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Update No: 062 - (30/06/08)

North Korea: Yongbyon gone, moving on? 
As June ended, North Korea hit the world’s headlines for two related events on successive days. The more spectacular of these, made for television – and to which, in a rare privilege, Pyongyang invited what it often condemns as the West’s “reptile media” – was blowing up the main cooling tower at Yongbyon, the DPRK’s main and only known nuclear site, on 27 June. Television stations around the world showed the explosion and crumbling of what in tenser times had been a key indicator for spy satellites. If there was tell-tale smoke, then the reactor was running and North Korea was producing fuel for plutonium – and vice versa. 

That piece of theatre came a day after a less media-friendly but ultimately more important event. Having been tipped off that North Korea would submit its long-awaited nuclear declaration on 26 June to China as chair of the Six Party Talks (6PT), journalists in Beijing waited most of the day for what turned out to be a very low-key, almost furtive moment. Eventually the Chinese foreign ministry gave a brief press conference confirming that the document had been handed over, but took no questions. DPRK emissaries did not appear. 

Quid pro quo
While the text of whatever North Korea submitted had not been published as of 28 June, it was enough for the US. Within hours, President George W Bush announced two measures. Longstanding sanctions against the DPRK under the Trading with the Enemy Act, which have banned nearly all bilateral commerce and investment for more than half a century ever since the 1950-53 Korean War, are lifted forthwith. This will hardly unleash a stampede in the direction of Pyongyang by American firms, given that other sanctions remain in place: notably, those imposed (albeit to little visible effect) by the UN Security Council (UNSC) in protest at North Korea’s successive missile and nuclear tests in July and October 2006. 
Besides, the DPRK business climate is hardly propitious. A shrinking economy (see below) is once again poised on the brink of famine, while concerns remain about dubious activities such as drug trafficking, counterfeiting – be it cigarettes, Viagra, or even US dollars – and the rule of law more generally. Still, it will be intriguing to see whether any US adventurers are now willing to take the plunge. Pyongyang is hardly awash with foreign businessmen. 

Off the terrorist list? 
The second step, also promised within the 6PT, is to remove North Korea from the State Department’s list of nations suspected of sponsoring terrorism. This Bush cannot do by fiat. Rather, he has given 45 days’ notice of this intention to Congress, as required by law. The concrete impact of this is that the US will no longer be mandated to oppose any bid by the DPRK to join international financial institutions (IFIs) such as the World Bank and IMF, which could then lend it money. Not that Pyongyang has hitherto seemed over-zealous to join such bodies, though there have been exploratory visits. For a start, membership would require North Korea to publish regular economic figures, as it has not done for 40 years.
Yet it is far from certain if Capitol Hill will play ball. A Democrat-controlled Congress has scant incentive to make life easy for a Republican president, especially in an election year. Political sniping aside, some Democrats share the vocal concerns of many Republicans that the Administration’s new haste to cut a deal– a striking and ironic U-turn from yesteryear’s rhetoric, which long denounced North Korea as part of an “axis of evil” – has prompted too many concessions to Kim Jong-il. Bush’s belated conversion to the serious engagement that a few in his administration advocated all along – notably the tireless chief negotiator Chris Hill, the assistant secretary of state for east Asia, who in effect is making policy on North Korea these days – seems less a change of heart than a desperate bid to chalk up a foreign policy success somewhere; hoping thereby to offset the disaster of Iraq, and the assorted messes – to put it no more harshly – from Pakistan to Palestine and all points in between. 

Both contenders to succeed Bush next year were notably cautious in their first comments on the DPRK declaration. Not only John McCain, but also Barack Obama – whom Pyongyang has said it would prefer: an endorsement he could have done without – strove to balance not repudiating any progress Hill may have won, with due caution as to the possible price paid. 

