refineries and technological upgrade
b. 更多的处理能力，存储和仓储设施建设，以满足当地和出口需求
Construction of more processing capacity and storage and warehousing facilities to meet local and export demand
c. 贸易销售和市场营销
Trade sales and marketing
d. 勘探和开采当地资源
Exploration and exploitation of local reserves
6. 黄金开采和加工;以及建立金银行
Gold mining and processing; and establishment of a gold bank
7. 稀土的开采和加工
Rare earth elements mining and processing
8. 金属和矿物开采和加工，包括:
Metals and minerals mining and processing including:
a. 铁钢 Iron and steel
b. 锌Zinc
c. 钨Tungsten
d. 锡Tin
e. 菱镁矿 Magnesite
f. 石墨 Graphite
g. 煤Coal
9. 电信和有线电视
Telecommunications & cable television
10. 互联网服务, 国家经济信息电子中心及电子支付平台
Internet services, a national information centre and electronic payment platforms
11. 金融服务，包括一个完整的商业全服务银行和保险
Financial Services including a full commercial full services bank and insurance
12. 农业包括菌草种植, 牛羊养殖和捕鱼,
Agriculture including bacteria grass, sheep and cattle breeding and fishing
和等项目，招商引资开发.

附加信息:
Additional Information:
罗先经济贸易区和罗津港: 由罗先经济合作局管理，位于朝鲜北东部，毗邻中国吉林省延边地区. 罗先的主要商业机会是罗津港，该港作为主要的物流和交通枢纽为东北亚的潜力. 中国、俄罗斯、蒙古承认其优点，罗津港可提供最北端的全年温水冷冻自由港. 俄罗斯和蒙古已经从罗津港运送大宗商品，通过铁路连结由俄罗斯建造的港区.
The Rason Economic Trade Zone and Rajin Port: is managed by the Rason Economic Cooperation Bureau, located in the North-East of DPRK, adjacent to the Yanbian area, Jilin province, China. The major commercial opportunity in Rason is the potential that Rajin port offers as a major logistics and transport hub for north-east Asia. China, Russia and Mongolia acknowledge the advantages that the northern most all-year round port can provide. Russia and Mongolia are already shipping bulk commodities from Rajin through a railway link built by Russia.

拟议的铁路连接新丝路网络，将为中国东部、俄罗斯、韩国、日本, 进入中亚欧洲及其他新兴经济体. 一个便捷的陆路货物通道，这将减少旅行时间只需15天，而不是原来45天的海上运输，太有吸引力了, 区域商家不能忽视.
A proposed rail connection to the New Silk Road network will provide Eastern China, Russia, South Korea and Japan access to the emerging economies of Central Asia and Europe beyond. A land route for the transport of goods that will reduce travel time to just 15 days as opposed to 45 days by sea will be too attractive for regional manufacturers to ignore.

罗先的潜力作为一个主要的工业和商业中心，是由计划的石油和天然气管道从西伯利亚到韩国釜山而增强. 坐落在通往发展最快、最具活力的世界经济区域上，它是一个可预见的展示，可以肯定的未来，罗先会成为最重要的区域之一。
Rason’s potential as a major industrial and commercial centre is further enhanced by the planned oil and gas pipeline from Siberia down to Pusan in South Korea. Situated as it is at the gateway to the fastest growing and most dynamic economic region in the world, it is a virtual certainty that Rason will become one of the most important cities in the region.

有许多小到中型中外合资企业已经建立在罗先. 这是肯定的, 由于贸易的增加, 这将很快被更大的企业来加盟。
There are many small to medium sized foreign joint ventures already established in Rason, which will soon be joined by larger enterprises that will inevitably follow as trade increases.

中国企业有数十家与朝鲜公司在进行经济和贸易活动，在建材、食品加工、机械、金融、投资、物流等领域谈判合作。交通运输集团，中国铁建集团，中国招商局集团，亚洲集团等大型企业纷纷表示了在罗先经贸等各领域的兴趣.
Dozens of Chinese enterprises are in negotiations with North Korean companies for economic and trade activities in building materials, food processing, machinery, finance, investment, logistics and other fields. Transportation Group, China Railway Construction Group, China Merchants Group, the Asian Group and other large enterprises have expressed interest in the Rason economic and trade areas.

中国的北大荒集团在朝鲜建立了一个高效的农业科技示范园区500公顷的水稻种植实验.
The Beidahuang Group of China set up a highly efficient agricultural demonstration zone, 500 hectares of rice growing experiments.

该商业机会将只能通过韩旺可用.
The commercial opportunities will only be available through Heuimang.

朝鲜国家石油和天然气战略: 是赖以投资者可以利用朝鲜的优越位置，并推出营销活动成为东北亚地区的重要平台。朝鲜有两个炼油厂，其中只有一个目前正在运作。
DPRK’s National Oil and Gas Strategy: is the platform upon which investors could take advantage of the DPRK’s location and launch a marketing campaign into north-east Asia. The DPRK has two refineries only one of which is currently operational.

在新义州的蓬华炼油厂每年生产的柴油和汽油约150万吨, 这是满足本地区的需求远不够的. 该炼油厂坐落在一个很好的位置，跨过鸭绿江丹东，那里有一个油码头和管道组成的国际网络的支线
The Bungwha [Ponghwa] Refinery in Sinuiju [Note: it is in Phihyon, not Sinuiju] produces about 1.5 million tonnes of diesel and gasoline a year which is well below local demand. It is well situated across the Yalu River from Dandong where there is an oil terminal and a spur line of an international network of pipelines.

韩旺拥有的授权权利，新指定的特殊经济贸易区，位于在鸭绿江河口的新都岛。这里是理想的建立一个油库和新的处理设施之地.
Heuimang holds rights to a newly designated special economic trade zone which is Sindo Island in the Yalu estuary. The site is ideal to create a tank farm and new processing facility.

罗先的胜利炼油厂在东北部，已有20多年经营，现停止，由于缺乏原料和适当保养及维修。它最初被设计为每年生产各种石油化工产品2.0万吨。罗津和罗先潜力将见证燃料和某些石化产品必须满足该地区日益增长的需求.
The Seungri Refinery in Rason in the north-east, has been silent for 20 years for a lack of feedstock and proper maintenance and repairs. It was designed to produce 2.0 million tonnes a year of a variety of petrochemical products. The potential that is Rajin/Rason will see a growing demand for fuel and certain petrochemical products in the region which must be met.

金属和矿物: 矿产开采和加工是朝鲜经济的支柱. 通过韩旺的国家协议的过程中，任期安全是有保证的，因为它的设计满足国际融资需求。有铁矿石，煤，金，菱镁矿，石墨，稀土元素和许多世界级的沉积物。
Metals and Minerals: mining and processing is the backbone of the DPRK economy. There are world class deposits of iron ore, coal, gold, magnesite, graphite, rare earth elements and many more. Through Heuimang’s state agreement process security of tenure is assured as it is designed to satisfy international financing requirements.

详细信息，请联系:
For more information, please contact:

(1) 与中铁投资集团有限公司, 主席, 王先生
Mr. Wang Jing, Chairman of China Railway Investments Group Ltd
电子邮件Email: crighk1@gmail.com

(2) Daegian 私人有限公司, 主席, Rudi Sirr先生
Rudi Sirr, Executive Chairman of Daegian Pte Ltd
电子邮件Email: rudi.sirr@daegian.com

(3) 韩旺投资集团有限公司, 首席执行官, 沈思翠小姐
Jyn Sim Baker, Chief Executive Officer of Heuimang Investments Group Limited
电子邮件Email: jynbaker@crimsonant.com

Here is additional reporting in NK News and by Marcus Noland.

According to the Daily NK:

Python, a joint company between North Korea and Russia, which had manufactured health supplements during Kim Jong Il’s era, has recently renewed its contract and is set to manufacture products using materials produced in North Korea, Daily NK has learned.

“Python closed down due to financial difficulties but has recently renewed its contract with North Korea,” a source in Russia told Daily NK. “On the 7th, the North Korean consul general and the deputy prime minister of Zabaykalsky Krai signed related contracts to operate the Python factory.”

An additional source in Russia confirmed this development.

The factory, located in Russia, is currently shuttered due to financial restraints, but the North Korean state authorities have been providing cadres dispatched to the facility for management with living expenses. The source said the factory is expected to give the Russian city Chita a boost in its local economy, helping to propel the deal.

“Before production ground to a halt, Python had been sending hefty sums of money to North Korea. Russia can also rake in profits from the company, so neither wants to give up on the endeavor,” the source speculated. “Once production begins, North Korea will select and dispatch workers to Russia who will produce medicine and health supplements.”

