- What are the purposes of Chinese companies investing in North Korea? What were the results?

I¡¯m trying to understand how this economic integration between China and North Korea occurred. Given that they are much weakened institutions and protections of property rights both in China and North Korea are not well-protected. We have completed the survey and began analyzing the data finding out for example, what Chinese companies regard strengths and weakness of North Korea and why they chose to enter North Korea in the ways they had done.

Single biggest complaint of the Chinese firms about the business environment in North Korea has to do with cell phone ban. 87% said that it¡¯s a problem in doing business in North Korea. 2nd most frequently cited complaints of 79% has to do with arbitrary change of rules and regulations.

They generally complained about weakness of infrastructure and regulatory problem. Not much was mentioned as complaints about quality of labor.

- How can FAO exaggerate information when they¡¯re known as professional regarding North Korean poverty?

FAO is diplomatically constrained to recognize North Korean statistics on grain production. We find that North Korea statistics are unreliable yet that¡¯s what FAO bases their supply estimates on. Secondly they are overestimating role of grains in North Korean diets by roughly 20%. Another issue is the uncertainty regarding North Korea¡¯s population size. That¡¯s why we get figures of overall balance that are significantly different than from the figures provided by the agencies of the UN.

- However, this issue is not politically oriented?

It¡¯s not a political problem except the fact that FAO has a diplomatic status that they are constrained to recognize North Korea grain production statistics. We¡¯re saying that UN statistics are implausible. UN¡¯s statistics would imply that North Korea was in deficit 10 of the last 12 years sometimes by very large number. If that were the case, then we would expect North Korea to suffer from famine. I don¡¯t think anyone believes that to be true. According to the U.N. statistics, the current estimate of the shortage in North Korea is 1.6 million metric tons.

- Then in your opinion, what would be the right amount of food/grains shortage for North Koreans per year? What¡¯s your estimate?

Roughly 4 million metric tons. The estimate of their needs is based on 4 components:. human consumption feed (the largest component); livestock feed; seed and provision that one makes post harvest losses. These components are all added then amount of necessary grains is numbered.

- Why is there continuing shortage in North Korea?

The fundamental reason for their continuing food shortage in North Korea is that North Korea does not import very much food. Most of the food consumed in North Korea produced in North Korea. Second biggest share of food comes from aid. Third biggest share comes from commercial imports. Rather than growing their own food, given the economic characteristics of NK, it will make more sense to emphasize on the production of manufactured goods, mining products and maybe service for foreign exchange. Use that foreign exchange to import more grains. Just like South Korea, China or Japan does. None of them tries to grow their own food. They earn money then they import from Argentina, Australia, Canada or the U.S. North Korea should be doing the same thing. The real problem is weakness of industrial economy and unwillingness of authorities to expand foreign exchange on importing food.

- What measures should be done to address the issues?

First, North Korea should spend more money on food and less money on other things.

Second, they need to revitalize industrial economy that would mean allowing great openness and reform to strengthen their industries and be able to import bulk of grain.

- What¡¯s your assessment of North Korean policy toward current South Korean government?

In a broad sense, Lee administration has it right as far as I understand. That is to say that humanitarian aid should be unconditional. But, that development assistance is conditioned on North Korean behavior. Unfortunately the policy seems to have gotten an uneven start. There were probably statements made by the government that was not well considered. The policy had a bad start and is having troubles. But the general philosophy that humanitarian aid should be unconditional and development assistance is conditioned on North Korean behavior is correct.

- You visited Kaesong Industrial Complex last month. What did you see and what is your impression?

If I compare factories in Kaesong Industrial Complex to other factories I¡¯ve seen elsewhere in North Korea, there¡¯s no comparison. Factories in Kaesong are much much better than factories elsewhere in North Korea. And If I were a North Korean worker, I would surely prefer working at Kaesong factories than some of the other factories in North Korea.

- Was it the working environment? Or machinery?

It is the working environment. The machinery is modern. I¡¯ll give you a simple example. In Kaesong, there are light bulbs and lights. Some of other factories I visited had maybe one out of six light fixtures had bulbs. So it¡¯s very dark and very dim. It is very hard on your eyes. However, Kaesong complex is bright, well-lit, you know, like a modern factory. The Kaesong complex is much nicer and I¡¯m sure much more pleasant to work in. Secondly, for them to really have positive impacts, both investors and host countries should have backward linkages to the rest of the economy. That is to say those local firms should supply inputs into the industrial zone. There is no inputs from North Korea. South Korean companies should work with North Korean companies to bring the complex up to standard. Right now Kaesong is not having the maximum impact either on South Korea or North Korea.

