THE FOREIGN TRADE OF NORTH KOREA 1946-56

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A000900100002-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 52
• Document Creation Date: December 23, 2016
• Document Release Date: May 20, 2013
• Sequence Number: 2
• Publication Date: October 10, 1957
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
N? 3
THE FOREIGN TRADE OF NORTH KOREA
1946-56
CIA/RR 108
10 October 1957
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
iCIA-R DP79RO1141 A000900100002-8
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141 A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
THE FOREIGN TRADE OF NORTH KOREA
1946-56
CIA/RR 108
(ORR Project 42.1714)
Office of Research and Reports
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
The purpose of this report is to revise current estimates of
North Korean foreign trade on the basis of recent information and
to disseminate, in published form, the extensive foreign trade
information contained in the captured documents of the Korean War.
Much of the information from 1946 to 1950 is useful in making
estimates for other periods. In particular, the year 1949 is being
used by North Korea as a base year for many announcements on for-
eign trade. The earlier estimates for foreign trade in 1949 were
incomplete and were based on planned figures. The revision of the
1949 estimates and the expansion of details provide a better measure
of the recovery of North Korea and permit more accurate estimates
of the foreign trade of North Korea after the Korean War.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
II. Level and Direction of Trade . . . . . . . . . . . . 5
1. Level . . . . . . . . . . . . . . . . . . . . . 5
2. Direction . . . . . . . . . . . . . . . . . . . 6
1. Exports . . . . . . . . . . . . . . . . . . . . 9
2. Imports . . . . . . . . . . . . . . . . . . . . 11
IV. Technical Services . . . . . . . . . . . . . . . . . 19
V. Sino-Soviet Loans and Grants-in-Aid . . . . . . . . 20
VI. Elements in the Balance of Payments . . . . . . . . 25
1. Estimated Balance of Payments . . . . . . . . . 25
2. Foreign Exchange Reserves . . . . . . . . . . . 28
VII. Organization and Procedures . . . . . . . . . . . . 28
1. Organization . . . . . . . . . . . . . . . . . . 28
a. Ministerial Control . . . . . . . . . . . . 28
b. State Foreign Trading Companies. . . . . . . 29
c. Role of Private Traders . . . . . . . . . . 31
2. Financial Structure . . . . . . . . . . . . . 31
a. Banking . . . . . . . . . . . . . . . . . . 31
b. Customs . . . . . . . . . . . . . . . . 32
c. Exchange Rates . . . . . . . . . . . . . . . 32
d. Pricing of Exports . . . . . . . . . . . . . 33
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
VIII. Soviet-Korean Joint Stock Companies . . . . . . . . . . . . . 34
1. Petroleum Joint Stock Company . . . . . . . . . . . . . 35
2. Sea Transport Joint Stock Company . . . . . . . . . . . . 36
3. Air Transport Joint Stock Company . . . . . . . . . . . . 38
Appendixes
Appendix A. Methodology for Deriving Implicit Exchange Rates . . 39
Appendix B. Value of Polish Aid to North Korea . . . . . . . . . 41
50X1
Appendix C. Methodology . . . . . . . . . . . . . . . . . . . . 43
Tables
1. Estimated Value of Imports and Exports of North Korea,
1946-49 and 1954-56 . . . . . . . . . . . . . . . . . . . . 7
2. Estimated Value of the Foreign Trade of North Korea,
by Country, 1946-49 . . . . . . . . . . . . . . . . . . . . 8
3. Estimated Exports by North Korea to the USSR, by Commodity
Group, 1949-50 . . . . . . . . . . . . . . . . . . . . . . 10
4. Estimated Exports by North Korea to China, Japan,
and Hong Kong, by Commodity Group, 1949 . . . . . . . . . . 11
5. Estimated Imports by North Korea from the USSR, by Commodity
Group, 1946-48 . . . . . . . . . . . . . . . . . . . . . . . 12
6. Estimated Imports by North Korea from China, Japan, and Hong
Kong, by Commodity Group, 1949 . . . . . . . . . . . . . . . 13
7. Material Aid Received by North Korea from Communist China,
by Commodity, 1954 . . . . . . . . . . . . . . . . . . . . . 15
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
8.
Material Aid Received by North Korea from the USSR,
by Commodity, 1954 . . . . . . . . . . . . . . . . . . . . .
17
9.
Estimated Aid by the Sino-Soviet Bloc to North Korea,
1954-64 . . . . . . . . . . . . . . . . . . . . . . . . . .
23
10.
Estimated Balance of Payments of North Korea, 1949 . . . . .
26
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
CIA/RR 108 S-E-C-R-E-T
(ORR Project 42.1714)
THE FOREIGN TRADE OF NORTH KOREA*
1946-56
North Korea must rely heavily on foreign trade as a means of com-
pensating for its unbalanced economy. North Korean foreign trade ex-
panded more than five times in 1946-49, achieving an estimated level
of US $124 million** in the latter year. Trade in 1950 was planned
to double that in 1949, but hostilities canceled these plans. The
Korean War halted nearly all commercial foreign trade, and the heavily
damaged economy has been only partly reconstructed. By 1955, com-
mercial foreign trade (excluding aid imports of $205 million) was only
41 percent of the level of 1949, or $51 million. In 1956, commercial
trade was estimated to be $69 million, and aid imports were estimated
to be $180 million.
The North Korean economy has been sustained by the large Sino-
Soviet Bloc grants-in-aid since the Korean War. These grants amount
to almost $800 million distributed over the period 1954-64, and about
80 percent of this total is estimated to have been delivered by the
end of 1956. Communist China granted the largest sum, $325 mil-
lion (1954-57), followed by the USSR with $250 million (1954-56) and
the European Satellites with $222 million (1954-64). Because the
major part of these deliveries has already been completed without sig-
nificant additional aid being announced, it appears that North Korea
must again rely on its exports for sustaining the necessary level of
imports.
The mining, metallurgical, chemical, and electric power indus-
tries developed by the Japanese have provided the basis for the ex-
ports of North Korea. In 1949, minerals and metals constituted 56 per-
cent and chemicals 22 percent of total North Korean exports. Although
North Korea has attempted to broaden the industrial base, these same
commodities formed the bulk of North Korean exports in the immediate
post-Korean War period and will probably continue to do so for several
years.
* The estimates and conclusions contained in this report represent
the best judgment of ORR as of 1 August 1957.
*-* Unless otherwise stated, all dollar values in this report are in
terms of current US dollars.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
North Korea is completely dependent on imports for its supplies
of bituminous coal, petroleum, and rubber, and major deficiencies
exist in many industrial products, certain minerals and raw materials,
and consumer goods, including supplemental foodstuffs in years of
poor harvests. The USSR became the primary trading partner of North
Korea, supplying most of the industrial products and some raw materials
during 1946-50. During this period, North Korea obtained the rest of
its imports from mainland China* and Hong Kong with small amounts from
Japan. Since the Korean War the USSR and Communist China have been the
main source of imports, with almost all the rest being obtained from
other members of the Sino-Soviet Bloc. The dependency of North Korea
on Manchuria for most of its coking coal and supplemental foodstuffs
and upon the USSR for its industrial products and petroleum provides
both of these countries with an influential position in the North
Korean economy.
The Korean peninsula and Manchuria were part of the Japanese Em-
pire before 1945. By controlling investment,. the Japanese developed
and integrated the area into the Empire primarily as a supplier of
raw materials and semifinished goods for Japanese industry. The for-
eign trade of the Korean peninsula was increasingly concentrated
within the Empire, primarily with Japan. The Japanese neither sought
nor achieved a balanced economy in the various sections of this area.
Because of this imbalance in the North Korean economy, the new
Communist regime had no choice but to continue the exchange of surplus
mineral, metal, and chemical products for the coal, petroleum, machin-
ery, and textiles required to sustain a viable economy. Foreign trade
policy stressed the import of machinery and equipment to broaden the
internal industrial base and to lessen dependence on foreign trade,
but the achievements resulting from this policy were almost totally
negated in the Korean War. In the period since the armistice the goal
of the foreign trade policy of North Korea, in conjunction with the gene-
ral economic policy, has been to rehabilitate the economy and to develop
* Including both Nationalist and Communist-controlled sections of
China.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
new facilities for an expanded industrial base. This policy is being
carried out with large-scale material grants-in-aid from the Sino-Soviet
Bloc. By the end of the Three Year Plan (1954-56), however, foreign
trade, exclusive of aid, had reached only 56 percent of the 1949 level.
The policy of broadening the industrial base is progressing but has not
yet materially reduced the dependence of the economy on foreign trade.
