South Korean Red Cross to aid DPRK

June 28th, 2006

From the Korea Times:

South Korea’s Red Cross will provide $400,000 (a little over 388,000,000 won) to its North Korean counterpart along with 10 buses and 6 cars to facilitate more on-screen reunion meetings of family members separated by the inter-Korean border.

The provision is in line with an agreement both sides signed earlier this month through an exchange of letters via the Panmunjom truce village.

According to the agreement, the South will provide the North with cash and vehicles for promoting family reunions and will also give the North necessary materials for building on-screen family reunion centers in the North at the earliest possible date.

The North, for its part, will concretely inform the South of its use of the money, vehicles and materials, the agreement says.

South Korean Red Cross officials will also be allowed to inspect on-screen family reunion center construction sites.

The two Koreas started operating on-screen family reunions through video link on Liberation Day, Aug. 15 last year. Four on-screen sessions have so far been held, while 14 face-to-face reunions have been held since August 2000, including the ongoing session at Mt. Kumgang in the North.

“Most of the separated family members have become aged and, considering this trend, we need to resolve the issue as early as possible,’’ a South Korean Red Cross official said. “To expand the on-screen family reunion sessions, we concluded that the North needs to be equipped with more facilities for on-screen reunions.’’

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North Koreans turned on but tuned out

June 28th, 2006

Asia Times
Andrei Lankov
6/28/2006

One might expect North Korea to be the target of many outside Korean-language stations. After all, it is one of the few despotic regimes whose survival still largely depends on myths about the country’s situation and its place in the world.

However, almost no outside broadcasting targets North Korea.

Until the mid-1990s, it didn’t make sense to broadcast to North Korea. Authorities since the 1960s had dealt with the “foreign broadcast problem”, which created so much trouble for other communist regimes, by outlawing all radios with free tuning. Radios sold in North Korea had fixed tuning and thus could receive only three or four official channels.

If North Korean citizens purchased a radio in one of the country’s hard-currency shops, which accepted foreign cash and had a wider variety of items, or when overseas, it had to be submitted to police where technicians would “fix” (disable) it, making sure its owners could only listen to ideologically wholesome programs about the deeds of their Dear Leader – Kim Jong-il.

This ban was enforced with remarkable efficiency. It was largely entrusted to the heads of the “people’s groups” or inminban, to which all North Koreans belong. Typically, such group consists of 30 to 50 families living in the same block, and is headed by an official. These low-level officials were required to regularly check all radios in their neighborhoods, making sure that they could not be used to listen to foreign or, more likely, South Korean broadcasts.

The punishment could be harsh. One official said in the 1980s she discovered that a family in the neighborhood under her supervision had a radio that could tune into foreign broadcasts. She duly reported her discovery, and the family was immediately exiled to the countryside.

Only a few elite families as well as some soldiers had access to radios that were not tampered with, and even they took great risks when they listened to a South Korean broadcast.

But this is no longer the case.

Things started to change in the mid-1990s when the border control collapsed and crowds of refugees and smugglers began to cross the North Korean-Chinese border. Among the many goods they brought back were small radios. Unlike the 1950s-style bulky radios produced in North Korea, these new transistor radios are small and easy to hide. Though every North Korean house is still subject to periodic random searches, chances of finding such a small item are low. Furthermore, officials lost their earlier zeal and started to accept bribes.

In December, a survey of defectors found that 45% had listened to a foreign broadcast prior to fleeing the North. The willingness to defect could mean a person is more inclined to listen to a foreign broadcast, but it might be the other way round as well: information received from outside might prompt the decision to flee.

At any rate, North Korea is not a radioless country any more and its citizens could find out what is going on in the world and in their own country.

But apart from South Korea’s state-owned Korea Broadcasting System (KBS) – which is officially known as the “social education radio” and does its best to be as inoffensive as possible for fear of “irritating” Pyongyang – three stations specifically target the North Korean audience.

The first and most important is Radio Free Asia (RFA), a version of Radio Free Europe that once broadcast into East Europe – the segment that targeted the former USSR was known as the Radio Liberty. RFA began Korean-language broadcasts in 1997 when the South Koreans withdrew from the airwaves. Currently, broadcasts are four hours daily. With its current staffing, it can produce only two hours live, which is then repeated. Unlike KBS, RFA does raise tough questions.

Another station is Free North Korea (FNK), launched as a small online station whose writers and announcers are North Koreans living in the South. From December, FNK began using transmitters in Russia. However, Moscow is as unenthusiastic as Seoul about prospects of an “unstable” North Korea, so FNK had to move its transmitters to Mongolia.

