About the CBI
October 2005
Background Note: North Korea

Flag of North Korea is three horizontal bands of blue (top), red (triple
width), and blue; the red band is edged in white; on the hoist side of the
red band is a white disk with a red five-pointed star.

PROFILE

OFFICIAL NAME:
Democratic People's Republic of Korea

Geography
Area: 120,410 sq. km. (47,000 sq. mi.), about the size of Mississippi.
Cities: Capital--Pyongyang. Other cities--Hamhung, Chongjin, Wonsan, Nampo,
and Kaesong.
Terrain: About 80% of land area is moderately high mountains separated by
deep, narrow valleys and small, cultivated plains. The remainder is lowland
plains covering small, scattered areas.
Climate: Long, cold, dry winters; short, hot, humid, summers.

People*
Nationality: Noun and adjective--Korean(s).
Population (2004): 22.7 million.
Annual growth rate: About +0.98%.
Ethnic groups: Korean; small Chinese and ethnic Japanese populations.
Religions: Buddhism, Confucianism, Shamanism, Chongdogyo, Christian;
autonomous religious activities have been virtually nonexistent since 1945.
Language: Korean.
Education: Years compulsory--11. Attendance--3 million (primary, 1.5 million;
secondary, 1.2 million; tertiary, 0.3 million). Literacy--99%.
Health (1998): Medical treatment is free; one doctor for every 700
inhabitants; one hospital bed for every 350; there are severe shortages of
medicines and medical equipment. Infant mortality rate--25/1,000. Life
expectancy--males 68 yrs., females 74 yrs (2004 est.).

Government
Type: Highly centralized communist state.
Independence: August 15, 1945--Korean liberation from Japan; September 9,
1948--establishment of the Republic of Korea, marking its separation from
North Korea.
Constitution: 1948; 1972, revised in 1992 and 1998.
Branches: Executive--President of the Presidium of the Supreme People's
Assembly (chief of state); Chairman of the National Defense Commission (head
of government). Legislative--Supreme People's Assembly. Judicial--Central
Court; provincial, city, county, and military courts.
Subdivisions: Nine provinces; four province-level municipalities (Pyongyang,
Kaesong, Chongjin, Nampo); one free trade zone (Najin-Sonbong FTZ).
Political party: Korean Workers' Party (communist).
Suffrage: Universal at 17.

Economy*
GDP (2004): $40 billion (purchasing power parity); 30% agriculture, 34%
industry, 36% services (2002).
Per capita GDP (2004): $1,700 (purchasing power parity).
Agriculture: Products--rice, corn, potatoes, soybeans, pulses; cattle, pigs,
eggs.
Mining and manufacturing: Types--military products; machine building,
electric power, chemicals; mining (coal, iron ore, etc.), metallurgy;
textiles, food processing; tourism.
Trade (2003): Exports--$1.2 billion; minerals, metallurgical products,
manufactures; textiles, fishery products. The D.P.R.K. also earns hundreds of
millions of dollars from the sale of missiles, narcotics and counterfeit
items such as cigarettes, pharmaceuticals, and U.S. currency. Imports--$2.1
billion: petroleum, coking coal, machinery and equipment; textiles, grain.
Major partners--China, R.O.K., Japan, Thailand, India, Russia.

*In most cases, the figures used above are estimates based upon incomplete
data and projections.

HISTORICAL AND CULTURAL HIGHLIGHTS
The Korean Peninsula was first populated by peoples of a Tungusic branch of
the Ural-Altaic language family, who migrated from the northwestern regions
of Asia. Some of these peoples also populated parts of northeast China
(Manchuria); Koreans and Manchurians still show physical similarities.
Koreans are racially and linguistically homogeneous. Although there are no
indigenous minorities in North Korea, there is a small Chinese community
(about 50,000) and some 1,800 Japanese wives who accompanied the roughly
93,000 Koreans returning to the North from Japan between 1959 and 1962.
Although dialects exist, the Korean spoken throughout the peninsula is
mutually comprehensible. In North Korea, the Korean alphabet (hangul) is used
exclusively.

Korea's traditional religions are Buddhism and Shamanism. Christian
missionaries arrived as early as the 16th century, but it was not until the
19th century that major missionary activity began. Pyongyang was a center of
missionary activity, and there was a relatively large Christian population in
the north before 1945. Although religious groups exist in North Korea today,
the government severely restricts religious activity.

By the first century AD, the Korean Peninsula was divided into the kingdoms
of Shilla, Koguryo, and Paekche. In 668 AD, the Shilla kingdom unified the
peninsula. The Koryo dynasty--from which Portuguese missionaries in the 16th
century derived the Western name "Korea"--succeeded the Shilla kingdom in
935. The Choson dynasty, ruled by members of the Yi clan, supplanted Koryo in
1392 and lasted until Japan annexed Korea in 1910.

