North Korean Economy Watch

The Marmot’s Hole posted some great information on the DPRK-Malta relationship.  I encourage you to read his full post, but below I have posted information he provided from the Malta Independent:

With the Labour Party trying to project an image of a progressive and moderate all-inclusive party with new ideas, this newspaper asked Dr Sceberras Trigona, a former Foreign Minister in the Labour 1981-1987 government, for his views on the agreement he had signed with North Korea in July 1982.

At the time North Korea’s regime had, and still has, few ties with other countries due to its policy of self-reliance. However, Malta under Labour had close connections with the Asian country, with Kim Jong-Il, son of then dictator Kim Il-Sung, studying English at the University of Malta and reportedly visiting frequently with then Prime Minister Dom Mintoff.

Contact with Dr Sceberras Trigona was first made via telephone on Thursday, and he asked that the questions be sent by e-mail. The questions were as follows: 1) Given the political climate of the time, what led the Labour government to sign such an agreement with North Korea? 2) Why was a clause included in the agreement stipulating that the agreement should be kept a secret? 3) Would you sign such an agreement again if you were given the chance?

The answer to these questions received on Friday was two words: “Times change,” Dr Sceberras Trigona said tersely.

The signing of the agreement in 1982 had sparked off a political controversy after it was revealed by then Opposition Leader Eddie Fenech Adami during a Nationalist Party mass meeting in Floriana on 4 December 1983.

Newspaper reports later said that a high-level investigation had been started in the Foreign Affairs Ministry to find out who had leaked the information to Dr Fenech Adami.

In actual fact, two agreements had been signed for “a free offer of military assistance” with North Korea. The first agreement was signed in Valletta on 25 March 1982, three months after the perverse result of an election that returned the Labour Party to government in spite of obtaining fewer votes.

A second agreement, this time signed in Pyongyang in July of that same year, superseded the first, changing only the number of weapons and ammunitions that North Korea agreed to donate to Malta.

For Malta, the first agreement was signed by then Interior Minister Lorry Sant at the specific request of Dr Sceberras Trigona, who then signed the second agreement.

The agreement stipulated that North Korea “will, free of charge, provide (Malta) with weapons and ammunitions”.

The difference between the first and second agreement was in the number of weapons and amount of ammunition that North Korea agreed to give Malta – the number was increased in the second agreement.

Otherwise, the agreements were more or less the same. North Korea was responsible for the transportation of weapons and ammunition, and dispatched military instructors to train and teach local military personnel. Four instructors were sent for three months and were paid according to their military rank equivalent to those of Maltese officers.

The agreement stipulated that the Maltese government had to provide a one way ticket from Malta to Pyongyang to the instructors and “subsistence expenditure during the flight and expenses for lodging, meals, medical treatment, transport means (including the driver) and salaries during their stay in Malta, and training equipment needed in the education of the Maltese military personnel”.

The Maltese government had also agreed to “protect” the Korean instructors and “ensure their safety, and exempt them from Customs duties and taxes”.

Both sides also agreed to “observe strict secrecy in respect of all transaction made pursuant to this agreement and shall not disclose any matter hereof to any third country”.

Read the Marmot’s Hole post here.

Read the Malta Independent article here:
1982 Labour government “secret” agreement with North Korea
Malta Independent
Stephen Calleja
Date unknown

UPDATE 13:  According to the Times of London, the weapons were headed for Hamas and Hezbollah:

An aircraft full of weapons seized in Bangkok last year was heading from North Korea to Hezbollah, the Lebanese militia, and Hamas, the Palestinian group, Avigdor Lieberman, the Israeli Foreign Minister, said yesterday.

The Thai authorities said that the aircraft was carrying 35 tonnes of weapons, including rockets and rocket-propelled grenades. The Thai Government informed the UN that the haul had been bound for Iran, which is believed to ship weapons to its ally Syria, which distributes them to Hezbollah or Hamas.

North Korea had the “intention to smuggle these weapons to Hamas and to Hezbollah”, Mr Lieberman said in Japan, where he was on an official visit. “This co-operation between North Korea and Syria [does not] improve the economic situation in their countries,” he added.