Finally regarding workers rights, compared to any other world, the Kaesong Industrial Complex still falls short. By any international standards, it falls short but by comparison to what exists in North Korea, it¡¯s a big step forward. So are the conditions exploited in Kaesong? By the standard of international community? The answer is surely yes. Is there almost unlimited number of North Koreans who would be happy to work in these factories? I think the answer is probably yes. That is to comment on current condition in North Korea.

- What do you think the future of the Kaesong Industrial Complex would be like?

I think from the standpoint of South Korea, what South Korea should be aiming to do is to encourage transformation of North Korean economy. And to do that, South Korea really needs to break out of these enclaves like the Kaesong Industrial Complex or Mt. Geumgang. And have more general sort of interactions with North Korean enterprises much like Chinese do. So how much the Kaesong complex expands or does not expand is political issues between North and South Korean governments. I can¡¯t make any predictions about that. That¡¯s matter of politics. In terms of economics, in terms of impacts, we should be trying to maximize this type of spillover effect.

- Will North Koreans close the complex?

I can¡¯t make any predictions but what I can say is that these threats to close down the complex are foolish for two reasons. The Kaesong Industrial Complex benefits North Korea so threatening to shut it down something that benefits them is foolish. By making such threats, even if they¡¯re not carried out and even if they don¡¯t intend to carry it out, it actually disrupts the Kaesong complex.

If you¡¯re South Korean firm and thinking about investing in North Korea, and if North Korean general shows up one day and said to shut it down, then you¡¯re not going to expand your investment. Indeed, you might be looking around trying to figure out how to get out. Threatening to shut down impairs the operation by making firms not want to invest there. I don¡¯t think such threats are very wise.

- What would be the new U.S. administration¡¯s policy toward North Korea?

There will be considerable continuity in U.S. policy towards North Korea. The reason is the second part of your question. The Bush administration changed its policy in the second term so radically to the policy now, having much more emphasis on negotiations and multilateral cooperation. And this is policy generally supported by the democrats.

If you look at the U.S. policy of last year or two, the criticisms President Bush received mostly came from his own party. Democrats are not criticizing his policy. When the U.S. delisted North Korea from the terrorist sponsoring list, senator Obama endorsed it and senator McCain criticized it. So that¡¯s why I think Bush¡¯s engagement policy will be continued under the Obama administration.

I think Koreans are mistaken to think that senator Obama is super dove. Senator Obama quite consciously and explicitly stated that the goal of U.S. policy is to complete verifiable elimination of the North Korean nuclear weapon program. If North Korea is not willing to accept the verification program, then the U.S. should lead multinational efforts to impose sanctions. That doesn¡¯t sound like super dove. That sounds like the continuation of the current policy.

Some Koreans believe that senator Obama will radically change the U.S. policy toward North Korea, they are mistaken. A lot of people are concerned with the fact that Obama stated that he¡¯s willing to talk to Kim Jong Il. His statement that he¡¯s willing to talk to leaders of Syria, North Korea, Iran and other nations was made during a debate (presidential-candidate). The U.S. talked to Mao Zedong. The U.S. talked to Stalin. Why can¡¯t U.S. talk to Kim Jong Il. That doesn¡¯t mean he¡¯s going to be on the first flight.

More realistically, we can expect a meeting with the secretary of state which will be portrayed as a continuation from the end of the Clinton administration. He will be very cautious. He is conscious and he is extremely self-disciplined. There probably won¡¯t be early summit meeting between Kim Jong Il and President Obama.

- What do you expect from the current regime?

I regard this regime as extremely insecure about the domestic political implications of an economic change. I have no inside information about Kim Jong Il¡¯s health. There are many things that we don¡¯t know about North Korea. But one thing I do know is that Kim Jong Il is mortal, which means he can depart the scene one day. What I know is that authoritarian systems generally have problems with these sorts of transitions and North Korea is a regime that will experience particular challenges in Post-Kim world.

- What would be your economic policy suggestion?

The fundamental issue is that North Korea needs to understand that the way to achieve political security is not by brandishing nuclear weapon but rather by engaging with its neighbors in a cooperative fashion. If they¡¯re willing to forgo nuclear weapons, then the U.S. South Korea and others would be willing to support North Korean¡¯s integration into the world community in a much more constructive way.