The direction of North Korean foreign trade at the end of World War II
was determined by political and economic conditions in the world generally
and in the Far East particularly. The Soviet occupation of North Korea
was the decisive determinant of the direction of trade, although the war
damage, the tasks of reconstruction throughout the world, and the un-
stable conditions in the Far East were additional factors. As a result,
until the Korean War the bulk of the trade of North Korea was conducted
with the USSR.
For North Korea this shift in its trade toward the USSR was not
illogical. The USSR had great influence in important parts of the
Japanese Empire which had been key suppliers of raw material to North
Korea under the Japanese. Sakhalin and Manchurian coking coal, Sakhalin
petroleum, and Manchurian foodstuffs -- all required by North Korea --
were controlled by the USSR for at least part of this period. The USSR
also was able to fill many of the North Korean requirements for industrial
products. At the same time the USSR found that political, geographic, and
economic factors made trade with North Korea desirable. This basic
pattern was stimulated by East-West political developments during the
ensuing decade and was reinforced by the partial integration of the
North Korean economy into the industrial complex of the Soviet Far East.
The organization of North Korean foreign trade has been dictated by
the ideology of the regime and its foreign advisers. Within 2 years
after the Communists took over North Korea, private foreign trade firms
were almost eliminated, and during the Korean War and in the postwar
period the Sino-Soviet Bloc military and economic aid programs greatly
enlarged imports and forced all trade and aid transactions through
state channels.
The area of autonomous policy designed to further the distinctive
economic objectives of North Korea has been small and limited primarily
to short-run goals and to a minor portion of North Korean trade. In
1949, for example, North Korea attempted to develop Hong Kong as a source
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
both of needed commodities and of a stable currency and to replace
the Chinese* market, which was in a chaotic condition because of the
civil war. This attempt was not as successful as hoped, largely
because the North Korean company responsible for this trade lacked
market information and was inefficiently operated. The attempt was
continued in 1950 and appeared destined for more success until the
outbreak of hostilities halted all trade with Hong Kong.
In the period since the armistice, North Korea has sometimes
used foreign trade as an adjunct to foreign policy. Apparently in
an attempt to embarrass the South Korean government, North Korea has
repeatedly offered to export electric power to South Korea. North
Korea has entered into active trade talks and, probably for com-
mercial reasons, has signed contracts with Japanese businessmen which
have hindered Japanese negotiations with South Korea.
For the most part, however, the foreign trade policies of North
Korea have been designed to implement economic plans. In 1946 the
policy was geared to rehabilitate the economy. This policy required
that most North Korean exports be used to obtain supplies from the
USSR, supplemented by the import of some essential goods from China
and Hong Kong. A similar policy was followed in the formulation of
the Two Year Plan in 1949, although unstable conditions in China re-
quired a shift of some trade to Hong Kong.
North Korean economic relations with the European Satellites
lack prewar precedent and appear to be based more on ideology
and less on economic considerations. During the Korean War, all
of the countries of the Sino-Soviet Bloc extended aid, and East Ger-
many granted North Korea an economic loan of $7.5 million. Several
trade agreements were signed at this time with European Satellite
countries, but they have been for the most part symbolic because North
Korea was not in a position to trade during hostilities and commercial
trade with the Satellites did not begin until 1955. After the armi-
stice, most of the Sino-Soviet Bloc countries signed bilateral trade
agreements and agreements on scientific and technical cooperation with
North Korea. Economic aid was extended to North Korea by all the
Sino-Soviet Bloc countries except North Vietnam.
* Including both Nationalist and Communist-controlled sections of
China.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
This large and apparently cooperative economic aid program,
designed to rehabilitate the North Korean economy, is the outstanding
economic link which North Korea has had with the Sino-Soviet Bloc.
The program has been presented to North Korea as a gift requiring no
repayment, and it is implemented by a series of bilateral agreements
signed in 1953-54. It is possible that the Council of Mutual Economic
Assistance (CEMA) may have performed some role in the execution of
these agreements.
The unbalanced economy inherited from the Japanese forces
North Korea to rely heavily on foreign trade. The economy is com-
pletely dependent on imports for its supplies of coking coal, crude
petroleum, and rubber, and major deficiencies exist in tin, certain
minerals, machinery, bearings, electrical and transport equipment,
textiles, and long-staple cotton. l/* At the same time there are North
Korean surpluses of electric power, metals and metal products, and
some chemicals. The foreign trade engendered by these imbalances
represents a considerable part of North Korean economic activity. As
a measure of this, exports were equal in value to about 30 percent of
North Korean budget expenditures during the period 1948-50. 2/ Aid
deliveries from the Sino-Soviet Bloc for North Korean reconstruction
during 1954-56 represent about 22 percent of total North Korean budget
revenues in those years. 3/
Foreign trade grew rapidly during the period before the
Korean War and by 1949 had increased more than five times above the
level of 1946, when the economy was quite disorganized. Trade in
1950 was planned to be nearly double that of the previous year, but
hostilities disrupted normal foreign trade activities. 4/ During the
war, unknown quantities of military and economic aid were exported to
North Korea by the Sino-Soviet Bloc, most of which required no repay-
ment. North Korea claims that its exports continued during the war,
but these would of necessity have been limited. In 1953, bilateral
agreements signed with most countries of the Sino-Soviet Bloc provided
deliveries of free economic aid to assist in the extensive rehabili-
tation necessary for the devastated economy. Foreign commercial trade,
which was overshadowed by the extensive aid deliveries, had by 1956
reached only 56 percent of the level of 1949.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
The estimated value of the imports and exports of North Korea,
1946-49 and 1954-56, is shown in Table 1.*
At the end of World War II the USSR assumed the dominant
position which Japan formerly held in North Korean foreign trade.
During the period 1946-49 the USSR accounted for about 70 percent
of North Korean foreign trade, and additional trade with North Korea
appears to have been conducted by Soviet trade organizations located
in the Communist sections of China and Manchuria. The next largest
trading partner of North Korea during 1946-47 was China. In 1947,
North Korea began a concerted drive to develop trade with Hong Kong,
and during 1949 nearly 20 percent of the foreign trade of North
Korea was with Hong Kong. With the Communist rise to power in China
during late 1949 and 1950, North Korean trade began to swing back to
China, and trade with Hong Kong ceased after June 1950.
Estimated value of the foreign trade of North Korea, by coun-
try, 1946-49, is shown in Table 2.** The distribution of the foreign
trade of North Korea since 1949 is unknown. During the Korean War,
all imports and exports were restricted to the Sino-Soviet Bloc 5/
and consisted largely of military and economic aid deliveries from
the USSR. During the period since the armistice the Sino-Soviet
Bloc has continued to dominate North Korean foreign trade, primarily
in aid deliveries. The USSR and Communist China are currently the
most important trading partners of North Korea and until 1954 were
its only significant trading partners in regular commercial trade.
Trade with East Germany, Czechoslovakia, and the other European Sat-
ellites has been developing slowly since 1955.
Since 1953, only an insignificant amount of trade with North
Korea has been recorded by countries of the Free World. This trade
has probably been supplemented by minor amounts of smuggling and
dealings through third parties. There is evidence that North Korea
would like to develop trade with the Free World, although a part of
this desire may be politically motivated. In 1956 a North Korean
trading firm signed a trade contract with an asoociation of Japanese
businessmen, but the Japanese government refused to permit execution
of the contract. J Later in 1956 a contract was signed by North
Koreans with a Swiss company, involving an exchange of goods valued
at $500,000. i/
* Table 1 follows on p. 7.
** Table 2 follows on p. 8.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Estimated Value of Imports and Exports of North Korea
1946-49 and 1954-56
Million US $
1946 /
1947 a/
1948 J 1949 a/
1954
1955 1956
Imports and exports
(commercial trade)
22.1
51.8
65.1 118.5
32.8 J
50.6 c/ 68.8 J
Imports
(grants-in-aid)
255.1 e/
205.4 e/ 180.4 J
Imports
(loan from the USSR)
22.1
51.8
65.1 123.5
287.9
256.0
249
2
.
.
a. See Table 2, p.
b.
C. J
,below.
d. 10
e. See Table 9, p.23, below.
