Korea Economic Institute
Oh-Seung Yeul
February 2005
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Trade, reform, inter-Korean cooperation, China, IT, aid.
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Archive for the ‘Special Economic Zones’ Category
North Korea’s Economic Development and External Relations
Wednesday, February 2nd, 2005Kaesong regulatory environment set
Saturday, December 11th, 2004From Chongryun:
On December 11, 2004, the DPRK finalized management, entry and residency regulations, and customs regulations for the Kaesong Industrial Zone.
Set up under a de facto constitution, the “Kaesong Industrial Zone Management Institution” consist of 21 articles.
The Management Institution is a corporation in charge of administrating the region. People who have experience in these kinds of managemnt fields can work for the Institution, but employees of firm that operate in the zone are no allowed to serve.
The Institution will make annual plans for the development of the zone on its own and carry out the plans and will discuss with the central leading organ of the zone in case an important problem arises in the course of its work.
Entry and residence articles: 30
The regulations apply to South Koreans, overseas Koreans and foreigners who come to the zone from the South or do so by transportation means using the same route. According to the regulations, persons can enter the zone by showing their passports or certificates issued by the management institution.
They can stay in the zone for a long or short term. A short term stay is within 90 days and a long term stay is over 91 days. The extension of their stay is permitted if they applied for it at the immigration office of the industrial zone. Excluded from extended stay are those who are expected to leave the zone within 7 days from their arrival, as well as members of international organizations and foreign missions in South Korea, tourists and those who are not required to register themselves for their stay.
The regulations also clarify the issue of certificates related to entry into the zone, procedures for issuing the certificates of stay and residence registration cards and the extension of their term of validity, orders of deportation from zone, etc.
Customs
According to the regulations, goods, postal matter and persons engaged in transport service who stay in the zone for a certain length of time, can pass through the customs clearance house.
The goods that are sent by organizations and enterprises in the DPRK to the zone are exempt from customs procedures. But customs should be imposed on the goods from other countries which are to be sold in the DPRK as they are, without being processed.
Also clarified in the regulations are the rules of customs registration, the rules of customs exemption and payment, presentation of applications for permits to carry goods into and out from the zone, declaration of postal matter and personal belongings, customs inspection and supervisory institutions, the inspection method of goods to be carried into or carried out from the zone, standard customs rates and calculation methods, etc.
The goods prohibited to be carried into the zone include weapons, bullets, explosives and other materials for military use, narcotics, radioactive material, toxic chemical agents, printed matter that may adversely affect public order and good manners and customs of the nation and listed goods coming from contagious disease-afflicted areas.
Those goods banned to be taken out from the zone include weapons, bullets, explosives, materials for military use, lethal weapons, wireless apparatuses and their accessories, poisonous substances, powerful medicines, narcotics, radioactive material, toxic chemical agents, historical relics, secret documents, printed matter (copies included) and their manuscripts, films, photos, cassettes and video tapes, records, compact disks and other goods which are banned from being carried out under related agreement.
Kaesong regulations finalized
Monday, October 11th, 2004From KCNA:
Regulations of Insurance in Kaesong Industrial Zone Adopted
Pyongyang, October 11 (KCNA) — Decision No. 35 of the Presidium of the DPRK Supreme People’s Assembly “On the Adoption of the Regulations of Insurance in the Kaesong Industrial Zone” dated September 21, Juche 93 (2004) has been published. The decision says the regulations were adopted and the Cabinet and organs concerned of the DPRK are to take working measures for their implementation.
The regulations consist of 28 articles.
The mission of the regulations is to strictly establish the system and order in the work of insurance in the Kaesong industrial zone so as to help toward stabilizing the business activities and life of those who reside and stay there.
The regulations are applied to the enterprises, branches and offices established in the Kaesong industrial zone.
They are applied also to the south Koreans, overseas Koreans and foreigners who stay and reside in the industrial zone.
DPRK’s “Morning” firm produces Pentium IV chips
Thursday, August 26th, 2004From Asia Times:
North Korea has mass-produced computers with Pentium IV processors since 2002, a Russian journalist says in a new book. The confirmation came at a time when the United States and North Korea are in a war of nerves over US and international export control regulations that would ban 15 South Korean firms selected to operate in an industrial complex in the North’s city of Kaesong from bringing in “strategic materials,” including computers.
