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UNCLAS SECTION 01 OF 04 SEOUL 001740 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - OCTOBER 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not 
intended for Internet distribution. 
 
------------- 
In This Issue 
------------- 
 
-- ROK Scholar:  DPRK Economy Dysfunctional, Not in Crisis 
-- DPRK Restores Science and Technology Commission 
-- DPRK Establishes Ship Control Center to Comply with the IMO 
Rules 
-- DPRK Untouched by H1N1 
-- DPRK Seeks to Expand Trade 
-- DPRK-Russia Trade:  Exports Up and Imports Down 
-- DPRK-Pakistan Trade Continues to Decline 
-- DPRK Exports Magnesia to Switzerland 
-- DPRK-China Agree on Public Health Cooperation 
-- China to Refurbish and Expand DPRK Port 
-- EU Seeks Business Opportunity in the DPRK 
-- Inter-Korean Trade Fell 16 Percent in August 2009 
-- DPRK Grain Output Forecasts Vary 
-- UNDP Resumes DPRK Operations 
-- WHO to Send H1N1 Vaccine to DPRK 
 
 
Domestic Economy 
---------------- 
 
¶2. (SBU) ROK Scholar:  DPRK Economy Dysfunctional, Not in Crisis: 
According to Dr. Lee Suk, Research Fellow from the Korea Development 
Institute (KDI), the DPRK economy is dysfunctional, but is operating 
sufficiently to sustain the regime.  In a conversation with Econoff, 
Dr. Lee assessed that the DPRK has been hurt by worsening relations 
with South Korea and outside pressure from the international 
community.  The current market activities will not significantly 
help the DPRK economic system develop because the activity consists 
only of trading, rather than production.  According to Lee, the DPRK 
leadership is determined to pursue a labor campaign to revive the 
economy by 2012.  Although the campaign could improve short-term 
productivity, it will ultimately fail due to a lack of resources. 
This failure may pressure the DPRK to restore relations with South 
Korea and other countries. 
 
¶3. (SBU) DPRK Restores Science and Technology Commission:  North 
Korea's Central News Agency (KCNA) reported September 19 that North 
Korea has revived its State Science and Technology Commission (STC), 
which would oversee science and technology affairs.  STC was 
established in 1962 to support government-led efforts to grow the 
defense industry.  It merged into the National Defense Academy of 
Science in 1998.  The restoration of the STC could be part of the 
North Korean authorities' recent emphasis on the role of science and 
technology in transforming the DPRK into an economic power. 
 
¶4. (SBU) DPRK Establishes Ship Control Center:  According to KCNA on 
September 29, North Korea has recently established a control center 
to carry out the International Maritime Organization (IMO) system 
for identifying and tracking ships.  The DPRK said the control 
center would ensure maritime safety and prevent sea pollution. 
Since 2006, the international Long Range Identification and Tracking 
(LRIT) system has required ships sailing in international waters to 
report their positions to control centers at least four times a day 
so they can be protected from terrorism or piracy.  A ROKG official 
noted that North Korea has yet to test the system and has not 
transmitted any information on its flag vessels to other countries. 
 
 
¶5. (SBU) DPRK Untouched by H1N1:  There are no cases of H1N1 in the 
DPRK, according to an October 14 report in the Chosun Sinbo, a 
pro-North Korea newspaper in Japan.  The article cited an official 
of the North Korea Emergency Anti-epidemic Commission who credited 
tightened quarantine inspections at all immigration points of entry 
and intensified local medical check-ups for the DPRK's success in 
avoiding an outbreak. 
 
 
Foreign Trade and Investment 
---------------------------- 
 
SEOUL 00001740  002 OF 004 
 
 
 