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20: CIA-RDP79R01141A000900100002-8
S-E-C-R-E-T
Estimated Value of the Foreign Trade of North Korea, by Country
1946-49
Country
1946 J
1947 J
1948 J
1949
Exports
Imports
Total
Exports
Imports
Total
Exports
Imports
Total
Exports
Imports
Total
USSR
7.7
6.3
14.0
14.1
13.9
28.0
24.3
25.7
50.0
44.3 J
49.3 J
93.6
China
3.6
3.7
7.3
7.8
7.8
15.6
2.3
3.4
5.7
1.9 d
2.5 d
4.4
Hong Kong 1
Other J
0.4
0.4
0.8
4.1
4.1
8.2
4.6
4.8
9.4
1 12 0.5 J
10.7 d
21.2
a. Figures are from North Korean sources, 11 stated in North Korean won and converted to US dollars at the
following rates of exchange: 1946, 61.3 won to US $1; 1947, 82.2 won to US $1; 1948, 140.5 won to US $1.
(See VII, 2, c, p. 32, below.)
b. 12/. Converted from rubles at the official rate of 5.3 rubles to US $1. Soviet trade is f.o.b. (free on
board border.
c. Estimated to be equal to North Korean exports plus imports estimated to be worth $5 million under a Soviet
loan of 1949.
d. 13 Stated in won and converted at the rate of 100 won to US $1. (See VIZ, 2, c, p. 32, below.)
e. /. Stated in dollars. Exports, c.i.f. (coat, insurance, and freight) Hong Kong; imports, f.o.b. Hong
Kong.
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
North Korean exports consist predominantly of mineral and metal
products and some types of chemicals, reflecting the industrial facili-
ties developed by the Japanese. Table 3* shows exports by North Korea
to the USSR, by commodity group, 1949-50.
Ten commodities constituted almost three-fourths of the value
of North Korean exports to the USSR in 1949. These commodities in
their order of importance (converted from rubles) were gold ($7.4 million),
fertilizer ($6.2 million), magnesium concentrate ($5.7 million), high-
speed steel ($2.7 million), pig iron ($2.6 million), tungsten ($1.9
million), zinc concentrate ($1.7 million), refined zinc ($1.6 million),
carbide ($1.6 million), and refined lead ($1.4 million). 15/ The
planned exports to the USSR for 1950, although nearly doubling in
value above the level of 1949, reflected much the same commodities,
with special steels gaining in importance at the expense of chemicals.
Whereas the USSR absorbed nearly all of the mineral and metal
products of North Korea in 1949, exports to the Free.World and China
were restricted to chemicals, primarily fertilizer, and to foodstuffs,
primarily grain. Table 4** shows exports by North Korea to China,
Japan, and Hong Kong, by commodity group In 1949.
Information on North Korean exports since the Korean armistice
is limited to brief announcements of trade agreements with Sino-Soviet
Bloc countries. The lists of commodities presented in these announce-
ments indicate that the composition of North Korean exports is approx-
imately the same as before the Korean War, and it appears that North
Korea will have to depend upon these traditional exports for several
years in the future.
* Table 3 follows on p. 10.
** Table 4 follows on p. 11.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Estimated Exports by North Korea to the USSR, by Commodity Group a/
1949-50
1949 J 1950 J
Commodity Group
Nonferrous metals and minerals
Ferrous metals and minerals
Chemicals
Other
Value
(Million US $)
Percent
of Total
Value
(Million US $)
Percent
of Total
20.0 d/
45
30.2 e
42
12.3 J
28
27.5 J
38
8.4
19
11.0
15
3.6
8
3.4
5
a. Figures are given in rubles and converted at the official rate of 5.3 rubles
to US $1.
b. 16/
c. f/. Planned.
d. Composed of 58 percent base metals, 37 percent concentrates, and 5 percent
nonmetallic minerals.
e. Composed of 58 percent base metals, 39 percent concentrates, and
3 percent nonmetallic minerals.
f. Composed of 22 percent ferroalloys, 22 percent high-speed steel, 55 percent
metal products, and 1 percent ore.
g. Composed of 24 percent ferroalloys, 31 percent high-speed steel, 44 percent
metal products, and 1 percent ore.
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Estimated Exports by North Korea to China, a Japan,
and Hong Kong, by Commodity Group
1949
Commodity Group
Value 1
(Million US $1)
Percent
of Total _`
Metals and metal products
0.9
5.9
Cereals
4.3
28.8
Processed foods
1.1
7.0
Chemicals
4.9
32.3
Fish products
2.1
13.8
Other
1.8
12.2
a. Including both Nationalist and Communist-controlled
sections of China.
b. Values were derived by applying percentages to
exports for 1949 in Table 2, p. 8 , above.
c. 18
Only limited data are available on the composition of North
Korean imports in the period 1946-50. In 1949, 67 percent of North
Korean imports from the USSR were raw materials and machinery for
industry and agriculture, and 27 percent were consumer goods, pri-
marily cotton and woolen textiles. 19/ Table 5* shows the commodity
composition of North Korean imports from the USSR, 1946-48, and
Table 6** shows the commodity composition of North Korean imports
from China, Japan, and Hong Kong in 1949.
* Table 5 follows on p. 12.
** Table 6 follows on p. 13.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20: CIA-RDP79R01141A000900100002-8
S-E-C-R-E-T
Estimated Imports by North Korea from the USSR, by Commodity Group
1946-48
Commodity Group
Value a/
(Million US $)
Percent
of Total J
Value a/
(Million US $)
Percent
of Total J
Value a/
(Million US $)
Percent
of Total J
Machinery and raw materials
for nonconsumer goods
industries
4.1
65
8.1
58
14.6
57
Raw materials for
consumer goods industries
1.2
19
1.2
9
5.1
20
Consumer goods
0.9
15
2.2
16
5.7
22
Medical supplies
0.1
1
0.3
2
0.2
0.7
Other
2.1
15
0.1
0.3
Total
6.3
100
13.9
100
25.7
100
a. Values were derived by applying percentages to imports in Table 2, p. 8, above.
b. 20
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20: CIA-RDP79R01141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Estimated Imports by North Korea from China, a Japan,
and Hong Kong, by Commodity Group
1949
Commrx7.ity Group
Value J
(Million US $)
Percent"/
of -Total J
Metals and metal products
0.7
5
Cereals
2.1
14
Processed foods
0.3
2
Chemicals
1.6
11
Autos and parts
0.9
6
Machinery and equipment
1.6
11
Lumber and coal
2.1
14
Consumer goods
3.3
22
Other
2.2
15
a. Including both Nationalist and Communist-con-
trolled sections of China.
b. Values were derived by applying percentages to
imports in Table 2, p. 8, above.
c. 21/
During this period, North Korea relied primarily on the USSR
for machinery and equipment and raw materials and on the Free World
for consumer goods such as textiles and for some industrial pro-
ducts such as tires. North Korea also imported substantial amounts
of grains (including soybeans), particularly from China. For example,
North Korea planned to balance imports and exports of grains at
40,000 metric tons* in 1949, after importing 70,000 tons and exporting
20,000 tons of grains in 1948. 22 This swing in grain imports and
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
exports, as well as the large amounts of grain imported from China
in 1946 23/ and in 1954-55, suggests that in bad crop years North
Korea is dependent on the adjacent Chinese territory for supplements
to its food supply.
No information is available on the composition of North
Korean imports on current trade account since the armistice, but
commercial imports have been relatively unimportant in comparison with
the large volume of commodities entering the country through the grant-
in-aid program of the Sino-Soviet Bloc. This program has been well
publicized, but its commodity composition is available only for 1954.
Table 7* shows the material aid received by North Korea from
Communist China in 1954, and Table 8*-* shows the material aid re-
ceived from the USSR in the same year. The commodity composition is
available for approximately half of the total value of the aid which
North Korea reported receiving from these two countries during 1954.
Of these commodities, consumer goods accounted for approximately
40 percent, fixed capital goods for 27 percent, and raw and semifin-
ished materials for 32 percent. The primary consumer goods in terms
of value were grains, flour, and textiles; the primary fixed capital
goods were transport equipment and machinery; and the primary un-
finished materials were coal, fertilizer, and iron and steel products.
These aid goods reflect not only commodities customarily imported,
but also commodities usually exported which were in short supply
because of war damage. For example, North Korea received as aid in
1954 a minimum of 129,000 tons of iron and steel products, in con-
trast to planned exports to the USSR in 1950 of 172,000 tons. There
are several other noteworthy examples of North Korean imports of
goods usually exported, reflecting the extensive war damage. This
extraordinary situation, however, should cease as the economy is
rehabilitated. Imports during 1957 and later probably will be
along more traditional lines such as coking coal, petroleum products,
machinery, and textiles.***
* Table 7 follows on p. 15.
