North Korea closing Kaesong complex after worker recall

8 04 2013

North Korean workers at the South-owned Shinwon clothes company in Kaesong industrial park(by Tania Branigan, The Guardian, 8 April 2013) North Korea has said it will recall more than 50,000 workers from the industrial park it runs with the South and consider shutting it permanently, spelling an end to inter-Korean co-operation. Pyongyang has engaged in weeks of angry rhetoric in response to a UN security council resolution expanding sanctions following its third nuclear test and to ongoing joint exercises by South Korean and US forces.

But analysts noted that while the latest move by Pyongyang was substantive, it was also a non-military one made amid concerns that the North might be planning another missile or nuclear test. The Kaesong industrial complex has been a much-needed source of income for the impoverished North and a cheap source of workers for labour-intensive South Korean firms.

The statement from a senior party Workers’ party official, carried by the KCNA state news agency, warned that operations would be suspended while the future of Kaesong was reviewed. “The zone is now in the grip of a serious crisis,” Kim Yang Gon said. “It is a tragedy that the industrial zone, which should serve purposes of national reconciliation, unity, peace and reunification, has been reduced to a theatre of confrontation between compatriots and war against the North.”

He did not mention the 475 South Korean managers still at Kaesong. The North has prevented personnel and supplies from entering from the South since last week. According to Associated Press, about a dozen of more than 120 South Korean companies at Kaesong have halted production owing to lack of supplies.

“The temporary suspension is likely to become the final sigh of the sunshine policy as we knew it,” said Leonid Petrov, an expert on the North at Australian National University. “It’s understandable that as they proclaimed war it would be inconsistent with the desire to produce sneakers and LCDs at the same time … North Korea is sending a strong message to prove that money means nothing for the regime and its nuclear missile programmes are not for sale and not negotiable.”

Seoul’s policy of free-flowing aid and engagement was ended by South Korea’s previous president, Lee Myung-bak, who took office in 2008. Petrov argued future attempts at co-operation would have to start from scratch, adding: “It is unlikely it will happen under Park Geun-hye given the conservative origins of her party. “Many people blamed the sunshine policy for being ineffective, but that’s not correct: it was too successful for its time. It achieved a lot but was too dangerous for the North and too expensive for the South.”

James Hoare, the former British chargé d’affaires in Pyongyang, said: “It may be that among the military there are those who never liked [Kaesong] and saw it as a Trojan horse. It may be they’ve decided they won’t carry on with it, but they could still row backwards. It is not militarily threatening. It’s a gesture which to me looks foolish from the North Korean point of view, but it isn’t firing rockets or doing a nuclear test.” He pointed out that attempts at engagement with the North had often stumbled, from the early 1970s onwards. But he added: “It’s very unfortunate for the workers, who will lose their wages and other perks.”

Stephan Haggard of the Washington-bade Peterson Institute, an expert on North Korean economics, wrote last year: “For North Korea, [Kaesong] is a cash cow that even hardliners have been loath to push the way of the Mount Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totalled $245.7m, rising from $380,000 in 2004 … to $45.93m in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.”

One possibility is that the North believes it must threaten a clearly valuable asset to send the message that it is serious in its stance. Another possibility mooted by experts is that it could hope to expropriate the factories and hand them over to members of the elite, bolstering domestic support for the regime.

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Rare earths bankroll North Korea’s future

7 08 2012

Image(By Leonid Petrov, Asia Times On-line, 7 August, 2012)

Those who travel to North Korea regularly might have noticed that the last couple of years have brought significant improvement in the country’s economic situation. Newly built high-rise apartments, modern cars on the roads and improved infrastructure come as a surprise to visitors. It begs the question, where does Pyongyang get the money from?

The ambitious rocket and nuclear programs, which North Korea continues to pursue despite international condemnation, are expensive and harmful to its economy. International sanctions continue to bite the Democratic People’s Republic of Korea’s foreign trade and investment prospects. Regular floods and droughts, animal epidemics and other natural disasters hit the fragile economy even harder.

According to expert estimations, the DPRK should have ceased to exist in the mid-1990s, after the Communist Bloc collapsed and Kim Il-Sung died. But North Korea has fully recovered after the famine and even shows steady signs of economic growth.

