[Cankor] Report #237

[cankor at cankor.ca]

Dear subscriber,

Welcome to issue #237 of the CanKor Report.

In this week's QUIDNUNC, Ruediger Frank and Bradley Babson respond to the 
question:
How 'reversible' are economic reforms in the DPRK? Or put another way, what 
constitutes a threshold for 'real' reform in the DPRK, considering that many 
observers don't count it 'real' unless it brings about wholesale political 
change, or control of reforms is devolved from the political sphere?

Answers are sought to the following question:
All countries in the Six Party Talks pay lipservice to Korean reunification. 
Which country's interests would be served by a unified Korea?

Please send your answer (maximum 150 words) to: editor at CanKor.ca

The CanKor team.

For articles not original to CanKor, direct links are available in the 
Contents section, should you wish to consult the originals on the internet.

If the links no longer function, you may refer to the full text articles 
appended to the issue.

For back issues, archives and other content, please visit our website:
http://www.cankor.ca
*************************************************
CANADA-KOREA ELECTRONIC INFORMATION SERVICE

CanKor # 237

Friday, 17 February 2006
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Celebration of Kim Jong Il's 64th birthday on Thursday 16 February rekindles 
international speculation about his succession. At this age, his own father 
Kim Il Sung had already named him as the country's next leader. Last 
December, however, Kim Jong Il himself ordered a stop to talk of a 
father-to-son succession, reportedly concerned that it would make the DPRK 
an "international laughingstock."

Responding to the DPRK's offer to cooperate with international actions 
against financial crime, the USA demands evidence of the destruction of 
plates, machines, ink, and paper used by the DPRK for counterfeiting. 
Meanwhile, Banco Delta Asia, the Macau bank implicated in the DPRK money 
laundering allegations, terminates business links with all DPRK entities.

A number of researchers conclude that the crackdown on the DPRK's illicit 
financial dealings will have the net result of pushing the DPRK more firmly 
into China's orbit, as illustrated in two articles on the subject by Peter 
Beck and Jong-Heon Lee in this week's OPINION section.

In a letter to the CanKor editor, CRS Specialist in Asian Affairs Mark 
Manyin argues that there may be some "wiggle room" around the issue of how 
products from the Kaesong Industrial Zone will be treated in the USA-ROK 
Free Trade Agreement. Ruediger Frank and Bradley Babson respond to a 
QUIDNUNC query on the reality of DPRK economic reforms.
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Contents:
1.   FEBRUARY HOLIDAY CELEBRATED
     http://www.kcna.co.jp/index-e.htm

2.   KIM JONG IL BIRTHDAY REKINDLES SUCCESSION RUMOURS
     http://times.hankooki.com/lpage/nation/200602/kt2006021717530411990.htm

3.   KIM JONG IL DISCOURAGES TALK OF SUCCESSION
     http://joongangdaily.joins.com/200512/11/200512112257059879900090309031.html

4.   USA WANTS PROOF DPRK DESTROYED COUNTERFEIT PLATES
     http://english.donga.com/srv/service.php3?bicode=050000&biid=2006021764928

5.   MACAU BANK DROPS DPRK CLIENTS
     http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4718922.stm

OPINION: Financial sanctions promote DPRK dependence on PRC
6.   KEEPING THE DPRK FROM THE BRINK
     http://www.crisisgroup.org/home/index.cfm?id=3954

7.   DPRK'S INCREASED RELIANCE ON CHINA
     http://www.upi.com/InternationalIntelligence/view.php?StoryID=20060213-062742-1321r

FEEDBACK: from Mark Manyin, Congressional Research Service

QUIDNUNC: Readers ask and respond to common and uncommon questions.
THIS WEEK: How 'reversible' are economic reforms in the DPRK? Or put another 
way, what constitutes a threshold for 'real' reform in the DPRK, considering 
that many observers don't count it 'real' unless it brings about wholesale 
political change, or control of reforms is devolved from the political 
sphere?
*************************************************

1.   FEBRUARY HOLIDAY CELEBRATED
     Korean Central News Agency (KCNA), 16 February 1006

Meetings were held at the units of the three services of the Korean People's 
Army and in every province, city and county on Feb. 15 to celebrate February 
16, the auspicious holiday. At the meetings, the reporters said that thanks 
to the auspicious day in February when leader Kim Jong Il was born as the 
bright star over Mt. Paektu, there opened a rosy prospect of carving out the 
destiny of the nation and accomplishing the revolutionary cause of Juche and 
the army and people of the DPRK came to be blessed with the illustrious 
leaders generation after generation and there began a new history of Kim Il 
Sung Korea winning one victory after another under the ever-victorious 
banner of the Juche idea, the Songun idea. (...)
*************************************************

