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Entrepreneur tries to breathe life into the North

Tuesday, January 9th, 2007

Joong Ang Daily
Lee Jung-min
1/9/2007

One of North Korea’s capitalist experiments may be awakening from hibernation. “The North’s National Economic Cooperation Federation and Tumen River Development Limited Company of South Korea have reached an agreement to build a heavy and chemical industry complex in Rajin-Sonbong district,” Oh Myoung-hwan, the president of the South Korean company, said yesterday. “We also agreed to carry out jointly a Mount Paektu tour project.” A letter of intent will be signed in Vladivostok, Russia, today, Mr. Oh said.

Mr. Oh, whose company is headquartered in Vladivostok, said Russian natural resources would be processed by North Korean workers in plants built with South Korean capital and technology. He added that he has informed the Unification Ministry in Seoul of his plans.

The National Economic Cooperation Federation is a North Korean foreign economic agency. Mr. Oh said Ryo So-hyon, the federation’s Vladivostok office head, will sign the letter of intent for the North Koreans.

A government official in Seoul speculated that North Korea is looking for new projects because its nuclear test in October triggered a drop in the number of South Korean tourists visiting Mount Kumgang and U.S. criticism of the Kaesong Industrial Complex has grown.

Mr. Oh said that when the new complex is running, train tours to Mount Paektu would be the next step. Tourists would travel by ship from Sokcho on South Korea’s east coast to Hoiryong and Musan, two harbors in the Rajin-Sonbong area of North Korea’s far northeast.

North Korea established the Rajin-Sonbong Free Economic and Trade Zone in 1991 on the western side of the Tumen River to attract foreign investment. It has been a near-total failure in attracting foreign investment. Mr. Oh said work on the new project would begin in 2-3 months.

Posted in National Economic Cooperation Federation, Rason Economic and Trade Zone (Rajin-Sonbong) | Comments Closed

Inter-Korean Visits Jump 15.1% in 2006

Thursday, January 4th, 2007

Korea Times
1/4/2007

The number of inter-Korean cross-border visits climbed 15.1 percent last year from a year earlier despite escalating tensions over North Korea’s test-fire of missiles and the underground detonation of nuclear devices, the Ministry of Unification said Thursday.
A total of 101,708 South and North Koreans visited each other’s country, compared with 88,341 in 2005, according to the ministry.

It said the number did not include South Korean tourists to scenic Mt. Kumgang in the North. Last year, 234,446 South Koreans traveled to the mountain resort, down 21.4 percent from 2005.

The ministry said that 100,838 South Koreans visited the North, while 870 North Koreans visited the South.

It added that the increasing inter-Korean economic exchanges drew 87,845 South Korean visits to the North.

The inter-Korean trade volume jumped 27.8 percent year-on-year to $1.3 billion last year, according to the ministry.

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

Inter-Korean Projects Gasping for Air

Friday, December 29th, 2006

Korea Times
Kim Yon-se
12/29/2006

Hyundai Group is struggling to normalize its inter-Korean businesses, including tours to Mt. Kumgang and operation of the Kaesong Industrial Complex in North Korea.

Due mainly to North Korea’s nuclear test last October, the number of South Korean tourists to Mt. Kumgang stood at less than 250,000 this year, falling short of the group’s initial goal of 400,000.

The figure is smaller than 301,822 posted in 2005 and 272,820 posted in 2004.

Furthermore, Hyundai Asan, the tourism unit of the group, had to conduct manpower restructuring and delayed monthly payments to some employees amid worsened profitability this year.

The Mt. Kumgang tours accounts for about 70 percent of the total sales of Hyundai Asan and the company expects it will manage to avoid seeing operating losses, compared with operating profits of 5.6 billion won last year.

Amid political factors, such as complaints from the United States about the inter-Korean business, company officials are concerned that Hyundai Asan is facing another deficit.

It reported operating losses of 10 billion won or more per annum over the past few years _ 29.04 billion in losses in 2001, 38.54 billion won in 2002, 57.34 billion won in 2003 and 10 billion won in 2004.

Regarding the Kaesong Industrial Complex, the U.S. had speculated that payments to North Korean employees there are flowing into military funds to produce weapons. But the allegations have been said to be groundless after the Ministry of Unification made public relevant documents.

