Archive for the ‘International trade’ Category

Why is China cracking down on illegal fishing in North Korea?

Monday, December 11th, 2023

By Benjamin Katzeff Silberstein

Daily NK has reported on several occasions on Chinese fishing activities in North Korean waters. Chinese fishers purchase fishing rights from the North Korean government, a practice clearly banned under the current sanctions regime. China has been cracking down on this over the past few months and on sales of seafood from North Korea overall, according to the outlet:

The Chinese government has recently stepped up surveillance and inspections of ships passing through North Korean waters and has even started to crackdown on the sale of North Korean seafood in the country’s markets, Daily NK has learned.

Speaking on condition of anonymity for security reasons, a source in China told Daily NK on Dec. 5 that the Chinese authorities are requiring all ships approaching North Korean waters be equipped with GPS, automatic identification systems, and other navigation and communication devices in order to report their location.

The authorities are doing this to determine where ships have been and for how long, as well as to investigate what ships were doing in North Korean waters. If they confirm that a vessel was fishing in North Korean waters, they confiscate all the seafood the ship has caught.

Accordingly, Chinese vessels that used to fish in North Korean waters are taking a major hit. The source said a fishing boat that recently tried to bring into China clams caught in North Korea is faced with having to pay hundreds of thousands of yuan in fines.

Now forced to pay large fines if caught, Chinese fishery operators say an investigation in their activities might even put them out of business.

[…]

Chinese authorities are also cracking down on sales of North Korean seafood in markets near the North Korea-China border. North Korean seafood exports are banned under UN Security Council Resolution 2371.

Previously, Chinese authorities did not go out of their way to stop Chinese nationals from importing and selling North Korean seafood, but crackdowns have been intensifying recently.

In fact, Chinese businesspeople used to sell North Korean seafood openly due to its popularity, but they do not now because inspection teams are checking the origins of the products they sell.

In regards to this situation, Chinese fishery operators and North Korean seafood sellers say the United States is putting pressure on China to enforce sanctions on North Korea, or that the authorities are cracking down because “China must follow international law for it to play its role in the international community.”

The article cites China’s ambition to appear a responsible actor in the international system in order to exert influence on the current events in Gaza as the reason for its crackdowns on this practice. I’m somewhat skeptical to this explanation. Although it might play a role, I suspect that a more basic ambition to uphold the rules and laws of the region may be what’s behind the Chinese crackdown. In any event, it is a very interesting data point, especially in a time when it’s been assumed that China’s sanctions enforcement would be very lax due to US-China tensions.

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What Kim Jong Un’s Russia visit could mean for the North Korean economy

Tuesday, September 12th, 2023

By: Benjamin Katzeff Silberstein

Early this morning local time, North Korean leader Kim Jong Un arrived in the Russian town of Vladivostok. There, he is scheduled to meet with Russian president Vladimir Putin. Aside from the geopolitical situation and their political ties, the two are expected to discuss expanding North Korean weapons exports to Russia.

What could this mean for the North Korean economy?

The country’s military industry is an economic sector of significant size both in terms of production and employment. A radical increase in weapons exports to Russia could mean a general boost for the economy through increased consumption.

Gains will, however, be limited by the military industry’s isolated position in the economic structure. Many of the military’s factories supply themselves with most essential raw materials through mines and energy supply channels of their own. While many other sectors in the economy have essentially been privatized since the mid-1990s, the arms industry is entirely controlled and centrally planned by the state. Weapons exports to Russia could in fact hamper North Korea’s economic development in the long run by diminishing the regime’s incentives to reform the domestic economy.

Although the sector is far from the country’s top employer, with two million estimated workers in the defense industry, its contribution to the economy is significant. For a sense of proportion, North Korea’s 2008 census lists 4.4 million as workers in agriculture (including forestry and fishing), 718,000 in mining and quarrying, and close to 3 million in manufacturing. A massive and sudden expansion in weapons exports would not drastically change North Korea’s economic situation but could nonetheless make a modest contribution to economic growth and consumption.

Data sources: DPRK 2008 Census, Namhoon Cho (2019)* (see p. 576 for figures.)

