SOUTH KOREA'S SECRET TRADE: LIFTING THE SHROUD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00990R000300220001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 10
• Document Creation Date: December 23, 2016
• Document Release Date: January 9, 2013
• Sequence Number: 1
• Publication Date: February 16, 1988
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2013/01/09: CIA-RDP04T00990R000300220001-4
Central Intelligence Agency
Washington.P C 20505
DIRECTORATE OF INTELLIGENCE
16 February 1988
South Korea's Secret Trade: Lifting the Shroud
Summary
In 1987, Seoul disclosed the extent of its economic relations with
politically sensitive trading partners--the Communist states, Iran, Iraq,
Israel, and South Africa--when it published detailed first-quarter
import-export data. Our analysis of the figures indicates that direct trade
with these countries amounted to just over 6 percent of Seoul's total trade
in 1987. Yet this trade accounted for 16 percent of South Korea's imports,
concentrating in the critical area of raw materials--oil, cotton, and
minerals--that help fuel the country's economic expansion. Seoul's trade
with sensitive partners has generally had only a minor impact on the
United States--except in the agriculture sector--but export of sensitive
technology to the Communist Bloc is a potential concern.
This memorandum was prepared by Office of East Asian Analysis.
Information available as of 16 February 1988 was used in its preparation. Comments
and queries are welcome and may be directed to the Chief, Korea Branch, Northeast Asia
Division, DEA
EA M 88-20012
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Unusual Disclosure
When South Korea last spring published disaggregated trade data on its
third-largest trading "partner"--a block of "other" nations including Iran, Iraq, Israel,
South Africa, and the Communist countries?it was the first such disclosure since 1979
Seoul presumably had kept the statistics secret
The South Koreans also may
nave wanted to undercut North Korea's case for pressing its Communist allies to stop
their trading relationship with Seoul. In any case, we have no reporting on the rationale
for the one-time publication of these statistics. It may have been unintentional or
perhaps approved by one government agency before another subsequently objected to
it
Sensitive Trading Partners
We estimate South Korea's sensitive direct trade accounted for just over 6
percent--or more than $2.4 billion--of total trade last year.1 It accounted for just 2
percent of exports but an important 16 percent of imports. Imports were especially
significant in the critical areas of raw materials--oil, cotton, and minerals--that help fuel
South Korea's economic expansion. Three countries--China, Iran, and South
Africa--dominated this trade:
? China was South Korea's largest "secret" partner, with over $1 billion in direct
trade in 1987. This figure confirms estimates we derived from other sources,
which put the total (direct plus indirect) trade last year at roughly $2 billion, a
fivefold increase since 1981. In past years, indirect trade, primarily through Hong
Kong, has amounted to slightly more than half of Sino - South Korean trade. By
our projections, South Korea last year recorded $750 million in direct imports
from China--coal, cotton, silk, foodstuffs, grain, and other raw materials. The
figure probably represents a bargain, with Seoul reaping the advantages of low
shipping costs--port-to-port across the Yellow Sea--and cheap Chinese labor.
In return, South Korea directly exported to China roughly $250 million in
goods--mostly industrial products such as iron, steel, and chemicals.
? Petroleum imports dominated trade with Iran. According to the figures, Tehran
provided more than one-tenth of Seoul's petroleum needs, a slightly lower figure
than we had previously estimated. South Korea exported $133 million worth of
1.
All trade figures have been calculated on an annualized basis using first-quarter 1987
data published in Monthly Foreign Trade Statistics (Office of Customs Administration,
Republic of Korea), March 1987. The new trade figures do not tell the entire story.
They cover only direct trade, and we know that indirect trade through third
countries--via Hong Kong in the case of trade with China, and Western Europe in the
case of the Bloc countries--is a significant part of true trade with "other" partners.
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goods to Iran, primarily refined petroleum products. The official statistics do not
show excoorts of military eniiinment or dual-use items to Tehran
The figures either were not included or were
hidden under other categories, as apparently has been done in the past.
? The statistics show a stronger trade relationship with South Africa in 1987 than
projected in estimates of trade volume. Trade totals reached roughly $500
million, nearly double previous estimates by the Embassy in Seoul. Textiles and
electronics dominated exports to South Africa, while fuel, oil, iron, steel, and
strategic minerals made up the bulk of imports.