From the beginning, FNK had to deal with problems. The pro-Pyongyang lobby staged noisy rallies in front of the building where the station was located, so it had to move to two windowless rooms in the basement of an unremarkable building on a distant outskirts of Seoul. Wages are small, and some contributors work for free. Few, if any, are professional radio journalists and the shortage of funds means FNK stays on air only one hour a day.

Still, even its limited presence gets under the skin of Pyongyang’s officials, who refer to FNK broadcasters as “traitors, lackeys of the American imperialism, slaves of the conservative forces” and demand they be removed from the airwaves.

The third station is Voice of America (VoA), but true to its name its focuses on promoting America’s image in both Koreas. The station does some critical reporting about North Korean affairs, and surveys show that some defectors listened to VoA before they left North Korea. However, because the topics of VoA programs are largely about the US, its appeal is somewhat limited (especially in a country whose population has been educated to believe that the US is the embodiment of evil).

Thus, while North Koreans want to know more about the outside world, they are still limited when they switch on their smuggled or illicitly repaired radios. Most of the time the air is clear of any subversive messages that would upset their leaders. Even if they listen to RFA or FNK, the stations cannot tell them too much because air time is short and the broadcast offerings limited.

Many observers talk about the “North Korean problem” and a huge amount of money is spent on the issue. Jay Lefkowitz, US special envoy for human rights in North Korea, has suggested increased radio broadcasts on world events and in support of Korean defector groups as key ways to empower the North Koreans. And some members of the US Congress have proposed increasing broadcasts by American-funded radio stations to 24 hours a day and dropping radio receivers into North Korea by balloon.

Still, radio, the easiest and cheapest way to bring about change from within North Korean society, is not utilized to any significant extent. North Koreans who want to learn even the most basic facts about their society and the world are kept in the dark not only by their own government but by the rest of the world as well.

When they want to learn what is going on, they have to rely on North Korean newspapers. They know only too well that these newspapers lie, but nobody gives them much of an alternative.

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Mindan-Chongryon reconciliation unreconciles

June 27th, 2006

from the Korea Times: 

Failure of Reconciliation in Japan
Continuous Efforts Needed to Achieve Mindan-Chongnyon Amity
 
It is regrettable last month’s historic reconciliation agreement between pro-Seoul and pro- Pyongyang Korean residents in Japan has unravelled in less than 40 days. The hugging and handshaking between Ha Byong-ok, leader of the pro- Seoul Korean Residents Union in Japan (Mindan), and So Man-sol, chairman of the pro-Pyongyang General Association of Korean Residents in Japan (Chongnyon), at the headquarters of the latter on May 17 was hailed as an end to the long-standing enmity between the two groups.

However, mounting opposition from Mindan’s rank and file has derailed the agreement. Discord among Mindan members was caused by the unilateral move of its leadership in declaring reconciliation with the Chongnyon. In a central committee meeting last Saturday, Ha said “we are virtually in a state of undoing our earlier reconciliation declaration.”

The primary responsibility for the confusion lies with Ha who hastily proceeded with the reconciliation, disregarding the opinions of provincial Mindan organizations. We can’t help but believe Ha’s personal ambition of achieving something as a leader disrupted the long-standing move to reconcile with its rival group. The important fact we have to consider is that reconciliation came at a time when the hostile mood of Japan toward North Korea is reaching a peak in connection with the abduction of Japanese citizens by North Korean agents.

Some of Korean residents belonging to Mindan were alienated from their Japanese friends after the report was released that Mindan reconciled with Chongnyon. Some Japanese are displeased with the reconciliation, asking: “Is Mindan also becoming an enemy to Japanese society?” The leadership failed to read the underlying sentiment of Japanese society and the hostile attitude of Japanese society strengthened opposition among Koreans to reconciliation.

The Korean residents’ groups have been at odds the last 50 years, symbolizing the territorial division of their fatherland. The invisible barriers between people of the two organizations in Japanese society were said to have been stronger than the DMZ dividing South and North Korea. But, we believe the ideological confrontation among the Koreans was a waste of energy for Japan’s largest ethnic group.

Though Korean residents are divided by the organizations with conflicting ideologies, they are living together in Japanese society where a market economy based on democracy has fully blossomed. We believe it is not so difficult for ordinary members of both groups to become friendly. What is important is that a change of attitude by Pyongyang is crucial to expedite reconciliation of both Korean groups in Japan. It is also hoped Korean residents in Japan continue their efforts to achieve ethnic solidarity through reconciliation in days to come.

