Archive for the ‘Economic reform’ Category

Cutting ROK/DPRK trade hurts the ROK

Friday, October 13th, 2006

From Yonhap:
Suspension of inter-Korean business only hurts S. Korea: official
10/13/2006

Suspending South Korea’s joint business projects with North Korea would do more harm to the South than the North while doing little to convince the communist state to halt additional nuclear tests, a ranking South Korean official said Friday.

“Cutting off (inter-Korean economic projects) now would only show our firm will (to retaliate against North Korea for its claimed nuclear test) by inflicting wounds on parts of our own body,” the official told reporters, asking not to be identified.

“The damage North Korea would suffer would be very insignificant compared to the damages we would suffer,” the official added.

The remarks came amid calls from here and abroad for the Seoul government to immediately halt cross-border business projects with the North in retaliation for the North’s claimed nuclear test on Monday.

The main opposition Grand National Party (GNP) claims the country’s economic cooperation for the impoverished North has helped the North’s missile and nuclear weapons program.

“In the current situation, (South Korea) must strengthen its alliance with the United States and actively participate in U.N. Security Council sanctions on the North while cutting off all of its cash assistance to the North,” GNP floor leader Kim Hyong-o said Friday at a party leadership meeting.

An average of 40,000 South Koreans travel to a scenic resort on North Korea’s Mount Geumgang every month, paying about US$1 million in admission fees to the North, according to Hyundai Asan, the South Korean developer of the resort.

Fifteen South Korean companies also pay about $600,000 a month on average to North Korea in wages for the 8,700 North Korean employees at an industrial complex being developed by the two Koreas near the North’s border town of Kaesong, according to the Unification Ministry.

The government official, however, said the government had no immediate plans to scrap the inter-Korean projects, claiming the money paid to the North through the projects is not aimed at assisting the North’s weapons program and that the amount is insignificant.

He said the country would align its North Korea policy and economic cooperation with a U.N. Security Council resolution when one is passed, but claimed a U.S. draft of the resolution, even if approved by the Security Council, would not call for a suspension or reduction of inter-Korean economic cooperation.

“Vice Foreign Minister Yu Myung-hwan said at the National Assembly Thursday that there is nothing in the U.S. draft resolution” that would call for a suspension of the two cross-border projects, the official said.

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What is the future of Hyundai Group in post-nuke DPRK

Friday, October 13th, 2006

From the Joong Ang Daily
10/13/2006
Seo Ji-eun

Hyun Jeong-eun, the Hyundai Group chairwoman, may face a serious problem soon: If tourist departures for the North Korean resort area of Mount Kumgang continue in their slump, should she end the operation? And if she does, what happens to the Hyundai Group’s leading role in developing business ties with North Korea, including its exclusive right to conduct tours there for South Koreans?

Hyundai Asan, the group subsidiary that operates the tours, said yesterday that only 549 tourists traveled to the mountain area, now ablaze in fall colors. A day earlier, the number was 788. The company said that 4 percent of its travelers canceled on Monday, when the North announced that it had conducted a nuclear test; yesterday, 65 percent of those who had signed up for the trip cancelled.

Even if the problem continues long enough for an “ordinary” company to think about pulling out of the business, Hyundai’s problem involves other elements of the group and more than just cash flow.

Hyundai Asan won exclusive rights to an inter-Korean tourist business in late 1998, and has set a goal of expanding its corporate sphere across the country. It plans to take tourists to Kaesong and to Mount Paektu and has an ambitious construction program to support. Shutting down the Kumgang tours could endanger that strategy because of North Korea’s long memory and penchant to hold grudges. Once out, Hyundai fears it may never again get in.

North Korea has earned about $500 million so far from the Mount Kumgang tours.

And Hyundai Group’s heritage is bound up in North Korea businesses. Cross-border business dealings were initiated by Chung Ju-yung, the group’s founder, and that business was inherited by his son, Chung Mong-hun, who committed suicide during his trial on charges of helping secretly funnel cash to the North to set up the first inter-Korean summit in 2000. Since Ms. Hyun succeeded her husband three years ago, her husband’s other brothers have been jockeying to seize control of the group from her through stock transactions, in order to reinstate the direct blood line from the group’s founder to its current management.

Ms. Hyun has often stressed that it is she who is the true champion of the founder’s spirit through her persistence in conducting business with North Korea.

In the view of some analysts, that argument could be weakened significantly by shutting down the tours, perhaps inducing group subsidiaries such as the Hyundai Department Store chain, which has remained neutral in the family feud, to turn against Ms. Hyun.

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Private aid to DPRK continues after nuke blast

Wednesday, October 11th, 2006

Yonhap:
10/11/2006

South Korean civic groups on Wednesday sent humanitarian aid shipments to North Korea despite the heightened tension over North Korea’s declared nuclear test, officials said.

A 2,864-ton ship plying the Incheon-Nampo route departed for a North Korean port with shipments of 14 containers for humanitarian aid and another 45 containers for construction and raw materials to be used at the Kaesong industrial complex just north of the inter-Korean border.

