Recently, there has been some long-forgotten excitement in the relationship between Russia and North Korea. There hasn’t been such lively activity in this sphere for three decades, since the mid-1980s. In the past year and a half, Pyongyang has welcomed more high-profile Russian visitors than it had in the previous ten. The guests have included Minister for Development of the Russian Far East Alexander Galushka, Presidential Plenipotentiary to the Far East Federal District Yuri Trutnev, President of the Republic of Tatarstan Rustam Minnikhanov, and the governors of the Primorsky and Khabarovsk regions. North Korea reciprocated at the same level and there were even serious plans for Supreme Leader Kim Jong-un to visit Moscow in the spring.
Naturally, all of these meetings were accompanied by talk of the dazzling prospects for bilateral economic cooperation and various declarations of intent. Some joint projects were initiated: for example, in November 2014 the first shipment of coal was dispatched from a state-of-the-art Russian-owned pier in the Rason special economic zone, in the far northeast of North Korea. Freight is delivered to the pier along a modernized railroad that links the port with Russia’s Khasan border post.
But the majority of projects were limited to lofty words and ambitious plans. For example, the Mostovik group, a large Omsk-based company that had lost a lot of money on its construction projects in Sochi for the 2014 Winter Olympic Games, announced the launch of a large-scale joint venture with North Korea. Mostovik planned to carry out phased reconstruction of the North Korean railroad, and as compensation it was supposed to receive the right to develop subsoil deposits, including rare earth metals. The project was valued at billions of dollars. The management of Mostovik was already under investigation on suspicion of corruption when it began talks with North Korea, but very few of the authors who were knocking out articles on “Russia’s return to North Korea” paid attention to this small detail.
2020 Targets
Recently, official data on the dynamics of trade turnover between Russia and North Korea in 2014 were released. The kind of media reports being published on the subject might suggest that these statistics would show an unprecedented boom, but that wasn’t the case. As it turns out, despite all the talk trade between Russia and North Korea actually declined somewhat in 2014, to $93 million.
To put this figure into perspective, it’s enough to note that North Korean trade with its primary foreign trade partner, China, rang in at $6.9 billion in 2014. In other words, North Korea’s trade with China exceeds its trade with Russia by a factor of 75 (up from a factor of 65 in 2013). Moreover, trade with China is growing rapidly, while trade with Russia has been slowly but steadily declining for two decades.
In the spring of 2014 Alexander Galushka, Minister for the Development of the Russian Far East, called for Russia to increase trade with North Korea tenfold by 2020, to $1 billion (which, incidentally, is still one seventh of North Korea’s current trade with China). However, the 2014 statistics show that at least for now, the situation is heading in the exact opposite direction.
Trade Imbalance
None of this should come as a surprise. In their current economic state, the two countries simply have nothing to trade with one another.
North Korea has a competitive advantage in a very small range of goods in the global market, as is obvious when looking at its export profile. Most of these goods are of little interest to Russia.
First of all, North Korea is an exporter of subsoil resources, above all coal and iron ore. Raw materials account for more than a third of North Korea’s total exports. The main consumer of such goods is China, whose economy has great demand for raw materials. Russia, on the other hand, has its own reserves of coal and iron ore.
Second, North Korea exports seafood to China—and occasionally even to South Korea or Japan, with the help of intermediaries or fake country of origin documentation. Seafood has long been a beloved staple of East Asian cuisine, but most Russians don’t share this enthusiasm and are not prepared to pay a high cost for fresh sea cucumbers, for example.
Third, North Korea is a potential source of labor, which can be used abroad or for filling foreign orders at home. North Korea has an almost perfect literacy rate, while the official salary at the market exchange rate is $1 per month. Of course, this is a deceptive number, since in reality no North Korean woman will commit to a sewing machine for less than $30-35 per month. Nonetheless, acceptable salaries in North Korea are several times lower than they are in China. It is true that some North Korean laborers do work in Russia, primarily at construction sites in Russia’s Far East. However, unlike their Chinese counterparts, Russian companies aren’t setting up sweatshops within North Korea itself.
Fourth, North Korea can earn money as a transit hub, allowing other countries to use its territory for forwarding cargo, primarily to South Korea. This is the reason for the talks on the Trans-Korean Railway that have been underway for two decades, as well as for negotiations on the Trans-Korean Gas Pipeline, which have ebbed over the last couple of years. However, such large-scale, vulnerable, and costly infrastructure projects require political stability in the region. But the Korean Peninsula lacks that stability now, and appears unlikely to reach it in the near future.
In other words, Russia and North Korea lack a solid foundation for healthy – i.e., mutually beneficial – trade. Specific projects, such as the aforementioned plan to use Rason Port for deliveries of Russian coal to third countries, may be successfully implemented, but the overall situation does not look promising. Russia doesn’t particularly need North Korean products, while North Korea simply cannot afford Russian goods.
Force of Habit
It’s worth noting that the Democratic People’s Republic of Korea has had very little experience with trade in the true sense of the word. Pyongyang is accustomed to foreign partners who act out of geopolitical considerations, with financial losses typically compensated by the other country’s government. This was the principle throughout the decades of North Korea’s trade with the Soviet Union: Moscow usually took on financial losses from this so-called “trade,” but the Communist Party of the Soviet Union and the Soviet Ministry of Foreign Affairs both believed that the political benefits of a relatively stable North Korea outweighed the financial costs for the USSR.
North Korea believes that the same logic will be applied today. Pyongyang resents its extreme dependence on China, which accounts for almost 70% of North Korea’s foreign trade, and it expects Russia to help them balance out the situation.
There is a possibility, albeit a small one, that such hopes will come to fruition. North Korea is a considerable irritant for the U.S., and with the escalating conflict between Moscow and Washington it could come in handy as a diplomatic bargaining chip.
Moreover, Russia needs to maintain the status quo on the Korean Peninsula. If North Korea experiences an acute domestic crisis, this could result in the emergence of a unified, pro-U.S. and exceedingly nationalistic Korea on Russia’s border. Or, alternatively, in the establishment of tacit Chinese control over North Korea.
Clearly neither of those options is particularly desirable for Russia, which would also like to avoid any clashes on the border. But one question remains: is this potential threat enough to spur Russia to start partially bankrolling the North Korean state? Only the Kremlin can answer that question, but the most likely answer is no. Keeping North Korea afloat would cost hundreds of millions of dollars in subsidies per year, money that Russia could spend more effectively elsewhere, including in foreign policy.
Most joint projects with North Korea aren’t viable without direct or indirect subsidies from Moscow, a fact that may take a few years to sink in. With a certain amount of effort, mutually beneficial trade could be doubled or tripled, possibly even quadrupled. Yet this level would still be very far from what the masterminds of the Russian-North Korean rapprochement had hoped for. For now, as the 2014 statistics show, that kind of growth is out of the question.
Andrei Lankov - historian, Korea expert, professor of Kookmin University (Seoul, South Korea)