KOREAS AGREE TO RICE AID AND TEST RUNS OF RAILWAYS

C O N F I D E N T I A L SEOUL 001175

SIPDIS

SIPDIS

NSC FOR CHA

E.O. 12958: DECL: 04/23/2017
TAGS: PREL MNUC EAID KS KN
SUBJECT: KOREAS AGREE TO RICE AID AND TEST RUNS OF RAILWAYS


Classified By: A/DCM Joseph Y. Yun. Reasons 1.4 (b/d)


1. (C) SUMMARY: In an April 23 briefing on the April 18-22
Inter-Korean Economic Cooperation Promotion Committee talks
in Pyongyang, Director-General for Unification Policy
Planning Um Jong-sik told A/DCM that the ROKG used the
meetings to emphasize the need for the DPRK to implement the
February 13 "Initial Actions" agreement. Um said that the
ROKG had agreed to provide 400,000 tons of rice to the North,
starting in late May, but had told the DPRK that the speed
and timing of the aid could change depending on DPRK
implementation of the 2/13 agreement. The two Koreas also
agreed to conduct test runs of two inter-Korean railways on
May 17; last year the DPRK canceled the test runs at the last
moment. If the test runs occurred, the ROKG would move
forward on its agreement to provide some USD 80 million in
light industrial raw materials in June. In a separate
meeting on April 23, MOFAT Director General for North
American Affairs Cho Byung-jae reinforced the message that
North-South talks were tied to Six-Party Talks (6PT),adding
that Foreign Minister Song Min-soon stood by his comment that
inter-Korean dialogue would remain "one-half step behind the
6PT." See full text of the joint statement in paragraph 11.
END SUMMARY.


2. (C) A/DCM on April 23 received a read-out of the April
18-22 inter-Korean Economic Cooperation Promotion Committee
talks in Pyongyang from Um Jong-sik, Director-General for
Unification Policy Planning at the Ministry of Unification
(MOU). The talks mostly covered items agreed to in earlier
meetings. Um said that the first two days of talks were
tense after the ROKG signaled that it would tie rice aid to
DPRK implementation of the February 13 "Initial Actions"
agreement. Before the plenary session of the talks was to
begin, the DPRK, which had insisted that economic issues
should be separate from politics, demanded to see (1) the
keynote address of ROK chief delegate Chin Dong-soo, Vice
Finance Minister; (2) the draft ROK rice loan agreement; and
(3) the draft joint statement. The ROK refused these
demands, and eventually the DPRK agreed to hold the plenary
talks after a seven-hour delay. The DPRK later walked out of
the talks, but displayed a better attitude the following day.
When ROK delegates later raised the denuclearization issue,
the DPRK side stonewalled, said it had no mandate to discuss
the issue, or listened without response. Asked why the DPRK
returned to the talks, Um said the ROKG sensed that the DPRK
wanted to secure ROK humanitarian and industrial aid.

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RICE AID
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3. (C) Um said that the ROKG emphasized before, during and
after the economic talks that the DPRK needed to fulfill its
obligations under the 2/13 agreement. ROK Chief Delegate
Chin Dong-soo told the DPRK, and later reporters, that if the
2/13 agreement were not implemented, it would be "difficult"
for the ROK to deliver rice assistance to North Korea. This
was probably why the DPRK had demanded to see the text of
Chin's keynote address and the other documents to see how the
2/13 agreement was addressed, Um said. Um said that while
the MOU did not need National Assembly approval to send the
rice to North Korea, the ROKG would come under more criticism
at home should the DPRK fail to implement the 2/13 agreement.



4. (C) In the joint statement, the ROK agreed to provide the
North with 400,000 tons of rice on a loan basis, Um noted.
While the statement did not link rice with the 2/13 agreement
or provide a starting date, Um said that a separate loan
agreement indicated that rice shipments would begin in late
May. According to the loan agreement, which is on the MOU
website, the ROK intends to provide 150,000 tons of Korean
rice and 250,000 tons of foreign rice. Um sought to assure
A/DCM that the ROKG had made it clear, as issued in a
separate MOU supplementary statement, that "the speed and
timing of the aid could be changed depending on the North's
sincere implementation of the February 13 agreement." While
the modalities were still to be determined, Um thought that
the rice aid would be delivered over a three to four-month
period, which would allow the ROK to calibrate aid with
denuclearization progress.