Japan chafes 
Japan too is unhappy at North Korea’s being taken off the terrorist list, whilever its own concerns about kidnappings from the 1970s and 80s remain less than fully resolved. In an unprecedented apology, in 2002 Kim Jong-il admitted 13 such abductions to Japan’s then prime minister, Junichiro Koizumi. The 5 survivors returned to Japan; but many in Tokyo regard this as only the tip of a larger iceberg. This one issue has dominated and poisoned bilateral ties ever since. Japan’s current premier, Yasuo Fukuda, is less hardline here than his precessor Shinzo Abe; but he is weak, and may not last long. In unusually blunt terms, the maverick opposition leader, Ichiro Ozawa, accused the US of not caring about Japan.
In fact June saw slight progress on this front. After bilateral talks in Beijing, North Korea agreed on 13 June to reopen its probe of abductions. Hitherto it insisted the matter was now closed, including claiming that the missing 8 had all died (though young) of natural causes or in accidents. It remains to be seen if this reopening is sincere or substantive, but any sign of a thaw is welcome. Kim Jong-il may hope this sop will ease Tokyo’s objections to the terror delisting. More cynically, Kim may want to revitalise hopes of eventual diplomatic ties, for which in happier times it was reckoned Japan would offer an aid package worth up to US$10 billion: equivalent at today’s prices to the US$800 million ‘compensation’ – for colonial rule during 1910-1945 – that South Korea received way back in 1965.  

A further bone that the dear leader could easily throw if he chose, which is once again being hinted at, as it has been in the past, would be to return the ageing survivors of a Japanese Red Army cell, who hijacked a plane to Pyongyang in 1970 and have been there ever since. Such a gesture would cost little, and would go down well in both Washington and Tokyo. 

Bush warns 
Not that the US president himself sounded exactly over the moon about what he was now doing. Even as he lifted sanctions, Bush warned that “We will trust you only to the extent you fulfill your promises. I’m pleased with the progress. I’m under no illusions. This is the first step. This isn’t the end of the process. It is the beginning of the process. If North Korea continues to make the right choices it can repair its relationship with the international community ... If North Korea makes the wrong choices, the United States and its partners in the Six-Party Talks will act accordingly.” He also noted that the DPRK “will remain one of the most heavily sanctioned nations in the world,” adding that “if they don’t fulfill their promises, more restrictions will be placed on them.” 
For Pyongyang to end its isolation, Bush specified that it must dismantle all of its nuclear facilities and resolve outstanding questions on its highly enriched uranium and proliferation activities – “and end these activities in a way that we can fully verify.” This summarises the worries many have about likely lacunae in North Korea’s new nuclear declaration. Besides being nearly half a year late – it was due by end-2007 – the fear is that the very matters here flagged up by the president are in fact being shoved “off balance sheet”, with the focus for the present being purely on plutonium. Even here, a detailed parsing of successive 6PT accords suggest that the DPRK may not yet be required to answer the $64,000 question and declare its actual nuclear weapons; although a full account of all plutonium ever processed, if indeed this has now been rendered, should afford strong clues on that score. 

Benazir Bhutto’s deep pockets 
As for the “off balance sheet items”, much rehearsed in earlier issues of this Bulletin – see for instance last month’s – we shall see once the DPRK’s declaration is published how they are handled. Kicking a can down the road is all very well; but once the 6PT reconvenes, as now expected in July, there will have to be convincing answers eventually on the two key concerns. One is the Syria connection, where strong evidence of North Korean attempts at nuclear proliferation to the Middle East can hardly be brushed under the carpet. The other is the continuing suspicion that Pyongyang had, or has, a second separate secret programme based on highly enriched uranium (HEU). 
On the latter, a new book published by a normally credible Indian journalist dramatically claims what some had long suspected: that Pakistan swapped nuclear for missile technology with North Korea. The official story blames Dr A Q Khan for running a rogue network that sold centrifuges and more to Pyongyang. But Shyam Bhatia, who knew Benazir Bhutto well, claims that the late former Pakistani prime minister boasted in 2003, off the record, that “I have done more for my country than all the military chiefs of Pakistan combined.”  

Bhatia writes that for a state visit to Pyongyang in 1993, “before leaving Islamabad she shopped for an overcoat with the 'deepest possible pockets' into which she transferred CDs containing the scientific data about uranium enrichment that the North Koreans wanted …She implied with a glint in her eye that she had acted as a two-way courier, bringing North Korea's missile information on CDs back with her on the return journey.” His story has been denounced by Pakistan as “absurd and baseless”, but it does make one think!

The economy shrinks, again 
While as usual it was the nuclear issue which hogged the limelight, other aspects of North Korea should not be overlooked. On 18 June the Bank of Korea (BoK) in Seoul issued its customary annual effort to compensate for its Northern counterpart’s 40-year statistical silence, attempting to estimate the DPRK’s gross domestic product (GDP) for last year. While the BoK’s methodology has its critics, this annual data series is the best guess we have. Moreover, any biases if consistent, should at least allow yearly changes to show up.
According to BoK, six years of modest growth during 1999-2005 – following a decade of disastrous decline, when output halved, after Moscow pulled the plug on aid – now seem to be over. In 2007 as in 2006, North Korea’s economy shrank: this time by 2.3%, worse than the preceding year’s 1.4%. BoK blamed this mainly on “decreased agricultural production due to bad weather.” A poor harvest saw the broad farming sector – agriculture, fisheries and forestry – plunge by 9.4%, much worse than its 2.6% decline in 2006. 

