North Korean Economy Watch

Geoffrey Cain writes in Time:

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

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

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

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

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

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

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

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

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

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

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

According to Interconnected World:

Secrecy normally shrouds military relations between Burma and its strategic allies such as China and North Korea, but intelligence sources suggest ongoing military ties with these two countries are helping the Burmese generals’ to achieve their military ambitions, including that of becoming a nuclear power.

Intelligence sources said top junta generals have held late- night meetings in Naypyidaw in the last two months, discussing military modernization, foreign relations, tension with ethnic groups and suppressing dissidents in urban areas.

They said the junta bought weapons from China and North Korea including mid-range missiles and rocket launchers in April, and suggested the war office in Naypyidaw chose the month when the Burmese celebrate new year in order to avoid public scrutiny.

Equipment necessary to build a nuclear capability was reportedly among imported military supplies from North Korea that arrived at the beginning of the holidays.

A report from Rangoon in April also referred to an undisclosed vessel believed to be connected with North Korea that was seen at Thilawar Port, near Rangoon. Burmese officials at the time said the vessel was there to load Burmese rice destined for North Korea.

Military relations between Naypyidaw and Pyongyang have been attracting attention from analysts, diplomats and journalists in recent years. In August 2009, an article in Sydney Morning Herald alleged the Burmese junta aims to get an atomic bomb in five years using Burmese enriched uranium and North Korean nuclear technology.

Apart from nuclear know-how and equipment, Pyongyang has also provided the Burmese junta’s armed forces with truck-mounted multiple rocket launchers, surface-to-air and surface-to-surface missiles and technology for underground warfare since the early 2000s, according to experts on Burma’s military like Andrew Selth.

“Pyongyang needs Burmese primary products, which Naypyidaw can in turn use to barter for North Korea arms, expertise and technology,” wrote Andrew Selth in the Australian Journal of International Affairs in March.

Read the full article here:
Burma said buying arms from China, North Korea
Interconnected World
5/10/2010

The Strategic Studies Institute has published a paper on the DPRK’s illicit activities.  You can download the paper here (PDF). It has been added to my DPRK Economic Statistics page.  Here is the forward:

The authors of this monograph have exposed a key piece of the puzzle which helps to provide a better understanding of North Korea’s surreptitious international behavior. For years, North Korea’s military provocations have been obvious to the world, however, much of its decisionmaking is shrouded in secrecy, particularly that of a wide-range of clandestine activities. This monograph is unique in the way that it sheds light on the illicit activities of the regime, and how those illegal activities are used to support its military programs and the government itself.

From drug trafficking to counterfeiting, from money laundering to cigarette smuggling, North Korea’s Central Committee Bureau 39 is an active participant in the criminal economy of the region with tentacles extending well beyond Asia. The authors discuss how these activities have negative strategic consequences for a number of stakeholders and nations throughout the region while describing how such activities provide critical funding streams for military programs and regime supporters.

As a result, North Korea is not just a “rogue state,” but practices what is essentially criminal sovereignty whereby it organizes its illegitimate activities behind the shield of non-intervention while using the tools of the state to perpetrate these schemes abroad. The authors argue that this arrangement has important links to succession issues within the regime. They also argue that policy makers who are concerned with the development of future policies and strategies aimed toward North Korea must view those new policies from a different perspective than that used in the past.

This paper draws heavily on information from Kim Kwang-jin who is working at the Committee for Human Rights in North Korea. Without Mr. Kim’s contributions, much of this activity would remain unknown to us.  You can make a donation to support Mr. Kim’s work here in the US at this web page.

Aidan Foster-Carter writes in the Financial Times about some poor decision-making coming out of Pyongyang:

Great Leader? Pyongyang’s fawning hagiography not only grates, but is singularly unearned. Even by its own dim lights, North Korea’s decision-making is going from bad to worse.

Last year saw two spectacular own goals. Missile and nuclear tests were a weird way to greet a new US president ready to reach out to old foes. The predictable outcome was condemnation by the United Nations Security Council, plus sanctions on arms exports that are biting.

Domestic policy is just as disastrous. December’s currency “reform” beggars belief. Did Kim Jong-il really fail to grasp that redenomination would not cure inflation, but worsen it? Or that brazenly stealing people’s savings – beyond a paltry minimum, citizens only got 10 per cent of their money back – would finally goad his long-suffering subjects into rioting? Forced to retreat, officials even apologised. One scapegoat was sacked – and possibly shot.

By his own admission, Mr Kim does not do economics. In a speech in 1996, when famine was starting to bite, the Dear Leader whined defensively that his late father, Kim Il-sung, had told him “not to get involved in economic work, but just concentrate on the military and the party”.