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Moody’s hints at ROK credit rating increase

June 27th, 2006

from the Korea Times:

Moody’s Investors Service said that chances are above 50 percent for South Korea to have higher sovereign credit ratings in the future, but containment of North Korea risks is one of the crucial factors, a senior credit analyst at Moody’s said.

“The chance is more than 50: 50,’’ said Tom Byrne, vice president and senior credit officer at Moody’s Investors Service, at a media briefing in Seoul to mark launch of its Web site in Korean, Tuesday.

He said it was on the same ground that Moody’s raised its outlook for Korea to “positive’’ from “stable’’ in April. Moody’s has rated Korea at A3 since March 2002.

Byrne suggested that continued fiscal conservatism, favorable macroeconomic prospects and containment of North Korean risks could change the rating upward.

Regarding the North Korean risk, he explained that what is needed is not a complete elimination of the threat but an appropriate control of the risk.

“Back in 2003, our primary concern was increased geopolitical risks related with North Korea’s renewed nuclear weapons development.’’

He said Moody’s outlook on Korea has been determined by two factors since then, geopolitical concerns and credit fundamentals.

Regarding recent concerns over North Korea’s threat to launch a missile, Byrne said it is “a part of the geopolitical risks.’’

“As things stand for now, however, it’s too early to say whether the geopolitical situation has deteriorated,’’ he said, declining to mention its direct impact on Korea’s credit rating.

He said it is important to consider all parties involved, and emphasized that governments of the U.S., Russia, China, South Korea and Japan all should make efforts to stop the situation from deteriorating.

Byrne said that it is important to realize that the U.S. government is feeling very insecure since the September 11 terrorist attack. Consequently, the United States is taking a firm stance against North Korea and Iran, he explained. He said North Korea’s nuclear issue would be major concern of not only Bush administration but also a Democrat administration.

Byrne cited foreign investment as another crucial factor for Korea’s economic growth. He pointed out that Korea was very smart in overcoming the financial crisis, as it increased financial liberalization instead of closing its market. He said Korea is a bit exceptional as many Korean companies do make significant investment abroad. However, more progress should be made in inbound foreign direct investment, as it plays a crucial role in a long-term growth, he said.

He expected the Korean economy to grow 5 percent this year, and estimated next year’s growth rate at 4.5 percent.

He said the Korean government would need financial headroom as there will be increasing social welfare demands, probably an income support program for farmers after the signing of the Korea-U.S. FTA, and perhaps increasing aide to North Korea.

In spite of the increasing aid to North Korea, he doubted whether it would be effectively used there, as the communist country has the lowest government effectiveness indicator. The South Korean government was less effective than other OECD member countries, but was doing better than the governments of countries in Central Europe.

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Western businesses tour Kaesong complex

June 26th, 2006

From Joong Ang Daily:
June 26, 2006

KAESONG ― Even in the sweltering heat of a June afternoon, hundreds of hands were moving diligently, cutting and pasting on production lines of a factory floor that seemed just like any other.

But this plant was no ordinary capitalist factory: Workers here wore Kim Il Sung buttons and were laboring in the workers’ paradise of North Korea, one of the few remaining militant communist countries in the world.

Last week about 100 foreigners representing some 70 companies got a first-hand look at the Kaesong Industrial Complex, a North Korean industrial park fueled by South Korean capital and mostly North Korean labor.

As Kim Dong-keun put it, Kaesong was a hot battlefield during the Korean War but is now a symbol of inter-Korean reconciliation. Mr. Kim is the head of the complex’s management committee.

The Korea Trade-Investment Promotion Agency and Hyundai Asan organized the investment program. According to officials from the South Korean organizers, this was the first opportunity for a large group of potential foreign investors to get a look at what was there.

The group toured three South Korean factories; Taesung Hata, a cosmetic package manufacturer; Samduk Stafild, a shoe manufacturer; and ShinWon, a fashion outerwear manufacturer.

The Kaesong Industrial Complex is amazingly close to the Demilitarized Zone, a 60-year-old relic of wars hot and cold. The complex, which is still far from completion, is visible from the immigration office at the North Korean edge of the DMZ.

The mountains surrounding the complex were almost naked. “The trees were cut as a military strategy to observe enemy movements,” a South Korean blue-collar worker for Hyundai Asan said. “But it also seems that the North Korean people cut trees to use as firewood.”

The modern industrial site was a stark contrast to its surroundings, where farmers were plowing paddy fields with oxen, a sight that has vanished from rural areas south of the DMZ. The complex was fenced off with barbed wire. “It was necessary to separate the industrial complex from the general population because many North Koreans could sneak in and take away raw materials,” a Hyundai Asan official said.