¶6. (SBU) DPRK Seeks to Expand Trade:  North Korea hopes to expand 
trade with friendly nations, Kim Mun-jong, Director of the North 
Korean International Exhibition Corporation, said on September 21, 
at the semiannual Pyongyang International Trade Fair.  The Fair 
included companies from China, the Netherlands, Germany, Sweden, 
United Kingdom, Australia, Austria, Italy, Vietnam, France, Poland 
and Taiwan.In a single initiative, North Korea has scrapped extra 
land use fees and introduced selective import rules that could help 
foreign-owned companies maintain market share.  A Chinese local 
daily, Jilin Newspaper, reported the DPRK also introduced state 
measures to ensure investor profits by banning imports of goods that 
are already produced in adequate quantities within the DPRK.  Yoon 
Young-sok, Deputy Director General of the Foreign Direct Investment 
Bureau of the Trade Ministry, told Jilin the North Korean 
authorities plan to offer 60 percent corporate tax cuts for foreign 
investors who are invested in high-tech industries.  (Note:  The 
current corporate tax is 25 percent.  For high-tech sector investors 
will be offered to pay 10 percent which is 60 percent tax reduced.) 
The income tax cut can be extended by two additional years with a 50 
percent tax rate.  Dr. Hong Ik-pyo, researcher at the (South) Korea 
Institute for International Economic Policy told Chosun Ilbo that 
the DPRK's FDI incentives are similar to those of South Korea and 
reflects the North's attempt to adapt to a market economy. 
 
¶7. (SBU) DPRK-Russia Trade:  Exports Up and Imports Down:  According 
to the Korea Trade and Investment Promotion Agency (KOTRA), North 
Korean exports to Russia for the period January - June 2009 jumped 
170 percent from the same period in 2008.  Major items of the USD 
16.8 million total included organic chemicals, steel and electrical 
machinery.   Imports from Russia in the first half of 2009, however, 
declined to USD 18.1 million, down 65 percent from the previous 
year's total.  Imports included diesel and petroleum oils, 
fertilizer, wood, paper and paperboard, and vehicles.  North Korea's 
imports of vehicles between 1,500cc and 3,000cc in engine size 
jumped to more than double from the same period of 2008 and amounted 
to USD 2.5 million.  Fertilizer imports spiked 839 percent to USD 
1.1 million in the first half of 2009. 
 
¶8. (SBU) DPRK-Pakistan Trade Continues to Drop:  Pakistan's two-way 
trade with the DPRK dropped five percent to USD 11.7 million from 
July 2008 through March 2009, KOTRA reported on October 14. 
Pakistan analysts believe the trade deficit with the DPRK for the 
past three fiscal years has narrowed because of the recession in 
Pakistan, continued devaluation of the rupee, and the Pakistan 
government's import control policy.  Pakistan's imports of steel 
products from July 2008 through March 2009 rose 61 percent compared 
to a year earlier (to USD 6.4 million). 
 
¶9. (SBU) DPRK Exports Magnesia to Switzerland:  Quintermina AG, a 
Swiss mining developer, has signed an annual contract to import 
magnesia from the DPRK.  The company will buy 100,000 metric tons of 
Fused Magnesium (MgO) and 40,000 ~ 50,000 metric tons per year of 
Dead Burned Magnesia (DBM) a year from North Korea's Chosun Magnesia 
Clinker Industry Group and the Seungri Magnesium Oxide Factory.  It 
will then sell the magnesia to the United Kingdom, Germany and 
Eastern Europe, according to a September 25 VOA report. 
 
¶10. (SBU) DPRK-China Agree on Public Health Cooperation:  North 
Korea and China on September 14 signed an agreement of public health 
and medical science cooperation in Beijing, reported KCNA.  Choi 
Chang-sik, North Korea's Public Health Minister, and the Chinese 
Vice Minister of Public Health were present at the signing ceremony. 
 The agreement for public health and medical science cooperation 
will be implemented from 2009 to 2011. 
 
¶11. (SBU) China to Refurbish and Expand DPRK Port:  A China-based 
environmental equipment manufacturer, Chuangli Group, has recently 
acquired exclusive rights to refurbish, expand, and operate Rajin 
port No.1 wharf, according to Yonhap News Agency.  The October 7 
report said the remodeled port would be able to handle one million 
tons of cargo.  In return, the company has agreed to build a 93 
kilometer road linking Hunchun, Northeastern province of China and 
Rajin port.  Meanwhile, Russian Railway Corporation had acquired the 
exclusive right to operate the third and fourth wharves at Rajin 
port in 2008.   The company had agreed to modernize the railway 
linking Khasan, Russia and Rajin port. 
 
