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DPRK severs ties with RoK

Tuesday, May 25th, 2010

UPDATE 4: Global Security gives a rundown of the steps the DPRK is already taking:

North Korea has begun to freeze ties with the South, which already halted most trade with Pyongyang in retaliation for the sinking of a South Korean warship. The North has denied responsibility for the attack on the vessel and is accusing the South of launching a “smear campaign” against it.

Pyongyang has expelled eight South Korean government officials from a joint factory park in the North. And, it is threatening to block what little cross-border traffic exists.

The Unification Ministry in Seoul says hundreds of South Korean managers and other workers from the South were allowed to enter the industrial complex in the west coast Kaesong border city, Wednesday.

But ministry spokesman Chun Hae Sung tells reporters North Korea quickly acted on other aspects of its threat to cut all communications ties with the South.

He says Pyongyang Wednesday halted contact between the Red Cross delegations in the truce village, Panmunjom, and the North Korean Navy contacted the South to inform it that all marine communications between the two Korea’s are now cut.

Relations between the two Koreas have deteriorated steadily since the Cheonan, a South Korean naval vessel in the Yellow Sea, exploded a month ago, killing 46 crew members. An international investigation concluded last week that the coastal patrol warship was hit by a North Korean torpedo.

South Korea’s defense ministry tells VOA News that plans to send tens of thousands of leaflets northward by ballon have been delayed because of wind conditions, but they could go aloft as early as Thursday. Officials say the leaflets are intended to inform North Koreans about the sinking of the South Korean naval vessel. The North views Southern pamphleteering as hostile propaganda.

South Korea’s military is using loudspeakers along the border, silenced for six years, and re-instituting FM broadcasting to the North.

North Korea’s state television newscaster announced such propaganda will not be tolerated.

The North Korean newscaster says it will open fire on the South Korean loudspeakers and destroy them.

Pyongyang says a resumption of the propaganda campaign will also compel it to totally shut down the Kaesong industrial complex, where more than 100 South Korean firms employ about 42,000 North Korean workers.

The two countries have no diplomatic relations and technically remain at war following a 1953 truce which ended the three-year Korean War.

The United States, which has 28,000 troops in South Korea, has hurriedly announced plans for several joint military exercises in the coming month. In the past, Pyongyang has strongly condemned U.S.-South Korean drills, claiming they are preparations for an invasion of the North.

UPDATE 3: Pyongyang confirms it wants to keep running the Kaesong Zone. According to Yonhap:

North Korea has said it wants to keep a joint industrial complex with South Korea going and will ban southern firms from taking factory equipment out of the zone, a Unification Ministry official said Monday.

An unidentified North Korean official made the remark Sunday to a South Korean staffer at a joint commission handling the operation of the factory park in the North’s border town of Kaesong, the official said on condition of anonymity.

The remark represents a softening of Pyongyang’s stance on the project as it contrasts with a threat to shut a cross-border route leading to the zone in anger over a series of steps South Korea announced in retaliation to the North’s sinking of a southern warship.

It also appears to reflect the North’s concern that the park’s closure would leave tens of thousands of its workers there without jobs and the regime without a key source of hard currency that has helped prop up the North’s moribund economy.

UPDATE 2: Pyongyang has scrapped a joint-Korean agreement which ensures the safety of South Koreans crossing the Military Demarcation Line and threatened to close the Kaesong Zone if Seoul resumes propaganda broadcasts. According to the Korea Times:

“Seoul will take stern measures if Pyongyang harms South Korean workers staying at the Gaeseong Industrial Complex, even by a tiny amount,” Lee Jong-joo, a spokeswoman at the Ministry of Unification, said.

The remark came a day after the communist North issued a statement that it would scrap an inter-Korean pact to ensure the safety of South Koreans crossing the Military Demarcation Line (MDL), which separates the two Koreas.

On Wednesday, Pyongyang also threatened to close the industrial park if Seoul begins broadcasting anti-North Korea propaganda through loudspeakers along the Demilitarized Zone (DMZ).

“We can neither let North Korea harm our citizens in retaliation to the resumption of psychological warfare against it, nor tolerate such rationale,” the spokeswoman said.

UPDATE 1: According to the Washington Post work is continuing at the Kaesong Industrial Zone:

There was a semi-hopeful signal Wednesday that rising animosity over the sinking of a South Korean warship may not shatter all economic ties between the two Koreas.

Production continued at the Kaesong Industrial Complex, a six-year-old factory park just north of the heavily armed border that separates North and South Korea.

At the last remaining symbol of economic cooperation between the two countries, about 45,000 North Koreans went to work as usual for 121 South Korean companies located in the complex.

North Korea had threatened Tuesday that it would severe all relations with South Korea. Its move was in retaliation for trade and other sanctions that Seoul imposed Monday on Pyongyang for its apparent role in a stealthy submarine attack that torpedoed a South Korean ship and killed 46 sailors.

The North denies sinking the ship and threatens war if there is any move to punish it. But its actions at Kaesong were nearly not as uncompromising as its rhetoric.