The aid shipments include 2,000 bicycles, two ambulances, blankets and boilers, they said.

Following North Korea’s announcement of its first-ever nuclear test on Monday, the South Korean government suspended a shipment of 7,500 tons of cement to the communist country.

“We hope that the provision of bicycles on humanitarian grounds will contribute to maintaining civilian inter-Korean exchanges and offering a clue to the resolution of the stained inter-Korean relationship,” a local YMCA official said. 

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North Korea: an upcoming software destination

Tuesday, October 10th, 2006

Paul Tija
GPI Consultancy
October 10, 2006

IN PDF: IT_in_NKorea.pdf

Surprising business opportunities in Pyongyang

Dutch companies are increasingly conducting Information Technology projects in low-cost countries. Also known as offshore sourcing, this way of working means that labor-intensive activities, such as the programming of computer software, are being done abroad. Asia is the most popular software destination, and Indian IT firms are involved in large projects for Dutch enterprises such as ANB Amro Bank, KLM, Philips or Heineken. More recently, we notice a growth in the software collaboration with China.

As a Dutch IT consultant, I am specialized in offshore software development projects, and I regularly travel to India and China. Recently, I was invited for a study tour to an Asian country which I had never visited before: North Korea. I had my doubts whether to accept this invitation. After all, when we read about North Korea, it is mostly not about its software capabilities. The current focus of the press is on its nuclear activities and it is a country where the Cold War has not even ended, so I was not sure if such a visit would be useful. And finally, such a trip to a farshore country would at least take a week.

Nevertheless, I decided to visit this country. This decision was mainly based on what I had seen in China. I had already traveled to China five times this year, and the fast growth of China as a major IT destination was very clear to me. China is now the production factory of the world, but China’s software industry has emerged to become a global player in just 5 years. Several of the largest Indian IT service providers, including TCS, Infosys, Wipro and Satyam, have established their offices in China, taking advantage of the growing popularity of this country. However, I also noticed that some Chinese companies themselves are outsourcing IT work to neighboring North Korea. And since my profession is being an offshore consultant, I have no choice but to investigate these new trends in country selection, so I accepted the invitation to visit Pyongyang, the capital of North Korea. I happened to be the first Dutch consultant to research the North Korean IT-sector ever, and the one-week tour turned out to be extremely interesting. Quite surprisingly, the country offers interesting business opportunities for European companies.

Korea Computer Center
My study tour was organized by KCC (Korea Computer Center), the largest IT-company in the country. Established in 1990, it is state-owned and has more than one thousand employees. It is headquartered in Pyongyang and has regional branches in eleven cities. My accommodation has been arranged at the KCC campus, which comprises of several office buildings. It also has iown hostel, with a swimming pool, for foreign guests. These guests are mainly Asian (during my stay, there were Chinese delegations), so I had to get used to having rice for breakfast. In the evenings, the restaurant doubled as a karaoke bar, and some of the waitresses appeared to be talented singers. The campus is located in a rather attractive green area, and the butterflies flying around were the largest I had ever seen. It also has sporting grounds, and basketball was during my one-week visit the most popular game among KCC staff. An internal competition takes place during lunch hours.

Korea Computer Center is organized in different specialized business units. Before their representatives started with presentations, I received a tour through the premises. As is the case in India and China, the programmers at KCC also work in cubicles. KCC develops various software products, of which some are especially designed for the local market. Examples are a Korean version of Linux and translation software between Korean, Japanese, Chinese and English. They also produce software for Korean character and handwriting recognition and voice recognition. Other products are made for export, and North Korean games to be used on mobile phones are already quite popular in Japan. There are also games for PC’s, Nintendo and Playstation; their computer version of Go, an Asian chess game, has won the world championship for Go games for several years. The games department has a display showing all the trophies which were won during international competitions.

For several years, KCC is active as an offshore services provider and it works for clients in China, South Korea and Japan. For these markets, North Korea is a nearshore destination, and quite a few North Korean IT-staff do speak Chinese or Japanese. KCC also has branch offices in various Chinese cities, including Beijing and Dalian. It works for both foreign software product companies and end user firms, such as banks. For these clients, different types of applications have been developed, for example in the field of finance, security or Human Resources. Europe is a relatively new market for the North Koreans, and some of their products have been showed for the first time at the large international IT-exhibition CeBIT, in 2006 in Hannover, Germany.

The level of IT-expertise was high, with attention to quality through the use of ISO9001, CMMI and Six Sigma. KCC develops embedded software for the newest generation of digital television, for multimedia-players and for PDA’s (Personal Digital Assistants). Surprisingly, it also produces the software for the mobile phones of South Korean Samsung. I was shown innovative software which could recognize music by humming a few sounds. In less than a second, the melody was recognized from a database of more than 500 songs. Also applications for home use were developed, such as accessing the Internet by using a mobile phone to adjust the air conditioning. KCC also Photo: KCC campus in Pyongyang made software to recognize faces on photographs and video films. They gave me demonstrations of video-conferencing systems, and applications for distance learning. There was a separate medical department, which made software to be used by hospitals and doctors, such as systems to check the condition of heart and blood vessels.