That awful advice explains much. Incredibly, North Korea was once richer than the South. In today’s world, this is the contest that counts. “It’s the economy, stupid” is no mere slogan, but a law of social science.

Having taken an early lead, Kim senior threw it all away. He built the world’s fourth largest army, crippling an economy that he refused to reform, viewing liberalisation as betrayal. His own personality cult was and is a literally monumental weight of unproductive spending.

Used to milking Moscow and Beijing, in the 1970s North Korea borrowed from western banks – and promptly defaulted. That was not smart; it has had to pay cash up front ever since.

Pyongyang also resorts to less orthodox financing. In 1976 the Nordic nations expelled a dozen North Korean diplomats for trafficking cigarettes and booze. In December a Swedish court jailed two for smuggling cigarettes. More than 100 busts worldwide over 30 years, of everything from ivory and heroin to “supernotes” (fake $100 bills), leave scant doubt that this is policy.

Yet morality aside, it is stupid policy. Pariahs stay poor. North Korea could earn far more by going straight. The Kaesong Industrial Complex (KIC), where South Korean businesses employ Northern workers to make a range of goods, shows that co-operation can work. Yet Pyongyang keeps harassing it, imposing arbitrary border restrictions and demanding absurd wage hikes.

Now it threatens to seize $370m (€275m, £247m) of South Korean assets at Mount Kumgang, a tourist zone idle since a southern tourist was shot dead in 2008 and the north refused a proper investigation. Even before that, Pyongyang’s greed in extorting inflated fees from Hyundai ensured that no other chaebol has ventured north. Contrast how China has gained from Taiwanese investment.

In this catalogue of crassness, the nadir came in 1991 when the dying Soviet Union abruptly pulled the plug on its clients. All suffered, but most adapted. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. Only North Korea, bizarrely, did nothing – except watch its old system crumble. Gross domestic product plunged by half, and hunger killed up to a million. Now famine again stalks the land. The state cannot provide, yet still it seeks to suppress markets.

All this is as puzzling as it is terrible. China and Vietnam show how Asian communist states can morph towards capitalism and thrive. Kim Jong-il may fear the fate of the Soviet Union if he follows suit. True, his regime has survived – even if many of its people have not. Yet the path he is on is patently a dead end. Mr Kim’s own ill-health, and a belated bid to install his unknown third son as dauphin, only heighten uncertainty. Militant mendicancy over the nuclear issue – demanding to be paid for every tiny step towards a distant disarmament, then backsliding and trying the same trick again – will no longer wash. North Korea has run out of road; the game is finally up.

What now? A soft landing, with Mr Kim embracing peace abroad and reform at home, remains the best outcome. But if he obdurately resists change, we need a plan B. The US and South Korea have contingency plans for the north’s collapse. So does China, separately. Tacit co-ordination is urgent, lest future chaos be compounded by a clash of rival powers – as in the 1890s. Koreans have a rueful proverb: when whales fight, the shrimp’s back is broken.

But Beijing will not let it come to that. China is quietly moving into North Korea, buying up mines and ports. Some in Seoul cry colonialism, but it was they who created this vacuum by short-sightedly ditching the past decade’s “sunshine” policy of patient outreach. President Lee Myung-bak may have gained the Group of 20 chairmanship, but he has lost North Korea.

Nor will Mr Kim nuzzle docile under China’s wing, though his son might. As ever, North Korea will take others’ money and do its own thing. In early 2010 new fake “super-yuan” of high quality, very hard to detect, started appearing in China. They wouldn’t, would they?

Read the full article here:
Hermit economics hobbles Pyongyang
Financial Times
Aidan Foster-Carter
3/30/2010 

According to the Associated Press:

Russia’s president has signed an order formally implementing U.N. Security Council-approved sanctions against North Korea.
The sanctions were passed in June by the Security Council, which includes Russia, after the country conducted a nuclear test. The sanctions are aimed at pushing North Korea to give up its nuclear weapons program.

To conform with the sanctions, Russian President Dmitry Medvedev on Tuesday ordered that all sales or imports of North Korean weapons and materials connected to them are forbidden.

It also bans weapons exports to the reclusive Communist country and bars transport of North Korean weapons through Russian territory, including its waters and airspace.

And according to Reuters:

Japan will extend sanctions against North Korea first imposed after the reclusive country tested a nuclear device and ballistic missiles in 2006, a senior official said on Tuesday.

The sanctions, previously set to expire on April 13, ban imports from North Korea and prohibit North Korean ships from calling at Japanese ports.

“Basically, I don’t see any reason for not extending (the sanctions),” Chief Cabinet Secretary Hirofumi Hirano told a news conference.

Asked whether the government would consider shortening the duration of the sanctions to six months from one year, Hirano said it would assess the outlook for multilateral talks that seek to persuade North Korea to roll back its nuclear program.