As graph 1 shows, the country’s defense industry is estimated to be the third largest employer in the country. Because the data is so unreliable, these figures should not be taken at face-value. Rather, the proportions are what matter. Regardless of their exact number compared with other groups in the workforce, at an estimated two million, their employees are numerous enough for a drastic increase in purchase orders from Russia to boost the economy through increased wages, expanded hiring, or a combination of both. Major and continuous orders from Russia would benefit some parts of the military industry more than others.

Most profits will likely go directly to the state and the military, but workers in the industry may see their pay rise, and new colleagues recruited, if the orders from Russia end up being large enough. All this will have ripple effects on the overall economy, with increased consumption stimulating the consumer goods economy and service sector as well. Economic benefits are likely to be highly regional, with the impoverished Jagang province standing out as a central beneficiary thanks to its high concentration of arms factories.

In the long run, however, North Korea’s economic benefits will likely be limited. The military economy is independent from the “people’s economy” and is usually known as “the second economy.” The military often operates its own factories and mines through a military-industrial complex of sorts, and do not need to turn to other sectors of the economy for raw materials and other inputs. All this is by design, to give the military special status in funding and budget priorities. This limits the potential spillover effects into other industries.

Overall, boosted arms industry exports could diminish the regime’s incentives to develop the market system. The North Korean leadership is currently on a campaign to restore (at least some of) the state’s power over the economic system, including the private and semi-private sectors such as the general market and service sectors. An inflow of cash or other compensation from Russia, such as vast amounts of fuel oil and food, could give the regime more space and safety to suppress private economic activity in favor of the state-controlled sector. This fits well with the regime’s current strategy for the economy but will dampen the country’s long-term prospects for economic development.

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MISSING THE TARGET: The complicated truth about sanctions on North Korea

Friday, June 16th, 2023

The following article was published in East Asia Forum Quarterly‘s June issue, and is re-published here with permission. 

On the surface, sanctions seem to have had little impact on North Korea’s behaviour. At the time of writing, the world is waiting for the launch of a new North Korean military spy satellite that Supreme Leader Kim Jong-un announced on 19 April 2023.

North Korea is under one of the harshest multilateral sanctions regimes of any country in the world. But the country still circumvents sanctions regularly through complex smuggling operations at which it is by now very adept. This situation raises questions about whether sanctions on North Korea have failed.

It is true that sanctions have not reached the stated political goal of inducing North Korea to give up its nuclear weapons. The country has made impressive advances in missile technology and is evidently capable of acquiring the necessary technology despite sanctions. The ‘spy satellite’ launch would be one of around 30 missiles tested in 2023.

Although North Korea has ways to evade sanctions, this does not mean sanctions have no impact. Sanctions interplay with domestic governance and economic systems in ways that are complex and often hard to fully evaluate. The alternative to sanctions is not an open, liberal and free-trading North Korea, but likely a slightly more well-off version of its current state.

The issue of evasion illustrates why the impact of sanctions is so hard to evaluate. Sanctions-evading actions are not rare events, but are institutionalised within North Korea’s economy. Since the 1970s, North Korea has systematically smuggled alcohol, tobacco, drugs and other contraband through its diplomatic networks abroad. These activities continue today and with North Korean capabilities expanding into the cyber realm, sources of illicit income will likely continue to constitute an underestimated part of the regime’s hard-currency revenue flows.

But sanctions evasion and smuggling are very expensive activities. For Chinese, Taiwanese and Singaporean trading companies and entities to risk smuggling oil to North Korea, Pyongyang must pay a massive risk premium on its purchases. North Korea has to pay well above market prices to give sellers a reason to take the risk of arrest and prosecution for sanctions violations.

The same is true for illicit North Korean exports. Sanctions do not stop coal exports entirely, but they slash the prices that North Korea can charge. Any buyer—almost always China—will only risk importing from North Korea if prices are cheap enough to outweigh the risks. Even prior to the harsher sanctions levied in 2016 and 2017, China, through its position as a virtual monopoly buyer, consistently paid below-market prices for North Korean coal. This dynamic is likely even stronger today, as Chinese imports of coal and other sanctioned North Korean goods continue but go mostly unrecorded.

Despite North Korea’s evasion tactics, sanctions are indisputably hurting the North Korean economy. The country’s exports are estimated to be worth only a few hundred million dollars per year—much smaller than its . The UN Panel of Experts estimated, for example, that North Korea earned around 370 million dollars from sanctions-violating coal exports in 2019. This is only a fraction of the 1.19 billion dollars it earned from such exports in 2016, before the harsher sanctions.