Supply of IT-labor In countries such as The Netherlands, the enrollment in courses in Information Technology is not popular anymore among the youth, and a shortage of software engineers is expected. This situation is different in many offshore countries, where a career in IT is very ‘cool’. Also in North Korea, large numbers of students have an interest to study IT. I visited in Pyongyang the large Kim Chaek University of Technology, where there are much more applications, than available places. Although my visit took place during the summer holiday, there were still students around at the faculty of Informatics. In order to gain experience, they were conducting projects for foreign companies. I spoke with students who were programming computer games or were developing software for PDA’s. A large pool of technically qualified workforce is now available in North Korea. Some of the staff is taking courses abroad and foreign teachers (e.g. from India) are regularly invited to teach classes in Pyongyang.

Business Process Outsourcing
Some companies in Pyongyang are involved in activities in the field of BPO (Business Process Outsourcing), an areas which includes various kinds of administrative work. Because of the available knowledge of the Japanese language, the North Koreans are offering back-office services to western companies engaged in doing business with Japan.

In order to get an understanding of this type of work, I visited Dakor, which was established 10 years ago in cooperation with a Swiss firm. This joint venture is located at the opposite side of Pyongyang, across the Taedong river. It works for European research companies, and it receives from them scanned survey forms electronically on a daily basis. It processes these papers and returns the results within 48 hours to their clients. The company is also conducting data-entry work for international organizations such as the United Nations and the International Red Cross. Their data, which is stored on paper only, is being made available for use online. Dakor is also offering additional services, such as producing 2D and 3D designs for architectural firms, and it is also programming websites.

Animation
North Korea is already famous as a production location for high quality cartoons and animation. Staff of the American Walt Disney Corporation described the country as one of the most talented centers of animation in the world. The specialized state corporation SEK Studio has more than 1500 employees, and works for several European producers of children films. New companies are being founded as well, and I visited Tin Ming Alan CG Studio. This firm was set up in early 2006, and is located in a new office building in the outskirts of Pyongyang. Its main focus is in Computer Graphics and in 2D and 3D animation it uses the latest hardware and software, including Maja. Some of the staff of Tin Ming Alan speak Chinese and the company has a marketing office in China. They are hired by Chinese advertisement companies to make the animation for TV-commercials. It also works on animation to be included in computer games.  Several employees of this young company come from other animation studios and have more than ten years of experience in this field.

The North Korean IT sector seems to be dynamic, where new firms are being established, and where business units of larger organizations are being spun-off into new ventures. I visited the Gwang Myong IT Center, which is a spin-off from Korea Computer Center. It is specialized in network software and security, and it produces anti-virus, data encryption, data recovery, and fingerprint software. This firmis internationally active as well; it has an office in China and among its clients are financial institutions in Japan.

Issues of country selection
My study tour revealed that North Korea has specific advantages. The local tariffs are lower than in India or China, thus giving western firms the option of considerable cost reductions. The commitment of North Korean IT-firms is also high, and the country is therefore also an offshore option for especially smaller or medium sized western software companies. Outsourcing work to North Korea could also be used to foster innovation (e.g. developing better products or new applications). This country can be used for research as well (from Linux to parallel processing).  Based from my interaction with Korean managers and software engineers, I do not believe that the cultural differences are larger than with China or India. My communication with them, both formal and informal, was pleasant. Communicating with North Koreans is clearly less difficult than with Japanese.

The North Korean companies have experiences with a wide range of development platforms. They work with Assembler, Cobol, C, Visual Studio .Net, Visual C/C++, Visual Basic, Java, JBuilder, Powerbuilder, Delphi, Flash, XML, Ajax, PHP, Perl, Oracle, SQL Server, MySQL, etc. They can do development work for administrative applications, but also technical software, such as embedded software or PLC’s. North Korea is very advanced in areas such as animation and games, and I have seen a range of titles, including table tennis, chess, golf, or beach volley. The design of many of their applications was modern and according to the western taste.

Over the recent years, North Korea is opening up for foreign business. This process makes offshore sourcing easier, and even investing in an own software subsidiary or joint venture can be considered. This does not mean that North Korea is potential software destination for every user of offshore services. The country is a subject of international political tensions. In addition, a number of circumstances require specific attention, such as the command of the English Language.  As is the case with China, the North Korean IT staff are able to read english bu thtey do not speak it very well.  Another issue is the relative isolation of the country, and in order to arrange an invitation, a visa is required.  The limited number of direct flights is another disadvantage; one can only travel directly from Beijing or Moscow.  If projects will require a lot of communication or knowledge transfer, it might be recommended to do some parts of the work in China, by the Chinese branches of the North Korean companies. Executing a small pilot project is the best way to investigate the opportunities in more detail.