Foreign critics looked everywhere with hope to unravel the mystery. After 2008, the stalled inter-Korean cooperation left North Korea without South Korean financial assistance. Western humanitarian aid has also been exhausted or reduced to a number of goods with little market value. Although the volume of North Korea’s foreign trade is negligible, the domestic economic situation continues to improve. Pyongyang is routinely suspected of violating international sanctions by trading arms, smuggling drugs, counterfeiting US dollars and other crimes.

These activities would be expected to refill the impoverished state with badly needed foreign exchange. However, anti-proliferation operations and bank account arrests have never disclosed anything criminal nor did they manage to answer the main question: where does the money come from?

In fact, North Korea is sitting on the goldmine. The northern side of the Korean peninsula is well known for its rocky terrain, with 85% of the country composed of mountains. It hosts sizeable deposits of more than 200 different minerals, of which deposits of coal, iron ore, magnesite, gold ore, zinc ore, copper ore, limestone, molybdenum, and graphite are the largest and have the potential for the development of large-scale mines.

After China, North Korea’s magnesite reserves are the second-largest in the world, and its tungsten deposits are almost the world’s sixth-largest. Still the value of all these resources pales in comparison to prospects that promise the exploration and export of rare earth metals.

Rare earth metals are a group of 17 elements found in the earth’s crust. They are essential in the manufacture of high-tech products and in green technologies, such as wind turbines, solar panels or hybrid cars.

Known as “the vitamins of high-tech industries,” REMs are minerals necessary for making everything that we use on a daily basis, such as smartphones, flat-screen TVs, and notebook computers. Some rare earth metals, such as cerium and neodymium, are crucial elements in semiconductors, cars, computers and other advanced technological areas. Other types of REMs can be used to build tanks and airplanes, missiles and lasers.

South Korea estimates the total value of the North’s mineral deposits at more than US$6 trillion. Not surprisingly, despite high political and security tensions, Seoul is showing a growing interest in developing REMs together with Pyongyang.

In 2011, after receiving permission from the Ministry of Unification, officials from the Korea Resources Corp visited North Korea twice to study the condition of a graphite mine. Together with their counterparts from the DPRK’s National Economic Cooperation Federation they had working-level talks at the Kaesong Industrial Complex on jointly digging up REMs in North Korea. An analysis of samples obtained in North Korea showed that the type of rare earth metals could be useful in the manufacture of liquid crystal display (LCD) panels and optical lenses.

The joint report also revealed that there are large deposits of high-grade REMs in the western and eastern parts of North Korea, where prospecting work and mining have already begun. It also reported that a number of the rare earth elements are being studied in scientific institutes, while some of the research findings have already been introduced in economic sectors. The North built a REM reprocessing plant in Hamhung in the 1990s but has been unable to put the plant into full operation due to power and supply bottlenecks.

Rare earth minerals are becoming increasingly expensive, as China, the world’s largest rare earth supplier, puts limits on its output and exports. In February, China’s exports of rare earth metals exceeded the price of $1 million per ton, a nearly 900% increase in prices from the preceding year.

China, which controls more than 95% of global production of rare earth metals, has an estimated 55 million tons in REM deposits. North Korea has up to 20 million tons of REM deposits but does not have the technology to explore its reserves or to produce goods for the high-tech industry. Nevertheless, in 2009 the DPRK’s exports of rare metals to China stood at $16 million, and as long as someone invests, exports will continue to expand.

This growing rise in REM prices and strong demand gives the young leader Kim Jong-Un a good chance to improve the economic standing of North Korea without actually reforming its economy.

Following the Gulf States’ and Russian example of catching the wind of rising oil prices in their sails, Pyongyang is likely to follow suit, becoming rich and powerful through the exploration and sale of natural resources. The export of rare earth metals will replenish the state coffers; stimulate the loyalty of the elites to Kim Jong-Un’s autocratic rule; and secure the growth of consumption among the ordinary people.

Relations with South Korea, China and Japan are also likely to improve due to the large scale cooperation on exploring, processing and utilizing REMs – the mineral of the 21st century.

Pyongyang needs international assistance through joint projects to explore its mineral resources, and mainly its rare metal and rare earth minerals. North Korean and Chinese teams have been cooperating to explore mineral resources in the DPRK for many decades. Seoul has recently expressed interest in working with Pyongyang on mining projects and technological innovations.