** Table 8 follows on p. 17.
** Continued on p. 19.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Material Aid Received by North Korea
from Communist China, by Commodity a
1954
Estimated Value
Commodity Amount (Thousand US $)
Grain (metric tons) 130,000 13,000
Soybeans (metric tons) 30,000 3,750
Meat (metric tons) 3,000 3,000
Cotton (metric tons) 3,900 979
Canvas shoes (pairs) 610,000 1,830
Blankets (units) 50,000 250
Newsprint (metric tons) 4,000 400
Cotton fabric (million meters) 42 10,500?
Subtotal 33,709
Flow capital goods
Coal (metric tons) 650,000 6,500
Coke (metric tons) 36,000 360
Pig iron (metric tons) 22,000 1,540
Finished steel (metric tons) 30,000 3,600
Cement (metric tons) 131,000 2,620
Sheet iron (metric tons) 2,000 200
Lumber (metric tons) 42,000 427
Subtotal 15,247
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Material Aid Received by North Korea
from Communist China, by Commodity
1954
(Continued)
Estimated Value
Commodity Amount (Thousand US $1)
Locomotives (units) 70 2,100
Freight cars (units) 1,382 8,292
Railroad passenger cars (units) 109 1,090
Motors (units) 265 132
Turbine pumps (units) 420 118
Total flow and fixed
capital goods
26,979
60,688
Total announced aid from ,,~
Communist China 122,000 J
a. 24/. Amounts are as reported by North Korea; values
are based on world market prices.
b. See Table 9, p. 23, below.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Material Aid Received by North Korea
from the USSR, by Commodity a/
1954
Estimated Value
Commodity Amount (Thousand US $)
Consumer goods
Food
(metric tons) 550
110
Grain
metric tons) 6,000
600
Flour
metric tons) 50,000
6,750
Shoes
pairs) 20,000
100
Drugs
metric tons) 350
1,750
Cloth
(metric tons) 60
60
Wool
(metric tons) 1,500
2,400
Subtotal
11,770
Flow capital goods
Cement (metric tons)
1,000
20
Pipe (metric tons)
36
5
Iron (metric tons)
5,525
387
Zinc (metric tons)
50
30
Sulfur (metric tons)
500
75
Aluminum plate (metric tons)
54
32
Chemicals (metric tons)
2,300
460
Fertilizer (metric tons)
126,860
6,343
Steel (metric tons)
69,460
9,724
POL (metric tons)
3,809
190
Aluminum wire (kilometers)
171
3
Electric wire (kilometers)
73
2
Wire cable (metric tons)
16,500
3,300
Sheet tin (metric tons)
62
12
Lumber (carloads)
370
118
Brick carloads
5
2
Glass carloads
1
10
Ammonium nitrate (metric tons)
1,200
110
a. L5/. Amounts are as reported by North Korea; values
are based on world market prices.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Table 8
Material Aid Received by North Korea
from the USSR, by Commodity
1954
(Continued)
Commodity
Amount
Estimated Value
(Thousand US $)
Horse carts (units)
1,000
200
Shapers (units)
15
45
Drill presses (units)
3
30
Winches (units)
15
15
Compressors (units)
4
40
Turbine pumps (units)
7
2
Railroad equipment (metric tons)
24,000
6,ooo
Belt conveyers (kilometers)
56
20
Scrapers (units)
It
2
Buses (units)
150
1,500
Tractor parts (units)
17,000
34
Boxcars (units)
336
2,016
Passenger coaches (units)
141
1,410
Horses (units)
18,000
1,350
Vehicle cranes (units)
19
162
Motors (units)
113
85
Rails (metric tons)
25,000
2,500
Trucks (units)
762
1,905
Farm tools (metric tons)
300
150
Machines (units)
309
1,000
Total flow and fixed
capital goods
39,289
51,059
Total announced aid from the USSR 97,500 b/
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
North Korea has required extensive technical services during the
various attempts to reconstruct and expand the economy. In the
period 1946-50 these services came almost exclusively from the USSR
in the form of technicians and specialists in an advisory capacity.
It was reported that Soviet advisers were located at nearly all mines
and factories and in many ministerial units. 26 In 'other cases,
specialists were sent to designated plants to solve specific pro-
duction problems. 27/ It is probable that most of these technicians
were responsible to the representative in North Korea of the Soviet
Ministry of Foreign Trade, indicating that technical services were a
part of the regular commercial agreements and that their costs were
covered by North Korean exports to tae USSR. 28/ It is estimated that
from 10 to 20 percent of North Korean payments to the USSR in 1946-49
were for technical services. 29/
A large number of military specialists possibly were sent to
North Korea as a result of an agreement reported in 1949 which obli-
gated the USSR to supply the equipment and advisers for the development
in North Korea of 9 army divisions and 7 security battaLions. 30/
Military advisers from several countries of the Sino-Soviet Bloc were
reported in North Korea during the Korean War, but it is unlikely that
these specialists were obtained under commercial agreements.
Since the armistice, North Korea has received technical services
under two programs. A large number of technicians have been sent under the
economic aid program from the Sino-Soviet Bloc. These services exist
in many fields of industry and agriculture and include such activities
as technical advice, training of North Koreans, assembling of data, and
preparation of surveys. 31 These activities are an integral part of
particular aid projects -- for example, the 54 million rubles appro-
priated by East Germany for the North Korean diesel engine factory in-
cludes, in addition to cost and delivery of equipment, the costs of
sending specialists to gather data, of all planning, and of the training
of North Koreans. 32 In addition to this assistance under the economic
aid program, North Korea has signed bilateral Technical and Scientific
Cooperation Agreements with the countries of the Sino-Soviet Bloc
providing for the exchange of technical information. Services exchanged
under these agreements, at no cost to the recipient countries, include
blueprints, information on technological processes, and discussion of
agricultural problems.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
The strategic importance of North Korea to the Sino-Soviet Bloc
Is reflected in the credits and the economic and military aid which
the country has received during the decade since World War II. Soviet
occupation forces provided the initial assistance in renovating some
production facilities during 1945-46 under the North Korean interim
government. For the most part this assistance appears to have been
carried on locally without a national plan. In spite of its informal
nature this assistance and other help rendered by the USSR were
repaid in March 1947 through transfer to the USSR of half ownership
in the oil refinery at Wonsan. 33
With the formulation of the Two Year Plan for 1949-50 there was
anticipated an import surplus from the USSR of equipment, raw
materials, and technical services required for the expansion of the
North Korean economy. The USSR formally agreed in March 1949 to
finance these imports with a 3-year loan (1949-51) of 212 million
rubles ($4G million) at 2-percent interest, to be repaid in 3 years
after July 1956. 34/ The USSR canceled half of this debt in 1953
and extended the period of repayment for the remainder. 35/
In June 1952, East Germany extended a loan of 30 million rubles
($7.5 million) to North Korea at 1-percent interest to finance a
specified list of imports to be delivered by June 1953. 36/ The
most significant of these imports were lathes, drills, oxygen in-
stallations, laboratory and medical office equipment, electrical and
testing instruments, pharmaceuticals, blankets, and gauze. The
agreement stated that all commodities were to be priced at world
market prices of October 1950.
During the Korean War the Sino-Soviet Bloc sent large quantities
of military equipment to North Korea as well as food, medicine,
hospitals, blankets, and similar commodities. Most of this aid to
North Korea during the war was extended as a gift or was subse-
quently written off as a gift in the agreements setting up postwar
economic aid from the Sino-Soviet Bloc. North Korea is known to
have received additional military equipment during the period 1954-56,
but the terms are unknown.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
The economic disruption and low levels to which consumption had
fallen in North Korea at the close of the Korean War required ex-
tensive assistance from the Sino-Soviet Bloc. A Three Year Plan of
reconstruction was developed with economic aid and technical
assistance forming an indispensable part of the plan. The total
value of Sino-Soviet Bloc aid commitments announced through April 1957
was $797 million.* It 1E estimated that during the Three Year Plan
total aid deliveries will be approximately $641 million and that aid
deliveries after 1956 will be $156 million. A North Korean delegation
toured the Soviet Bloc during mid-1956 and obtained a. very small
amount of additional economic aid.
The USSR offered a 3-year grant of 1 billion rubles ($250 million)
to North Korea in 1953? Soviet material and technical aid has been
identified at 35 specific projects in North Korea, ranging from ferrous
metallurgy to machine construction plants and from consumer goods
plants to broadcasting stations. The Soviet aid includes designs, tech-
nicians, technical data, and training for North Korean personnel.