Conclusion
North Korea has a large number of skilled IT professionals, and it has a high level of IT expertise in various areas.  The country is evolving into a nearshore software destination for a growing number of clients from Japan, China and South Korea. An interesting example of their success is the work they are doing for South Korean giant Samsung, in the field of embedded software for mobile phones.

North Korean IT-companies are now also targeting the European market, and the low tariffs and the available skills are major advantages.  Smaller and medium sized software companies can consider this country as a potential offshore destination, and should research the opportunities for collaboration or investment in more detail. Taking part in a study tour, as I have done, is an excellent way to get more insight in the actual business opportunities of a country – not only in the case of North Korea but for all nearshore and farshore destinations.

Paul Tija is the founder of GPI Consultancy, an independent Dutch Consultancy firm in the in the field of offshore IT sourcing. E-mail: [email protected]
GPI Consultancy, Postbus 26151, 3002 ED Rotterdam
Tel: +31-10-4254172 E-mail: [email protected] http://www.gpic.nl

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Kumgang tourism hits the American media

Sunday, October 8th, 2006

LA Times:
Helen Sung
10/8/2006

“WHEN I was in North Korea last year …,” I began, over dim sum one recent Sunday afternoon with a professor friend, a sophisticated Manhattanite.

“You’ve been to North Korea?” he interrupted. “Anyone can go,” I told him. “It’s a tour.”

While living in Seoul last year, I learned that a division of the South Korean mega-conglomerate Hyundai has been operating tours to Mt. Kumgang from South Korea since 1998. Considered the most beautiful mountain range on the Korean peninsula, Mt. Kumgang has been immortalized for centuries in poetry, art and song.

Before the Mt. Kumgang tour, South Koreans had been unable to travel north of the demilitarized zone — at least it was legally barred. The DMZ, established in 1953 at the end of the Korean War, sliced Korea in two, leading to the Republic of Korea in the south and the Democratic People’s Republic of Korea, or DPRK, in the north. The 2 1/2 -mile-wide DMZ sealed off the border between the two Koreas. To this day, tensions remain. Just last week, North Korea vowed to go ahead with a nuclear test, to the increasing dismay of world leaders.

But for Americans, to whom North Korea rarely, if ever, grants tourist visas (though it does to other foreigners), the tour offers one way to get inside the Communist country.

“Let’s go!” I said to a South Korean photographer friend and colleague after I learned of the tours.

“No way. It’s just a tourist trap,” he scoffed. “I heard they monitor everything, and you can’t go anywhere on your own. It’s not like you see the real North Korea or meet any regular North Koreans.”

“That’s all part of the charm of going to a totalitarian country,” I said, trying to persuade him. “Don’t you want to see what it’s all about?”

In the end, he did. Who wouldn’t want to peek inside one of the most politically isolated countries in the world?

*

Papers in order

TO go on the trip, we filled out simple registration forms and submitted copies of our passports and photographs to the tour agency. A couple of days later, our reservations were confirmed, and we submitted payment in South Korean won, equivalent to about $350 per person for the two-night, three-day trip. (For visa information, contact North Korea’s United Nations office, [212] 972-3105.)

On a wintry February morning, we assembled at a meeting point 100 miles northeast of Seoul and received identification cards that we were to wear at all times.

Mobile phones, high-powered camera lenses and South Korean magazines were among the items not allowed into North Korea. The tour included journalists (two Germans and a South Korean), the photographer I was traveling with and about 100 South Korean tourists.

Some of the tourists came to sightsee, but I suspect more came for the opportunity to set foot on northern soil.

We drove through the DMZ — the idea of it turned out to be more thrilling than the actual act — escorted by South Korean military. We passed vast dirt fields marked by occasional shrubs, trees and tunnels. Our tour guide warned us not to take any pictures.

At the military demarcation line our tour bus stopped. Two North Korean soldiers boarded. As one soldier stood guard at the front of the bus, the other strolled down the aisle, counting heads as he went. Once the soldiers left the bus, we were allowed to continue.

Whereas the south was highly industrialized and modern, the north looked like the land that time forgot. Civilians were walking, riding bicycles and pushing wheelbarrows. Other than the occasional military truck, there were no vehicles. Tattered pieces of cloth covered cracked and broken windows in abandoned-looking houses with worn roofs and crumbling tiles.

I saw the first of many carvings that marred the smooth surfaces of towering mountains in and around Mt. Kumgang. Etched in large Korean and Chinese characters, the signs touted the leadership of former Chairman Kim Il-Sung and current leader Kim Jong II.

Once at the mountain resort, we lined up to clear immigration. The North Korean official gave my American passport and Korean face a quizzical look. Maybe he had never met a Korean American.

“How safe is the tour?” I asked Young Sil Jung, a Hyundai Asan tour guide.

“It’s very safe,” she said. “It’s like South Korea.”

Indeed. It felt more like I was at a South Korean resort — maybe because I essentially was.

Hyundai Asan had developed a resort consisting of a hotel (a second has since opened), cozy wooden cabins, a hot springs spa and a rest area where frenetic South Korean pop music blared from loudspeakers in the parking lot.

