R 012334Z JUL 08
FM AMEMBASSY SEOUL
TO SECSTATE WASHDC 0691
USDOC WASHDC 7171
DEPT OF TREASURY WASHDC
DEPT OF AGRICULTURE WASHDC
DEPT OF ENERGY WASHDC
DEPT OF HHS WASHDC
WHITE HOUSE WASHDC
AMEMBASSY TOKYO 
AMEMBASSY BEIJING 
AMEMBASSY SINGAPORE 
AMCONSUL HONG KONG 
AMCONSUL SHENYANG 
AMCONSUL VLADIVOSTOK 
AIT TAIPEI 2741

UNCLAS SEOUL 001319 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD SENV SOCI KS KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - June 2008 
 
------------- 
In This Issue 
------------- 
 
Domestic Economy 
---------------- 
 
-- DPRK Welcomes U.S. Delisting 
-- DPRK Economy Contracts 2.3 Percent in 2007 
-- ROK NGO Quotes DPRK Document on Food Shortages 
-- Sensationalist DPRK Commercial Lures Foreign Customers 
-- DPRK Promotes English Language Teaching 
 
Foreign Aid 
----------- 
 
-- Six-Party Countries Agree to Accelerate DPRK Energy Aid - 
Following a Six-Party Meeting 
-- Korean-American Religious Group Builds General Hospital 
in DPRK 
-- Russia Sends Food Aid to DPRK via WFP 
-- Italy Contributes 500,000 Euros to Relieve DPRK Food 
Shortage 
-- WHO and FAO to Launch Anti-Epidemic Measures against DPRK 
Bird Flu 
-- DPRK Requests WMO High-Tech Weather Equipment 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
-- May 2008 Inter-Korean Trade Up 14 Percent 
-- New Inter-Korean Economic Cooperation Projects Decline 
-- North Limits Passage to Kaesong Industrial Complex 
-- MOU Plans to Foster DPRK Human Resources 
-- ROK Legislator Proposes Another Inter-Korean Economic 
Zone in ROK 
-- POSCO to Buy DPRK Coal and Iron Ore 
-- HAC delays Mount Baekdu Tour 
-- Inter-Korean JV Textile Firm to Begin Production in 
August 
-- ROK City Government Builds Bread Factory in Pyongyang 
-- South NGO Sends Food Aid to North 
 
Foreign Trade and Investment 
---------------------------- 
 
-- Japan Partially Lifts Sanctions on DPRK 
-- DPRK to Export Magnesium Oxide to Taiwan 
-- DPRK-Taiwan Trade Rises 15.5 Percent in 1st Quarter of 
2008 
-- DPRK-China Reportedly in Joint Development of DPRK Iron 
Ore Mine 
-- DPRK Dispatches Workers to Poland to Earn Cash 
-- Dutch Travel Agency Promotes DPRK Tour 
 
---------------- 
Domestic Economy 
---------------- 
 
DPRK Welcomes U.S. Delisting 
---------------------------- 
 
North Korea's Central News Agency (KCNA) quoted a DPRK 
Foreign Ministry spokesman on June 27 stating that the 
United States government had announced plans to delist North 
Korea from its State-Sponsored Terrorism List and Trading 
with the Enemy Act on June 26.  The North Korean government 
hailed the U.S. decision as a positive measure.  The 
spokesman noted that the North Korean government will 
sincerely implement the September 19th Joint Statement, 
closely hewing to the principle of "action for action" in 
the future. 
 
DPRK Economy Contracts 2.3 Percent in 2007 
------------------------------------------ 
 
The DPRK economy contracted 2.3 percent in 2007, down for a 
second consecutive year after falling 1.1 percent in 2006, 
according to a June 18 report by Bank of Korea (BOK).  The 
BOK estimates that the South's economic output is now 36 
times as large as the DPRK's.  The BOK attributed the DPRK's 
negative growth to (1) international isolation stemming from 
 
its nuclear weapons program and (2) reduced agriculture 
output due to unfavorable weather conditions.  Agriculture 
output posted a significant 9.4 percent drop in 2007, while 
services improved slightly, mainly due to increased tourist 
earnings from South Korean visits.   Manufacturing output 
rose 0.7 percent, with increased apparel and footwear 
production stemming from the Kaesong Industrial Complex 
(KIC) and inter-Korean cooperation projects.  However, light 
industry declined 1.7 percent, mainly due to lower food, 
beverages, and cigarette production.  Construction dropped 
1.5 percent, contributing to further deterioration in the 
DPRK's already poor infrastructure.  Overall mining output 
grew a slight 0.4 percent, chiefly due to lower production 
of coal and non-metal minerals canceling out higher iron ore 
and tungsten production.   The following graph compares 
annual growth rates for the two Koreas: 
 
 
ROK NGO Quotes DPRK Document on Food Shortages 
--------------------------------------------- - 
 
A document released by the North Korean government indicates 
North Korea is facing grave food shortages, according to 
Good Friends, a South Korean NGO on June 18.  The document 
stated, "Resolving today's food problem is very important 
for preserving the socialism of our own style and improving 
the living standards of the North Korean people."  It also 
calls for redoubling North Korean efforts to increase this 
year's crop production. 
 