A major difficulty is that the South’s conglomerates including Samsung have little willingness to invest in the complex amid the growing uncertainties.

Expressing anxiety over external and internal difficulties, a Hyundai Group official said, “We don’t care about interference from the U.S. The development of inter-Korean businesses and relations are assignments for Koreans in the South and North. No group except us will do that.’’

In the free trade agreement (FTA) talks between South Korea and the U.S., the latter said it will not regard goods from Kaesong as free trade deal items.

Posted in Foreign direct investment, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone, Tourism | Comments Closed

Frozen bank accounts hold $12 million from Hyundai

Thursday, December 21st, 2006

Joong Ang Daily
12/21/2006
Choi Hyung-kyu, Kwon Hyuk-joo

Half of the $24 million in North Korean assets held in the frozen Banco Delta Asia accounts came from the Hyundai Group of South Korea, sources here told the JoongAng Ilbo yesterday. Other sources said North Korea will be able to access some of the frozen holdings next week, because the money had been proven “legitimate.”

The Macao-based bank froze the North Korean holdings last year after the U.S. government accused Pyongyang of financial crimes, such as money laundering and counterfeiting U.S. dollars. Since then, the North has made the unfreezing of those assets a precondition for the nuclear disarmament negotiations.

A U.S. source who requested anonymity said yesterday the $12 million was a part of Hyundai Group’s payments to North Korea for inter-Korean businesses. The money was wired in several payments, the source said. The payments were initially sent to other bank accounts that deal with North Korea, the source said, and then forwarded to the Banco Delta Asia accounts from there.

To deposit a large sum, an account holder must inform the bank in Macao about the source of the money and its purpose. The source showed North Korean account holders’ statements which claimed the deposits came from Hyundai.

Another source well informed about Banco Delta Asia affairs also said the money came from Hyundai.

“It is not easy to distinguish how much of the North Korean assets was earned from legitimate economic activities,” a senior South Korean government official said. “To sort the matter out, the United States and North Korea should meet and discuss the issue.”

In Beijing, O Kwang-chol, the president of the Foreign Trade Bank of Korea, has been meeting with U.S. Deputy Assistant Treasury Secretary Daniel Glaser since Tuesday.

Signs also pointed to a thawing of the freeze on the accounts in the near future. Other sources said Pyongyang has dispatched officials to the city of Zhuhai in China with papers necessary to withdraw the $12 million from the bank in Macao. They said access will likely be granted Tuesday or Wednesday of next week.

Hyundai Asan, Hyundai Group’s North Korea business arm, said yesterday it has not sent any money to a Banco Delta Asia account. The Mount Kumgang tour program began in 1998.

The company said it has wired $1 million a month to an overseas bank account designated by North Korea.

A senior official with Hyundai Asan said North Korea frequently changed the account. “I don’t know if our payment was later wired to BDA accounts or not, but I think that could be possible,” he said.

Hyundai Group provided $500 million to North Korea on the eve of the 2000 inter-Korean summit by wiring the money to a North Korean account with a foreign bank, but the sum currently frozen at the Banco Delta Asia accounts is not connected to that, the sources said.

Posted in Banking, Counterfeiting, Finance, Fiscal & monetary policy, Illicit activities, International Aid, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone | 1 Comment »

South powers up support for Kaesong

Thursday, December 21st, 2006

Joong Ang Daily
12/22/2006
Ser Myo-ja

Amid the ongoing six-party talks and criticism that inter-Korean economic projects have helped North Korea finance its nuclear arms program, South Korea celebrated a cross-border power cable connection yesterday for the Kaesong Industrial Complex.

A ceremony to mark the connection took place yesterday inside the demilitarized zone between the two Koreas. Also yesterday, the nation’s top North Korea policymaker said the economic cooperation programs are crucial to maintaining peace on the Korean Peninsula.

(more…)

Posted in Energy, Kaesong Industrial Complex (KIC) | Comments Closed

Kumgang tourism numbers not meeting expectations

Monday, December 18th, 2006

Mount Kumgang tour goal to fall well short of 400,000
Joong Ang Daily
12/18/2006

The number of South Korean tourists to a scenic North Korean mountain resort is expected to fall far short of the initial target of 400,000 for this year due to inter-Korean tensions, South Korean tour organizers said yesterday.