Japan has called for Pyongyang to return to the disarmament-for-aid talks hosted by China, in addition to pressing the country to reveal the fate of Japanese citizens abducted by North Korean agents in the 1970s and 1980s.

Japan also banned exports to the country last year although the impact was seen as being small given limited trade flows.

Read the full stories here:
Russia implements North Korea sanctions
Associated Press
3/30/2010

Japan to extend sanctions against North Korea
Reuters
Chisa Fujioka
3/31/2010

Choson Ilbo
3/10/2010

Curbing North Korea’s illicit arms trade is difficult since the renegade country launders containers carrying weapons three or four times, a defector who was in charge of illicit arms deals told the Chosun Ilbo on Monday.

The defector revealed that a factory in Jagang Province, which is believed to produce tractors, is the center of the communist country’s weapons production, including chemical warheads. The defector, who is under police protection, did not want his identity to be revealed fearing reprisal attacks against family members still in the North.

Foreign Forwarders Transport Weapons
Five departments of the North Korean government are involved in arms exports: the military arms production wing of the Workers’ Party, the Second Academy of Natural Sciences, the Surveillance Division of the People’s Armed Forces, Operational Department of the Workers’ Party and the Second Economic Committee. He said the Economic Committee, which is directly under the control of the powerful National Defense Commission, is the biggest.

The military arms production wing procures materials for the Yongbyon nuclear plant and North Korea’s nuclear weapons program. “The General Bureau of Atomic Energy only produces yellow cake [the seed material for higher-grade nuclear enrichment], while the arms production wing is in charge of the Yongbyon facility,” the defector said. The Second Academy of Natural Sciences exports missiles and also provides after-sales service for exported products by upgrading performance and exchanging components.

“The main client is the research center of Iran’s Revolutionary Guard, while experiments are conducted in unison,” he said. Iran successfully test-fired a rocket on Feb. 3 which is believed to have been powered by the same engine as North Korean Rodong missiles.

But international sanctions against North Korea make it difficult to export weapons by conventional means. “This is where the Surveillance Division of the People’s Armed Forces comes in,” the defector said. Its “traders,” who studied at Pyongyang University of Foreign Studies, are fluent in English and Chinese and sign deals with “forwarders” from other countries. Through this process, North Korea sends containers across the Apnok (or Yalu) River to China one third or half filled with weapons. “The forwarder who received this cargo enters a port in a third country, where the containers are filled with freight unrelated to weapons and the paperwork is completed,” he said.

These “laundered” containers are laundered again in Hong Kong, Singapore or other ports. “The containers are mixed with other cargo in those transit points. They are searched, but not thoroughly,” the defector added. “Even if customs or other officials roll their sleeves up and search for weapons, how can they possibly find the arms among the mountains of other containers headed to other countries?”

‘Tractor Factory’ Is Weapons Production Base
North Korea’s main weapons production base is Kanggye General Tractor Plant No. 26. Before the Korean War, the plant was based in Pyongyang and made Soviet-designed PPSh 41 submachine guns but has since been relocated. Over 10,000 workers there manufacture ammunition and even chemical weapons. The People’s Armed Forces is in charge of chemical weapons production. “The Bio-chemical research center affiliated with the military is located next to the Kanggye plant,” the defector said. “The toxic gases produced at the research center are loaded onto warheads manufactured at the plant.”

North Korean leader Kim Jong-il makes a point of visiting the factory two to three times a year. He last paid a visit on Dec. 9, 2009.

AK-47 Rifles and Ammunition Are Top Sellers
“Small arms ammunition are hot export items and the Second Economic Committee even built a factory in Ethiopia,” the defector said. The rugged AK-47s, which can operate flawlessly even in the sand-filled battlefields of the Middle East, are extremely popular, he said.

Anti-tank missiles are more complicated to manufacture, so the blueprints are in Russia, while North Korean factories are merely subcontractors. North Korean arms are believed to be exported to Bangladesh, Indonesia, Pakistan and the Philippines. “North Korean weapons with engines [such as tanks] are extremely poor quality, but those carrying warheads are not bad,” the defector said. Around 20 percent of the parts used to make export versions of missiles are imported. But missiles for domestic use are made using mostly North Korean-made parts, so there is a difference in performance. “North Korea tried to import Harpoon anti-ship missiles from Taiwan,” he added. “This probably has something to do with the South Korean Navy’s use of the Harpoon missiles.”

Dear Choson Ilbo: We have very good satellite imagery of Kanggye. Please tell us where the Kanggye General Tractor Plant is!  Here are three guesses as to where the plant is: guess 1, guess 2, guess 3.  Kim Jong Il has a villa in Kanggye here.  Here is his private train station near Kanggye.

