THAILAND'S TRADE WITH NORTH KOREA: DOING BUSINESS WITH

UNCLAS SECTION 01 OF 03 BANGKOK 006702

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TAGS: ECON ETRD PINR MARR MASS KN TH

SUBJECT: THAILAND'S TRADE WITH NORTH KOREA: DOING BUSINESS WITH
THE HERMIT KINGDOM

Sensitive but Unclassified, please handle accordingly.


1. (SBU) Summary: U.N. economic sanctions against North Korea have
met with high-level acceptance from Thai authorities who are moving
toward implementing the Security Council resolution. Thailand's
unusual position as a top trading partner of North Korea gives it a
potentially large role in helping carrying out sanctions. Although
trade with the DPRK is relatively insignificant for the Thais, for
the North Koreans Thailand has become a growing source of both
needed imports and an outlet for exports. In many respects the
trading relationship is normal, but unusual behavior by North Korean
companies in Thailand raises some suspicions as to what other
activities they may be up to. End Summary.


2. (SBU) The RTG has shown support for UNSC Resolution 1718 placing
sanctions on North Korea and is taking steps to comply with its
provisions. Foreign Minister Nitya Pibulsonggram said in a
statement that the sanctions were a necessary and legitimate
response by the international community. Mr. Cherdchai Chaivaivid
of the MFA's East Asia Division told Econoff that the MFA's
International Organization bureau hosted an interagency meeting
October 25 to coordinate on compliance with the UNSC resolution.
MFA plans to submit a report to the Cabinet on November 7 outlining
the RTG plan to begin sanctions, including what sanctions can be put
in place immediately and which may have to wait due to legal
difficulties.


3. (SBU) Cherdchai explained that a number of agencies present at
the October 25 meeting noted they had run up against legal
limitations on implementing the U.N. sanctions. A Bank of Thailand
official told Econoff the Bank had limited authority to surveil bank
accounts linked to North Korea, except those with terrorism links.
The MFA's legal office has proposed a new law be drafted to ensure
the RTG would have sufficient legal authority to cover this and any
other future sanctions regimes, a "blank check" as Cherdchai put it.


Doing business with Kim Jong Il
--------------


4. (U) Despite little historical or other significant relationship
with North Korea, Thailand has found itself one of the DPRK's
leading international partners. Japan's reduction in trade with
North Korea over recent years has helped catapult Thailand into
third place on the list of North Korea's largest trading partners
behind China and South Korea. Despite this standing, Thailand's
trade with North Korea is miniscule by Thai and global standards.
Thailand exported USD 222 million in goods and services to North
Korea in 2005, less than 0.2 percent of its total exports. Imports
from North Korea totaled only $133 million last year, a tiny 0.1
percent of Thailand's net imports.


5. (U) Exports to North Korea have been steady over the past few
years, though export figures jumped nearly 35 percent this year
through September. Thai exports tend to be resource-based, led by
rubber (up over 1300 percent in 2006 with USD 28 million in sales),
and followed by wood, tin, copper and aluminum scrap. Computer
equipment and parts, including integrated circuits, make up a
sizable percentage of exports as well. Rice was the largest export
in 2005 with nearly USD 30 million in sales, but to date this year
Thai rice exporters have yet to fill an order to the DPRK.


6. (SBU) Imports from North Korea have climbed steadily in recent
years and are on track this year to more than triple the level in

2003. Import levels have hit USD 163 million through September this
year, up 82 percent over the same period in 2005. North Korea's top
export to Thailand thus far in 2006 has been gold, over USD 30
million thus far and making up 20 percent of North Korea's total
exports to Thailand. Exports of gold in 2004 and 2005 were
virtually nil, a massive increase for 2006, indicating perhaps a
revival of the DPRK's mining industry. However, gold from North
Korea made up only one percent of Thailand's overall gold imports,
and members of the Thai Gem and Jewelry Traders Association,
consumers of a large amount of imported gold, told Econoff they had
no recollection of having purchasing gold from North Korea. Organic
chemicals, particularly ethylene, accounted for another 20 percent
of imports. Seafood products, computer parts and other manufactures
make up much of the rest.


7. (U) RTG export statistics show scant trade in items that U.N.

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sanctions might affect. Currently, there is no apparent trade in
arms or ammunition, or nuclear-related material. The vast majority
of Thailand's exports to the DPRK would be described as raw
materials, manufactures or consumer goods, but little in the way of
luxury goods. Statistics do include over USD 100,000 in jewelry
exports in 2006 which were doubtfully headed to the average North
Korean citizen. Thailand has also supplied a couple other luxuries
to the DPRK that might fit sanctions criteria: USD 3,363 in beer
and USD 75,000 in cigarettes so far this year.


8. (SBU) Rumors have circulated over the years that North Korea has
re-exported donated rice and fertilizer through Thailand. 2003
statistics from the Ministry of Commerce showed ammonium sulfate
imports from North Korea that could have been re-exported
fertilizer, but South Korean contacts say it was a mix-up with
Customs; trade statistics since show no trade in those products.
Rumors are stronger, however, that the North Korean embassy in Laos
has been quietly making inquiries about reselling fertilizer in that
country.

Follow the money
--------------


9. (SBU) North Korea's trade relationship with Thailand is shrouded
in a veil of mystery. Thai Customs lists 720 Thai companies as
having engaged in trade with North Korea, but calls to a random
sample elicited nothing but confusion, and not a little apprehension
that Embassy was calling regarding the DPRK. Companies said they
had no recollection of doing business with North Korea and insisted
Customs must have confused the North with South Korea, a distinct
possibility. Embassy also speculates that North Korean businesses
may be passing themselves off as generic "Koreans" to avoid
controversy.


