VZCZCXRO9778
RR RUEHVK
DE RUEHUL #1194/01 2110304
ZNR UUUUU ZZH
R 300304Z JUL 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 5148
RUCPDOC/USDOC WASHDC 8924
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAUSA/DEPT OF HHS WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 6447
RUEHBJ/AMEMBASSY BEIJING 6365
RUEHGP/AMEMBASSY SINGAPORE 6964
RUEHHK/AMCONSUL HONG KONG 3946
RUEHSH/AMCONSUL SHENYANG 4797
RUEHVK/AMCONSUL VLADIVOSTOK 1677
RUEHIN/AIT TAIPEI 3768

UNCLAS SECTION 01 OF 05 SEOUL 001194 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - JULY 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not 
intended for Internet distribution. 
 
In This Issue 
------------- 
-- North Korea Begins Closing General Markets 
-- DPRK Sets Up Environmental Protection Plan 
-- DPRK Establishes a Charity Branch in Beijing 
-- DPRK Engages in Disaster Preparation 
-- DPRK Reportedly Prints Counterfeit U.S. Bonds 
-- Japan Bans All Exports to DPRK 
-- DPRK Explores International Advertising Market 
-- DPRK-Chinese Border Controls Tightened 
-- DPRK-Taiwan Trade Surges in the 1st Quarter of 2009 
-- DPRK-China Railway Tour Suspended 
-- DPRK Expected to Attend Shanghai Expo in 2010 
-- Russia Works to Improve DPRK Brewery 
-- KIC Firms Seek Compensation 
-- DPRK Cigarettes to be Sold in ROK 
-- Inter-Korean Trade & KIC Production Fell in May 
-- WFP:  DPRK Food Situation 'Critical' 
-- ROK Aid to the DPRK Drops 60 Percent (January-May) 
-- ROKG Urged to Lift Restrictions on Civic Groups 
 
 
Domestic Economy 
---------------- 
 
¶2.  (SBU) North Korea Begins Closing General Markets: 
 
According to the June 23 issue of North Korea Today, a newsletter 
released by ROK-based civic group Good Friends, Pyongyang's main 
outdoor market has been closed since the second half of last year. 
The closing of this market, which has in the past functioned as the 
DPRK's largest wholesale market, is seen by many as an attempt to 
encourage the use of local agricultural markets.  DPRK officials 
have announced on several occasions over the past year that they 
intend to convert the nation's general markets into more limited 
markets for agricultural goods, but implementation has been delayed. 
 Regional authorities have been ordered to increase the importation 
of Chinese goods in order to allay concerns that the closing of 
markets will result in shortages.  In the past, DPRK authorities' 
attempts to enforce market restrictions have led to clashes between 
traders and the police.  A DPRK official was quoted as saying, "The 
Workers Party must unconditionally get rid of markets.  On the 
inside, however, they see that there will be huge public opposition 
[to the measures] if they only use force, so this time they decided 
to combine it with conciliatory policies."  The newsletter added 
that DPRK authorities will keep markets open while working towards 
their goal of reintroducing pre-2003 market restrictions by the end 
of 2009. 
 
¶3. (SBU) DPRK Sets Up Environmental Protection Plan: 
 
Choson Sinbo, a pro-DPRK newspaper published in Japan, reported in 
an article on June 4 that the DPRK is drafting its first long-term 
environmental policy plan, which is slated to be made public by the 
end of the year.  The article quotes the DPRK's Research Institute 
for Environmental Protection as saying that the plan would 
"cohesively combine economic development and environmental 
protection."  According to the article, the institute will conduct a 
comprehensive environmental survey which will be used to establish a 
long-term environment protection plan that does not interfere with 
the nation's economic development and urban reconstruction. 
 
¶4. (SBU) DPRK Establishes a Charity Branch in Beijing: 
 
Chosun Sinbo reported on June 18 that the DPRK has recently opened a 
branch office of its Federation for the Protection of the Disabled 
in Beijing.  The office's responsibilities include fundraising and 
promoting the DPRK's effort to better the lives of the nation's 
disabled.  It will also work with Chinese organizations to set up a 
joint fund.  Kim Yong-chol, vice president of the organization, has 
said that the DPRK may invite international donors to tour the 
nation's treatment centers for the disabled.  The DPRK enacted a law 
in 2003 to protect the disabled.  The DPRK has developed programs to 
teach the blind and the deaf sports and art and has built a 
 
SEOUL 00001194  002 OF 005 
 
 
rehabilitation center in Pyongyang. 
 
