North Korean Economy Watch

From the Korea Herald:

The ROK government is considering selling off the remaining blocks at the kaesong industrial complex in North Korea in three steps to maximize their value, sources said yesterday.

A 1-million-pyeong compound was built as the first phase of the Gaeseong project and is currently occupied by 15 businesses.

An additional 24 businesses are set to operate since last August and there is currently 580,000 pyeong of land left up for grabs.

The Unification Ministry, Hyundai Asan and Korea Land Corporation – the three organizers of the project – have recently completed its sale plan which will begin next month.

Of the 580,000 pyeong, the government will first offer 220,000 pyeong for sale in June.

Based on the outcome, the government will release the remaining lots in two steps, in September and December.

Sources said by dividing the land lots in the sale, the government is hoping to minimize the risk and maximize their value.

The government is also planning to differentiate the types of businesses entering kaesong in order to increase the level of cooperation within the companies.

Such business fields will include electronics, electricity, machineries, metal and chemicals.

The complex will also be open wide enough for three to four foreign businesses to invest, following a show of interest from business owners from Germany and China.

At Gaeseong there are currently 500 South Korean employees working with about 6,800 North Korean workers.

From Hankyoreh:
Why Is Danchon in North Korea Important?
South Korea Proposes Joint Developments with North Korea

South Korea suggested to the North a plan to designate Dancheon, South Hamgyeong Province, as a “special joint resource development district” in the 18th South-North ministerial talks held at Pyeongyang at the end of April. According to a statement, the South and North agreed to “consider a program to jointly develop resources,” but it is obvious that Dancheon is a candidate to become the third joint special economic zone, after the tourist district of Mt. Kumgang and the Kaesong Industrial zone.

In the early stages of the 1994 Agreed Framework regarding the curtailing North Korea’s nuclear program in exchange for investment, North Korea proposed to the U.S. that it invest in two mines and a port in the Dancheon area. Peter Hayes, executive director of the U.S.-based public policy think tank Nautilus Institute, expressed regret that the U.S. missed an opportunity to make the North dismantle its nuclear weapons program, in an article published May 2 on the institute’s web site. Is it possible for Dancheon to become another symbol of South-North cooperation? Since the North has suggested the development of the zone to the U.S. in the past, the North will surely accept the South’s interest in the project.

Why Dancheon?

If the two Koreas designate a special district for joint resource development, government officials and experts agree that Dancheon is an ideal place. In short, the area has infinite potential. Dancheon has deposits of 25 kinds of minerals, including zinc, magnesite, lead, gold, silver and asbestos.

There also are mining industry-related factories. The Dancheon refinery, which came into operation in 1985, produces 100,000 tons of zinc in a year, and the Ryongryang plant processes the raw slag that can be supplied to brick factories.

Many experts say that Dancheon has a better distribution infrastructure than other mining areas. Dancheon has its own port, and Cheongjin and Sinpo ports are just 40km and 80km away from Dancheon, respectively.

Benefits for both Koreas

The South imports all of the zinc and magnesite it uses. If the special economic zone program succeeds, the Dancheon area will provide the South with a steady flow of needed minerals.

Politically, the success of the project could bring about a certain degree of ‘restraint effect’ against foreign capital in the North, including putting a check on China, which has been of late coveting the mineral resource potential of the North.

If the North increases the operating status of its mines, currently between 20 and 30 percent of total employment capacity, with the help of capital and technology from the South, the project will both generate more jobs and help the North earn foreign currency. With this kind of success, a “special district” would mean a win-win economic cooperation.

Obstacles remain

The largest problem is whether the North Korea will accept the program. Fortunately, Dancheon is known to have no military facilities. But it is not clear if the military will agree to the terms of a special economic district, which means a near-complete opening of the area to the South. Due to this, the statement issued in the recent ministerial meeting regarding further development did not specify the Dancheon area, analysts point out.

Experts forecast that even if the two Koreas agree to develop another special district, it will take a long time before goods can be produced. In addition, the North will have to settle a few problems before the project can get underway, such as legislation concerning foreign investments and ownership.

