An Analysis of North Korea's Principal Trade Relations Asie Visions, No. 32, July 2010

First, import volume is much greater than export volume during the period between 1989 and 2008. North Korea has suffered from chronic trade deficits that worsened in the 2000s. The amount of trade deficit is almost equal to the amount of exports. Thus, the study of North Korean efforts to overcome its trade deficit is important for understanding the economic structure of North Korea. Unfortunately, it is hard to understand North Korean methods for overcoming the deficit due to lack of available statistics. Thus, based on our data, we can infer that North Korea resorts to unconventional methods to overcome the trade deficit, such as illegal missile trade.

Second, North Korean international trade is highly dependent on South Korea and China. Beyond these two nations, North Korea traded with various small and medium-size nations in North Africa and Central and South America.

Third, the structure of North Korean exports has gone through dramatic change, as the proportion of manufactured electronic components, radio, TV, and communications equipment in North Korea's total exports has increased. This change is due to support measures from the North Korean government, such as the establishment of the Ministry of Electronics Industry, to nurture its leading export industry.

Fourth, imports of machinery, electronic components, and communications equipment have increased rapidly as the North Korean export structure has changed. The import of products such as machinery and equipment indicates that North Korea has been improving and modernizing its aging industrial infrastructure. However, considering that the proportions of energy, food, and beverage still remain high in total imports, this study implies that North Korea is focusing on the import of products that are necessary in the near future rather than emphasizing enhancement of its export competitiveness.

Fifth, the production process analysis points out that the export of IT-related products has increased recently as a proportion of total exports. However, these products are found to be relatively low-level consumption goods, so the proportion of components is still low. During the period chosen for our analysis (1992-2006), the import of capital goods decreased, but the import of consumption goods increased. In other words, the trend shows that North Korean imports are merely being conducted to deal with short-term scarcity rather than to nurture industrial infrastructure. Unless North Korea normalizes the economy and enhances export competitiveness by importing capital goods, North Korea's international export will soon encounter limits. It is more likely that trade deficits will continue to worsen.

Sixth, the economic cooperation between North Korea and China is expected to strengthen and this increase in cooperation will affect the bilateral trade between them. In the past, their bilateral trade mainly consisted of raw materials and food, but the recent tendency has been to trade a diversity of goods, such as machinery, transformers, and IT-related products. The diversification of the products being traded signifies that China is the main supplier of North Korea's raw materials and products. Also, North Korea will depend on China as a consumption market for North Korean products.