North Korean Economy Watch

Well, since the ROK has suspended further food/fertilizer aid to the DPRK in response to the current missle situation, the DPRK has suspended family reunions.

From the Joong Ang:

In a tit-for-tat reaction to Seoul’s decision to suspend rice and fertilizer aid, Pyongyang yesterday canceled a separated family reunion and said future ones were in jeopardy.

The Korea Central News Agency broadcast a letter from the North Korean Red Cross to its counterpart in Seoul. The letter said Seoul had refused to talk seriously about a family reunion the North had proposed be held during the Chuseok holidays in October. “Furthermore,” the letter continued, “the South refused to ship rice and fertilizer, one of the inter-Korean humanitarian projects that are conducted on the basis of reciprocity.” Pyongyang, the letter went on, sees no reason to continue family reunions.

“We want to make clear that the video conference call reunion, scheduled to mark August 15, and the construction of a reunion venue at Mount Kumgang will be terminated,” the letter concluded. The Japanese surrendered on Aug. 15, 1945, to end World War II. Both Koreas celebrate a Liberation Day holiday on that date. Although reunions have been held frequently at Mount Kumgang, the two Koreas had agreed to build a permanent reunion site there rather than using tourist hotels.

The Unification Ministry said it would do its best to restart the reunions. It said it anticipated that reaction by Pyongyang but regretted it.

And from the BBC:

The North accused the South of “sacrificing” humanitarian co-operation under pressure from Japan and the US.

Seoul announced the suspension of rice and fertiliser deliveries after inter-Korea talks collapsed last week.

The talks followed North Korea’s missile tests on 5 July, which have raised international concern.

Pyongyang test-fired seven missiles, including a long-range Taepodong-2 believed capable of reaching Alaska.

South Korea says it will not discuss further humanitarian aid with its neighbour until progress is made on resolving issues relating to the missile tests and the North’s nuclear ambitions.

After the high-level talks in Busan fell apart last week, the delegation from Pyongyang issued a statement warning of consequences for inter-Korean ties.

In the latest statement, North Korea’s Red Cross head Jang Jae-on accused the South of “abusing the humanitarian issue for meeting its sinister purpose to serve the outsiders”.

“Our side is, therefore, of the view that it has become impossible to hold any discussion related to humanitarian issues, to say nothing of arranging any reunion between separated families and relatives between the two sides,” he said.

A video reunion meeting scheduled for 15 August would not take place and the planned construction of a reunion centre in the North’s Mt Kumgang was “impossible”, he said.

The reunions bring together families divided by the partitioning of the Korean Peninsula in 1953. The policy has been a key part of reconciliation efforts between the two Koreas.

Earlier, South Korean President Roh Moo-hyun told a meeting of security advisers that Pyongyang’s missile tests were “wrong behaviour” that increased regional tensions.

But he warned against overreacting, saying: “An excessive response to North Korea’s missile tests creates unnecessary tensions and confrontation.”

On Tuesday, the Japanese government said it had begun work on its own set of sanctions for North Korea, in addition to those agreed by the UN Security Council.

The council unanimously passed a resolution on Saturday which condemned the missile launches, but it was softer than the draft initially proposed by Japan.

Japan would look into banning cash remittances to the North from Korean residents, Chief Cabinet Secretary Shinzo Abe told reporters.

But on Wednesday, Japanese Prime Minister Junichiro Koizumi said he would not rush to impose more sanctions.

“We should wait and see for a while whether North Korea will seriously respond to the (UN) resolution,” he said.

Most of the big papers got into Kaesong back in February.  The NY Times got it in July.  Better late than never.  I am adding it to this blog so I can reference it later:

South Brings Capitalism, Well Isolated, to North Korea
By NORIMITSU ONISHI

KAESONG, North Korea — Just north of the demilitarized zone dividing the Korean Peninsula, in possibly the world’s most heavily guarded special economic enclave, 500 managers from the South and 7,000 workers from the North are engaged in a capitalist experiment that is anathema to the United States.

The South Koreans recently gave a tour of the enclave, the Kaesong Industrial Park, to 200 foreign business executives, diplomats and journalists. The hosts expressed optimism that it would bring peace to the peninsula, then they led the visitors through factories churning out goods for markets in the South and elsewhere.