A cost problem exists, as well. In light of the previous cases of Kaesong and Mt. Kumgang, the South will have to provide almost all the infrastructure necessary to develop the special district. An industry official has estimated the cost at more than one trillion won (about one billion US dollars), due to the condition of the North’s transportation routes and electricity grid.

From the Korea Times:

Rising dramatically from the East Sea, Mt. Kumgang _ about 20 miles (32 km) north of the Demilitarized Zone (DMZ) in North Korea _ is considered by most to be the most scenic area on the Korean Peninsula. The Japanese colonists even built a direct railway line to the area for sightseeing.

I didn’t comprehend the gravity of my excursion to Mt. Kumgang with my colleagues until the South Korean military escort pulled off the side of the road for our caravan of buses at the south end of the DMZ. We crossed the four-kilometer desolate and barbed-wire covered expanse, and picked up the North Korean military escort on the other side. As we approached North Korean immigration, a soldier goose-stepped into the road in front of the bus and held out a red flag to signal the buses to stop.

Upon entering North Korea the stark change in landscape was surprising. Unique clusters of rock formations rose up from flat, treeless, sandy plains. Looming dramatically and endlessly in the distance was the epitome of all Asian mountain images _ Mt. Kumgang.

But other changes were evident, too. The area was quite rural, with small, weathered clusters of traditional Korean homes that may in fact have been quite old. Instead of cars, there were pedestrians on dusty trails, bicycles instead of motorbikes and horse-pulled carts instead of trucks.

Citizens worked the fields with their bare hands and oxen pulled plows. My immigration stamp said “Choson,’’ the name by which North Korea refers to itself and the name of the Korean Kingdom that ruled the peninsula from 1392 until 1910. I had in fact stepped back to that time.

More striking still was the abundance of North Korean soldiers _ along the road, in the farm fields and on the sides of hills. They were stationed at every road and dirt path intersecting the tourist road, which was entirely separated from the rest of the world by continuous fences. Checkpoints were everywhere, both along our road and the ordinary North Korean roads.

The North Korean hotel and park workers were shy, modest, and polite with noticeably different accents and intonation. They often gazed at me innocently, with curiosity about the presence of a Caucasian American. In one conversation a woman who knew surprisingly little about other places in North Korea mentioned that it was her dream to go to Pyongyang.

“Why haven’t you been there?” my colleague asked.

She responded with three reasons: not enough money to travel; poor conditions of transportation making it a difficult journey; and difficulty in acquiring permission to travel.

Despite her having one of the more coveted jobs in North Korea, the 200-kilometer journey from Mt. Kumgang to Pyongyang was fundamentally impossible.

From the Joong Ang Daily:

Jay Lefkowitz, Washington’s special envoy on North Korean human rights, has continued to criticize the working conditions for North Korean laborers at the Kaesong Industrial Complex, where South Korean companies have located plants.

On the surface, wages and working conditions are the main issue, but experts say there is a more fundamental difference between Seoul and Washington on economic support for the North and on human rights issues there.

In an essay in the Wall Street Journal’s weekend edition, Mr. Lefkowitz said daily wages for North Koreans at the complex were less than $2. That appears to be correct; the monthly minimum wage at the complex is $57, including a 30 percent commission to the government. But because companies at the site pay those wages to a North Korean labor service provider, it is not known how much, if any, of the wages actually find their way into workers’ pockets.

There are currently, 6,850 North Korean workers at the complex; the number will go up by about a fifth this month.

The Unification Ministry here was outraged by Mr. Lefkowitz’s comments, especially by a reference to “slave labor.” The minister, Lee Jong-seok, said on Sunday that he wasn’t sure whether Mr. Lefkowitz was trying to improve human rights in the North or hamper them.

Seoul has put human rights issues in North Korea on the back burner, angering many conservatives here, arguing that the best way to improve rights was by economic development of the North, assisted by massive amounts of economic assistance from South Korea. 