 
SEOUL 00001740  003 OF 004 
 
 
¶12. (SBU) EU Seeks Business Opportunity in the DPRK:  A European 
Union business delegation led by a Dutch consulting firm, GPI 
Consultancy, visited North Korea September 22-26.  The delegation 
visited Chosun Computer Center, Kimchaek University of Technology; 
Dakor, a DPRK-based data processing firm; and Nosotek, the first 
European-invested software development and research company in the 
DPRK.   GPI Consultancy said the delegation was interested in 
Business Process Outsourcing (BPO) and IT-related activities such as 
data center operations, testing and quality assurance.  It said that 
some Dutch computer game developers have recently acknowledged North 
Korea's potential IT skills by signing a BPO contract with a North 
Korean IT firm. 
 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
¶13. (SBU) Inter-Korean Trade Fell 16 Percent in August 2009: 
Continuing a twelve-month downward trend, inter-Korean trade in 
August fell to USD 136.6 million, down 16 percent from August 2008. 
 Commercial transactions between the two Koreas shrunk five percent 
to USD 135.6 million, while non-commercial transactions declined 95 
percent to a mere of USD 1 million.   ROK exports to the DPRK 
dropped 36 percent to USD 53.8 million, while the imports in August 
rose by five percent to USD 82.8 million.  Major exports for South 
Korea included raw materials for textiles, electronic equipment, and 
machinery.  South Korea imported garments made in the KIC and 
commissioned projects from elsewhere in the DPRK. 
 
 
Foreign Aid 
----------- 
 
¶14. (SBU) DPRK Grain Output Forecasts Vary:  North Korea would 
require at least 1.8 million metric tons of food aid in the coming 
year, Food and Agricultural Office analyst Kisan Gunjal told Radio 
Free Asia (RFA) on September 23.  Gunjal said North Korea's total 
rice output would be 2.4 - 2.6 million metric tons (mt.) this fall, 
similar to or lower than that of last year.  The FAO also said that 
this year's corn output in the DPRK would be around 1.3 - 2.0 
million mt.  The FAO warned the DPRK may face a serious food 
shortage which requires as much as 1.8 million mt of food from the 
international community in the coming market year (November 2009 - 
October 2010).  NOTE:  FAO is consistently lower than other 
forecasters in its DPRK grain harvest predictions.  END NOTE. 
 
¶15. (SBU) Expressing a different view, Dr. Kwon Tae-jin, Senior 
Research Fellow of the Korea Rural Economics Institute, told us that 
grain output in the DPRK in the coming market year would rise around 
five percent to a total of 4.3 million mt. despite significantly 
reduced food aid from the ROKG and the United States in 2008.  Kwon 
attributes the increase to the lack of flooding and favorable 
weather conditions over the summer.  He also said that potato 
production in 2009 is expected to be good thanks to the ROK NGOs' 
contribution of potato seeds.  He forecast that fertilizer 
production in the DPRK is expected to increase in 2010 because the 
DPRK has recently refurbished major fertilizer factories such as 
Heungnam Fertilizer Complex.  Kwon said the DPRK would not face a 
serious food shortage in 2010. 
 
¶16. (SBU) Noted corn biologist, Dr. Kim Soon-kwon, told us that 
based on his recent field observations in Kaesong and near 
Pyongyang, the corn and rice harvests could be off by 40 percent or 
more this year.  Kim explained that weather conditions and a lack of 
quality fertilizer were the likely causes.  He observed ears of corn 
that appeared to be a fraction of the size they should be so close 
to the harvest, and heads of rice that looked similarly stunted.  He 
was in Pyongyang in September, and Kaesong in early October.  Kim 
has routinely traveled to the DPRK over the past twelve years in 
support of agricultural development projects that his NGO, the 
International Corn Foundation is supporting.  He told reporters in 
September that this year's corn crop was the worst he had seen in 
the DPRK since 1998. 
 
¶17. (SBU) UNDP Resumes DPRK Operations:  The UNDP Pyongyang office 
has resumed operations in the DPRK, KCNA reports.  The office closed 
in 2006 due to the alleged misuse of funds. 
 
 
SEOUL 00001740  004 OF 004 
 
 
¶18. (SBU) WHO to Send H1N1 Vaccine to DPRK:  The World Health 
Organization (WHO) will send H1N1 vaccines to the DPRK, according to 
an October 5 RFA report.  The vaccines, which have been donated by 
the United States and eight other countries, are to be shipped to 
the DPRK after November.  Exact quantities have not yet been 
determined. 
 
STEPHENS