In 1953 the Chinese Communists extended a grant of 800 million yuan
($325 million) to North Korea extending over a 4-year period (1954-57)
to assist in the rehabilitation of the North Korean economy. Few
specific projects receiving Chinese aid have been reported, although
Chinese assistance has been acknowledged in the construction of buildings,
railroad facilities, and light industries. Although the total value of
the aid of Communist China to North Korea exceeds that of the USSR, its
long-run impact on the North Korean economy probably is not so great.
It appears that a large proportion of the Soviet contribution is
designed for the reconstruction of basic industries, whereas the greater
share of Chinese aid is in the form of consumer goods and the rehabili-
tation of buildings and transport facilities.
The European Satellites have promised to extend at least $222 million
worth of aid to North Korea over a period of years. East Germany is the
major contributor, accounting for approximately 52 percent of the value
* This aid, as stated in past announcements, appeared to be in the
form of grants free of repayment. The series of announcements released
by North Korea during April 1957 concerning Polish and Czechoslovak aid,
however, contain ambiguities that suggest some repayments may be in-
volved. Also the interpretation of the value of Czechoslovak aid may
be too low, but these announcements have been too vague and ambiguous
to form a basis for a new interpretation. 37/
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
of European Satellite aid, followed by Czechoslovakia and the other
Satellite nations. Deliveries during 1954 amounted to $36 million,
consisting for the most part of machinery and equipment but in-
cluding some consumer goods. The East German aid program of 463 million
rubles ($116 million) has been reported in detail as follows 38/:
1. 1955, 79 million rubles, as follows:
15 million rubles in materials
3 million rubles for construction of a diesel engine factory
1 million rubles for a printing combine
1 million rubles for rehabilitation of the Hwang-hae Iron Works
52 million rubles for rehabilitation of Hamhung
2. 1956, 67 million rubles, as follows:
24 million rubles for the diesel engine factory
8 million rubles for the printing combine
35 million rubles for rehabilitation of Hamhung
27 million rubles for the diesel engine factory
9 million rubles for the printing combine
35 million rubles for rehabilitation of Hamhung
4. 1958-64, 35 million rubles each year for rehabilitation of
Hamhung
Additional aid commitments were made by Albania and Mongolia.
These commitments consisted of specific materials without monetary
values. Albania promised to deliver bitumen and construction materials.
Mongolia promised to deliver livestock and various animal products.
The importance of the aid program to North Korea is indicated in
the fact that approximately 22 percent of the budget revenue during
the Three Year Plan is from aid deliveries. 39/ These aid materials
have been the key to restoration of the North Korean economy. North
Korea is completely dependent on imports for bituminous coal needed in
metallurgy and the railroads. Under the aid program from Communist
China, North Korea received 650,000 tons of bituminous coal in 1954 and
1 million tons in 1955. The North Korean production of cotton fabrics
was about 40 million meters in 1955. Aid receipts in that year were
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
36 million meters and in 1954 were 42 million meters. Imports of food
grains and shoes in 1954 represented approximately 7 percent of the
internal supplies of these commodities. Imports of cement in 1954
amounted to 132,000 tons, and domestic production was 225,000 tons.
Imports of chemical fertilizer of about 130,000 tons in 1954 provided
almost all of the North Korean supply of that commodity. Imports of
transport equipment and machinery have made significant contributions to
North Korean transportation and industry. 40/ The estimated aid by the
Sino-Soviet Bloc to North Korea, 1954-64, is shown in Table 9.
Table 9
Estimated Aid by the Sino-Soviet Bloc to North Korea a/
1954-64
USSR
97.5 b/
85.0 J
67.5 2/
250.0 J
Communist. China
122.0 J
89.4 b/
56.9 d/
56.9 d/
325.2 J
European Satel-
lites
35.6 b/
31.0 J
56.0 a/
26.0 d/
73.4 J
222.0
Total
255.1
205.4
18o.4
82.9
73.4
797.2
a. The value of aid was announced in zlotys, rubles, and yuan an s
been converted into US dollars at the rates of it rubles and 2.46 yuan to
US $1. See Appendix B for valuation of the Polish aid announced in
zlotys. Albania and Mongolia are not included, because of lack of data.
b.
c.
d.
Announced values.
Residual.
Residual prorated over
the remaining years of aid programs.
e.
Total of announced Satellite aid commitments through April 1957.
Most of the information on the Sino-Soviet Bloc aid program has
.
been derived from North Korean announcements, anda definitive evaluation
of the program is precluded. It is possible that the announced value of
the aid grossly overstates the world market value of the commodities,
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
although earlier information indicated that prices in North Korean
trade with the Bloc were quite close to world market prices.* Inflated
prices, however, could account for the discrepancy between the announced
total value of the aid of the USSR and Communist China in 1954 and the
estimated value, based on world market prices, of the lists of com-
modities North Korea announced were received from these two countries
during the year. (See Tables 7 and 8.**) The estimated value of the
commodities is roughly half of the announced value of the aid. There
are several possible explanations of this discrepancy, including the
possibility that the list of aid goods was incomplete.
Some minor setbacks are to be expected in an aid program of this
magnitude and character. A few instances have been noted, although there
may be others. In 1955, East Germany sent at most only 38 percent of
deliveries planned for the year.*(-*- This underfulfillment, however, is
thought to have been made up during subsequent periods, because there
have been no reported cancellations of contracts. The recent announce-
ments indicate that Polish aid deliveries may have been slow. 42/ (see
Appendix B.) The 1956 revolt in Hungary undoubtedly caused delays if
not cancellation of some Hungarian deliveries, but only the fourth and
last year of Hungarian aid would be affected.
The announced intent of the aid program was to assist North Korea to
rehabilitate its economy after the Korean War. About 80 percent of the
aid deliveries were planned to be completed by the end of 1956, which
coincided with the end of the North Korean Three Year Plan. The very
small amount of additional aid announced during the tour of the North
Korean delegation through the Soviet Bloc in mid-1956 indicates that
the large-scale assistance to North Korea which characterized the re-
construction phase will not be extended as each of the bilateral agree-
ments reaches the terminal date. Apparently the Sino-Soviet Bloc con-
siders the North Korean economy viable, and further development depends
on North Korean effort and resources. Should North Korea face the
prospect of a serious failure in the goals of its First Five Year Plan
(1957-61), however, additional loans or grants may be forthcoming.
See VII, 2, d, p. 32, below.
** Pp. 15 and 17, respectively, above.
Based on planned deliveries shown on p. 22, above, and East
German exports to North Korea as shown in the East German Statistical
Yearbook for 1955. Lij
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
VI. Elements in the Balance of Payments.
1. Estimated Balance of Payments.
Fragmentary data available on the international transactions of
North Korea do not permit a definitive estimate of the balance of pay-
ments. Furthermore, some of the available statistics tend to distort
the actual magnitudes which they purport to represent: for example, the
Korean Trading Company, responsible for all foreign trade except that
with the USSR, included in its exports the value of commodities sur-
rendered to other North Korean companies in settlement of debts, although
the commnodities did not leave North Korea. L3/ It was possible, however,
to eliminate these transactions from the 1949 data. Other statistical
anomalies were encountered which caused similar distortions. The level
of North Korean statistical procedures was low and rendered any statistic
much less reliable than in most Free World countries.
These limitations in the data have restricted an estimate of the
North Korean balance of payments to the year 1949. The estimated
balance of payments of North Korea in 1949 is shown in Table 10.* Mer-
chandise trade, intended for the most part to balance bilaterally, was
significantly more important than any other type of transaction in the
international accounts of North Korea during that year. The value of
services rendered by Soviet technicians in North Korea could not be
estimated separately, although it may have constituted about 10 to 20 per-
cent of the value of im)orts from the USSR. 44/ A number of elements in
the balance of payments have been omitted completely because available
data do not reveal their magnitude. These include (a) the value of
North Korean deliveries to Soviet armed forces in North Korea, (b) the
value of noncommercial remittances between the USSR and North Korea, and
(c) the value of possible withdrawals by the USSR of profits from the
Soviet-Korean joint companies.
The balance of merchandise trade of North Korea with countries
other than the USSR was slightly unfavorable in 1949. This imbalance
was covered in part by current net earnings of the Soviet-Korean Joint
Shipping Company (Mortrans) in carrying cargo for foreign shippers.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
'CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Estimated Balance of Payments of North Korea a/
1949
Merchandise trade b/
(imports and exports, f.o.b.)