According to the Washington Post:

The Obama administration, concerned that Burma is expanding its military relationship with North Korea, has launched an aggressive campaign to persuade Burma’s junta to stop buying North Korean military technology, U.S. officials said.

Concerns about the relationship — which encompass the sale of small arms, missile components and technology possibly related to nuclear weapons — in part prompted the Obama administration in October to end the George W. Bush-era policy of isolating the military junta, said a senior State Department official, speaking on the condition of anonymity because of the sensitivity of the subject.

Senior U.S. officials have since had four meetings with their Burmese counterparts, with a fifth expected soon. “Our most decisive interactions have been around North Korea,” the official said. “We’ve been very clear to Burma. We’ll see over time if it’s been heard.”

…

Underlining the administration’s concerns about Burma is a desire to avoid a repeat of events that unfolded in Syria in 2007. North Korea is thought to have helped Syria secretly build a nuclear reactor there capable of producing plutonium. The facility was reportedly only weeks or months away from being functional when Israeli warplanes bombed it in September of that year.

“The lesson here is the Syrian one,” said David Albright, president of the nongovernmental Institute for Science and International Security and an expert on nuclear proliferation. “That was such a massive intelligence failure. You can’t be sure that North Korea isn’t doing it someplace else. The U.S. government can’t afford to be blindsided again.”

Burma is thought to have started a military relationship with North Korea in 2007. But with the passage of a U.N. Security Council resolution last June banning all weapons exports from North Korea, Burma has emerged “as a much bigger player than it was,” the senior U.S. official said.

In a report Albright co-wrote in January, titled “Burma: A Nuclear Wannabe,” he outlined the case for concern about Burma’s relations with North Korea. First, Burma has signed a deal with Russia for the supply of a 10-megawatt thermal research reactor, although construction of the facility had not started as of September.

Second, although many claims from dissident groups about covert nuclear sites in Burma are still unverified, the report said that “there remain legitimate reasons to suspect the existence of undeclared nuclear activities in Burma, particularly in the context of North Korean cooperation.”

Previous posts about the Myanmar-DPRK relationship can be found here. 

Read the full story here:
U.S. increasingly wary as Burma deepens military relationship with North Korea
Washington Post
John Pomfret
3/4/2010

The International Narcotics Control Strategy Report (INCSR) is an annual report by the Department of State to Congress prepared in accordance with the Foreign Assistance Act. It describes the efforts of key countries to attack all aspects of the international drug trade in Calendar Year 2009. Volume I (PDF) covers drug and chemical control activities, and beginning on page 488, there is a profile on the DPRK:

North Korea

I. Summary
There is insufficient evidence to say with certainty that state-sponsored trafficking by the Democratic People’s Republic of Korea (DPRK or North Korea) has stopped entirely in 2009. Nonetheless, the paucity of public reports of drug trafficking with a direct DPRK connection suggests strongly that such high-profile drug trafficking has either ceased, or has been reduced very sharply. Trafficking of methamphetamine along the DPRK-China border continues. There are indications that international drug traffickers can purchase methamphetamine in kilogram quantities in some of the major towns on the Chinese side of the DPRK-China border. Other criminality involving DPRK territory, such as counterfeit cigarette smuggling and counterfeiting/passing of U.S. currency (supernotes), continues.

II. Status of Country
No confirmed instances of large-scale drug trafficking involving the DPRK state or its nationals were reported in 2009. This is the seventh consecutive year that there were no known instances of large-scale methamphetamine or heroin trafficking to either Japan or Taiwan with direct DPRK state institution involvement. From the mid- 1990s through to 2002/2003, numerous instances of narcotics trafficking involving DPRK persons and important state assets, such as sea-going vessels and military patrol boats, were recorded in Taiwan and Japan.

Press reporting suggests that methamphetamine trafficking along the DPRK-China border continues. These reports detail the activities of organized criminal groups arranging methamphetamine shipments to destinations in Asia from the major towns near the DPRK-China border (e.g., Dandong, Yanji).

III. Country Actions Against Drugs in 2009
Law Enforcement Efforts. The source of relatively small quantities of methamphetamine seized elsewhere in Asia can occasionally be traced back to the China-DPRK border area. Local press reports in Asia describe apprehensions of traffickers smuggling methamphetamine and indicate that arrangements to purchase that methamphetamine were made in towns near the China-DPRK border. These reports suggest that trafficking of methamphetamine continues along the China-DPRK border and they raise the question of whether or not local DPRK officials might be aware or even complicit in the drug trade. There is no clear evidence of a central role for DPRK state institutions in selling methamphetamine or organizing the trafficking of methamphetamine. Evidence of direct DPRK state involvement in drug trafficking to
Taiwan and Japan emerged regularly in the past.