The new plants were well air-conditioned. As many foreign investors on the tour commented, the workers were well-organized. The only sound to be heard in the factories was that of the machinery. The workers did not even glance at the unusual visitors, and trying to get a hint of a smile or a friendly nod was impossible. Even the South Korean workers at Kaesong were very careful in their actions. Some advised journalists against taking pictures of North Korean workers, because it might cause problems.

The only North Korean who spoke to the visitors, other than the inteperter, was a man who criticized U.S. intervention in North Korean human rights issues.

“If the United States keeps raising the issue of human rights,” he said, “there is a huge chance that we might not let their companies such as Pentium enter the Kaesong Industrial Complex.” He evidently was referring to Intel, which makes Pentium computer central processor chips.

An official of Taesung Hata, who said he had been living in Kaesong for a year, noted that the most challenging part of his job was that the workers in North Korea have no concept of factory work. Living in a non-capitalist society, he said, they were untrained to use machinery.

The South Korean said it took some time to train the North Koreans even to use western-style bathrooms. “They were squatting on top of the seats,” he said.

The trip came during a time when tension was rising in the global community over North Korea’s missile launch preparation.

But most of the touring businessmen said security issues didn’t bother them. Business was business, they said, and should be dealt with differently than politics. “Investors tend to take the longer view,” said Charles Henry of Tupperware.

John Boynton, Doran Capital Partners’ chief executive officer, said cooperation was better than distrust and that he didn’t think Kaesong had any serious security concerns to worry about, but he was speaking of physical security at the site. “Look around the world,” Mr. Boynton continued, “the World Trade Center, London ― Spain is as dangerous as Kaesong is.”

Jean-Daniel Rolinet of Samsung Thales, a defense contractor, said he had been worried that the missile tensions would cause the trip to be canceled. “I’m glad we’re here,” he said; the tour made him realize the quality of the work being done there.

“I would recommend Kaesong to the French community,” Mr. Rolinet said.

Whether for the ears of journalists and the tour organizers or out of real conviction, many other foreigners in the group said they were positive about Kaesong and would invest there. Labor costs seemed to be the biggest attraction. North Korean workers at the site receive $57.50 per month on average, pay that can rise to $70 per month with overtime. But those wages, a Hyundai Asan official explained, are paid to the central government, not to the workers.

Pressed about when those investments might arrive, however, most said it would be far in the future. “Kaesong Industrial Complex is surely impressive,” said Gordana Hulina, a risk manager at ING Bank, “but it is clear that Kaesong is for the most part a Korean-based project.”

One foreign investor said she thought most of her companions were there just out of curiosity, to see a country that is for the most part closed off to them.

Most of the visitors refused to comment on the U.S.-Korea free trade negotiations, where Korea is pushing to have goods produced in Kaesong treated as South Korean goods. The United States says it cannot accept that proposal.

Several visitors seemed hesitant, however, about the project’s future, citing policy inconsistencies in North Korea and the dearth of information about the nation. 

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Kaesong products poison pill for trade agreement

June 26th, 2006

from the Korea Times:

The top U.S. envoy in Seoul has expressed serious concerns about the status of products made in the Kaesong Industrial Complex, North Korea, labeling them “poison” to the currently negotiated free trade agreement (FTA) between South Korea and the United States, a source said Monday.

The products made in the Kaesong Industrial Complex could poison the negotiating process of the South Korea-U.S. FTA and later the ratification process in the U.S. Congress, the source quoted U.S. Ambassador to Seoul Alexander Vershbow as saying during the Korea-U.S. Business Council meeting in Seoul last week.

Vershbow requested that Seoul exclude the goods made in Kaesong from the FTA negotiation agenda and asked Korean officials to explain to Korean lawmakers the U.S. position since it could dampen the FTA talks, the source said, asking not to be named.

Though Seoul was aware of U.S. opposition to the idea that products made in Kaesong are considered Korean products in trade, it did not expect Vershbow to be so negatively disposed to Seoul’s proposal.

The Seoul government has been trying to include the Kaesong products with other South Korean goods in the FTA negotiations with the United States as in its FTAs with Singapore, ASEAN and EFTA.

The Kaesong Industrial Complex is the flagship of inter-Korean business cooperation where 15 small and mid-sized South Korean companies operate, employing some 7,000 North Koreans.

Meanwhile, the ambassador hinted at the possibility of South Korea joining the visa waiver program (VWP), which allows visitors from countries to enter the United States for up to 90 days without a visa.

