Divest North Korea

Decision Brief                            No. 06-D 54                                          2006-10-23

(Washington, D.C.): North Korean dictator Kim Jong-Il has reportedly told Chinese interlocutors that he is “sorry” about testing a nuclear weapon and that he is willing to resume his country’s participation in the so-called Six-Party Talks. It is predictable that diplomats in this country and elsewhere will seek to parlay this “breakthrough” into new negotiations. If past practice is any guide, however, these talks will translate into additional strategic, financial and political concessions for the North, even as it continues to build its nuclear weapon stockpile and perfect its long-range ballistic missile programs – the very actions such concessions are meant to foreclose.

Rather than fall for this gambit yet again, the United States needs to adopt a wholly different strategy – one that is aimed at bringing down Kim’s regime, not propping it up . Only by so doing, is there a chance of avoiding the cataclysm that will result as the despot of Pyongyang aggressively brandishes, and perhaps uses, his weapons of mass destruction and/or makes them available to willing buyers.

Two Hurdles

To be sure, there are two major impediments to such a U.S. policy. The first is Communist China ‘s determination to perpetuate this danger, rather than reverse it . It should be clear by now that Beijing will not be a helpmate to the cause of freedom, no matter how often Secretary of State Condoleezza Rice and others contend it is.

The second – and possibly more tractable – one is posed by our nominal ally, South Korea . Seoul is guided by its left-wing, appeasement-minded president, Roh Moo Hyun, and the vested interests of roughly ten publicly traded South Korean firms led by Hyundai. The latter are determined to extend the misery Kim has inflicted on his people by simultaneously exploiting them for what amounts to slave labor, while enriching the North Korean despot. This is the effect of a variety of the North’s “Social Overhead Capital” (SOC) projects underwritten by the South.

The leading edge of these projects is an industrial park at Kaesong and a major tourist resort at Mt. Kumgang . Editorializing on the odious nature of these ventures last Thursday, the Wall Street Journal observed:

“The Kaesong industrial park and Mt. Kumgang resort are the centerpieces of the South’s misbegotten ‘Sunshine Policy’ of engagement with the North. They are also money machines for Kim Jong-Il, contributing to the record $1 billion North-South trade last year….Now that U.S.-led financial sanctions have reduced the North’s cash-flow from counterfeiting and drug-smuggling, money from the two sites is even more critical to the survival of Kim’s regime.”

Enter Hyundai

The Journal noted that the South Koreans responded to the unanimous UN Security Council resolution imposing additional sanctions on North Korea by immediately announcing that the two sites would be exempt from their strictures.

The reason is not hard to fathom: According to a website maintained by one of Hyundai’s subsidiaries [https://www.hyundai-asan.com], South Korea expects to invest nearly $15 billion in these SOC projects in the North, including: the construction of new power utilities ($2.3 billion); the development of telecommunications networks ($6 billion); the establishment and maintenance of railroads ($4.7 billion); supplying water to Mt. Kumgang ($770 million); and creation of a new dam on the Imjin River ($660 million). All other things being equal, the hope is to grow the number of North Korean laborers slaving away for roughly $1.10 per day from 8,200 to 730,000 by 2012.

Hyundai’s role in all of this is a central one. According to the Hyundai Asan website, in 2000 Hyundai obtained “exclusive business rights” for all such SOC projects. These rights are “for a period of 30 years” and extend to “the concrete development, construction, blue-print, maintenance and management regarding infrastructure projects and core industries projects and related trade and others that are being financed single-handedly by Hyundai in North Korean territory or financed by a third-party nation, group, specific fund or international organization.” (Emphasis added.)

This sweetheart deal was reaffirmed in March 2003. The North Korean news agency reported at that time that “all business rights regarding the Mt. Kumgang tourism business, Kaesong Industrial complex and other SOC projects have been handed over to Hyundai.”

The generous terms of this arrangement seem unlikely to have been a coincidence. In February 2003, the Washington Post reported that South Korean auditors had discovered that Hyundai Asan had arranged a $186 million loan from a government-owned bank in Seoul immediately before the “Sunshine Summit” in June 2000 – giving rise to the widespread belief that the money was used to lubricate that meeting and the very favorable deal Hyundai received shortly thereafter.

Rewarding Hyundai?

Astonishingly, even as Hyundai is working at cross-purposes with U.S. vital interests – including in Iran and Sudan , several of the company’s subsidiaries were as of 2005 suppliers to the Pentagon. Another DoD vendor is Samsung, which is also doing business with Kim Jong-Il. The Defense Department’s reliance on such double-dealing vendors should be ended at once and the extent of the practice with respect to other companies that partner with terrorist-sponsoring regimes should be the subject of urgent congressional hearings.

At the same time, American citizens should immediately review their portfolios, including their pension funds (both public ones such as the Federal Thrift Savings Plan and private ones like mutual funds). Hyundai, Samsung and others companies helping our enemies should be forced to chose: Do business with American investors or do business with our enemies.

The Bottom Line

The time has come to privatize management of the North Korean crisis. Rather than rely on the Communist Chinese – the putative “honest-broker” in the Six-Party Talks – or our deeply conflicted allies in South Korea voluntarily to bring an end to the danger we face from Pyongyang , we must call on the American people to create incentives for ending this danger by divesting North Korea.