About 1.3 million South Koreans have visited Mount Kumgang since the communist North opened the area to outsiders in 1998 to earn badly needed hard currency.

The South Korean tour operator, Hyundai Asan Corp., had planned to attract 400,000 tourists to the area this year, but the number is expected to reach slightly more than half of the the target, company officials said.

The sharp drop in the number of tourists to the resort can be attributed to recurring tensions caused by the North’s multiple missile tests on July 5 and its first-ever nuclear weapons test on Oct. 9, they said.

“We had aimed for 400,000 visitors for the year, but the North Korean nuclear crisis caused a significant problem,” a Hyundai Asan official said, citing the North’s missile and nuclear tests.

According to Hyundai Asan, a total of 230,224 people, mostly South Koreans, visited the resort in the first 11 months of the year, and the number of visitors in December is not expected to be more than 10,000.

The North’s mountain resort is reachable from South Korea by bus within an hour.

Posted in Economic reform, Foreign direct investment, Mt. Kumgang Tourist Special Zone, Tourism | Comments Closed

Kaesong pushes DPRK to internalize reform

Wednesday, December 13th, 2006

Joong Ang Daily
Lee Young-jong
12/13/2006

North shows an interest in Kaesong legal systems

North Korea has shown interest in introducing the legal taxation and accounting systems used in the market economy at the Kaesong Industrial Complex, Vice Unification Minister Shin Un-sang said yesterday.

Speaking at an academic forum sponsored in Seoul by the North Korean Law Research Institute to discuss how to establish the systems in the complex, Mr. Shin said, “North Korean officials’ perceptions in regard to establishing market-economy legal systems for the Kaesong Industrial Complex are changing. In the past, they have shown negative perceptions, but lately they have expressed a high interest and sympathized with the necessity of those systems.”

The vice unification minister said establishing a legal framework in line with international standards is essential for the stable development of the complex.

In the complex, 15 subregulations on taxation, labor and so on have been enacted since it opened in December 2004. Currently, about 10,000 North Koreans work in 18 South Korean companies in the complex.

Meanwhile, Jay Lefkowitz, the United States’ special envoy on human rights in North Korea, said last week that Seoul needed to use the complex as a pretext to pressure Pyongyang on human rights issues by opening it up for international inspection.

He said Seoul was one of the few countries to have enough leverage to pressure the North.

Korea Times
Lee Jin-woo
12/12/2006

Kaesong to Test Market Economy

Vice Minister of Unification Shin Un-sang said Tuesday North Korea is interested in introducing a market-style economy in the joint inter-Korean industrial complex in Kaesong, North Korea.

“It’s been true that North Korea has been quite reluctant about introducing market economy-based regulations,” Shin said during a seminar on inter-Korean relations and North Korean law held in Seoul. “However, they recently agreed on the need to develop new legal conditions for the Kaesong Industrial Complex, especially in terms of taxation and accounting.”

The vice minister said the new regulations for Kaesong have great symbolic meaning in that they would significantly help North Korea better understand the legal system of a market economy, which is different from their Stalinist system.

Shin predicted that if the market system is working successfully in Kaesong, North Korea would expand the capitalist system in the rest of the country although he was unsure when the expansion would be made.

Shin, however, said there would be a number of stumbling blocks that the two Koreas have to deal with, as the two nations’ legal systems differ in many respects.

The two Koreas abide by a special law comprising some 15 lower-level regulations on minimum wages and basic taxation, mainly aimed at the management of the joint inter-Korean venture.

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 last month, according to the Ministry of Unification.

It’s been 34 months since Hyundai Asan, the South Korean developer of the joint industrial park, first hired a group of 42 North Korean construction workers in February 2004, the ministry said.

Posted in Economic reform, Kaesong Industrial Complex (KIC), Labor conditions/wages, Law Research Institute | Comments Closed

UNDP Tumen River Program

Saturday, December 9th, 2006

Official Web Page:

Northeast Asia can be considered the last major economic frontier on the Asian continent. The region has enormous economic potential, but this potential can only be realised through dynamic cooperation and sharing of resources.