The South Korean companies said they must be permitted to bring computers with at least Pentium IV chips, which are essential for normal office work, citing earlier unconfirmed reports that the North already began to produce those kinds of computers.
“North Korea has produced computers with Pentium IV processors since 2002, which I saw during my visit to an electric appliance factory in Pyongyang,” Olga PMaltseva, a Vladivostok-based journalist, said in her new book about the North Korean leader, Kim Jong-il.
The Korean translation of the book, titled “A Waltz with Kim Jong Il” was published here on Monday.
“Seven hundred workers and technicians made 14,000 Pentium IV computers in 2002,” she said.
“The factory has produced tens of thousands of computers since 1986 and half of them were exported to Germany.”
There was a similar report by the Choson Sinbo, organ of the pro-Pyongyang General Association of Korean Residents in Japan, in May last year.
The newspaper reported at the time that a North Korean electronic appliance developer has been selling computers with Pentium IV processors in a joint venture with China’s Nanjing Panda Electronics Co since September 2002.
South Korea’s Korea Trade-Investment Promotion Agency (KOTRA) confirmed the report in August last year, citing data from its North Korean counterpart, the International Trade Promotion Committee.
The KOTRA said the North’s electronics firm “Achim (Morning)” and China’s Nanjing Panda have produced three types of Pentium IV computers.
The Russian author is believed to have visited the joint venture factory.
North Korea is classified as a “dangerous country” under the Wassenaar Arrangement, which replaced the Cold War era’s Coordinating Committee for Export Control to Communist Areas in 1996, and thus signatory countries cannot export items classified as “strategic materials” to the communist state.
The items include computers, various metal machinery, laser equipment, high-tech materials and electronic appliances with US-produced parts.
South Korea is among the 33 signatory nations.
An earlier report said the South Korean government is studying ways for the 15 domestic companies to use production equipment, materials and office supplies in Kaesong without conflicts with the U.S.
The Kaesong industrial complex, being built by the Korea Land Corp and Hyundai Asan Corp, a South Korea firm, is one of the most prominent symbols of inter-Korean reconciliation set in motion by the first-ever summit of the leaders of the two countries in 2000.
The developers are scheduled to open Kaesong’s main complex to hundreds of South Korean manufacturers in the first half of next year.
North Korea Development Report 2003/04
Friday, July 30th, 2004KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)
Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.
This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management
Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry
Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations
Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector
Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform
DPRKs only joint venture bank to change hands
Thursday, May 20th, 2004From the Asia Times:
Global player wins N Korea’s only JV bank
By Tom Tobback (founder of Pyongyang Square)
“Dr. Johnny” Sei-hoe Hon, formerly of Hong Kong and now chairman of the UK-based Global Group of Companies, agreed to take over North Korea’s only joint-venture bank, Hon told Asia Times Online on Tuesday in a telephone interview.
Hon, 32, identified by the KCNA as “chairman of the British Global Group”, is a British citizen with roots in Hong Kong who received a PhD in psychiatry from Cambridge University, but his psychiatric expertise was apparently not the reason he visited Pyongyang. He was officially received by Choe Thae-bok, chairman of the North Korean parliament, or the Supreme People’s Assembly (SPA). Hon presented Choe with a gift for the leader of the Democratic People’s Republic of Korea (DPRK), Kim Jong-il.
As usual, KCNA reported nothing more than that the two parties had “a friendly talk”, but it is clear that the visit was related to Pyongyang’s efforts at economic reform, initiated in July 2002, and possibly to new plans for its problematic special administrative region (SAR) of Sinuiju, which Pyongyang announced in September 2002.
The Global Group, of which Johnny Hon is founder, chairman, and chief executive officer (as described on his website), defines itself as “an evolving organization with diverse business ventures spanning the globe. Every new undertaking illustrates our skill in choosing the right opening in the right market – and most importantly, at the right time.” The group specializes in financial consultancy, wealth management, high-growth companies, and online betting.