Perhaps, Japan and Taiwan, which look for alternative REM supplies for their micro-processor and other cutting edge industries, might also decide to contribute to the development of this economically promising venture.

Paradoxically, the promise of Kim Jong-Il might soon come true and North Korea may become a “rich and powerful state” – rich in natural resources and empowered by nuclear technologies. In that case, North Korea might not even need to go through a painful and potentially destabilizing economic reform.

Although the political regime will remain dictatorial, the idea of unification with the South by war or absorption will soon become meaningless. The purges of political elites and the mass starving of ordinary people in North Korea will cease. Gradually the level of prosperity in the two halves of the divided Korea will start equalizing, opening more opportunities for greater exchange and cooperation.

Read this article in Korean here… 북한의 숨겨진 비장의 카드…

Largest Known Rare Earth Mineral Deposit Discovered

(Mining Weekly.Com 4 December 2013) SRE Minerals Limited announces the results of exploration and studies in collaboration with the Korea Natural Resources Trading Corporation of the Democratic People’s Republic of Korea

SRE Minerals Limited (“SRE” or “the company”) announced today their joint venture agreement with the Korea Natural Resources Trading Corporation for rights to develop all rare-earth-element deposits at Jongju, North Pyongan Province.

The joint venture company known as Pacific Century Rare Earth Mineral Limited has the rights under the joint venture agreement which includes the exploration, mining, beneficiation and marketing of all REE deposits in the Jongju area for the next 25 years with a further renewal period of 25 years.

Under the terms of the JV agreement SRE has also been granted permission for a National Rare Earth Mineral Processing Plant on site at Jongju, which is situated approximately 150 km north-northwest of the capital city of Pyongyang, within the North Pyongan Province, Democratic People’s Republic of Korea.

Leading Australian mining and geological consultancy, HDR Salva Resources Pty Ltd, has been SRE’s technical representative for the project and has been commissioned to access the mineralised potential of the Jongju REE target* with special reference to detailed mapping, extensive trenching and limited drilling.

HDR Salva Resources (Pty) Ltd.’s initial assessment of the Jongju REE Exploration Target* indicates a total mineralisation potential of 6.0 Bt (216.2 Mt total rare-earth-oxides including light rare-earth- elements such as lanthanum, cerium and praseodymium (mainly britholite and associated rare earth minerals). Approximately 2.66% of the 216.2 Mt TREO consists of heavy rare-earth-elements. A detailed classification of mineralised potential present in the Jongju REE Target* is presumed to be:

• 664.8 Mt @ >10.00% TREO,
• 1.1 Bt @ 4.72% TREO,
• 579.4 Mt @ 3.97% TREO, and
• 3.63 Bt @ 1.35% TREO.

Dr Louis Schurmann said: “The Jongju Target* would appear to be the World’s largest known REE occurrence.”

Technical information in this announcement has been compiled by Dr Louis W. Schurmann, who is a Fellow of the Australasian Institute of Mining and Metallurgy and a Professional Natural Scientist with over 18 years of experience relevant to the styles and types of rare earth mineral deposits under consideration, and to the activities which has been undertaken to qualify as a Competent Person as defined by the Australasian Code for Reporting of Minerals Resources and Reserves (JORC) 2004. Dr Schurmann consents to the inclusion of information in this publication.

Further exploration is planned to recommence in March 2014, which will include 96,000m (Phase 1) and 120,000m (Phase 2) of core drilling. Results from the exploration program will be reported according to the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia (JORC Code (2004 / 2012)).

Investigations by the DPRK’s Academy of Science geologists have also identified several HREE targets*. There are also seven newly discovered carbonatite complexes which have been identified as green-field exploration targets. Exploration programs have been planned to assess their potential in 2014, together with the evaluation of known bastnasite and monazite deposits.

According to the mentioned HDR Salva Resources’ assessment, the Jongju REE Target* also contains economical quantities of rare and critical metals associated with fluorite, apatite, zircon, magnetite, ilmenite, nepheline and feldspar. These commodities will also be addressed during future exploration and further studies.
“This joint venture agreement reinforces the strong and constructive relationship SRE has developed with the DPRK over that time,” he said.

“The REE resource potential of the DPRK, while estimated to be massive has only been lightly explored to date. Given the major economic significance of the effective utilisation of these important minerals to the DPRK, we look forward to working in close co-operation with our partner to progress the development of this excellent opportunity.”