In response, Trade Minister Kim Hyun-chong said that if the United States includes South Korea in the VWP, it will be welcomed by South Koreans and helpful for the successful conclusion of an FTA between the two countries.

However, a participant in the meeting, who wanted to remain anonymous, said that he got the impression that the U.S. ambassador tried to use the visa waiver as a wild card to lead the FTA negotiations in favor of the United States.

“From a legal viewpoint, the FTA has nothing to do with the visa waiver. The Korean government must keep this in mind,” he said.

Eligibility requirements for nations to join the visa waiver program include a visa refusal rate of 3 percent or less for two consecutive years.

The annual meeting of the 19th Korea-U.S. Business Council ended last week, announcing its full support for the Seoul-Washington FTA.

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Pyongyang hosts 9th Internaitonal Trade Fair (ITF)

June 26th, 2006

From Korea is One:

9th Pyongyang Spring International Trade Fair
15th – 18th May 2006.

Optimism alive despite political tensions
European business group in Pyongyang sees N.K. as an attrative FDI destination.
By Chris Gelken

With political tensions over North Korea’s reported plans to test fire a ballistic missile dominating the headlines in recent weeks, any positive news regarding the North has tended to be pushed to the sidelines. The recent launch of a U.K.-based investment fund directed at North Korea suggests that beneath the tensions, there is still optimism in business circles that political problems can be resolved, and North Korea can become an attractive and profitable destination for foreign direct investment.

One such businessman is Felix Abt, the president of the European Business Association based in Pyongyang. In this email interview with The Korea Herald, Abt said he is confident that North Korea-based businesses will, as they have with previous crises, weather this latest political storm.

Q: What was your initial reaction to news of regulatory approval for the Chosun Fund?

A: Since it is perfectly legal for a British company to do business with the DPRK, it was not a surprise that the British authorities gave regulatory approval. However, the U.S. government will continue putting pressure on foreign banks and other companies to dissuade them from doing legitimate business with the DPRK, or with Iran for that matter.

The Times of London recently ran an article with the title “U.S. pressure threatens U.K. firms in Iran.” [1] Of course, economic and psychological warfare is an old U.S. tactic. Given the size of the U.S. economy relative to that of who they consider the enemy, it is unlike a military war. It is usually relatively painless, risk free and, of course, much less costly.

Q: Have any representatives of the fund been in contact with EBA?

A: I don’t think that the fund has been in touch with any of our members here in the DPRK yet, presumably because they have been concentrating all their energies on getting their regulatory approvals. Perhaps they will now begin contacting us.

Q: It is early days, but how do you think this could change the business environment in Pyongyang, and change the perceptions of investors around the world about doing business with the North?

A: When I worked in Vietnam in the nineties, that country decided to become a “strong and prosperous nation” by transforming it into what it called “a socialist market economy.” I then witnessed the arrival of a number of funds, some of which did extremely well in line with the ensuing economic success story of that country.

Vietnam vigorously embarked, like other Asian tigers before, on massively attracting foreign direct investment and strongly promoting exports. In addition, it overhauled and streamlined its fledgling state sector and allowed and stimulated the private sector to become a formidable economic growth locomotive.

The DPRK’s objective is to become a strong and prosperous socialist nation, too, and introducing and promoting more market elements would have the same effect as in Vietnam.

Moreover, a fast growing, flourishing economy would naturally attract more investment and, in addition, give the DPRK a much stronger negotiating position with the South when the question of a common market or reunificiation comes up.

Q: The fund has already identified natural resources and power supply as its parallel thrusts. How many of your members are involved in these sectors and could directly or indirectly benefit from investment from the fund?

A: The DPRK’s huge competitive advantage is natural resources, some of which may even offer the basis for the development of new competitive industries. Power supply and logistics are crucial for the development of these resources. So it makes sense that the Chosun fund or any other fund gets involved in these areas. Some of us represent companies involved in these business fields and would certainly look forward to cooperating with the Chosun fund. Sharing capital input and risks with a fund will enable companies to invest into more projects or enlarge existing ones.

Q: The fund is confident there will be no banking problems regarding bringing investment into N.K. or repatriating profits? How are EBA members dealing with the current banking problems?

A: Bringing investment into the DPRK or repatriating profits is, of course, possible. With many banks, under U.S. pressure, refusing money transfers, it needs quite some creativity and extra efforts to overcome these important obstacles. DPRK companies as well as foreign businesses active in the DPRK are, however, confident that the current storms, like many before, will be weathered, too.