Sensationalist DPRK Commercial Lures Foreign Customers 
-------------------------- --------------------------- 
 
Chosun Ilbo, a South Korea-based daily, reported June 9 that 
a sensationalist commercial advertisement for game software 
was recently posted on the Chosu Expo, a DPRK-run internet 
shopping mall (www.chosunexpo.com).  The shopping mall sells 
tea, health food, liquor, software games, and flatware, with 
commercial advertisements posted in English, Chinese, and 
Korean.   The commercial advertisement depicted a female 
volley ball player dressed in a bikini.   The Internet 
shopping mall was reportedly open in November 2004 to offer 
business consulting services similar to those of South 
Korea's Trade and Investment Promotion Agency (KOTRA). 
 
DPRK Promotes English Language Teaching 
--------------------------------------- 
 
North Korea is promoting English-language education 
throughout the country to help revive the economy, according 
to a recent KOTRA report.   North Korean authorities are 
reportedly considering establishing an English language 
center to train English teachers in cooperation with a 
Canadian NGO.   Moreover, North Korean authorities are 
planning to introduce early English education courses in 
3rd-grade elementary schools beginning this September. 
Global Aid Network, a Canada-based non-governmental 
organization, is currently recruiting English teachers to 
dispatch to Pyongyang's English language center on one-year 
assignments.  The two countries had operated a Canada-DPRK 
Science and Technology English Education Center for North 
Korean science and technology engineers in 2004, but it was 
suspended in 2005. 
 
----------- 
Foreign Aid 
----------- 
 
Six-Party Countries Agree to Accelerate DPRK Energy Aid 
Following a Six-Party Meeting 
---------------------------- -------------------------- 
 
South Korea's Foreign Ministry (MOFAT) Spokesman Hwang Joon- 
kuk said June 11 that South Korea, the United States, Japan, 
China and Russia had agreed to speed up the delivery of 
energy aid to North Korea in exchange for its progress 
towards nuclear disablement.  The Energy and Economy Working 
Group meeting was held at the truce village of Panmoonjeom 
on June 10-11.  Hwang said the five donor countries have so 
far sent North Korea 384,000 tons of oil and other energy- 
related equipment out of the promised 1 million tons. 
 
 
Korean-American Religious Group Builds General Hospital in 
DPRK 
---------------------------- ----------------------------- 
 
Manna Missionary, a Houston-based Korean-American religious 
group, recently opened Sinheung General Hospital in Rajin, 
North Korea, according to Voice of America (VOA)on June 19. 
The hospital can accommodate 100 North Korean patients and 
is equipped with high-tech medical devices.  The majority of 
medical doctors at the hospital consists of retired Korean- 
American medical doctors rotating in 2~3 months stints. 
Manna Missionary also assisted North Korea in setting up a 
bread factory in 1999 and a medical center in 2003.   It 
also plans to train North Korean medical doctors. 
 
 
Russia Sends Food Aid to DPRK via WFP 
------------------------------------- 
 
Russia's Foreign Ministry recently announced that the 
Russian government had shipped 2,860 metric tons of wheat 
flour to North Korea via the World Food Program (WFP) on 
June 11. 
 
 
Italy Contributes 500,000 Euros to Relieve DPRK Food 
Shortage 
-------------------------- ------------------------- 
 
The VOA cited Italy's Foreign Ministry on June 20 stating 
that the Italian government had donated 500,000 euros (USD 
790,000) in cash to the WFP for food aid to the DPRK.  In 
addition, the Italian government recently shipped 1,300 
metric tons of wheat flour to the DPRK via the WFP and 
pledged to contribute an additional one million euros (USD 
1.58 million) to assist the DPRK in the near future. 
 
 
WHO and FAO to Launch Anti-Epidemic Measures against DPRK 
Bird Flu 
---------------------------- ---------------------------- 
 
Radio Free Asia (RFA) quoted the United Nations Food and 
Agriculture Organization (FAO) stating that it plans to 
launch a joint-venture project to prevent bird flu outbreaks 
in North Korea in cooperation with the World Health 
Organization (WHO).  The joint project will run from July 
through December of this year.  Details of the project were 
not disclosed.  Earlier in the month, Good Neighbors, a 
South Korea-based NGO, claimed it had observed bird flu 
cases in the North.  North Korean authorities strongly 
denied the rumor.   So far, no outbreak has been confirmed. 
 