Recognising Northeast Asia’s considerable potential and geopolitical significance, UNDP in 1991 agreed to support the initiative of the countries in the region to establish an institutional mechanism for regional dialogue and further cooperation. For the past twelve years, the Tumen River Area Development Programme has facilitated economic cooperation among the five member countries: China, the Democratic People’s Republic of Korea (DPRK), Mongolia, the Republic of Korea (ROK), and the Russian Federation. The member countries are equally represented in the Consultative Commission for the Development of the Tumen River Economic Development Area and Northeast Asia, which meets annually at Vice Ministerial level.

The main objectives of the Tumen Programme are to:

attain greater growth and sustainable development for the peoples and countries in Northeast Asia, and the Tumen Region in particular;
identify common interests and opportunities for cooperation and sustainable development;
increase mutual benefit and mutual understanding;
strengthen economic, environmental and technical cooperation; and
work to ensure that the Tumen Region is attractive for international investment, trade and business.

The first phase of the Tumen Programme involved extensive planning and background studies. An interim phase focused on investment promotion and development initiatives designed to build momentum for the region as a growth triangle. The second phase built on the institutional framework for regional cooperation created by the multilateral agreements concluded in 1995. The third – and current – phase continues to address factors fundamental to regional economic cooperation and is designed to ensure the sustainability of this regional cooperation framework.

Why the Focus on the Tumen Region?
The Tumen Region has great potential as a major entrepot for international trade because of the strategic location of the Tumen transport corridor, the strong complementarities of the Tumen River Area, vast natural and human resources, and the area’s accessibility to the resources and markets of Northeast Asia.

Northeast China and Mongolia are landlocked and therefore have a strong interest in access to ports in DPRK and the Russian Far East. Overseas shippers also have a stake in the Tumen transport corridor, for it offers a much shorter route to affluent and new markets, and facilitates transit trade to a number of destinations.

The local governments in the Tumen Region have been steadfast supporters of the Tumen Programme since its inception. It appears that central governments in Northeast Asia are now re-emphasising the value of the Tumen Region, particularly its strategic transport corridor. Northeast Asian governments are rapidly improving the Tumen Region’s infrastructure network and transport services. They are also working to create legal and institutional mechanisms conducive to cross-border trade and transport. The Tumen Programme is actively facilitating the creation of an enabling environment through “soft” infrastructure and human capacity building.

Why is Regional Cooperation so Important?
Regional cooperation is a vital part of the development process and a building block for effective participation in world trade and capital markets. For the Tumen Region, which partly consists of small and remote areas of large countries, economic cooperation is an effective way to avoid marginalisation. Cross-border cooperation also helps resolve environmental issues and facilitates the adoption of international environmental standards. Most importantly, enhanced economic cooperation in Northeast Asia helps improve political relations and stability, in turn vital elements for investment and economic growth.

It is worth recalling how remote and closed the Tumen Region was just a dozen years ago, to appreciate the full significance of its role as a frontier for economic cooperation in Northeast Asia. Much has been achieved during the Tumen Programme’s existence, particularly in terms of opening borders and increasing interaction in a region that was, until recently, tense and largely closed. A new trade and transport corridor has been created, which will – in time – evolve into an economic corridor with a significant impact on poverty reduction and improved living standards in the region.

The Future of the Tumen Programme
The prevailing political and economic climate in the region has altered dramatically since the start of the Tumen Programme in 1991. The Soviet Union has dissolved, China and ROK have established diplomatic relations and a major trading partnership, and there has been a degree of rapprochement between DPRK and ROK. The transition to stronger economic systems in the countries that relied on the Soviet Comecon trading system has reinforced the logic of economic cooperation in the Tumen Region. The increased participation of DPRK, Mongolia and the Russian Far East, combined with the rapid expansion of the Chinese economy, will help the Northeast Asian economy grow.

Dynamic cooperation has found increasing expression in Northeast Asia, and relations in the region continue to improve, helped by stronger economic links. Despite major improvements in the geopolitical circumstances of the region, however, much remains to be done. The Tumen Programme is the only initiative that brings the member countries together on a sub-regional basis, and its existing institutional structure and multilateral agreements should be utilised to maximum effect to help Northeast Asia achieve peace and prosperity.