UPDATE 12: Thailand to release pilots.  According to the AP (via the Washington Post):

Thai prosecutors dropped charges against the five-man crew of an aircraft accused of smuggling weapons from North Korea, saying Thursday the men would be deported to preserve good relations with their home countries.

The Attorney General’s Office said the decision was made after the governments of Belarus and Kazakhstan contacted the Thai Foreign Ministry and requested the crew’s release to face prosecution at home.

“To charge them in Thailand could effect the good relationship between the countries,” said Thanaphit Mollaphruek, a spokesman for the Attorney General’s Office. “We have decided to drop all the charges and deport them to their home countries.”

“To charge them in this case would not be a benefit to Thailand,” he added.

The crew – four Kazakhs and a Belarusian – were expected to be released later in the day, said their lawyer Somsak Saithong.

…

Thailand’s Foreign Minister Kasit Piromya indicated earlier this month the men would be released, telling reporters in Geneva the government had “suggested to the office of the attorney general to release them because the U.N. resolution does not oblige Thailand to … bring up charges on the pilots and the crew.”

Thursday’s decision was likely to spark international criticism. The weapons’ ultimate destination remains a mystery, though Thailand has said the plane’s final destination appears to have been Iran. Experts have also voiced concerns that authorities in the former Soviet republics have turned a blind eye to illicit activities of air freight companies that use Soviet-era planes to fly anything anywhere for a price.

A Thai government report to the U.N. Security Council, leaked to reporters in late January said the aircraft was bound for Tehran’s Mahrabad Airport.

But Thai government spokesman Panitan Wattanayarkorn said subsequently that “to say that the weapons are going to Iran, that might be inexact.”

“The report only says where the plane was going to according to its flight plan, but it doesn’t say where the weapons were going to,” he said. “It’s still under investigation, and the suspects are under our legal system.”

Investigations by The Associated Press in several countries showed the flight was facilitated by a web of holding companies and fake addresses from New Zealand to Barcelona designed to disguise the movement of the weapons.

Read previous posts on this topic below:
(more…)

According to Bloomberg: 

President Barack Obama said he’ll keep North Korea off the U.S. government’s list of states that sponsor terrorism.

North Korea “does not meet the statutory criteria” for inclusion on the list, that automatically imposes sanctions, Obama wrote in a letter to congressional leaders yesterday.

Former President George W. Bush removed North Korea in 2008 after the communist state agreed to inspections of sites suspected of being part of the regime’s nuclear program. It had been designated as a state sponsor of terrorism since 1988.

Last June, Secretary of State Hillary Clinton said the administration was considering re-designating North Korea after it conducted nuclear and missile tests earlier in the year.

Cuba, Iran, Sudan and Syria are classified as state sponsors of terrorism, according to the State Department.

Read the full story here:
Obama Keeps North Korea Off U.S. List of Terrorism Sponsors
Bloomberg
Hans Nichols
2/4/2010

Northeast Asia Matters posted a very helpful background paper on the Tumen Area Economic Development Project. According to Northeast Asia Matters:

Many in Northeast Asia wish to see the Tumen Basin develop into a place for economic cooperation and competition. One such plan is the Greater Tumen Initiative (GTI), formerly known as Tumen River Area Development Project (TRADP), being carried out under the auspices of the United Nations Development Programme (UNDP). The 20-year 80 billion USD plan calls for the creation of port facilities and transportation infrastructure in the region to support a multinational trading hub. Countries participating in the GTI are China, Mongolia, North Korea, Russia and South Korea.

The goal of GTI is to make the area into a free economic zone for trade to prosper and attract investment into the area. For China, the project would give traders in Northeast China easier access to major international ports without having to circumnavigate the Korean Peninsula and thus stimulating growth in China’s northeast rustbelt. For Russia, the project would give the ability to better exploit resources in Siberia and allow easier access to North Korea’s resource-rich hinterland; the area just to the south of the Tumen contains reserves of oil, minerals, coal, timber, and abundant farmland.