North Korea allowed several hundred South Korean managers and engineers to cross the border Wednesday and go to work.

It did kick out at least eight South Korean government officials and cut North-South phone lines for some manufacturers. But one company official said that North Korean workers were allowed to work and South Korean managers were allowed to manage.

“The situation at Kaesong at this moment is that nothing much has changed,” said Song Ki-suk, former chairman of Korea Micro Filter, a South Korean auto parts company that employees 350 North Koreans.

…

Still, it appears that North Korea wants Kaesong to operate. The industrial park injects more than $60 million a year in rent, fees and worker salaries into the country’s moribund economy.

I would take issue with the last paragraph. I am pretty sure that the vast majority of hard currency transfers from South to North mean very little to the broader North Korean economy. Those revenues are held pretty tight. However, jobs at the Kaesong Zone are among the most desired in the country and there is no doubt that the complex has improved life in the Kaesong Region.

Read the full story here.

ORIGINAL POST: On Monday the South Korean government announced it was severing nearly all trade relationships with the DPRK. One notable exception to this policy was the Kaesong Industrial Zone. Today, however, the DPRK announced that it is reciprocating. According to Reuters:

The following are key points from the text of the report issued by the North’s KCNA news agency.

“The Committee for the Peaceful Reunification of Korea, accordingly, formally declares that from now on it will put into force the resolute measures to totally freeze the inter-Korean relations, totally abrogate the agreement on non-aggression between the north and the south and completely halt the inter-Korean cooperation.

“In this connection, the following measures will be taken at the first phase:

“1. All relations with the puppet authorities will be severed.

“2. There will be neither dialogue nor contact between the authorities during (South Korean President) Lee Myung Bak’s tenure of office.

“3. The work of the Panmunjom Red Cross liaison representatives will be completely suspended.

“4. All communication links between the north and the south will be cut off.

“5. The Consultative Office for North-South Economic Cooperation in the Kaesong Industrial Zone will be frozen and dismantled and all the personnel concerned of the south side will be expelled without delay.

“6. We will start all-out counterattack against the puppet group’s ‘psychological warfare against the north.’

“7. The passage of south Korean ships and airliners through the territorial waters and air of our side will be totally banned.

“8. All the issues arising in the inter-Korean relations will be handled under a wartime law.

“There is no need to show any mercy or patience for such confrontation maniacs, sycophants and traitors and wicked warmongers as the (South Korean President) Lee Myung Bak group.”

The Choson Ilbo reports on some of the economic implications if the Kaesong complex was closed:

It would cost about US$500 million to shut the joint-Korean Kaesong Industrial Complex in the North, the government estimates.

A government official on Sunday said the estimate includes insurance payouts from the Inter-Korean Economic Cooperation Fund for South Korean businesses operating at the industrial park if the North decides to shut the industrial park or if Seoul decides to pull out South Korean staff for safety reasons.

The North has earned more than $96.81 million in cash from wages from 2004 to March this year. It expects to earn another $40 million this year.

“Some 100 of 121 South Korean firms at the industrial park are insured with the Inter-Korean Economic Cooperation Fund,” a Unification Ministry official said. “The indemnity insurance will compensate for up to W7 billion (US$1=W1,199) or up to 90 percent of their investment.”

But no firm that voluntarily withdraws before the North or the South shuts the industrial park is entitled to insurance payouts. An executive of a firm operating at the industrial park said, “The total investment South Korean firms made in the industrial park probably exceeds W1 trillion.” That means the $500 million estimate by the government is too low, and despite the insurance limit of W7 billion, quite a few firms have invested more than W20 billion, he added.

It is difficult for early starters to withdraw given that they are making profits now and the amount of their indemnity insurance has shrunk due to depreciation of their properties.

But many latecomers are ready to leave if there is an adequate compensation, though the ministry official said none have yet told the government they want to pull out.

The North Korean media have been repeatedly reporting a statement issued last Friday by the North’s Committee for the Peaceful Reunification of the Fatherland saying it considers itself at war and will respond resolutely to any action the South takes over the sinking of the Navy corvette Cheonan on March 26. It also threatened to cut off all ties with South Korea and scrap a bilateral non-aggression pact.

In 2007 the DPRK’s top trading partners were (in order) China, South Korea, Thailand, Russia, India, Brazil, Singapore, Germany, Netherlands, Taiwan, Algeria. In 2008, China and South Korea accounted for more than 80% of the DPRK’s total trade (China 67%). Inter-Korean trade was nearly zero until 1988.

Posted in Economic reform, Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), Special Economic Zones (Established before 2013) | Comments Closed

Waiting for an [economic] miracle

Monday, May 24th, 2010

Andrei Lankov writes in the Korea Times:

Kim Jong-il’s recent visit to China was somewhat unusual: instead of going straight to Beijing, Kim visited a number of sites which are associated with China’s economic development.

He went first to the port city of Dalian and spent time there inspecting the harbor and hi-tech centers located nearby (including even a semi-conductor plant operated by Intel). While in Beijing, he continued such visits.