He added, “We can’t tell exactly how much was being made from the production, but former workers say under normal operations, the sum going to the North was significant,” the source said, noting that North Korea is surely hoping the deal can try to make in a dent in the dearth of state foreign-currency funds.

“In the past, Python mainly produced health supplements, such as ‘baljam’ (herbal wine) and ginseng extract,” he explained. “But after Russia was introduced to capitalism, financial, ideological, etc. difficulties emerged and operations took a toll. Over the past few years, only a few North Korean managers have been left behind.”

He added that the North Korean laborers who worked at Python were guaranteed housing and food in addition to receiving a monthly salary of 50 to 60 USD, and given that the organization is a pharmaceutical company, most of the Party cadres dispatched there are college graduates; some researchers were sent with their families as well.

Meanwhile, earlier on the 14th, Radio Free Asia [RFA], citing Russian internet publication ‘Business Buryatia,’ also reported that “North Korea and Russia are planning to co-produce medical products in Chita, a city in Eastern Siberia as early as before the end of this year.”

Read the full story here:
Joint NK-Russia pharmaceutical company revamps operations
Daily NK
Kang Mi Jin
2015-07-21

Pictured above (Source here): A Choco Pie wrapper in Pyongyang (October 2014)

UPDATE 6 (2015-7-14): The Daily NK reports that the DPRK’s ‘Choco Pie’ knock-off falls far short:

Daily NK has obtained a North Korean snack rolled out to squash demand for a popular South Korean treat that had first become a sensation among factory workers in the inter-Korean industrial complex and spread across the country. Known as ‘Chocolate Danseolgi,’ the snack displays a striking resemblance with the much-loved South Korean ‘Choco Pie’.

The new treat is said to have been produced to cut off fantasies about the capitalist world its workers may harbor.

Starting last month, North Korea has been providing its Kaesong factory workers with ‘Danseolgi’, according to a source who has ties with the North and passed on the new snack to Daily NK on the condition of anonymity. This comes after Pyongyang banned supplies of the famed ‘Choco Pie’ within the industrial complex last year, as they were being sold by the workers on the black market for good returns and gaining greater popularity across the country.

The South Korean ‘Choco Pie’ snack was first introduced to Kaesong workers in 2006. Due to its soaring popularity, many had come to develop a sense of curiosity or fantasies about the South, the source said. Seeing the chocolate cake snack with marshmallow filling win over so much love, Pyongyang set out to create an alternative in the hopes of choking off demand.

Last year, after banning ‘Choco Pie’ supplies, the North tried to force South Korean firms to provide its factory workers with a home-grown chocolate double-layered cake snack, and this year in March, it even rolled out a chocolate coated rice cake treat also similar to an existing South Korean product.

Despite these efforts, local goods have failed to take off, as Kaesong workers are already acquainted with tastes from South Korea and are only eating the ‘Danseolgi’ as they have no other choice, according to the source.

The treat is one of the “latest products” put out for Kaesong workers. “It was smuggled out of the country by way of a North Korean trader in the Rason Economic Special Zone who works with Chinese traders,” she explained.

“Currently in the North, the ‘Chocolate Danseolgi’ is being distributed to workers as supplies, and they’re not sold on North Korea’s regular markets,” she asserted. Every last ingredient used to make the snack, from the butter to the chocolate, is imported from China.

Predictably, Kaesong workers invariably far prefer the taste of the original chocolate snack from South Korea, the source said, adding, “North Korea will never be able to produce the South’s Choco Pie.”

One of Daily NK’s reporters who tried out the North Korean ‘Danseolgi’ described the snack as “decidedly lacking in chocolate flavor ” and “being overwhelmingly pungent of butter.” The wrapper claims to include marshmallow in the product, but our taste tester reported any semblance of its texture to be nonexistent and noted that the cake itself is incredibly prone to crumbling.

UPDATE 5 (2015-6-9): DPRK asks that all South Korean food served in the KIC be replaced by North Korean substitutes. According to Voice of America:

North Korea has asked South Korean businesses at the Kaesong industrial complex to replace all foodstuffs given to its workers at the inter-Korean park with North Korea-made products.

A representative of the South Korean businesses, who visited the complex Tuesday, told VOA’s Korean Service that South Korean companies began distributing North Korean substitutes for popular South Korean food supplies to the North Korean workers as early as March. Almost all South Korea-made food products have now been replaced with North Korean products.

Choco Pie, a popular South Korean snack cake, also has been replaced with a similar North Korea-made sweet. The chocolate covered cake with marshmallow filling has become one of the most popular items in the North’s black markets. Other North Korea-made foodstuffs given to the workers include instant noodles with chicken broth and condiments.

In an attempt to keep South Korean foodstuffs from the complex, the North is imposing an additional business tax on the companies for bringing in South Korea-made products. About 50 South Korean businesses supplying food for the complex face bankruptcy, according to representatives of the South Korean businesses.

Some business owners have expressed concern about the quality of North Korean foodstuffs. One representative said some workers are suffering from food poisoning after the switch.

A South Korean official who asked to remain anonymous told VOA the North Korean move is aimed at blocking the flow of South Korean products into the North and earning foreign currency.

South Korean companies have been providing about $60 per month in snacks to each North Korean worker. With approximately 53,000 workers at the complex, Pyongyang can now garner up to $3 million every month from the snack sales.

UPDATE 4 (2014-9-24): According to the Daily NK, workers in the KIC are receiving a different dessert than the Choco Pie now. Also, the Kumunsan Company is producing substitute goods, and they are winning over consumers:

[…] the once popular South Korean snack Choco Pie is seeing a decline in its asking price. In June, Pyongyang demanded that South Korean companies at the industrial complex stop distributing Choco Pies to workers there, as officials had found it problematic that North Korean workers were saving the snacks and selling them in the markets. More recently, the northern workers have been receiving Chaltteok Pie (찰떡) [a chocolate covered rice cake from the South], individually packaged coffee, yulmucha (율무차)[grainy tea made with Job’s Tears], and candy bars.

“In Pyongyang, at the ‘Geumeunsan Trade Company,’ (금운산, Kumunsan Trade Corporation) they have been baking bread for about a year,” the source said, adding, “Of all the different kinds of bread, the most popular are the ones with butter inside, and they are less than 1000 KPW– much cheaper than Choco Pie.”

The trade company is an affiliate of the Military Mobilization Department [Military Manpower Administration in South Korea], which deals with the procurement of military supplies among its many functions. They either directly import the goods or obtain them from military factories in various locations across the country, and oversee the manufacturing of military equipment and machinery.

Geumeunsan Trade Company maintains branches in multiple areas, including Rasun and Cheongjin, and the office in Pyongyang imports ingredients such as flour, sugar, and cooking oil directly from China. According to the source, the raw material prices are cheaper than in the  North’s markets, and the products taste good, allowing it to monopolize the confectionery market there.

“The company has brought in foreign equipment and technology, putting it ahead of the South’s Choco Pie in price and taste,” he said, concluding, “This is why with the introduction of these different breads in Pyongyang, the price of Choco Pie [from the South] has dropped to 500 KPW from 1,200 KPW.”

See also this story in Radio Free Asia.

Read the full story here:
Kaesong Goods Fetch Highest Market Prices
Daily NK
Seol Song Ah
2014-9-24

UPDATE 3 (2014-7-1): Media reports claim that the DPRK has banned the use/possession of Choco Pies in the Kaesong Industrial Complex. According to the Washington Post:

By some estimates, as many as 2.5 million Choco Pies were traded monthly — though it’s unclear who exactly was so assiduously following Choco Pie markets.

Regardless of its volume, the trade will now surely be shrinking.

According to recent reports in the South Korean press, North Korean authorities have now banned the South Korean-produced Choco Pie at the Kaesong Industrial Complex following a lengthy crackdown on the chocolate treat that has made it scarce in Pyongyang.

Before, workers could pocket as many as 20 pies every night of work. But now, South Korean factory staff said they’ll instead get sausages, instant noodles, powdered coffee or chocolate bars as a bonus.

More information here and here.

UPDATE 2 (2013-9-20): Is the DPRK manufacturing a counterfeit Choc Pie? According to the Daily NK:

Pictured Above: Ryongsong Foodstuff Factory, Ryongsong District, Pyongyang (Google Earth)

The price of a North Korean own-brand “Choco Pie” fell to just 500 won in domestic markets following news that the Kaesong Industrial Complex (KIC) was to reopen, Daily NK has learned. The local version of the chocolate snack, which is made by Orion in South Korea, had previously risen to 3000 won on the back of the protracted KIC closure.

A source in Pyongyang reported to Daily NK on the 19th, “Sometime around May, Yongseong [Ryongsong] Foodstuff Factory in Pyongyang started selling ‘Choco Pies’ in the markets. People hadn’t seen a Choco Pie since Kaesong stopped, so their reaction was really something.”

