Diplomatic relations between Japan and North Korea

In the Firing Line
The lack of formal diplomatic relations between Japan and North Korea hasn't prevented a steady flow of commerce between the two countries. However, concern over Pyongyang's missile-development programme is sparking calls in Tokyo for tighter curbs on bilateral trade and financial transactions.

By Chester Dawson in Kyoto and Maizuru
Issue cover-dated September 16, 1999
Far East Economic Review

Yasuhito Kawamura, the fifth-generation head of a small Kyoto-based company specializing in intricately woven kimono belts known as obi, gazes at the tea-ceremony pavilion in a serene Japanese garden outside his office window. He laments the disappearance in Japan of skilled labourers willing to put in long hours for modest wages. "Nobody wants to be an apprentice any more," he says with a sigh.

The quest for cheap, disciplined labour led the greying, pony-tailed chairman of Kawamura Orimono to the last Stalinist workers' paradise in Asia: North Korea, where he employs about 130 people in a loom and embroidery workshop outside Pyongyang. "If you know how the system works, it can be quite lucrative," says Kawamura, who set up the manufacturing venture in 1993 with a trading firm run by ethnic Koreans in Japan.

But business opportunities for firms like Kawamura's may be curtailed as heightened concern in Japan over North Korea's missile-development programme casts a harsh spotlight on bilateral trade and financial transactions. Japanese lawmakers are calling for tougher measures to prevent a repeat test firing of a North Korean ballistic missile, one of which sailed into Japanese airspace in August last year. Japan also is upset over an incursion into its territorial waters earlier this year by two unmarked vessels, which fled toward North Korea when pursued by Japanese naval ships.

Tensions could put a serious dent in the flow of commerce between Japan and North Korea, which already has been hurt by economic slumps in both countries and sanctions imposed by Japan last year. In 1998, the total value of trade between North Korea and Japan fell for a third consecutive year, down 17.1% from a year earlier to $390 million. But because trade with other countries fell more, Japan's share of North Korea's overall foreign trade rose 1.4 percentage points to 21.5%, according to Japan External Trade Organization figures.

Pyongyang, which claims it launched a rocket with a satellite payload--not a ballistic missile--is still smarting from Tokyo's punitive salvo, which indefinitely suspended food aid and banned charter flights carrying cargo and passengers. "The sanctions implemented since last August have had a very severe impact on business," says Pak Kwang, managing director of the Korea-Japan Export & Import Corp., the unofficial North Korean trade delegation to Japan. Pak says Japanese customs and trade officials also have been discouraging trade with the North by increasing paperwork and dragging out inspections of shipments from Japan. Tokyo appears ready to tighten the screws further.

Mounting concern that another North Korean missile is being readied for a test firing prompted a warning in August from Japanese Foreign Minister Masahiko Komura that a launch could trigger a freeze in the flow of foreign-currency remittances to the North.

Despite prickly political tensions between the two neighbouring countries and the lack of formal ties, Japan has been North Korea's second-biggest trading partner after China every year since 1991. While the overall level of trade is low at several hundred million dollars a year, it provides a steady stream of hard currency to the cash-strapped communist nation. Men's suits and other apparel assembled with imported materials--such as Kawamura Orimono's fancy waist wraps--account for a growing percentage of North Korea's exports to Japan. Other popular items include food such as clams and gourmet mushrooms (see box). Remittances from ethnic Koreans are another important source of income from Japan, which experts estimate totals at least tens of millions of dollars a year

Those remittances are in doubt if hawkish members of Japan's parliament have their way: They're calling for a revision in foreign-exchange legislation to make it easier for the government to cut off remittances based on national-security concerns. Some also seek tougher restrictions on technology exports. "We need to send a signal to North Korea that we're prepared to respond," says Ichita Yamamoto, an upper-house legislator who co-wrote an article in the August edition of the respected monthly magazine Bungei Shunju alleging that Japanese-made hi-tech components are being used in North Korean missiles and submarines.

Singling out North Korea for a ban on fund transfers is a sensitive issue in Japan, where many ethnic Koreans were forcibly relocated to work during World War II. As the largest minority group in the country, they complain of widespread discrimination. But opposition to a ban appears to be waning due to the missile threat. Pro-North credit unions are also unlikely to win much empathy--more than a dozen have become insolvent so far this year alone and will very likely require infusions of taxpayer money to deal with their bad loans.

There are signs this hardline message has been heard loud and clear in Pyongyang. In a government statement broadcast by the state-run media on August 10, North Korea held out the prospect of reopening talks on establishing diplomatic ties provided that Japan "make a sincere apology and full compensation to the Korean people for all its past crimes."

The statement is a clear signal of willingness to improve relations, says Soji Takasaki, a professor at Tsuda University. Takasaki petitioned the Japanese government earlier this month to resume negotiations that broke down in 1992 amid suspicions that North Korean spies had kidnapped a Japanese woman and Tokyo's disapproval of Pyongyang's nuclear development programme. In an apparent response to the North's overture, Prime Minister Keizo Obuchi has offered a carrot along with continued admonitions. At a joint press conference with his visiting South Korean counterpart, Kim Jong Pil, Obuchi said tantalizingly that North Korea would receive the "gains it deserves if it shows a constructive attitude."

Any talks on establishing formal relations with the North are likely to be welcomed by the Japanese business community, which is wary of investing in North Korea without ironclad government trade guarantees. Corporate Japan feels cheated by North Korea's refusal to pay for factories and equipment exported in the 1970s and 1980s.

Those unpaid debts snowballed to Yen122 billion ($1.1 billion) as of late last year, according to the East Asia Trade Research Board, a private Tokyo-based think-tank. "North Korea has the cheapest labour in Asia," says trade board head Shinobu Sawaike, "but the risk of investing there is simply too high for most Japanese companies." That helps explain why Japan Inc. hasn't rushed into a North Korean free-trade zone created in 1991; it had attracted only 16 Japanese projects valued at $539 million as of 1997. Much of the trade between the two nations is carried out indirectly through small Japanese trading companies owned by ethnic Koreans with connections in the North.

Near-term prospects for the establishment of diplomatic relations across the Japan Sea appear dim, but Pyongyang does seem anxious to secure better ties with the United States, as evidenced by talks held with American officials in early September in Berlin.

Kawamura, chairman of the Kyoto textile concern, is optimistic that once North Korea reaches a comprehensive political agreement with the U.S. an accord with Japan will soon follow. Indeed, he hopes to expand his production in the North by five times the current level over the next few years in anticipation of more stable government relations. "We need to get over there early to set up a firm base ahead of the competition," he says.

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