Throughout its history, Korea has been invaded, influenced, and fought over
by its larger neighbors. Korea was under Mongolian occupation from 1231 until
the early 14th century. The unifier of Japan, Hideyoshi, launched major
invasions of Korea in 1592 and 1597. When Western powers focused "gunboat"
diplomacy on Korea in the mid-19th century, Korea's rulers adopted a
closed-door policy, earning Korea the title of "Hermit Kingdom." Though the
Choson dynasty recognized China's hegemony in East Asia, Korea was
independent until the late 19th century. At that time, China sought to block
growing Japanese influence on the Korean Peninsula and Russian pressure for
commercial gains there. The competition produced the Sino-Japanese War of
1894-95 and the Russo-Japanese War of 1904-05. Japan emerged victorious from
both wars and in 1910 annexed Korea as part of the growing Japanese empire.
Japanese colonial administration was characterized by tight control from
Tokyo and ruthless efforts to supplant Korean language and culture. Organized
Korean resistance during the colonial era was generally unsuccessful, and
Japan remained firmly in control of the Peninsula until the end of World War
II in 1945. The surrender of Japan in August 1945 led to the immediate
division of Korea into two occupation zones, with the U.S. administering the
southern half of the peninsula and the U.S.S.R. taking over the area to the
north of the 38th parallel. This division was meant to be temporary until the
U.S., U.K., Soviet Union, and China could arrange a trusteeship
administration.

In December 1945, a conference was convened in Moscow to discuss the future
of Korea. A 5-year trusteeship was discussed, and a joint Soviet-American
commission was established. The commission met intermittently in Seoul but
deadlocked over the issue of establishing a national government. In September
1947, with no solution in sight, the United States submitted the Korean
question to the UN General Assembly. Initial hopes for a unified, independent
Korea quickly evaporated as the politics of the Cold War and domestic
opposition to the trusteeship plan resulted in the 1948 establishment of two
separate nations with diametrically opposed political, economic, and social
systems. Elections were held in the South under UN observation, and on August
15, 1948, the Republic of Korea (R.O.K.) was established in the South.
Syngman Rhee, a nationalist leader, became the Republic's first president. On
September 9, 1948, the North established the Democratic People's Republic of
Korea (D.P.R.K.) headed by then-Premier Kim Il Sung, who had been fostered
and supported by the U.S.S.R.

Korean War of 1950-53
Almost immediately after establishment of the D.P.R.K., guerrilla warfare,
border clashes, and naval battles erupted between the two Koreas. North
Korean forces launched a massive surprise attack and invaded South Korea on
June 25, 1950. The United Nations, in accordance with the terms of its
Charter, engaged in its first collective action and established the UN
Command (UNC), to which 16 member nations sent troops and assistance. Next to
South Korea, the United States contributed the largest contingent of forces
to this international effort. The battle line fluctuated north and south, and
after large numbers of Chinese "People's Volunteers" intervened to assist the
North, the battle line stabilized north of Seoul near the 38th parallel.

Armistice negotiations began in July 1951, but hostilities continued until
July 27, 1953. On that date, at Panmunjom, the military commanders of the
North Korean People's Army, the Chinese People's Volunteers, and the UNC
signed an armistice agreement. Neither the United States nor South Korea is a
signatory to the armistice per se, although both adhere to it through the
UNC. No comprehensive peace agreement has replaced the 1953 armistice pact.

GOVERNMENT AND POLITICAL CONDITIONS
North Korea has a centralized government under the rigid control of the
communist Korean Workers' Party (KWP), to which all government officials
belong. A few minor political parties are allowed to exist in name only. Kim
Il Sung ruled North Korea from 1948 until his death in July 1994. Kim served
both as Secretary General of the KWP and as President of North Korea.

Little is known about the actual lines of power and authority in the North
Korean Government despite the formal structure set forth in the constitution.
Following the death of Kim Il Sung, his son--Kim Jong Il--inherited supreme
power. Kim Jong Il was named General Secretary of the Korean Workers' Party
in October 1997, and in September 1998, the Supreme People's Assembly (SPA)
reconfirmed Kim Jong Il as Chairman of the National Defense Commission and
declared that position as the "highest office of state." However, the
President of the Presidium of the National Assembly, Kim Yong Nam, serves as
the nominal head of state. North Korea's 1972 constitution was amended in
late 1992 and in September 1998.

The constitution designates the Central People's Committee (CPC) as the
government's top policymaking body. The CPC makes policy decisions and
supervises the cabinet, or State Administration Council (SAC). The SAC is
headed by a premier and is the dominant administrative and executive agency.

Officially, the legislature, the Supreme People's Assembly, is the highest
organ of state power. Its members are elected every four years. Usually only
two meetings are held annually, each lasting a few days. A standing committee
elected by the SPA performs legislative functions when the Assembly is not in
session. In reality, the Assembly serves only to ratify decisions made by the
ruling KWP.

North Korea's judiciary is "accountable" to the SPA and the president. The
SPA's standing committee also appoints judges to the highest court for
four-year terms that are concurrent with those of the Assembly.

Administratively, North Korea is divided into nine provinces and four
provincial-level municipalities--Pyongyang, Chongjin, Nampo, and Kaesong. It
also appears to be divided into nine military districts.

Principal Party and Government Officials
Kim Jong Il--General Secretary of the KWP; Supreme Commander of the People's
Armed Forces; Chairman of the National Defense Commission; son of North
Korea's founder Kim Il Sung
Kim Yong Nam--President of the Presidium of the Supreme People's Assembly;
titular head of state
Pak Gil-Yon--Ambassador to D.P.R.K. Permanent Mission to the UN
Paek Nam Sun--Minister of Foreign Affairs

DEFENSE AND MILITARY ISSUES
North Korea now has the fourth-largest army in the world. It has an estimated
1.2 million armed personnel, compared to about 650,000 in the South. Military
spending is estimated at as much as a quarter of GNP, with about 20% of men
ages 17-54 in the regular armed forces. North Korean forces have a
substantial numerical advantage over the South (between 2 and 3 to 1) in
several key categories of offensive weapons--tanks, long-range artillery, and
armored personnel carriers.