Hon revealed to Asia Times Online that his Global Group is taking over the majority stake in the Daedong Credit Bank (DCB), the only foreign joint-venture bank in North Korea, from a British company based in Hong Kong. The Daedong Credit Bank, run in Pyongyang by Nigel Cowie, has been serving the expatriate community and the few foreign business ventures in North Korea for many years.
“Our stake in the DCB will facilitate further investment projects; the Supreme People’s Assembly [SPA] has offered us business proposals which we will consider in due time,” Hon said. Currently he is awaiting the due-diligence report by Deloitte & Touche for his Daedong Credit Bank deal.
It remains to be seen what advice the Global Group can offer to revive the North Korean economy, but probably professional help from international financial institutions such as the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) would be a safer bet than venture-capital companies such as Hon’s Global Group.
Kumgang is open for business
Tuesday, December 2nd, 2003Accoding to the Washington Post:
By Anthony Faiola
Washington Post Foreign Service
Tuesday, December 2, 2003; C01
MOUNT KUMGANG
In the surreal world of North Korean tourism, you can feast on local delicacies served by glamorous lady comrades, watch an acrobatics show infused with Stalinist humor and climb a storied mountain covered with plaques and monuments celebrating the totalitarian Kim clan.
But be back indoors by the midnight curfew — or face fines, questioning by authorities or, well, worse.
This is Mount Kumgang, the fortified tourist compound where the Hermit Kingdom meets the Magic Kingdom, right down to Disneyesque guys in fuzzy bear suits greeting visitors. A window into hermetically sealed North Korea since foreign visitors were granted limited access five years ago, it lies an hour’s drive north of the minefields and missile batteries lining the most heavily militarized border in the world.
Here, tension is part of the attraction.
“Look, quick! North Korean soldiers!” one excited South Korean yelled to other tourists on a bus after spotting an armed squad marching by. They tripped over each other trying to get a better view.
The over-the-rainbow quality of the place offers a rare, if hyper-controlled, glimpse at life on the Cold War’s last frontier.
“You are supposed to relax and have a good time,” said Jang Whan Bin, senior vice president of investor relations at Hyundai Asan Corp., the South Korean company that financed and operates most of the resort. “But this is still North Korea. Things are quite different here.”
On this mountain, about which the famous Chinese Sang Dynasty poet Sudongpo wrote, “I would have no regrets in my lifetime were I to see Mount Kumgang just once,” the jagged cliffs and glistening waterfalls now take a back seat to homages erected to the Kims, the only father-and-son act in Stalinist history.
More than half a century ago, Kim Il Sung founded the Democratic People’s Republic of Korea — i.e., North Korea. His son, Kim Jong Il, took the helm following the elder Kim’s death in 1994. The son is said to have entered this world on a mountaintop, his birth heralded by lightning bolts and a double rainbow. Recently named “Guardian of Our Planet” by the North Koreans, Kim Jong Il rules through a cult of personality that is alive and well in Mount Kumgang.
No act of the Kims is too small to be noted on these ancient rocks, now coated with more than 4,000 monuments, etchings and other commemorative inscriptions to the clan. A spot where Kim Il Sung is said to have especially appreciated the view is dutifully marked with a six-foot-tall stone tablet. Elsewhere a young guard stood by an etching commemorating the exact location where Kim Jong Sook, mother of the younger Kim, once rested her weary bones.
This is an important landmark, insisted the female guard, who watches over foreign visitors and keeps out unauthorized North Koreans. Her eyes went wide when asked about the need for a monument in a place of such natural beauty.
“She was the beloved wife of the Great Leader!” fumed the guard in her fashionable red jacket with a matching propaganda pin bearing Kim Il Sung’s face. “Don’t you have a father? Isn’t he the absolute ruler of your family? Mustn’t he be obeyed? You must understand, Kim Il Sung is the father of our nation and we are his children. Everything related to him must be celebrated.”
“Including his wife?” she is asked.
“Do not just call her his wife! Use her title!” she demanded.
What title?
“Her title! How can you not know her title?” Exasperated, the guard explained that Kim’s wife must be referred to as “Great Revolutionary General Kim Jong Sook.”