The civilian impact of sanctions is unclear. On one hand, sanctions have likely dealt a harsh blow to labour-intensive industries like textiles, where a of workers are women, resulting in increased unemployment and lower wages. The falling incomes of North Koreans working in sanctioned industries substantially dampen the wider economy. On the other hand, there is no evidence that sanctions have driven up the price of food or other essential goods.

Sanctions have undoubtedly worsened North Korea’s food shortage by hindering imports of fertiliser and spare parts for agricultural equipment. North Korea’s own border closure, though, likely also provided an obstacle to foreign trade. But the impact of sanctions on North Korea’s food system is minimal compared with the regime’s refusal to undertake basic reforms in agriculture. The government bristles at dismantling collective farms or letting farmers sell their products on open markets.

Trade by evasion should logically become easier and cheaper. For sanctions to be effective against North Korea, China—which constitutes more than 90 per cent of North Korea’s foreign trade—would have to implement them. As US–China tensions continue to grow, reasons for China to implement sanctions on North Korea are diminishing.

Reports of North Korean trade deals in weapons and labour with Russia in the wake of Russia’s invasion of Ukraine are already circulating. Very little is confirmed about these transactions, but there is evidence to support increased economic exchange between the countries. Earlier this year, satellite imagery from the border area indicated that Russia was increasing oil exports to North Korea while exporting unknown goods that could be arms destined for the Wagner Group.

But this does not change North Korea’s situation. Combined with its poor global reputation, sanctions will continue to make North Korea dependent on a very small number of trade partners—mainly China —who can charge highly unfavourable prices.

None of this is to say that the current thinking on North Korea sanctions is without serious flaws. The demand that denuclearisation should come before any relief on sanctions, for example, is unrealistic. But many also exaggerate the possible gains of abolishing sanctions. A common misperception is that, were sanctions to be lifted, North Korea would open its doors to foreign investors who would flock to the country for its strategic geographic location and cheap labour.

Removing sanctions would not change the basics of North Korea’s economic system. Despite a permissive attitude towards markets during former supreme leader Kim Jong-il’s reign and the first few years of Kim Jong-un’s, harsh state control over the economy best serves the regime’s political and social goals by allowing it to control the distribution of resources. Sanctions hurt, but removing them is no silver bullet for political or economic progress.

Benjamin Katzeff Silberstein is Associate Fellow at the Swedish Institute for Foreign Affairs and a Postdoctoral Fellow at the Safra Center for Ethics at Tel Aviv University.

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How large are Russia’s oil exports to North Korea in context?

Thursday, June 15th, 2023

By: Benjamin Katzeff Silberstein

For the first time since 2020, Russia recently reported oil exports to North Korea in their official trade statistics. These numbers obviously do not include the unknown but likely large quantities of oil that the country buys from Russia under the radar, through smuggling. According to the official numbers,

Russia had exported 67,300 barrels of refined petroleum to North Korea by April, the first deliveries reported to the U.N. since Moscow said it shipped 255 barrels of refined oil to the North in August 2020.

Under U.N. sanctions against Pyongyang’s nuclear and missile programmes, countries are required to report monthly sales of refined petroleum to the Security Council North Korea sanctions committee.

The oil sales began shortly after train travel between Russia and North Korea resumed in November for the first time since 2020, raising expectations of a resumption of trade.

(Reuters)

Although likely an underestimate of the total (including smuggling), this number is significant, not least because of the rapid increase. But as with other current trade figures on North Korea right now, as the border seems to be opening slowly to trade, the numbers are only a fraction of North Korea’s regular imports. North Korea’s annual imports of refined petroleum before the pandemic, for example, were estimated at 4.5 million barrels per year. Assuming the same pace of Russian exports continues through the year, that would put these imports for North Korea at around 3 percent of total annual imports.

This is not to say that the news isn’t significant, particularly if it marks the beginning of a longer trend. But for now, North Korea’s oil and fuel imports remain, as far as we can tell, far lower than their regular levels.