2.   KIM JONG IL BIRTHDAY REKINDLES SUCCESSION RUMOURS
     by Seo Dong-shin, The Korea Times, 17 February 2006

A string of festivities swept North Korea Thursday as its leader Kim Jong Il 
turned 64, North Korean official media outlets reported. On the Southern 
side of the inter-Korean border, however, Kim's birthday celebrations served 
as an occasion to add fuel to already rampant speculation over his potential 
successor. (...) The birthday reminds North Korean watchers in the South of 
a nagging question that has haunted them in recent years. Will it be 
possible for Kim, who inherited power from his father and the communist 
North's founding leader Kim Il Sung in 1994, to hand over power to one of 
his three sons, born out of two relationships, to continue the "Kim 
Dynasty?"

The South Korean government shies away from making public comments on the 
issue for fear of upsetting the North, which it officially recognizes as its 
dialogue partner in inter-Korean and international talks. "We've been 
closely monitoring possible signs regarding the matter, but could not detect 
any indications worth mentioning in public," said Unification Minister Lee 
Jong-seok in an answer to a lawmaker's question at a National Assembly 
session Wednesday.An expert on North Korean affairs, however, mentioned on 
Monday an interesting rumor as to why Kim Jong Chol, the second son of the 
North Korean leader who to date has been widely considered the most viable 
successor, cannot become "the one." The 25-year-old has a "fatal disease" 
which cannot allow him to become the successor, according to a rumor relayed 
by Lee Kyo-duk, director of the planning and coordination division at the 
state-funded Korea Institute for National Unification (KINU), during a 
meeting with reporters. The rumor has it that the second son Kim is 
suffering from excessive female hormones, which makes him even bosomy, said 
Lee, a South Korean researcher who is interested in the succession of power 
in the North, quoting some unnamed government sources. "The disease is 
allegedly incurable," Lee said.

The rumor, which is not entirely new and cannot be confirmed, seemed to be 
in line with a story originating earlier from Kim Jong Il's former chef 
Kenji Fujimoto. The Japanese chef had written in his memoirs published after 
returning to his home country that the North Korean leader considered his 
second son to be "too girly" to transfer his power to.

Experts in the South have continued to differ over the possibility of Kim 
Jong Chol becoming the next ruler of the North. But most agree that his 
first son, 35-year-old Kim Jong Nam, is out of the question after the fuss 
he caused in 2001 when he was caught at a Japanese airport trying to enter 
Japan illegally with a fake passport. The third son, 22-year-old Kim Jong 
Un, is too young.

Due to restrictions on information about what is really going on inside the 
reclusive North, however, even "experts" have sometimes had to pay attention 
to rumors from insecure sources or media reports, often leading to 
contradictory views on possibilities. Cheong Seong-chang, a research fellow 
at the Sejong Institute who has also focused on the power succession in the 
North in recent years, is one of the academics who thinks the chances of Kim 
Jong Chol becoming the next leader are high. In its Feb. 11 issue, a 
Japanese weekly published what it claimed to be an internal document from 
the North ruling Workers' Party, dated Sept. 25, 2005. The document contains 
a part that states the central committee of the party "declares to recommend 
dignified comrade Kim Jong Chol to the top echelon of the party."

Cheong believes that despite some grammatical errors, it is unlikely that 
the document was fabricated. Besides the document, Cheong points to other 
signs such as Kim Jong Chol embarking on his own work as a member of the 
Organization and Guidance Department of the Workers' Party and rumors of his 
pictures hanging on the walls of the party's central committee's offices, to 
back his argument.

Lee and Huh Moon-young, director of the KINU's division of North Korean 
studies, however, belong to the group of academics who believe that another 
power succession in the North is unlikely.

"I've heard from someone Kim Jong Il said in 2004 that the next eight years 
is very important," Huh said. "Add eight to 2004 and it's 2012. In 2012, Kim 
turns 70 and it's the 100th year in the Juche (self-reliance) era. I think 
the North Korean ruling class, in their own way, are rather agonizing over 
what to do regarding the future of Korean people to mark such an occasion, 
while we (in the South) are busy speculating on the power succession issue." 
Lee said it is also questionable whether North Korea could, in its present 
condition, manage thorny issues such as a succession of power.