Elsewhere, mining lost 0.4% in 2007, having grown by 1.9% in 2006, as a fall in coal and nonmetallic minerals offset an increase in metals. Manufacturing inched upwards by 0.8%, twice 2006’s 0.4%. Within this, heavy industries grew 2.3% as metal and machinery output expanded; but light industries lost 1.7%, as production of food and drink products shrank. Utilities did well: improved hydroelectric and steam power generation saw the electricity, gas and water sectors as a whole gain 4.8%, better than 2006’s 2.7%. Construction fell by 1.5%, but less than 2006’s plunge of 11.5%, as ports and other non-housing projects were cut back. Services gained 1.7%, up from 1.1%, with growth both in the hotel and restaurant sector (attributed to more foreign tourists) and in posts and telecommunications. 

One country, two planets 
As ever, both the North’s snail’s pace and its absolute size stand in stark contrast to South Korea. In Seoul they fret that a worsening global economy – in particular, the soaring cost of vital energy and mineral imports – may cut GDP growth from 5% to 4% this year. Yet given that the Southern economy is no less than 36 times bigger, even 3% growth suffices it to add the equivalent of the North’s entire output; 6% would add two North Koreas. (True, South Korea has over twice the population, but even on a per capita basis the gap is 17:1.)
If that sounds huge, for trade the chasm is wider yet. North Korea’s total of US$2.94 billion in 2007 was dwarfed by the South’s US$728 billion: a ratio of 248:1. For exports the figure was 404:1 – meaning South Korea exported more in a single day than the North did in the entire year. In fact this is not quite accurate, since perversely Seoul excludes inter-Korean trade from these totals for political reasons, as allegedly internal rather than international.

Here the picture is brighter. North Korea’s total trade (excluding South Korea) fell on both sides of the ledger last year, according to BoK. Imports were down 1.3% to US$2.02 billion while exports fell 3% to US$920 million, leaving the usual big trade deficit of over a billion dollars; thought to be funded at least in part by illicit activities. By contrast, bilateral trade with the South rose by a third to US$1.8 billion, and was better balanced. Northern exports soared by almost half to US765 million, making Seoul Pyongyang’s top trading partner; while imports from the South topped US$1 billion for the first time.  

Seoul’s own goal 
Early signs are that this vigorous commerce is continuing in 2008, despite a marked chill in political relations. North Korea reacted angrily to the South’s new conservative president, Lee Myung-bak, who threatened to link future inter-Korean ties to nuclear compliance, and official contacts are currently on ice. This looks an own goal for Lee, who is also embattled at home over an unexpected and rather bizarre public backlash, to the resumption of US beef imports after a mad cow disease scare five years ago. When Condoleezza Rice went on to Seoul after attending the G8 foreign ministers’ meeting in Kyoto, the US secretary of state no doubt would have preferred to focus on weightier matters – like North Korea – rather than be reduced to urging South Koreans to chomp American beef. The flare-up, though at root mainly about Lee’s high-handed style, was bad enough for Bush to cancel a planned visit to Seoul, which would have followed the full G8 summit in Japan due on 7-9 July.
So, ironically, a policy hardening on North Korea which Lee Myung-bak hoped would go down well in Washington, has proved both untimely and perhaps unnecessary in the context of the 6PT. Instead, Lee may simply have thrown away whatever clout in its own right the South had built up – how much this really amounted to is disputed – after ten years of what critics attacked as a rather one-sidedly generous ‘sunshine’ policy.  

In sum, the second half of the year thus begins with Kim Jong-il, not for the first time, on top diplomatically despite his economy’s dire straits. Beggars cannot usually get away with being muggers, but the dear leader has honed militant mendicancy into a fine art. Given his skill and astute timing, he may yet see out Bush, pocket various rewards – fuel oil, food aid and more – for slow and distinctly partial nuclear compliance; and, at the end of the day, still hang on to his nukes. The rest of 2008, and beyond, should prove as intriguing as ever.


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