[Cankor] Report #218

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Dear subscriber,

Welcome to issue #218 of the CanKor Report.

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The CanKor team

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CANADA-KOREA ELECTRONIC INFORMATION SERVICE

CanKor # 218

Tuesday, 6 September 2005
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The DPRK has told China it wants to resume the recessed six-party talks on 
September 13, but it also made clear that it would continue to insist on its 
right to develop a civilian nuclear programme, for the purpose of "economic 
construction and the improvement of the standard of people's living." South 
Korean and Japanese government officials say there is no firm schedule as 
yet.

During their recent visit to Pyongyang, members of US Congress Tom Lantos 
and Jim Leach were told during meetings with DPRK Foreign Ministry 
officials, including the North Korean chief negotiator, Vice Foreign 
Minister Kim Kye Gwan, that the talks would resume during the week of 12 
September.

Foreign diplomatic sources in Washington say that chief US delegate to the 
talks Christopher Hill, and DPRK negotiator Kim Kye Gwan plan to meet again 
"around September 11" to discuss key issues.

The ROK will take over anti-artillery command from the US military by 
October this year. The command is one of 10 major military control missions 
that the US Forces Korea agreed to hand over to the ROK last year. The 
decision was made during a meeting of senior commanders from the two 
militaries last Wednesday. The commanders reviewed South Korea's ability to 
run the anti-artillery surveillance and command system at the tail end of 
"Ulchi Focus Lens", the annual US-ROK computer-simulated military exercises

The two Koreas agree to select a few collective farms in the DPRK for 
North-South cooperation on agricultural management, beginning early next 
year. In a seven-point agreement at the end of a two-day meeting in Kaesong, 
DPRK, officials of the two Koreas also agreed to build a tree nursery to 
increase forestry resources and protect the ecological system, as well as to 
establish an integrated pest management system.

While most would consider the DPRK an unlikely place for a wise investment, 
a steadily increasing number of foreign investors see the DPRK as the next 
promising opportunity for venture capitalism. Three articles in this week's 
CanKor FOCUS on the DPRK's new business environment explore opportunities 
offered to adventurous investors, the growing appetite of South Koreans for 
North Korean consumer products, and the grooming of a new generation DPR 
Korean entrepreneurs.
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Contents:
1.   DPRK WANTS SIX_PARTY TALKS TO RESUME SEPTEMBER 13
     http://today.reuters.co.uk/news/newsArticle.aspx?type=worldNews&storyID=2005-09-06T053913Z_01_ROB584010_RTRUKOC_0_UK-KOREA-NORTH-TALKS.xml
2.   US CONGRESSMEN VISIT PYONGYANG
     http://www.interfax.ru/e/B/politics/28.html?id_issue=11371250
3.   US, DPRK TO MEET AHEAD OF NUCLEAR TALKS
     http://today.reuters.co.uk/news/newsArticle.aspx?type=worldNews&storyID=2005-09-03T074322Z_01_YUE327766_RTRUKOC_0_UK-KOREA-NORTH-TALKS.xml
4.   ROK TO TAKE OVER ANTI-ARTILLERY COMMAND FROM USA
     http://www.koreaherald.co.kr/SITE/data/html_dir/2005/09/05/200509050003.asp
5.   TWO KOREAS AGREE ON JOINT FARM MANAGEMENT
     http://www.reliefweb.int/rw/rwb.nsf/db900SID/RMOI-6FH4D8?OpenDocument

FOCUS: the DPRK's new business environment
6.   INVESTORS SHOW NEW INTEREST IN DPRK
     http://www.iht.com/articles/2005/08/11/business/invest.php
7.   NORTH KOREANS OPEN FOR BUSINESS
     http://www.latimes.com/news/nationworld/world/la-ft-koreans15aug15,1,7565696.story?coll=la-util-nationworld-world
8.   STUDENTS IN DPR KOREA SHIFT FROM MARX TO MARKETING
     http://www.latimes.com/business/la-ft-nkorea29aug29,1,1430275.story?coll=la-headlines-business
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1.   DPRK WANTS SIX_PARTY TALKS TO RESUME SEPTEMBER 13
     Reuters, 6 September 2005

North Korea has told China it wants to resume six-way talks aimed at ending 
its nuclear weapons programmes on September 13, South Korea's Yonhap news 
agency said on Tuesday. The North made clear in comments published on 
Tuesday that it would press ahead with its civilian nuclear programme, a key 
sticking point in the last round of talks which went into recess in August.