5. (C) The ROK intends to ship 350,000 tons of rice by ship
and 50,000 tons of rice overland to the DPRK, Um said. Seoul
had wanted to send all the rice by land, which would be
cheaper and might encourage greater ROK access to the DPRK,
but the DPRK resisted. (NOTE: ROK monitoring of the
distribution of the rice aid will again be limited. For each
shipment of 100,000 MT of assistance, five South Koreans will
be permitted to conduct monitoring activities. If the DPRK
insists on conditions similar to previous shipments of rice,
the monitoring will be limited to watching the rice being
taken off the boat and transferred to ground transport. END
NOTE.)


6. (C) Um said the ROKG viewed rice assistance as important
for humanitarian reasons and to help improve inter-Korean
relations. In the past the DPRK has informally linked ROK
humanitarian aid (rice and fertilizer) with humanitarian
projects, such as family reunions. Um hinted that one reason
the ROKG agreed to promise rice aid--tied to DPRK
denuclearization progress--was to ensure that the DPRK would
carry through on its earlier agreement to hold family
reunions May 9-14 at Mt. Kumgang.


7. (C) In a separate meeting on April 23, Cho Byung-jae,
North American Affairs Director-General at the Ministry of
Foreign Affairs and Trade reiterated the ROKG message that
rice aid was linked to progress in the 6PT. He acknowledged
that Foreign Minister Song Min-soon stood by his comment that
inter-Korean relations would remain "one half step behind"
progress in the Six-Party Talks. Given the DPRK shortage of
food, which he estimated at one million metric tons for 2007,
Cho said that the DPRK could not ignore that ROK rice aid was
a strong leverage point, so the DPRK would see an additional
reason to honor its 2/13 obligations. Moreover, although the
DPRK had missed the April 14 deadline to meet its 2/13
agreement obligations, since the atmosphere regarding the
Six-Party process remained generally positive with signs that
the BDA issue might be resolved soon, the ROKG did not see
the need to turn off inter-Korean project, again, at this
time. If there were no progress by the end of April or next
month, however, the ROKG would be prepared to reexamine its
alternatives.

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TEST RUNS OF RAILWAYS
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8. (C) From the ROKG point of view, one key accomplishment
of the economic talks was that the DPRK confirmed its
agreement to conduct test runs of two inter-Korean railways,
slated for May 17, Um said. The two Koreas in March had
agreed to carry out test runs "within the first half of this
year, as soon as the military guarantee measures are put in
place." Asked if the ROK expected the DPRK to actually
follow through this time, Um stressed that in 2006 Korean
delegates had agreed to "propose" to military authorities
that test runs be conducted, but this time that Koreas had
agreed to "make positive efforts" to actualize a military
safety guarantee, which Um said was a significant
improvement. Um said that the ROK's impression was that DPRK
officials were more committed this year to making the test
run happen. In the short term, the DPRK would benefit from
some USD 80 million in raw materials for light industry,
something the ROK said was contingent on completion of the
trial runs. In the long term, the DPRK would benefit from
railways that North Korean workers could use to commute to
the Kaesong Industrial Complex and from ROK supplies for the
KIC that would be delivered more quickly by railway. (NOTE:
The Koreas last year had agreed to hold rail trial runs on in
May 2006, but the DPRK canceled at the last minute, after
inter-Korean military talks stalled when the DPRK insisted on
linking rail crossings with redrawing the Western sea border.
END NOTE.)


9. (C) Um explained that the ROK had pledged to provide in
June some USD 80 million in light industry raw materials,
presuming that the Koreas had conducted test runs of the
inter-Korean railways. Um said the light industry aid,
primarily materials for the DPRK to produce shoes, clothes,
and soap, would be repaid in-kind with DPRK natural
resources, such as graphite, tungsten, magnesium, and coal.
More broadly, the ROK had wanted to improve inter-Korean
cooperation on resources, in part to block Chinese
acquisition of rights to DPRK resources, in other words to
keep Korean resources for Koreans. The two sides also agreed
to jointly conduct surveys of North Korean mines and to form
a consortium to extract and market mineral resources in the
North. A proposal to jointly develop energy and timber
projects in Russia was made in the DPRK delegation's opening
remarks, and seems to be the basis for an agreement in the
joint announcement to "discuss their advance into third
countries in the field of natural resource development."