Had this happened a few years ago, we would expect a wave of optimistic speculation: such interest in modern technology would have been interpreted as a sure indicator of North Korea’s readiness to launch Chinese-style reforms. This time, it seems that even the optimists have become tired of making prophecies which never come true.

Nonetheless, the trip once again demonstrated a peculiar feature which the North Korean regime shares with the now-extinct Leninist regimes of Eastern Europe. The Pyongyang leaders have an almost religious belief in the miraculous power of modern technology.

They hope that all their problems can be easily and quickly fixed once a proper technology is found and applied (of course, application has to be done by state). However, the social dimensions of the economic problems are ignored.

It sounds very non-Marxist: after all, the founding fathers of Communism explicitly stated that it is the social structure and property relations, not technology, which determines the economic productivity. But their supposed disciples would never agree that the economic woes of the Communist countries were brought by the less than perfect social system.

This unwillingness is understandable: social change might become dangerous for those who are in power. Therefore they have a vested interest in presenting their system as perfect.

So, if there are problems, those problems should have an easy technocratic decision ― and the only force which can find and introduce such decision is, of course, the regime in power.

When in the early 1950s the Soviet agricultural industry was clearly in trouble, Stalin decided to do something about it. His solution was a program of planting forest strips which would decrease soil erosion.

Stalin was also much interested in the grotesque promises of Trofim Lysenko, a notorious charlatan who was talking about “educating” plants into yielding greater harvest.

Lysenko also enjoyed the support of Khrushchev, Stalin’s successor. Khrushchev’s pet technology was corn production, and insisted that the nationwide switch to this wonder plant would miraculously raise productivity.

However, corn, being a Mesoamerican plant, did not grow well near the polar circle, and plants did not show any sickness of being susceptible to `education’. Russia, once a major exporter of grain, became an increasingly voracious importer of food.

Of course, the problems of the Soviet agriculture were caused not by the insufficient attention paid to corn production. It was the social problems that made the Soviet agricultural system so inefficient: farmers, being badly paid employees of the government-run farms, had no reason to work diligently.

When they toiled the small patches of their own land, which they were legally allowed, they showed a remarkable level of productivity. But this was not what the Soviet government was willing to see.

It was Mao’s China, though, which produced the weirdest examples of belief in wonder technologies. It reached its height during the Great Leap Forward in the late 1950s.

Mao wanted small furnaces to be built everywhere: during the Great Leap even schools and farms were required to make their own steel in the backyard furnaces. Predictably, the home-made steel was useless because of the low quality.

Simultaneously, Mao told the farmers to use “close cropping.” Seeds were sown far more densely than normal on the “politically correct” assumption that “seeds of the same class would not compete with each other” (of course, crops were ruined).

The farmers were also ordered to plough two meters deep, since this would “encourage plants to develop extensive root systems.” The result was famine which killed between 20 and 30 million people. However, it seems that Mao and his henchmen never abandoned their belief in miraculous technologies.

North Korea is no different. Its leaders also are firm believers in the power of technology, if this technology is carefully selected by the state and introduced by its agents. Kim Il-sung, being a son of a farming family, paid special attention to the agriculture.

Among other things, he was a great enthusiast for terrace fields. He wanted to transform the barren hills of North Korea into rice-producing areas, and kept reminding his officials that no efforts should be spared to do so.

Predictably, the result was a disaster: in the 1990s terrace fields were washed away by floods while the few remaining became unusable since a large electric pump would be necessary to provide those high-rise fields with water.

Kim Jong-il shares the belief in wonders, but in his case the major hope is modern industrial technology, preferably related to computers (an approach clearly influenced by gadgetry).

The Dear Leader reputedly said that it was a great folly not to study computers, and most of his technological initiatives are clearly related to IT.

Since last year, for example, the Pyongyang streets have been covered with posters which tell about wonders of the CNC technology (in an unusual twist, the English acronym is used). CNC stands for “computer numerically controlled” technology and, to put it simply, describes computer-controlled industrial equipment.

It is remarkable that the present author heard the same slogans many decades ago, in the 1970s. Indeed, the Soviet leaders also had much hope about the CNC and worked hard to introduce it as a cure for the Soviet economy ― with the predictable lack of success.

Therefore, not much should be read from Kim Jong-il’s visit to Intel. He might dream of computer-operated giant plants, but he lives under severe political constraints, and these constraints ensure that North Korea will remain a very inhospitable environment for high technology (apart from some ultra-cool gadgetry for the chosen few, of course).

This might be changed only if the system itself will be changed, but this is clearly not what Kim wants.

Read the full story below:
Waiting for a miracle
Korea Times
Andrei Lankov
5/24/2010

Posted in CNC, Economic reform, Manufacturing, Political economy | 3 Comments »

RoK to halt all trade with DPRK over sinking of Cheonan

Sunday, May 23rd, 2010

According to the Washington Post:

South Korean President Lee Myung-bak said Monday that his country is stopping all trade and most investment with North Korea and closing its sea lanes to North Korean ships after the nation’s deadly attack on a South Korean warship.