“People were surprised because the packets said ‘Choco Pie’ and ‘Choco Rice Cake’ [a similar product with a glutinous rice center], and they couldn’t tell the difference between them and those from the ‘neighborhood below’ [South Korea] unless they checked closely,” the source went on. “Sure, people could tell they weren’t the real thing as soon as they ate them, but they were still pretty satisfied.”

According to the source, after South Korean Choco Pies disappeared from North Korean markets following the closure of the KIC, domestic traders started looking into importing the original South Korean and similar Chinese versions of the popular treat. However, the cost and difficulty of doing so meant that very few ended up crossing the border.

Therefore, attention turned to domestic production. The source explained, “Production volumes were low at first, and the state tried to control the flow of the product into the markets. They were 500 won a piece at the end of the first month; but that had risen to 3000 won by the end of last month. But the price sank back down upon news of the KIC re-start.”

“As soon as Choco Pies stopped coming out of the KIC, Yeongsong Foodstuffs Factory moved quickly and must have made quite a bit of money,” he guessed. “They were trying to imitate the South Korean pies but the product was way too sweet, which is partly why the price collapsed on the news of Kaesong.”

Only 60% (32,000) of the pre-closure North Korean workforce (53,000) returned to work when the KIC re-opened for a “trial run” on September 16th. At the same time, South Korean businesses, many facing financial difficulties after five months of nonproductive shutdown, have reportedly reduced the quantity of Choco Pies and other snacks previously distributed to workers. It is unclear what effect these circumstances could have on the price of goods flowing out of the KIC over the longer term.

Read the full story here:
NK Choco Pie Price Falls on KIC News
Daily NK
2013-9-20

UPDATE 1 (2011-10-31): According to the Daily NK, North Korean management in the Complex requested back in August that South Korean businesses stop offering ‘Choco-pies’ (a South Korean snack) to North Korean workers and give them cash instead.

ORIGINAL POST (2009-5-20): Donald Kirk has a must-read article in today’s Asia Times on the subtle ways that the Kaesong Industrial Zone is undermining Pyongyang’s control over the North Korean people.  He points out that the DPRK’s verbal attacks on South Korea, combined with demands for new land, labor, and road use contracts in the Kaesong complex, are an attempt to blame South Korea when Kim Jong-il finally closes the project.

Quoting from the article:

Think Choco Pie, the thick wafer-like confection, all pastry and cream, served in the Kaesong Industrial Complex as a daily dessert for the 40,000 North Koreans who toil for 100 South Korean companies with factories in the complex.

“North Koreans love Choco Pie,” said Ha Tae-keung, president of NK Open Radio, which beams two hours of news daily into North Korea from its base in Seoul. “It’s an invasion of the stomach.”

North Korean workers, and the friends and family members for whom they save their daily treats, may salivate over Choco Pie, but it’s giving a severe stomach ache to senior officials fearful of the infiltration of South Korean culture in all corners of their Hermit Kingdom.

Choco Pie – along with other favorite South Korean cakes and candies as well as instant coffee – has come to symbolize the image of the capitalist South as a multi-tentacle beast that may be impossible to digest.

For Kim Jong-il, suffering from diabetes, recovering from a stroke and hoping to survive a few more years while grooming his neophyte youngest son, in his mid-20s, to succeed him, the best way to deal with the Kaesong complex, 60 kilometers north of Seoul and just above the demilitarized zone between the two Koreas, may be to spit it out.

It’s for this reason, said Ha, that North Korea has precipitously scrapped the agreements under which South Korean companies operate in the complex, built and managed by Hyundai Asan, an offshoot of the sprawling South Korean Hyundai empire.

“He’s come to see Kaesong as a burden rather than an asset, and is inclined to shut it down,” said Ha.

While the Kim Jong il government focuses its attention on cultural infiltration from the South, there appears to be little it is doing, or can do, about cultural infiltration from China–the DPRK’s most significant trading and political partner to the north:

When it comes to South Korean cultural infiltration, however, North Korea has far more to fear from the entry of goods from China than from the Kaesong complex. South Korean DVDs and CDs, even soft-core porn movies made in the South, are now distributed surreptitiously throughout North Korea. Electronic gadgetry, MP3 and MP4 players, TV sets, radios and rice cookers, also shipped via China, are also available for those with the money to pay for them.

Read the full article here:
Pyongyang chokes on sweet capitalism
Asia Times
Donald Kirk
5/21/2009

Pyongyang Department Store No. 1 to provide local products catered to consumers
Institute for Far Eastern Studies (IFES)
2015-7-24

The manager of North Korea’s Pyongyang Department Store No. 1 has revealed the store’s ambition to provide domestic products suited to the demand and tastes of its customers. In an interview with the North Korean website ‘Naenara’ on July 14, 2015, Manager Chong Myong Ok said, “If customers buy and use products that they like, they will come to know the true value of domestic products better.”

According to manager Chong Myong Ok, the Pyongyang Department Store No. 1 product exhibition, which started in December of 2010 and is held twice every year, is selling products produced with the goal of “regional industries catching up with central industries and central industries producing internationally competitive products.”

In July 2011, Kim Jong Il attended the second Pyongyang Department Store No. 1 product exhibition and visited the oil stand as many as three times, instructing the store to sell more than five types of oils, including soybean oil, sesame oil, perilla oil, rapeseed oil and corn oil.

Also, as Kim Jong Un emphasized in his 2015 New Year’s address the need for quality consumer goods, school supplies and children’s food, the Pyongyang Department Store No. 1 reported that it goes to over two hundred factories to procure goods.

“The light industry factories, which have a strong material and technical foundation and are modernized to meet the demands of this new century, are widely praised by the people and are churning out internationally competitive, high quality products,” said manager Chong Myong Ok.

He also revealed his hope that “in the future we can continue setting up product procurement businesses suited to the people’s rising standard of living while prioritizing the interests of the people and making progress in all matters that arise in commercial services like manufacturers’ order contracts.”

North Korea, which has set the goal of taking the lead in the global market by producing outstanding products, is trying to shed its present reliance on imports through enhancing the quality of its own products. This is consistent with its overall goal of achieving ‘self-reliance’ and the localization of its economy by producing goods that can compete in the global economy.

Surge in local product sales at Kwangbok Area Supermarket
Institute for Far Eastern Studies (IFES)
2015-8-7

According to the Tongil Ilbo, there are now a number of local products sold at Pyongyang’s Kwangbok Area Supermarket, which was built in October 1991. “By achieving the informatization and computerization of all business activities, from warehousing to the sale of goods, the Kwangbok Area Supermarket guarantees accuracy and speed in its service. It is a commercial service center managed to guarantee the maximum convenience of its customers,” North Korea’s independent newspaper reported on July 11, 2015.

It explained that the Kwangbok Area Supermarket, which has a total floor area of 12,700 m2, sells household products, electronics, general textile products, and grocery products such as confectioneries on every floor. In addition, each North Korean brand is sold in the relevant department, including brands such as ‘Ryongmasan,’ ‘Kuryonggang,’ ‘Kumkop,’ ‘Hwawon,’ ‘Mirae,’ ‘Songchon,’ and ‘Bommaji.’

Located on the first floor, the grocery department displays local products produced by factories like the Pyongyang Flour Processing Factory, the Kumsong Food Factory, and the Kumkop General Foodstuff Factory for Sportspersons. “People like to purchase locally-produced products […] In the future public service networks like the Kwangbok Area Supermarket will emerge in other places as well,” the newspaper reported.

Kim Song Won, manager of the Kwangbok Area Supermarket, commented, “With the unprecedented growth of the country’s self-sustaining economic foundation, there is greater demand among the people for variety and quality in their products […] Accordingly, we are bringing in many domestic products and are working to provide services so that customers can purchase products that they like.”

The newspaper revealed that since many residents who live outside of Pyongyang also come to the Kwangbok Area Supermarket, for their convenience the store has prepared all sorts of food stands on the first floor in addition to the third floor restaurant. Manager Kim Song Won explained, “When you prioritize the convenience and well-being of the people, you receive their love […] We will continue to work hard to make the Kwangbok Area Supermarket a service center that customers enjoy coming to.”

In 2011, Kaesong workers officially received their 5th consecutive annual pay increase. In 2012, they “received” their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongyang closed the complex down in a dispute with the South Koreans. In 2014, work resumed at the complex and Kaesong workers “received” a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex). Now it looks like Pyongyang is raising tensions (unjustifiably in my opinion) to recover a “pay increase” they feel they are owed.

