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Update No: 017 - (30/09/04)

September was an eventful month in and about North Korea, although some of the main events were noises off - or even non-events. Prominent among the latter were the much-trailed six-party talks on the nuclear issue, of which there was no sign as the month's end approached; despite this having been set as a deadline when they last convened in June.

Also apparently a non-event, as it transpired, was a mysterious mushroom cloud over the northern DPRK. Coinciding as it did with US intelligence warnings that North Korea was planning to test a nuclear device, this briefly sparked alarm and conjecture. It coincided also with the first ever visit by a British minister to Pyongyang, whose agenda included human rights as well as matters nuclear. He got no immediate joy on either front. A new pretext for for North Korean stalling emerged, with embarrassing revelations that at least twice since 1982 South Korea had carried out undisclosed and illicit nuclear experiments. Whether this is the tip of a bigger iceberg remains to be seen.

Elsewhere, clouds of mystery surrounded reports that Ko Young-hee, consort of North Korea's leader Kim Jong-il, has died. If so, this may presage a battle to succeed the dear leader between three of his sons, two by Ms Ko. Meanwhile, with far less fanfare, there were at least some real and positive events as well. German foundations have organized seminars in Pyongyang on market economics; a British lawyer has opened North Korea's first foreign-owned law firm, something not yet feasible in Seoul; and an Anglo-Irish oil firm clinched a deal to prospect throughout the DPRK. On the other hand, a trade fair set for September was cancelled due to lack of interest. So, as ever, the picture is mixed.

Six-party talks: None till 2005, now?
As September drew to an end, any possible remaining window for a fourth round of six-party talks on the nuclear issue by this supposed deadline closed too. End-September had been agreed as the time frame for the next round by the two Koreas, China, Japan, the US and Russia when they last met, in Beijing in late June. Moreover, this was supposed to be preceded by working-level talks; in the hope that beyond the formalism of merely getting around a table, some of the substantive issues could begin to be addressed concretely.

Yet it was no real surprise that there was no meeting. Throughout the summer Pyongyang had played hard to get: regularly professing to doubt Washington's sincerity, despite the US having in June at last proposed a detailed phased plan. The DPRK's disdain did few favours for Secretary of State Colin Powell and the pro-engagement State Department, who had finally succeeded in seizing control of the US line from more hawkish factions elsewhere in the Bush administration. But to be fair, Kim Jong-il was not the only party who probably felt it was premature to proceed until the US presidential election, due in November, determines who will be occupying the White House for the next four years.

Still, shuttle diplomacy in various combinations continued. James Kelly, the US assistant secretary of state and chief delegate to the six-party talks, on September 10 met Japanese and South Korean officials in Tokyo before going on to Beijing. At the same time China had a delegation in Pyongyang; led by Li Changchun, a member of the 9-strong standing committee of the communist party, and including vice-foreign minister Wu Dawei. Also in Pyongyang was Bill Rammell, a junior British foreign office minister, and indeed the the first UK minister ever to visit North Korea. Despite being stonewalled (as it seemed) on both nuclear and human rights issues - the first time the DPRK had agreed formally to discuss the latter, which London made a condition for the visit - Rammell was upbeat: insisting on his return that his hosts had not actually ruled out more talks on either issue.

Seoul's nuclear naughtiness: tip of the iceberg?
Then again, manifestly North Korea was in no rush to confer. It found the perfect excuse in embarrassing revelations that South Korea too has been a nuclear malefactor; albeit on a tiny scale and inadvertently, if Seoul is to be believed. On at least two occasions, first in 1982 and again in 2000, ROK scientists - off their own bat, so the story goes - conducted small-scale experiments, involving plutonium and uranium respectively. The government was not told, so it did not report these to the International Atomic Energy Agency (IAEA) as the Nuclear Non-Proliferation Treaty (NPT) requires. All this has only come out now because a new IAEA protocol, allowing more stringent scrutiny, found physical traces.

In the 1970s South Korea's then military dictator, Park Chung-hee, alarmed by US-China rapprochement and Nixon's Guam doctrine, began a covert nuclear weapons programme; but the US found out and read the riot act. The skills persist, not least because 40% of the ROK's electricity is nuclear-generated. What the IAEA is now vigorously exploring is whether, at some level, military nuclear ambitions too persisted in Seoul. Even if not, the whole affair gives North Korea an excuse to accuse the US of double standards and assert that it cannot possibly give up its own nuclear deterrent. All in all, it is hard to envisage a fresh round of six-party talks now before the new year - and a new US presidency.

Cloud of unknowing
Meanwhile, a nine days' wonder and apparent false alarm was a reminder of how jumpy the world remains about North Korean nukes, real or imagined - and how unreliable so-called intelligence can be. Amid US intelligence claims, leaked to the New York Times, that Pyongyang might be preparing its first nuclear test, reports on September 12 that a large mushroom cloud had appeared three days earlier in a remote northern border area at once prompted many to fear the worst. Yet a moment's thought would have ruled out a nuclear test so close to China. Nor were either seismic activity or radiation detected.