Lee also called for a change in Pyongyang’s Stalinist regime.

The tough measures, announced in an address to his nation, were bound to ratchet up pressure on the isolated Pyongyang government and add a new flash point in U.S. relations with China.

“Fellow citizens, we have always tolerated North Korea’s brutality, time and again. We did so because we have always had a genuine longing for peace on the Korean Peninsula,” he said. “But now things are different. North Korea will pay a price corresponding to its provocative acts.”

Lee then said that “no North Korean ship will be allowed to make passage through any of the shipping lanes in the waters under our control” and that “any inter-Korean trade or other cooperative activity is meaningless.”

A senior U.S. official, traveling with Secretary of State Hillary Rodham Clinton in China, said the United States will back “all the steps the South Koreans are going to announce.” In an indication of the seriousness with which the Obama administration views the drama between the North and South, home to nearly 29,000 U.S. troops, he added: “We have not faced something like this in decades.” Lee apparently has ruled out military action because he does not want to trigger an all-out war.

The official said that, based on talks over the past two days, Chinese officials have not accepted the results of a South Korean investigation — backed by experts from the United States, Australia, Britain and Sweden — that implicated North Korea in the attack on the 1,200-ton Cheonan that killed 46 sailors. As such, it is unclear whether Beijing will support Lee’s measures or his call, also made in the speech, to take the issue to the U.N. Security Council.

China’s reluctance to agree with the report underscores the challenges the United States faces as it seeks to forge closer ties to Beijing. The U.S. official also noted Sunday that China and the United States still do not see eye to eye on the details of planned economic sanctions on Iran for its failure to stop its nuclear enrichment program. Of specific concern, he said, are disagreements between Beijing and Washington about how investments in Iran’s oil and gas sector will be treated. China has committed to investing more than $80 billion in Iran’s energy sector; tightened sanctions against Tehran could threaten those investments.

…

Tough options for China

The attack and its aftermath also threaten China’s place in the region and could force it to make an unwanted choice between South Korea and North Korea — two countries that it has handled deftly since normalizing relations with Seoul in 1992. South Korea wants China, which is a permanent member of the Security Council, to back Seoul’s call to take the Cheonan issue to the council. So does the United States, the U.S. official said.

But that could risk hurting Pyongyang, and China appears committed to maintaining the North Korean regime above all.

“For China,” the U.S. official said, “they are in uncharted waters.”

China reacted slowly to the Cheonan’s sinking, waiting almost a month before offering South Korea condolences. Then it feted North Korea’s Kim in May, apparently offering him another large package of aid, Asian diplomats said. China’s attitude has enraged South Korea.

Michael Green, a national security official during George W. Bush’s administration, said the Cheonan crisis highlights just how differently China views its security needs than the rest of the players in Northeast Asia. For years, as China worked with the United States, Russia, South Korea and Japan to try to persuade North Korea to give up its nuclear weapons programs, these differences were obscured. But the Cheonan’s sinking has changed that.

According to Yonhap, the Kaesong Industrial Zone will be spared from the chopping block:

South Korean Unification Minister Hyun In-taek said Monday that Seoul will still maintain the joint economic project in Kaesong despite the attack, but will “respond with resolute measures” to any bid by the communist neighbor to undermine the safety of its workers.

“If North Korea ignores our careful consideration to preserve the complex even under current circumstances, and subsequently threatens the safety of our citizens there, we will never tolerate any harm to our citizens,” Hyun said.

Hyun was speaking at a joint press briefing with the foreign and defense ministers following President Lee Myung-bak’s nationally televised speech condemning the North for the ship sinking.

Hyun was apparently referring to the half-year long detention of a South Korean worker in Kaesong last year amid deteriorating political ties between the countries.

Also according to Yonhap, some aid projects will be maintained:

Lee announced his government will suspend all trade and exchange programs with the North except for the Kaesong project, while maintaining minimum levels of humanitarian aid for infants and children living in the impoverished communist country.

“Under these circumstances, any inter-Korean trade or other cooperative activity is meaningless,” the president said, adding that North Korean ships will no longer be allowed to use South Korean waterways as short-cuts.

Yonhap reports:

A suspension of inter-Korean trade would deal a “direct blow” to North Korea by blocking its major source of hard currency needed to govern the reclusive and impoverished country, a Seoul think tank said Monday.

The state-run Korea Development Institute (KDI), however, noted in a report that such a move could fail to achieve its intended goal if other global powers like China do not agree, highlighting the importance of securing international cooperation.

…

“North Korea’s trade with the South has accounted for up to 38 percent of its total trade volume and makes up 13 percent of its gross domestic product. With the dollars obtained through inter-Korean trade, the North has expanded its businesses with China. It (the trade with the South) also helped Pyongyang to cushion any negative external risks such as sanctions by Japan, while acquiring dollars needed to govern the country,” the report said.

“If we push for a measure to suspend the trade, it could translate into a decline in its trade with China and make it tough to find other business partners as a result, dealing a direct blow to its regime by blocking it from obtaining dollars,” it added.