In one of the 15 factories, Taesung Hata, a cosmetics company, about 500 workers wearing dark blue uniforms and white hats operated machines that produced plastic cosmetic containers. Next door, 1,500 workers sat in rows of desks with sewing machines, below ceiling fans and decorative red flowers, making orthopedic shoes called Stafild that were described as “Shoes for Unification.”

To hear the South Korean hosts tell it, when the special economic zone is completed in 2012, it will be bigger than Manhattan, house 2,000 companies and employ 700,000 North Koreans. Yet Kaesong’s significance is larger still, they say, because it will nudge the North toward embracing economic reforms and opening up to the world, the way Shenzhen did in China two decades ago, and open the path, as the shoes suggest, toward reunification.

[The hosts also said they had considered canceling the June 22 tour, which coincided with rising tensions over North Korean preparations for a missile test on July 5, but decided against it.]

Kaesong is South Korea’s biggest project in what some here call unification by “small steps,” or “de facto” unification. The South does not want formal unification for a few more decades, but its strategy is to narrow the yawning gap of half a century of division through various projects, from manufacturing here in Kaesong to uniting the two Koreas’ different Braille characters for the blind and sign language for the deaf.

“It’s de facto unification,” said Ko Gyoung-bin, who oversees the 18-month-old Kaesong project at the Ministry of Unification in Seoul. “It’s already under way. Unlike the German model, it won’t happen suddenly.”

The two Koreas agreed on building Kaesong in June 2002 when the South Korean president at the time, Kim Dae-jung, and the North’s leader, Kim Jong-il, met in Pyongyang. Since then, the exchanges have become so routine that sports authorities on both sides are moving toward fielding a unified team for the 2008 Beijing Summer Olympics.

With cultural, academic, business, political or military exchanges going on between the Koreas nearly every week, 80,000 South Koreans visited the North last year. That did not include South Korean visitors to Kumgang Mountain, a North Korean resort opened to foreigners eight years ago. Kumgang has been visited by 1.25 million South Koreans.

South Korean regional and local governments, regardless of political leanings, have also undertaken projects with counterparts in the North. More than 60 private organizations now send South Koreans north to assist on agricultural, health and other projects.

“We go to North Korea, where we work with our counterparts to show them how to use certain agricultural machines or how to breed better cattle,” said Kang Young-shik, director of the Korean Sharing Movement, a private group that has undertaken the Braille and sign-language projects. “They need help from us, though they also feel the need to compete with us.”

Cho Yong-nam, a director general in the Unification Ministry, said South Korea had projects in 27 of 206 cities and counties in the North. The common theme, he said, is to raise standards in the North so that, in a unified Korea, North Koreans would not constitute “a displaced, misfortunate minority group.”

Companies that have come to Kaesong, which is managed by Hyundai Asan, a private company, have received tax breaks and other support from the South Korean government.

A new highway and railroad traverse the DMZ before reaching Kaesong, about 40 miles northwest of Seoul. Soldiers stand watch on either side of the demilitarized zone, with its barricades, barbed wire fences and land mines.

In working with North Koreans, South Koreans have said, they have encountered the sometimes unexpected effects of their division: North Korean construction workers, for example, were rated only one-third as efficient as their counterparts from the South; many North Koreans, with little experience handling machines, have required extensive training.

Sometimes, South and North Koreans had trouble communicating because the language spoken on either side of the DMZ has changed significantly. (One project supported by the South is a unified dictionary with new words that have appeared, or words whose meanings have changed, since the division of the peninsula after World War II.)

Last year, the activity here expanded trade between the Koreas to more than $1 billion for the first time, though only a few companies here are believed to be profitable.

Kaesong has also become an obstacle in negotiations between South Korea and the United States over a free-trade agreement. The South wants products made here to be included in the agreement, arguing, so far in vain, that most of the materials derive from the South.

The Bush administration, which has tried to isolate the North instead of engaging it, recently criticized Kaesong after long withholding judgment. It accused the South of economically propping up the North, as the United States was financially squeezing the North elsewhere.