¶5. (SBU) DPRK Engages in Disaster Preparation: 
 
Chosun Sinbo reported in a June 23 article that the DPRK's 
Hydro-meteorological Service is preparing for natural disasters in 
light of forecasted droughts and cold weather along the nation's 
coasts this summer.  Kim Mun-wuk, a senior DPRK official, was quoted 
as saying, "torrential rains are forecast from the middle of July 
and August across the country, later than usual."  The DPRK plans to 
organize provisional anti-flood committees to devise comprehensive 
measures to help citizens cope with heavy rains and to prevent 
flooding.  According to the article, such measures will include the 
establishment of a flashflood warning system, building new water 
reservoirs for farms, preparing irrigation systems, and launching a 
campaign to prevent the spread of waterborne insects.  Authorities 
are also adopting measures to keep the cold weather from leading to 
a late harvest. 
 
¶6. (SBU) DPRK Reportedly Prints Counterfeit U.S. Bonds: 
 
According to an article in the June 24 issue of the Italian 
newspaper Il Messaggero, the DPRK is involved in a case related to 
the printing of USD 134.5 billion worth of counterfeit U.S. bonds. 
Earlier in June, two Japanese nationals were caught in Italy 
allegedly trying to smuggle the bonds into Switzerland.  The article 
suggested that, because the two accused are DPRK agents and are 
believed to have sought to purchase weapons, the bonds may have been 
printed in the DPRK. 
 
 
Foreign Trade and Investment 
---------------------------- 
 
¶7. (SBU) Japan Bans All Exports to DPRK: 
 
Japan's Trade Ministry said on June 16 that the Japanese government 
has decided to ban all exports to the DPRK as punishment for its 
recent nuclear and missile tests.  This ban will come into effect on 
April 13, 2010.  The Japanese Prime Minister Taro Aso earlier voiced 
his support for these new sanctions.  Japan had already banned DPRK 
imports, blocked DPRK ships from entering Japanese ports, and has 
implemented a travel ban; preventing Japanese nationals from 
travelling to the DPRK (except in special cases).  Specifically, 
Japan had already banned exportation of 24 luxury goods to the DPRK, 
including caviar, fatty tuna, and high-end consumer electronics. 
 
 
¶8. (SBU) DPRK Explores International Advertising Market: 
 
The July edition of Choguk ("my nation"), a monthly magazine 
published in Japan by the pro-DPRK Chosun Sinbo, indicates that the 
DPRK's state-owned Korea Advertisement Company is gearing up to 
explore the international advertising market.  The company, which 
was founded in 2006, plans to take part in international trade fairs 
and investment seminars, which will be held in Russia, Germany, 
Italy, and China.  The company's president, Kim Hak, said that it 
also plans to participate in business exchange programs with 
international advertising organizations such as the Chinese 
Advertisement Association. 
 
¶9. (SBU) DPRK-Chinese Border Controls Tightened: 
 
According to an article in the July 7 edition of the Chinese Nanfang 
Daily, border trade between China and the DPRK has contracted as a 
result of China's tightening of the DPRK-China border following the 
DPRK's nuclear test and missile launches.  Chinese traders who do 
business with the DPRK were quoted as saying that personnel, trucks, 
and drivers who cross the DPRK-China border are now being strictly 
controlled by Chinese authorities.  Since the implementation of 
stricter border control, the daily number of trucks crossing the 
border between the Chinese city of Dandong and the North Korean city 
of Sinuiju has dropped to less than ten trucks a day, a fall from 
the more than 100 trucks a day that used to cross the border.  In 
addition to the decline in cross border trade between the two 
countries, the DPRK won has depreciated from 3,200 DPRK won per 
dollar to 4,000 DPRK won per dollar.  The article suggests that the 
depreciation of the DPRK won may be due to the fact that the nation 
 
SEOUL 00001194  003 OF 005 
 
 
is having difficulty securing foreign currencies. 
 
¶10. (SBU) DPRK-Taiwan Trade Surges in the 1st Quarter of 2009: 
 
The Korea Trade and Investment Promotion Agency (KOTRA) reported on 
July 7 that bilateral trade between the DPRK and Taiwan rose to USD 
9.1 million in the first quarter of 2009, a 77 percent rise over the 
same period latest year.  DPRK exports to Taiwan rose to USD 3.73 
million in the first quarter, a 216 percent rise over the same 
period last year.  DPRK exports to Taiwan included anthracite coal, 
a small cargo ship, and red ginseng.  The DPRK imported USD 5.4 
million worth of Taiwanese goods in the first quarter of 2009, a 36 
percent rise over the same period last year.  These imports included 
USD 3.2 million worth of monosodium glutamate, artificial 
flavorings, polyester staple fiber, refined soy bean oil, and wheat 
flour. 
 