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DPRK PROPOSES BANKING RELATIONSHIP AT KIC
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10. (C) Um said that the DPRK also proposed developing a
business relationship with the South Korea Woori Bank, which
has a branch in the Kaesong Industrial Complex. The ROK
delegates replied that the Woori branch was only for the use
of ROK companies and ROK employees working in the KIC. What
the DPRK was suggesting would require a correspondent banking
agreement. The ROK said that this was not the appropriate
time to consider the DPRK request.

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TEXT OF JOINT STATEMENT
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11. (U) The full text of the joint statement follows (ROKG
translation):

South and North Korea held the 13th round meeting of the
Inter-Korean Economic Cooperation Promotion Committee in
Pyongyang from April 18 to 22, 2007.

At the talks, the two sides discussed issues concerning the
further development of inter-Korean economic cooperation
projects for mutual prosperity and benefit, and agreed as
follows:


1. The South and North agreed to take measures necessary for
investment and cooperation in order to develop the national
(inter-Korean) economy in a balanced manner, and expand and
develop the intern-Korean economic cooperation projects.


2. The South and North agreed to carry out test runs of
trains on the Gyeonggui (Seoul-Sinuiju) and Donghae (East
Coast) railway lines on May 17, hold related working-level
contact in Kaesong from April 27 to 28, 2007, and make joint
efforts to realize the operation of the railroads and roads
at an early time.

The two sides agreed to actively cooperate so that the
military guarantee measures can be implemented before the
test run of the railways.


3. The South and North agreed to adopt "Amendments to the
Agreement on Inter-Korean Cooperation in Light Industry and
Mineral Resource Development," which had been adopted at the
12th round meeting of the Inter-Korean Economic Cooperation
Promotion Committee.

In connection, the South will provide the North with raw
materials for light industry starting from June on a loan
basis, and the North will cooperate for a smooth promotion of
mineral resource development by conducting joint on-site
inspections at designated development sites in June as well
as securing and providing necessary data.

To this end, the two sides agreed to hold a working-level
consultation on the inter-Korean cooperation in light
industry and mineral resources development in Kaesong from
May 2 to 4, 2007 to discuss and decide on detailed matters.


4. To vitalize construction of the Kaesong Industrial
Complex (KIC),the South and the North agreed to hold the 3rd
working-level contact on the construction of the KIC in
Kaesong in May to discuss transit, customs,
telecommunications, supply of North Korean labor,
accommodations, construction of convenient facilities, and
the preparation work for the second stage development of the
KIC.


5. The South and North agreed to hold a working-level
contact on joint ventures in third countries in Kaesong in
June and discuss detailed matters.


6. The South and North agreed to adopt and implement the
agreement on the prevention of flooding along the Imjin River
by exchanging related documents in early May.

In connection, the North agreed to cooperate in allowing the
South Korean personnel to visit the sites to provide
materials, equipment, and technical support for operation of
equipment in implementing the agreement.


7. The South and North agreed to hold a working-level
contact at the earliest time and promote the project of
excavating sand and gravel at the mouth of the Han River, as
soon as the military guarantee measures are put in place.


8. The South and North agreed to hold working-level contacts
on prevention of natural disasters as well as cooperation in
science and technology in Kaesong in June; and the two sides
agreed to discuss and decide on the schedule for
working-level contacts for fishery cooperation, business
arbitration committee, and a joint committee for transit and
immigration in Kaesong and Mount Kumgang by exchanging
documents.


9. In the spirit of fraternity and humanitarianism, the
South agreed to provide the North with 400,000 tons of rice
on a loan basis.


10. The 14th round meeting of the Inter-Korean Economic
Cooperation Promotion Committee will be held in the South in
July 2007, and the detailed schedule will be dQussed and
determined by exchanging related documents. END TEXT.QTANTON