Reports of non-narcotics related acts of criminality in the DPRK suggest that DPRK tolerance of criminal behavior may exist on a larger, organized scale, even if no large-scale narcotics trafficking incidents involving the state itself have come to light. Press, industry, and law enforcement reports of DPRK links to large-scale counterfeit cigarette trafficking in the North Korean Export Processing Zone at Rajiin (or Najin) continue. It is unclear the extent to which DPRK authorities are complicit in this illegal activity, although it is likely that they are aware of it, given the relatively high-profile media reports. In addition, counterfeit $100 U.S. notes called “supernotes” (because they are so difficult to detect), continue to turn up in various countries, including in the United States. There are reports, for example, of supernote seizures in San Francisco and a very large supernote seizure in Pusan, South Korea during 2008 and 2009. Supernotes are uniquely associated with the DPRK, but it is not clear if recent seizures are notes which have been circulating for some time, or if they are recently-counterfeited new notes.

Agreements and Treaties. The DPRK is a party to the 1988 United Nations (UN) Drug Convention, the 1961 UN Single Convention as amended by the 1972 Protocol, and the 1971 UN Convention on Psychotropic Substances.

Cultivation/Production. For many years, it has been alleged that poppies are cultivated in the DPRK, with the opium converted into heroin and then trafficked by state organs for profit. However, it has not been possible to confirm such illicit cultivation, and there has not been a heroin trafficking incident with a DPRK connection for many years. There are also several known factories in the DPRK that could produce very pure heroin and methamphetamine drugs, and there have been cases of large-scale smuggling of pure methamphetamine drugs from the DPRK to Japan and Taiwan as recently as 2002.

IV. U.S. Initiatives and Programs
The Department of State has no evidence to support a clear finding that DPRK state narco-trafficking has either stopped or is continuing. The absence of any seizures linked directly to DPRK state institutions, especially after a period in which seizures of very large quantities of drugs regularly occurred, does suggest considerably less state trafficking, and perhaps a complete end to it.

On the other hand, press reports of continuing seizures of methamphetamine in Asia, which can be traced back to an apparent DPRK source, suggest continuing manufacture and sale of DPRK methamphetamine to criminal traffickers. Large-scale trafficking of counterfeit cigarettes from the DPRK territory also continues and suggests that enforcement against notorious organized criminality in the DPRK is lax.

It is likely that the North Korean government has sponsored narcotics trafficking and other criminal activities in the past. The Department of State has insufficient information to confirm that the DPRK-state is no longer involved in manufacture and trafficking of illicit drugs, but if such activity persists, it is certainly on a much smaller scale.

Nautilus Institute Policy Forum Online 10-015A
Aiden Foster-Carter
3/4/2010

Too many Kim Yong-ils

Korean names can set traps for the unwary. Amid a multitude of Kims, almost all unrelated, North Korea adds an extra twist. German speakers, and some others, tend to mispronounce the J in Kim Jong-il as a Y. Not only is this incorrect, but currently it can confuse; for North Korea’s Premier – head of the civilian Cabinet, as distinct from the Dear Leader who chairs the more powerful National Defence Commission (NDC) – is named Kim Yong-il.

To add to the confusion, another Kim Yong-il was until recently vice foreign minister (one of several), but in January became director of the ruling Workers’ Party of Korea (WPK)’s international department: a post apparently vacant since 2007. As such, this Kim Yong-il met his Chinese counterpart Wang Jiarui, head of the Chinese Communist Party (CCP)’s international liaison department, when Wang visited Pyongyang in early February. Since his promotion, Kim Yong-il 2 (as it may be best to call him) has been reported as frequently at Kim Jong-il’s side. This suggests he may see far more of the Dear Leader than does anyone else involved in DPRK foreign policy, including the man hitherto thought to be the eminence grise on that front: first vice foreign minister Kang Sok-ju, who negotiated the 1994 Agreed Framework with the US. It was Kang whom the current US special envoy on North Korea, Stephen Bosworth, demanded to meet when he visited Pyongyang in December, rather than the North’s main nuclear negotiator Kim Kye-gwan: a more junior deputy foreign minister.

Or is Washington behind the curve? That Kim Yong-il 2 is the DPRK’s new foreign affairs head honcho seemed confirmed on February 23, when he turned up in Beijing and went right to the top: going straight into talks with President Hu Jintao and separately with Wang Jiarui. This flurry of activity suggests two possibilities. Either Kim Jong-il will soon visit China, as he is overdue to do; or North Korea may return to the nuclear Six Party Talks (6PT), which have not met in over a year. Or perhaps both, if we are especially fortunate.

