THAILAND'S TRADE WITH NORTH KOREA: DOING BUSINESS WITH

UNCLAS SECTION 01 OF 03 BANGKOK 006702 SIPDIS SIPDIS PACOM FOR FPA HUSO SENSITIVE E.O. 12958:N/A 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. BANGKOK 00006702 002 OF 003 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 BANGKOK 00006702 003 OF 003 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