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Trading,
Pyongyang-style
By Andrei
Lankov
SEOUL - As of Wednesday, the
six-party talks in Beijing aimed at getting North
Korea to give up its nuclear weapons program are
reported to being close to a statement of
principles after nine days of negotiations.
The US wants Pyongyang to abandon its
entire nuclear program, including the development
of nuclear energy, in return for food, economic
aid and security guarantees - and the opportunity
to join the world trading community. North Korea
is reported to be in contact with the World Trade
Organization to obtain observer status.
Anyone wanting to trade with North Korea,
however, should take a hard look at its history in
this arena.
In 1993, North Korean trade
agencies approached the Thai government about
purchasing some 600,000 tons of rice. It was
shipped by several companies, but payment did not
come. After some waiting, the government had to
intervene, and after much hard work by Thai
diplomats, partial payment was agreed on - but
about US$190 million still remains unpaid.
The Thai businessmen, before venturing
into deals with North Korea, should have asked
those with the longest track records of trading
with Pyongyang - Russians and Chinese - about the
pitfalls. Former Soviet trade mission clerks would
likely have advised the Thais that something like
this was likely to happen.
North Korea in
its half-century of existence seldom engaged in
normal international trade based on the
reciprocity principle of fairness in exchanges
between nations. From the mid-1950s until
recently, economic exchanges conducted by North
Korea ostensibly were usually political in nature:
Pyongyang had only a limited number of active
trade partners and those were willing to conclude
remarkably unprofitable deals on the assumption
this was a way to pay for some important gains,
usually strategic rather than economic.
While North Korean propaganda loudly
proclaimed the alleged economic self-reliance of
the country, Pyongyang quietly digested huge
amounts of Soviet and Chinese aid. This aid ceased
to be recognized from the late 1950s, when Kim
Il-sung began to build his own nationalistic
Stalinism. Nonetheless, the paramount significance
of this aid was vividly demonstrated in the early
1990s when it came to a sudden halt due to the
collapse of Soviet communism. North Korea is now
starting to find other other sources of direct and
indirect aid, in fact the country continues to
look for aid in the current six-party talks.
In 1991, Natalya Bazhanova, with a
research center associated with the Russian
Foreign Ministry, estimated the amount of Soviet
aid from 1948 to 1984 was worth $2.2 billion.
However, this figure should not be seen as a
complete estimate, since it does not take into
account the indirect forms of aid that were so
important.
Quite often the aid masqueraded
as "trade". In most cases, economic exchanges
between Moscow and Pyongyang were unequal: the
USSR provided the North with merchandise it could
sell on the international market - oil, gas,
weapons and some industrial equipment. All these
goods were bartered for North Korean products -
bad tobacco, pickled vegetables, plastic boots and
liquor even Russian farmers found almost
undrinkable. These would be impossible to sell
internationally. If the North Koreans somehow
managed to produce something of reasonable
quality, they sold it on the international market,
despite such sales being a breach of agreements
with their Soviet partners. (This author still
remembers frequent complains by Soviet trade
officials in the mid-1980s).
On top of
that, prices that were used to calculate the
amount of the bartered goods were deliberately
distorted in the Koreans' favor, and frequent
delays with shipping and payments were also the
norm. When the debt became too large, it was
restructured on terms very favorable to Pyongyang.
Needless to say, these decades of
imbalanced trade were by no means a result of
Soviet generosity and kindness, but rather
reflected the strategic considerations of Moscow.
North Korea had to be subsidized in order to keep
its inefficient and hyper-militarized economy
afloat so as to remain an irritant in the Cold War
era's "Great Game" against the US.
However, the North Koreans were not merely
passive recipients of the Soviet strategic grants.
Pyongyang diplomats learned how to maximize the
aid inflow - and how to manipulate the donors.
Their strategy was based on the skillful
use of the Sino-Soviet rivalry. Moscow saw China
then as a great threat, probably even more
menacing than the US, and the Soviets were willing
to do anything to isolate China. Thus, from the
1960s recurring instructions to the Soviet
ambassadors to North Korea from Moscow were "keep
them neutral or win them over to our side". The
North Koreans were not too eager to join the
Russians' side, but they were always ready to hint
that their neutrality should be paid for, by some
additional credit or by general willingness to
accept unfavorable trade conditions. In a sense,
it was a "negative concession": the North Koreans
extracted payments not for doing something, but as
a reward for not doing something (that is, not
becoming too close to China).
Much less is
known about relations with China, but it seems
that same strategy of aid-extraction was applied
to Beijing as well.
It is telling that
between 1990 and 1992 exchanges between the Soviet
Union and North Korea collapsed dramatically
almost overnight. In 1990, the trade volume
between the two countries was $1.14 billion, but
the next year it dropped to $360 million and then
continued its downward slide until it eventually
leveled off at about $100 million. It was not the
result of some deliberate embargo or political
pressure - if anything, the post-Soviet
governments would like to see Russian companies
trading with North Korea. But the newly emerged
Russian capitalist enterprises demanded payments
in money, not in promises to keep the American
imperialists and Beijing hegemonists at bay, and
they wanted to have their money immediately.
However, the North Korean economy had nothing to
offer, so the complete economic withdrawal was the
only reasonable policy.