The report noted that a trade ban by the Seoul government would have a maximum level of impact if China follows suit, which it expects could place Pyongyang under a situation where “it has to think about its life or death.”

Currently, the North depends on South Korea and China for up to 80 percent of its external trade and 35 percent of its GDP, according to the report. Especially, China provides many strategically important materials such as oil to the North.

The report said that if China decides to support the North, it would reduce the overall impact but it will still destabilize its regime in the long term by making it heavily dependent on its closet ally and fast-emerging global economic power.

“It would weaken the regime’s principle not to depend solely on a single country even for its trade based on the so-called juche (self-reliance) doctrine. Also China’s support would prompt opening of the reclusive nation to outside, making it more difficult for the regime to keep its tight grip on domestic market and those who want and push for market opening,” the report said.

“In summary, a political choice by China would have some impact but in the end, a trade suspension with the South would cause a significant amount of pain to the country. We need to have to push for such an action with self-confidence if there is a consensus, while taking diverse efforts to persuade China over such a measure, while establishing an international cooperative framework with the United States and Japan as well,” it added.

Business Week (Bloomberg) reports on the impact of UN sanctions last year:

UN sanctions imposed on North Korea after its second nuclear test in May 2009 caused the North’s international commerce to shrink 9.7 percent last year, according to the Seoul-based Korea Trade-Investment Promotion Agency. Stripping out South Korea’s one-third share, China accounted for 78.5 percent of North Korea’s commerce, the agency said. North Korea, whose leader Kim visited China earlier this month, doesn’t release trade data.

The New York Times also has good coverage

The full text of President Lee’s speech can be found here.

All previous posts on the Cheonan are here.

Read full article here:
South Korea to halt all trade with North Korea over sinking of Cheonan warship
Washington Post
John Pomfret
5/24/2010

Posted in China, Foreign direct investment, International trade, Sea shipping, South Korea, Statistics, Trade Statistics, Transportation | 3 Comments »

Can North Korea be safe for business?

Thursday, May 20th, 2010

Geoffrey Cain writes in Time:

Few investors can boast the one-of-a-kind global pedigree of Felix Abt. Since 2002, the Swiss businessman has found his calling as a point man for Western investments in — of all places — North Korea, where he helped found the Pyongyang Business School in 2004. He also presided over the European Business Association in Pyongyang, a group in the capital that acts as a de facto chamber of commerce. A few years ago, that position led him to help set up the first “European Booth” featuring around 20 European companies each year at the Pyongyang Spring International Trade Fair, an annual gathering of 270 foreign and North Korean companies currently underway in the hermit kingdom until Thursday.

Yet Abt, 55, who lives in Vietnam and therefore won’t be attending the trade fair this year, laments the giant cloud hanging over the country: in recent years, political turmoil on the peninsula has raised the stakes even further for doing business in North Korea — even for the country’s main patron, China. Though investors have always faced the prospect of sanctions, he says, the situation has worsened after the United States ratcheted up sanctions on the government in 2006 on allegations that it was counterfeiting U.S. dollars. And in 2006 and 2009 the Kim Jong-il regime tested two small nuclear bombs, prompting heavier sanctions from the United Nations in 2006. Recently, tensions with Seoul have spiked over the March sinking of a South Korean corvette in waters near the North.(See pictures of the rise of Kim Jong-il.)

Those measures hit home for Abt. While he was running a pharmaceutical company in Pyongyang called Pyongsu in the mid-2000s, he learned that the U.N. Security Council had imposed sanctions on certain chemicals — a move that could have forced him to completely stop manufacturing medicine. Thankfully, he adds, he had already secured a large stock of the substance beforehand. “Whatever business you are involved in,” he says, “some day you may find out that some product or even a tiny but unavoidable component is banned by a U.S. or U.N. sanctions because it can, for example, also be used for military purposes.”

Those dilemmas haven’t stopped Abt. In 2007, he co-founded an information technology firm in Pyongyang called Nosotek, whose 50 or so employees design software applications for the iPhone and Facebook. The venture has already seen its share of success: one of its iPhone games ranked first in popularity for a short while on Apple’s Top 10 list for Germany — though he can’t name the software out of concern for protecting his contractors from bad publicity.(See pictures of North Koreans at the polls.)

For some companies, the stigma of a “Made in North Korea” label matters less than the competitive edge gained from having low overhead costs and a diligent workforce whose wages remain less than outsourcing powerhouses like China, Vietnam and India. In the past, North Korea has attracted the interest of multinational corporations looking for cheap labor in fields as diverse as electrical machinery and cartoon animation. Yet few multinationals show their faces at this month’s fair, a decline from the early 2000s when Abt says they were appearing regularly to look for opportunities in electricity, infrastructure, transportation and mining.

Not all foreign ventures in the North are driven by profit margins alone. The 2005 animated Korean movie Empress Cheung, a popular fantasy film drawn jointly by South and North Korean animators, brought attention to the animation industry in North Korea. Nelson Shin, head of the Seoul-based animation studio that started the project, claims he worked with North Korea for a greater cause than cheap labor. “It wasn’t so much because of cost efficiency as because of cultural exchange between the two Koreas,” he says.