Development of the Tumen River area and North Korea’s participation in this project means inflow of hard foreign currency, improvements in infrastructure, and possible increase in industrial capacity. North Korea, with its bleak economy, therefore, will most likely continue to support the development of Tumen River area and increase its future involvement in the project as it seeks to break the economic isolation and hardship it has suffered since the collapse of most of its communist allies and the implementation of international sanctions.

Read the full paper here.

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-19-1
2010-01-19

Last year, despite the impact of the economic recession, North Korea’s second nuclear test and other issues hindering inter-Korean exchanges, the previously sharply shrinking value of North-South Korean trade appeared to steady.

According to a report from the South Korean Customs Administration released on January 18, inter-Korean trade last year was down 8.5 percent from the previous year, amounting to 1.66608 billion USD. Exports to North Korea were worth 732.62 million USD, while 933.46 million USD worth of goods were brought into South Korea, giving Seoul a 200 million dollar trade deficit. Inter-Korean trade hit its lowest point last year in February (100.89 million USD), but since then showed slow-but-steady growth, hitting 173.18 in September.

In the aftermath of last year’s economic recession, together with the North Korean nuclear test, naval clashes in the West Sea in the area of the Northern Limit Line, etc., there were many difficult issues in 2009, but as inter-Korean trade numbers recovered in the fourth quarter, tensions eased slightly. Despite strained political tensions between the two Koreas, trade seemed not to be seriously affected, as DPRK goods were offloaded from a North Korean ship at Incheon Harbor and replaced with silica used for metal casting just six days after a clash between North and South Korean naval ships.

While growing trade is positive, this is the second year in a row South Korea has recorded a trade deficit with the North. In 2008, Seoul’s cross-border imports exceeded imports by 53.96 million USD. With Lehman Brothers’ collapse in September 2008 and the economic stagnation that followed, the South continued to record trade deficits for 15 straight months, until November of last year.

In December 2009, South Korean trade was back in the black (23.91 million USD) for the first time in 16 months. Looking back over time, it can be seen that inter-Korean trade has improved considerably over the years, recording a mere 705.68 million USD in 2004, 1.08872 billion USD in 2005, climbing to 1.3796 billion in 2006 and 1.79494 billion USD in 2007, and 1.82078 billion USD in 2008.

The import of North Korean sand, mushrooms, and smokeless charcoal briquettes in October 2009 required the permission of the South Korean government. This reflects Seoul’s more strict controls over management and oversight of inter-Korean trade following the sanctions and heightened concerns over cash deliveries to Pyongyang after its second nuclear test on May 25, 2009. Since the nuclear test, the South Korean government has limited the import of North Korean goods to only those that could ease losses being suffered by South Korean manufacturers.

According to the South Korean Ministry of Unification, among North Korean exports to the South in 2008, sand was the largest (according to value) export, with charcoal ranking ninth and (pine) mushrooms ranking eighteenth. 

Yonhap offered a short blurb: 

Trade between South and North Korea declined 8.5 percent on-year in 2009 due mainly to the worldwide economic slowdown that sapped demand and investments, a government report said Monday.

The Korea Customs Service (KCS) said inter-Korean trade reached US$1.66 billion last year, down from a record high of $1.82 billion tallied for 2008.

Read the full article here:
Inter-Korean trade falls off 8.5 pct in 2009
Yonhap
1/18/2009

Foreign Trade (Naenara)
January, 2010

(An interview of a reporter of Foreign Trade of the DPRK with Sin On Rok, director of a bureau of the Ministry of Foreign Trade)

Question: I’d like to have a talk with you about the DPRK policy on foreign trade. Would you please tell me about the fundamental of its foreign trade policy?

Answer: The DPRK Law on Foreign Trade was adopted by the decision of the Standing Committee of the Supreme People’s Assembly in 1997. Article 2 of the law stipulates that it is a consistent policy of the DPRK to develop foreign trade.

The fundamental of its foreign trade policy is to consolidate the foundation of the independent national economy and, on this basis, to expand and develop trade relations with other countries.