Soviet
36.3
49.3
-13.0
Non-Soviet
14.1
14.6
-0.5
Gold and silver movements
to the USSR c/
8.0
8.0
Shipping d/
0.7
0.4
0.3
Receipts under loan from the USSR e/
5.0
5.0
Changes in balances abroad
and residual (net)
0.2
0.2
a. For omitted items, see p. , .
b. Figures are from Table 2, p. 8, above. Exports of gold and
silver are deducted from figures for Soviet trade. Figures for non-
Soviet trade are adjusted to f.o.b. (free on board). 45/
c. The North Koreans apparently treated movements of gold and sil-
ver as a part of merchandise trade rather than as balancing items.
Such treatment results in merchandise exports to the USSR of $44.3
million as shown in Table 2, p. 8, above.
d. 46/. Shipping receipts are estimated from cargo hauled by the
Soviet-Korean Joint Shipping Company (Mortrans) for non-Korean ship-
pers. Shipping payments are North Korean payments to Hong Kong
shipping firms.
e. Receipts under the Soviet loan of March 1949 are estimated on
the basis of the probable rate of utilization over a 3-year period.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
The remainder of the deficit apparently was met by drawing down the
Mortrans balances in Dairen, Manchuria, which had accumulated through
earnings in 1947 and 1948. 47/ The Korean Trading Company employed
some Hong Kong shipping in 1949, which resulted in small expenditures.
The balance of payments for 1949 reflects not only important
foreign economic transactions of North Korea but also the preponderance
of bilateral exchange. Transactions with the USSR were almost entirely
on a bilateral basis, accounted for in rubles (some of the Mortrans
dealings with Soviet organizations in Dairen were conducted in Chinese
yuan). 48/ Relations of North Korea with countries other than the
USSR also tended to be bilateral, partly because the North Koreans
lacked information on r.?.arkets abroad. Much of the trade with Hong Kong
and China was on a barter basis in 1946-48. 49/ Although this barter
system was ostensibly dropped in 1949, the trade continued in much the
same pattern -- that is, North Korean goods shipped to Hong Kong were
marketed at prevailing prices and the foreign exchange was used to buy
cargo in Hong Kong for the return voyage. This ignorance of market con-
ditions in various countries apparently prevented North Korea from using
its foreign exchange earnings to purchase in lower priced markets.
Because most productive facilities were destroyed during the
Korean War, economic grants-in-aid have constituted the major element
in the postwar balance of payments of North Korea. Commercial trade
has been small and confined almost completely to bilateral exchange
with Sino-Soviet Bloc countries, primarily the USSR and Communist China.
Apparently there have been no earnings from shipping, reflecting the
loss or deterioration of Mortrans vessels during the war, and it is
probable that only small repayments, if any, have been made on the 1949
loan from the USSR.* Technical services granted by Bloc countries to
North Korea appear to be included in the value of economic aid. No
estimate is possible of the value of the Soviet share in three Soviet-
Korean joint stock companies which were retroceded to North Korea in
1955, although payment is to be made by North Korea over a period of
several years. The two major elements known to have entered the North
Korean balance of payments in 1955 were merchandise trade, representing
imports and exports estimated at $25.3 million each, and imports of aid
materials and assistance from the Bloc amounting to $205.4 million.
For 1956, commercial imports and exports are estimated at $34.4 million
each and Sino-Soviet Bloc aid imports at $180.4 million.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
North Korea has had no significant foreign exchange holdings.
There is no evidence that the domestic currency (won) requires gold
or foreign exchange backing. Any foreign exchange earned through
exports appears to have been used to purchase imports, although,
during 1947-48, Mortrans accumulated 39 million Manchurian yuan
(probably $100,000 to $500,000 depending on the type of currency
and the exchange rate) in Dairen from shipping services. Half of
these holdings were in loans to Dairen shipping firms (including one
Soviet firm), and the other half were used for Mortrans operations
in Dairen. 50/ These Manchurian yuan do not appear to have been
available for regular trade operations. In 1949, Hong Kong re-
corded an import surplus of about $1 million in its trade with
North Korea, but North Korea expended this exchange on shipping
charges to move cargoes to and from Hong Kong.
North Korea is an important gold-producing country. There
are indications, however, that it treats gold as a regular export
commodity and keeps no significant reserves for currency or ex-
change purposes. In March 1946, North Korea apparently had 33 tons
of gold worth approximately $37.5 million, 51/ although this gold
presumably was shipped to the USSR during subsequent years. The
Ministry of Industry in 1949 turned over to the North Korean govern-
ment for export 7.6 tons of gold, of which 6.5 tons with a value
of $7.4 million were exported to the USSR. 52/ In 1950, North Korea
planned to export 9 tons of gold to the USSR, valued at $10 mil-
lion. 53/ In both this earlier period and after the Korean War,
nearly all North Korean gold production was probably exported, and
only insignificant amounts were held as reserves or for industrial
purposes.
VII. Organization and Procedures.
1. Organization. 54/
a. Ministerial Control.
The first governmental organization in North Korea fol-
lowing the Japanese surrender in 1945 was the Interim Peoples Com-
mittee. Under the interim government a Commission on Foreign Trade
was established to exercise control over foreign trade. In August
1946 the Committee nationalized a large number of industrial and com-
mercial facilities, primarily Japanese holdings, thereby facilitating
the control functions of the Commission on Foreign Trade.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
When the government was reorganized in August 1947 as
the Peoples Committee of North Korea, a Department of Commerce was
established. Within this department there was created a Bureau of
Foreign Trade, which engaged in foreign trade operations and con-
trolled the foreign transactions carried out by state and private
firms.
After the constitution was adopted in September 1948
establishing the Korean Democratic Republic, the former Department
of Commerce was continued as the Ministry of Commerce, and an Ad-
ministration of Foreign Trade became a division of this Ministry.
The constitution provided that foreign trade was to be conducted by
the state or under the control of the state. Cabinet and Ministry
decisions consolidated most of the foreign trade operations in the
Administration for Foreign Trade and abolished many of the companies
under state and public organizations which had formerly carried on
foreign trade. The increased trading operations brought about a
division of the Administration of Foreign Trade into one bureau to
control and regulate foreign trade and a second "Trade Bureau,"
which actually carried out foreign trade operations. In early 1950
the Trade Bureau was further divided into an Export Administration
and an Import Administration, which together carried on the bulk of
the foreign trade of North Korea. A small amount of foreign trade
by private firms in specific commodities was permitted under strict
control of the Ministry of Commerce.
During the Korean War, foreign trade was greatly di-
minished and was conducted entirely by state organizations. In
October 1952 a Ministry of Foreign Trade was established, separate
from the Ministry of Commerce, with two main subdivisions -- Export
I Administration and Import Administration -- whose functions included
operations, control, and regulation. Most of the actual trading
operations, however, were handled by the state trading companies.
A separate Ministry of Foreign Trade continued until September 1956,
when it was again merged into the Ministry of Commerce. 55
There were no state trading companies in the usual
Communist pattern in North Korea until 1952. In the period 1946-52,
trade with the USSR, which comprised the bulk of North Korean for-
eign trade, was handled by the Trade Bureau under the Ministry of
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Commerce and its forerunners. Trade with the non-Soviet sector was
conducted by companies under the direct control of state and public
organizations, such as the Korean Trading Company, whose stock was
owned by the North Korean Labor (Communist) Party, and companies
operated by the Ministries of Education, of Internal Affairs, and
others. Most of these companies were abolished or brought under
control of the Ministry of Commerce in 1948. The Ministry of Com-
merce assumed control of the foreign trade section of the Korean
Trading Company and delegated back to that Company control over all
non-Soviet trade. The Trade Bureau and the Korean Trading Company
accounted for about 98 percent of North Korean foreign trade in
1948,E and most of the foreign trade continued to be conducted by
these two companies until 1952.
After September 1952, North Korea created four state trading
monopolies in the usual Sino-Soviet Bloc pattern (others may have
been established but have not been identified). These companies were
created as juridical persons responsible for their own obligations.
Each of the companies is headed by a chairman and includes such
basic administrative sections as planning, accounting, currency,
cadres, and management. These companies also have operating sec-
tions which reveal the primary commodity groups handled. Their
names, dates of formation, and operational departments are as listed
below.
