Ⅷ2. North Korea’s Foreign Economic Relations
A. Bilateral Cooperation
North Korea basically rejects the adoption and management of an open economy. However, there will be a push to promote greater exchanges with North Korea if the international community can make visible progress on the North Korean nuclear problem through proposals for cooperative action. Therefore, this section of the paper will be dedicated to evaluating the future possibilities for developing economic cooperation with North Korea.
As mentioned above, Northeast Asian states such as China, Russia and Japan have maintained an economic relationship with North Korea, so these countries are expected to play a large role in supporting future economic reform measures made by North Korea.
First of all, based on a deep understanding of North Korea’s strategic importance, China has continuously promoted economic cooperation with North Korea, and during North Korean leader Kim Jong-il’s visit to China in 2006 the two states agreed upon the principles of “governmental transfer, private participation, and market application (政府引導, 企業參與, 市場運作).” The adoption of these principles by the Chinese can be explained as the result of the impractical promotion as well as unsatisfactory execution of various economic cooperation projects pushed forward by private Chinese companies since the beginning of the 21st century. Beijing also clearly stated that the government would intervene in eco- nomic cooperation projects being conducted with North Korea while still supporting the idea that this economic cooperation should be managed by companies that follow fundamental market
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principles. This somewhat contradictory attitude of the Chinese government can be considered evidence of the concern that the government has when dealing with the problems of economic cooperation with North Korea. In other words, China is taking notice of the fact that as a state it is recording a surplus in trade with North Korea, but several private companies suffer losses when the actual transactions are carried out. Since North Korea is more or less unfamiliar with the ideas of a market economy, there are many cases where it is making demands that are incongruent with market economic fundamentals as well as cases where the potential for unnecessary costs are looming. These facts have always been indicated as problematic. There have been cases where North Korea has placed several Chinese companies in com- petition with each other over a single project, and a project to exploit underground resources by a Chinese company that result- ed in low production have contributed to spreading a negative perception of investment in North Korea. Furthermore, failure to eliminate discord regarding construction of the Sinuiju special administrative region is also acting as a factor that is chasing away large scale investment by the Chinese.
Even though China believes that North Korea is strategically important, the basic perception in China is that it is too soon to be investing heavily in North Korea because of its poor economic sit- uation. In other words, in order for China to gain profits from investments, more basic economic infrastructure must be built in North Korea, and insufficient infrastructure in the fields of power and transportation are still disabling normal economic operations.
However, initiatives at the regional governmental level are still being proposed, such as the three northeastern provinces (東北三省), to promote an economic development plan that includes areas bor- dering North Korea. Meanwhile, Beijing is advocating a plan to
promote economic cooperation with North Korea, one that empha- sizes economic efficiency because of the fact that investments made in North Korea are not fulfilling their expectations. Beijing is also cautiously deciding which projects need governmental assis- tance in order to prevent Chinese investments in North Korea from becoming too disorderly. Thus, there are both positive and negative factors that influence China’s efforts to engage in cooper- ation with North Korea. While interest in economic cooperation with North Korea promoted by the three northeastern provinces (東北三省) and the Chinese government’s understanding of North Korea’s strategic importance are positive factors, numerous prob- lems deriving from North Korea’s poor investment environment and a lack of understanding of the market economy are negative ones. Under these conditions, economic cooperation between China and North Korea will in the short-term continue to maintain the same levels and the current form of trade, which is namely the provision of Chinese assistance for insufficient commodities in North Korea. In the long term, China, with an understanding of North Korea’s economic importance, will pursue more progressive forms of economic cooperation with North Korea if the North Korean nuclear problem is resolved and conditions on the Korean peninsula improve. However, even if all these events occur, China will still promote economic cooperation projects with North Korea strictly based on market principles, and therefore it will be difficult for the relationship between the two countries to mature into a normal and genuine economic relationship unless North Korea marketizes its economy. Furthermore, China still provides North Korea with the food and crude oil that it needs, and this kind of assistance will continue due to the strategic value of North Korea.
Second, it is common knowledge that Russia offered assistance in the form of supplying infrastructural goods such as power and
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roads, as well as construction of industrial oil refineries, iron man- ufacturing facilities and chemical industries up until the collapse of the old Soviet Union. During the process of state transition and transformation into the new Russia, several projects including the construction of the Trans-Siberian/Trans-Korean Railways (TSR- TKR), construction of an oil pipeline that runs through the Korean peninsula, and transmission of power resources from the maritime province of the Russian far east (Yonhaeju) to North Korea were discussed as ideas. Yet, since Russia did not have the ability to engage in economic cooperation with North Korea due to its own domestic economic hardships, the result was economic coopera- tion between the two countries became stagnant. Cooperation between the two has been moving forward ever since the two states agreed to construct TKR-TSR, to modernize North Korea’s power plants, and to engage in reasonable mediation regarding the North Korea nuclear problem during Russian president Vladmir Putin’s North Korea visit in 2002. Also, Russia announced a plan to cancel debts that amounted to $8 billion in 2007, and the plans to build the railways are making actual progress after Russian Rail- ways (RZD) and the North Korean railway ministry agreed to ren- ovate railroads that link Russia’s city of Hatsan and North Korea’s Najin in 2008. Plans to renovate the North Korean railroads as well as the port of Najin indicate that Russia is well aware of North Korea’s strategic importance.