¶11. (SBU) DPRK-China Railway Tour Suspended: 
 
Chinese newspapers reported on July 7, the opening of a railway 
between China and the DPRK has been delayed.  The railway, which had 
been scheduled to open this past May and will run between the 
Chinese town of Tumen and the North Korean towns of Namyang, 
Chungjin, and Chilbo, was agreed to by the Tumen City government and 
the provincial government of Hamgyeong and will be used exclusively 
for cross border tourism.  The Tumen City government has not yet 
explained what has prompted this delay.  However, tour agency 
representatives have said that the project has been on hold since 
the DPRK conducted a nuclear test and began launching missiles 
earlier this year. 
 
¶12. (SBU) DPRK Expected to Attend Shanghai Expo in 2010: 
 
KOTRA reported on June 20 that the DPRK is expected to participate 
in the 2010 World Expo in Shanghai.  The report suggests that the 
DPRK has decided to attend the expo in an attempt to strengthen its 
international image.  The DPRK is expected to occupy a space of 
1,000 square-meters at the exhibition.  The theme of the DPRK's 
booth is not yet known. 
 
¶13. (SBU) Russia Works to Improve DPRK Brewery: 
 
According to an article published in the Chosun Sinbo on May 17, 
Baltika Beer Brewery, Russia's leading beer brewery, plans to work 
with the DPRK's Taedonggang Beer Brewery.  Oleg Alekhin, CEO of 
Baltika's office in China is quoted as saying, "Baltika Beer Brewery 
will further cooperate with the DPRK's beer factories to help them 
in enhancing brewery technology."  The article goes on to say that 
since 2002 the Taedonggang Beer Brewery has been sending technicians 
to the Baltika Beer Brewery to learn modern brewing techniques.  The 
Baltika Beer Brewery has been exporting its beer to the DPRK since 
¶2007. 
 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
¶14. (SBU) KIC Firms Seek Compensation: 
 
Donga Ilbo reported on June 26 that around 20 ROK companies in the 
Kaesong Industrial Complex (KIC), most of which have only recently 
started operations on the compound, are preparing to file lawsuits 
in an effort to seek compensation from the ROK government for losses 
they suffered while operating in the KIC.  The DPRK's periodic 
closing of the border and the ROKG's restrictions on travel and 
transportation of raw materials to the DPRK have, according to these 
companies, resulted in huge losses.  The MOU announced on June 25 
that it was mulling plans to provide companies operating in the KIC 
with emergency funds to help avoid a pullout.  MOU spokesperson Chun 
Hae-sung said, "We are still examining whether we have sufficient 
revenue.  We are also reviewing whether it would be fair to offer 
financial aid to certain companies." 
 
¶15. (SBU) DPRK Cigarettes to be Sold in ROK: 
 
Yonhap News Agency reported on June 25 that a ROK company, M2C 
Paeksan, is set to import 175,000 packs of Paeksan cigarettes, 
cigarettes produced by the DPRK's Pyongyang Paeksan Tobacco 
 
SEOUL 00001194  004 OF 005 
 
 
Joint-Venture Company.   The North Korean cigarettes will enter the 
ROK market this July.  This will be the first time that cigarettes 
produced by a DPRK firm will be on sale in the ROK.  Pyongyang 
Paeksan Tobacco Joint-Venture Company is a DPRK-Chinese 
joint-venture.  The cigarettes are expected to be sold at 2,300 KRW 
a pack.  If the cigarettes prove to be popular, the ROK importer may 
decide to import more in the future.  In 2000, the ROK's Korea 
Tobacco and Ginseng Corporation imported DPRK cigarettes under a 
temporary contract based on processing-on-commission.  Though 
produced in the DPRK, these cigarettes were manufactured by a ROK 
firm using ROK technology.  These cigarettes have since been 
discontinued. 
 
¶16. (SBU) Inter-Korean Trade & KIC Production Fell in May: 
 
According to data recently collected by the MOU, inter-Korean trade 
fell to USD 107 million in May, a 28 percent year-on-year decline. 
This figure represents the ninth consecutive month of decline.  ROK 
exports to the DPRK fell to USD 42.3 million in May, a 56 percent 
year-on-year decline.  ROK imports of DPRK goods fell to USD 65 
million, a 16.4 percent decline.  The KIC experienced an 18.4 
percent year-on-year fall in production.  This drop can be 
attributed to the DPRK's restrictions on border crossings and to the 
DPRK's demand for wage hikes for KIC laborers and exorbitant fees 
for the use of KIC land.  The ROK shipped no aid to the DPRK in May. 
 The following table shows a breakdown of inter-Korean trade in the 
month of May: 
 
Inter-Korean Trade in May 2009 
(Source:  Ministry of Unification) 
 