For a country so poor, North Korea has churned out a remarkable number of talented engineers and scientists who fuel some of these small sectors (along with its controversial nuclear weapons program). In the 1960s and 1970s, the government pushed the country to become self-sufficient through development projects, a part of its ideology of “Juche” that promotes absolute autonomy from foreign powers. The communist regime of Kim Il-sung prided itself on its universities and public housing system, in particular. “It was an advance from pre-World War II days,” says Helen-Louise Hunter, a former CIA analyst now in Washington, D.C., who researched North Korea during those decades. “Kim Il-sung was genuinely interested in improving his people’s standard of living, and was off to a good start in a couple of areas compared to South Korea in those early days.”

Yet North Korea fell behind after the South’s own military dictators put their country into industrial overdrive throughout the 1970s and 1980s. Then the Soviet Union collapsed in 1989, depriving North Korea of valuable aid. Then came a famine in the mid-1990s that delivered the final blow, leaving up to 3 million people dead and crippling the capacities of the already isolated state.

Today, the pariah regime of Kim Jong-il is allegedly known to raise money through illicit activities like trafficking narcotics and money laundering. But it’s not known how much those activities figure into the country’s GDP of $28.2 billion in 2009 and its $2 billion worth of exports in 2008, the most recent year data is available. “Not that much income comes from illegitimate operations if you mean drugs and counterfeited dollars,” says Andrei Lankov, a North Korea expert at Kookmin University in Seoul. “More come from arms sales, though, but I would not describe this as an illegitimate trade.”

Abt shakes off the image of Pyongyang being the center of a mafia state. He sees himself and other foreign investors as the potential movers and changers of Kim’s hermit regime. “Cornering a country is ethically more questionable than engagement,” he says. “Foreigners engaging with North Koreans are change agents. The North Koreans are confronted with new ideas which they will observe and test, reject or adopt.”

Read the full story here:
Can North Korea Be Safe for Business?
Time
Geoffrey Cain
5/20/2010

Posted in Animation, Arms shipment, Counterfeiting, Drug smuggling, Economic reform, Foreign direct investment, GDP statistics, Health care, Illicit activities, International trade, Military, Pharmaceuticals, Trade Statistics | Comments Closed

RoK asks China to ban Kumgangsan tours

Wednesday, May 19th, 2010

According to Yonhap:

Seoul has requested that Beijing exclude North Korea’s Mount Kumgang resort from its list of group tour destinations allowed for its people while it seeks understanding on a dispute over the North’s recent illegal freeze of South Korean assets there, the Ministry of Culture and Tourism here said Tuesday.

Late last month, the North froze most South Korean assets at the resort on the east coast, including five South Korean government-run facilities, citing Seoul’s refusal to resume cross-border tours.

The tours, once a cash cow for the poverty-ridden communist country, were suspended in 2008, when a South Korean tourist was shot dead by a North Korean soldier guarding a restricted area. Seoul has demanded a full investigation into the case and safety guarantees for South Korean tourists. The demands have yet to be met.

On May 11, South Korean Culture Minister Yoo In-chon sent China’s national travel agency a letter saying that the North’s asset freeze is a violation of an inter-Korean contract, and asked China’s help in making the North withdraw the unlawful step, the ministry said.

Read the full story here:
S. Korea asks China to ban Mount Kumgang tours
Yonhap
5/18/2010

Posted in China, Mt. Kumgang Tourist Special Zone, Tourism | Comments Closed

RoK ministries asked to suspend aid to DPRK

Wednesday, May 19th, 2010

According to the Donga Ilbo:

The Unification Ministry said Monday that it has asked ministries to suspend aid to North Korea requiring government budget.

The ministry had issued recommendations to delay the signing of new contracts and the shipment of materials to the North to companies involved in inter-Korean cooperation.

Ministry spokesman Chun Hae-sung said, “We sent official letters to 10 related ministries, including the Strategy and Finance Ministry, the Health and Welfare Ministry, and the Korea Forestry Service Friday asking for the temporary suspension of assistance projects for North Korea run by those ministries.”

“This measure has been taken in light of the North’s seizure of South Korean real estate in the Mount Kumgang area and the grave nature of inter-Korean relations of late.”

Seoul has also begun efforts to survey inter-Korean projects conducted by the 10 ministries. Last year, the ministries ran a budget of six billion won (5.2 million U.S. dollars) to assist the North.

The Unification Ministry also contacted companies involved in inter-Korean cooperation, excluding those operating at the Kaesong Industrial Complex, to refrain from making new contracts, investment and visits Tuesday and Wednesday last week.

With analysts saying Seoul has taken a series of measures in the wake of the Cheonan sinking, a Unification Ministry source said, “Since the situation in inter-Korean relations has gotten grave and highly treacherous, we informed related ministries as a preemptive measure to reduce risks.”