For those new to this topic, I should point out that we are not talking about wages paid to North Korean workers. We are talking about US dollar balances (cash) that are given directly by South Korean firms to the North Korean government. The North Korean government keeps all of the hard currency and pays its workers in local currency. That said, The North and South Koreans still officially refer to “wages” (even though they are nothing of the sort), so I will as well.

I am chronicling this developing story in periodic updates below.

____________________

UPDATE 21 (2015-12-26): Two Koreas conclude Kaesong fee negotiation. According to the Joong Ang Ilbo:

The two Koreas concluded a 13-month negotiation process on Thursday regarding the amount South Korean companies should pay North Korea for their use of land at the Kaesong Industrial Complex (KIC).

According to the Ministry of Unification, the two sides agreed that South Korean companies will pay a fee of 64 cents per 1 square meter (10.76 square feet). An official agreement was signed between the Kaesong Industrial District Management Committee of the South and North Korea’s Central Special Zone Development Guidance General Bureau.

Pyongyang had demanded $1 per 1 square meter throughout the negotiation, which began in November 2014, while the South insisted on the rate of 50 cents.

An official from the Ministry of Unification said that Seoul presented several international precedents to persuade Pyongyang and cited the operations model at the Samsung Electronics factories in the Yen Phong Industrial Zone in Vietnam.

According to the source, Samsung Electronics pays 50 cents per 1 square meter for its smartphone factory in Vietnam. Qingdao Sino-German Ecopark charges in the range of 64 cents.

“The land usage fee was settled based on the peculiar nature of the KIC, international standards and the financial considerations of the companies,” the official said. “It serves the goal of improving the global competitiveness of the industrial zone.”

Kim Yong-hyun, a North Korean studies professor at Dongguk University, said the deal was meaningful in that Pyongyang had remained flexible when Seoul presented international norms.

…

The companies were exempt from paying a land usage fee until the end of this year. While the North demanded that the South pay the fee for all the land that was supposed to be developed under the deal, Seoul insisted that it pay only for the land on which the businesses actually operate.

After more than a year of negotiations, the North accepted the South’s argument and decided to levy the fee for only the 920,000 square meters of the land used out of the complex’s total 3.3 million square meters.

UPDATE 20 (2015-8-17): Reuters reports that the Koreas have worked out a deal. According to the article:

North and South Korea agreed to increase the minimum wage for North Korean workers at a joint factory park by 5 percent, a South Korean industry representative said, ending a months-long dispute despite heightened tensions on the Korean peninsula.

The compromise, reached Monday, raises the monthly wage to $73.87 at the Kaesong Industrial Complex, which is just north of the heavily fortified inter-Korean border.

“The fact that dialogue between South and North met with good results is welcomed and a good signal for stable management in Kaesong,” Yoo Chang-geun, vice chairman of the Corporate Association of Kaesong Industrial Complex, said on Tuesday.

…

The new wage is slightly below the $3.65 increase, or 5.18 percent, North Korea had demanded, which exceeded the annual increase of 5 percent agreed when the zone was established.

Here is coverage in Yonhap:

South and North Korea have agreed to hike the minimum wage by 5 percent for North Korean workers at a joint industrial park in the North, a government official said Tuesday, a move that will help resolve a monthslong row.

The two Koreas have been embroiled in a dispute following North Korea’s unilateral decision to hike the minimum wage by 5.18 percent for the about 55,000 North Korean workers at the Kaesong Industrial Complex in the North’s border city of the same name.

The quasi-state committees from the two Koreas reached an agreement on Monday to hike the wage to US$73.87, the most contentious issue in the dispute, according to a ranking official at the Unification Ministry. A 5 percent hike is the same level at which the wage has been increased every year so far.

“The most pressing issue of the wage cap has been resolved though there is still a long way to go,” the official said, asking not to be named. “But the move is expected to support the stable supply of labor and improve business conditions.”

The move is expected to raise the total monthly wage by far more than 5 percent when other compensation is included, according to an official at the group of 124 South Korean firms that are running factories in the park.

…

Seoul has rejected Pyongyang’s unilateral move to hike the wage, saying that it breaches a 2004 agreement that calls for the two sides to set wages through consultations.

In July, the two sides held talks of the joint committee that operates the complex, the first since June last year, but they failed to reach an agreement.

The ministry said that the two Koreas plan to hold a meeting of the committee to discuss how to revise labor guidelines.

The government official said that the two sides have agreed to continue to set the wage cap through consultations.

“By taking into account the grave situation facing inter-Korean ties, the government plans to take measures to develop the complex,” the official said.

According to UPI:

The agreement also covers social welfare for North Korean factory workers in Kaesong. Taken together, the payment of workers’ health insurance and other benefits indicates total income is to increase between 8 and 10 percent.

Coverage for North Korean workers is to include provisions for work-related injuries, death insurance and unemployment benefits.

Workers also are to be compensated for hours worked overtime and for holidays at a rate that is between 50 to 100 percent of regular hours worked, according to South Korean officials.

Ongoing tensions between the two sides have affected business operations in Kaesong but productivity at the complex has soared dramatically despite the wage dispute.

From January to April, production value was estimated to have reached $186 million, up 25 percent from $148 million from the same period in 2014.

Here is information in the New York Times:

The Kaesong wage issue has been a subject of negotiation between the Koreas since February. On Tuesday, officials at South Korea’s Unification Ministry, who spoke at a news briefing on the condition of anonymity, said that workers’ monthly minimum wage would be raised 5 percent, to just under $74. The North had wanted an increase of 5.18 percent.

The Kaesong park is a significant source of hard currency for the impoverished North. Workers there earn a monthly average of $166, including overtime compensation. The South pays the wages directly to the North Korean government; how much each worker actually receives is unknown.

None of the media highlighted that nearly all increased spending on North Korean workers at the Kaesong Industrial Complex is simply a larger transfer to the North Korean government will little going to the actual workers themselves.

UPDATE 19 (2015-8-14): North Koreans at the Kaesong Industrial Complex already “paid” more than workers at other foreign-owned ventures. According to Radio Free Asia:

Local employees hired by foreign-invested companies inside isolated North Korea are earning much less than their counterparts who work at South Korean firms inside the Kaesong Industrial Complex, businessmen with knowledge of the situation said.

Foreign-invested companies pay local employees less than the U.S. $70.35 monthly minimum wage paid to the 53,000 North Koreans who work at the Kaesong Industrial Complex, the joint inter-Korean economic project north of the demilitarized zone, sources said.

Some North Koreans who work at the industrial park receive more than U.S. $140 a month when overtime is included, they added.

A Chinese-Korean businessman who operates a roofing material company and metal pressing company in the Rason area on the northeast tip of the country told RFA’s Korean Service that he pays his North Korean workers about 300 Chinese yuan (U.S. $47) a month. Other Chinese companies in Rason pay similar wages to their North Korean employees, he said.

A Chinese businessman who employs about 100 North Koreans at a mine he is developing in Hwanghae province said he pays his workers U.S. $60-$70 a month.

“There might be some wage differences at other foreign companies, but they are not that much different from the level of wages I pay,” he said.

The sources noted that some media reports published outside North Korea put the average monthly wage of workers in the Rason Special Economic Zone, set up by the North Korean government in the early 1990s to promote economic growth through foreign investment, at around U.S. $100. But this contradicts salary information provided by the foreign companies doing business there, they said.

“It’s a big problem paying the same wage rates to the workers dispatched unilaterally by the North Korean authorities [to foreign-invested companies inside the country] without determining whether they’re skilled or unskilled, or taking into consideration if they are men or women, based on the nature of the work they’re supposed to do,” one source said.

While those who work for foreign-invested companies in North Korea also receive an allowance for one meal per day, the sources said, they also log fewer hours than their Kaesong counterparts, because they often fail to report for work whenever authorities order labor mobilizations or electricity supplies are low.

UPDATE 18 (2015-7-17): The talks ended with no resolution. According to Yonhap:

South and North Korea on Thursday failed to settle their months-long dispute over wages of North Korean workers employed at their joint factory park in rare inter-Korean talks held in the communist country.

Delegations from Seoul and Pyongyang sat together in the North Korean border town of Kaesong earlier in the day over the tangle, which started with the North’s unilateral decision in February to hike the minimum wage for about 55,000 North Korean laborers.

The North demanded the per-hour minimum wage be lifted by 5.18 percent to US$74, but the South had resisted the steeper-than-agreed hike before the two countries agreed last week to settle the issue through dialogue.

The ground rules set when the joint cooperation project opened in 2004 capped the maximum rate of wage increase at 5 percent per year.

The meeting ended without any major progress as the two sides failed to narrow gaps on the wage issue, a South Korean official said after the talks broke down.

The two sides intend to meet again to put the issue to renegotiation, although a date has not been set, he noted.