There was a Family Mart (a South Korean chain of convenience stores akin to 7-Eleven). A sprawling shop sold North Korean souvenirs, the most popular being whiskey (purportedly made from snakes) and cigarettes “made in D.P.R.K.”

There was even a Hyundai duty-free shop selling Ferragamo, Chanel and Prada, among other luxury brands. At the restaurant, an all-you-can-eat buffet featured warming pans piled high with seasoned beef, shrimp, sautéed vegetables and tofu, noodles and steamed rice.

There was no hint that we were in one of the poorest, most oppressed countries in the world, and the scene in the hotel lobby, where a Filipino band sang American pop songs, bumped us into the realm of the surreal.

*

Trail ‘guides’

AS we headed out the next morning for our first day of hiking, our tour guide warned us not to take unauthorized photos, especially of North Korean guides, who were more like minders who kept close watch over us. Male and female guides monitored the trails to ensure tourists did not litter or show disrespect to the many monuments to father and son.

As I walked along Guryongyeon trail, an easy hike over gently ascending terrain, the North Korean guides chatted amiably with the South Koreans. I met a 68-year-old South Korean man, just a boy when Korea was divided, who had wanted his whole life to see the beauty of Mt. Kumgang. When I asked him how he felt, he replied, “There are no words.”

I could see what he meant. Mt. Kumgang was impressive with its great, hulking mountains and tall, craggy peaks. At Bibong Falls, South Korean ice climbers looked like ants scaling a towering waterfall that had been transformed into a wall of sheer ice.

At the bottom of the mountain, North Koreans sold roasted potatoes and fermented rice wine to the tourists for $1 each, accepting only American dollars. “They know the smell of money now,” said Ha Jung Byun, a senior manager with Hyundai Asan.

North Koreans were selling more local products at nearby Samilpo Lake. In a large, windowed room overlooking the frozen lake, women sold steamed mussels and potato pancakes, as well as North Korean calendars and cigarettes.

The next day, we hiked Manmulsang trail, known for its thousands of interesting rock formations. It’s a rigorous hike but worth it. The scope of the surrounding rugged peaks and the steep gorges and valleys were magnificent.

At the base of the trail, I met a director of the North Korean guides. He peppered me with questions about American politics and criticized the United States, saying that the “imperialist country” needed to stay out of North-South Korea relations.

I was curious how he felt about American tourists. He replied that he welcomed Americans and all foreigners to come view the beauty of Mt. Kumgang and meet North Koreans. On the way back, the Hyundai Asan guide pointed out dirt fields where the company planned to build a beach resort and golf course. Why anyone would want to go on the tour to North Korea to lie on a man-made beach or play golf was beyond me. The real merit of this tour was the sliver of Communist life I had seen on the way to the mountain resort and meeting some real North Koreans.

GETTING THERE:

From LAX, Korean Airways and Asiana offer nonstop service to Seoul. All Nippon Airways, Northwest, JAL and United offer connecting service (change of planes). Restricted round-trip fares begin at $939.

The meeting point for the tour is at a hotel called Kumgangsan Condo, about 100 miles northeast of Seoul. Round-trip charter bus service from Seoul is available to the meeting spot for $30. The bus trip takes about four hours.

TELEPHONES:

To call the South Korean numbers listed below from the U.S., dial 011 (the international dialing code) and 82 (country code for South Korea), followed by the number.

WHERE TO STAY:

JW Marriott Hotel Seoul, 19-3, Banpo-dong, Seocho-gu, Seoul; (888) 236-2427, http://www.marriott.com . An upscale, luxury hotel in central Seoul near shopping and business districts. Doubles begin at about $225.

Ibis Seoul, 893-1, Daechi-dong, Gangnam-gu, Seoul; 2-3011-8888; http://www.ambatel.com . A new hotel offering simple yet good-quality accommodations for the budget-conscious traveler. Doubles begin at $90.

BEFORE YOU GO:

To go on the Mt. Kumgang tour, visitors must register with a travel agency and provide the requisite documentation at least 10 days before the desired departure date. In Los Angeles, Smile Tour, (213) 365-2100, provides booking and other tour information. Hyundai Asan also provides information in English; call 2-3669-3691.

TOUR PRICES:

Hyundai Asan offers two-night, three-day packages starting at $290 (all prices are per person based on double occupancy), depending on the season and level of accommodations. The price includes lodging, breakfast, entrance and departure immigration fees, and hiking-related fees. Shorter trips are also available.

TO LEARN MORE:

Korea National Tourism Organization, (800) 868-7567 or (323) 634-0280, http://www.tour2korea.com .

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Human Rights Watch weighs in on Kaesong

Monday, October 2nd, 2006

From Reuters:
North Korea: Labor Rights at Risk in Joint Industrial Complex
10/2/2006

The North Korean law governing the Kaesong Industrial Complex (KIC), a new industrial joint venture between North Korea and South Korean companies, should be amended to ensure adequate protections of basic workers’ rights, Human Rights Watch said in a new briefing paper released today. Although labor conditions for North Korean workers at the KIC likely represent an important step forward compared with the rest of North Korea, the law governing the complex and some practices by South Korean firms operating there still fall far short of international labor protection standards. The North Korean government wrote this law after consulting with the Hyundai Asan Corporation, the unit of the South Korean conglomerate Hyundai Group that is in charge of developing the complex.