In a recent op-ed piece in The Wall Street Journal, Jay Lefkowitz, President Bush’s special envoy for human rights in North Korea, said projects like Kaesong strengthened Kim Jong-il by pumping “hundreds of millions of dollars into the North, with more to come.” Mr. Lefkowitz also said he had doubts about whether the North Korean workers actually got their wages.

Mr. Ko, of the Unification Ministry, rejected such accusations, saying the North Korean workers had to sign their names when they received their wages. The wages average $57 a month, nearly triple the average in the North, he said.

According to Hyundai Asan, employees work 48 hours a week. They were picked by North Korean officials, then approved by South Koreans. About 80 percent are high school graduates.

Visitors were allowed to speak freely to the North Korean workers, but the presence of supervisors and North Korean guides on the tour discouraged anything but innocuous answers.

Peter M. Beck, who is the Northeast Asia director for the International Crisis Group in Seoul and took part in the tour, said that he was impressed by the facilities but that it was still unclear how much of the wages went to the workers.

At Shinwon, a garment manufacturer, 300 North Korean workers were cutting and sewing shirts, dresses and blouses in a large, brightly lighted, air-conditioned factory.

“I’ve seen factories of this type in Kenya, Bangladesh, India and Papua New Guinea, and the conditions here compare very favorably,” said Frank Gamble, a retired banker and an official with the Australia-New Zealand Chamber of Commerce in Seoul, as he toured the Shinwon factory. “What South Korea is trying to do here in Kaesong, we’ve already seen in China and Vietnam and elsewhere. The United States was against investing in Vietnam, but now they’re beating down doors to get there.”

A North Korean official accompanying the visitors expressed anger at criticism from Americans.

“I think they’re ignorant,” he said, refusing to give his name. “They just criticize everybody, including China on human rights. They just want to impose their standards on the world.”

From Google Video:

This is America’s host Dennis Wholey does a great job filming from the Kaesong Industrial complex.

Check it out.

From the Joong Ang Daily:

An abrupt notification by the North that it would not attend caused the postponement of a celebration by the two Koreas of the launch of the Oegeumgang Hotel at Mount Kumgang in North Korea, which had been set to take place yesterday.

The 11-story, 179-room Oegeumgang Hotel still launched operations yesterday, as did Baekseju village, designed to promote rice liquor and a rest stop called Hwajinpo near Mount Kumgang.

The hotel will be open to foreign tourists who come on a Hyundai Asan package deal to visit the mountain.

Hyundai Asan Corp., the arm of Hyundai Group that spearheads inter-Korean business, said yesterday the North told them on Monday afternoon that it would not attend.

North Korea did not say why, but Hyundai said it may have been due to the international tension caused by its missile launches last week.

A Hyundai Asan spokesman said, “the absence is not likely to affect future business with North Korea.”

He added that the opening celebration date will be reset soon after discussions with the North.

Hyundai Asan also plans an event on Mount Kumgang with the North Aug. 4-6 to commemorate the late Hyundai Group founder Chung Ju-yung, who was born in North Korea. The North has not said if it will participate.

Korea Times
Kim Yon-se
Staff Reporter

S-N Economic Cooperation Showpiece Under Double Threat

Nowadays the Kaesong Industrial Complex, the flagship of inter-Korean economic cooperation, is stuck between a rock and a hard place.
The United States has rejected a South Korean request to include it in their bilateral trade talks, taking away one of the few incentives for companies to set up shop there.

The Kaesong complex is a collaborative industrial park developed by South and North Korea located in North Korea close to the Korean Demilitarized Zone with direct road and rail access to South Korea.

The Kaesong complex is also bearing the fallout from Pyongyang’s missile tests that raised an uproar in the international community, giving Washington an excuse to push hard for its ongoing effort to choke the North’s cash flow.

“Kaesong is a lifeline that keeps alive inter-Korean business cooperation,’’ said an official who is involved in the project. “It is at a fragile stage so if anything happens that changes the current status of the Kaesong complex, there would be no turning back.’’

He said that the government is expected to keep the project going at all costs.