Pak Chol-su, a vice director of North Korea’s special economic zone development department, who heads the North Korean delegation, had earlier expressed hopes for a favorable outcome as the negotiations kicked off inside the Kaesong complex.

Touching on the severe drought reported in the North, Pak also said recent rainfalls “pretty much improved harvest.”

The Thursday meeting marks a rare opportunity of inter-Korean contacts with the countries mired in long-running military and diplomatic tensions.

It was the first meeting of their joint committee in charge of running the Kaesong Industrial Complex since the last one was held in June last year. It was also the first government contact between the countries following a working-level military dialogue convened in October in 2014.

Amid the bellicose mood, the North abruptly called off U.N. Secretary-General Ban Ki-moon’s planned peace-promoting visit to the Kaesong park in May.

The joint factory park, the result of the first-ever inter-Korean summit in 2000, is the last remaining symbol of once-vibrant inter-Korean reconciliation. It has also served as a core source of foreign currency for the cash-strapped North, while providing South Korean companies with a cheap but skilled workforce.

A total of 124 South Korean firms, mostly small- and medium-sized manufacturers, run factories at the complex under the auspice of the South Korean government.

The operation of the complex has been a yardstick of ups and downs for inter-Korean ties.

In April 2013, the North unilaterally shut down the park for about four months amid worsening tensions on the peninsula.

Since the unilateral wage hike demand in February, the countries agreed to tentatively freeze the minimum wage at the current $70.35 level, allowing the two sides to buy time for talks on the wage issue.

Also discussed in the Thursday meeting was how to tighten public order among South Koreans moving in and out of the complex.

The North has vowed to take punitive actions on South Koreans who are caught carrying banned goods into the North including USB memory sticks or newspapers from the outside world.

Here is coverage in the Daily NK. Here is coverage in the Joong Ang Ilbo.

UPDATE 17 (2015-7-9): Two Koreas to hold talks to negotiate Kaesong wage issues. According to Yonhap:

South and North Korea plan to hold talks on a joint industrial park in the North next week to discuss a prolonged dispute over the North’s unilateral move to raise wages for its workers at the complex, Seoul officials said Thursday.

North Korea has accepted the South’s offer for holding the meeting at the Kaesong Industrial Complex next Thursday at the border city of the same name, according to the unification ministry.

The move raises hopes for resolving a months-long wage row between the two Koreas following Pyongyang’s unilateral bid to hike the minimum wage by 5.18 percent to US$74 per month for about 55,000 North Korean workers at the park. A total of 124 South Korean small- and medium-sized enterprises are operating factories there.

The South has rejected the communist neighbor’s move, saying it is in breach of a 2004 agreement that calls for the two sides to set wages through consultations. The wage cap has been set at 5 percent per year.

In August 2013, the two Koreas decided to set up a joint committee in charge of running the industrial park following the North’s unilateral move in April of that year that shut down the park for about four months.

The committee is an integral part of a deal that called for reopening the complex and adopting safeguards to prevent any work stoppages in the future. The committee has not met since June last year due to the North’s refusal.

The joint factory park, which opened in 2004, is the last remaining symbol of inter-Korean reconciliation. It has served as a major revenue source for the cash-strapped communist North, while South Korea has utilized cheap but skilled North Korean laborers.

In what could be a temporary relief, North Korea accepted South Korea’s tentative offer in late May to pay wages at the current level of $70.35, but Seoul and Pyongyang have yet to resolve the issue fully.

Meanwhile, the ministry said that Pyongyang has sent a notice to Seoul saying that it will tighten its surveillance over South Koreans moving in and out of the complex.

The North is known to have expressed complaints over South Koreans bringing in goods, such as mobile phones and newspapers, that are restricted in the North, vowing to take punitive actions if found.

In response, the South said that the issue should be dealt with in accordance with the two sides’ agreement and related regulations, according to the ministry.

UPDATE 16 (2015-5-25): South Korean firms begin paying regular wages, though the matter is still not resolved. According to Yonhap:

South Korean firms in an inter-Korean factory park in North Korea plan to pay wages to their North Korean employees this week, a government official said Monday.

The move came days after Pyongyang accepted Seoul’s tentative offer of wage payments for North Korean workers at the factory park in North Korea’s border city of Kaesong at a previously agreed level until separate consultations are held.

The deal on Friday would allow South Korean firms to pay the wage based on the US$70.35 per month that was originally set. But it called for the 124 South Korean firms to provide retroactive pay based on the outcome of separate consultations.

The official said North Korea demanded that South Korean firms in Kaesong pay March and April wages by the end of this month. The official asked not to be identified, citing policy.

The sides have yet to produce a deal over the more sensitive issue of a wage cap, which has been set at 5 percent per year.

In February, North Korea unilaterally decided to hike the minimum wage by 5.18 percent to US$74 per month for about 53,000 North Korean workers in the factory park.

The factory park, an outcome of the first-ever inter-Korean summit of leaders in 2000, is a major symbol of reconciliation between the rival Koreas.

It combines South Korean capital and technology with cheap North Korean labor to produce clothes, utensils, watches and other labor-intensive goods.

The factory park is a major source of hard-currency for the impoverished north.

UPDATE 15 (2015-5-22): Koreas buy time for talks on wage at factory park. According to Yonhap:

North Korea has accepted South Korea’s tentative offer of wage payments for North Korean workers at a joint industrial park, allowing the two sides to buy time for talks on Pyongyang’s unilateral wage hike, officials said Friday.

The two Koreas have been embroiled in the wage dispute as North Korea unilaterally decided in February to the hike minimum wage by 5.18 percent to US$74 per month for about 53,000 North Korean workers at the Kaesong Industrial Complex in the border city of the same name.

The agreement between the quasi-state committees from both sides will allow South Korean firms to pay the wage based on the $70.35 per month that was originally set, according to government officials. Then, the 124 South Korean firms will provide retroactive pay.

Friday’s deal is not final as the two Koreas have not produced a breakthrough over the more sensitive issue of a wage cap. But the North has accepted Seoul’s offer to pay the wage at a previously agreed level until separate consultations are held.

Seoul has rejected the North’s unilateral move, saying that the North violated a 2004 agreement that calls for the two sides to set wages together. The wage cap has been set at 5 percent per year.

“The move will ease concerns about production setbacks that could be sparked by North Korean workers’ threat not to work or to seek a work slowdown,” the Ministry of Unification said in a statement.

It added that the government will make efforts to resolve the wage dispute as soon as possible through talks with North Korea.

The agreement came amid concerns about the strained inter-Korean ties following North Korea’s recent abrupt cancellation of its invitation for U.N. Secretary-General Ban Ki-moon to visit the industrial complex.

On the same day a group of businessmen visited the KIC to help resolve the impasse. According to Yonhap:

A group of South Korean businessmen visited a joint industrial complex in North Korea Friday amid a drawn-out row over wage payment for North Korean workers there, an official from the group said.

The two Koreas have been embroiled in the wage dispute as North Korea unilaterally decided in February to hike monthly wages by 5.18 percent for about 53,000 North Korean workers at the Kaesong Industrial Complex in the border city of the same name. Seoul has rejected the North’s unilateral move.

The group of South Korean businessmen with factories there visited the complex in an effort to resolve the prolonged dispute as the 10-day period of the wage payment for April began Sunday. They made similar visits three times before.

The visit came as North Korea abruptly canceled its invitation for U.N. Secretary-General Ban Ki-moon to visit the industrial park, dampening hopes for better inter-Korean ties.

The joint industrial park, which opened in 2004, is the last remaining symbol of inter-Korean reconciliation following a landmark inter-Korean summit in 2000. It has served as a revenue source for the communist country while South Korea has utilized cheap but skilled North Korean labor.

Seoul said that Pyongyang violated a 2004 agreement that calls for the two sides to set the wages together. The wage cap has been set at 5 percent per year.

In August 2013, the two Koreas also decided to set up a joint committee in charge of running the complex following the North’s unilateral move to shut down the park for about four months in April of that year.

Seoul has requested its companies not to send out paychecks, vowing to punish violators. But despite the warning, about 50 out of 124 South Korean companies have paid March wages to the North’s workers apparently after threats from the North.

Here is coverage in Xinhua.

UPDATE 14 (2015-5-19): Kaesong companies pass resolution opposing North’s unilateral wage raise. According to the Hankyoreh:

Kaesong Industrial Complex tenant companies reached an agreement not to accept North Korea’s unilateral demands to increase wages. Instead, they agreed to provide the North Korean authorities with a letter of guarantee to pay the difference in the wages once North and South Korean negotiators reach an agreement.

During a general meeting of the Corporate Association of Gaeseong Industrial Complex (CAGIC) on May 18, with about 90 tenant companies attending, a group of company chairs approved a letter of guarantee they had proposed providing to the North Korean Bureau of Central Special District Development.