This foundation provides a material guarantee for promoting foreign trade on the principles of complete independence and equality. If the developing countries, in particular, fail to conduct trade business based on their self-reliant national economy, they can neither construct independent structure of trade nor defend their sovereignty in the end.

From this point of view, the DPRK government has consistently maintained trade policy of developing foreign trade on the basis of the independent national economy and further consolidating its foundations through foreign trade.

In the past the government has developed heavy industry with machine building industry as its core, light industry and agriculture simultaneously in conformity to the actual conditions of the country and, relying on them, produced and exported goods that are highly competitive in international markets. And it has always ensured that foreign trade serves development of the economy and betterment of the people’s life.

Q: What is the principle pursued by the government in foreign trade relations?

A: The DPRK government employs the policy of maintaining the principles of independence, equality and mutual benefits, as well as credit-first principle in the relations of foreign trade.

The government has so far developed trade relations holding fast to these principles and given active support and assistance to the developing countries in their efforts to establish the fair international economic order.

It has put forward the credit-first policy in trade dealings and ensured that all the trading corporations keep credit in their transactions so as to create better climate for foreign trade of the country. It is making efforts to establish rigid discipline that corporations should ensure the superior quality of exports, keep delivery date and faithfully discharge contractual obligations like payment for imported goods.

Q: I think the issue of making foreign trade diversified and multifarious also assumes due importance in the foreign trade policy of the government.

A: You are right. Article 3 of the Foreign Trade Law stipulates that diversification and variegation of foreign trade constitute a basic way for wide-ranging trade. The State shall ensure to deal with different countries and corporations employing various forms and methods in foreign trade.

For the sake of diversification of foreign trade, we pay a primary attention to the neighbouring countries in developing economic exchange and cooperation including trade.

It is due to the geographical location and role of our country in the economic development of the Northeast Asia and the rest of the world.

And the government executes a policy of expanding the scope of foreign trade to all countries in Asia, Africa, Latin America and Europe in its effort to make foreign trade diversified.

Entering the new era, our country intensified the diversified economic exchange and trade transactions with EU member nations.

The EU top level delegation paid a visit to our country in 2001. The DPRK-EU symposium was held in Torino, Italy in March 2007 and the 3rd DPRK-EU economic symposium held in Pyongyang in October 2008. These events marked important occasions in the development of economic and trade relations between the DPRK and the European countries.

The DPRK government is also carrying out the policy of making foreign trade multifarious in keeping with the developing trend of international trade.

It puts a stress on processing trade on the basis of its economic potentialities and up-to-date processing technologies.

The government encourages local trading corporations to import raw materials and accessories and to process and assemble them for export in different sectors of the economy such as textile, clothing, machinery and facilities, rolling stocks and electronic goods.

We are channeling much effort into the export of technological products like software relying on the development of information industry of the country.

Transit trade and consignment trade are also in full swing.

Q: What is the highlight in the export policy of the government at present?

A: The key issue in the export policy is to improve export structure from the export of raw materials into that of processed goods.

The government makes efforts to give full play to the potentialities of existing export bases while building new ones in various sectors, increase the variety and volume of exports and upgrade their quality.

It defined the production bases of internationally competitive goods as strategic export industries, and is concentrating its investment on them and paying a close attention to their scientific and technological development.

The government takes some measures to encourage the export business of the corporations with a view to increasing export volume of the country.

It affords preferential treatments such as loaning from banks and supply of raw materials and power to those export bases and corporations which have cultivated new markets with new items of export or produced and exported hi-tech goods.

Besides, the government simplifies export procedures and upgrades services of the export-related institutions so as to carry on the smooth operation of export business of the country as a whole.

The DPRK government will continue to promote the impartial and reciprocal economic and trade relations with all countries on the principle of independence, mutual respect and equality.

and

DPRK Tariff System
Foreign Trade, Naenara
Kim Tong Hyok, University of the National Economics
January 2010

The tariff system in the DPRK contributes to protecting the independent national economy and improving people’s livelihood.

The basic aim of the tariff policy in our country is to apply either no or low tariff on materials and goods imported for the acceleration of economic construction and the betterment of people’s life and high tariff on goods that have been or can be produced at home.