Trade with the remainder of countries normally in the "other" category was
relatively insignificant. These countries contributed less than 20 percent of South Korea's
total secret trade, according to our projections:
? Trade with Eastern Europe last year totaled about $220 million.
? Trade with the remaining sensitive economic partners, such as Israel, Iraq, and
Vietnam, was miniscule, with no country exceeding the $70 million level.
Trade Trends
Seoul's economic relations with its "other" trading partners have roughly doubled
since 1981, albeit from a low base. We believe trade will continue to grow vigorously,
particularly with the Communist countries. Seoul has been actively encouraging an
expansion of trade ties to China and the Eastern Bloc countries, which appear receptive
to closer trade relations with Seoul:
? Growth in China trade probably will be the most dramatic--Seoul is already
Beijing's 11th-largest trade partner. South Korean President-elect Roh Tae Woo,
who takes office on 25 February, has stressed his interest in strengthening ties to
Beijing, suggesting his administration will further boost bilateral trade.
? Contacts with Eastern Europe are on the upswing--South Korea has held several
trade fairs in Bloc countries over the past few years. Hungary appears to be the
most promising prospect for increased trade: by March, Seoul and Budapest will
exchange trade offices, a first for South Korea in a Communist country. Poland,
Yugoslavia, and East Germany have also expressed interest in similar
arrangements with Seoul.
South Korea's growing international economic importance may weaken the impact of
North Korean protests against Communist-Bloc trade with Seoul, which has been a
major obstacle to closer ties in the past. The decision by most socialist countries to
participate in the 1988 Seoul Olympics may also open the way for increased trade
contacts.
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Implications for the United States
Seoul's growing trade with the "other" countries has generally had only a minor
impact on the United States. The major exceptions have been in agricultural trade,
particularly China's corn exports to South Korea. In this case, the United States has
gone from a near-monopoly position in South Korea to a significantly reduced, albeit
still majority, share. For most other products involved in South Korea's sensitive trade,
however, the United States is not a major supplier.
Of more potential concern than competition for export markets is the likelihood
that South Korea's rapidly growing trade with Communist countries could make it easier
for South Koreans to mask illicit trade as innocuous transactions, as they may have
done with Iran. The trade figures we examined contained no "smoking guns," but the
export of sensitive high-technology items to the Soviet Bloc remains a concern./
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Seoul's Total Direct Trade With
Its "SECRET" Partners ? 1987
E.Europe (3.6%)
Others (6.7%)*
USSR (4.6%)
S.Africa (21.6%)
*Includes: Israel 2.3%, Iraq
Vietnam 2.7%, Cuba .05%,
Cambodia .05%.
China (40.5%)
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Iran (21.2%)
Seoul's Total Direct Exports to
Its "SECRET" Partners ? 1987
E.Eu rope (8.8%)
Others (21.8%)*
USSR (2.2%)
S.Africa (13.0%)
*Includes: Israel 6.6%, Iraq 8.1%,
and Vietnam 7.1%.
China (33.0%)
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Seoul's Total Direct Imports from
Its "SECRET" Partners ? 1987
E.Europe (1.6%) Others (3.2%)*
USSR (5.3%)
S.Africa (24.3%)
*Includes: Israel 2%, Vietnam 1%,
Cuba 0.1%, and Cambodia 0.1%.