“Given the dire circumstances in North Korea, the opportunity for people to work at facilities like Kaesong represents a small step forward,” said Sophie Richardson, deputy Asia director at Human Rights Watch. “But unless workers’ rights are codified into legal protections, those rights could be violated with impunity at Kaesong.”

The 19-page briefing paper, “North Korea: Workers’ Rights at Kaesong Industrial Complex,” (or here in pdf) provides an overview of labor conditions at the KIC, an industrial complex located in North Korea. It documents the KIC Labor Law’s shortcomings in the areas of the freedom of association, the right to collective bargaining, the prohibitions on sex discrimination and harassment and harmful child labor, among others.

The KIC opened in June 2004 under a contract between North Korea and South Korea’s Hyundai Asan Corporation and South Korea’s state-owned Korea Land Corporation. The complex is located between the North Korean city of Kaesong and the western border between the two Koreas. The workers produce goods mostly for the South Korean market, including watches, shoes, clothes, kitchenware, plastic containers, electrical cords and car parts, among other items. As of August, more than 8,000 North Korean workers were employed by 13 South Korean companies.

Human Rights Watch also found that South Korean companies are violating the existing KIC Labor Law, which stipulates that employers should pay workers directly in cash. An employers’ representative told Human Rights Watch that the South Korean companies have been asked instead to pay workers’ wages in U.S. dollars directly to the North Korean government, which in turn pays the workers in North Korean won after deducting a mandatory 30 percent contribution to a social welfare fund.

“The fact that North Korea has already managed to get South Korean companies to violate worker’s rights on wage payments is not only an embarrassment, but also raises concerns about other violations at Kaesong,” said Richardson.

North Korea is a party to four main international human rights treaties: the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social and Cultural Rights; the Convention on the Elimination of All Forms of Discrimination against Women; and the Convention on the Rights of the Child. All provide important workers’ rights protections, including the right to freedom of association and collective bargaining, and ban sex discrimination and harmful labor for children. As a party to these international human rights treaties, North Korea has a legal obligation to protect these rights.

Human Rights Watch has not yet been given access to interview North Korean workers at the KIC. The briefing paper is based on information obtained from South Korea’s Ministry of Unification, a representative of the South Korean companies operating at the KIC, and other sources, including an analysis of KIC’s labor laws.

North Korea should allow South Korean companies to pay the workers directly in cash, as stipulated in the KIC Labor Law, and it should amend the Labor Law to meet international labor standards and ensure the law is effectively enforced. Human Rights Watch called on North Korea to join the International Labor Organization (ILO), sign its core treaties, and invite ILO officials to discuss the protection and promotion of workers’ rights.

South Korea should ensure that South Korean companies are respecting workers’ rights in the Kaesong Industrial Complex. As a member of the Organisation for Economic Co-operation and Development (OECD), South Korea should also promote the OECD Guidelines for Multinational Enterprises, which asks state members to encourage enterprises to respect basic labor rights guaranteed in core ILO treaties.

“For Kaesong to represent genuine progress for human rights in North Korea, Seoul and Pyongyang alike must ensure basic rights and protections of the North Korean workers,” said Richardson.

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Kaesong cranks out $1000 in goods per worker

Sunday, October 1st, 2006

From Yonhap:
Per capita production at N.K. industrial park passes $1,000 a month in August
10/1/2006

Per capita production at an industrial complex for South Korean companies in North Korea passed US$1,000 a month in August, South Korea’s Unification Ministry said Sunday.

South Korea began financing and building the complex in the North Korean border city of Kaesong in June 2003 as part of its policy of engaging the impoverished communist neighbor.

In August, total production at the Kaesong industrial complex was estimated at $6.8 million, up more than 20 percent from $5.5 million in July, the ministry said.

The Kaesong complex’s per capita production has been on a steady rise. The production was at $937 in the first quarter of this year, up from $758 in the fourth quarter of last year, $444 in the third quarter and $319 in the second quarter, it said.

Fifteen South Korean companies are now operating at the complex, located just north of the demilitarized zone that separates the two Koreas, the Kaesong Industrial District Management Committee said on its Web site, without saying how many North Koreans are working there.

However, the prospects for the Kaesong complex are considered to be grim as the United States is moving to impose additional financial sanctions on the North over its alleged counterfeiting of dollars and other financial irregularities, local newspapers say.

Tensions on the Korean Peninsula have heightened as North Korea tested seven ballistic missiles in July, defying stern warnings from the U.S. and Japan.

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Joint Venture Firm Launched in Kaesong

Tuesday, September 26th, 2006

Korea Times:
9/26/2006 

An inter-Korean joint venture firm was launched for the first time in the North Korean border town of Kaesong yesterday, the South Korean investor in the project said.