First, the government builds a tariff barrier against the imports which can be produced in our country.

High tariff is imposed on such imports as the goods that the domestic factories and enterprises are now producing or have potentials to produce, the products that are not needed at present in economic sectors, and the goods that are of no direct use for enhancing people’s living standards so as to increase the domestic production capacity and raise the quality of the homemade articles to be competitive in the world markets.

Second, the government imposes low or no tariff on the imports which are in short supply or unable to produce at home, i.e. the latest machines and equipment, oil and crude rubber needed for consolidating the foundations of the independent national economy and some of daily necessities that are more profitable to import than to produce at home.

It is impossible for each country to produce by itself all things necessary for its economic construction and people’s life because its natural and economic conditions and the level of productive forces differ from those of others.

Third, the government holds the principle to introduce advanced technologies in executing tariff system.

It imposes no or low tariff on hi-tech products and preferential tariffs on the goods imported by foreign-invested enterprises for the purpose of introducing advanced science and technology.

Fourth, the government defined correct criteria for tariff on the imports and is properly applying them.

It stipulated appropriate criteria of assessing the price of each variety of the imports pursuant to the regulations for the implementation of the DPRK Customs Law and the provisions of the Customs Law, and is now applying them in keeping with the requirements of the developing reality.

Besides, the government has prepared the catalogues of export commodities and the tariff rate table in conformity to the provisions of GATT and exercised tariff system suitable to each phase of development of the national economy, thus further promoting foreign trade and preventing tax evasion and other commercial wrongdoings which exert negative influence upon international markets.

Today the DPRK tariff system makes a big contribution to the protection of the independent national economy and the development of foreign trade.

According to the Choson Ilbo:

Christian Dietrich, a member of the UN Security Council committee investigating Congo, told VOA that the North Korean ship Birobong arrived in the port of Boma, Congo on Jan. 21, where it unloaded some 3,400 tons of weapons, 100 times the amount seized in Thailand earlier this month.

Dietrich said the committee was told the weapons were “modern” but was unable to find out any details. Assuming all the weapons were AK rifles, the weight would be equivalent to about 800,000 of them, he added.

North Korea in May also sent military instructors to train Congolese government soldiers for about four weeks, around the time the North conducted its second nuclear test.

Dietrich said there are indications that North Korea was the source of state-of-the-art weapons carried by insurgents in eastern Congo. In some cases, Congolese government soldiers have sold their arms to neighboring countries such as Zimbabwe, he said.

Under UN Resolution 1807, adopted in 2008, the UN must be informed in advance of all arms transactions with and military training for Congo, but North Korea did not. The UNSC committee is a watchdog that oversees implementation of the UN resolution.

Additional information:

1. Here is a link to the story about the arms intercepted in Thailand (Including updates).

2. The DPRK has long been involved in African political, economic, military, and cultural affairs.  When I read this story I immediately thought of Zimbabwe’s 5 Brigade which was trained by the North Koreans.  Here are a few stories which are related to the DPRK and Zimbabwe.

3.  The North Koreans also constructed the statue of Laurent Kabila in Kinshasa. The statue is located here.

According to Yohnap:

Production at the Kaesong complex reached US$27 million in October, up 12.1 percent from $24 million a month earlier, the Unification Ministry said. The October figure also represents a 16.9 percent increase from a year ago.

The overall increase was attributed notably to strong output from machinery and electronics manufacturers, which climbed 26.2 percent and 25.5 percent, respectively. Foodstuff and textile goods also enjoyed 24.9 percent and 8.6 percent increases, respectively.

Exports from the complex, however, shrank 9.1 percent from a month ago to $3.11 million, mostly due to a decline in machinery shipments, according to the ministry.

There are currently 116 South Korean firms operating in Kaesong, matching their capital and technology with the cheap but skilled labor of 42,000 North Korean employees.