Commercial Transactions 
----------------------- 
                   South Exports South Imports     Total 
                   To North      from North 
                    ------------- -------------    ----- 
General Trading    667(-85.3)    20,902(-38.5) 21,569(-44) 
 
Processing-on      8,057(-99)    12,932(-0.8)  20,989(-16.5) 
Commission (POC) 
 
KIC Project       30,300(-99)       28,139(9)  58,439(18.4) 
 
Mt.Kumgang         211(-98.2)       52(-98.5)    263(-93.2) 
Tourism Project 
 
Other Economic     1,790(-99)      2,573(223)     4,327(89) 
Projects 
 
Light Industry       0              0              0 
Cooperation 
 
Subtotal          41,025(-46)    64,562(-16.4)  105,587(-31) 
 
 
Non-Commercial Transactions 
--------------------------- 
                South Exports South Imports      Total 
                To North      from North 
                ------------- -------------      ----- 
NGO Aid           1,245(-85)         0        1,245(-85) 
 
Government Aid       0(-242)         0           0(-242) 
 
Social,Cultural 
Projects              0(-99)         0(-1)      0(-100) 
 
Energy Aid           0(-11,128)      0(0)       0(-11,128) 
(HFO) 
 
Subtotal             1,245(-100)     0(-100)    1,245(-94) 
 
TOTAL               42,270(-56)  64,562(-16.4) 106,832(-38.1) 
 
Note: Figures in parenthesis indicate the comparison from May 2008 
 
 
Foreign Aid 
 
SEOUL 00001194  005 OF 005 
 
 
----------- 
 
¶17. (SBU) WFP:  DPRK Food Situation 'Critical': 
 
ROK media outlets reported that the World Food Program (WFP) 
announced on July 2 that the DPRK's recent actions had led to a 
drying up of international aid and critical food shortages for women 
and children.  The WFP noted that it had received just 15 percent of 
the USD 504 million it needs and that 6.2 million North Koreans are 
at risk.  Torben Due, the WFP's representative in the DPRK, has 
said, "We have not really received any contributions after the 
North's nuclear test was conducted."  As a result, WFP has curtailed 
food distribution from 50,000 metric tons a month to 4,500 metric 
tons a month.  Due added that DPRK authorities ordered WFP to reduce 
operations and also forbade WFP from using Korean speaking employees 
in the DPRK.  WFP was forced to cut the number of counties in which 
it operates from 131 to 57 in June of this year.  WFP and the Food 
and Agriculture Organization (FAO) estimated that last year over 8.7 
million North Koreans depended on food aid.  According to a recently 
released FAO Food Outlook report, the DPRK's grain output for this 
year will be around 5.2 million metric tons, an improvement over the 
4.21 million metric tons of grain the WFP estimates the DPRK 
produced in 2008. 
 
¶18. (SBU) ROK Aid to the DPRK Drops 60 Percent (January-May): 
 
According to a report issued by the Ministry of Unification (MOU) on 
June 24, ROKG and ROK civic group aid to the DPRK fell to USD 15.2 
million between January and May, a 60 percent year-on-year drop. 
Aid shipments fell from USD 8.36 million in May of 2008 to USD 1.24 
million this past May, an 85 percent year-on-year decline.  A MOU 
official attributed this decline to the DPRK's continued nuclear and 
missile threats, which have had a chilling effect on inter-Korean 
relations. 
 
¶19. (SBU) ROKG Urged to Lift Restrictions on Civic Groups: 
 
ROK media outlets reported June 26 that a group of 56 ROK civic 
groups are urging the ROKG to immediately lift the ban on travel to 
the DPRK, relax restrictions on exports to the DPRK, and allow them 
to ship humanitarian aid to the DPRK.  The ROKG banned such aid 
following the early April DPRK missile launch.  Lim Jong-chul, a 
spokesperson for ROK NGO Medical Aid for Children said, "We were 
close to completing construction of the Mangyeongdae General 
Hospital for Children in Pyongyang, but without the timely delivery 
of necessary construction materials and pipelines, the building 
could collapse during the summer rainy season."  The Korea NGO 
Council for Cooperation with North Korea (KNCCK), a coalition of 
various aid agencies, has said that around 2 billion KRW (USD 1.6 
million) worth of medical equipments and construction materials is 
sitting in the ROK port city of Incheon.  Food aid, though not 
banned, has been packed together with medical equipment and 
construction material and is, therefore, at risk of spoiling as it 
sits at the port.  The ROKG currently allows shipments of wheat 
flour, rice, and certain medical supplies for children to the DPRK, 
but the shipment of construction materials and agro-machinery is 
strictly prohibited. 
 
STEPHENS