The North has perhaps the world's second-largest special operations force,
designed for insertion behind the lines in wartime. While the North has a
relatively impressive fleet of submarines, its surface fleet has a very
limited capability. Its air force has twice the number of aircraft as the
South, but, except for a few advanced fighters, the North's air force is
obsolete. The North deploys the bulk of its forces well forward, along the
demilitarized zone (DMZ). Several North Korean military tunnels under the DMZ
were discovered in the 1970s.

Over the last several years, North Korea has moved more of its rear-echelon
troops to hardened bunkers closer to the DMZ. Given the proximity of Seoul to
the DMZ (some 25 miles), South Korean and U.S. forces are likely to have
little warning of any attack. The United States and South Korea continue to
believe that the U.S. troop presence in South Korea remains an effective
deterrent. North Korea's nuclear weapons program has also been a source of
international tension (see below, Reunification Efforts Since 1971;
Denuclearization of the Korean Peninsula).

In 1953, the Military Armistice Commission (MAC) was created to oversee and
enforce the terms of the armistice. Over the past decade, North Korea has
sought to dismantle the MAC in a push for a new "peace mechanism" on the
peninsula. In April 1994, it declared the MAC void and withdrew its
representatives.

FOREIGN RELATIONS
North Korea's relationship with the South has determined much of its
post-World War II history and still undergirds much of its foreign policy.
North and South Korea have had a difficult and acrimonious relationship from
the Korean War. In recent years, North Korea has pursued a mixed
policy--seeking to develop economic relations with South Korea and to win the
support of the South Korean public for greater North-South engagement while
at the same time continuing to denounce the R.O.K.'s security relationship
with the United States and maintaining a threatening conventional force
posture on the DMZ and in adjacent waters.

The military demarcation line (MDL) of separation between the belligerent
sides at the close of the Korean War divides North Korea from South Korea. A
demilitarized zone (DMZ) extends for 2,000 meters (just over 1 mile) on
either side of the MDL. Both the North and South Korean governments hold that
the MDL is only a temporary administrative line, not a permanent border.

During the postwar period, both Korean governments have repeatedly affirmed
their desire to reunify the Korean Peninsula, but until 1971 the two
governments had no direct, official communications or other contact.

Reunification Efforts Since 1971
In August 1971, North and South Korea held talks through their respective Red
Cross societies with the aim of reuniting the many Korean families separated
following the division of Korea and the Korean War. In July 1972, the two
sides agreed to work toward peaceful reunification and an end to the hostile
atmosphere prevailing on the peninsula. Officials exchanged visits, and
regular communications were established through a North-South coordinating
committee and the Red Cross.

However, these initial contacts broke down in 1973 following South Korean
President Park Chung Hee's announcement that the South would seek separate
entry into the United Nations, and after the kidnapping of South Korean
opposition leader Kim Dae-Jung--perceived as friendly to unified entry into
the UN--by South Korean intelligence services. There was no other significant
contact between North and South Korea until 1984.

Dialogue was renewed in September 1984, when South Korea accepted the North's
offer to provide relief goods to victims of severe flooding in South Korea.
Red Cross talks to address the plight of separated families resumed, as did
talks on economic and trade issues and parliamentary-level discussions.
However, the North then unilaterally suspended all talks in January 1986,
arguing that the annual U.S.-South Korea "Team Spirit" military exercise was
inconsistent with dialogue. There was a brief flurry of negotiations that
year on co-hosting the upcoming 1988 Seoul Olympics, which ended in failure
and was followed by the 1987 bombing of a South Korean commercial aircraft
(KAL 858) by North Korean agents.

In July 1988, South Korean President Roh Tae Woo called for new efforts to
promote North-South exchanges, family reunification, inter-Korean trade, and
contact in international forums. Roh followed up this initiative in a UN
General Assembly speech in which South Korea offered for the first time to
discuss security matters with the North. Initial meetings that grew out of
Roh's proposals started in September 1989. In September 1990, the first of
eight prime minister-level meetings between North Korean and South Korean
officials took place in Seoul. The prime ministerial talks resulted in two
major agreements: the Agreement on Reconciliation, Nonaggression, Exchanges,
and Cooperation (the "Basic Agreement") and the Declaration on the
Denuclearization of the Korean Peninsula (the "Joint Declaration").

The Basic Agreement, signed on December 13, 1991, called for reconciliation
and nonaggression and established four joint commissions. These
commissions--on South-North reconciliation, South-North military affairs,
South-North economic exchanges and cooperation, and South-North social and
cultural exchange--were to work out the specifics for implementing the basic
agreement. Subcommittees to examine specific issues were created, and liaison
offices were established in Panmunjom, but in the fall of 1992 the process
came to a halt because of rising tension over North Korea's nuclear program.