In the Kaesong complex, about 7,700 North Koreans work for Hyundai Asan, the project manager and scores of South Korean companies there. A North Korean worker there earns $64 in wages and allowances a month, making for half a million dollars in the monthly total payment. Most of the money is paid on the 10th of the month. This month, it was paid as scheduled.

“It is unthinkable that the wages would be withheld,’’ the official said, when asked what would happen if economic sanctions were slapped on the communist country. “I don’t think that the government would do that.’’

Some U.S. officials have said South Korea’s continuation of pushing Kaesong goods as an item for the FTA talks may be a big hurdle for signing the final pact.

“The agreement should only cover products of the U.S. and the Republic of Korea. That is our position,’’ Assistant U.S. Trade Representative Wendy Cutler told reporters.

Aside from the negative stance toward products created by North Korean employees from the North’s raw materials, the U.S. has strategies not to allow made-in-South Korea products, especially clothes, made from imported materials from China or Taiwan, according to sources.

If the U.S. allows the Kaesong products as an FTA item, it has no choice but to accept the products made from non-Korean textiles.

The U.S. clothing market has already been flooded with cheap products from China and Southeast Asian countries that are labeled as premium brands, such as Polo and Burberry.

Korean civic protestors argue the Korean government is unprepared for the talks and has few negotiation strategies. In fact, the government is falling short in making Kaesong products acknowledged as an FTA item.

According to the Chosun Ilbo, an ultra-conservative vernacular daily, a government official said Korea will ultimately drop the issue in the future talks though it will not scrap the issue on the official negotiation table.

Citing the officials’ remarks, the newspaper said it is impossible for Korea to receive concessions from the U.S. on Kaesong products and the government will use the issue as leverage for other issues.

From Joong Ang Daily:

One ROK official said yesterday that shipments of 100,000 tons of fertilizer and 500,000 tons of rice, the remainder of assistance promised this year, would be suspended at least temporarily.

“There should be no misunderstanding on this,” the official said. “We told the North that actions would be taken if they fired a missile.”

Other projects, such as manufacturing at the Kaesong Industrial Complex and tours to the resort area of Mount Kumgang, will probably not be touched. Mr. Lee, the Unification Minister, said the two projects had long-term goals and involved private capital, and so were not appropriate instruments of retaliation.

Joong Ang Daily
Kim Hyung-soo
7/6/2006
 
However concerned politicians may be about North Korea’s missile test, many Korean companies that deal with the reclusive state are saying it has had minimal impact on business. So far.

Hyundai Asan, which does much of its business in North Korea ― including the Mount Kumgang tour and operating the Kaesong industrial complex ― said it was business as usual. Hyundai Asan said only 50 people canceled their trip to Mount Kumgang yesterday, while 700 people went as planned.

“As the government has already mentioned, private businesses are not subject to restrictions because of the North Korean missile problem,” a Hyundai Asan official said.

The South Korean company stressed that although it has faced problems in the past because of developments in the North, its businesses there have never been forced to stop.

“Business in North Korea should be consistently maintained, as it could be a solution that could solve the strained relationship between the two Koreas,” the official said.

Hyundai Asan said they were more concerned that the North’s recent actions could end up reducing the number of tourists in summer, the high season for travelers.

ShinWon, which manufacturers clothing at Kaesong industrial complex, said the plants there were operating as usual.

“The only difference was that our headquarters in Seoul called to ask what the atmosphere was like in Kaesong,” said a South Korean ShinWon worker at Kaesong.

Despite the firms’ apparent sangfroid, experts were quick to point out the possible long-term consequences. “[The launch] could reduce the credibility of the Korean economy and affect foreign investments,” said an official at the Korea Chamber of Commerce and Industry. “The future of economic cooperation between the two Koreas has become more uncertain.”

“Poor security is the economy’s biggest negative factor,” said Lee Dong-eung at the Korea Employers Federation. “At times like this society needs to remain calm and unified.”

Though many foreign investors who visited Kaesong last month stressed that politics and business should be kept separate, it remains to be seen how the missile launch will affect foreign sentiment toward the industrial complex. 

From the Korea Times: 

Two Koreas Discuss Setting Up Weather Center at Mt. Kumgang
By Lee Jin-woo

Tourists visiting North Korea’s scenic Mt. Kumgang resort are likely to be presented with more accurate weather forecasts as early as this fall, officials at South Korea’s Unification Ministry said Wednesday.