The “Arirang-Taerim joint venture stone company” was established with half of the investment provided by South Korea’s granite processing firm Taerim industrial and the other half by the North’s Kaeson General Trading, according to the Yonhap News Agency.

A ceremony to mark the completion of the new company’s factory was held with some 300 government officials and businessmen from the two Koreas in attendance.

The factory is located outside of the Kaesong industrial complex where 13 South Korean manufacturers operate under the protection of a special law ensuring their investment.

Since it agreed on the joint venture with the North in April, Taerim has invested some $2.95 million for the construction project.

Taerim said the factory will process granite and marble stones collected from North Korean mountains using cheap labor.

With a floor space of 3,300 square meters, the factory will have the capacity to produce some 80,000 tons of stone products annually, it added.

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Back to the 90s, “Grass Porridge”

Tuesday, September 26th, 2006

Daily NK
Kim Young Jin
9/26/2006

September, once again prices of rice rising in Jangmadang, North Korea.

At Sunam markets in Chungjin, North Hamkyung province:

1Kg rice=1,400 won ($0.46) . This is the highest prices have reached.
1kg of corn is a high 450 won.

The districts within North Hamkyung province such as Onsung, Hoiryeong and Musan are no different.

1kg rice at Onsung and Hoiryeong averages 1,200won ($0.40) and has risen to 1,300won at Musan. On average corn is costing 380~400won per kilo.

Although autumn harvest has begun throughout all of North Korea, the cost of food at Jangmadang continues to rise and the common North Korean experiences greater difficulties as a result of food shortage. Defectors have informed that poverty has become so severe in North Hamkyung province that the nightmares of mass starvation in the mid-90’s is once again tormenting a laborer’s dinner table with the reappearance of ‘grass porridge.’

On 23rd September, defector Choi Soon Nyu (pseudonym, 58, Chungjin, North Hamkyung province) came to China passing through Hoiryeong. She said “At Sunam markets in Chungjin, the price of rice has risen to 1,400won per kilo and corn has even reached 400won per kilo. Poor laborers have resorted to putting pig’s fodder into corn porridge to suffice a meal and the number of people eating grass porridge is growing.”

A tourist Jang Ha Cheol (pseudonym, Dancheon, North Hamkyung province) who entered China on 14th September through China’s Tuman customs said “In the districts of North Hamkyung rice surpassed 1,000won per kilo in July. Since the end of August, rice at Jangmadang in Dancheon and Chungjin averaged 1,300won per kilo.”

The current cost of rice nearing 1,400won per kilo at Chungjin Jangmadang is a record breaking figure. Mr. Han, an activist who has been working for 5 years at an NGO which supports defectors in China said “On the basis of information gathered through consultations with defectors for the past 3 years, it can be said that the current cost of rice at Chungjin is the highest ever in history.”

Mr. Han explained “Even during the ‘Special period’ last October where North Korean authorities strictly controlled selling food at Jangmadang, trade amongst the people did not exceed 1,000won per kilo of rice. Normally when autumn harvest begins in late September, food wholesalers and foreign marketers at Jangmadang release their units of rice kept in storage and so the cost of rice generally tends to have a depreciating effect.”

“Living costs” simultaneously escalate

North Koreans discuss amongst themselves that soon a ‘2,000won ($0.66) rice period’ will come, further raising feelings of anxiety.

Park Sung Cheol (pseudonym, 41, Gilju, North Hamkyung province) who defected to China on 17th September said “There is not a single person who is worried that they will be unable to afford rice as the costs continue to rise. In any case the staple diet for the people is corn. However, if the cost of rice rises then the cost of corn will rise accordingly and general living costs will rise also. As a result, escalating rice prices is not only a basic issue of food costs but a coupling indication that living standards will only get tighter.”

In actual, the general cost of living in North Korea is simultaneously on the rise. Pork in North Hamkyung province which averaged 2,300~2,800won per kilo in the recent spring is now nearing 4,000won (1.33). It appears that within half a year, the cost has risen no less than 60%. Corn oil and spices are averaging similar standards.

In regards to the recent ‘Skyrocketing rice prices at Jangmadang’ in North Korea, NGO’s and defectors in China are conjecturing “This year, as a result of negative farming produce and tightening of regulations by North Korean authorities after the missile launch, it seems that insecurity is lurking within North Korea and hence strategically, food that was kept in storage by food wholesalers, foreign markets and the military is not being sold at Jangmadang.”

Above all, talks coming from within North Korea suggest that compared to last year, this year food output will be regulated on a large scale.

North Korean citizens are forecasting a negative harvest as in the provinces of Pyongnam and Hwanghae, rice harvest failed due to the flood last summer and even in North Hamkyung province where corn farming is prevalent, drought has continuously soiled the area since spring. As a result, it is estimated that the harvest output this year will not even surmount 40% compared to the previous year.