China (42.3%)
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South Korea's Direct Trade with
its "Secret" Trading Partners for 1987
(In Millions of US Dollars)
1st
Quarter
Annualized
1st ,
Quarter
Annualized
IRAN
SOVIET UNION
Exports
33.32
133.3
Exports
3.47
13.88
Imports
102.53
410.14
Imports
23.6
94.41
Total
135.85
543.44
Total
27.1
108.29
IRAQ
YUGOSLAVIA
Exports
9.58
38.33
Exports
0.74
2.97
Imports
0
0
Imports
0.45
1.82
Total
9.58
38.33
Total
1.19
4.76
ISRAEL
CZECHOSLOVAKIA
Exports
13.53
54.12
Exports
1.05
4.2
Imports
8.85
35.41
Imports
1.9
7.6
Total
22.38
89.53
Total
2.94
11.76
CHINA
HUNGARY
Exports
51.91
207.64
Exports
1.59
6.38
Imports
187.28
749.12
Imports
1.47
5.9,
Total
239.19
956.76
Total
3.07
12.29
SOUTH AFRICA
CUBA
Exports
20.38
81.52
Exports
0
0
Imports
107.46
429.84
Imports
0.55
2.2
Total
127.84
511.36
Total
0.55
2.2
VIETNAM
BULGARIA
Exports
11.16
44.64
Exports
0.17
0.68
Imports
5
20
Imports
0.74
2.96
Total
16.17
64.69
Total
0.91
3.64
EAST GERMANY
RUMANIA
Exports
6.26
25.04
Exports
0.03
0.11
Imports
1.15
4.6
Imports
0.51
2.,06
Total
7.41
29.64
Total
0.54
2.17
POLAND
CAMBODIA
Exports
3.95
15.8
Exports
0.01
0.04
Imports
1.05
4.2
Imports
0
0
Total
5
20
Total
0.01
0.04
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SOUTH KOREA'S SECRET TRADE: LIFTING THE SHROUD
DISTRIBUTION:
Department of State
1 - JOHN MERRILL, INR/EAP, RM 8840, DEPT. OF STATE
1 - TONY INTERLANDI, OFFICE OF KOREAN AFFAIRS, RM 5315, DEPT. OF STATE
Cornmerce
1 - SCOTT GODDIN, OFFICE OF PACIFIC BASIN, RM 6854, DEPT. OF COMMERCE
1 - KIM FITZGERALD, OFFICE OF INTELLIGENCE LIAISON, RM 6854, DEPT. OF
COMMERCE
USTR
1 - SANDRA KRISTOFF, DEPUTY ASSISTANT TRADE REPRESENTATIVE, RM 322,
USTR
Treasury
1 - RANDALL FORT, OFFICE OF THE SPECIAL ASST. TO THE SECRETARY FOR
NAT'L SECURITY, RM 4324, DEPT. OF .TREASURY
Internal
1 - DIRECTOR, DCl/DOCl/EXECUTIVE STAFF, RM 7E12, HEADQUARTERS
1 - NATIONAL INTELLIGENCE OFFICER, EAST ASIA, RM 7E62, HEADQUARTERS
1 - NATIONAL INTELLIGENCE OFFICER, ECONOMICS, RM 7E47, HEADQUARTERS
1 - CHIEF, DO, RM 3D01, HEADQUARTERS
1 - CHIEF, EA RM 5E18, HEADQUARTERS
1 - CHIEF, OEA/NEA/KOREA, RM 4G43, HEADQUARTERS
1 - CHIEF, OEA/NEA/JAPAN, RM 4G31, HEADQUARTERS
1 - CHIEF, OEA/NEA/STI, RM 4G43, HEADQUARTERS
1 - CHIEF, OEA/NEA/DIVISION, RM 4G43, HEADQUARTERS
1 - CHIEF, 0EA/CHINA DIVISION, RM 4G20, HEADQUARTERS
1 - CHIEF, OEA/SEA DIVISION, RM 4F24, HEADQUARTERS
1 - DIRECTOR, OFFICE OF EAST ASIAN ANALYSIS, RM 4F18, HEADQUARTERS
1 - CHIEF, OEA/PRODUCTION, RM 4G48, HEADQUARTERS
1 - DDI, RM 7E44, HEADQUARTERS
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1 - SENIOR REVIEW PANEL, RM 5G00, HEADQUARTERS
1 - OCA REGISTRY, OFFICE OF CONGRESSIONAL AFFAIRS, RM 7B24,
HEADQUARTERS
1 - PDB STAFF, RM 7F30, HEADQUARTERS
6 - CONTROL BRANCH, OFFICE OF CURRENT PRODUCTION AND ANALYTIC
SUPPORT, RM 7G07, HEADQUARTERS
1 - INTELLIGENCE LIAISON STAFF, OFFICE OF CURRENT PRODUCTION AND
ANALYTIC SUPPORT, RM 7G50, HEADQUARTERS
1 - CHIEF, PRODUCT EVALUATION STAFF, RM 2F42, HEADQUARTERS
1 - NATIONAL INTELLIGENCE COUNCIL, ANALYTIC GROUP, RM 7E47,
HEADQUARTERS
1 - CHIEF, DDO/EA DIVISION, RM 5D00, HEADQUARTERS
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