Date
of
Operational
Formation
Departments
Raznoimport Foreign Trade
October 1952
Fuel and lubricants
Company
Chemical goods
Miscellaneous goods
Mashinoimport Foreign Trade
October 1952
Machinery and equipment
Company
Electrical equipment
Transport machinery
Tekhnoimport Foreign Trade
1953
Sets of equipment, prob-
Company
ably by industry desig-
nations such as electric
power and chemicals
Foreign Trade Transport
1953
Transport and storage of
Company
commodities
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
In addition, the Newspaper Administration of the Ministry
of Communications imports newspapers and periodicals, and the Book
Administration of the Ministry of Trade imports books.- The Korean
Trading Company has been retained and has an office in Peiping which
signed an unofficial trade agreement with a group of Japanese busi-
nessmen in 1956. 56/
Historically, a large portion of Korean foreign trade
was controlled by private Japanese traders. With the nationaliza-
tion decree of 1946, most of these commercial facilities in the
north were transferred to North Korean state and public organiza-
tions. This transfer and the shift in direction of trade toward the
USSR restricted the private trading firms to a very small percentage
of North Korean foreign trade. By 1948, private traders accounted
for only about 2 percent of total foreign trade, and even this activ-
ity was supervised by the Korean Trading Company.* The Korean War
resulted in complete cessation of the activities of private trading
companies. The private traders attempted to reestablish themselves
after the war but were limited to the business that the Ministry of
Foreign Trade passed on to them. Thus North Korea has, through
state companies and controls, established a state monopoly of for-
eign trade.
There is little information available on North Korean
banking in relation to foreign trade, but it is presumed that strin-
gent controls were placed on foreign exchange shortly after the Com-
munists came to power. The North Korean Central Bank contains a for-
eign exchange department and is probably the only agency authorized
to deal in foreign exchange at the present time. There is evidence,
however, that a branch of Vneshtorg Bank, the Soviet foreign trade
bank, was handling foreign currency transactions in North Korea during
1949-5o. 58
Financial arrangements between North Korea and the Sino-
Soviet Bloc are based on a bilateral clearing system, similar to the
Sino-Soviet Bloc pattern. The North Korean Central Bank acts as the
* The North Koreans announced that private foreign trade was 10 per-
cent of total trade in 1948, but available records indicate this was
10 percent of the non-Soviet trade. 57
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
clearing agent. The unit of account for the clearing during 1946-48
was the US dollar 59/ but was subsequently changed to the ruble. 60/
Because all announcements concerning the aid of Communist China to
North Korea have been in Chinese yuan, this may be the unit of account
currently used between North Korea and Communist China. North Korean
trade with countries such as China and Hong Kong was on a direct bar-
ter basis until 1949, when this system was dropped in favor of trans-
actions in local currencies. 61/
b. Customs. 62/
The Customs Administration in North Korea was under the
Ministry of Finance in 1949-50, but its present ministerial subordi-
nation is unknown. The only available information on customs duties
was published in 1948, and it is presumed that the general tariff
structure is still applied in the post-Korean War period.
The tariff schedule was designed mainly for revenue pur-
poses, but it also carried out trade and developmental policy by
discouraging nongovernmental trade, by encouraging trade in certain
commodities, and by discouraging trade in others. Revenue was de-
rived from ad valorem duties of 20 to 30 percent on primary exports
and 5 to 15 percent on primary imports. Nongovernmental trade was
discouraged by levying a tariff 50 percent above that on government
trade. Imports of certain commodities such as raw materials, food-
stuffs, and chemicals were encouraged by admitting them duty free, and
trade in other commodities was discouraged by export or import duties
of 40 to 50 percent.
North Korea has not announced an official exchange rate
for the won. It appears, however, that at least before the Korean
War there was not a single rate. Instead there were a number of
exchange rates between the won and certain foreign currencies ap-
proved by the North Korean authorities. These rates were used for
particular conversions, but the rates were mutually inconsistent
when converted to a single currency. For example, during 1949, when
US $1 equaled 5.3 rubles at the official exchange rate, 4 won to the
ruble appears to have been the usual rate for making conversions
between won and rubles. 63/ Mortrans used a rate of 500 won to US $1
(later reduced to. 300 won to US $1) for certain freight calcula-
tions, 64/ and the Korean Trading Company used two rates, 46 won and
100 won to the $1 (Hong Kong) for some of their calculations. 65
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Stating these various rates in terms of US dollars, the rates range
between 21.2 won and 500 won to US $1 during 1949. The inconsist-
ency between these various rates was employed as a source of profit
by at least one company, Mortrans, which anticipated that 18 percent
of its won profits for 1950 would be derived from this source. L6/
The lack of consistent exchange rates makes it extremely
difficult to convert the considerable data on foreign trade into mean-
ingful figures. The situation is further complicated by the possibil-
ity that some of the trade may be recorded in terms ofinternal buying
and selling prices. 67 Fortunately, however, some limited data on
foreign trade expressed in two currencies have allowed the calculation
of a series of implicit exchange rates which affords an approximation
of the dollar value of the foreign trade of North Korea, which is at
least as reliable as North Korean recording procedures. These im-
plicit exchange rates are as follows*:
1946, 61 won to us $1
1947, 82 won to US $1
1948, 140 won to US $1
1949, 100 won to US $1
For certain freight payments in 1954 and 1955 a won-ruble exchange rate
of 30 to 1 was used which represents a crossrate of 120 won to US $1. L8/
This exchange rate is currently used by the intelligence community for
the lack of anything better, but the extensive system of rates known to
have been in use before, particularly for freight calculations, suggests
that this rate may be only one of several and its applicability limited
to freight calculations.
d. Pricing of Exports.
The prices received for North Korean exports to the USSR
during 1949 and 1950 as stated in rubles bear no consistent relation-
ship to internal North Korean prices L g/; the ratios of domestic won
prices to export ruble prices range from less than 1:1 to 36:1. These
varying price ratios indicate that export prices were not derived by
applying a single exchange rate to internal prices.
Prices of exports by North Korea to the USSR remained almost
constant during 1949 and 1950 and compared favorably with the average
prices for similar products on world markets during 1949. For most
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
'CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
North Korean exports the USSR paid prices slightly higher in 1949
than those which obtained on world markets. For gold, North Korea was
paid a price which was less than 0.1 percent below that of the US
Treasury buying price.
The price information available on North Korean exports
in 1949-50 indicates that despite Soviet domination of North Korean
trade the USSR did not use foreign trade prices to exploit the North
Korean economy and supports the claims of the Sino-Soviet Bloc that
trade is carried on in constant prices established by negotiation and
based on world market prices. Furthermore, this price information
reveals how well insulated is the North Korean internal price structure
from external influences.
The Korean Trading Company, which was responsible for
non-Soviet trade in the period before the Korean War, appeared to
have had no consistent price policy and very little information about
world market prices. In some cases, export cargoes carried to Hong
Kong had less value than the shipping charges for the voyage, and
in a few instances, storage charges accumulated in Hong Kong which were
greater than the value of the goods. 70/ The company's general practice
was to sell a cargo of goods in Hong Kong for the best current prices
obtainable and, with this exchange, to purchase commodities for the
return trip. During 1949 and 1950 the company introduced some steps
to improve marketing techniques. The valuation of imports and exports
in the North Korean custom statistics, moreover, appears to have been
the internal won buying and selling price of the goods, at least for
those handled by the Korean Trading Company. Thus when the company in-
creased the selling price of imports by 20 percent to counteract a
deficiency in working capital in 1949, the foreign trade import statis-
tics presumably showed a corresponding. increase, although no price or
volume change had occurred in the foreign markets. 71/
VIII. Soviet-Korean Joint Stock Companies.
The three Soviet-Korean joint stock companies operating the North
Korean airlines, ocean shipping, and the oil refinery at Wonsan were
the only significant property holdings by foreign interests in North
Korea after 1946.* Only limited information is available on the ope-
rations of the airlines company, but the shipping company and the
* There was a department store, I.A. Churin and Company, in P'yongyang,
owned by several Soviet foreign trade corporations, which appears to
have been small and intended to serve the Soviet colony in North
Korea. 72/ There were reportedly some small Chinese firms also.
- 34 -
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
petroleum company appear to have been profitable organizations. It
is estimated that the Soviet share in the profits (50 percent) of these
companies amounted to 100 million won in 1949, but the North Korean
multiple exchange rates preclude valuation of this profit in external
currencies.*
The joint stock companies were not without drawbacks to North
Korea. The country gained the advantage of having a shipping and
air service at its disposal and a refinery in operation. Furthermore,
these companies provided excellent training for Korean management and
technical personnel, and North Korea received half of the profits.
On the other hand, North Korea probably had to make a larger repayment
in the form of yearly profits plus repurchase of the Soviet interests
than if'the Soviet assistance had been in the form of a straight credit.
The Soviet shares in the three joint stock companies were sold to
North Korea in 1955 in return for a North Korean commitment to export
goods to the USSR over a period of years. 74 Limited data do not
permit an estimate of the value of the Soviet shares in 1955. The
refinery of the Wonsan Petroleum Company appears to be completely in-
active as a result of war damage; the vessels of Mortrans, which
were obsolete in 1947, probably are of small value; and the value of
the airline apparently is small. The fact that North Korea will make
payments over a period of years, however, suggests that the appraised
value of the Soviet shares was not insignificant.