If both Kim Yong-ils are now leading players, perhaps one of them could change his name? That is not a frivolous suggestion. Some DPRK officials do this, for no clear reason. Often the change is small, so this is not a case of deception. Thus Paek Nam-sun, DPRK foreign minister – meaning chief meeter and greeter rather than top negotiator – from 1998 until his death in 2007, was originally Paek Nam-jun. Ri Jong-hyok, who as vice-chairman of the Asia-Pacific Peace Committee (APPC) now handles relations with the South, was Ri Dong-hyok in the 1980s when this writer knew him as head of North Korea’s mission in Paris.

(For completeness, yet another Kim Yong-il was Kim Jong-il’s late half-brother. He died of liver cirrhosis in 2000 aged only 45 in Berlin, where he had a diplomatic posting tantamount to exile – as his elder brother Kim Pyong-il, the DPRK ambassador to Poland, still does.)

Jong and Yong both say sorry

The past month saw both Chairman and Premier Kim doing something almost unheard of in Pyongyang. Apparently they both said sorry, although some reports got the two muddled up.

On February 1 Rodong Sinmun, daily paper of the ruling Workers’ Party of Korea (WPK), reported Kim Jong-il as lamenting his failure to fulfil his late father Kim Il-sung’s pledge, to which he had also alluded shortly before on January 9, that all North Koreans would eat rice and meat soup (everyday fare for even the poorest South Korean, be it noted). This time Kim said: “What I should do now is feed the world’s greatest people with rice and let them eat their fill of bread and noodles. Let us all honour the oath we made before the Leader and help our people feed themselves without having to know broken rice [an inferior version]”.

Given Kim Jong-il’s own notoriety as gourmet and gourmand, his professed “compassion” for his less fortunate subjects’ deprivation may induce queasiness. Yet even this not-quite-apology glosses over the truth. Broken rice? They should be so lucky. As readers of Barbara Demick’s excellent and heartbreaking new book Nothing to Envy will know, rice of any kind – whole or broken – is a rare luxury for most North Koreans. In the late 1990s a million or so starved to death; even today most remain malnourished. One refugee who fled to China saw her first rice in years in the first house she came to – in a dog’s bowl. That is the true reality.

Worse, all this was and is avoidable: the result of stupid and vicious policies, not the natural disasters that the regime blames. The real cause was the government’s failure to adapt in the 1990s after Moscow abruptly pulled the plug on aid. This hurt other ex-Soviet client states too. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. North Korea, bizarrely, did nothing – except watch its old system break down and growth plunge.

In a speech at Kim Il-sung University in December 1996, when famine was seriously biting, Kim Jong-il lashed out at the WPK and uttered this petulant but very revealing whinge:

In this complex situation, I cannot solve all the problems while I have the duty of being in charge of practical economic projects as well as the overall economy, since I have to control important sectors such as the military and the party as well. If I concentrated only on the economy there would be irrecoverable damage to the revolution. The great leader told me when he was alive never to be involved in economic projects, just concentrate on the military and the party and leave economics to party functionaries. If I do delve into economics then I cannot run the party and the military effectively.

Evidently Bill Clinton’s famously apt watchword, which helped him win the presidency in 1992, had not breached North Korea’s thick walls and heads. It’s the economy, stupid! The paternal advice was dead wrong. (The full speech can be read on the much-missed Kimsoft website. Unsurprisingly it is not part of the DPRK’s official canon of the dear leader’s works, but the scholarly consensus is that it is genuine. A slightly different version appears here.)

Redenomination disaster

Mass starvation, you might hope, would prompt some soul-searching and fresh thinking. From mid-2002 North Korea did essay cautious market reforms, but recently it has tried to squash Pandora back in her box. The latest such crass effort, a currency redenomination that deliberately wiped out most people’s meagre savings, was discussed in December’s Update.

By all accounts this has backfired badly, sparking runaway inflation (which it was supposed to stanch) and even riots. Forced on the defensive, the regime has issued an unprecedented apology. This being North Korea, it has not done so publicly; there are limits. Nor, in 2010 as in 1996, is Kim Jong-il about to take the rap, despite some newswires confusing J with Y.

But reliable intelligence claims that on February 5 Premier Kim Yong-il called all leaders of neigbourhood groups (inminban) to Pyongyang. The lowest unit in the DPRK’s still tight system of socio-political control, each comprises 20-40 households. This suggests that over 10,000 people heard the premier say what no leader had ever said to them before: sorry. In his words: “I offer a sincere apology about the currency reform, as we pushed ahead with it without sufficient preparation and it caused a great pain to the people… We will do our best to stabilize people’s lives.” The audience’s reaction is not recorded.

The situation on the ground remains confused, but markets appear to be functioning again unhindered. Good Friends, a seemingly well-informed South Korean Buddhist NGO, said on February 18 that after examining a report on food shortages and conditions nationwide by the Office of Economic Policy Review, the WPK Central Committee issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’. All markets are to reopen as they were before recent government crackdowns, and under no circumstances must local authorities try to regulate food sales – “until central distribution is running smoothly.” There may be a sting in that tail, but for now this is a complete, humiliating government U-turn and climbdown.