In addition, since the missile launch on July 5th, North Korean authorities have been indicating that “All military families should independently prepare for 90 days of wartime rationing.” “Workers in official departments and transportation business should independently prepare for 30 days of wartime rationing.” As a result, concerns are rising within North Korea as these orders resemble the measures of policy control during the period of nuclear threat in ’93.

For these reasons defectors and NGO’s analyze that the ‘Big Hand’ at Jangmadang maneuvered by food wholesalers, foreign markets and the military are safekeeping rice in storage and watching the price of rice surge even though the harvest season has arrived.

A missionary Jung working in China said “According to testimonies of recent defectors, excluding North Korean companies collaborating with foreign movements based in China, merely 20% of locations are distributing rations despite making quotas. It is estimated that more than 70% of workers are being neglected and not receiving any rations.”

He further remarked “As long as half the nation’s distribution and companies and are in possession of a months necessary rations, only 5% of laborers will ever receive it.”

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Dollarization of NK Economy

Monday, September 25th, 2006

Korea Times:
Andrei Lankov
9/25/2006

For a Stalinist country, North Korea was unique in its permissive approach to hard currency transactions. Most Communist states followed the Soviet example and strictly forbade all private trading in currency. There were foreign currency shops in the Soviet Union, but only the lucky holders of foreign passports could go there.

Until the late 1980s, all Soviet citizens returning from overseas were required to submit their currency to the state-run banks within 72 hours of crossing the border. In exchange, they were given special coupons that could be used as money in special shops stuffed with quality goods. They couldn’t be used in “real” currency shops, which targeted foreigners and where the merchandise was even better. By keeping more than just a few one-dollar bills at home, a Soviet citizen committed a crime.

Professional foreign currency speculators existed, but their business was extremely risky.

According to Soviet law, they could face the death penalty for their activities, and some of them were actually shot in otherwise liberal 1960s. Thus, everybody who wanted to buy or sell currency had to be very careful.

But this was not the case in North Korea. From the late 1970s currency shops operated freely in Pyongyang and other major cities, open to any North Korean who had dollars or yen.

No questions were asked by the guards. Unlike their Soviet counterparts, the shops sold not only durables, but also daily necessities and food stuffs. Currency exchange outside the banks was illegal, but it was considered a relatively minor crime.

This approach, unusually permissive for a very repressive and restrictive regime, reflected one North Korean peculiarity.

The presence of some 95,000 ethnic Koreans who were lured into moving to the North from Japan during the 1990s. The government discovered that these people could attract remittances from Japan, so a network of the state-run currency shops emerged to suck the yen into the state’s coffers.

Prices in the shops were roughly twice the international average, with the difference going to the state.

But in the early 1990s another type of dollar-based economy emerged. From 1990 the value of the North Korean won was in steady decline. The public distribution system was falling apart, and many people turned to foreign currency as the major means of protecting their savings from both inflation and the ever present danger of a confiscatory money reform. Thus, in the early 1990s a dollar-based economy emerged.

The exchange rate began to climb. The official rate was 2.2 won per dollar. Like most other Communist states, North Korea grossly overvalued its currency to squeeze more money from foreign visitors. But nobody was trading the won at such grotesquely high rate. By the time the great famine struck the country in the late 1990s, the actual exchange rate was approximately 220 won, a hundred times the official average.

Market traders and emerging entrepreneurs of all kinds ceased to use the North Korean won for any large-scale transactions.

The dollar also became the major medium of saving. Due to the lack of data and peculiarities of the Communist economy, it is difficult to give precise figures, but the annual inflation rate over the last few years has exceeded 100 percent.

The major turning point was reached in 2002, when the government introduced economic reforms. Actually, they were formally known as “special measures.”

The word “reform” had to be avoided in the official parlance since it hinted that something in the North Korean perfect society needed adjustment, and that could not possibly be true.

The new official rate of exchange was 165 won per dollar.

This was already well below the true market rate but still constituted an overnight 7,500 percent depreciation of the national currency. This is probably not a world record, but it’s still an impressive figure.

Simultaneously, the government raised prices in state shops and won-denominated salaries. This was done in an uneven fashion. Some groups gained far more than others, with the military security personnel and academic staff being the most prominent winners.

This meant the release of huge amount of cash, which flooded the economy and sped up inflation. In 2005 the exchange rate soon approached the level of 2200 won to 2300 won per dollar.

It has been discussed whether such hyper-inflation was provoked deliberately, as a result of some calculations, or came about through planners’ mistakes. I am inclined to believe the second option.

North Korean officials are exceptionally naive when it comes to the basics of the market economy. I would not be surprised if we eventually learn that in 2002 they hoped that the prices would stand still once they had been increased to market levels.

All this is often described as the dollarization of North Korean economy. However, in late 2002 the North Koreans declared that they would switch to euros as the major currency unit in their dealings with the outside world. Since then, all North Korean shops exhibit prices in euros, not dollars.

However, this act did not change actual habits much. Transactions are still usually based on the good old greenback.

Those groups who had access to the currency tended to fare much better than others. Some of those groups were once underprivileged, and the great nationwide disaster of the 1990s actually improved their social standing.

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