The Joint Declaration on denuclearization was initialed on December 31, 1991.
It forbade both sides to test, manufacture, produce, receive, possess, store,
deploy, or use nuclear weapons and forbade the possession of nuclear
reprocessing and uranium enrichment facilities. A procedure for inter-Korean
inspection was to be organized and a North-South Joint Nuclear Control
Commission (JNCC) was mandated to verify the denuclearization of the
peninsula.

On January 30, 1992, the D.P.R.K. finally signed a nuclear safeguards
agreement with the International Atomic Energy Agency (IAEA), as it had
pledged to do in 1985 when it acceded to the Nuclear Non-Proliferation Treaty
(NPT). This safeguards agreement allowed IAEA inspections to begin in June
1992. In March 1992, the JNCC was established in accordance with the Joint
Declaration, but subsequent meetings failed to reach agreement on the main
issue of establishing a bilateral inspection regime.

As the 1990s progressed, concern over the North's nuclear program became a
major issue in North-South relations and between North Korea and the U.S. The
lack of progress on implementation of the Joint Declaration's provision for
an inter-Korean nuclear inspection regime led to reinstatement of the
U.S.-South Korea Team Spirit military exercise for 1993. The situation
worsened rapidly when North Korea, in January 1993, refused IAEA access to
two suspected nuclear waste sites and then announced in March 1993 its intent
to withdraw from the NPT. During the next two years, the U.S. held direct
talks with the D.P.R.K. that resulted in a series of agreements on nuclear
matters, including the 1994 Agreed Framework (which broke down in 2002 when
North Korea was discovered to be pursuing a uranium enrichment program for
nuclear weapons--see below, Denuclearization of the Korean Peninsula).

At his inauguration in February 1998, R.O.K. President Kim Dae-jung
enunciated a new policy of engagement with the D.P.R.K., dubbed "the Sunshine
Policy." The policy had three fundamental principles: no tolerance of
provocations from the North, no intention to absorb the North, and the
separation of political cooperation from economic cooperation. Private sector
overtures would be based on commercial and humanitarian considerations. The
use of government resources would entail reciprocity. This policy set the
stage for the first (and only) inter-Korean summit, held in Pyongyang June
13-15, 2000.

R.O.K. President Roh Moo-hyun, following his inauguration in February 2003,
has continued his predecessor's policy of engagement with the North, though
he abandoned the name "Sunshine Policy." The U.S. supports President Roh's
engagement policy and North-South dialogue and cooperation. Major economic
reunification projects have included a tourism development in Mt. Geumgang,
the re-establishment of road and rail links across the demilitarized zone
(DMZ) and a joint North-South industrial park near the North Korean city of
Kaesong (see further information below in the section on the Economy).

In 2003, the D.P.R.K. joined Six-Party Talks--including the U.S., R.O.K.,
Russia, China, and Japan--and agreed in September 2005, at the fourth round
of the talks, to a Joint Statement of Principles, in which the six parties
unanimously reaffirmed the goal of denuclearization of the Korean Peninsula
in a verifiable manner (see below, Denuclearization of the Korean Peninsula).
The D.P.R.K. committed to abandon its nuclear weapons and programs, and the
other five participants offered humanitarian and energy assistance, steps
toward normalization of relations, and regional confidence-building measures.

Relations Outside the Peninsula
Throughout the Cold War, North Korea balanced its relations with China and
the Soviet Union to extract the maximum benefit from the relationships at
minimum political cost. In the 1970s and early 1980s, the establishment of
diplomatic relations between the United States and China, the Soviet-backed
Vietnamese occupation of Cambodia, and the Soviet occupation of Afghanistan
created strains between China and the Soviet Union and, in turn, in North
Korea's relations with its two major communist allies. North Korea tried to
avoid becoming embroiled in the Sino-Soviet split, obtaining aid from both
the Soviet Union and China and trying to avoid dependence on either.
Following Kim Il Sung's 1984 visit to Moscow, there was an improvement in
Soviet-D.P.R.K. relations, resulting in renewed deliveries of Soviet weaponry
to North Korea and increases in economic aid.

The establishment of diplomatic relations by South Korea with the Soviet
Union in 1990 and with the P.R.C. in 1992 put a serious strain on relations
between North Korea and its traditional allies. Moreover, the fall of
communism in eastern Europe in 1989 and the disintegration of the Soviet
Union in 1991 resulted in a significant drop in communist aid to North Korea.
Despite these changes and its past reliance on this military and economic
assistance, North Korea continued to proclaim a militantly independent stance
in its foreign policy in accordance with its official ideology of juche, or
self-reliance.

Both North and South Korea became parties to the Biological Weapons
Convention in 1987. (North Korea is not a member of the Chemical Weapons
Convention, nor is it a member of the Missile Technology Control
Regime--MTCR.)

North Korea has maintained membership in some multilateral organizations. It
became a member of the UN in September 1991. North Korea also belongs to the
Food and Agriculture Organization; the International Civil Aviation
Organization; the International Postal Union; the UN Conference on Trade and
Development; the International Telecommunications Union; the UN Development
Program; the UN Educational, Scientific, and Cultural Organization; the World
Health Organization; the World Intellectual Property Organization; the World
Meteorological Organization; the International Maritime Organization; the
International Committee of the Red Cross; and the Nonaligned Movement.