Posted in China, Mongolia, Rason Economic and Trade Zone (Rajin-Sonbong), Russia, UNDP | 1 Comment »

Seoul vows support for Mt. Kumgang tourism program

Wednesday, December 6th, 2006

Yonhap
12/6/2006
Byun Duk-kun

Unification Minister Lee Jong-seok returned to South Korea Wednesday after a two-day visit to North Korea aimed at rallying support for a cross-border tourism program criticized by the United States.

The South Korean government’s point man on North Korea arrived in the country’s eastern city of Goseong shortly after crossing the heavily-fortified border with North Korea around 5 p.m.

Lee was the highest-ranking South Korean official to visit the South Korean-developed tourist destination in Mount Geumgang since the communist North tested a nuclear device about two months ago.

The visit was geared towards meeting South Korean officials and businesspeople at the North Korean resort, but it followed Washington’s intensified criticism against the tourism program.

The United States had long opposed the inter-Korean tourism program, but never too explicitly. It asked the Seoul government to halt the country’s cross-border project with the North after Pyongyang conducted its first nuclear weapons test on Oct. 9.

The Mount Geumgang tourism program appears to be “designed to give money to North Korean authorities,” Assistant Secretary of State Christopher Hill said while traveling here in October.

Hill represents Washington in international negotiations aimed at persuading the North to abandon its nuclear ambitions. The talks are also attended by the two Koreas, Japan, China and Russia.

Seoul remained taciturn on the U.S. demand, only taking what U.S. critics called “eye-washing measures.”

The unification minister, however, said the tourism program must “continue” and “be developed further.”

“We must never take a break from trying to ease tension between the North and South Korea, no matter how difficult the times and conditions are,” the minister said while meeting with reporters at the North Korean resort,

“In that sense, these projects (with North Korea) must continue to be developed and widened,” he added.

Seoul was never expected to halt, let alone suspend, the tourism program, but the minister’s remarks come amid international efforts to punish the North for its nuclear test.

Shortly after the Oct. 9 test, the United Nations Security Council approved a resolution that prohibited the transfer to North Korea of any financial resources or assets that can benefit the communist nation’s nuclear and weapons of mass destruction programs.

Millions of dollars have been paid to Pyongyang since the Mount Geumgang resort opened in 1998, while Hyundai Asan, the South Korean developer of the resort, regularly pays large amounts of money to the North in the form of admission fees levied on South Korean tourists traveling there.

The South Korean government claims the money is unlikely to be used for the North’s nuclear or WMD programs, though it admits there is no way of knowing for certain.

The U.N. Security Council has yet to decide whether Seoul’s continued, and apparently renewed, support for the Mount Geumgang tourism program runs counter to its North Korea sanctions resolution.

“I believe no one can dispute the positive effects that the Mount Geumgang tourism program and the Kaesong industrial complex project have had on North-South relations,” said Lee.

The unification minister has offered to step down from his Cabinet post and is expected to be replaced next week by Lee Jae-joung, senior vice chairman of the presidential National Unification Advisory Council.

He was scheduled to arrive in Seoul later in the day.

Posted in Economic reform, Foreign direct investment, Mt. Kumgang Tourist Special Zone, South Korea, Special Economic Zones (Established before 2013) | Comments Closed

North Korea Makes First Insurance Payout to South

Sunday, November 26th, 2006

Korea Times
11/26/2006

A North Korean insurance company compensated a South Korean firm for a car crash at the joint inter-Korean industrial complex in Kaesong, North Korea, for the first time, reports said yesterday.

A bus belonging to the Kaesong Industrial District Management Committee, which legally belongs to the Stalinist North, and a vehicle of the Korea Land Corp., a state-run company of South Korea, collided at the complex on July 12, according to reports.

The South Korean company had its car repaired in the south, but asked a North Korean insurance company to cover the bill, which was estimated to be around 1.1 million won ($1,160).

After consulting both companies, the North’s insurance company decided the bus driver was responsible for 80 percent of the incident, paying some 840,000 won, which was actually paid in U.S. dollars, to the South Korean company on Sept. 21.

Some 21 South Korean firms operate factories, using cheap but skilled North Korean labor in the complex, which opened in June 2004. The number of North Koreans at the complex exceeded 10,000 last week, according to the Ministry of Unification.

Posted in Insurance, Kaesong Industrial Complex (KIC), Kaesong Industrial District Development Committee | Comments Closed

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