Under these circumstances, Russia in the short-term will promote trade in the maritime province of the Russian far-east region as well as other bordering areas and will also pursue development by utiliz- ing the workers of North Korea. In the long-term, it will show more interest in developing the infrastructure of the North Korean east coast as well as modernizing the industrial facilities it first provided, while promoting in whole a larger scale of economic cooperation.
Third, Japan has to, some extent, maintained an economic rela- tionship with North Korea even during the Cold War period, and after the end of the Cold War it rose to become the second largest trading partner of North Korea, occupying an important position in North Korean foreign exchange. North Korea and Japan even held summit talks in 2002 and agreed upon the Pyongyang declaration.2 This declaration states as a basic principle for normalization of rela- tions that both countries and the people of both countries will renounce all property claims related to events that happened before Korean liberation. It also includes directions for economic coopera- tion between the two states in the form of offering free capital and long-term low interest loans after normalization of relations, as well as providing fund advances from international banks and credit to help the economic activities of the North Korean people. However, the relationship between the two nations is deteriorating due to increasingly negative public opinion about the problem of the North Korean abductions of Japanese citizens as well as the experimental launches of missiles and the nuclear problem. Due to the unsolved abduction problem, Japan has decided to control all transactions with North Korean ships through the Ports and Harbors Bureau, and is also currently the most active country reinforcing economic sanctions for North Korea according to United Nations Security Council (UNSC) resolution 1718. As a result of these obstacles it is likely that the resumption of economic cooperation between Japan and North Korea will not be realized soon.3
Currently, Japan is not participating in the economic and energy supply plan agreed upon at the Six Party Talks and the abduction issue remains unsolved. Therefore, if the nuclear and abduction problems are not drastically resolved, Japan will not promote eco- nomic cooperation with North Korea any time soon. In the long term, the magnitude and future direction of economic cooperation
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between Japan and North Korea will be determined by the course of negotiations to normalize relations, and it is estimated that a maximum of $10 billion in funds will be provided if relations are normalized. Therefore, Japanese companies have been watching carefully for signals of how these funds will be invested or direct- ed, but interest has been falling due to the stalled nature of the nor- malization talks. However, Japan, with its world-renowned eco- nomic power, is expected to play an enormous role in the rebuild- ing and revitalization of North Korea’s economy, and it is because of this fact that the progress and direction of Japan-North Korea economic relations is important.
Lastly, although trade between North Korea and the United States is practically non-existent, the role of the United States is being reconsidered since the provision of humanitarian aid was resumed in light of the improvement in inter-Korean relations.
In addition, the United States is considered the pivotal state in revitalizing the North Korean economy, so the current state and future direction of United States policies toward North Korea is very important. Currently, the proposed U.S. economic policies towards North Korea are directly connected to the Six Party Talks and the solutions that emerge for dealing with the North Korean nuclear problem. For example, North Korean economic sanctions are being lifted in accordance with the 13 February agreement of 2007 which addresses the denuclearization of North Korea. Until North Korea becomes a normal state, the economic policies of the US towards North Korea should remain different from the US eco- nomic policies towards other friendly nations. This appears to fit with goal of the US to persuade North Korea to relinquish its nuclear program in the short-term, while in the long-term trying to convert negative perceptions of the US in North Korea. Further- more, the US policy towards North Korea has a direct effect on that
of Japan and South Korea, so the US plays a critical role in deter- mining the overall atmosphere of relations toward North Korea.
Recently, the US started procedures to lift economic sanctions for North Korea such as erasing it from the list of ‘State sponsors of Terrorism’ as well as the list of nations that are subject to the ‘Trad- ing with the Enemy act’ in accordance with the North Korean agreement to submit a full declaration of its nuclear activities and program. The US had already partially lifted sanctions against North Korea following the Geneva agreement in the 1990s, and if the current procedure of lifting the sanctions is successfully com- pleted, the US and North Korea will gain a foothold for working on normalizing relations. However, because the magnitude of US sanctions imposed on North Korea is vast, the economic effects of these measures are only symbolic. In other words, the US has vari- ous other sanctions applied against North Korea including the eco- nomic ones mentioned above, and many other issues will remain between the two states, so it has been pointed out that North Korea will be able to normally participate in the world economy only if these many sanctions are lifted.4
The future of economic cooperation between North Korea and the US will first consist of a phase where the current sanctions are lifted, and after that the two nations will pursue a limited form of cooperation while the process of verification and denuclearization is underway. If it is determined that an irreversible North Korean denuclearization process will eventually be achieved, the US is expected to take measures to lift the prohibitions of trade with North Korea and to provide assistance for North Korea’s participa- tion in international finance organizations. Finally, after the denu- clearization of North Korea is complete the US is expected to nor- malize relations with North Korea as well as assist in its applica- tion to the World Trade Organization (WTO).