Rhee Bong-jo, who resigned from the post of vice unification minister 
Thursday, has been of a similar opinion. "We (in the South) tend to approach 
the matter from too dynastical a viewpoint," he said, adding he personally 
feels another hereditary succession of power is rather improbable.
*************************************************

3.   KIM JONG IL DISCOURAGES TALK OF SUCCESSION
     Joong Ang Ilbo, 12 December 2005

North Korean leader Kim Jong Il has issued a special instruction barring any 
discussion about who might succeed him, informed sources in Seoul said 
yesterday. According to the sources, Mr. Kim gave the instruction during a 
recent meeting with ranking officials including Kim Ki-nam, secretary of the 
North's ruling Workers' Party and military generals Hyun Chol-hae and Park 
Jae-gyong.

"Our enemies are backbiting us by speculating about our [country's] future 
leadership and a father-to-son succession," Kim was quoted by one source as 
saying in the meeting. "I ask party and military leaders to strictly crack 
down on any public discussion on the [issue of our] next leader."

Mr. Kim reportedly noted that any talk of his inherited power would defame 
him and his late father, making the North an "international laughingstock."
*************************************************

4.   USA WANTS PROOF DPRK DESTROYED COUNTERFEIT PLATES
     by Jong-Koo Yoon, Donga Ilbo, 17 February 2006

US Ambassador to South Korea Alexander Vershbow and South Korean Ambassador 
to the USA Lee Tae-sik are both making stronger statements on the North 
Korean counterfeiting issue.

"North Korea should present evidence that they have destroyed the plates and 
equipment used for counterfeiting US dollars," Vershbow said in a statement 
dated February 14. It was the clearest statement so far from either the 
Korean or American government about what action should be taken regarding 
the counterfeiting issue. The United States is demanding the destruction of 
the plates, machines, ink, and paper it says North Korea used for 
counterfeiting.

"This remark says the allegations of the North Korean government 
counterfeiting currency are cold, hard facts," said one puzzled South Korean 
official. "And the United States is telling North Korea to wave the white 
flag, so to speak. How can North Korea accept this?"

Ambassador Lee said, "It is America's opinion that North Korea is making 
counterfeit money where they print North Korean currency." This comment is 
also very direct. The ambassador was relaying America's position, but his 
statement was so clear and firm that some think the statement may have had 
other purposes. In other words, the statement could have been made to state 
what he wanted to say to North Korea, veiled by the addition of the phrase, 
"It is America's opinion."

Some are voicing concerns that the atmosphere surrounding the six-party 
talks may be affected after such blunt statements by the two ambassadors, 
especially at a time when the question of dispatching Lee Geun, North 
Korea's foreign affairs representative, to the United States is currently 
being reviewed in order to resolve the counterfeiting issue, the biggest 
obstacle to the nuclear six-party talks.

However, it seems that the United States feels it would be more helpful in 
restarting the six-party talks if they took a hard-line approach by bringing 
up the counterfeiting issue, North Korea's "Achilles' heel." Vershbow said 
previously that the Bush administration is dubious about resolving issues 
with North Korea through dialogue. (...)

Ambassador Lee also said that the United States has found new evidence 
concerning North Korean counterfeiting activities in 2004 and 2005. However, 
South Korea's National Intelligence Service (NIS) authorities said on 
February 2 at the National Assembly Intelligence Commission that they have 
concrete proof of North Korean counterfeiting activities up to 1998, but 
have no information on counterfeiting or distribution of fake currency after 
1998. The conflicting statements of the South Korean ambassador in Korea and 
the NIS authorities may be signs of a cover-up.
*************************************************

5.   MACAU BANK DROPS DPRK CLIENTS
     BBC, 16 February 2006

A Macau bank accused by the USA of laundering money for North Korea has 
agreed to dissolve all links with the communist state. The US Treasury said 
Banco Delta Asia had acted as a "willing pawn" for North Korea to channel 
money through Macau. Macau's authorities took control of the bank last year 
after the fraud claims led to a run on its deposits. Officials said the bank 
would end ties with North Korean clients and tighten its anti-money 
laundering policies and procedures. (...)