Read the full article below:
Production at Kaesong complex rises in October
Yonhap
12/29/2009

Institute for Far Eastern Studies (IFES)
NK Brief No.09-12-9-1
12/9/2009

Aid to North Korea and investment into inter-Korean cooperative projects by the South Korean government appears to be hitting a record low in 2009, dropping to a level not seen since the year 2000.

According to the South Korean Unification Ministry, between January and the end of November of this year (2009), the government dispensed a mere 6.1 percent of the nearly 1.12 trillion won allocated. Just over 68.3 billion won were spent on cooperative projects between North and South Korea. This is considerably less than last year, when only 18.1 percent (only 231.2 billion won of an allocated 1.275 trillion won) was put to use.

In each year since 2000, the South Korean government has failed to spend all funds set aside for inter-Korean cooperation. In 2000, 81 percent of funds were distributed, while in 2001 that fell off to 56.1 percent, and then in 2002 dropped to 50 percent. In 2003, this bounced up to 92.5 percent, then fell to 65.9 percent in 2004, rose to 82.9 percent in 2005, dropped back to 37 percent the next year, and jumped back to 82.2 percent in 2007. Looking at how the disbursed funds were spent, one can see that humanitarian aid was especially reduced.

Following the North’s nuclear test, rice, fertilizer and other government aid was suspended, while indirect assistance from private-sector organizations was also reduced. This led the government to spend only 0.9 percent (from January through November) of the 811.3 billion won set aside for humanitarian aid in 2009.

Despite the fact that the South Korean government has spent such a small portion of the inter-Korean cooperation budget over the last two years, it has been decided that if there is movement on the North Korean nuclear issue, a budget increase of 190 million won will be sought for inter-Korean cooperation next year.

From the Korea Herald:

The North Korean economy’s dependency on international trade is nearing 40 percent, a think tank reported yesterday.

According to the Korea Development Institute’s report on North Korea’s economy in the 2000s, North Korea carried out international trade worth $5.64 billion last year.

The cross border trade figure of $5.64 billion recorded last year is equivalent to about 40 percent of the North’s gross domestic product, which is estimated to be about $15 billion.

In the report, the KDI said that the figures show that North Korea’s economy, which the regime boasted as having the most independent structure in the world, is taking a form increasingly dependent on the outside world.

The report said that North Korea’s cross border trade volume has risen rapidly, mainly due to increasing imports, and that such developments have been essential to the country’s economic recovery.

Since 2000, North Korea has managed to post positive growth rates.

However, North Korea’s GDP per capita is thought to be hovering below figures recorded in the late 1980s and the early 1990s, before the country’s economic crisis began.

According to United Nation’s statistics, North Korea’s GDP per capita was between $600 and $700 for the 2007 to 2008 period.

In comparison, the country’s GDP per capita was ranged between $900 and $1,000 in the late ’80s and the early ’90s.

The KDI estimated that applying the rate at which the North’s GDP per capita has been increasing since 2000, the country’s GDP per capita is likely to be between $700 and $1,300 in 2012.

The report also said that although the North Korean authorities are moving back toward a more tightly controlled economy, the country’s is unlikely to meet the targets set for 2012.

In addition, the report said that recording a trade deficit of $1.5 billion last year — equivalent to about 10 percent of its gross domestic product — makes it appear that the country is going to have a hard time digging itself out of trouble by itself.

Of last year’s $5.64 billion trade figure, exports accounted for about $2.06 billion, while imports came in at more $3.57 billion. According to the KDI’s figures, the North’s cross border trading has been increasing at an average rate of 11 percent each year since 2000, when the figure was recorded at about $2.39 billion.

Along with the increase in trade volume, North Korea’s trade deficit has also increased rapidly since 2000.

Between 2000 and 2004, North Korea’s trade deficits were maintained below or just above $1 billion. However the figure rose sharply in 2005 to reach $1.38 billion in 2005.

The KDI said that the North’s authorities have been able to offset trade deficits through the large amount of overseas capital that has flown into the country since 2000.

So where is that capital account surplus coming from to finance the trade deficit? It is NOT coming from South Korea.

Read the full story here:
N. Korea trade dependency hits 40%
Korea Herald
Choi He-suk
12/7/2009