| A Country Study: North Korea
North Korea's foreign trade is characterized by its relatively low value, chronic trade deficits, and small number of trading partners. In 1990 almost 83 percent of total trade was conducted with the Soviet Union, China, and Japan. Although modest in scale, accompanied by wide and frequent swings from year to year, and even negative growth in some years, trade levels have grown over the years. Based on estimates from the returns of trading partners, exports and imports grew from US$307.7 million and US$434.1 million, respectively, in 1970, to US$1.86 billion and US$2.92 billion, respectively, in 1990 (see table 6 and table 7, Appendix). North Korea's total exports were comparable to only 2.9 percent of South Korea's exports of US$65.02 billion in 1990. North Korea's trade value also is small in relative terms when compared with that of South Korea and other newly industrializing economies. The trade ratio (total trade value relative to GNP) in 1990 was 20.7 percent, with export and import ratios of 8.1 percent and 12.6 percent, respectively. The comparative ratio for South Korea was 56.7 percent--with 27.3 percent and 29.4 percent, respectively, for exports and imports.
Except for a few years since 1946, the trade balance has been characteristically unfavorable. North Korea attracted worldwide notoriety in 1976 when it defaulted on its payment of foreign debt to Western countries. The debt had resulted from massive purchases of capital goods from West European countries and Japan in the early 1970s, which had drastically increased the trade deficit. Imports are supposed to be paid for by increased export earnings and short-term credits, neither of which has occurred. The oil shock of late 1973 and the onset of the recession and worldwide stagflation also took their toll. Prices of North Korea's minerals declined sharply because of a worldwide recession that lowered demand. Foreign exchange reserves dwindled, leading to the debt crisis. After suspending payments, North Korea tried to reschedule the payments, but its payment record is erratic; the debts continue in the early 1990s, and unpaid interest continues to mount. At the end of 1989, the total foreign debt was estimated at US$6.78 billion: 45.9 percent, or US$3.13 billion, was owed to the Soviet Union; US$900 million to China; and US$530 million to Japan. According to South Korean sources, the total debt had increased to US$7.86 billion at the end of 1990.
Despite North Korea's flirtation with Western developed countries, the Soviet Union, China, and Japan remain its principal trading partners. In the late 1940s and 1950s, more than 90 percent of trade was conducted with communist countries. In the 1960s, this dependency began to gradually decrease, and in the mid-1970s, with P'yongyang's sudden turn to the West for imports of machinery and equipment, the slide accelerated. This dependency fell to its lowest point in 1974--only 51.5 percent of total trade; it began to rise again when North Korea, having defaulted on payment of its debt, found it difficult to obtain credit to finance imports from the West. The ratio of trade with communist countries was 72.7 percent and 71.4 percent, respectively, in 1989 and 1990.
The Soviet Union has consistently been North Korea's largest trading partner, accounting for about half of total two-way trade in the late 1980s and 55.9 percent and 56.8 percent in 1989 and 1990, respectively. It is followed by China, with 12.5 percent and 11.4 percent in 1989 and 1990, respectively. Since the early 1960s, Japan has emerged as the third largest trading partner-- 10.7 percent and 19.7 percent in 1989 and 1990, respectively. Japan remains a major continuing link with the advanced market economies. For some years in the mid-1980s, imports from Japan exceeded those of China. Most of the trade deficits originate in communist countries; an exception was in 1974-75 when an import surplus from Western countries exceeded that from communist countries.
The Soviet Union also is the largest source of import surpluses. In 1989 and 1990, trade deficits with the Soviet Union constituted 63.5 percent and 57.7 percent, respectively, of the total deficit. The corresponding ratio for China was 20.3 percent and 28.6 percent, respectively. North Korea had depended predominantly on the Soviet Union and China for its trade credits in the late 1980s, but in 1990 P'yongyang began to lean more toward Beijing. From 1987 to 1990, North Korea consistently accumulated a trade surplus with Japan.
A major factor in North Korea's renewed reliance on the Soviet Union in the 1980s--both as supplier of imports as well as the chief destination for exports--was the difficulty of marketing its products elsewhere; a second important factor was the West's reluctance to extend additional credits. In a trade agreement signed in November 1990, North Korea was required, for the first time, to use hard currency in its commercial transactions with the Soviet Union beginning in 1991. China also notified North Korea to use hard currency in their mutual trade beginning in 1992. This requirement will have a serious adverse effect on the trade value, the balance of payments, and the domestic energy situation. There are signs that the initial attempts to enforce the hard currency rule caused Soviet-North Korean trade to plummet in early 1991. For example, petroleum deliveries from the Soviet Union plunged from 410,000 tons in 1990 to 45,000 tons in the first half of 1991. In order to prevent a further decline, the Soviets conceded some unidentifiable amount of transition time before fully enforcing hard currency payments. Because of the decline in oil imports, the Soviet-aided Sngri oil refinery in Ch'ngjin was at least temporarily closed. Consequently, North Korea has increasingly turned to China and Iran for petroleum.
North Korea's principal exports are non-ferrous metals-- mostly zinc, lead, barites, gold, iron and steel, and textile yarn and fabrics, magnesium, metal-working machine tools, military equipment, cement, vegetables, and fishery products. Its main imports are advanced machinery, transport equipment, highgrade iron and steel products, crude petroleum, wheat, and chemicals. Of almost US$1.7 million of imports from the Soviet Union in 1990, machinery and transport equipment constituted by far the largest category of imports--22.4 percent; garments constituted 53.6 percent of exports amounting to approximately US$1 million that same year. Petroleum and petroleum products imported from the Soviet Union declined sharply from 21.5 percent in 1987, to 10.9 percent in 1988, and to 6.7 percent in 1990.
North Korea's main imports from China are energy-related products--coal, briquettes, petroleum, and petroleum products; they constituted 38.4 percent and 38.5 percent of imports, respectively, for 1989 and 1990. Other imports include cereals and cereal preparations, oil seeds, rubber products, textile fibers, fruits and vegetables, foodstuffs, and machinery and equipment. Metallurgical exports, including magnesium, steel, and nonferrous metals, are the largest category of exports to China, comprising 37.2 percent of total exports in 1990. Other exports to China include anthracite coal, cement, fish, and seafood.
Machinery is the largest import from Japan, making up 23 percent of the total, followed by textile fibers and products, base metal and products, chemicals, plastic and rubber products, and electric and transport equipment. Making up about 40 percent of the total in 1989-90, the main exports to Japan are minerals, in particular iron and steel, zinc, magnesium, aluminum, and lead. Other export items to Japan are vegetables, marine products, textile fibers, anthracite coal, apparel and clothing accessories, and precious metals.
Data as of June 1993
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