Unification Minister Hyun In-taek also told reporters Monday, “We can hardly say that we’ve taken any practical countermeasures.”

Read the full story here:
Ministries Asked to Suspend Aid to N. Korea
Donga Ilbo
5/18/2010

Posted in Foreign aid statistics, International Aid, Mt. Kumgang Tourist Special Zone, RoK Ministry of Unification, South Korea, Special Economic Zones (Established before 2013), Statistics | 1 Comment »

260 companies attend Pyongyang Trade Fair

Tuesday, May 18th, 2010

UPDATE: According to Xinhua:

Chinese enterprises did plenty of business at the 13th Pyongyang Spring International Trader Fair, which ended Thursday.

More than 130 Chinese enterprises were represented at the fair, including Aucma of Qingdao, Frestech of Henan, and carmaker Yuan Group of Chongqing.

The Chinese products, especially those of the industrial machine and home appliances, attracted great attention from clients in the Democratic People’s Republic of Korea.

Chinese enterprises signed up 240 new clients at the fair, including 123 potential clients, with deals totalling 4.46 million U.S. dollars, according to Luo Lei, deputy director of the Exhibition Department of the China Council for the Promotion of International Trade.

The fair was a good opportunity to promote trade and cooperation between the two countries, Luo said.

The 13th Pyongyang Spring International Trader Fair opened Monday, attacting 278 firms from 15 countries, including the DPRK, China, Russia, Vietnam and Thailand.

The spring fair and the Autumn International Trader Fair are held each year in Pyongyang.

ORIGINAL POST: According to Kyodo News:

North Korea opened a four-day international trade fair in Pyongyang on Monday, bringing together about 60 domestic firms and 200 companies from abroad.

Participants were seen looking at medical products, foodstuffs and electronic products, and holding business talks at the site. Computer-controlled numerical machine tools that North Korea manufactured for the first time last year drew particular attention.

The 13th Pyongyang Spring International Trade Fair features products from Australia, Austria, China, Cuba, Germany, Indonesia, Italy, Mongolia, North Korea, Poland, Russia, Singapore, Switzerland and Taiwan, according to the North’s Korean Central News Agency.

North Korean Vice Premier O Su Yong, Foreign Trade Minister Ri Ryong Nam, foreign company delegations and diplomatic missions in Pyongyang took part in the opening ceremony.

Read the full story here:
N. Korea opens int’l trade fair, 260 companies attending
Kyodo News
5/17/2010

Posted in Pyongyang International Trade Fair | Comments Closed

DPRK threatens to cut off Kaesong (again)

Monday, May 17th, 2010

According to the Choson Ilbo:

North Korea on Sunday warned it will restrict or stop overland travel to the Kaesong Industrial Complex if South Korean activists send propaganda leaflets to the North. The North said it could limit travel “along the east and west coast” — the land routes used for tours to Mt. Kumgang and the Kaesong complex.

The head of a North Korean delegation to inter-Korean defense talks sent a letter to the South which read, “Despite our repeated requests, the South Korean government goaded and tacitly permitted activists to send propaganda leaflets that castigate our ideology and regime, small radios, US$1 bills and DVDs [via helium balloons] from May 1.”

A South Korean government official said this is the first time that North Korea clearly mentioned the possibility of shutting down the land route to the Kaesong complex. “It seems to be a preemptive action as we are reviewing sanctions against the North” following the sinking of the Navy corvette Cheonan and the seizure of South Korean property in Mt. Kumgang.

Additional Information
Pyongyang has previously used Kaesong as leverage over the RoK government to prevent activists from sending balloons across the DMZ.

The Kaesong Zone was previously “closed” to South Koreans during contentious wage negotiations.

Posted in Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), Labor conditions/wages, Special Economic Zones (Established before 2013) | Comments Closed

Cell Phone Demand Stays Strong in North Korea

Sunday, May 16th, 2010

Martyn Williams provides an update on the growing use of mobile phones in the DPRK. According to his article in PC World:

Koryolink, North Korea’s only 3G cellular operator, saw sales more than double in the first three months of this year as it expanded its network coverage and enjoyed continued demand for its service.

At the end of March the company had 125,661 subscribers, a gain just under 34,000 subscribers over the quarter, according to majority-shareholder Orascom Telecom. The Egyptian company, which invests in cellular operators in developing nations, owns 75 percent of Koryolink.

“Contrary to initial speculations that the mobile service will be only available to the government officials and elite, the fact is that currently mobiles are used by different segments and levels of society,” Orascom said of the customer base.

The network achieved a profit of US$5.8 million in the quarter, before accounting for interest payments, taxes, depreciation and amortization. Orascom did not disclose whether it made a net profit or a loss for the period. The figure is a vast improvement on the US$312,000 EBITDA profit recorded in the first three months of last year.

Quarterly revenues were US$9 million, a jump of 102.5 percent.

Sales were hit by North Korea’s revaluation of its currency.