In the mid-1990s, when the economic situation worsened dramatically and
following the death of D.P.R.K.-founder Kim Il Sung, the North abandoned some
of the more extreme manifestations of its "self reliance" ideology to accept
foreign humanitarian relief and create the possibility, as noted below, for
foreign investment in the North. In subsequent years, the D.P.R.K. has
continued to pursue a tightly restricted policy of opening to the world in
search of economic aid and development assistance. However, this has been
matched by an increased determination to counter perceived external and
internal threats by a self-proclaimed "military first" policy.

During the present period of limited, extremely cautious opening, North Korea
has sought to broaden its formal diplomatic relationships. In July 2000,
North Korea began participating in the ASEAN Regional Forum (ARF), with
Foreign Minister Paek Nam Sun attending the ARF ministerial meeting in
Bangkok. The D.P.R.K. also expanded its bilateral diplomatic ties in that
year, establishing diplomatic relations with Italy, Australia, and the
Philippines. The U.K., Germany, and many other European countries have
established diplomatic relations with the North, as have Australia and
Canada.

In the September 19, 2005 joint statement issued at the end of the fourth
round of Six-Party Talks, the U.S. and D.P.R.K. committed to undertake steps
to normalize relations (see below, Denuclearization of the Korean Peninsula).
As part of the normalization process, the two nations agreed to discuss
outstanding issues, including D.P.R.K. human rights abuses, biological and
chemical weapons programs, ballistic missile programs and proliferation,
terrorism, and illicit activities. The D.P.R.K. and Japan also agreed to take
steps to normalize relations and to discuss outstanding issues of concern,
including abductions. Preliminary talks between the two nations occurred in
November 2005.

Terrorism
The D.P.R.K. is not known to have sponsored terrorist acts since 1987, when
KAL 858 was bombed in flight. The D.P.R.K. has also been involved in the
abduction of foreign citizens. In 2002, Kim Jong Il acknowledged to Japanese
Prime Minister Koizumi the involvement of D.P.R.K. "special institutions" in
the kidnapping of Japanese citizens between 1977 and 1983 and said that those
responsible had been punished. While five surviving victims and their
families were allowed to resettle in Japan in October 2002, other cases
remain unresolved and the issue continues to be a major issue in
D.P.R.K.-Japanese relations. Another unresolved kidnapping case involves
Reverend Kim Dong Shik, a missionary working with North Korean refugees in
China. In 2000, Kim, who held permanent resident status in the United States,
disappeared from his home near the North Korean border. It was feared he had
been kidnapped by North Korean agents for helping refugees make their way
from the D.P.R.K. through China to South Korea. In October 2005, the D.P.R.K.
acknowledged for the first time having kidnapped R.O.K. citizens in previous
decades, claiming that several abductees, as well as several POWs from the
Korean War, were still alive.

The D.P.R.K. has made statements condemning terrorism. In October 2000, the
U.S. and the D.P.R.K. issued a joint statement in which "the two sides agreed
that international terrorism poses an unacceptable threat to global security
and peace, and that terrorism should be opposed in all its forms." The U.S.
and D.P.R.K. agreed to support the international legal regime combating
international terrorism and to cooperate with each other to fight terrorism.
However, Pyongyang continues to provide sanctuary to members of the Japanese
Communist League-Red Army Faction who participated in the hijacking of a
Japan Airlines flight to North Korea in 1970. The D.P.R.K. became a signatory
to the Convention for the Suppression of Financing of Terrorism and a party
to the Convention Against the Taking of Hostages in November 2001.

U.S. POLICY TOWARD NORTH KOREA

U.S. Support for North-South Dialogue and Reunification
The United States supports the peaceful reunification of Korea on terms
acceptable to the Korean people and recognizes that the future of the Korean
Peninsula is primarily a matter for them to decide. The U.S. believes that a
constructive and serious dialogue between the authorities of North and South
Korea is necessary to resolve outstanding problems, including the North's
nuclear program and human rights abuses, and to encourage the North's
integration with the rest of the international community.

Denuclearization of the Korean Peninsula
North Korea joined the Nuclear Non-Proliferation Treaty (NPT) as a
non-nuclear weapons state in 1985. North and South Korean talks begun in 1990
resulted in the 1992 Joint Declaration for a Non-Nuclear Korean Peninsula
(see, under Foreign Relations, Reunification Efforts Since 1971). However,
the international standoff over the North's failure to implement an agreement
with the International Atomic Energy Agency for the inspection of the North's
nuclear facilities led Pyongyang to announce in March 1993 its intention to
withdraw from the NPT. A UN Security Council Resolution in May 1993 urged the
D.P.R.K. to cooperate with the IAEA and to implement the 1992 North-South
Denuclearization Statement. It also urged all member states to encourage the
D.P.R.K. to respond positively to this resolution and to facilitate a
solution to the nuclear issue.