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Why the North Korea–China trade increase could be an illusion

Wednesday, May 24th, 2023

By: Benjamin Katzeff Silberstein

North Korea–China trade is steadily growing, perhaps slowly moving back to its normal  before Covid-19 -“Maximum pressure” sanctions in 2016–2017. According to the latest numbers, trade continues to grow:

Chinese outbound shipments to the isolated country surged 69% year-on-year to $166 million in April, data released by China’s General Administration of Customs showed.

The top export items in terms of value were processed hair and wool used in wigs, worth about $11.6 million, and diammonium hydrogen phosphate, a widely used fertiliser, worth $8.84 million.

But it is far from back to the “old normal” before 2017. Look, for example, at what is being exported. The biggest export products were wigs and fake eyelashes, accounting for over 66 percent of exports to China. This is part of an offshoring industry where North Korea first imports hair from China, and then locally manufactures it into wigs to export back. Sales of wigs, eyelashes and related products accounted for close to $22.7 million in April. To get a sense of proportion, consider that coal exports, formerly one of North Korea’s most central export goods, totalled $1.19 billion in 2016, a little over $99 million per month on average. So when we look at North Korea’s most central exports at the moment, they are still very small compared to the increasingly distant normal. Wigs just aren’t economically meaningful in the same way as coal.

None of this is to say the increase in trade isn’t meaningful. North Korean imports from China may be just as meaningful or perhaps even more so for the economy at this point, with inputs both for export-destined wigs and fertilizer being the central import goods. The increase in trade is certainly positive for the North Korean economy, but it does not seem to (yet) change the overall dynamics where North Korea still cannot export its formerly most important export goods openly, without circumvention and smuggling that involves significant costs. It could be that covert exports will eventually reach the old level of openly reported exports, but we don’t have any hard data to suggest that is yet the case.

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Yet another North Korea–China border opening report (including tourism)

Thursday, May 11th, 2023

By Benjamin Katzeff Silberstein

At this point, non-materializing reports about the China–North Korea opening for full traffic are too many to count. A recent story by SCMP (link here) claims both truck trade and tourism from China to North Korea will start in one month. But “sources briefed by officials on both sides” is an acknowledgment that the report is not based on direct sources. And as has seemed the case for North Korea since Covid-19, plans for policy changes can often change and often do. Judging by the policy pattern, there doesn’t seem to be an overall strategy or timeplan.

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As Chinese ambassador arrives, is North Korea opening up?

Thursday, March 30th, 2023

By: Benjamin Katzeff Silberstein

After a very long hiatus over the pandemic, China’s new ambassador to North Korea has taken up his post in Pyongyang, AP reports:

Wang Yajun will help in the development of the traditional friendship between the “close neighbors sharing mountains and rivers,” Foreign Ministry spokesperson Mao Ning said at a daily briefing.

China is North Korea’s main source of economic aid and political support, but interactions have been disrupted by travel restrictions imposed in an attempt to prevent the spread of COVID-19.

The ambassador’s posting comes as North Korean state media reported that leader Kim Jong Un urged his nuclear scientists to increase production of weapons-grade material to make bombs to put on the country’s widening range of weapons.

The report Tuesday followed a series of missile launches — seven this month alone — and rising threats to use the weapons against North Korea’s enemies.

(Full article here.)

Does this signal a broader relaxation in North Korea’s border restrictions, brightening prospects for trade to open up more broadly as well? Maybe. After all, there’s been signs for many months (well over a year), from infrastructure construction to (fairly tangible) rumors reported from the border area. And imports have increased, particularly of food, resulting in prices stabilizing somewhat.

At the same time, there are good reasons to doubt it. Welcoming back a Chinese envoy is, after all, a decision more in the realm of foreign policy and diplomacy than economics and pandemic prevention. Thus far there have been no reports in outlets such as Daily NK or Rimjingang suggesting a major reversal in trade policy is imminent. To the contrary, the bigger pattern seems to be the state centralizing control over trade while keeping it at a very small minimum. Whatever trade regime emerges from this, it may not look like the old one.

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North Korean imports from China turning toward food

Thursday, November 3rd, 2022

By Benjamin Katzeff Silberstein

The first items North Korea imported from China when railway freight trade started back up were mainly industrial goods, but lately, imports appear to have shifted more toward foodstuffs. Daily NK

According to a Daily NK source in China last Friday, freight trains have been departing every morning from the Chinese city of Dandong for the North Korean city of Sinuiju since Sept. 26.