On May 15, the association chairs visited Kaesong to meet Park Chol-su, deputy chief of the bureau, and offered to write a letter of guarantee. The letter would state that the companies refuse to accept North Korea’s request to raise wages but promise to retroactively pay the difference in the wages and the late fees according to the agreement that North and South Korean authorities eventually reach.

On Apr. 20, the deadline for paying the wages for March, the North Korean bureau had asked the South Korean tenant companies to sign a letter of guarantee in which they would effectively acknowledge the wage increase on which it had unilaterally decided and agree to pay the ensuing late fees. Reportedly, five companies agreed to this demand.
In order to prevent South Korean companies from giving in to North Korea’s demands for raising wages, the South Korean government asked them to first deposit workers’ wages with the South Korean management committee, which would then forward the payment to the North Korean bureau.

The government is putting pressure on tenant companies, threatening that it will not extend the loan repayment schedule for companies that do not obey these instructions. Tenant companies were loaned emergency operating funds when the complex temporarily shut down in 2013.

“During a meeting with the group of company chairs on May 17, the Unification Minister said that, if we can show that the companies are not agreeing to North Korea’s demand to raise the wages, the Ministry might not predicate extending the loan repayment schedule on depositing workers’ wages with the management committee,” CAGIC Chairman Chung Ki-sup told reporters after the general meeting on Monday.

“In order to comply with this, we reached an agreement in the general meeting today to pay North Korea the April wages according to the February rates, before North Korea had asked for a wage increase.”

This past February, North Korea notified South Korea that it would be unilaterally increasing the minimum wage of North Korean workers at the Kaesong complex by 5.18% from US$70.35 to US$74 a month beginning with the March wages.
49 of the 125 tenant companies had paid the wages to North Korea as of May 8. The South Korean government is currently investigating to see whether these companies used double bookkeeping to pay their wages at the level North Korea demanded.

The South Korean government has insisted on raising the minimum wage no more than 5% through deliberations between North and South, as the labor regulations stipulated before North Korea unilaterally revised them.

On May 15, the South Korean government sent a message to North Korea through the secretariat of the Inter-Korean Joint Committee on the Kaesong Complex proposing that the committee hold its sixth meeting on May 20, but North Korea again refused to receive the message.

The joint committee was set up after operations at the complex were suspended for five months in 2013 in order to prevent the reoccurrence of such a shutdown. The committee is supposed to convene every quarter, but last year, only one meeting was held.

UPDATE 13 (2015-5-14): The North Koreans have issued a statement that tried to tie the Kaesong wage increase to revision of domestic labor regulations rather than a unilateral action against South Korea. According to KCNA:

New Labor Regulations to Be Invariably Enforced in KIZ
Pyongyang, May 14, 2015 09:56 KST (KCNA) — The Presidium of the Supreme People’s Assembly of the DPRK revised the labor regulations and promulgated them in November last year in conformity with the development of industrial zones, taking into full consideration the situation in the Kaesong Industrial Zone (KIZ), realities in international special zones, etc.

Pursuant to them, the DPRK notified the south side that a new wage pattern would be applied from March this year so that businesses of the south side might be fully ready for the new regulations.

In consideration of conditions of businessmen, the DPRK took such generous measure as extending the date of wage payment for March a week.

Nevertheless, the south Korean authorities, far from thanking the DPRK for its good faith and generosity, pulled up it over its legitimate enforcement of legislation, terming it “unilateral one violating the north-south agreement.” Not content with this, they are threatening and blackmailing the businesses to prevent them from paying the wages for March while making investigations into them.

A spokesman for the General Bureau for Central Guidance to the Development of the Special Zone declared in a statement on Wednesday the KIZ is an economic special zone being operated together with businessmen of the south side and that the south Korean authorities, therefore, have neither reason nor pretext to interfere in it.

We cannot but take a serious note of the fact that the south Korean authorities are set to apply a “deposit” system to wage payment from April, something rare to be found in economic zones of other countries, in a crafty bid to use the businessmen for wantonly violating the laws and regulations in the KIZ and openly encroaching upon the sovereignty of the DPRK, the statement noted, and went on:

Businessmen of the south side should keep vigilance against this move so that they may not be scapegoats for the authorities’ plot to wantonly violate the DPRK’s laws and regulations in the KIZ, an encroachment upon its sovereignty.

They should seriously think once again over what they would gain by yielding to the pressure of the authorities to turn the KIZ into the one of factories without workers where business autonomy is seriously violated.

Explicitly speaking, the issue of enforcing the new labor regulations is not an issue to be discussed at the talks between authorities as it is an issue concerning the DPRK’s legitimate enforcement of legislation.

The south Korean authorities should stop at once putting the brake and pressure upon the businesses’ autonomous management in the KIZ and deliberately laying an obstacle in the way of the operation of the KIZ and ensure their free management.

Not only the south Korean authorities but also the commission responsible for the management of the KIZ are to blame for the situation prevailing in the zone.

If the management commission continues working hard to infringe upon the inviolable sovereignty of the DPRK, making the KIZ a political bargaining chip for someone under the manipulation of the south Korean authorities, departing from its mission, the DPRK will call it into question for the ensuing serious consequences and it would not be possible for the DPRK to entrust the management of the KIZ to the commission.

The KIZ is, in actuality, a zone for north-south economic cooperation, not a theater for confrontation between the authorities of the north and the south.

The DPRK will keep enforcing the new labor regulations for the normal development of the KIZ in the future.

UPDATE 12 (2015-4-21): Pyongyang has allowed normal wages to be paid for March of 2015. According to the Hankyoreh:

“The North said it would allow the payment of the regular wages for now and calculate the difference from the hike later,” explained Corporate Association of Gaeseong Industrial Complex chairman Chung Ki-sup in a telephone interview with Hankyoreh on Apr. 20. That day marked the deadline for payment of March wages to North Korean workers at the complex.

North Korea recently announced a unilateral 5.18% hike in the minimum wage at the complex, which would raise monthly pay from US$70.35 to US$75.00. The South Korean government has blocked tenant companies from complying on the grounds that a unilateral increase beyond the agreed-upon 5% ceiling is unacceptable.

Chung explained that North Korea “wants us to sign statements confirming the unpaid difference.”

“Wage payments were already made over the course of ten days, so late fees for the difference are being deferred until this weekend,” he added.

The agreement buys a few extra days for authorities on both sides to discuss the matter before additional frictions erupt over the minimum wage hike at the complex. Tenants companies have reportedly convinced North Korea to accept the earlier US$70.35 minimum wage standard for March pay, with the difference to be paid retroactively after authorities reach an agreement on the matter.

“It appears that North Korea took into account the difficult position the tenant companies are in with the South Korean government insisting that they not pay the extra amount,” Chung explained.

“I don’t think North Korea wants the repercussions of this to grow either,” he said.

A group of tenant company directors at the complex had initially planned to visit Kaesong on Apr. 20 to discuss the wage issue, although the plans were eventually canceled.

“Our biggest concern is out of the way now that the North has agreed to accept the pre-hike pay,” Chung said. “My understanding is that the visit was canceled because they concluded it wasn’t going to really fix matters as they stand now.”

UPDATE 11 (2015-4-20): Kaesong firms stuck between Korean governments. According to Arirang News:

South Korea’s Kaesong business owners are stuck in a dilemma.

On the one hand, they’re facing the prospect of having to pay a late fee if they don’t comply with the North’s demand for a wage hike, but on the other hand, they face the possibility of punitive measures from the South if they do.

None of the 124 South Korean companies have paid the March wages yet, which are due April 20th.

North Korea has threatened to impose a late fee of 15 percent per month if the South Korean companies don’t issue the wage payments on time.

South Korea says it will not accept the North’s unilateral demand for a wage hike, saying Pyongyang violated a 2004 agreement that calls for two quasi-governmental committees to set the pay rate together.

The two committees met for a second time on Saturday, but failed to reach a compromise.

In addition, Seoul has warned the South Korean companies operating in the complex that they will face punitive measures if they concede to the North’s wage hike demands.

The two Koreas have been at odds over the issue since February, when the North unilaterally decided to raise the wage level by more than 5 percent to roughly 74 U.S. dollars a month starting in March for the approximately 53-thousand North Korean workers in the complex.

Seoul’s Unification Ministry says it is still sending messages to Pyongyang asking to meet on the wage issue, but the North maintains that it’s a matter for Pyongyang to decide.

Yonhap reports that a few South Korean firms have made increased payments in accord with Pyongyang’s demands:

Three South Korean firms have paid more wages for North Korean workers in the Kaesong Industrial Complex as Pyongyang demanded, a government source here said Monday.