From the Korea Times:

A head doctor of Hyundai Asan Hospital in the Kumgang tourist area, which was set up to deal with emergency cases among South Korean tourists, told Unification Minister Lee Jong-seok that North Korean soldiers sometimes sneak into the hospital.

Their commander has apparently ordered them to stay away from the South Korean tourist districts, but still the ordinary soldiers come to get better medical treatment, he said.

According to Yonhap:

The number of North Korean workers at a South Korean-run industrial complex in the North Korean border city of Kaesong rose 22 percent every month over the past one and a half years, the South’s Unification Ministry said Wednesday.  Production increased 36 percent every month due largely to a rise in the number of South Korean factories operating in the complex, according to the ministry.

As of Friday, a total of 6,859 North Korean workers, including 1,047 construction workers, were registered at the complex.

South Korea hopes to promote the Kaesong complex as a role model for inter-Korean economic partnership, while officials in Washington express concern over its possible negative impact on the multilateral efforts to end North Korea’s nuclear weapons program.

Economic Reform and SEZ as Survival Strategy of DPRK
PDF: Deok Ryong Yoon.pdf
Deok Ryong Yoon

Introduction to & implications of Gaesong Industrial Complex Project
PDF: kaesong.faqs.pdf
Ministry of Unification

Gaeseong Industrial complex: Past, Present and Future
PDF: Dong-geun Kim.pdf
Speech by Dong-geun Kim, Chairman of Gaeseong Industrial District Management Committee

Gaeseong Industrial Complex : Frequently Asked Questions (FAQs)
PDF: kaesong.faqs1.pdf
Ministry of Unification, ROK

From the Daily NK:

Workers in the Kaesong Industrial Complex are officially paid $57.50/month.

North Korean workers only receive 4500W ($1.5/month) after various deductions. So North Korean workers only take 2.6% of their wage home. This is still twice of the wage of normal North Korean workers, so they are satisfied.

North Korean workers in Kaesong Industrial Complex might not recognize that this is a problem. They are used to obeying the government. 

I would not be happy paying 97.4% income tax.  I try to avoid getting out of my relatively low American taxes as it is.   I would not work (above ground)…unless I was really hungry.
 

Discussion from the Korea Times:

“Yes” Reasons:
-Prolonging the life of the Kim Jong-il regime at the expense of its people
-The North cheats its own workers by not giving them their full pay. There are no unions in Kaesong Industrial Park and workers are expected to work unpaid overtime regularly
“No” Reasons:
-Mini-Marshall Plan
-Workers there earn $58 per month and work under excellent conditions and are much better off than North Korean workers elsewhere.

Other factoids:
Kim Dong-Keun, president of the complex’s Industrial Management Committee said “The North Korean workers are very diligent with high manual skills. Their productivity level is on average 80 percent that of their South Korean counterparts.”

A manager at Hyundai claimed, “Workers’ income at the complex is about 5-10% that of South Korean workers, which is much more than North Koreans generally earn. And they work under better conditions, too”

From the Asia Times: 

The only currency used in the complex is the US dollar.

No foreign investors have yet signed up for the zone

Washington requires high-tech products destined for North Korea that include US intellectual property to undergo stringent export controls. This has irritated many in the South – particularly after the process delayed the transfer of telecommunications equipment. It also appears highly unlikely that Kaesong-built products will be included in a free-trade agreement between Seoul and Washington that is under negotiation.

Officials of the complex say they have assisted local villagers with heating briquettes and rice, but there is otherwise neither trade nor contact across the fence, indicating that the experience of capitalism is strictly insulated. This assumption is buttressed by relations inside the complex: despite talk of inter-Korean fraternity, social contact between Northern and Southern workers is non-existent.

While the railways between the two Koreas were reconnected in early 2004, theoretically linking Seoul and Sinuiju on North Korea’s Chinese border, it is uncertain when trains will start to run through Kaesong.

“There will be talks on opening the line in July, but it is not certain,” said a South Korean official at Dorasan Station, a giant steel-and-glass edifice on the southern side of the border. The lack of rail transport complicates his firm’s logistics costs, said Stafild’s Moon, whose head office is on the south coast of the peninsula, in Busan.