"The DPRK would as ever conduct ceaseless and dynamic peaceful nuclear 
activities for the economic construction and the improvement of the standard 
of people's living," the communist party's newspaper said in a commentary 
cited by the North's official KCNA news agency. North Korea's official name 
is the Democratic People's Republic of Korea.

US officials have expressed concern about the North having any sort of 
nuclear programme, saying the country has squandered trust with the 
international community and could use a civilian programme to develop 
nuclear weapons. China, host of the nuclear talks that also involve the two 
Koreas, the United States, Japan and Russia, is expected to announce the 
official date soon after discussions with the other countries, Yonhap said 
in an unsourced report.

A South Korean Foreign Ministry official said he could not confirm the 
report, and Japan's government spokesman told a news conference in Tokyo 
there was no firm schedule yet. The six-party talks went into recess in 
early August and analysts said North Korea and the United States remained 
far apart on key issues including Pyongyang's right to a civilian nuclear 
programme. Nuclear proliferation experts say the North's sole purpose in its 
atomic research programme for the last 20 years has been to develop nuclear 
weapons. North Korea expelled International Atomic Energy Agency inspectors 
in December 2002 and left the nuclear Non-Proliferation Treaty in January 
2003. Washington says the North violated a 1994 agreement to freeze its 
nuclear programmes.
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2.   US CONGRESSMEN VISIT PYONGYANG
     Interfax, 3 September 2005

North Korea has confirmed that its representatives are willing to resume the 
fourth round of the six-nation talks on the Korean Peninsula nuclear problem 
within a week after September 12, members of US Congress Tom Lantos and Jim 
Leach announced at a Saturday press conference in Beijing, which they are 
visiting after travelling to Pyongyang.

Lantos and Leach said they had met with the leadership of the North Korean 
Foreign Ministry, particularly with the North Korean chief negotiator, Vice 
Foreign Minister Kim Kye Gwan.

North Korea is insisting on granting it the right to peaceful utilization of 
nuclear energy; in particular, by using light-water nuclear reactors at 
nuclear power plants, they said. Answering more questions from journalists, 
the congressmen reiterated that the US policy towards North Korea does not 
presume any threat.
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3.   US, DPRK TO MEET AHEAD OF NUCLEAR TALKS
     Reuters, 3 September 2005

The United States and North Korea will hold talks in Beijing around 
September 11, shortly before the resumption of six-party talks aimed at 
persuading Pyongyang to abandon its nuclear weapons programmes, Japan's 
daily Mainichi Shimbun said on Saturday.

The fourth round of six-party talks involving the two Koreas, the United 
States, Russia, Japan and host China, are scheduled to resume in the week of 
September 12 after a five-week recess.

Foreign diplomatic sources in Washington were quoted by the Mainichi as 
saying that Christopher Hill, the US delegate to the talks, would meet North 
Korea's Kim Kye Gwan "around September 11" to discuss key issues.

North Korea had apparently demanded the bilateral discussions as a 
pre-requisite for agreeing to resume the six-way talks, the Mainichi said, 
adding that the six-way talks would start after the two nations had met. 
Washington said in 2002 that Pyongyang had admitted to a secret programme to 
enrich uranium in violation of a 1994 agreement, a claim North Korea later 
denied. The first three rounds of talks have ended inconclusively. The 
fourth round began in late July, after a break of a year, and went into 
recess after 13 days.
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4.   ROK TO TAKE OVER ANTI-ARTILLERY COMMAND FROM USA
     by Joo Sang-min, Korea Herald, 5 September 2005

South Korea is expected to take over anti-artillery command from the US 
military here by October, Seoul officials said yesterday. Military 
authorities agreed to the transfer plan last week during the joint Ulchi 
Focus Lens exercises, which ended Friday, according to Defence Ministry 
officials.