In terms of back ground, the majority of rare earth elements were sourced from placer deposits in India and Brazil in 1948. During the 1950’s, supply came mainly from South Africa, mined from large veins of rare earth-bearing monazite. Then from the 1960’s to 1980’s, rare earths were supplied primarily from the U.S., predominantly from Mountain Pass in California. Competition from China and environmental concerns eventually saw the U.S. operations shut down, and for the last 15 years China has dominated global supply. China today supplies an estimated 90-95% of the global market.

China has recently set quotas to restrict its rare earth exports, and global suppliers have made considerable headway in reducing dependence on Chinese supply. Based on this, several major rare earth companies have been taking advantage of this situation while many junior exploration companies have embarked on exploration programs to add value to small and relatively low-grade REE occurrences.

References to Exploration Target(s)* or Target(s)* in this document are in accordance with the guidelines of the JORC Code (2004). As such it is important to note that in relation to reported Exploration Targets or Target any reference to quality and quantity are conceptual in nature. Exploration carried out to date is insufficient to be able to estimate and report rare-earth mineral resources in accordance with the JORC Code (2004). It is uncertain if further exploration will result in the determination of a rare earth mineral Resource.

Further information will be available at www.pcreml.com and www.sreminerals.com

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Wihwado benefits China second time but leaves Korea divided

19 06 2012

 (Leonid Petrov, The University of Sydney) Last week, North Korea announced to the world that it would make its two islands, Hwanggumphyong and Wihwado, a visa-free zone for foreigners. A special law has been adopted in the DPRK to attract foreign investors and give them preferential treatment in the payment of tariffs, taxes and land use. Will this recent change in policy rescue the North from poverty and change things for the better?

Those who are familiar with Korean history will remember the Wihwado Retreat (위화도 회군) of the 14th century. In 1388, General Yi Seonggye of the Koryo kingdom was ordered to march north with his army and invade the Liaodong peninsula, which was under the control of Ming China. However, when his troops reached Wihwado Island in the estuary of the Amnok (Yalu) River, General Yi suddenly changed his mind. With the support of high-ranking government officials and the army, Yi Seonggye decided to return to the capital, Kaesŏng, and trigger a coup d’état. He toppled the Koryo King and ascended the throne himself as King Taejo, the founder of Joseon Dynasty.

King Taejo’s change of heart comes to mind in the context of the situation. In an effort to turn the tide of its economic development, North Korea selected the islands of Wihwado and Hwanggumphyong as the future site of the country’s Special Economic Zone with China. Although the move goes against the grain of North Korea’s traditional tendency to isolate itself, the islands lie at the mouth of the Amnok River, which has served as a natural border between the two countries since the time of Yi Seong-gye. Its location, just opposite the cities of Sinuiju on the DPRK side and Dandong on the PRC side, adds strategic importance to this historic place. In June 2011, a start-up ceremony took place on the island in recognition of the DPRK-China joint development and operation project.

The executive decision to develop the abandoned islands into a thriving industrial park had been made by the North Korean leader Kim Jong-Il who frequently visited China to solicit economic aid and investment. Soon after his demise in December 2011, his son and successor, Kim Jong-Un, called upon the citizens of the DPRK “to actively do business with China” and “bring in as much cash profit as possible”. As such, the commercial importance of Wihwado and Hwanggumphyong Economic Zone has only increased, raising speculations that it would be turned into the playground of capitalism for North Korea’s centrally-planned and autarkic economy.

The earlier experience of joint development and cooperation in the Rason (Rajin-Seonbong) Economic and Trade Zone showed that neighbouring China was keen on aggressively investing in infrastructure and manufacturing sectors provided they could be guaranteed an upper hand in competition against Russian, Japanese or South Korean investors. China’s access to the East Sea (Sea of Japan) is cut short by the 17 kilometre-long DPRK-Russian border, rendering the industrial base of Jilin and Heilongjing landlocked. On the contrary, the Wihwado and Hwanggumphyong Economic Zone, located at the mouth of the Yalu (Amnok) River, which flows into the Yellow (East) Sea, seems to be a more attractive option for China.

