The U.S. government believes North Korea, with our without the government's help, is producing narcotics and counterfeit cigarettes for shipment to China, according to an annual report.

In the 2013 International Narcotics Control Strategy Report, the State Department said it has found no clear evidence that the North Korean regime is directly involved in such illegal activities.

But the United States "cannot entirely rule out the possibility of official DPRK (North Korea) state involvement in the manufacturing and trafficking of illicit drugs," says the report, issued earlier this week.

Citing witnesses' testimonies and multiple press reports, the department said a substantial volume of methamphetamine continues to be produced within the secretive communist nation, mainly for transshipment to China.

"The proximity and availability of precursor chemicals in China likely contribute to the production of methamphetamine within North Korea," it added.

The department said there have been no confirmed reports of large-scale drug trafficking involving North Korea's state entities since 2004.

"This suggests that state-sponsored drug trafficking may have ceased or been sharply reduced, or that the DPRK regime has become more adept at concealing state-sponsored trafficking of illicit drugs," it said. (Yonhap News)