Q: And finally, while it has been reported that the fund’s executives have broad experience in emerging markets, including North Korea, as a businessman with “his boots on the ground” in Pyongyang, do you have any advice or suggestions that you would like to make to the fund?

A: As the professionals they claim to be, they do not need my advice. I would wish them good luck and the necessary empathy and sensitivity for political matters which would mean, for example, that the capital for their fund should first and foremost come out of countries with which the DPRK has diplomatic relations.

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DPRK economic battle-groud between ROK/PRC

June 26th, 2006

From the Joong Ang Ilbo:

During the JoongAng Ilbo’s 10-day survey of North Korean economic venues in May, North Korea’s high dependence on China was very prominent. Noting that trend, North Korea experts in Seoul recommended that South Korea make efforts to increase its industrial investment in the North to assist the failing economy and allow it to make ends meet. Donating food and other aid, they said, was contrary to the aphorism, “Give a man a fish and he can eat for a day; teach him to fish and he can eat for a lifetime.”

Throughout the trip from May 11-20, North Korean officials proudly displayed a series of automated factories, calling them the models of the reclusive communist country’s modernization. The Daean Friendship Glass Factory was on the tour; officials said China had built the factory at no cost to North Korea. Similarly, production lines in several other plants were overwhelmingly “made in China.”

The March 26 Cable Factory in Pyongyang used Chinese machines; its raw materials appeared to be from China as well. The Pyongyang Cosmetic Factory, which produces cosmetics, toiletries and toothpaste, was also equipped with Chinese machines. The toothpaste production line used equipment from Nanjing Machinery, and the soap production facility was equipped by companies in Quingtao.

At the International Trade Fair in Pyongyang, most booths were set up by Chinese firms. Among the 217 companies that participated in the fair, more than 80 percent were Chinese or joint ventures that included a Chinese partner.

North Korea’s trade is also overwhelmingly skewed toward China: in 2004, nearly half of the North’s trade was with its neighbor. “North Korean industries are 90 percent dependent on China,” said Kim Suk-jin, a North Korean economy researcher at the Korea Institute for Industrial Economics and Trade.

That’s not entirely a bad thing, some economists here said; joining the world economy through China could become a catalyst for reform and opening of the North Korean economy. But they also said they were somewhat uneasy that China’s influence on the Korean Peninsula would become “unnecessarily” strong, reflecting deep-seated Korean unease about foreign influences on the peninsula. Referring to South Korea’s dependency on Japan in the 1960s and 70s for raw materials and facilities, they said that trade with Japan is still skewed in Japan’s favor.

Jeon Jong-mu, the president of HUM Construction Company, was in a party that traveled to North Korea for the international trade show with the journalists. He said North Korean officials had offered him the opportunity to participate in a project to mine aggregate ― rock, gravel and sand ―from the Chongchon River. In return for dredging the river, the offer reportedly went, the North would supply the material to his company.

According to the North Korean officials, the dredging is important to them because frequent flooding of the river damages nearby agricultural areas. “I thought the dredging work would be better for increasing rice production in the North than giving fertilizer,” Mr. Jeon said.

At the Chongsan Cooperative Farm, Ko Myong-hee, its manager, said no South Korean experts have ever visited there but that South Korea has provided it with rice and fertilizer. Lee Kyung-han, the manager of the Korean Standards Association, thought that was a symptom of a problem. He said experts from here should meet with their North Korean counterparts to improve productivity.

Others agreed that for the most part, the South has just been “giving fish” to the North. They said of the $1.6 billion in trade volume between the two Koreas, the South’s rice and fertilizer aid amounts to 35 percent. In the name of helping the poor, sick North Koreans, Seoul just ships rice, fertilizer and medicines.

Both Koreas should learn more about each other, said Kim Dong-ho of the Korea Development Institute. Some North Koreans believed that designating special economic zones would bring large foreign investments instantly, and complained that South Korean businessmen were not making investments in Kaesong Industrial Complex even after visiting the site. He said South Koreans also had a poor understanding of the North’s economy. He blasted the South Korean government and businesses here for making investments based on “rosy anticipations.”

Experts here said the government should focus more on building manufacturing facilities in the North. The March 26 Cable Factory in Pyongyang was modernized by a $2 million donation from North Koreans living overseas, said Kim Sok-nam, the plant’s manager. The Daean Glass Factory was also built with $24 million provided by China.

It would be asking too much, those experts said, to expect South Korean businesses to line up to make investments in the North after watching the woes of the Hyundai Group and the financial problems it faced after making its large investment in Mount Kumgang tourism.