This is an astonishing episode, which history may record as pivotal. If the leadership learns its lesson and finally accepts that the market economy is as ineluctable as gravity, then the DPRK might conceivably survive on a reconstituted economic base and social contract, like today’s China or Vietnam. But if Kim Jong-il (or whoever) keeps trying to square the circle, under the delusion that correct politics is a substitute for sound economics, there is no hope.

Sea shells

Relations with South Korea remain an odd blend of sabre-rattling and dialogue. Four times in the past month, starting on January 25 and most recently on February 19, the North has declared a series of no-sail zones for varied time periods. Some of these adjoin two ROK-held islands close to the Northern coast, Baengnyong and Daechong. For three days (January 27-29) the Korean People’s Army (KPA) fired volleys of artillery shells near the Northern Limit Line (NLL): the de facto western sea border since 1953, which the North rejects.

Though no shells actually crossed the NLL, on the first day the South called this provocative and fired back – but again only within its own waters south of the line. By late February, a Southern defence spokesman called the latest shelling “a routine situation that is part of the North’s winter military exercise”, adding that this may go on till the end of March. Routine or not, a report submitted to the ROK National Assembly’s Defence Committee on February 19 said Pyongyang has reinforced its military along the west coast of the peninsula and has strengthened military drills.

Kaesong and Kumgang remain unsettled

The shelling did not stop the Koreas talking about their two joint venture zones just north of the Demilitarised Zone (DMZ). But they got nowhere, beiing far apart on the agenda, format and venue for talks. On the Kaesong Industrial Complex (KIC) – see last month’s Update for more details – the North suggested that the South’s issues – it wants smoother cross-border passage – were best left to military-level talks, which in the past have handled issues relating to the border and security. The South agreed, proposing February 23 at the border village of Panmunjom: the venue for all military meetings hitherto. The North then counter-proposed March 2, at Kaesong; but on February 22 the South said it will insist on Panmunjom, rather than set the precedent of holding a military meeting inside North Korea. With both venue and agenda still in dispute, the chances of progress on the substantive issues looks remote.

Mount Kumgang tours remain suspended

Separately, South Korea with some misgivings accepted the North’s request for talks on resuming tours to the Mount Kumgang resort, suspended since a Southern tourist was shot dead there in July 2008. At the talks held in Kaesong on February 8, North Korea asked for tours to restart from April 1. It breezily declared that the South’s three conditions – a probe into the shooting, efforts to ensure no repetition, and a cast-iron safety guarantee – had been met. But as the North well knows, the South’s key demand is to send in its own investigating team – which the North resolutely refuses. The Northern side proposed continuing the talks on February 12, but the South declined unless the North accepts their three conditions first.

More arms are interdicted

UN sanctions imposed last June after North Korea’s second nuclear test seem to be biting. In February South Africa told the Security Council that in November it inspected a ship headed for the Congo Republic (Congo-Brazzaville). The French owners reported suspicions about cargo they took on in Malaysia from a Chinese vessel. Seizing the containers, South Africa found that what the manifest called “spare parts of bulldozer” were in fact tank components. The shipping agent, and likely origin, is North Korean. China said it will investigate its own vessel’s role in the affair. UN resolution 1874 bans almost all DPRK weapons exports.

More ambiguously, on February 11 Thailand dropped charges against the crew of a plane seized in December and found to contain 35 tonnes of weapons from North Korea, including five crates of Manpads (man-portable air defence systems) which terrorists can use to shoot down aircraft. Next day all five were put on a flight to Almaty. Four are Kazakhs, and their government had asked that they be sent home to be tried. It will be dismaying if they are not.

UPDATE 2: According to the Los Angeles Times:

In the report, obtained Thursday by The Associated Press, the South African government said the two containers are currently stored in a state-secured warehouse in Durban while its investigation continues. It estimated the value of the conventional arms at 6 million rand (about $770,000)

The shipment’s final destination, according to the bill of lading, was the port of Pointe Noire in the Republic of Congo, the small oil-rich country often overshadowed by its larger neighbor, Congo. The Republic of Congo, whose capital is Brazzaville, has reportedly experienced a wave of recent violence.
…
The report to the Security Council committee monitoring sanctions against North Korea is entitled “breach of the Security Council resolutions…”

It traced the shipment from the DGE Corporation via the “Machinery Expand Imp Corp (cq),” both established to be in North Korea, to the Chinese port of Dalian where it was put on board the CGM Musca on Oct. 20.

The bill of lading described the contents of the two containers as “spare parts of bulldozer,” according to the report.