The US Treasury accused Banco Delta Asia of helping to finance North Korean 
agencies and front companies over a period of 20 years. It put intense 
pressure on the bank -- which denied the accusations -- to abandon ties with 
North Korea. It threatened to restrict Banco Delta's business dealings with 
US banks unless it took prompt action. Banco Delta said on Thursday it would 
co-operate fully with the authorities and had appointed two firms of 
independent accountants to monitor its clients. (...)

The scandal weakened Banco Delta's financial position, with customers 
withdrawing 10% of its total deposits after the allegations surfaced. The 
Macau authorities stepped in to support the bank, pending an inquiry into 
its activities, and are now considering the bank's future.
*************************************************

OPINION: Financial sanctions promote DPRK dependence on PRC

*************************************************

6.   KEEPING THE DPRK FROM THE BRINK
     by Peter Beck, YaleGlobal Online Magazine, 14 February 2006

[Peter Beck is the Northeast Asia Project Director for the International 
Crisis Group. The project's latest report, "China and North Korea: Comrades 
Forever?" can be viewed at www.crisisgroup.org. See also CanKor #235]

If the Bush administration had hopes that cracking down on North Korea's 
illicit money laundering activities in Macao last fall would bring Pyongyang 
back to the nuclear negotiating table, Kim Jong Il dashed them once and for 
all with his field trip to China. Judging by North Korea's shrill reaction, 
the sanctions did hit Pyongyang where it counts, but rather than making 
North Korea more acquiescent, the crackdown has pushed the nation further 
into China's orbit. This makes China's role more important than ever for 
resolving the nuclear standoff, and at the same time constrains Washington's 
policy choices.

China's relationship with North Korea is based on mutual economic necessity 
rather than political loyalty or shared ideology. Relations are nowhere near 
as close as the "lips and teeth" once proclaimed by Beijing. China's 
pragmatic leaders have difficulty relating to their Stalinist counterparts 
in Pyongyang. The clothes worn by President Hu Jintao and Chairman Kim 
during their January tête-à-tête spoke volumes: The urbane technocrat in a 
$1,000 suit meets the recluse in a jumpsuit.

Chinese in regular contact with the North often quietly complain to 
interviewers with the International Crisis Group -- an independent 
non-profit NGO that provides field-based analysis and advocacy to prevent 
deadly conflict -- about the never-ending difficulties of working with the 
North. More than a few Chinese leaders feel Pyongyang is ungrateful for the 
sacrifices China has made since the Korean War, which alone took at least 
500,000 thousand Chinese lives. There is not one public memorial in North 
Korea acknowledging China's contributions, from food to fuel to arms. Some 
analysts even suggest that Beijing would be willing to abandon North Korea, 
if that would help in the quest to take Taiwan, and question whether China 
would come to Pyongyang's defense if a second Korean war were to break out.

Beijing shares Washington's goal of a nuclear-free North Korea, if for no 
other reason than to discourage a nuclear arms race in region, with arch 
enemies Japan and Taiwan then quickly trying to catch up. The problem is 
that Beijing places far greater priority on North Korean stability and 
regime survival than on the peninsula remaining nuclear-free. The cost of 
conflict or collapse in the North is too great for Beijing to consider 
putting serious pressure on Pyongyang, so long as Kim does not upset the 
status quo with an overly provocative act, such as a nuclear test or 
transfer of nuclear material to a third country. Thus, China is committed to 
the six-party nuclear talks as a means of keeping the lines of communication 
open and maintaining the status quo. Beijing is satisfied to play the role 
of convener and occasionally arbitrator, not dealmaker or enforcer. 
Achieving a nuclear accord is purely optional.

As Pyongyang's economic ties with Japan and the US have atrophied, China 
and, to a lesser extent, South Korea have emerged as North Korea's economic 
lifebuoys. However, unilateral assistance is quickly being replaced by 
trade. Chinese exports to North Korea rose more than 50% last year to break 
the US $1 billion level - comprising nearly half of the North's imports. 
During several visits to the China-North Korea border, in both the east 
where most ethnic Koreans live and refugees hide and in the west where most 
trade takes place, ICG researchers observed trucks laden with rice and fuel 
entering the North and iron ore coming into China. Moreover, China has 
become a source of crucial infrastructure investment, including road and 
port facilities that would give China's two landlocked northeastern 
provinces of Jilin and Heilongjang easy access to Japanese and South Korean 
markets. A wave of Chinese consumer goods is washing over North Korea, 
accounting for over 80% of such products in North Korean markets.