Speculation then shifted to the more plausible hypothesis of a major accident at one of the many underground munitions or missile facilities in these northern fastnesses. With Bill Rammell in Pyongyang pressing for an explanation, North Korea fairly quickly said this was all much ado about nothing: just blowing up a mountain for a hydroelectric dam. On September 16 the British ambassador and six other foreign diplomats were flown to the site - at Samsu, some 100 km east of where South Korea said the cloud was seen. By now, however, Seoul - where the story first broke - was suggesting that the cloud was no more than that, a cloud: just an unusual weather event. Here too Pyongyang made merry about what it called: "a preposterous smear campaign … Probably, plot-breeders might tell such a sheer lie, "it continued," taken aback by blastings at construction sites of hydro-power stations in the north of Korea. The story about the explosion is nothing but a sheer fabrication intended to divert elsewhere the world public attention focused on the nuclear-related issue of south Korea for which they are now finding themselves in a dire fix."

Rising sons?
On another front, recent rumours about the health of Kim Jong-il's consort, Ko Young-hee, culminated last month in reports (which remain unconfirmed) that she has now died. Aged 51, Ms Ko was born in Japan to Koreans who emigrated to the DPRK when she was a child. As a young dancer she caught the eye of the dear leader, to whom she bore two sons. It is not clear if he and Ms Ko were married, and she had no public role. The cause of death is said to be cancer, or alternatively a car accident. If the former, she may have had treatment in Paris, from whence an expensive coffin was flown to Pyongyang.

By some accounts, mysterious references in army propaganda last year to "the comrade who serves the leader closest to his body" were paving the way for a (typically esoteric) cult around Ko Young-hee. This in turn was interpreted as preparing for the grooming of her son Kim Jong-chul, aged 23, to emerge as Kim Jong-il's eventual successor. But a memoir published in Japan last year (and thought to be reliable) by Kenji Fujimoto, who for a decade was the dear leader's sushi chef and confidant, while confirming Ms Ko's status as first lady, revealed a hitherto unknown younger son: Kim Jong-woon, aged 21, whom Kim Jong-il allegedly prefers on the ground that his elder brother is effeminate.

There is also an older third half-brother, Kim Jong-nam, aged 32: the son of another ex-mistress, Sung Hye-rim, long exiled with mental problems to Moscow where she died two years ago. Despite Confucian primogeniture, Jong-nam was weakened in 2001 when he was unmasked at Narita airport in Japan, with a forged Dominican Republic passport, supposedly off to Disneyland with his family. That led to apparent disgrace and exile. But with his half-brothers also now motherless, the battle for succession becomes more equal.
(Kim Jong-il, likewise, had to see off three half-brothers in establishing his own claim.)

All this, it must be emphasized, remains speculative. Even more so are Japanese reports that Kim Jong-il's sister, Kim Kyung-hee (58), who holds a senior post in light industry, has been treated - again in Paris - for "alcohol dependency and psychological disorders". Her husband Jang Song-thaek, who also has senior party rank, allegedly fell out with the dear leader by opposing market reforms. Yet another claim, from the same Tokyo source, is that Ko Young-hee's younger sister Ko Young-suk defected in 2001 to the US, and is under special protection for her knowledge of North Korea's first family. The sister and niece of Sung Hye-rim, too, live in western Europe; the former has published a memoir. 

Whatever the specific truth of any of this, the crucial general point is to identify a weak link. Unlike Kim Jong-il's succession to his father, carefully prepared over two decades, nothing similar is yet in place for next time. If Kim Jong-il - who is 62 - died tomorrow, North Korea could easily be plunged into chaos, with different claimants and factions fighting - whether for power as such, or over policy (hardliners versus reformers).

Retail, for real
Ruminating on all that is opaque in Pyongyang should not be at the expense of recording moments of transparency, or even progress. The journalistic posse who accompanied Bill Rammell to Pyongyang experienced both the old and the new (though all new to them.) The BBC correspondent was puzzled, like other visitors over at least two decades, by the Potemkin antics at the Pyongyang No 1 Department Store; where seeming customers can be seen purporting to buy things, but no goods ever actually appear to change hands. 

That this charade continues is doubly puzzling. For one thing, the store has supposedly been leased to a Chinese entrepreneur, who promises to turn it into the real thing. But real selling - bargaining, even - is also on show at the new Tongil market. Lingering official ambivalence lets foreigners visit, and even buy - but not take photographs. (Bill Rammell insisted, so market scenes normal in any other country on the planet were duly screened.)

A German foundation for opening and reform
As Tongil shows, at least some in North Korea are eager for business. Training in market economics, too, is proceeding apace: students are sent abroad, and at least two German foundations - the Friedrich Naumann and Hanns Seidel Stiftungs, affiliated respectively to the Free Democrats and the Bavaria-based Christian Social Union - have organized seminars in Pyongyang, whose topics appear complementary. In June, Seidel focused on international finance, cohosted by an economic institute of the DPRK cabinet; this ran to an extra day to deal with over 70 questions (many technical, such as multiple exchange rates) raised by the mixed audience from ministries, the central and other banks, and academia. A further seminar, on inflation and currency regimes, may follow this year. 