Those small
Russian businesses that still operate in the North
are not naive. Their managers know only too well
that if their Pyongyang partners can avoid paying,
they will not think twice about it. Hence, the
business schemes are always arranged in a way that
makes cheating difficult and very obviously
self-destructive. Personal connections with
officials are also carefully maintained (with the
help of cash envelopes when necessary).
Over time, the payment issue had become
ingrained in the thinking of North Korean leaders.
It seems they came to assume that foreigners
should be willing to accept the North Korean trade
conditions and would be not paid at all if North
Korea was especially short of money.
The
developed West figured it out in the 1970s when
the North began to purchase industrial equipment
and machinery and soon accumulated a large debt
with developed Western countries. The foreign
lenders were misled by the then-common assumption
that communist countries made good borrowers. In
the North Korean case, they soon were
disappointed: in the 1970s North Korea became the
first communist country ever to default on its
debt. The total amount of this debt is believed to
be between $1billion and $1.3 billion, but not
much information has been made public, since
victims of the default - almost 100 credit
institutions from 17 countries - formed a
consortium that obviously still has some hope of
recovering the money.
Judging by
experience, the lenders will have to wait a very
long time. There are no signs that North Korea
ever seriously considered paying back the money.
After all, did the frantic effort to re-pay
Romanian foreign debt, once undertaken by the last
Romanian communist strongman Nicolae Ceaucescu,
save his regime? Quite the contrary: if anything,
the austerity policy of the late 1980s hastened
his regime's collapse. Indeed, if North Korean
rulers could safely ignore demands by their fellow
fraternal countries whose support was so vital for
them, why should those the North considered
predatory imperialists be treated differently?
Since then, the story of the North Korean
trade exchanges with the West has been one of
broken promises, debts unpaid, services not
provided. Perhaps, few countries of the world can
rival the North in its unabashed disregard for the
reciprocity principle. It's easy to blame the
North Koreans of course. For nearly half a century
they more or less safely ignored reciprocity - and
still survived, maintaining the economy with the
level of militarization unthinkable in peacetime
anywhere in the world.
With the collapse
of the USSR, old methods were successfully applied
to the new partners. The strategy remained the
same: North Koreans continue to do things their
rich partners do not want them to do. Perhaps,
it's a good definition of "blackmail", but it
works well enough to keep the cellars of the Dear
Leader well provisioned with French wine and
Scotch whiskey.
From 1994 to 2003, the
major source of North Korea's income was its
nuclear program: Pyongyang expected to be paid for
not developing its nuclear weapons. The Geneva
agreed framework of 1994 and ensuing Korean
Peninsula Energy Development Organization (KEDO)
project was a masterpiece of blackmail diplomacy.
Then, there was (and is) veiled but
clearly present rivalry between China and the US.
Beijing does not want a nuclear North Korea, but
it is not happy about a unified country, which
might turn out to be pro-American. It also needs a
communist regime or two hanging around and thus
helps the current government to survive. This
means that China is willing to keep the North in
operation by providing it with aid and subsidized
trade.
However, it is now South Korea that
serves as the major source of aid, both usual and
masqueraded as "trade". Seoul is pumping money
into the North on a relative scale that surpasses
that of the Soviet aid in the 1970s and 1980s.
Between 1995 and 2004, Seoul provided $1.2 billion
of officially acknowledged humanitarian aid alone.
But this is merely the tip of the iceberg, since
most "commercial cooperation projects" would be
unviable without the South's persistent
willingness to subsidize this activity and provide
South Korean companies with all types of
guarantees and incentives. On top of that, there
might be some clandestine money transfers to
Pyongyang - one of which, a significant sum of
$500 million, was made on the eve of the first
intra-Korean summit in 2000 (later the
"payment-for-summit" scheme was uncovered and led
to a major political scandal).
In dealing
with the broader public, such largesse is
explained by nationalist and/or humanitarian
concerns, but it seems that Seoul worries more
about the political stability in Pyongyang. The
South is afraid of a democratic revolution in the
North, politely known as "implosion". The
German-style unification is now seen as a
potential disaster since it could lead to a
dramatic decline in the living standards of the
South Koreans. Seoul believes that the aid money
will help North Korean society afloat and thus
allow postponement of the dreaded unification to
some point in the distant future. Like the Soviets
a couple of decades ago, the South Koreans want to
keep the North afloat, no matter what happens
inside this country
But sometimes
outsiders do not get the picture and start
pursuing North Korea, perceiving it as yet another
trade partner. More often than not, they later
learn that North Koreans have a peculiar
understanding of trade - just ask the Thai
companies that agreed to sell 600,000 tons of rice
13 years ago and which still wait for their money.
Dr Andrei Lankov is a lecturer
in the faculty of Asian Studies, China and Korea
Center, Australian National University. He
graduated from Leningrad State University with a
PhD in Far Eastern history and China, with
emphasis on Korea, and his thesis focused on
factionalism in the Yi Dynasty. He has published
books and articles on Korea and North Asia. He is
currently on leave, teaching at Kookmin
University, Seoul.
(Copyright 2005
Asia Times Online Ltd. All rights reserved. Please
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