Their move runs counter to the South Korean government’s firm stance not to accept the communist neighbor’s unilateral decision to raise wages for its 53,000 workers in the North’s border town.

The North unilaterally decided to raise the minimum wage by 5.18 percent to US$74 per month, starting in March, for those workers employed by the 124 South Korean small- and medium-sized firms in the Kaesong zone.

Three of the firms paid the increased wages, the source said. They are expected to face administrative punitive action from Seoul’s government.

The South’s unification ministry, meanwhile, dismissed news reports that the North extended a deadline for the payment of the March wage.

UPDATE 10 (2015-4-15): Seoul hints at drawn-out row over Kaesong wage problem. According to Yonhap:

South Korea said Monday it will not be restrained by a timetable in resolving an ongoing row over wage hikes for North Korean workers at a joint industrial park in the North.

The two Koreas have been in dispute since the North unilaterally decided in February to raise the wage level by 5.18 percent to US$74 per month starting in March for about 53,000 North Korean workers hired by South Korean companies at the Kaesong Industrial Complex in the North’s border city of the same name.

Seoul is seeking to hold talks with the North over the issue through a quasi-governmental committee as the payday for the March wages, which began Friday, will last for 10 days. None of the 124 South Korean firms have paid March wages to North Korean workers.

Seoul’s unification ministry said that it will do its best to resolve the wage dispute, adding that the row may be prolonged if it passes the deadline.

“As we cannot exclude the possibility that the wage dispute cannot be settled until April 20…the Seoul government will continue to make efforts to resolve the issue,” Lim Byeong-cheol, spokesman at the unification ministry, said at a press briefing.

“What’s important is that the government has the will to tackle this row. We do not prejudge any situations without having a specific deadline in mind.”

Seoul has not accepted the North’s unilateral move, saying Pyongyang violated a 2004 agreement that calls for two quasi-government committees from each side to set the wages together. The wage cap has been set at 5 percent.

Its efforts for the talks have gained urgency as North Korea will take days off on Wednesday and Thursday to mark the April 15 birth anniversary of its late founder, Kim Il-sung.

The industrial complex opened in the early 2000s, the last remaining symbol of inter-Korean reconciliation. It has served as a major revenue source for the cash-strapped communist country.

Lim also called on North Korea to stop threatening to retaliate against a move by Seoul activists to resume their campaign to send anti-Pyongyang leaflets and other materials via balloons across the inter-Korean border.

“It is not desirable for North Korea to criticize Seoul activists’ leaflet launch as it is a matter of freedom of speech,” Lim said. “North Korea should immediately stop making threatening remarks to South Korean people.”

Despite Seoul’s request for restraint, anti-North Korea activist Park Sang-hak on Thursday made an attempt to launch balloons carrying leaflets and copies of DVDs of “The Interview,” a U.S. comedy film about a plot to assassinate North Korean leader Kim Jong-un. His attempt was scuttled by police.

North Korea said Friday it will take “ruthless” actions against Seoul activists’ move, saying that the move to send the U.S. movie to the North is tantamount to a declaration of war against Pyongyang.

UPDATE 9 (2015-4-1): S. Korea not budging on Kaesong wage row (Yonhap):

South Korea said Wednesday it will ask the country’s firms at the Kaesong Industrial Complex in writing not to succumb to North Korea’s pressure to raise wages for its workers.

The unification ministry said it will soon send a formal letter to 124 South Korean firms operating in the zone just north of the inter-Korean border.

The move comes as the companies, mostly small and medium-sized, will begin to pay March’s wages to around 53,000 North Korean employees on April 10.

In February, the North decided unilaterally to revise a set of labor rules that included the elevation of the minimum wage for its workers at the Kaesong Industrial Complex from US$70.35 to $74 starting in March.

The South has rejected the North’s decision, saying the wage issue should be decided through bilateral discussions.

It has urged the South’s firms in Kaesong not to follow the North’s measure.

“We plan to send an official letter to them in order to again make clear the government’s stance on the matter,” Unification Ministry spokesman Lim Byeong-cheol said.

He added there has been no progress yet in efforts to hold talks with North Korea to discuss the issue.

Here is coverage in the Hankyoreh.

UPDATE 8 (2015-3-18): South Korean business owners have crossed into the Kaesong complex to complain about Pyongyang’s unilateral wage increase. According to the Financial Times:

On Wednesday more than a dozen businessmen representing about 120 companies visited Kaesong, about 10km north of the border, to voice their concerns about the move, amid growing concerns about the future of the joint economic project

…

“The unilateral change of labour rules is a problem,” said Chung Ki-sup, head of the council of the South Korean businesses operating in Kaesong, ahead of the 14-member delegation’s arrival in the North. “But this can be easily resolved when dialogue resumes.”

…

Mr Chung said the North’s stance might in part be a reaction to Seoul’s refusal to ban North Korean defectors and rightwing civic groups from sending anti-North leaflets across the border.

Experts say the wage disputes are unlikely to lead to another closure of the industrial complex, but the problems have renewed scepticism over the merits of the project.

“The disputes are unlikely to be resolved anytime soon,” said Park Hyung-joong, researcher at Korea Institute for National Unification. “Pyongyang wants to use Kaesong as a political bargaining chip when inter-Korean relations are not good. So the complex will remain exposed to political problems, but closing it carries too big political risks for both sides.”

Here is coverage in the Daily Mail and Yonhap.

UPDATE 7 (2015-3-17): The DPRK has tried circumventing the South Korean government to reach out to the Kaesong firms themselves. According to Arirang News:

In an unprecedented move, North Korea asked the heads of South Korean companies operating at the inter-Korean industrial complex in Kaesong to gather for a meeting that was scheduled for earlier in the day.

No specifics about the meeting were announced and the South Korean government asked the company heads. not to respond to Pyongyang’s call.

Instead, the South Korean government held a meeting in Seoul this afternoon with most of the leaders of companies from the complex.

Seoul discussed possible countermeasures and urged the leaders not to abide by Pyongyang’s one-sided demands.

Watchers believe the meeting was Pyongyang’s way of pressuring the South Korean companies to go along with its unilateral decision to raise wages for its workers from a little over 70 U.S. dollars to 74 dollars a month and revise labor regulations.

UPDATE 6 (2015-3-12): The DPRK rejects South Korea’s call for talks on Kaesong wages. According to Yonhap:

North Korea claimed Thursday its decision to raise wages for its workers at the Kaesong Industrial Complex is a legitimate measure under its sovereignty, dimming hopes of an early resolution to disputes between the two Koreas over the issue.

The North’s Central Special Development Guidance Bureau, which is in charge of operating the complex, made clear that it is not a matter to be decided through consultations with the South’s government.

Last month, Pyongyang notified Seoul of its unilateral decision to elevate the minimum wage from US$70.35 to $74 starting in March. It also said it would collect 15 percent of their basic wage plus overtime payments as “social security.” Currently, the South’s firms pay 15 percent of the basic wage alone.

The South strongly protested against the decision, suggesting that the two sides hold dialogue on March 13 to discuss the problem.

Officials here emphasized that the two Koreas have agreed to decide every issue related with the operation of the joint venture through mutual consultations.

…

The decision on the wage hike is a “normal and legitimate” exercise of the North’s legislative rights, the bureau’s spokesman told Pyongyang’s propaganda website, Uriminzokkiri.

It’s not a subject for bargaining with the South, he added.

It makes no sense, he added, for the North to hold talks with the South at a time when it is staging a war rehearsal with joint military drills with the United States on the peninsula.

He argued that wages for the North’s workers in Kaesong are still low for their heightened skills and productivity and in comparison with the wage level in special economic zones in other nations.

UPDATE 5 (2015-3-11): Throwing fuel on the fire of this mess, the North and South Koreans are required to resolve real estate rental rates this year. There will be no practical way to resolve this issue independently of the ongoing wage dispute. According to Yonhap:

When the Kaesong Industrial Complex in the North’s border town of the same name started operations in 2004, Seoul agreed with Pyongyang to pay the rent for the North Korean land used by South Korean companies from 2015 after negotiations on the amount.

…

In November, the North’s Central Special Development Guidance Bureau in charge of the industrial complex notified its South Korean counterpart of its intention to start talks on the rent issue, according to the officials.

…

But the negotiations are widely expected to face a bumpy road, given a wide opinion gap shown in the countries’ previous exchanges on the issue.

In 2009, the North attempted to collect up to US$10 of rent per 3.3 square meters of land, but it faced strong opposition from South Korea, so the plan was dropped immediately.

Following the North’s notification in November, Seoul has decided not accept such a level of rent as put forth by the North in 2009, which could further mount the inter-Korean tension over the factory complex down the road, according to the officials.

