How Russia may benefit from North Korean sanctions
Shutting off raw material exports from North Korea could create demand for Russian supplies
UN trade sanctions against North Korea can benefit the economy of the Russian Far East as it will open opportunities for raw material exports from the region as well as seafood shipments to China.
The UN Security Council on August 5 in response to the launch of intercontinental ballistic missiles by Pyongyang unanimously adopted a resolution toughening sanctions against North Korea.
The sanctions prohibit increasing the number of overseas workers from the North, creating new joint ventures with the country and importing coal, iron, lead and seafood from North Korea. That may create a supply shortfall in the Asia-Pacific market that Russia is ready to fill.
“Coal, iron, lead and seafood, Russia hardly buys any of these from North Korea, as it has plenty of its own raw materials and exports a good number of them,”Artyom Lukin, associate professor of International Relations at the Far Eastern Federal University, said in an interview.
“In this sense, Russia could benefit from the sanctions. Especially, this could be true in the case of sea produce,” he said.
North Korea until recently was a major supplier of fish and seafood to China, which has many seafood processing factories in the northeast.
“Now those factories are likely to switch to Russian suppliers. So, fishermen in Russia’s Far East could expect higher profits,” Lukin added.
Lukin said China stopped buying coal from North Korea in February this year, which led to an immediate increase in the price of Russian anthracite, a type of hard coal.
The UN sanctions also freeze the accounts of Pyongyang’s foreign trade bank, and North Korean vessels violating the UN resolutions will be prohibited from entering ports in all countries.
These sanctions will barely register on the tiny trade balance between Russia and the DPRK, said Svetlana Mishchuk, academic secretary of the Far Eastern campus of the Institute for Complex Analysis of Regional Problems.
“North Korea’s share of Russia’s trade balance lay in 106th place as of the 1st quarter of 2017,” she said.
“By exports from Russia, North Korea ranked 79th, while in terms of imports it was in 134th place. You could say, therefore, the introduction of sanctions will not affect the regional economy. There may be some unpleasant moments, but they will not be significant,” Mishchuk said in an interview.
Russian Imports from North Korea, 2013 to 2016 in millions of USD (left axis, columns) and millions of tons (right axis, light blue line)
Source: Federal Customs Service of Russia
Further sanctions are envisioned against individuals connected with Pyongyang’s missile and nuclear programs.
North Korea has said it views the UN resolution as a violation of its sovereignty and reserves the right to “lawful response” without specifying what measures it may take.
Lukin at Far Eastern Federal University estimates that the prohibition of new joint ventures with North Korea, as well as investments to expand existing joint ventures, is unlikely to hurt Russia.
“Currently, we have only one large Russian-North Korean joint company, RasonConTrans,” Lukin said.
The firm was established to oversee the construction of and then operations of infrastructure in the North Korean port city of Rason and connect it with the Rason-Hasan railway line.
“However, Russia has already made the bulk of the investments in this project, spending about $300 million on the project between 2008 and 2013,” he said.
“You have quite a lot of capacity available there in reserve, so that project is unlikely to need new investments,” Lukin said, adding that he is not aware of plans to create any other joint ventures between Russia and North Korea.
The ban on UN member states increasing their number of North Korean workers means countries can maintain the number of such workers already there at the time the UN resolution was adopted.
Thus, Russia is allowed to retain its current number of North Korean workers, which is about 32,000 people, Lukin said.
In his opinion, in the current Russian economy, the country does not need to invite additional North Korean workers.
“Demand for North Koreans could increase if and when the Russian economy begins to show faster and stronger growth, which is not very likely in the near term. In this respect, US sanctions against North Korea will not cause significant damage to the Russian economy,” Lukin said.
North Korean Imports to Russia in 2016, in millions of USD
Other goods $1.13 million
Food and household raw materials $2.82 million
Chemical products $0.35 million
Textiles and shoes $1.47 million
Metals and metal products $0.10 million
Machinery and equipment $2.92 million
Source: Federal Customs Service of Russia.