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UNCLAS SECTION 01 OF 04 SEOUL 000776 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - APRIL 2009 
 
------------- 
In This Issue 
------------- 
 
-- DPRK Reportedly Bans Wide Array of Goods from Markets 
-- DPRK Prepares for Spring Fertilizer Shortages 
-- Popular Italian Restaurant in Pyongyang 
-- DPRK Threatens ROK Civilian Aircraft in Its Airspace in Reaction 
to U.S.-ROK Joint Military Exercise 
-- ROK NGOs Resume Sending Aid Once DPRK Re-Opens Border 
-- ROK Buddhist Group to Build Kimchi Factory in Pyongyang or 
Kaesong 
-- Malaria Reduced by 50 Percent in 2008 in Kaesong Area 
-- DPRK Refuses Further U.S. Food Aid 
-- U.S. NGO to Work With American Hearth Association to Improve DPRK 
Heart Disease Care 
-- UNICEF's DPRK Projects Face Financial Difficulty 
-- EU and RSF Provide Funding for ROK Online DPRK News 
-- Japan-DPRK Trade in 2008 Hits Lowest 
-- DPRK Imports of Beef and Wheat Flour from China Grow 
-- Mongolia and DPRK Agree on Hydro-Meteorology Cooperation 
-- DPRK Offers Potential EU Investors Tax Breaks 
-- Swiss Bank Guarantees Payment for DPRK Investor Orascom 
 
Domestic Economy 
---------------- 
 
¶1. (U) DPRK Reportedly Bans Wide Array of Goods from Markets:  The 
Korea Institute for Far Eastern Studies (IFES) reported that "North 
Korea Intellectual Solidarity," a South Korean civic group 
consisting of 600 North Korean defectors, claimed that North Korean 
authorities released on March 15 a list of goods banned from markets 
across the country from April 1.  The ban would in theory eliminate 
most items traditionally sold in these markets.  Banned goods 
include foodstuffs, clothing, housewares, TVs, furniture, 
cigarettes, etc., and all goods produced in the United States, South 
Korea, manufactured by joint-venture firms (including goods produced 
in the Kaesong Industrial Complex), and relief goods including 
medicines sent by the United Nations. 
 
¶2. (U) DPRK Prepares for Spring Fertilizer Shortages:  IFES reported 
on March 17 that North Korea is facing fertilizer shortages as the 
spring farming season approaches.  According to IFES, DPRK 
authorities and farmers are concerned that prospects for receiving 
fertilizer from the ROKG are remote (until 2008 the ROKG delivered 
300,000 mt of chemical fertilizer per year).  IFES cited Dr. Kwon 
Tae-jin, Senior Research Fellow at Korea Rural Economics Institute 
as saying that North Korea has dramatically increased chemical 
fertilizer imports from China in order to prepare for the 
possibility of a continued hold on ROKG fertilizer aid.  The DPRK 
imported around 40 times more fertilizer from November 2008 through 
January 2009 (25,608mt) than it imported during the same three-month 
period a year earlier.  Kwon opined that the reason for this sharp 
increase in chemical fertilizer imports is to stockpile supplies in 
the expectation that South Korea will not provide fertilizer. 
 
¶3. (U) Popular Italian Restaurant in Pyongyang:  Chosun Sinbo, a 
pro-DPRK newspaper based in Japan, reported on March 14 that an 
Italian restaurant serving spaghetti, pizza and pasta was opened in 
Pyongyang last December.  The newspaper claimed that the restaurant 
is the first to serve exclusively Italian cuisine and is popular 
among Pyongyang's inhabitants.  Kim Sang-soon, the restaurant 
manager, said that the opening of the restaurant was initiated by 
North Korean leader Kim Jong-il as a way for North Koreans to have 
the opportunity to taste world cuisines.  He noted that Kim Jong-il 
had ordered a delegation of North Korean chefs to be dispatched to 
Italy to learn Italian cooking.  All the materials for the Italian 
cuisine such as wheat flour, butter and cheese are being imported 
from Italy. 
 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
¶4. (U) DPRK Threatens ROK Civilian Aircraft in Its Airspace in 
Reaction to U.S.-ROK Military Exercise:  North Korea's Committee for 
the Peaceful Reunification of the Fatherland announced March 5 in a 
statement that it would be unable to guarantee the safety of South 
Korean civilian flights using its airspace during the Key Resolve, a 
March 9-20 U.S.-ROK joint military exercise.  The announcement was 
 
SEOUL 00000776  002 OF 004 
 
 
part of a broader DPRK hostile reaction to the exercise.  Along with 
other international reaction, South Korea's Ministry of Unification 
(MOU) issued a statement on March 6 urging North Korea to retract 
the warning and stating, "The military threat against normal 
operation of civilian airplanes under international aviation 
protocols is in violation of international norms and is inhumane." 
KCASA, Korea's Civil Aviation Authority, on March 6 mandated that 
all Korean air carriers avoid the Kamchatka area.  Planes were 
forced to detour to the North Pacific Air Route from the Kamchatka 
Air Route (which passes through DPRK airspace), forcing aircraft to 
burn more fuel. 
 