South Korean officials almost never admit it openly, but they are 
increasingly worried about Beijing's growing economic influence over the 
North. North Korea watchers in Seoul are already referring to the North as 
"China's fourth northeastern province." Given that China has released a 
development plan to reinvigorate this region, such concerns are well 
founded. Speculation is no longer whether Chinese forces would enter North 
Korea in the event of Kim's regime collapsing, but how much territory they 
would try to hold if it did.

Chairman Kim's fifth and longest trip to China focused on the wellspring of 
China's economic reforms, giving rise to hopes in South Korea that the visit 
portends deeper economic reforms and opening. Given reports of banners in 
the North proclaiming the success of Kim's trip to China and the extensive 
coverage his trip received on North Korean TV during the Lunar New Year, it 
is reasonable to conclude Pyongyang is committed to reform and opening its 
closed economy more than ever. But whether that will be enough to be 
successful remains an open question.

With the dramatic flair of the armchair movie director he professes to be, 
Kim saved the most crucial part of his China trip for the very end: his 
meeting with President Hu. China currently holds the biggest potential 
carrot and stick with the North. The carrot is the $2 billion economic 
assistance package rumored to be offered by Hu during his visit to Pyongyang 
last October. The stick is in the form of American pressure to crack down on 
the North's remaining banking activities in China.

However, China opposes sanctions on North Korea because it anticipates they 
would lead to instability and, while they would not dislodge the regime, 
would damage the nascent process of market reforms and harm the most 
vulnerable segment of the population. China's opposition to aid 
conditionality and infringements on sovereignty, as well as its general 
reluctance to embrace sanctions, is related to its own quest for 
reunification with Taiwan -- not to mention human rights issues in Xinjiang 
and Tibet, and its own economic interests in Sudan and elsewhere.

Washington must face the fact that there is virtually no circumstance under 
which China would use its economic leverage to force North Korea's 
compliance on the nuclear issue. Even though the crackdown on North Korea's 
illicit banking activities in Macao demonstrated that China is not 
completely immune to outside pressures to rein in bad behavior, Beijing is 
unlikely to shut down the North's remaining banking activities.

Given the military option is essentially off the table, Washington can 
either sit down and undertake real negotiations with North Korea, or accept 
it as a nuclear power. Waiting for China to compel North Korean compliance 
will only give Pyongyang more time to develop its nuclear arsenal.

Until Beijing, Washington and Seoul can agree on common goals and strategies 
for dealing with North Korea, the best we can hope for in the short term is 
to go though the motions of negotiations. For now, perhaps the only goal all 
parties can agree on is avoiding a crisis, but more meaningful engagement is 
needed if, in the long run, North Korea is not to loom as a flash point in 
Sino-US relations.
*************************************************

7.   DPRK'S INCREASED RELIANCE ON CHINA
     by Jong-Heon Lee, UPI, 13 February 2006

US-led financial sanctions against North Korea can hardly bear fruit without 
China's participation and will only make the closed economy further depend 
on its robust neighbor, South Korean officials said Monday. North Korea has 
been increasingly dependent on China for its economic survival, which could 
weaken inter-Korean cooperation, the central Bank of Korea said in a report. 
The North's trade with another major partner, Japan, has consistently 
diminished, further deepening Pyongyang's economic reliance on China, the 
BOK report added.

Two-way trade between North Korea and China has been rising by an average 30 
percent annually since 2000, boosting North Korea's economic growth by 3.5 
percentage points every year, the bank said. According to South Korea's 
trade body, the Korea International Trade Association, North Korea's trade 
with China increased 14.8 percent to $1.58 billion last year. That figure 
accounts for some 50 percent of North Korea's total trade volume. The 
North's trade with China was $1.39 billion in 2004, or 48.5 percent of its 
total 2004 trade volume, up 42.8 percent from a year earlier when it posted 
$1.02 billion, according to officials in Seoul. North Korea's exports to 
China last year consisted mainly of coal and iron ore. The North's imports 
from China outpaced the growth of its exports, widening its trade deficit 
with the world's most populous country to a record $1.08 billion last year.