Most of this sprawling tourist complex, including hotel, hot springs and duty-free shops including Prada and Gucci, is run by Hyundai Asan, which each month brings in about 15,000 people, mostly South Koreans. The North Koreans feared so many foreigners would contaminate the minds of the locals, so the vast majority of employees here are ethnic Koreans shipped in from China.
But two restaurants do employ local staff, and it’s there that foreigners have their best chance to interact with unarmed North Koreans. Waitresses wear ’50s-style heavy makeup and modest attire. One nervous server fled from a table of foreigners every time she was asked a question. In another restaurant, a waitress looked stunned after a foreign guest asked her where one could buy a Kim Il Sung lapel pin like the one she wore.
She tilted her powdered face skyward, raising one arm to gently cup the pin with her hand.
“This,” she proclaimed, “is not fashion. It cannot be bought in a store.”
She went on: “This is a symbol of my love for the great founder of my nation.”
Among the top attractions here is an acrobatics troupe shipped in from Pyongyang.
In one act, a disco version of the North Korean folk favorite “Nice to Meet You” plays as 10 men in stylized sailor suits, heavy rouge and blue eye shadow soar in front of a projected backdrop of sacred Mount Paektu, where Kim Jong Il is said to have entered the world with the blessing of Heaven. In a comedy act, a strongman wearing communist red gets the better of a weakling decked out in blue.
Lest the mountains, lakes and tourist attractions lull you into a false sense of security, officials constantly remind guests that they are surrounded by a military installation that includes a naval base across the port from where a small cruise ship docks each week. Visitors are instructed not to talk to the locals about politics or economics. Two years ago, one South Korean woman merely suggested that her nation, which is 13 times as wealthy as the communist North, had a higher standard of living. She was arrested and held for seven days until Hyundai negotiated her release. Photos here are limited to shots of the tourist installations and specified views of Mount Kumgang itself.
There are no exceptions.
One Dutch visitor captivated by the serenity of the scene snapped a digital photo of the mountain setting with a happy sign in the background declaring “Welcome to Mount Kumgang.” But she inadvertently clicked just as two North Korean soldiers with sidearms were walking by.
“Hey, you!” they barked in Korean. “Come here!”
“The soldiers were not amused,” said Eunmi Postma, a Dutch journalist based in Seoul.
They demanded the tourist’s camera and asked to see her passport.
“But, I mean, all I did was try to take a picture of the welcome sign,” she said. “The soldiers were so far away you couldn’t even make them out in the photo. I finally deleted the picture so they wouldn’t take my camera.
“I know it’s North Korea, but still, this is supposed to be a tourism resort. . . . What a weird place.”
Call for Kaesong investors
Wednesday, October 1st, 2003From the BBC:
North Korea has unveiled the terms under which foreign investors will be lured to a ground-breaking industrial zone near the tense border with South Korea.
Two South Korean companies – Korean Land and an arm of the Hyundai conglomerate – are developing an international business park in Kaesong, part of a package of cautious economic reforms in the Stalinist country.
So far, more than 1,000 South Korean firms have enquired about setting up shop in Kaesong, where labour costs will be a tiny fraction of those south of the border.
The North Korean Government now promises investors favourable tax rates, but there are still considerable concerns over whether it will allow businesses much economic freedom.
Most of the companies so far interested in Kaesong are in light manufacturing, particularly textiles.
Depending on their line of business, these firms will be taxed at up to 14%, less than half the rate levied in the South.
Pyongyang is, however, especially keen to lure hi-tech firms, which will be subject to a tax rate of just 10%.
Investors will have to pay a number of other smaller levies, and must adhere to a minimum monthly wage of $50.
Such incentives have sparked a flurry of interest in the South, but many companies remain wary.
They will be forced to hire workers through a North Korean state agency whose powers and attitude remain unclear.
And there is still little confidence in the fundamental stability of North Korea, which has turned to economic reform in recent years, but which remains virulently opposed to most forms of foreign influence.
The Kaesong development does, however, seem to be a relatively permanent arrangement.
It forms part of a large-scale construction project in the region, which is just 50 kilometres northwest of Seoul.
Elsewhere the focus is on tourism, especially scenic Mount Kumgang on the country’s east coast, which Hyundai has been trying to develop for five years, with mixed success.