The anti-artillery command is one of 10 major military control missions that 
the US Forces Korea agreed to hand over to South Korea last year. The shift 
of the command was originally scheduled to begin this September but the plan 
was delayed. The decision was made during a meeting of senior commanders 
from the two militaries last Wednesday to review South Korea's ability to 
run the anti-artillery surveillance and command system.

"The two sides concurred that the South Korean Army is well prepared for the 
command. The takeover plan will be finalized after an additional review due 
this month," the official said on condition of anonymity.

The anti-artillery defence command aims to intercept possible attacks from 
North Korea's long-range guns. The North is believed to have 13,500 
artillery pieces, including self-propelled guns, multiple launch rocket 
systems as of late December, according to the South Korean Defence white 
paper.

North Korea deploys much of its artillery in underground bunkers alongside 
the Demilitarized Zone, which is capable of striking the northern parts of 
Seoul, ministry officials said. Seoul is only about 50 kilometres away from 
the border. The handover of control will not affect the makeup of the 
combined Korean and US artillery defence.

On Friday, South Korean and US forces wrapped up Ulchi Focus Lens, annual 
computer-simulated military exercises designed to test US and South Korean 
readiness and coordination of command posts. The drills began Aug. 22. North 
Korea has criticized the exercises as a rehearsal to mount a pre-emptive 
nuclear attack on the communist country.
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5.   TWO KOREAS AGREE ON JOINT FARM MANAGEMENT
     Korean Information Service (KOIS), 21 August 2005

South and North Korea will select a few collective farms in the North for 
cooperation on agricultural management from early next year, a Unification 
Ministry official said on Sunday. South Korea will provide the North with 
fertilizer aid, agricultural machinery and technology to those farms as 
early as February or March when the farming season begins on the Korean 
Peninsula, Bahk Heung-yuel, coordinator for South-North dialogue at the 
ministry, said.

The plan is part of a seven-point agreement struck at the end of a two-day 
meeting in Kaesong, North Korea, late Friday, during which officials of the 
two Koreas discussed measures to boost agricultural cooperation for the 
first time.

"The North wanted to stick to partial aid or transfer of facilities and 
technology from the South, saying their agricultural infrastructure has 
already been established," Bahk, who participated in the talks, said. "But 
the South carried through on its proposal to designate specific collective 
farms to effectively check the outcomes of cooperation." Accordingly, the 
North agreed to grant permission to South Korean experts and engineers to 
visit the farms to be decided later this year.

The two Koreas will also cooperate in building a tree nursery along the 
western and eastern sides, as part of efforts to increase forestry resources 
and protect the ecological system on the peninsula, the agreement said. In 
addition, the South will also support the North to develop and produce 
seedlings and establish an Integrated Pest Management system, according to 
the agreement. Ministry officials hope the agreement will contribute to 
balanced agricultural development on the peninsula ahead of the 
reunification as well as easing of the dire food shortage in the 
poverty-stricken North.
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FOCUS: the DPRK's new business environment

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6.   INVESTORS SHOW NEW INTEREST IN DPRK
     by Donald Greenlees, International Herald Tribune, 12 August 2005

In May, Kelvin Chia, one of the first foreign lawyers to receive a license 
to practice in North Korea, took a party of Indonesian miners on an 
investment tour. Visiting a coal mine outside Pyongyang, the group was 
surprised by the welcome from North Korean officials and found that the 
basic road and power infrastructure serving the mine site was in a better 
condition than they expected. Chia said the mining company - which he 
declined to identify for commercial reasons - is likely to soon enter a 
joint venture with the North Korean operator to further develop the mine.