10. (SBU) A small window into North Korea's trading operation
opened in 2002 after Slovakian police raided a North Korean trading
company in Bratislava suspected of trafficking in nuclear machinery.
Documents seized included references to a trading company named
Kotha Supply based in Bangkok. Bertil Lintner, a Swedish journalist
based in Thailand and a frequent writer on North Korea, tracked down
business registration documents for Kotha Supply that showed that
company officials carried North Korean diplomatic passports.


11. (SBU) Registration documents indicated Kotha Supply had changed
its name to Star Bravo and changed addresses, but no office existed
at the address given. In fact, deception appears to be standard
practice for North Korean companies located in Bangkok. Addresses
listed in business registration documents for Star Bravo and other
companies obtained by Lintner were typically mail drops and not the
actual location of the business. Documents showed that Star Bravo
had changed its listed address annually, but never to the actual
office location. The documents also listed names of Thai partners,
but they appear to be silent partners and not actively involved in
business operations. Phone numbers for the Thai partners listed in
registration documents were incorrect. Financial statements
indicated low initial investments, little business activity and
almost inevitably recorded losses. The North Korean companies are
audited annually as per Thai law, but Board of Investment contacts
told Lintner that the auditors listed on the company documents were
not respected and "would approve anything for enough money."


12. (SBU) The Ministry of Commerce's Bureau of Business
Documentation lists 10 companies with North Korean partners doing
business in Thailand, ranging from mining interests to shipping and
import/export activities. Documents obtained by Embassy showed that
four of the businesses were clustered around the North Korean
Embassy, though names of the North Korean partners listed did not
match MFA's diplomatic list for the DPRK mission. Three of the
companies shared a common telephone number despite listing separate
addresses. A couple calls placed to available phone numbers
resulted in a brusque brush off from one North Korean, and a Thai
employee at another company who insisted she had no idea what kind
of business the company engaged in.


13. (SBU) The one acknowledged Thai trader with North Korea is
Loxley Pacific, a division of telecommunications company Loxley
Public Company, Ltd. Loxley PCL established Loxley Pacific in 1995
as their investment arm in North Korea after winning a telecom
contract in the DPRK. Loxley installed a fixed-line telephone
system in the Rajin-Songbong free economic trade zone (FETZ) and

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continues to operate approximately 10,000 lines. Loxley later
contracted in 2003 to build a cellular system, but the project was
put on hold after North Korean suspicions that a massive blast in
2004 that just missed Kim Jong Il may have been a bomb set off
remotely by a cell phone.


14. (SBU) Loxley maintains a trading relationship with North Korea
as well, exporting mostly consumer goods such as toiletries, coffee,
snacks and detergent to the North Koreans. Loxley Pacific's
director, Mr. Sahayot, described the trading relationship as normal,
though for many larger purchases the company requires payment up
front in recognition of North Korea's rich history of welching on
deals. North Korean firms in Pyongyang call regularly with shopping
lists for Loxley to fill; payment is handled directly from
Pyongyang, though Sahayot declined to identify the banks involved or
if they used accounts outside North Korea. Sahayot was concerned
that U.N. sanctions might affect sales but said he had yet to
receive instructions from the RTG on how to proceed. He noted that
a prohibition on luxury goods, however they may be defined, likely
wouldn't affect export business to the DPRK as Loxley shipped
primarily low-market consumer goods.

Keeping the government out of it
--------------


15. (SBU) Thailand's official relationship with North Korea could
hardly be described as active. Although North Korea's embassy in
Bangkok is its largest in Southeast Asia, MFA officials said they
rarely had any contact with the DPRK and were not too familiar where
their Embassy was even located. The MFA has been apolitical on
private trade with North Korea, but government-to-government
economic links were effectively severed after a rice deal went awry
in 2001, for which North Korea still owes the RTG around USD 47
million. A recent revelation (denied by the DPRK) that a Thai
citizen may have been among several foreigners abducted by North
Korea from Macau in 1978 has not helped advance the relationship by
any means.

No longer flying the friendly skies
--------------


16. (U) North Korea's national airline, Air Koryo, previously
operated weekly flights between Bangkok and Pyongyang through Macau,
but has reduced flights to the occasional charter. The new
occupants of Air Koryo's local office said the office had closed two
years previously and left no forwarding number. Air Koryo's web
site no longer lists a Bangkok office, nor offers assistance in
arranging flights.

Postscript - a night in Pyongyang
--------------


17. (U) Econoff dined recently at Pyongyangkwan, the newest, and
probably only, North Korean restaurant in Bangkok. Opened in March
this year and located just a few blocks from the DPRK Embassy, the
restaurant serves up a host of Northern specialties. Scenes from
Mangyongdae, Kim Il Sung's birthplace, adorn the walls. Six Korean
girls wearing Kim Il Sung pins kept the small but lively crowd of
Korean businessmen (presumably South) entertained with Korean songs,
accompanying each other on accordions and electric guitars. The
show was lively, but the sizable restaurant had dozens of tables
that stayed empty on a Friday night, and it is questionable whether
the Koreans are making a profitable return on their investment.
However, the staff were friendly and the Thai manager generously
gave Econoff a VIP card good for 10 percent off at "all valid
branches", of which there appears to be only one.

ARVIZU