There is also a Unification Park, which will be the venue for reunions of families split by the country’s division.
Most significant are major road and rail developments which mark the first time the two rival countries have re-established transport links since the end of the Korean war in 1953.
Two Koreas boost crossborder trade
Thursday, August 28th, 2003BBC
8/28/2003
North and South Korea have signed a landmark agreement to increase direct trade, the latest step in the slow economic thaw between the two enemies.
According to the agreement, made at bilateral talks unrelated to the simultaneous discussions over nuclear capability, South Korean firms will be encouraged to set up in the North.
The town of Kaesong, just north of the border, has been selected as the site of an industrial park, currently being built by South Korea’s Hyundai.
The two governments will open a corporate liason office in Kaesong, which will deal with the many southern companies keen to exploit cheap northern labour.
Slowly opening
Cross-border economic contacts have become frequent in recent years.
But almost all the $270m (£172m) in north-south trade so far this year has been conducted through intermediary countries, a formality the new agreement aims to dispose of.
The deal represents another step in the extremely slow economic opening of the stalinist North, which long operated in complete isolation from the world economy.
Over the past three years, Pyongyang has reformed its currency, invited visits from foreign investors, cautiously liberalised some prices and planned various – mainly abortive – schemes along the lines of the Kaesong industrial zone.
Reliance on aid
The motivation in much of this, analysts say, is the desperate economic situation in the north.
A series of natural disasters in the 1990s crippled northern agriculture, and the government has done little to put the sector back on its feet.
North Korea – which long rejected outside help – has become increasingly dependent on aid.
This latest agreement concedes to the South the right to oversee the distribution of food aid in the North.
DPRK acts against sars
Saturday, April 26th, 2003from the BBC:
North Korea announces tough restrictions in a bid to prevent the spread of the deadly respiratory disease Sars.
It has introduced strict quarantine measures and suspended a shipping service to Japan as well as a joint tourism project with South Korea.
Public health officials have outlined some of the steps being taken on state TV.
Emergency anti-epidemic centres have been set up at national and local level and quarantine officers are implementing stringent checks at all points of entry into the country, said Choe Ung-chin, head of the State Hygiene Inspection Institute at the North Korean Public Health Ministry.
Travellers bear cost
North Korea’s proximity to China, where the outbreak was first recorded, is the cause of particular concern.
“Most North Koreans who make business trips abroad and foreigners who enter our country do so via China,” Han Kyong-ho, another senior health official, explained.
“When the international train that runs from Sinuiju [border station] to Pyongyang enters the station, all travellers are thoroughly checked to see if they have Sars symptoms such as fever and dry coughs.
“Furthermore, all travellers coming into the DPRK from the places of origin of Sars are strictly isolated for 10 days.”
Mr Han said that Sars germs could be present in travellers’ luggage or in insects such as cockroaches.
“Therefore, every one of the travellers’ possessions is thoroughly sterilised, and medical inspections of all workers at the station who have had contact with people who have travelled abroad are being carried out in detail,” he said.
At Pyongyang international airport, incoming travellers who display any Sars symptoms are hospitalised while those who do not are quarantined for 10 days at specially designated hotels.
Russia’s Itar-Tass news agency reports that the cost of such unforeseen stopovers – 100 euros a night exclusive of meals – will be borne by foreign travellers themselves.
Services suspended
North Korea has also suspended the Man Gyong Bong-92 shipping service to Niigata Port.
Japan’s Kyodo news agency said the ship was slated to make three port calls to Japan in May, but two have already been cancelled.
The North Korean Government is also reported to have sent emails to thousands of pro-Pyongyang ethnic Koreans in Japan urging them not to visit their homeland for the time being.
And South Korea’s Hyundai Asan Corp was “stunned” to learn that North Korea had suspended a joint North-South tourism project it operates over Sars fears, South Korea’s Yonhap news agency reports.
The South Korean firm has run loss-making cruises for tourists to the North’s scenic Mount Kumgang since 1998 in a symbolic project to promote inter-Korean reconciliation.
The suspension of the tours heightens the possibility that all of Hyundai’s inter-Korean projects may come to a “screeching halt”, at a time when the company has been campaigning hard to revitalize the business, the agency adds.