"Some 80 percent of items appearing in North Korea's markets are from 
China," said Lee Young-hoon, an economist at the BOK-run Institute for 
Monetary and Economic Research. South Korean officials believe China 
provides between 70 and 90 percent of North Korea's oil and more than 
one-third of its imports and food aid. The sharp increase in bilateral trade 
between the two communist neighbors is the result of North Korea's lower 
production capacity and the cheap price of Chinese goods, said Lee, a main 
researcher for the BOK report. "The North Korean economy would have posted 
minus growth if it had not been for its rapidly growing trade with China," 
he said.

The North Korean economy had shrunk for a decade before swinging into 
positive growth in 1999 when its gross national product surged 6.2 percent. 
It grew 1.3 percent in 2000, 3.7 percent in 2001, 1.2 percent in 2002, 1.8 
percent in 2003, and 2.2 percent in 2004. Seoul's Unification Minister 
predicts the North Korean economy will post economic growth for last year on 
the back of industry and agriculture, saying the country's grain production 
rose 5.3 percent to 4.54 million tons in 2005.

China's economic aid and investment in North Korea is rapidly growing, 
paving the way for the Red Capitalists' race to exploit developing the 
impoverished North, officials say. North Korea and China recently agreed to 
the joint exploitation of offshore oil fields. Chinese oil authorities said 
in October that they had found new oil reserves in Bohai Bay, which lies 
between North Korea and China, and assume the reserve will reach up to 5 
billion barrels. North Korea said in 1997 that it had found oil reserves of 
around 5 to 40 billion barrels in the offshore area.

The BOK said North Korea's economic reliance on China would deepen in the 
future due to China's fast economic growth and the North's move to induce 
more market elements.

In contrast, North Korea's trade with Japan, its third-largest partner after 
South Korea, has steadily decreased in recent years. Bilateral trade posted 
$190 million last year, marking the lowest level since 1977, according to 
the KITA. The North's exports to Japan amounted to $130 million in 2005, 
while its imports from Japan totaled $60 million. The trade body attributed 
the fall to a boycott of North Korean goods by the Japanese and to Tokyo's 
economic sanctions against the North, including its restrictions on North 
Korean ships calling at Japanese ports.

South Korean analysts also said the North's deepening economic ties with 
China would hinder possible US-led financial sanctions from operating 
effectively. The USA has begun imposing economic sanctions on North Korea to 
punish its financial illegalities and is considering expanding them to force 
the defiant country to give up its nuclear weapons program.

"Considering North Korea's economic reliance on China, US-led sanctions 
without Beijing's participation can hardly bear fruit and would only lead to 
North Korea's [increased] dependence on China," Lee said.
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FEEDBACK

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"WIGGLE ROOM" ON KAESONG IN USA-ROK FTA
Mark Manyin, Specialist in Asian Affairs, Foreign Affairs, Defense, and 
Trade Division, Congressional Research Service, Library of Congress responds 
to the following statement in the summary of CanKor #236:
"The USA has just informed the ROK that goods produced in the Kaesong 
Industrial Park will not be considered as part of the Free Trade deal 
currently being negotiated between the USA and the ROK."

Erich:
Just skimmed NAPSNET's summary of the latest CanKor edition. The bit that's 
written about Kaesong has been commonly repeated in the press, but it may be 
incorrect. If you carefully read through the entire transcript from the 
"senior embassy official's" roundtable, it's pretty clear that there may be 
some wiggle room on Kaesong, via the rules of origin chapter of the FTA. 
Here's something I just wrote about this in a report on the FTA. ["South 
Korea-US Economic Relations: Cooperation, Friction, and Prospects for a Free 
Trade Agreement," Updated 9 February 2006, RL30566, 
http://ncseonline.org/NLE/CRS/]
Mark

THE KAESONG INDUSTRIAL ZONE.
The worsened economic situation for many South Korean small and medium sized 
enterprises (SMEs) is thought to be a major factor propelling President Roh 
Moo-hyun's economic initiatives with North Korea. In particular, the 
inter-Korean industrial zone in Kaesong (also spelled "Gaesong"), North 
Korea, just north of the demilitarized zone separating the two countries, is 
explicitly designed for use by SMEs, over 1,000 of which reportedly have 
expressed interest in participating. A pilot site at Kaesong, housing the 
factories of fifteen South Korean firms, opened in 2004, and in the summer 
of 2005 the two Koreas announced plans to expand the zone in 2006 and 2007.