In early September Naumann followed, with a workshop on EU-DPRK relations and economic reform: a word supposedly still taboo in Pyongyang. Yet as well as the North Koreans explaining their economic changes of the past two years, this week-long meeting quite openly tackled the transition from centrally planned to market oriented economies - including in eastern Europe, where the DPRK party line is that socialism was betrayed. Cohosted by the foreign affairs ministry (MFA), this attracted more than 70 officials from MFA and five other ministries - agriculture, finance, labour, foreign trade, and the state planning commission - plus two universities and the academy of social sciences. Field trips were laid on too, to a joint venture pharmaceutical factory, a textile plant, a brewery, a new market in Pyongyang - and the Kaesong Special Economic Zone being built near the Demilitarized Zone (DMZ), the hitherto sealed border with South Korea, whose firms will invest there in the hope of creating an equivalent to Shenzhen vis-à-vis Hong Kong.

Law and oil, but no trade fair
Similarly, September brought news that a foreign law firm has opened in Pyongyang (as is not yet possible in Seoul). This is a venture by Michael Hay of a Korean-speaking British lawyer who has been bringing foreign firms to the DPRK since 1998. With (perhaps surprisingly) several competitors in that field, he may feel the law is a better business niche. A joint venture with an official DPRK law agency, Hay, Kalb and Associates (HK&A) has gained an exclusive license to offer not just legal but accounting services to foreign investors: it is looking for a foreign accountant, to partner an affiliated local accounting body. It also provides general business advice and introductions.

Meanwhile, on September 20 Aminex plc - an independent oil and gas company quoted in London and Dublin, with operations in Texas, Tatarstan and Tanzania - revealed it has secured a 20-year agreement to develop North Korea's petroleum industry. With limited financial exposure (no figures were given), Aminex will provide technical assistance; get a royalty on hydrocarbons produced from any new drilling in the country; be entitled to an interest in any wells drilled by incoming companies; and have a prior right to explore in its own name anywhere in the country (both on and off shore). The deal was signed on June 30, but it took till now to fulfil unspecified "closing conditions." Aminex first came looking in 2001; it believes North Korea is "highly prospective" for new discoveries, and that despite current tensions such business can help build bridges with the wider world. 

One can only hope that they succeed in pouring oil on troubled waters. Yet in a sign of the caution with which most global business still approaches North Korea - or rather, elects not to - a major trade fair planned for Pyongyang in September was cancelled. The organizers, Messe Muenchen International (MMI), had run a similar event successfully in 2002. The SARS outbreak put paid to plans for 2003; North Korea had no cases, but went into hermit mode for the duration. This time, MMI admitted, the problem was "an almost total lack of positive response by … the international business community" - except for German firms, once again. One hopes Kim Jong-il will take heed. The stock case used in economics texts to illustrate choice and opportunity cost - guns or butter - applies quite literally to North Korea. Continued nuclear defiance will inevitably deter all but the most venturesome of foreign business investment. The dear leader cannot have it both ways.

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British lawyer launches North Korea joint venture

A British lawyer has launched the first partly foreign-owned law and accountant firm in North Korea, to help international investors do business in the reclusive state, the Financial Times reported on September 9th.
Hay, Kalb & Associates (HK&A), set up jointly with the North Korean government, is designed to help foreign companies navigate North Korea's Byzantine legal system and arrange overseas investors to repatriate profits. Mike Hay, its British co-founder, said the company would create a "level of confidence" for foreign investors in North Korea.
North Korea's agreement to the joint venture could signal further opening of its isolated economy, two years after the country took its isolated economy, two years after the country took its first step towards reform by liberalising prices and wages.
Kin-Jong-il's regime has been seeking to attract more foreign investment to support the country's shattered economy, reversing years of isolation.
Optimists see North Korea as the last big untapped market in north-east Asia, with 23m low-cost workers and potential consumers waiting to be integrated into the region's fast-growing economy.
However, only a handful of foreign companies have so far entered the country, most of them South Korean and Chinese manufacturers operating small-scale assembly lines.
Western companies have been deterred by an authoritarian political system and infrastructural weaknesses, such as frequent power black-outs and unreliable transport.
Potential investors have also been reluctant to plough money into a country accused by the US and others of developing nuclear weapons and violating human rights.
However, Mr Hay said that for those prepared to accept the risks, North Korea offered investment opportunities in sectors as diverse as mining, energy, beer, textiles and tourism.
Mr Hay will work with a North Korean partner and about 12 local staff - all trained in law at the prestigious Kim II-sung University, named after the country's founding president and late, father of its current leader. The company will be located in Kim II-sung square in the heart of Pyongyang's central government complex.
Until now, all legal services were conducted within government ministries, making HK&A the first law firm to offer private advice to investors.
Despite the undeveloped nature of legal services in North Korea, Mr Hay said the standard of local expertise was good. "People think it's a dirt track country in terms of law but it's not," he said.

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