From late September to early October, the freight cars have been mostly laden with aluminum window frames, tiles, living room lights and other construction supplies, but from mid-October, the trains are carrying a wider range of cargo.

Trains entering North Korea still carry construction or interior supplies such as aluminum window frames, wood for furniture and sawdust, as well as medical supplies like masks and antibiotics. However, since mid-October, foodstuffs have accounted for a far higher share of imports, so much so that over half of freight cars have been laden with various food items.

In fact, the items now accounting for a greater share of North Korean imports by freight trains from China include soybean paste, soy sauce, red pepper powder, sugar, seasonings, vinegar, garlic soybeans and other items. In particular, imports of foodstuffs needed to make kimchi have reportedly increased with the start of kimjang, or the kimchi-making season.

However, the freight trains have yet to begin carrying grains such as rice or wheat flour.

(Source: Seulkee Jang, “N. Korea is now focusing on importing food from China,” Daily NK, November 1st, 2022.)

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North Korea reportedly sending more workers to occupied Ukraine

Wednesday, October 26th, 2022

By Benjamin Katzeff Silberstein 

I want to emphasize that this is all far from confirmed and that Daily NK, by the nature of their work, often has to rely on a very small number of sources. Nonetheless, this report suggests authorities in North Korea are preparing to send additional workers to Russian-occupied Ukraine, other than those that have already supposedly been selected. Although the move itself is political in context, as the source notes in the article, reasons are likely mainly financial for North Korea.

North Korea plans to select additional laborers to send to Russian-occupied regions of eastern Ukraine. In fact, Pyongyang plans to send about 300 people, with the primary goal being to earn foreign currency.

A source in North Korea told Daily NK on Monday that the country plans to start the second round of selections on Nov. 1. He said the authorities have issued “recommendation rights” to each Cabinet ministry and committee, and that each workplace must submit recommendations to the Workers’ Party’s Cadres Department (human resources department) by the end of November. 

Daily NK previously reported that North Korea had selected personnel to dispatch for reconstruction efforts in regions of eastern Ukraine occupied by Russia.

“Through the second round of selections, North Korea plans to organize a total of six teams [to be sent to Russian-occupied areas of Ukraine],” said the source. “About 50 people will be in each team, so it seems about 300 people will be chosen nationwide. Considering the first round of selections [about 800-1,000 people], the country plans to send a large number of people overseas.”

The source said people in Pyongyang or with connections to the Cadres Department are not inquiring about the location — presumably because they already know about Ukraine — nor do they want their family members to apply for the job.

“Since Pyongyang residents aren’t going, the authorities are giving as many recommendations as they can to provincial residents,” he said.

The source further explained that officials in the cadre departments of major cities like Pyongyang, Nampo and Pyongsong complain that this is the first time in 30 years that they have seen people avoid a chance to go overseas. They say this is a marked contrast with the old days, when people needed official recommendations to go abroad.

On the other hand, provincial residents reportedly demonstrate no real hesitation to apply. The source said volunteers do not believe they are going to die, even if eastern Ukraine is a conflict zone.

“Some provincial residents optimistically believe that the state would never drive them to their deaths,” said the source. “It seems they think the government will conclude a good contract with Russia so that they can work in the safest place possible.”

(Source: Mun Dong Hui, “N. Korea to select additional laborers to work in Russian-occupied regions of Ukraine,” Daily NK, October 26th, 2022.)

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North Korean trade with China in September highest since Covid-19 began

Tuesday, October 25th, 2022

By: Benjamin Katzeff Silberstein 

The latest figures are out for China-North Korea trade. Overall, trade in September was at its highest since Covid-19 began, which is particularly significant considering that rail traffic, one of the most central routes for goods, only started back up late that month. Total trade stood at $142.7 million. In January 2020, the same figure was slightly under $200 million. This was already a fairly low figure, but one that would have likely climbed steadily were it not for Covid-19.

$14.2 million consisted of exports, with the vast majority being imports. North Korea’s main export goods were iron ore and other mineral- and mining-related products.

North Korea mainly imported medicines and industrial goods, with truck tires being its main import. It is a crucial good for most sectors that depend on domestic transportation and the shortage of tires (whose domestically produced quality is low) has likely caused considerable difficulties.

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