Since being granted the right to open an office in Pyongyang last October, 
Chia, who is from Singapore, says his firm has been approached by about 20 
companies from Europe, Southeast Asia and Australia with an interest in 
investing in communist North Korea's shaky economy. Chia's firm was the 
first wholly-owned foreign legal practice in North Korea.

"I think there is an upsurge of interest in that country," said Chia, who is 
based in Singapore, but runs an office of two lawyers in the North Korean 
capital and has plans to expand.

Chia's recent experience mirrors that of other hardy businessmen who have 
persisted with North Korea over the past decade in the face of nuclear 
crisis and US commercial embargoes. Some businessmen equate the current 
level of investor interest with the early 1990s when foreign companies, 
including some multinationals, started a spate of investments in the hope 
that North Korea's largely self-imposed isolation would end.

As the latest round of six-nation talks on dismantling North Korea's nuclear 
weapons program inches forward, a handful of Asian and Western investors, 
some with earlier experiences of doing business in the country, are again 
eyeing the possibilities in defiance of Washington's desire to use economic 
seclusion as a bargaining tool. These investors, mainly manufacturers and 
miners, are being enticed back by low wages, plentiful mineral resources and 
a regime that appears increasingly prepared to support foreign investment 
and open its economy.

Pyongyang has signalled plans to open investment promotion offices within 
its embassies in Singapore and Malaysia, according to Chia, who maintains 
regular contact with North Korean officials. A revised foreign investment 
law, passed by the North Korean Supreme People's Assembly in 2004, relaxed 
some conditions on foreign investment and permitted full foreign ownership 
of some ventures. The assembly has also strengthened intellectual property 
rights laws.

A South Korean government official said that Pyongyang also recently started 
to approve visas for foreign buyers to enter the joint North-South 
industrial park at Kaesong, just north of the demilitarized zone. The 
official said 19 visas had been approved as of mid-July for buyers from 
Germany, Japan, China and Australia. Investment in Kaesong is restricted to 
South Korean companies.

Tony Michell, a business consultant based in Seoul, has received permission 
to take a group of eight investors to North Korea in September in the first 
of what he said would be monthly investment missions. The first group will 
comprise European and Asian business people, none of whom are from China or 
South Korea, the countries with the largest investment in the North. 
Michell, who introduced a number of companies to North Korea during the last 
upswing in investment interest from 1993 to 1995, said there had recently 
been "a revival of interest."

"This comes up to the 1993 level of interest," said Michell, managing 
director for Asia of the Euro-Asian Business Consultancy, adding that if the 
United States dropped its economic embargo "this would be a humdinger of an 
emerging market."

Still, potential investors in North Korea have to weigh a long history 
failure. Of the eight companies Michell introduced during the early 1990s, 
only one investment survives. An investment bank based in Hong Kong, 
Peregrine, entered a joint venture to establish Daedong Credit Bank in 
Pyongyang. Peregrine collapsed, but Daedong is marking a decade in business.

The experience of North East Asia Telecom, a Thai firm, is sobering. It set 
up a mobile phone network, but since May 2004 use of mobile phones has been 
suspended by the North Korean government as part of a security crackdown.

New investment largely dried up after October 2002 when US officials claimed 
that North Korean officials had admitted during talks to possessing a 
nuclear weapons program. There is general agreement among investment 
advisors and economic analysts that if the nuclear impasse can be resolved 
foreign investment would accelerate.

The nuclear crisis erupted as North Korea was implementing a series of 
measures to open its economy and increase appeal to investors, like giving 
state-owned enterprises greater freedom to operate commercially, removing 
price controls and allowing its currency, the won, to be exchanged for the 
euro, which was adopted in December 2002 for all foreign currency 
transactions.

Analysts of the North Korean economy say those reforms remain largely on 
track and paved the way for an upsurge of direct investment in 2004 from 
China, North Korea's main economic partner. Ahn Ye Hong, who studies the 
North Korean economy for the Bank of Korea, the South Korean central bank, 
said that investment from China rose from $1.3 million in 2003 to $173 
million in 2004.

He said this investment was driven by China's desire to "obtain as much of 
North Korea's resources as it can," particularly iron ore. He expects a 
further significant increase in Chinese investment this year.