To reverse the North's decision, the U.S. opened talks with the D.P.R.K. in
June 1993 and eventually reached agreement in October 1994 on a diplomatic
roadmap, known as the Agreed Framework, for the resolution of the nuclear
standoff. The Agreed Framework called for the following steps:

* North Korea agreed to freeze its existing nuclear program and allow
monitoring by the IAEA.
* Both sides agreed to cooperate to replace the D.P.R.K.'s
graphite-moderated reactors with light-water reactor (LWR) power plants,
by a target date of 2003, to be financed and supplied by an international
consortium (later identified as the Korean Peninsula Energy Development
Organization or KEDO).
* As an interim measure, the U.S. agreed to provide North Korea with
500,000 tons of heavy fuel oil annually until the first reactor was
built.
* The U.S. and D.P.R.K. agreed to work together to store safely the spent
fuel from the five-megawatt reactor and dispose of it in a safe manner
that did not involve reprocessing in the D.P.R.K.
* The two sides agreed to move toward full normalization of political and
economic relations.
* Both sides agreed to work together for peace and security on a
nuclear-free Korean Peninsula.
* Both sides agreed to work together to strengthen the international
nuclear non-proliferation regime.

In accordance with the terms of the Agreed Framework, in January 1995 the
U.S. Government eased economic sanctions against North Korea in response to
North Korea's freezing its graphite-moderated nuclear program under U.S. and
IAEA verification. North Korea agreed to accept the decisions of KEDO, the
financier and supplier of the LWRs, with respect to provision of the
reactors. KEDO subsequently identified Sinpo as the LWR project site and held
a groundbreaking ceremony in August 1997. In December 1999, KEDO and the
(South) Korea Electric Power Corporation (KEPCO) signed the Turnkey Contract
(TKC), permitting full-scale construction of the LWRs.

In January 1995, as called for in the 1994 Agreed Framework, the U.S. and
D.P.R.K. negotiated a method to store safely the spent fuel from the
five-megawatt reactor. According to this method, U.S. and D.P.R.K. operators
would work together to can the spent fuel and store the canisters in the
spent fuel pond. Actual canning began in 1995. In April 2000, canning of all
accessible spent fuel rods and rod fragments was declared complete.

In 1998, the U.S. identified an underground site in Kumchang-ni, D.P.R.K.,
which it suspected of being nuclear-related. In March 1999, after several
rounds of negotiations, the U.S. and D.P.R.K. agreed that the U.S. would be
granted "satisfactory access" to the underground site at Kumchang-ni. In
October 2000, during Special Envoy Jo Myong Rok's visit to Washington, and
after two visits to the site by teams of U.S. experts, the U.S. announced in
a Joint Communiqué with the D.P.R.K. that U.S. concerns about the site had
been resolved.

As called for in Dr. William Perry's official review of U.S. policy toward
North Korea, the U.S. and D.P.R.K. launched new negotiations in May 2000
called the Agreed Framework Implementation Talks. The U.S. and D.P.R.K. also
began negotiations for a comprehensive missile agreement, pursuant to the
Perry recommendations.

Following the inauguration of President George W. Bush in January 2001, the
Administration halted the nuclear and missile talks that were under way,
specifying that it intended to review the United States's North Korea policy.
The Administration announced on June 6, 2001, that it was prepared to resume
dialogue with North Korea albeit on a broader agenda of issues--including
North Korea's conventional force posture, missile development and export
programs, human rights practices, and humanitarian issues.

When U.S.-D.P.R.K. direct dialogue resumed in October 2002, a U.S. delegation
confronted North Korea with our assessment that it had a uranium enrichment
program. North Korean officials acknowledged to the U.S. delegation, headed
by Assistant Secretary of State for East Asian and Pacific Affairs James A.
Kelly, the existence of the program. Such a program violated North Korea's
obligations under the NPT and its commitments in the 1992 North-South
Denuclearization Declaration and the 1994 Agreed Framework. The U.S. side
stated that North Korea would have to terminate the program before any
further progress could be made in U.S.-D.P.R.K. relations. The U.S. side also
made clear that if this program were verifiably eliminated, the U.S. would be
prepared to work with North Korea on the development of a fundamentally new
relationship. Subsequently, the D.P.R.K. has denied the existence of a
uranium enrichment program, despite evidence to the contrary. In November
2002, the member countries of KEDO's Executive Board agreed to suspend heavy
fuel oil shipments to North Korea pending a resolution of the nuclear
dispute.

In late 2002 and early 2003, North Korea terminated the freeze on its
existing plutonium-based nuclear facilities at Yongbyon, expelled IAEA
inspectors, removed seals and monitoring equipment at Yongbyon, quit the NPT,
and resumed reprocessing of spent nuclear fuel to extract plutonium for
weapons purposes. North Korea announced that it was taking these steps to
provide itself with a deterrent force in the face of U.S. threats and the
U.S.'s "hostile policy." Beginning in mid-2003, the North repeatedly claimed
to have completed reprocessing of the spent fuel rods previously frozen at
Yongbyon and publicly said that the resulting fissile material would be used
to bolster its "nuclear deterrent force." There is no independent
confirmation of North Korea's claims. The KEDO Executive Board suspended work
on the Light Water Reactor Project beginning December 1, 2003.

President Bush has made clear that the U.S. has no intention to invade or
attack North Korea. He has also stressed that the U.S. seeks a peaceful end
to North Korea's nuclear program in cooperation with North Korea's neighbors,
who are directly affected by the threat the nuclear program poses to regional
stability and security. North Korea's neighbors have joined the United States
in supporting a denuclearized Korean Peninsula.