South and North Korea are in negotiations to open a weather forecasting center at the mountain to provide tourists with more accurate meteorological information in the region, notorious for its unpredictable weather, said a ministry official, who asked not to be identified.

“Negotiations between the two Koreas are currently under way to open a weather center. There are still some areas that the two sides need to agree upon,” the official said. “Pyongyang is showing a positive response to the plan though.”

In May, a survey team comprised of officials from the ministry, Hyundai Asan Corp. as well as the Korea Meteorological Administration (KMA) was dispatched to the area to gather information prior to beginning construction, sources said.

Hyundai Asan has led the tourism project under which more than 1.2 million South Koreans have visited the resort area since the communist state opened the outer part of Mt. Kumgang on its east coast in 1998. Last year, the annual number of South Korean visitors to Mt. Kumgang reached over 300,000 for the first time.

“It was early last year when we first requested local broadcasting companies to add weather forecasts for Mt. Kumgang and its adjacent areas,” said Kwon Kee-seob, who is in charge of public relations at Hyundai Asan. “The broadcasters, however, told us to discuss the matter with the KMA and the Unification Ministry to set up some facilities to gather information there.”

Kwon added over 2,000 South Koreans, including some 1,000 travelers, visit or stay in the North Korean territory on average everyday.

“We’ve got many phone calls from those who plan to make a trip to Mt. Kumgang, but have not been able to give them good weather information,” he said.

South Korean officials once considered making use of weather forecasts by the North Korean meteorological agency, but later gave up the plan due to the poor quality of weather information from the North, sources said.

Kumgang resort goes international
 
Emerson Pacific Group, a Korean company that is now building a golf and spa resort at North Korea’s Mount Kumgang, said yesterday that it had reached an agreement with a British resort operator to co-manage those facilities.

A spokeswoman for Emerson Pacific said that her company would be responsible for development planning for the resort and fund it entirely; the British company, General Hotel Marketing, would oversee the resort’s construction and interior design, operating systems, staff training and global marketing. General Hotel Management operates 16 resorts around the world, including at Langkawi and Bali in Asia.

The agreement gives an international polish to the formerly inter-Korean project to develop tourism at Mount Kumgang, widely acclaimed from antiquity as the Korean Peninsula’s most scenic area.

Ralf W. Ohletz, the executive vice president of General Hotel Management, told the press yesterday that he was convinced that the resort “has the potential to become a global-scale tourist attraction.” He added that the locale ― North Korea ― made the project both challenging and attractive.

Emerson said it would spend about 80 billion won ($85 million) on the resort, which is scheduled to open next year. It is already selling memberships in the golf course there for 17 million won each.

Hyundai Asan, which is the overall operator of the tourism project at Mount Kumgang, said yesterday that the beach there will be open for swimming and picnicking beginning Saturday.

The tour operator also said the Oegeumgang Hotel, on the mountains’ eastern slope, has been remodeled and will be open on July 11. The 11-story building, with 179 rooms, was formerly a retreat for senior North Korean officials. 

Yonhap
7/4/2006

South Korean companies will be able to make remittances to their operations in an industrial complex in North Korea without having to make a prior report to the authorities in Seoul, the Finance Ministry said Tuesday.

The ministry said it has amended regulations governing remittances to North Korea to help South Korean companies operating in the inter-Korean industrial complex in Kaesong, just north of the heavily-armed demilitarized zone that divides the two Koreas.

Financial remittances to North Korea had previously needed to be reported to the Bank of Korea, South Korea’s central bank.

According to the ministry, a branch of South Korean lender Woori Bank that is located in the industrial complex will serve as the intermediary bank.

A total 13 South Korean companies are currently operating in the industrial complex, a key product of the 2000 summit between the leaders of the Koreas that boosted reconciliation and cooperation programs involving the two countries.

The number of South Korean companies in Kaesong is expected to reach 300 when the first phase of construction is completed next year. Seoul believes the industrial city will be able to house as many as 2,000 South Korean firms by 2012 when the complex is fully developed.