The move, which saw 100 North Korean won devalued to 1 won, caused social unrest, according to reports from the country. Koryolink said sales activity was “practically at a standstill due to uncertainty factors resulting from the currency revaluation,” and that it closed its sales outlets for about three weeks.

The North Korean network was launched in late 2008 using WCDMA (wideband code division multiple access) technology and is only the second cellular network in the country. The other, Sunnet, uses older GSM technology and suffers from poor call quality and disconnections, according to users in the capital city of Pyongyang.

At launch the Koryolink network covered Pyongyang but has since been expanded to five additional cities and eight highways and railways.

North Korea is one of the world’s most tightly controlled societies. Subscribers to the network are divided by class or type of customer with some unable to place calls to others. Most calls are subject to monitoring by the state’s security services as part of an extensive domestic intelligence gathering program.

Posted in Banking, Cell phones, Communications, Finance, Fiscal & monetary policy, Foreign direct investment, Orascom Telecom Holding | Comments Closed

RoK examining DPRK trade and investment

Sunday, May 16th, 2010

According to Yonhap:

Unification Ministry spokesman Chun Hae-sung told reporters that the government has urged about 200 companies to refrain from signing new deals or supplying resources to North Korea.

“We thought there were possibilities the companies may suffer unexpected losses under the uncertain and murky circumstances” on the Korean Peninsula, Chun said.

Last month, North Korea confiscated or froze South Korean assets at a joint mountain resort on its east coast in anger over Seoul’s refusal to resume cross-border tours.

The move prompted South Korea to pledge retaliatory measures. Inter-Korean relations further eroded amid suspicions that an elusive North Korean submarine attacked a South Korean warship on March 26, killing 46 crew members.

Chun said the ministry warning did not apply to the more than 110 South Korean companies operating in the North Korean border town of Kaesong, where they employ about 42,000 North Korean workers to produce labor-intensive goods.

Inter-Korean consignment trade, in which vendors here supply raw materials to North Korea to be assembled into final products, amounted to US$254 million last year, Chun said. The vendors have favored factories in Pyongyang and the western port city of Nampo.

A multinational investigation is under way in South Korea to examine the suspected North Korean attack on the South Korean corvette Cheonan near the western inter-Korean border. North Korea denies any role.

Observers say the South Korean retaliatory measures are likely to come after investigators announce their results, which are expected as early as next week.

Also according to Yonhap:

North Korea’s moribund economy is projected to lose about US$370 million a year and about 80,000 jobs if inter-Korean trade is entirely suspended, a Seoul-based civic group said Sunday.

…

“If inter-Korean trade is fully halted, North Korea will lose $230 million a year in trade of agricultural goods,” the civic group said in a statement.

There would be also a loss of $49 million for the North if the Kaesong complex is shut down, the group said. Other losses came from already-suspended tourism between the two Koreas.

And according to the Choson Ilbo:

The government has worked out a package of sanctions to take if North Korea is found to have been behind the sinking of the Navy corvette Cheonan on March 26. It will also be kind of counterblow to the North’s seizure and freezing of South Korean property in the Mt. Kumgang resort area late last month.

A senior government official on Wednesday said the sanctions formulated at the initiative of the Unification Ministry include banning sand imports from the North which were worth some US$70 million to the North in 2008. The imports were banned after the North launched a long-range rocket in April last year but were resumed in October.

South Korean firms that have already paid can proceed but no fresh deals can be struck.

Another target may be fisheries products. Of the total W1.06 trillion (US$1=W1,142) worth of worth of imports from the North last year, fisheries products were second with W173 billion or 16.3 percent after textiles (W477 billion or 44.8 percent).

A ministry official said, “Fisheries products are sold by companies under the North Korean military or government that specialize in earning dollars, so a ban would deal a blow to the regime.” But the regime does not cream off much from textile exports because South Korean firms depend chiefly on the joint Korean Kaesong Industrial Complex. Most of the money funneled to the North is meant as wages for North Korean workers.

The downside is that hundreds of importers of North Korean fisheries products would suffer. The government is also worried about skyrocketing prices. North Korean merchant ships could lose their right to pass through the Jeju Strait, granted them under an inter-Korean maritime agreement concluded in 2004.

A ban would mean higher fuel costs as the ships would have to make a detour through the high seas, a government official said.

The ministry submitted a report on the sanctions package to Cheong Wa Dae right after the North announced last month it was seizing South Korean property in Mt. Kumgang, but the government at the last moment decided to put it off.

“It seems that the government will make an announcement about a response to the sinking of the Cheonan and the North’s seizure of property in Mt. Kumgang next week, when the findings of the Cheonan investigation are out,” the official said.

Read the full stories below:
S. Korea moves to curb trade with N. Korea
Yonhap
Sam Kim
5/13/2010

Seoul Prepares Sanctions Over Cheonan Sinking
Choson Ilbo
5/13/2010

N. Korea to suffer dearly from halt in inter-Korean trade: civic group
Yonhap
5/16/2010

Posted in International trade, Kaesong Industrial Complex (KIC), South Korea, Special Economic Zones (Established before 2013) | 1 Comment »

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