 
DPRK Requests WMO High-Tech Weather Equipment 
--------------------------------------------- 
 
The North Korean government has asked the World 
Meteorological Organization (WMO) to supply high-tech 
weather-observation devices to help forecast rainfall and 
prevent crop damage, according to the RFA on June 18.   RFA 
quoted Dr. Tokiyoshi Yoya stating tat the WMO is 
considering how to support such a request. 
 
--------------------------------- 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
May 2008 Inter-Korean Trade Up 14 Percent 
----------------------------------------- 
 
Inter-Korean trade rose 14 percent to USD 173 million this 
May compared to the same month last year, according to MOU. 
The increase was largely due to commercial transactions, 
reaching USD 153 million, up 46 percent from USD 105 million 
last May.  Non-commercial transactions between the two 
Koreas contracted significantly due to strained inter-Korean 
political ties, shrinking 58 percent to USD 19.6 million. 
South Korea's exports to the North grew 8 percent to USD 
95.5 million in May, while the imports were up 22 percent to 
USD 77.2 million.  In the meantime, inter-Korean trade grew 
30.4 percent to USD 734.3 million in the first five months 
of 2008 compared to the same period a year ago.  South 
Korea's exports to North Korea rose 27.6 percent to USD 376 
 
million, while imports from North Korea grew 33.6 percent to 
USD 358 million. 
 
 
New Inter-Korean Economic Cooperation Projects Decline 
------------------------ ----------------------------- 
 
The number of inter-Korean economic cooperation 
consultations have steadily declined since the new South 
Korean government assumed office in late February, according 
to MOU figures.  The number of business consultations (held 
under the auspices of the Inter-Korean Economic Cooperation 
Consultation Office set up in the Kaesong Industrial 
Complex) fell 29 percent in the first five months of this 
year compared to the same period of a year ago.   MOU noted 
that lack of government level communications between the two 
Koreas accounted for the decline. 
 
 
North Limits Passage to Kaesong Industrial Complex 
--------------------------------------------- ----- 
 
Beginning on June 24, North Korean authorities restricted 
the passage of South Korean citizens and goods from the 
Kaesong Industrial Complex to South Korea to afternoons 
only.  The DPRK spokesman cited by Yonhap explained, "North 
Korea has been allowing South Koreans to transport goods 
only during the afternoon period because transport 
connections necessary to manage cross-border passage are too 
old." 
 
 
MOU Plans to Foster DPRK Human Resources 
---------------------------------------- 
 
A Ministry of Unification (MOU) official said June 18 that 
it plans to propose a comprehensive plan for fostering North 
Korean human resources to respond to expanded inter-Korean 
economic cooperation.  The program will include economic and 
technical training. 
 
 
ROK Legislator Proposes Another Inter-Korean Economic Zone 
in ROK 
---------------------------- ----------------------------- 
 
A South Korean legislator (and one of the ruling party's 
policy makers) Yim Chae-hee, is proposing a bill to 
establish an economic zone at Paju in northwest South Korea 
to help facilitate inter-Korean economic cooperation.  North 
Korean workers would be invited to work at the South Korean 
free economic zone, whose size and function will be similar 
to that of the Kaesong Industrial Complex.  North Korea has 
yet to respond to the South's proposal.  Yim said that his 
bill would help North Korea chart a successful economic 
transition.  "North Koreans can gradually learn lessons from 
the capitalist economy through the collaboration project," 
he said. 
 
 
POSCO to Buy DPRK Coal and Iron Ore 
----------------------------------- 
 
POSCO-China Holding Corporation President Kim Dong-hyun 
visited Pyongyang June 24 at the invitation of North Korea's 
National Economic Cooperation Federation, a North Korean 
agency responsible for international economic cooperation, 
to discuss the purchase of anthracite coal.  POSCO bought 
200,000 tons of coal from North Korea last year and is 
considering purchasing more coal this year.  POSCO also 
reportedly discussed the possibility of buying iron ore from 
the North.   A POSCO official stated, "POSCO did not import 
North Korean iron ore in the past because its iron content 
was relatively low.  As a result of soaring commodity 
prices, however, the company is now considering buying North 
Korean ore." 
 
 
HAC delays Mount Baekdu Tour 
---------------------------- 
 
Hyundai Asan Corporation (HAC), the South Korean tour 
operator of Mount Geumgang resport in the DPRK, said June 12 
that it has decided to postpone its Mount Baekdu program 
into next year due to stalled inter-Korean governmental 
relations.  HAC will instead focus on its existing tour 
programs to Mount Geumgang and Kaesong City.  HAC conducted 
a Baekdu site survey last November, but key details on 
airport renovation, flight routes, and airlines have yet to 
be worked out. 
 