Beginning in early 2003, the United States proposed multilateral talks among
the most concerned parties aimed at reaching a settlement through diplomatic
means. North Korea initially opposed such a process, maintaining that the
nuclear dispute was purely a bilateral matter between the United States and
the D.P.R.K. However, under pressure from its neighbors and with the active
involvement of China, North Korea agreed to three-party talks with China and
the U.S. in Beijing in April 2003 and to Six-Party Talks with the U.S.,
China, South Korea, Japan and Russia in August 2003, also in Beijing. During
the August 2003 round of Six-Party Talks, North Korea agreed to the eventual
elimination of its nuclear programs if the United States were first willing
to sign a bilateral "non-aggression treaty" and meet various other
conditions, including the provision of substantial amounts of aid and
normalization of relations. The North Korean proposal was unacceptable to the
United States, which insisted on a multilateral resolution to the issue and
eschewed provision of benefits before the D.P.R.K. completed
denuclearization. In October 2003, President Bush said he would be willing to
consider a multilateral written security guarantee in the context of North
Korea's complete, verifiable, and irreversible elimination of its nuclear
weapons program.

China hosted a second round of Six-Party Talks in Beijing in February 2004.
The United States saw the results as positive, including the announced
intention of all parties to hold a third round by the end of June and to form
a working group to maintain momentum between plenary sessions. China, Japan,
Russia, and the R.O.K. accepted the position of the United States that the
central objective of the process was the complete, verifiable, irreversible
dismantlement (CVID) of the North's nuclear programs.

At the third round of Six-Party Talks in Beijing, in June 2004, the United
States tabled a comprehensive and substantive proposal aimed at resolving the
nuclear issue. All parties agreed to hold a fourth round of talks by
end-September 2004. Despite its commitment, the D.P.R.K. refused to return to
the table, and in the months that followed issued a series of provocative
statements. In February 10, 2005, Foreign Ministry statement, the D.P.R.K.
declared it had "manufactured nuclear weapons" and was "indefinitely
suspending" its participation in the Six-Party Talks. In Foreign Ministry
statements in March, the D.P.R.K. said it would no longer be bound by its
voluntary moratorium on ballistic missile launches, and declared itself a
nuclear weapons state.

Following intense diplomatic efforts by the U.S. and other parties, the
fourth round of Six-Party Talks were held in Beijing over a period of 20 days
from July-September 2005, with a recess period in August. Discussions were
substantive and useful, and resulted in all parties agreeing to a Joint
Statement of Principles. In the September 19 joint statement, the six parties
unanimously reaffirmed the goal of verifiable denuclearization of the Korean
Peninsula in a peaceful manner. The D.P.R.K. for the first time committed to
abandon all nuclear weapons and existing nuclear programs and to return, at
an early date, to the NPT and to IAEA safeguards. The other parties agreed to
provide economic cooperation and energy assistance. The United States and the
D.P.R.K. agreed to take steps to normalize relations subject to bilateral
policies, which for the United States includes our concerns over North
Korea's ballistic missile programs and deplorable human rights conditions.
While the joint statement provides a vision of the end-point of the six-party
process, much work lies ahead to implement the elements of the agreement. The
six parties agreed to hold a fifth round of talks in Beijing in November
2005.

ECONOMY
North Korea's faltering economy and the breakdown of trade relations with the
countries of the former socialist bloc--especially following the fall of
communism in eastern Europe and the disintegration of the Soviet Union--left
Pyongyang confronted with difficult policy choices. Other centrally-planned
economies in similar straits opted for domestic economic reform and
liberalization of trade and investment. Despite the introduction of wage and
price reforms in 2002, the North Korean leadership seems determined to
maintain tight political and ideological control. While it has increasingly
tolerated markets and a small private sector as the state-run distribution
system has deteriorated, the D.P.R.K. announced in October 2005 the banning
of grain sales at private markets and a return to the rationing system.
Another factor contributing to the economy's poor performance is the
disproportionately large percentage of GNP (possibly as much as 25%) that
North Korea devotes to the military.

North Korean industry is operating at only a small fraction of capacity due
to lack of fuel, spare parts, and other inputs. Agriculture is now 30% of
total GNP, even though output has not recovered to early 1990 levels. The
infrastructure of the North is generally poor and outdated, and its energy
sector has collapsed.

North Korea suffers from chronic food shortages, which were exacerbated by
record floods in the summer of 1995 and continued shortages of fertilizer and
parts. China and South Korea have responded by providing food on the basis of
grants and long-term concessional loans in-kind. (The R.O.K. also gives
fertilizer as well as materials for North-South economic cooperation
projects, while China gives energy assistance.) In addition, international
organizations and non-governmental organizations are providing significant
amounts of food. In response to international appeals, the U.S. provided more
than 2 million tons of humanitarian food aid between 1996 and 2005, the large
majority of which has been delivered through the UN World Food Program. This
total includes 50,000 metric tons of food that the United States pledged in
response to the World Food Program's 2005 appeal. However, in August 2005,
the D.P.R.K. Government asked the United Nations to end all humanitarian aid
programs by the end of 2005, saying that it would now only accept
"development" aid administered by North Korean nationals.

About 80% of North Korea's terrain consists of moderately high mountain
ranges and partially forested mountains and hills separated by deep, narrow
valleys and small, cultivated plains. The most rugged areas are the north and
east coasts. Good harbors are found on the eastern coast. Pyongyang, the
capital, near the country's west coast, is located on the Taedong River.

