North Korea's Foreign Trade: An Indicator of Political Dynamics

Abstract

AbstractThe collapse of the Soviet Union in 1990, consecutive floods in 1995-1996 and a severe drought in 1997 caused the North Korean economy to shrink, becoming abysmal by the end of the 1990s. North Korea's foreign trade followed the same path as its overall economic trend. The volume of foreign trade declined 60 percent from a peak year of $4.9 billion in 1988 to $2.0 billion in 2000. However, recently the trend has been reversing with an average annual increase of 10 percent since 2000. This paper identifies the four key problems of North Korea's foreign trade: chronic trade deficits, a limited number of trading partners, the increasing role of the inter-Korea trade and Chinese interest in the North Korean market.IntroductionNorth Korea has long been portrayed as an autarkic society governed by an absolute ruling ideology called juche, a concept of autonomy and self-suffeciency that leads to a belief that Korea should be free from any foreign intervention. North Korea's economy prominently applies the ideology of juche under three principles. First, all means of production are owned solely by the state and cooperative organizations. Second, the state formulates unified and detailed plans to guarantee a high rate of production growth and balanced development of the national economy. Third, socialist production relations are based on the foundation of an independent national economy. Under the juche principle, North Korea's foreign trade has amounted to only about i0 percent of its Gross National Product (GNP) for years, far below that of most other economies.North Korea has been secluded from the Western world, but the country has recently initiated a policy of internal reform and external engagement. The greatest contribution that Japan, South Korea and the United States could make in order to achieve durable peace and stability on the Korean peninsula would be to normalize economic relations with North Korea and enter into an extensive program of engagement.After the collapse of the Berlin Wall in i989, even optimistic diplomats predicted only seven years at the most before the demise of North Korea (Clifford, 2002). These predictions were partially true for economic collapse, but not for political sustenance. No one knows for sure how many North Koreans died from food shortages in the i990s, because North Korea is a police state that restricts most reporters and relief workers. However, the United Nations' World Food Program estimates that more than one million people have been killed by famine (Fairclough, 2005). Many children went unfed or underfed. Malnutrition has been blamed for the stunted growth of children in North Korea, where seven-year-olds are seven centimeters shorter and weigh i0 kilograms less than children of the same age group in South Korea (Lee, 2002 b). Thirty-seven percent of North Korean children are malnourished as are a third of mothers.North Korea issues no consistent macroeconomic statistics, making it impossible to gain an accurate picture of its economy. However, the Bank of Korea estimates that North Korea lost almost half of its GNP and 70 percent of its foreign trade from i990 to i998 as the country's economy contracted and its trade relations with former communist countries dwindled. North Korean factories are estimated to have operated at no more than 25 percent of capacity in the i990s (Oh and Hassig, 2000). The health care system virtually ceased to operate. Food shortages became the most pressing economic problem.The North Korean economy finally turned around in i999. The Bank of Korea estimates that the North Korean economy grew by 6.2 percent in i999, i.3 percent in 2000, 3.7 percent in 200i, i.2 percent in 2002, i.8 percent in 2003, and 2.2 percent in 2004, after experiencing nine successive years of negative growth. In particular, North Korean grain output recorded gains, and its import volume has expanded rapidly during the last few years. …