 
Inter-Korean JV Textile Firm to Begin Production in August 
----------------------------- ---------------------------- 
 
Pyongyang Hemp Textiles (PHT - a joint-venture between South 
Korea's Andong Hemp Textiles and North Korea's Saebyeol 
General Company) plans to begin producing goods (socks, 
towels, sheets and textiles) this August, according to a 
company representative on June 5   PHT was initially 
capitalized at USD 30 million -- USD 15 million in capital 
from the South Korean firm and the remaining USD 15 million 
in hemp fields and factory land located around Pyongyang, 
North Korea.  The PHT representative said that a total of 
1,800 North Korean workers and 25 South Korean managers and 
technicians will participate in the venture. 
 
 
ROK City Government Builds Bread Factory in Pyongyang 
--------------------------------------------- -------- 
 
A South Korean delegation led by Mokpo City government 
leader Jung Jong-deuk visited Pyongyang May 31 to attend the 
ground-breaking ceremony of a bread factory in Pyongyang in 
cooperation with North Korea's National Reconciliation 
Committee.  The Mokpo City government contributed USD 
574,000 to finance the construction of the two-story 
factory, expected to be completed in September of this year. 
Upon completion, the factory will be able to provide 10,000 
North Korean children with bread and cookies per day. 
 
 
South NGO Sends Food Aid to North 
--------------------------------- 
 
On June 18, Good Neighbors sent USD 95,700 worth of food aid 
consisting of milk powder, wheat flour and vegetable oil to 
families in Nampo and Gangnam County near Pyongyang.   Good 
Neighbors has also been helping North Korea to refurbish 
hospitals. 
 
 
---------------------------- 
Foreign Trade and Investment 
---------------------------- 
 
Japan Partially Lifts Sanctions on DPRK 
--------------------------------------- 
 
Japanese Foreign Minister Masahiko Komura announced June 14 
that the Japanese government had agreed to lift restrictions 
on the movement of people between the two countries and to 
end a ban on chartered flights from North Korea.   In 
return, North Korea agreed to cooperate in the investigation 
of the 1970 hijacking of a Japanese aircraft flown to North 
Korea. 
 
 
DPRK to Export Magnesium Oxide to Taiwan 
---------------------------------------- 
 
Formosa Plastics Group, a leading Taiwan-based petrochemical 
company, plans to import 1,500 tons of magnesium oxide from 
North Korea, according to KOTRA on June 5.   North Korea 
holds the world's 3rd largest magnesium oxide reserves, 
followed by China and Russia.   Formosa Plastics plans to 
expand its imports of magnesium oxide from North Korea, 
diversifying away from its main supplier, China. 
 
 
DPRK-Taiwan Trade Rises 15.5 Percent in 1st Quarter of 2008 
--------------------------- ------------------------------- 
 
North Korea's trade with Taiwan rose 15.5 percent to USD 5.2 
million in the first quarter of this year, according to 
KOTRA.  North Korea's exports to Taiwan skyrocketed 2,039 
percent to USD 1.2 million (mainly coal and electric 
circuits), while imports from Taiwan fell 10 percent to USD 
4 million (chiefly chemicals and soybeans). 
 
 
DPRK-China Reportedly in Joint Development of DPRK Iron Ore 
Mine 
---------------------------- ------------------------------ 
 
Yonhap News Agency cited a Chinese source saying that North 
Korea and China are jointly developing North Korea's Ongjin 
Iron Ore Mine.  S group, a China-based magnesium processing 
firm, in conjunction with DPRK authorities recently set up 
the West-Sea Joint Venture Company with a total capital of 
36 million euros (USD 57 million) to develop the iron ore 
mine. The joint venture firm will expand its business into 
the construction of a thermal power plant, steel mill, and 
port facility in North Korea.  The Ongjin iron ore mine is 
estimated to hold a iron ore reserve of 600 million tons. 
 
 
DPRK Dispatches Workers to Poland to Earn Cash 
--------------------------------------------- - 
 
RFA cited a Poland-based daily, Gazeta Wyvorcza, on June 3 
stating that North Korean authorities had dispatched 
approximately 42 North Korean workers to the Gdansk shipyard 
and Kleczaanow farms in Poland's northwest to earn foreign 
currency. 
 
 
Dutch Travel Agency Promotes DPRK Tour 
-------------------------------------- 
 
Koning Aap, a Dutch-based travel agency, has been promoting 
a 15-day North Korean tour program priced at 2, 850 Euros 
(USD 4,471) per person.  The tour program includes 
Pyongyang, Kaesong, Panmujeom, Mount Myohyang, Nampo, and 
Inner Mount Geumgang.    The company is considering offering 
more tour programs to North Korea. 
 
 
VERSHBOW