The South Korean government is also seeking to increase direct investment in 
the North. Although the bulk of South Korean investment has gone into just 
two projects, Kaesong and the Mount Kumgang tourism development, recent 
talks between the two Koreas explored the possibility of investment in 
upgrading or repairing mines that have fallen into disuse.

An official in South Korea's Ministry of Unification said an inter-Korean 
economic cooperation meeting in Pyongyang between Sept. 28 and Oct. 1 would 
discuss the proposal further. The official, who requested anonymity due to 
restrictions on speaking publicly, said it was likely any South Korean 
involvement in redevelopment of the mines would be carried out by a joint 
enterprise between the government and the private sector.
*************************************************

7.   NORTH KOREANS OPEN FOR BUSINESS
     by Anna Fifield, Financial Times, 15 August 2005

[Anna Fifield is the Financial Times' correspondent in Seoul. She has 
returned from her two-week trip to North Korea and has written the final 
entry of her online journal about her visit to and life in the isolated 
hermit state. Anna Fifield's exclusive North Korea journal can be found at 
http://news.ft.com/cms/s/2840f86e-0da1-11da-aa67-00000e2511c8.html]

Sitting in the office above his food warehouse in Ilsan, west of Seoul, Park 
Young-bok trades instant messages online with his business partner in 
Pyongyang.

"I'll have to buy you a car because it's so hot these days," Park types to 
the North Korean.

"A car sounds OK but I'm worried about revenue growth," comes the reply.

These are hardly the words one would expect to hear from a citizen of a 
country synonymous with communism and a closet attitude. But just as North 
Korea inches open its economic doors and its citizens become more aware of 
the opportunities money brings, South Koreans are increasingly finding an 
appetite for northern goods.

At Buknam Trading in Ilsan, Park imports more than 200 products from North 
Korea, including "Wild Vines" wine, pottery, whole octopus, ginseng vitality 
pills and wooden slippers made of a reputed cancer-fighting tree that is 
protected in the south.

"The main purpose of this business is to encourage north-south civil 
exchanges and contribute to the reconciliation of these two countries," Park 
said. "When political leaders meet every word is scrutinized for its 
political meaning, but business is just business."

Trade between the two Koreas totalled $453 million in the first six months 
of this year, according to South Korea's Ministry of Unification, up 40% 
from the same period in 2004.

The south imported $142 million from the north, a 23% rise, while the south 
recorded exports to the north of $311 million in the same period. The vast 
majority of the flow of goods northward, however, was aid rather than 
commercial transactions.

For a handful of South Korean companies, a deep yearning for reunification 
is motivating the trade with the north. Almost all these companies trade at 
a loss, including Hyundai Asan, the tourism arm of the family-owned 
conglomerate; Pyeongwha Motors, part of the Rev. Sun Myung Moon's 
Unification Church, and Kangsana Food Corp.

"It's been seven years and I'm still not making a profit, but I'm doing this 
out of pride and a desire to do something for North Korea," said Lee 
Yong-ju, president of Kangsana.

He sells about 20 tons of kimchi, the spicy fermented cabbage that Koreans 
eat day and night, from Pyongyang's famed Okyugwan restaurant in South 
Korean department stores each month.

He remains unfazed by the lack of returns. "Ultimately I want to contribute 
to the reunification of the two Koreas and visit the town [in the north] 
where my father was born," he said.

As an exception to the rule, Buknam has been able to make a profit of about 
20 million to 30 million won a month (about $20,000 to $30,000) since 
opening in December, which Park attributes to the high quality but low cost 
of the products that Buknum imports.

A packet of buckwheat noodles that would usually sell for 15,900 won (about 
$15) in South Korea is only 5,900 won, while North Korean clams are a fifth 
of the southern price.

Park feels no moral compunction about taking food from a country where 
millions go hungry and where a famine is said to be looming. "I make the 
comparison that North Korea nowadays is like South Korea at the end of the 
1960s," he said. "Then, South Korea didn't have enough food or produce 
enough to feed everyone but we still actively participated in global trade 
to pursue economic growth."