¶5. (U) Following the completion of the military exercise, the ROKG 
sent two test flights along the Kamchatka route; when they proceeded 
without incident, the ROKG announced on April 24 that ROK aircrafts 
could immediately resume overflying DPRK airspace. 
 
¶6. (U) North Korea loses an average of USD 870 in overflight fees 
per flight that does not use its airspace.  According to the 
Ministry of Land, Transportation, and Maritime Affairs, South Korea 
since 2002 has paid an annual average of USD 2.5 million (more in 
recent years) to North Korea for use of its airspace.  (See below). 
 
 
¶7. (U) South Korean Overflights of DPRK Airspace 
 
        2002    2003    2004   2005   2006   2007   2008   TOTAL 
        ----    ----    ----   ----   ----   ----   ----   ----- 
No of   1,724  1,793   2,356  3,350  4,183  4,324  5,260  22,990 
Flights 
 
Payment  0.96   1.10    1.43   2.30   2.95   3.39   5.30    17.4 
(USD Million) 
 
Source:  Ministry of Land, Transportation and Maritime Affairs 
 
 
Foreign Aid 
----------- 
 
¶8. (U) ROK NGOs Resume Sending Aid Once DPRK Re-Opens Border:  The 
Coal Briquettes Sharing Movement and Korean Peninsula Agro-Fishery 
Cooperative Committee, Seoul-based civic groups, delivered 50,000 
coal briquettes and 25 tons of livestock feed, respectively, to 
North Korea on March 24 when the inter-Korean border was reopened 
following the closures by the DPRK to express dissatisfaction with 
U.S.-ROK military exercises.  The groups had originally planned to 
deliver the aid earlier but the shipments were delayed by the border 
closures.  Representatives of the Korea Sharing Movement visited 
North Korea on March 21 to discuss public health issues and 
agricultural development. 
 
¶9. (U) ROK Buddhist Group to Build a Kimchi Factory in Pyongyang or 
Kaesong:  The One Korea Buddhist Movement, a Seoul-based religious 
group, said March 15 that it plans to build a kimchi factory in 
North Korea in response to a request by the DPRK's National 
Reconciliation Committee.  The factory is to have a daily capacity 
10 tons of kimchi and is to be located in either Pyongyang or 
Kaesong.  The factory will employ 90 North Koreans.  The plan also 
calls for planting of additional cabbage in North Korea.  No 
specific construction schedule has been determined. 
 
¶10. (U) Malaria Reduced by 50 Percent in 2008 in Kaesong Area: 
Newsis, a Seoul-based online news provider, reported March 28 on a 
successful effort by the ROK's Gyeonggi Province to help North Korea 
prevent malaria in the area surrounding Kaesong.  The Provincial 
government reports that 1,007 North Koreans living in the vicinity 
of Kaesong were infected by malaria in 2007, but only 485 people 
were infected in 2008, a 52 percent drop.  Gyeonggi says the 
preventive measures it helped introduce deserve much of the credit. 
 
 
¶11. (U) DPRK Refuses Further U.S. Food Aid:  Local media reported on 
March 17 that State Department Spokesman Robert Wood announced that 
North Korea informed the U.S. government that it was terminating the 
U.S. food assistance program.  The United States delivered USD 190.9 
million in assistance or 169,900 tons of food aid (122,000 metric 
tons of corn, 3,470 mt of corn-soy blend, 37,270 mt of soybeans, and 
1,470 mt of vegetable oil).  Local press noted that the DPRK had 
been tough on the use of Korean-speaking monitors by the World Food 
 
SEOUL 00000776  003 OF 004 
 
 
Program (WFP).  Wood said the U.S. government is ready to deliver 
the remainder of the promised food aid (the U.S. government has 
pledged to provide up to 500,000 mt of food to help alleviate the 
North's chronic food shortages).   South Korea's Unification 
Minister Hyun In-taek said North Korea was making a carefully 
calculated decision.   Minister Hyun also said, "We have been 
watching closely how North Korea would feel about receiving the food 
aid from the United States while the joint US-ROK military drill is 
underway."  Hyun reaffirmed that the ROKG will provide aid when 
North Korea accepts calls for dialogue and if the food situation 
worsens. 
 
¶12. (U) U.S. NGO to Work with American Heart Association to Improve 
DPRK Heart Disease Care:  Voice of America reported March 19 that 
U.S.-based Global Resource Services (GRS) plans to expand aid 
projects for North Korea.  Robert Springs, CEO and President of GRS, 
said at a American Association for the Advancement of Science 
seminar on March 18 that GRS plans to facilitate comprehensive 
medical care for heart disease across North Korea in cooperation 
with DPRK authorities and the American Heart Association.  Springs 
added that the organization also plans to help feed 150,000 people 
in Hwanghae and North Hamkyong provinces.  GRS has been working with 
the DPRK Ministry of Agriculture since 2004 to carry out soy farm 
projects including tofu production, soybean oil and soy milk to feed 
North Koreans.  GRS also offers an educational program for North 
Korean professors at Pyongyang University of Foreign Studies to help 
in improving their English teaching skills. 
 
