North Korean Economy Watch

North Korea: Terrorism List Removal?
By Larry Niksch, Raphael Perl
Jan 14, 2008

The issue of North Korea’s inclusion on the U.S. list of terrorism-supporting countries has arisen twice in recent U.S.-North Korean diplomacy. In 2000, North Korea demanded that the Clinton Administration remove North Korea from the terrorism-support list before North Korea would send a high level envoy to Washington and accept the Clinton Administration’s proposal to begin negotiations with the United States over the North Korean missile program. In 2003, multilateral negotiations involving six governments began over North Korea’s nuclear programs in the wake of North Korea’s actions to terminate its obligations under the Nuclear Non-Proliferation Treaty and the 1994 U.S.-North Korean Agreed Framework. In the six party talks, North Korea demanded that in return for a North Korean “freeze” of its plutonium nuclear program, the United States agree to a number of U.S. concessions, including removing North Korea from the U.S. terrorism-support list.

In late 2006 and early 2007, the Bush Administration reportedly offered North Korea removal from the U.S. terrorism list if North Korea agreed to end its nuclear programs. U.S. and North Korean diplomats negotiated much of the Six Party Nuclear Agreement, which was signed on February 13, 2007. That agreement specified that the United States and North Korea would begin to negotiate a process of removal of North Korea from the terrorism list. In August-September 2007, Assistant Secretary of State Christopher Hill apparently made promises to North Korea’s chief negotiator to remove North Korea as part of the process to implement Phase Two of the February 2007 nuclear agreement. They set a deadline of December 31, 2007, for completion of Phase II. Phase II requires North Korea to allow the “disablement” of its plutonium facilities at Yongbyon and to issue a declaration of its nuclear programs. The Bush Administration increasingly took the position that the issue of North Korea’s kidnapping of Japanese citizens was not linked to removing North Korea from the terrorism list, from the standpoint of U.S. law or policy. The Japanese government objected to this position. The State Department continued to declare that North Korea had not committed a terrorist act since 1987. However, reports from French, Japanese, South Korean, and Israeli sources described recent North Korean programs to provide arms and training to Hezbollah in Lebanon and the Tamil Tigers in Sri Lanka, two groups on the U.S. list of international terrorist organizations.

If the Administration removes North Korea from the terrorism list, it is required under law to notify Congress 45 days prior to removal. For Congress to prevent removal, it would have to pass legislation (not resolutions) that would be subject to a presidential veto. The Administration has stated that it will adhere to the requirement of providing Congress with a 45-day notice.

Read the full report here
Read other North Korea CRS reports here

For international readers: The Congressional Research Service is an organization that puts together issue briefs and legislative histories for congressional staff.  They are one of the first places US Congressional staff go to learn about a topic.

In April, the Congressional Research Service published a document on the North Korean Economy.  The full report, as well as some past reports, can be downloaded here.

Executive Summary

This report provides an overview of the economy of the Democratic People’s Republic of Korea (DPRK) or North Korea, its external economic relations, attempts at reform, and U.S. policy options. Along with the United States, North Korea’s major trading partners — China, Japan, South Korea, and Russia — form the socalled “six parties,” who are engaged in talks, currently restarted, to resolve issues raised by the DPRK’s development of nuclear weapons.

The economy of North Korea is of interest to Congress because it provides the financial and industrial resources for Pyongyang to develop its military, can be used as leverage in negotiations, constitutes an important “push factor” for potential refugees seeking to flee the country, creates pressures for the country to trade in arms and illegal drugs, is a rationale for humanitarian assistance, is tied to Pyongyang’s nuclear program, and creates instability that affects South Korea and China. The North Korean threat to sell nuclear weapons material could be driven in part by Pyongyang’s need to generate export earnings. The dismal economic conditions also foster forces of discontent that potentially could turn against the Kim regime — especially if knowledge of the luxurious lifestyle of communist party leaders becomes better known or as the poor economic performance hurts even Pyongyang’s elite.

Economic conditions in North Korea currently seem to be improving but have been dismal for those out of the center of power. Mass starvation — eased only by international food aid and other humanitarian assistance — has stalked the countryside. Over the past 15 years, industrial production in North Korea has shrunk considerably. The country has embarked on a program of economic reforms that include raising wages, allowing prices to better reflect market values, reducing dependence on rationing of essential commodities, trimming back centralized control over factory operations, and opening foreign trade zones for international investment.

North Korea has extensive trading relationships with China and South Korea and more limited trade with Japan and Russia. Because of U.S. economic sanctions and lack of normal trade relations status, U.S. imports from North Korea in 2006 were nil, while U.S. exports consisted of $3,000 worth of books and newspapers.  The DPRK has been running an estimated $1.8 billion deficit per year in its international trade accounts that it funds primarily through receipts of foreign assistance and foreign investment as well as through various questionable activities, such as sales of weapons, transporting and producing illegal drugs, and counterfeiting brand name products and currency.