The joint Kaesong factory park is already at the center of an inter-Korean feud after the North announced last month its unilateral decision to raise the minimum wage of North Korean workers in the park from US$70.35 to $74 starting with their March wages.

Seoul, however, rejected the wage increase decision and said it will punish any South Korean firms complying with the North Korean demand.

April 10 is feared to become a watershed in the inter-Korean tension over the Kaesong park as South Korean firms will start paying March wages that day.

South Korean officials have previously said that the North could take extreme measures, such as the withdrawal of its workers from the complex in a bid to increase pressure on the issue.

UPDATE 4 (2015-3-9): South Korea not happy with the DPRK’s moves on Kaesong. According to Yonhap:

South Korea’s unification ministry issued a strongly-worded statement Monday against North Korea’s attitude on their joint venture in Kaesong, calling again for immediate dialogue to resolve pending problems.

It’s “deeply regrettable” that the North is not responding to Seoul’s offer of talks to discuss Pyongyang’s unilateral decision to raise wages for its workers at the Kaesong Industrial Complex, said the ministry.

“It’s questionable whether (the North) has the will for the development of the complex as the two sides agreed,” its spokesman Lim Byeong-choel said, reading out the statement at a press briefing.

The North is violating an inter-Korean agreement and rules to decide all issues related to the operation of the Kaesong zone, including working conditions, added Lim.

Last month, the communist nation announced a 5.18-percent hike in the minimum wage for its workers in the zone to US$74 a month starting in March.

“The government can never accept such a unilateral measure by North Korea,” the official said. “The government will take every necessary step for the development of the Kaesong Industrial Complex and the protection of (the South’s) firms there.”

He urged Pyongyang to hold talks with the South on Friday as proposed.

Launched in 2004 in the North’s border town, the zone is home to about 120 South Korean firms, mostly small and medium-sized, which employ more than 53,000 North Korean workers.

The South’s government has advised the companies not to comply with the North’s decision on the wage level.

UPDATE 3 (2015-3-4): South Korean government holding meeting with stakeholders to determine response to DPRK. According to Yonhap:

The South Korean government said Wednesday it will hold a round-table meeting this week with the heads of local firms operating in the Kaesong Industrial Complex to discuss how to handle North Korea’s unilateral decision to raise the wages of its workers there.

The unification ministry is scheduled to hold the meeting with the council of relevant companies at its headquarters in Seoul at 5 p.m. on Thursday, said ministry spokesman Lim Byeong-cheol. The ministry is in charge of inter-Korean relations.

“We plan to review measures regarding the recent situation,” he said at a press briefing. “Along with related government officials, Chung Ki-sup, head of the council, and about 10 other representatives will attend (the meeting).”

Another ministry official also said the meeting is intended “to share the government’s position on the matter and listen to the opinion of the firms.”

Last week, the North announced it would raise the minimum wage for its workers in the zone by 5.18 percent to US$74 a month starting in March.

South Korea said it cannot accept a decision made without mutual consultation.

The ministry spokesman said the North has not responded yet to the South’s offer of talks on the Kaesong complex on March 13.

“The government will continue to urge North Korea to hold consultations between the authorities of the two sides, which are essential for the development of the Kaesong Industrial Complex,” Lim said.

The North is apparently aware that both sides have already agreed to resolve every problem related to the operation of the joint venture, he added.

UPDATE 2 (2015-2-26): According to Yonhap:

North Korea has notified South Korea of its unilateral decision to raise the minimum wage for its workers at the Kaesong Industrial Complex by 5.18 percent, the unification ministry said Thursday.

In a fax message sent Tuesday, the North said it would increase the minimum wage from $70.35 to $74 starting on March 1, a ministry official told reporters.

In addition, the North announced that it would collect 15 percent of their basic wage plus overtime payments as “social security,” he said. Currently, the South’s firms pay 15 percent of the basic wage alone.

The North Korean workers’ average wage amounted to $141.4 per month in 2014, according to the ministry’s data.

Under Pyongyang’s plan, South Korean firms will have to pay $164 on average for a North Korean worker a month, up 5.53 percent from the current $155, said the official.

He stressed that the South’s government can’t accept the North’s move.

“The two sides are supposed to set wages for workers at the complex and other working conditions through mutual consultations,” he said. “The government will advise our firms to pay the current level of wages until the issue is settled through consultations between the related authorities of the two sides.”

Those companies are scheduled to pay March wages for the North’s workers between April 10-20.

Earlier Thursday, the South attempted to deliver a protest letter, but the North refused to receive it, said the official.

“It’s very regrettable that the North shows such an attitude,” he said.

About 120 South Korean garment and other labor-intensive plants employ more than 53,000 North Koreans at the complex, which was created in 2004.

UPDATE 1 (2014-12-09): North Korea amends Kaesong Industrial Complex labor regulations, lifts wage increase limit. According to the Institute for Far Eastern Studies (IFES):

According to a December 5th report of North Korea’s propaganda media Uriminzokkiri, the Presidium of the Supreme People’s Assembly reached a decision on November 20 to revise the Act on the Kaesong Industrial Complex (KIC).

It reported that ten provisions in the Kaesong worker regulations were revised including the 5 percent ceiling on annual wage increase to the minimum wage.

North Korea’s General Bureau for Central Guidance on the Development of the Special Zone delivered the notice in writing to the Kaesong Industrial Complex Management Committee on December 8, stipulating that 13 provisions were revised. Out of the 49 total provisions, the 13 provisions that were modified pertain to the function of the KIC Management Committee and the wage system.

According to the decision, North Korea elucidated the labor and wage regulations will be unilaterally directed by the General Bureau, dismissing the authority of the KIC Management Committee. Furthermore, the clause that depicts the minimum wage of USD 50.00 and limit of 5 percent wage increase were deleted. Instead, the revised provisions prescribe that the General Bureau will make the decision every year.

In addition, overtime pay will be increased from the current 50 percent to between 50 to 100 percent. Furthermore, workers who have worked for more than a year will be eligible for severance pay, regardless of the condition of their leave. The previous clause stated severance pay was to be paid only when the termination incurred from “circumstance of the company”; but this condition has been deleted from the revised clause, and pay must now be given even for voluntary leave. Also removed was the provision that states the wage should be paid directly to the employee in cash.

Meanwhile, the South Korean government made a statement disproving the recent modifications to the KIC regulations. The South Korean government is refuting North Korea’s decision based on the fact that it was a unilateral decision by the North without consulting the joint committees of the KIC. The South is affirming its position to strongly counter against the North’s one-sided decision.

Revision of the labor regulations of the KIC is regarded as a violation to the general agreement that undermines the stability and the credibility of the KIC regulations. Such labor regulations clearly violate the inter-Korean agreements on wage system and various labor and tax systems newly reached by the various institutions in the North-South Joint Committee of the KIC after the KIC was restarted last year.

The current minimum wage of a KIC worker is USD 70.30, which reaches up to an average of USD 150.00 per month after various incentives are included. Each company is paying a total of USD 210.00 per employee where 15 percent of the minimum wage is allocated to social insurance, transportation, and snack costs.

North Korea has persistently demanded for a wage increase. North Korean employees dispatched to China’s Dandong City are paid an average of USD 300.00 per month. Thus, the recent move by North Korea can be seen as a move to raise the minimum wage at the KIC to a similar level. In addition, this move can be interpreted as North Korea’s intention to maximize economic gain by taking unilateral action toward tenant companies in the KIC.

ORIGINAL POST (2014-12-9): In 2011, Kaesong workers received their 5th consecutive annual “pay increase”. In 2012, they received their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongygang closed the complex down in a dispute with the south Koreans. In 2014, Kaesong workers received a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex!). Now it looks like Pyongyang is signaling that it intends to unilaterally raise wages.

According to Yonhap:

South Korea is scrutinizing North Korea’s unilateral decision to amend a number of wage-related clauses at the jointly operated Kaesong Industrial Complex, an official said Tuesday.

As soon as a review of the North’s demands are finished, the government will take appropriate steps, the unification ministry official told reporters.

“We are in the process of reviewing and analyzing the contents revised by the North,” he said on background.

The South and the North have an agreement over 49 items in place on the working conditions for around 53,000 North Korean workers in the zone.

Without prior consultations with the South, the North announced its decision to revise 13 of them, which include scrapping a 5-percent cap on the annual minimum wage increase rates, easing qualifications for severance pay and strengthening the authority of the North’s agency in charge of running the complex, according to the official.

North Korean workers’ wages have jumped 5 percent every year since 2007. North Korean workers are currently paid US$70.35 each month. If various allowances and incentives are counted, wages reach $130, reportedly about 50 percent higher than the average income of workers in North Korea.

Read the full story here:
S. Korea reviewing NK move over Kaesong workers’ wages
Yonhap
2014-12-9