Indeed, against a backdrop of increased economic, military and diplomatic 
interaction between the two Koreas, southern traders say the north appears 
to be becoming more keen on business alliances and is increasingly 
abandoning old taboos.
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8.   STUDENTS IN DPR KOREA SHIFT FROM MARX TO MARKETING
     by Anna Fifield, Financial Times, 19 August 2005

In a business world overrun with MBAs, it can be difficult to stand out from 
the crowd. But one new qualification is guaranteed to jump off the CV: a 
degree from the Pyongyang Business School.

As North Korea's economic reforms trickle through to the factory level, 
company managers in this communist stronghold are now learning about market 
research, buyer behaviour and even e-commerce.

With its first graduates having just received their diplomas, the 
privately-run Pyongyang Business School is setting its sights on offering a 
Master of Business Administration.

"We want to help this country to develop and also to find qualified people 
for our own enterprises here," says Felix Abt, the ABB and Sandvik 
representative who acts as the school's director and chairman of the 
European Business Association in Pyongyang.

"We think all these efforts with food aid are not leading far. It's better 
to make sure there is food security and that industry can earn enough hard 
currency to pay for fuel and raw materials," Mr Abt says.

While it remains the most tightly sealed country in the world, North Korea 
is tentatively opening up to foreign investment and to the ideas that have 
created an economic explosion in neighbouring China. English teachers in 
Pyongyang report that, when asked what they want to be when they grow up, 
children are increasingly answering "businessman".

Company managers have more scope than ever since the economic reforms of 
2002, when previously centralised decision-making was devolved to state 
corporations. This means they have had to learn the basics of 
capitalist-style management, such as how to turn quick profits. The business 
school, funded by the Swiss government's Development Cooperation Agency, was 
established to help teach these new concepts.

Lecturers are flown in from companies including ABB, the engineering group 
and SKF, the ball-bearing maker, as well as several international banking 
firms and other well-known global companies.

Seminar texts have titles such as "Introduction to international commercial 
law" and "Strategy and strategic management," and 30 students from state 
shoe factories, medicinal producers and industrial plants have just 
graduated from the first intake.

Kang Chun-il, one of the graduates, told a state publication the course had 
helped him set high aims for the high-technology service centre he manages, 
which offers a digital imaging facility and electronic reading room.

"Our aim is to raise the country's economy and technology to a world-leading 
level as soon as possible and, with this in mind, we welcome all partners 
who want true and practical co-operation with us," Mr Kang said.

Even at the University of National Economy, which still rigorously adheres 
to North Korea's unique juche (self reliance) philosophy, some cautious 
modifications have been introduced.

"Our courses have changed, particularly with regards to modernising the 
national economy," says Seo Jae-yong, a professor at the technical 
institute, which teaches managers working at state, provincial and county 
level. "We are looking at the experiences of China and the Soviet Union and 
trying to strengthen our economy and encourage grass-roots creativeness."

The concepts of efficiency and profit are becoming more mainstream. The 
regime's New Year message, which sets out the priorities for the next 12 
months, urged North Koreans to "effect an unprecedented boost in production 
on the basis of the solid foundation for building a great prosperous 
powerful nation".

Not that teaching capitalist theory to people who have grown up on a diet of 
Marx, Lenin and juche philosophy is plain sailing. Foreign investors say 
that when discussing SWOT (strengths, weaknesses, opportunities and threats) 
analysis with their North Korean partners, local managers have difficulty 
identifying any weaknesses in the "socialist paradise" system. So in 
Pyongyang, the W is often changed to a C for future capabilities.

Some fundamental concepts seem likely to remain foreign for some time. 
"There is now substantial interest in economic management but we don't 
emphasise profit-making," says Professor Seo at the economic university.

"Capitalists think that economic management means increasing profit for 
themselves but from our point of view, we need to make more money so we can 
contribute to the national economy."
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End CanKor # 218

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