What Will Be the Impact of S.Korean Sanctions on N.Korea?

      May 25, 2010 13:21

      North Korea is expected to sustain a considerable economic blow from sanctions imposed by the South Korean government on Monday. Immediate annual loss in cash revenue is estimated to exceed US$300 million, or about 10 percent of the North's 2008 income of $3.47 billion.

      Inter-Korean trade last year excluding the joint Kaesong Industrial Complex was estimated at $740 million, or 14.5 percent of Pyongyang's external trade. By comparison, the impact on the South would be negligible because trade with the North accounts for only 0.1 percent of its external trade.

      ◆ Revenue Loss

      Under the sanctions, Pyongyang will lose $321.52 million in cash revenue a year. According to the Unification Ministry, the South imported $245.19 worth of North Korean products last year, including $54.23 million of shellfish, $20.97 million of dried fish and $18.83 million of zinc. Leaving out insurance and transport costs, that was $210.87 million in cash.  

      In addition, the North earned about $31.75 million in processing trade with the South last year. "Of $254.01 million the South earned from goods made by North Korean processing manufacturers last year, some 12.5 percent was estimated to have been paid to the North," said Lim Kang-taeg of the Korea Institute for National Unification.

      North Korean ships will have to shoulder an extra $1 million in fuel costs a year when they have to detour the Jeju Straits now that passage has been banned. Being unable to transport trade goods between the two Koreas, the North will lose $9 million in annual transport revenues. Pyongyang also has to sustain a loss from suspended assistance. The government and private organizations provided the North with $68.9 million in assistance last year, with the total from 2000 until this April amounting to W2.84 trillion (US$1=W1,214) including food aid.

      Under previous administrations, South Korean businesses and private organizations also handed the North significant quantities of cash under the table. "Secret remittance routes are also included in the latest sanctions," a security agency official said.   

      ◆ Direct Hit

      North Korea is expected to take a direct hit from reduced employment and purchasing power. The $31.75 million Seoul paid Pyongyang in processing trade last year is close to the wages paid to over 40,000 North Korean employees at the Kaesong industrial park. No government statistics are available on the number of North Korean workers engaged in the processing trade, but assuming they earn half or a third what workers are paid at Kaesong, there may be up to 120,000 of them.

      North Koreans employed in the seafood trade with the South will also lose their jobs. "Huge unemployment will deal a serious blow to the already impoverished North Korean economy," said Lee Jo-won, a professor at Chungang University.   

      The state-run Korea Development Institute in a report Monday said a halt in inter-Korean trade will reduce the North's purchasing power and deal its economy a direct blow. Pyongyang has managed its economy by purchasing necessary goods from China with the dollars it earned from inter-Korean economic cooperation. When that stops, it will have difficulty in securing money to buy goods from China. The North will attempt to diversify its export markets, but that will not be easy. It may try to divert goods it exported to the South to China, but most of them only fetch a high price in South Korea or are identical with Chinese export products. Exports to Japan are even more difficult since Tokyo already has sanctions in place that drove the North into the arms of the South.

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