¶13. (U) UNICEF's DPRK Projects Face Financial Difficulty:  The 
UNICEF Pyongyang Office Representative, Gopalan Balagopal was 
reported by Radio Free Asia on March 17 to have said that UNICEF is 
facing financial difficulties in its humanitarian aid projects in 
North Korea.  Balagopal said that UNICEF allocated USD 13 million to 
help North Korea this year, USD 2 million lower than a year earlier. 
 The budget is intended to improve education, the public health 
sector, and water and sewage facilities.  However, due to the global 
economic recession, the international community's contribution was 
drastically reduced and totaled just USD 236,000 (two percent of the 
planned budget).  UNICEF may have to cancel the North Korean project 
or reduce it unless the contributions increase. 
 
¶14. (U) EU and RSF Provide Funding for ROK Online DPRK News:  The 
European Union and Reporters without Borders (RSF) said March 24 
that they plan to provide over the next three years financial 
support of 400 million won (USD 273,597) for Open DPRK 
Communications, Free Chosun Radio, and Free North Korea Radio, three 
South Korean online and broadcasting news services focused on North 
Korea.  RSF and the three news providers held a signing ceremony on 
the financial assistance in Seoul on that day.  The news providers 
also urged the South Korean government to allocate an exclusive 
radio frequency so that their news programs can also be available in 
South Korea.   The news providers are currently broadcasting news 
programs through a higher-cost transmission center overseas.  The 
ROKG is reportedly concerned about exacerbating inter-Korean ties if 
it allows the broadcasters to use a local frequency. 
 
 
Foreign Trade and Investment 
---------------------------- 
 
¶15. (U) DPRK-Japan Trade in 2008 Hits New Low:  The Korea 
Trade-Investment Promotion Agency reported March 11 that bilateral 
trade between North Korea and Japan in 2008 declined 11 percent to 
USD 8 million, the lowest level since 1977 (when Japan began 
releasing bilateral trade figures).  The drop in trade was mainly 
due to a ban on the entry of DPRK-flagged ships into Japan and the 
continuing ban on imports from North Korea.  Japan's exports to 
North Korea in 2008 consisted primarily of chemicals, machinery, 
plastics and transport equipment. 
 
DPRK-Japan Trade: 2003-2008 
---------------------------- 
(Unit: USD Million) 
 
YEAR   DPRK Exports      DPRK Imports     TOTAL 
       to Japan          from Japan 
----   ------------      ------------     ----- 
2003      173                 91           264 
2004      163                 89           252 
2005      132                 63           195 
 
SEOUL 00000776  004 OF 004 
 
 
2006       77                 43           120 
2007        0                  9             9 
2008        0                  8             8 
 
Sources: East Asia Trade Research Board and Korea Trade and 
Investment Promotion Agency 
 
¶16. (U) DPRK Imports of Beef and Wheat Flour from China Grow:  The 
North Korean Economy Watch, a U.S.-based blog on North Korean news, 
reported March 7 that North Korea has imported 5 tons of beef, worth 
USD 77,174 from China via the Northern port of Dalian and that China 
has also agreed to ship 60,000 metric tons of wheat flour.   North 
Korea's imports of Chinese beef, in 485 containers via the border 
city of Dandong in February this year, was the first of its kind 
from Dalian, the report said, adding that Dalian is China's second 
biggest beef-exporting port after Hong Kong.  The flour will be 
supplied under an international aid agreement in the period 
June-August and is being supplied by Jinyuan Flour, a company based 
in Zhengzhou, Henan Province of China. 
 
¶17. (U) DPRK Offers Potential EU Investors Tax Breaks:  Radio Free 
Asia reported March 10 that North Korean diplomats to Switzerland 
were invited to give a presentation on investment and trade for more 
than 40 European companies on March 4.  The seminar was organized by 
The Hague Chamber of Commerce and GPI Consultancy in Netherlands. 
The DPRK officials offered them various tax benefits such as no 
import tariffs, and no sales and income taxes for investors in North 
Korea.  North Korea is eager to lure investors to build high-rise 
buildings such as hotels, shopping malls and tourism facilities in 
downtown Pyongyang.   A delegation of EU companies plans to visit 
North Korea in May to discuss further business relations. 
 
¶18. (U) Swiss Bank Guarantees Payment for DPRK Investor Orascom: 
Radio Free Asia reported March 25 that the Egyptian firm, Orascom, 
which has invested in the telecommunications and construction 
sectors in North Korea, was recently given a payment guarantee by 
UBS, a Swiss commercial bank.  The bank's payment guarantee enabled 
Orascom to invest USD 50 million, despite North Korea's poor 
business environment.  Orascom has a staff of 30 to conduct its 
business in North Korea. 
 
¶19. (U) DPRK-Mongolia Sign Hydro-Meteorology Cooperation:  Korea 
Central News Agency recently reported that North Korea and Mongolia 
signed a memorandum of understanding on hydro-meteorology 
cooperation in Pyongyang.  The two countries also agreed to 
cooperate in science and technology. 
 
STANTON