If businessmen are reluctant to invest, perhaps the government should shift tactics. Rather than increase the amount of aid, which cost $365 million in rice and fertilizer alone in 2005, Seoul could offer investment assistance. That $365 million, after all, could have financed 15 Daean Glass Factory plants.

Mr. Lee of the Korean Standards Association proposed that government companies in the South might consider building factories in the North. Others agreed.

“The Kaesong Industrial Complex will take time to settle in,” said Kim Yeon-chul of the Asiatic Research Institute at Korea University. “On the other hand, Pyongyang, Nampo and other important economic venues in the North will be under China’s influence in as little as five years.”

Mr. Kim said South Korea should find ways to exercise its influence in core economic zones of the North. Instead of depending on the pioneer sprits of private firms, a state-run corporation in charge of industrial cooperation with the North should be formed to make profitable investments in the North’s industries, Mr. Kim suggested. “If such a firm existed, the South would have been able to carry out sustainable industrial projects in the North instead of providing light industry materials as aid,” he said. “There is a financial burden at the early stages, but that will eventually be reduced when the investment environment in the North improves, and the state-run corporation will be able to add resources from the international financial market on its own. That is why we need a state company for inter-Korean economic cooperation.”

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Politics, blood ties trump trump profits in north

June 22nd, 2006

Joong Ang Daily
6/22/2006

In the ground floor ballroom of the Yanggakdo Hotel annex in Pyongyang, the North Korean Chamber of Commerce hosted a trade information and investors’ relations conference on May 16. Senior North Korean trade ministry officials gave presentations on North Korea’s economic policy and investment climate. Rim Tae-dok, chief counselor of the trade ministry, said Pyongyang protected property rights of foreign investors and guaranteed the independence of their management. The North Korean official stressed that foreign investors would enjoy tax benefits and that the legal process of establishing companies in the North has been largely simplified.

Another senior North Korean official, Kim Ha-dong, also gave a presentation about Pyongyang’s export policy. Mr. Kim, a senior researcher at the trade ministry, said the communist country had been issuing permits for exports and imports after only a short review process. He encouraged investors to participate in trade.

The North Korean presentations were not very different from those given in any capitalist country, but the concept of “self-reliance” was prominent.

“We will build a self-reliant economy of Koreans and carry out trade on top of that,” Mr. Kim said. He added that North Korea’s self-reliance must not be damaged or controlled by foreign economies through trade.

During the JoongAng Ilbo’s 10-day survey of the reclusive communist country’s economic sites, Pyongyang’s dilemma ― self-reliant socialism versus economic development by attracting foreign investments ― was apparent. Some North Korean officials showed skepticism about China’s model of partially opening its economy, claiming that their country had to be run in a different manner.

“I have toured special economic zones in China several times,” said Ju Tong-chan, the North’s chairman of the National Economic Cooperation Committee. “But we have different ways of managing our economy than China, and I believe we should run our special economic zones in different ways. We are still researching our options, but we will not do it that [Chinese] way.”

China was able to expand its economy at high speed after the central government opened up the economy. It gave local governments enough independence to run business autonomously in their areas and attract foreign investment. But Mr. Ju was obviously unconvinced by the success of China’s model. The opening of the economy could boomerang, becoming a threat to the North’s system, he worried.

On factories and farms, North Koreans were still caught up – or at least gave the outward appearance of being caught up ― in a personality cult centered on the nation’s founding family. At cooperative farms and factories, the senior managers’ introductory briefings were always about the lessons taught by Kim Il Sung, North Korea’s first president, and Kim Jong-il, who succeeded him but did not assume the title of national president. These managers’ presentations began with the number of visits by the Kims to the site. There were always paeans to the communist regime’s “military first” policy and slogans to that effect were emblazoned everywhere, making it clear that the military and politics take priority over the economy.

North Korean officials were also reluctant to lay out all pertinent information to investors and journalists.

Kim Yong-il, 45, the manager of the port at Nampo on the country’s west coast, refused to cite specific numbers about the port’s freight-handling capacity. He said only that it could deal with “large amounts” of cargo.

Mr. Rim, the trade ministry chief counselor, said North Korean politics were extremely stable, which guaranteed the security of foreign investments. He gave no data or examples to support that claim of stability, however, and completely ignored the question of North Korea’s nuclear programs and how they might or might not affect stability.

Reacting to the journalists’ remarks that South Korean firms were reluctant to invest in the North because it has been difficult to make profits there, Mr. Ju, the chairman of the National Economic Cooperation Committee, said, “Why is money the priority? Inter-Korean business must be about something more than just monetary calculations.”