Beijing has once thwarted North Korea’s plans to set up a Special Economic Zone in Sinuiju, where Pyongyang intended to create a new Hong Kong or Macao. The Chinese billionaire, Yang Bin, was appointed by Kim Jong-il as the governor of Sinuiju Special Administrative Region in 2002. That same year the DPRK government enacted a new economic policy on wage and pricing systems based on self-accounting management, known as the “July 1 Measures”. To the North’s dismay, China was not impressed by the prospects of having another Hong Kong on its northeastern frontier and quickly arrested Yang Bin for tax evasion. The message was clear: any development close to China’s borders must be endorsed by Bejing.

This time, Hwanggumphyong and Wihwado Economic Zone is the product of a Sino-North Korean administrative and trade agreement. Even the recent announcement that foreigners would be granted visa-free access and enjoy tax breaks still manages to provide China with full control over the movement of people and capital within its territory. Pyongyang’s official news agency, KCNA reported that, “upon presentation of passports or other equivalent documentation, foreigners and vehicles may enter or leave the zone through the designated route without a visa.” It also promised that “customs duties will not be levied on materials brought into the zone for processing, or on finished goods.” China’s control of the surrounding geography means that Chinese investors and manufacturers will have an upper hand in trade.

North Korea is in no position to bargain. Pyongyang’s dependence on Beijing is growing as international sanctions over its nuclear and missile programmes make it increasingly difficult for the North to access international markets and credit. The impoverished country is striving to revitalise its economy through foreign investment in its economic zones. Since China has already invested about US$3 billion in developing port facilities and roads in the Rason Economic and Trade Zone, Beijing might decide to funnel significant capital to the Hwanggumphyong and Wihwado Economic Zone too. But will this contemporary “Wihwado Retreat” rescue the North Korean economy?

Beijing would love to see Pyongyang follow its example by introducing market-oriented reforms, but North Korea simply cannot come to terms with granting its population the many freedoms necessary to make such a reform successful. Even the Chinese-style reform of the late 1970s required some basic liberties (freedom of movement, information, association, etc.). This is simply impossible in the conditions of an ongoing Korean War, in which North Korean society is continuously fed lies by the regime and inherently fears interaction with the rest of the world, particularly, South Korea. If Pyongyang decides to initiate reform, Chinese-style or otherwise, it would inevitably and quickly lead to the collapse of DPRK’s political regime. Therefore, the very word “reform” is a taboo in North Korea.

The DPRK leadership genuinely wants to modernise the country’s economy but does not want to change its social and political life. Pyongyang is constantly searching for shortcuts that could boost its dysfunctional economy without having to conduct a systemic reform. The new North Korean leader, despite of his young age, is surrounded by conservative older family members and elites who have no visionary plan for developing the country. Setting up tiny special economic zones, which would generate foreign exchange without bringing about any change to the rest of the country, is a preferable way forward. As a result of this half-hearted policy, the ordinary North Koreans will eat and dress better; they might even own PCs and mobile phones, but they will continue to live in the same paranoid state of fear and dependency on the Great Leader’s decisions.

The visa-free regime and tax holidays, which are promised for the Wihwado and Hwanggumphyong Economic Zone, are simply measures to lure a handful of random foreign investors and should not be seen as a sign of change in the economic thinking of Kim Jong-Un. Neither reform nor economic liberalisation is on the cards because either of these would immediately jeopardise domestic stability. The zones of economic cooperation are reluctantly permitted by the North Koreans with apprehension that possible ideological contamination might cost more to the regime than economic benefit.

Given the circumstances of the ongoing inter-Korean conflict, the sustainable development of the North Korean economy is impossible. The regime is locked in a security dilemma and is reluctant to experiment. Only peaceful co-existence and economic collaboration between Seoul and Pyongyang would remove fears and re-build trust. Increased inter-Korean cooperation, where the plentiful resources of the North are complemented by the cutting-edge technologies from the South, is capable of bringing North Korea back from its prolonged socio-economic crisis. Such collaboration would also enhance the powerhouse of South Korea, opening new markets beyond the Military Demarcation Line and linking the trans-Korean railway to the Eurasian continent.

This article can be read in Korean here… 위화도. 황금평 경제개발이 주는 의미는?

This article was also published as “Pyongyang’s newest SEZ just another shortcut” (AsiaTimes On-line, 22 June 2012)