The Kaesong industrial zone could become a contentious issue in the 
bilateral FTA talks. Since the zone opened, it has been South Korean policy 
to request that its FTA partners allow exports from Kaesong to be considered 
"Made in Korea," thereby enabling these products to receive the preferential 
status conferred by the FTA. On February 3, 2006, the Vice-Minister of South 
Korea's Ministry of Unification reportedly stated that Seoul plans to try to 
secure preferential tariff treatment for Kaesong-made goods in FTAs with the 
United States and Canada. When questioned about this policy during the 
February 2, 2006 launch of the FTA, USTR Portman stated that the FTA would 
cover only products made in South Korea. At an economic press roundtable in 
Seoul on February 8, 2006, an unnamed official with the US embassy said, 
"...the provisions of the FTA in our view will apply to goods originating 
within the territories of the two parties... what qualifies as an 
originating good is something that will be settled in the chapter [of the 
FTA] called Rules of Origin." The latter half of the statement appears to 
indicate that the Bush Administration may feel there is room for negotiation 
on this point.
*************************************************

QUIDNUNC
In this section of CanKor, we invite readers to send questions, answers, or 
responses. Answers should be under 150 words and may be edited for space.

*************************************************
HOW 'REVERSIBLE' ARE ECONOMIC REFORMS IN THE DPRK? OR PUT ANOTHER WAY, WHAT 
CONSTITUTES A THRESHOLD FOR 'REAL' REFORM IN THE DPRK, CONSIDERING THAT MANY 
OBSERVERS DON'T COUNT IT 'REAL' UNLESS IT BRINGS ABOUT WHOLESALE POLITICAL 
CHANGE, OR CONTROL OF REFORMS IS DEVOLVED FROM THE POLITICAL SPHERE?
*************************************************

Of course, anything is reversible. This is why we needed the Renaissance in 
Europe to return to where we had already been centuries before the "dark 
age". Reforms are a process, which is why I increasingly prefer the terms 
"transformation" over "transition" and "state-led development" over 
"reform". I strongly object to the definition of a threshold for real 
reform, because this normative approach implies the existence of a standard 
or ideal, and even worse, an endpoint of development, which is a debatable 
concept. As long as development takes place (GDP growth and other factors, 
see Human Development Index), even with a J-curve effect, there is reason to 
be optimistic.
I suggest differentiating between irregular and regular measures. The former 
(irregular) are of an ad-hoc, one-time nature. They are isolated and without 
preceding and/or follow-up actions, are taken back eventually, and are not 
accompanied by corresponding changes in other fields. The latter (regular) 
can be analytically integrated into a long-term process. Success is 
important for progress, but of secondary relevance if we evaluate the 
"realness" of single development steps (aka reforms). Since a long-term 
state-directed development process carries incalculable risks, we must 
expect a trial-and-error policy under which single measures are taken back 
if they don't work as desired. This does not, however, constitute a failure 
per se. Rather, reversing single measures shows the vitality and flexibility 
of the development process and the ability of the state to act and to react.

Ruediger Frank, Professor of East Asian Political Economy, University of 
Vienna.
*************************************************

My view is that fundamental changes are taking place in the DPRK that are 
"irreversible" even if the government attempts rollbacks in some if its 
economic reforms. The legalization of markets and influx of consumer goods 
across the border from China have created a psychological change among the 
population who now are exercising consumer choice and experiencing the 
profit motive. This cannot be rescinded by fiat, and in any case the Chinese 
are pursuing a policy of seeking an expanding market economy in the DPRK 
through cross-border trade that is largely unregulated. More important is 
the question of whether the DPRK can achieve macroeconomic stabilization and 
stimulate economic growth without deepening its reforms. Here my view is 
that the reforms to date are not sufficient to achieve either of these 
objectives, so I would not say that they have met a "minimum threshold" 
either. I don't think political change, if what is meant is regime change, 
is a requirement of a workable economic reform, but it would require 
political decisions that so far Kim Jong Il has not been willing to make.

Bradley O. Babson, Consultant on Asian Affairs [retired from World Bank]
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What Now?

All countries in the Six Party Talks pay lipservice to Korean reunification. 
Which country's interests would be served by a unified Korea?

[Answers should be e-mailed to: editor at CanKor.ca]
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End CanKor # 237

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