He was also visibly upset about Seoul’s policy on economic cooperation. “We made extremely sensitive military restricted areas at Mount Kumgang and Kaesong available to the South,” Mr. Ju said. “But the South has just given us a lot of excuses and failed to cooperate.”

He continued, “To nurture the Kaesong Industrial Complex into a world-class production facility, electronic and advanced technology industries are crucial. But labor-intensive industries are the majority in Kaesong. In this information era of the 21st century, the South has failed to bring in computers for administrative use in Kaesong.”

He also vented some spleen about the United States, asking the journalists why Seoul was so careful not to irritate Washington. He cited the U.S. restrictions on the re-export without prior approval of so-called “dual-use” goods, those with civilian and military applications, to countries it has blacklisted, including North Korea. Other international accords, such as the Wassenaar Agreement, also prevent South Korea from providing the North merchandise and commodities that have “strategic” applications.

But Mr. Ju sounded firm about continuing operations at Kaesong. “It is the nucleus of inter-Korean economic cooperation, and we must make it a success first. Then we can move on to other projects.”

He also dismissed the U.S. concerns that workers in Kaesong were laboring under harsh working conditions, but seemed to sidestep the basic question. “It is a matter that we should deal with,” Mr. Ju said. “Since we manage businesses differently, we are trying to come up with the best resolution to make direct [wage] payments to the workers.”

South Korean economists and businessmen who listened to similar presentations and looked at some of the North’s accounts were troubled by Pyongyang’s rigidity in opening up the economy. That, they said, coupled with the simmering nuclear weapons problem, is the most serious obstacle to attracting foreign investments. Unless U.S. diplomatic ties with North Korea are established, investing in facilities in North Korea and selling “made in North Korea” products on global markets would be difficult and risky, they agreed.

“If a foreign investor wants to visit a factory in the North that he has put money into, he has to obtain an invitation every time, and his schedule and movements in the North are strictly controlled,” said Kwon Yeong-wuk, the trade promotion director at the Korea International Trade Association of Seoul. “Under such circumstances, the North should not expect much in the way of foreign investments.” He said Pyongyang had a “my way or the highway” approach to the economy: If you’re here, follow our rules. The rigidity, he reiterated, is a serious obstacle to investors.

Other experts and businessmen in South Korea said Pyongyang’s attitude toward inter-Korean business in particular makes it hard to earn profit. They complain about the stress North Korean officials put on the concept that business between the two Koreas should be based on the maxim “blood is thicker than water” and not on market principles. An official at North Korea’s National Reconciliation Council argued that South Korean conglomerates should make large investments there based on that concept.

A South Korean businessman who has been looking for business opportunities in the North said he has run into a series of dead ends. “South Korean firms are doing businesses in the global market,” he said. “The largest market is the United States, and not many people would want to give that up to do business with the North.” He added that North Korea’s cheap but skilled manpower is an attractive point, but that poor infrastructure, extremely low purchasing power and the difficulty of obtaining raw materials make China and Vietnam much more attractive investment locales. Kim Yeon-chul, an academic at Korea University in Seoul, agreed with that assessment. “Large companies in South Korea have already automated their production facilities, so labor costs are not important in deciding on investments,” he said. “North Korea must improve other conditions instead of stressing the merits of its manpower or blaming outside causes.”

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Posted in Chamber of Commerce (DPRK), Economic reform, Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), Labor conditions/wages, Mt. Kumgang Tourist Special Zone, National Economic Cooperation Federation, Sea shipping, South Korea | Comments Closed

Economic aid and the 6/2006 missle test

June 22nd, 2006

From the Joong Ang Daily:

In Seoul yesterday, Lee Jong-seok, the unification minister, told the opposition Grand National Party’s interim leader, Kim Young-sun, that it would be “difficult” to continue economic aid to North Korea if it tested a missile.

But he said that Seoul’s action would be “limited sanctions” only. He did not elaborate, except to say that operations at the Kaesong Industrial Complex would not be affected.

North Korea has asked for 450,000 tons of fertilizer this year, of which 150,000 tons has been already been delivered. Another 200,000 tons is being readied for shipment.

A Unification Ministry official said plans to ship the remaining 100,000 tons of fertilizer and shipments of rice could be withheld if the North’s missile lifts off. “We have told the North that there will be consequences and we are firm on this,” the official said.

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Posted in Agriculture, Foreign direct investment, International trade, Kaesong Industrial Complex (KIC), Military | Comments Closed

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