U.S.-led financial sanctions on North Korea have disrupted that country’s trade. In the six-party talks, economic assistance (including fuel oil) is a major bargaining chip. Economic policy options include increasing or easing economic sanctions, preventing shipments of illicit cargo, normalizing relations with Pyongyang, negotiating a trade agreement, allowing the DPRK to join international financial institutions, and removing the country from the terrorism list. This report will be updated as conditions warrant.

Daily NK
Kim Yong Hun
6/5/2007

Despite the nuclear test last October, trade between North Korea and China has increased steadily. Rather, signs of North Korea’s economic dependence on China is becoming more obvious.

According to statistics recently released by the Ministry of Unification, “2007 1st Quarter, North Korea’s trade status with China,” trade between the two countries recorded $330mn, a 13.8% increase compared to 2006. While North Korea exported $130mn worth of commodities, an increase of 45% compared to the previous year, imports equaled a total of $200mn, a small decrease of 2.4%.

Last year, trade between both North Korea and China totaled $1,699.6mn recording the highest amount of trade ever in history and even this figure had risen 7.5% compared to the year before.

Analysts argue that North Korea’s economic dependence on China is increasing as a result of sanctions implemented by the international community and delay of the February 13 Agreement.

Even until last year, the trade deficit had increased to $764.17mn, an increase of 29.9% compared to 2005. However, in the first quarter of 2007, the trade deficit seems to have taken a major plummet of 61.3% down to $74mn.

North Korea’s main trade commodities are fuel based including coal and minerals, accounting for $45mn (49% increase to 2006) of exports to China, and 34.7% of total exports. In detail, $33mn of minerals, $12mn of medicine, $7.7mn of steel and $6.2mn of fisheries are exported also.

On the other hand, goods imported into North Korea are again fuel based including petroleum and crude oil and account for $31mn (42.5% decrease to 2006) of imports. Further, machinery equates to $17mn of imports, electric appliances $16mn and filaments $11mn.

In the report, the Ministry of Unification indicated North Korea’s major export to China as coal and minerals and analyzed, “This is the result of China’s increased demands for economic growth.”

The Ministry reported, “The majority of imported goods are energy, electric appliances and machinery” and added, “Demand for these light industry goods have increased from an expansion in North Korea’s consumer market. Imports have risen as a result of materials necessary for industrialization.”

According to a report recently released by the U.S. Congressional Research Service (CRS) “North Korea’s Economy,” the amount of trade that occurred between the U.S. and North Korea barely reached $3,000 in 2006, the lowest figure ever recorded since 1990. The only items exported to North Korea were books and newspapers and no imports were received by the U.S, revealed the CRS.

Furthermore, 2006 recorded an all time low of $130mn trade between Japan and North Korea, undoubtedly a reflection of Japan’s strong implementation of economic sanctions on North Korea. Since 1995, Japan has been supporting North Korea with a total of 1.2mn tons of food aid but suspended the aid relief in late 2004 following the issue of Japanese abductees.

Russia’s exports of minerals and coal to North Korea surged dramatically in 2003 and in 2006, total trade with North Korea recorded $220mn. Hence, Russia became now one of the big three trading partners of North Korea with China, South Korea, the CRS reported.

Here I will try and keep a running archive of CRS reports on North Korea:

North Korea: Terrorism List Removal?
January 14, 2008: 2008-1-14-terrorism-list-removal.pdf

North Korea: Terrorism List Removal?
December 11, 2007:  2007-12-11-Terrorism-list-removal.pdf

The Kaesong North-South Industrial  Complex
July 19, 2007: 2007-7-19-the-kaesong-north-south-industrial-complex.pdf

North Korean Provocative Actions, 1950-2007
April 20, 2007: 2007-4-20-provocative-actions-1950-2007.pdf

The North Korean Economy
April 18, 2007: 2007-4-18-the-north-korean-economy.pdf

North Korean Crime for Profit Activities 
February 16, 2007: 2007-2-16-crime-for-profit-activities.pdf

Drug Trafficking and North Korea: Issues for US Policy
January 25, 2007: 2007-1-25-drug-trafficking-and-north-korea-issues-for-us-policy.pdf

North Korea: Economic Sanctions
October 17, 2006: 2006-10-17-north-koreaeconomic-sanctions.pdf

North Korea Counterfeiting US Currency
March 22, 2006: 2006-3-22-north-korea-counterfeiting-us-currency.pdf

Foreign Assistance to North Korea
May 26, 2005:  2005-5-26-foreign-assistance-to-north-korea.pdf

Chronology of Events
February 11, 2005: 2005-2-11-north-korea-a-chronology-of-evnets.pdf

Assistance to North Korea Fact Sheet
February 11, 2005: us-assistance-to-north-korea-fact-sheet.pdf

North Korea Economic Sanctions
January 24, 2003: northkorea-economicsanctions.pdf