Development Policy
In 1991, following the collapse of the Soviet Union and termination of
subsidized trade arrangements with Russia, other former Communist states, and
China, the D.P.R.K. announced the creation of a Special Economic Zone (SEZ)
in the northeast regions of Najin, Chongjin, and Sonbong. Problems with
infrastructure, bureaucracy, and uncertainties about investment security and
viability have hindered growth and development of this SEZ. The government
announced in 2002 plans to establish a Special Administrative Region (SAR) in
Sinuiju, at the western end of the D.P.R.K.-China border. However, the
government has taken few concrete steps to establish the Sinuiju SAR, and its
future is uncertain. In addition, North Korea has established a special
economic zone near the city of Kaesong, where R.O.K. companies are building
manufacturing facilities that will employ North Korean workers (see further
information under North-South Economic Ties).

North Korea implemented limited micro- and macroeconomic reforms in 2002,
including sharp increases in prices and wages, changes in foreign investment
laws, a steep currency devaluation, and reforms in industry and management.
Though the changes have failed to stimulate recovery of the industrial
sector, there are reports of changed economic behavior at the enterprise and
individual level. One unintended consequence of the 2002 changes has been
severe inflation. An increasing number of North Koreans now try to work in
the informal sector to cope with growing hardship and reduced government
support. The D.P.R.K. Government has made increasing agricultural production
its top economic priority for 2005.

North-South Economic Ties
Two-way trade between North and South Korea, legalized in 1988, had risen to
$697 million by 2004, much of it processing or assembly work undertaken in
the North. This total includes a substantial quantity of non-trade goods
provided to the North as humanitarian assistance or as part of inter-Korean
cooperative projects. Approximately half of the total trade was commercial
transactions and trade based on processing-on-commission arrangements. In
particular, the processing-on-commission trade increased from $0.8 million in
1992 to $176 million in 2004.

Since the June 2000 North-South summit, North and South Korea have
reconnected their east and west coast railroads and roads where they cross
the DMZ and are working to improve these transportation routes. However, the
railroads have not been tested to date. Much of the work done in North Korea
has been funded by the R.O.K. The west coast rail and road are complete as
far north as the Kaesong Industrial Complex (six miles north of the DMZ), but
little work is being done north of Kaesong. On the east coast, the road is
complete but the rail line is far from operational. Tour groups are now using
the east coast road to travel from South Korea to Mt. Geumgang in North
Korea. The D.P.R.K. Government had previously allowed only cruise tours from
South Korea to Mt. Geumgang, The overland tours to Mt. Geumgang began in
2003, five years after the cruise tours started.

Groundbreaking on another North-South cooperation project, the Kaesong
Industrial Complex (KIC) took place in June 2003. In an effort to reassure
potential R.O.K. investors, in August 2003 North and South Korea ratified
four agreements that they had signed in 2002: an investment guarantee
agreement; an agreement to avoid double taxation; a dispute settlement
agreement; and an agreement on clearance of accounting transactions. The two
sides have also reached agreement on the lease arrangement, workers' wages,
telecommunications, electric power, and other matters necessary for the
facility's operations. In the complex's pilot phase, 15 R.O.K. companies are
constructing manufacturing facilities. Three of those companies had started
to manufacture products as of mid-March 2005. As of April 2005, the South
Korean Government approved a total of 57 "Economic Cooperation Projects" to
North Korea, worth around $5.6 billion. Plans for the complex's first phase
envisage participation of 250 R.O.K. companies by 2007 and another 100
technology incentive companies by 2008.

Economic Interaction with the U.S.
The United States imposed a total embargo on trade with North Korea in June
1950 when North Korea attacked the South. U.S. law also prohibited financial
transactions between the two countries. However, since 1989, and most notably
in June 2000, the U.S. eased sanctions against North Korea. The U.S. now
allows a wide range commercial and consumer products to be exported to North
Korea without requiring an export license. It permits imports from North
Korea, subject to an approval process. The U.S. allows direct personal and
commercial financial transactions between U.S. and D.P.R.K. persons.
Restrictions on investment also have been eased. The U.S. Government also now
permits commercial U.S. ships and aircraft carrying U.S. goods to call at
D.P.R.K. ports. To date, these sanctions-easing measures have resulted in
little economic activity.

The Departments of Treasury, Commerce, and Transportation have issued
regulations, published in the Federal Register of June 19, 2000, addressing
trade and financial transactions with North Korea. Points of Contact:

* Treasury--Dennis P. Wood, Chief of Compliance Programs, Office of Foreign
Assets Control, Tel. (202) 622-2490, http://www.treas.gov/ofac;
* Commerce--Joan Roberts, Director, Foreign Policy Controls Division,
Bureau of Industry and Security, Tel. (202) 482-0171;
* Transportation--Christopher T. Tourtellot, Office of the Assistant
General Counsel for International Law, Tel. (202) 366-9183.

This easing of sanctions does not affect U.S. counterterrorism or
non-proliferation controls on North Korea, which prohibit exports of nuclear,
military and sensitive dual-use items and most types of U.S. assistance.
Statutory restrictions, such as U.S. missile sanctions, remain in place.
Restrictions on North Korea based on multilateral arrangements also remain in
place. Finally, North Korea does not enjoy "Normal Trade Relations" with the
United States so any goods manufactured in North Korea are subject to a
higher tariff upon entry to the United States.