At Port Klang, Malaysia, the shipment was transferred to another vessel, the Westerhever, which was chartered by Delmas Shipping, a subsidiary of the French shipping company, CMA-CGM, the report said. Delmas requested that CMA-CGM Shipping Agencies South Africa (Pty) Ltd. represent the Westerhever on its voyage to South Africa.

The captain was instructed to refuel in Durban on Nov. 28-29, but due to fuel shortages in Durban, the Westerhever was ordered to take on fuel in Walvis Bay, the report said.

While en route to Walvis Bay on Nov. 27, the captain “received an email instruction from Delmas to make a U-turn and discharge the two containers in Durban, the report said.

A U.N. diplomat familiar with the report, speaking on condition of anonymity because he was not authorized to speak publicly, said the email informed the captain that the ship was carrying suspicious cargo which should be turned over for inspection to South African authorities in Durban.

Martin Baxendale, a spokesman for CMA-CGM, said in Paris that the company was in contact with South African authorities but said “we cannot enter into discussions relating to any details in regard to this matter.”

According to the report, “a large quantity of rice grains in sacks lined the containers and was utilized as protective buffers for the conveyance of the conventional arms.”

UPDATE 1: According to the Wall Street Journal:

According a terse, two-page account delivered by the Pretoria government earlier this month to the U.N. committee overseeing the enforcement of U.N. Security Council sanctions imposed on North Korea, South African authorities in November seized two containers filled with tank parts and other military equipment from North Korea. The report said the containers, which were loaded on a ship in the Chinese port of Dalian and bound for the Republic of the Congo, contained gun sights, tracks and other spare parts for T-54 and T-55 tanks and other war material valued at an estimated $750,000.

The military equipment was concealed in containers lined with sacks of rice, said the confidential South African report, which was reviewed by The Wall Street Journal. Shipping documents identified the cargo as spare parts for a “bulldozer,” according to the report, which said the goods were shipped by a North Korean company.

ORIGINAL POST: According to Reuters (via Yahoo):

South Africa has told a U.N. Security Council committee it intercepted a North Korean weapons shipment bound for Central Africa, which diplomats said was a violation of a U.N. ban on arms sales by Pyongyang.

The seizure took place in November, when South African authorities received information that a ship headed for Congo Republic was carrying containers with suspicious cargo, according to a letter sent by South Africa to the Security Council’s North Korea sanctions committee.

Several Western diplomats described the incident as a “clear-cut violation” of Security Council resolution 1874, which bans all North Korean arms exports and most weapons-related imports in response to its nuclear program.

The letter, parts of which were seen by Reuters on Monday, said a North Korean company was the shipping agent and the cargo was first loaded onto a ship in China, then transferred to a vessel owned by French shipping firm CMA CGM in Malaysia.

Diplomats said the French company alerted authorities to the fact it had suspicious cargo on board and was not believed to have done anything wrong. The South Africans intercepted the vessel and seized the containers, which held tank parts.

The letter, which the committee received last week, said the South Africans discovered “that the contents fell within the definition of conventional arms in that the contents consisted of components of a military tank T-54/T-55.”

The letter said the documentation for the containers described the cargo as “spare parts of bulldozer.” T-54 and T-55 tanks were designed and produced in the Soviet Union in the 1940s and 1950s but were later upgraded and made in other countries.

Neither the French company nor the countries involved had any immediate comment.

Congo Republic, which borders Democratic Republic of Congo, has suffered a wave of violence in the Pool region between the capital Brazzaville and the oil port town of Pointe Noire that has broken a period of calm after a decade of instability.

COMMITTEE TO DECIDE
The diplomats said the committee was planning to send letters to countries involved in the case — such as North Korea, Republic of Congo, Malaysia and France — seeking more information so it can decide whether the North Koreans or any other nations were in breach of U.N. sanctions.

Resolution 1874, approved in June 2009, was passed in response to Pyongyang’s second nuclear test in May 2009 and expanded the punitive measures the Security Council had imposed on North Korea after its first atomic test in October 2006.

Last year’s resolution also authorized countries to inspect suspicious North Korean air, land and sea cargo and to seize any banned goods.

“The latest incident shows that the sanctions are working,” one Western diplomat told Reuters. “But it also shows that we have to be vigilant. The DPRK (North Korea) is still trying to violate the sanctions.”

Last week I mentioned that the UN Security Council was investigating four cases of alleged DPRK sanctions violations–but I only knew what three of the cases were:

Case 1: A North Korean shipment of chemical-safety suits that may have been destined for Syria’s military.

Case 2: Italy’s seizure of two luxury yachts allegedly bound for North Korea

Case 3: Thailand’s interdiction of North Korean arms aboard a plane allegedly bound for Iran

And now we know Case 4: Shipping of contraband to Central Africa.