1. Petroleum Joint Stock Company. 75/
The Soviet-Korean Petroleum Joint Stock Company, the Wonsan
Petroleum Company, was formed in April 1947 under an agreement
between the North Korean government and the Soviet Ministry of
Foreign Trade. The physical assets of the company were the refinery and
its property. The Soviet contribution to the capital of the company
(50 percent) was its half interest in the refinery which had been
acquired in March 1947 in return for earlier Soviet aid to North Korea,
and the North Korean contribution was represented by its half ownership
of the refinery. The refinery and all invested material were to be
appraised on the basis of 1938 prices, and it is probable that the
valuation of the assets of the company (20 million North Korean
* Based on the anticipated profit of the shipping company in 1950 (in
turn based on 1949 experience) and the earnings of the petroleum
company in 1947 and 1948. 73
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
won) was a simple conversion of the Japanese valuation of 1938
(20 million Japanese yen). This equality of won and yen appears
in other business records of the joint stock companies. Inas-
much as the Japanese valuation of the refinery had increased two
and one-half times by 1944) it appears that the Wonsan Company's use
of 1938 valn.es greatly understated the net worth of this joint venture.
In addition to these physical assets, each partner was to contribute
to the company 20 million won in cash as a reserve capital fund. The
Soviet shareholders were the All-Union Combine of Soviet Oil Export,
the Sakhalin Oil Trust, and the Main Office of the Synthetic Fuel
Company. The North Korean shareholders were the West Coal Trust, the
Wonsan Plant of the Nonferrous Metal Trust, and the North Korean Cen-
tral Bank.
The Wonsan Petroleum Company was established for a period of
30 years for the purpose of operating the refinery and selling petro-
leum products in North Korea and abroad. Control of the company
apparently was lodged in the managing director, a Russian. The company
has been given authority to engage in foreign trade and to utilize
foreign exchange from these operations to purchase necessary imports,
subject to the North Korean foreign exchange restrictions. In practice
the company apparently did not carry on any foreign trade but relied
on the North Korean government to import crude oil and other necessary
supplies. In receiving profits the Soviet shareholders could select
payment in North Korean currency, foreign currency, or company products.
The Wonsan Petroleum Company appears to have been unable to
obtain sufficient crude oil to operate at full capacity, but it devel-
oped sidelines in the salt and fishing industries to supplement its
income. Little information is available on profits of the company,
although there is evidence they were substantial during 1948, 1949, and
part of 1950. The refinery was destroyed by bombing in 1950, and no
reconstruction has been noted.
2. Sea Transport Joint Stock Company. 76/
The Soviet-Korean Sea Transport Joint Stock Company (Mortrans)
was formed in March 1947 by agreement of the North Korean government
and the Soviet Ministry of Foreign Trade. The Soviet shareholders
were four Soviet transportation companies, and the Korean shareholders
were the Hungnam Chemical Combine and the Northern Coal Trust. The share
capital was 28 million won, equally contributed. The Soviet contribution
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79R01141A000900100002-8
consisted of the use of 3 freighters and 1 passenger vessel for 30
years -- the USSR retained ownership of the vessels but contributed
the charter funds to Mortrans as its share of the capital. The North
Korean contribution was the use of the ports and installations at
Ch'ongjin, Najin, and Unggi for 30 years, the yearly lease payments
being recorded as North Korean payments of its share of the capital.
The valuation of the lease payments for the vessels and the port
facilities was to be based on 1938 prices. In addition, each side con-
tributed 10 million won in cash for a reserve capital fund.
Mortrans was established to develop and handle the ocean
transport service of North Korea. In practice the company engaged in
the overland transport of foreign trade goods from interior points
with a fleet of trucks, as well as quayage and ocean-shipping activi-
ties. The company was given the status of a North Korean state-owned
enterprise and was excused from paying certain taxes. The managing
director, a Russian, exercised primary control in the company. The
North Korean Central Bank granted favored treatment to the company in
foreign exchange transactions and allowed it to hold deposits and
make loans in Chinese yuan in Dairen, Manchuria. The company obtained
permission from North Korea to engage in foreign trade in order to
obtain supplies not available in North Korea.
Mortrans encountered initial problems with the vessels and
facilities turned over to it by the shareholders. The Soviet vessels
were badly in need of repair, which the company was compelled to under-
take: for example, one of the vessels contributed by the USSR was
shortly afterward denied permission to operate in Soviet ports until
repairs were made in accordance with Soviet safety standards. A
second problem was encountered in maintaining supplies of bituminous
coal for ship operations; activities of the company were severely
limited in late 1947 and early 1948 because coal apparently could be
obtained neither from North Korea nor from the USSR.
In dealings in various foreign currencies the company employed
to advantage the nonuniform rates of exchange in North Korea. In 1949,
some transactions were computed at 300 won to US $1 and others at 21.1
won to US $1. About 18 percent of the planned profits of the company
in 1950 were to be derived from such use of the foreign exchange rates.
On the basis of planned earnings in 1950, it appears likely that
Mortrans had a total profit in 1949 of about 100 million won. This
profit was realized despite old equipment, constant need for repair, and
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79R01141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
high costs of operation. Mortrans handled freight for the North Korean
government, the USSR, the Chinese Communists, and the Japanese, but its
largest and most profitable customer was the Korean Trading Company. In
1949 the Korean Trading Company shipped over half its cargoes with
Mortrans, in spite of the fact that charges were approximately double
those of a British shipping firm in Hong Kong.
3. Air Transport Joint Stock Company. 77/
The Soviet-Korean Air Transport Joint Stock Company (Sovetsko-
Koreskoye Aktisionernoye Obshchestvo Grazhdanskoy -- SOKAO), was formed
in 1950. It halted operations during the Korean War but resumed
flights in 1953. The schedule of the company consists of domestic
flights connecting Pyongyang with a few North Korean cities and one
international flight between Pyongyang and Chita in the Soviet Far East,
connecting with the trans-Siberian route of the Soviet carrier, Aeroflot.
It is probable that the USSR contributed the aircraft to this company
and that North Korea contributed airfields and ground facilities.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
S -E -C -R-E -T
APPENDIX A
METHODOLOGY FOR DERIVING IMPLICIT EXCHANGE RATES
The implicit exchange rates shown in VII, 2, c,* represent the
ratios between parts of North Korean foreign trade stated in won
and foreign currencies. For the period 1946-48 the implicit rates
were the ratios each year between total Soviet - North Korean trade
stated both in won and in rubles. 78/ The resulting ratios were con-
verted from rubles to dollars at the official rate of 5.3 to I. For
1949 the ratio was derived from several sets of figures relating to
North Korean - Hong Kong foreign trade and stated in won and US dol-
lars. The resulting ratios varied from 87 won to 115 won to US $1;
100 won to US $1 was selected as the approximate implicit exchange
rate.
It was assumed that the implicit rates calculated from total
Soviet - North Korean trade figures applied equally to all North
Korean foreign trade as well as to imports and exports. A partial
check on this assumption is afforded through another table which
shows North Korean imports from the USSR in dollars for 1946 through
1948 distinct from the figures used to derive the rates above. 79V
In 1947 and 1948 the estimated rates based on total Soviet - North
Korean trade convert won values of imports from the USSR into dol-
lars within 2 percent of their actual value. In 1946, however, the
conversion by the estimated rate differs by 25 percent from the
actual dollar value of imports from the USSR. This large disparity
may have been caused by noncomparable data because the sources differ,
or it may indicate that the same exchange rate cannot be applied to
both imports and exports. It is assumed, however, that the 2 com-
parable years (1947 and 1948) confirm the initial assumption that the
same rate can be used for both imports and exports. The validity of
the implicit rate for 1949 is weakened by the fact that it was de-
rived from a smaller sample of North Korean trade than for the previous
years. This implicit rate is used in Table 2** to convert only 4 per-
cent of North Korean trade in 1949, however, so that the dollar value
conversion of North Korean trade in 1949 is probably as reliable as
in the other years. Furthermore, the general low level of North
* P. 31, above.
* P. 8, above.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Korean statistical procedures, plus the conflicting documentary
material on identical subject matter, renders any North Korean
statistical material only a rough approximation. These implicit
exchange rates appear as reliable and accurate as the material they
are used to convert. In fact, the lack of precision in the implicit
rates is largely the result of the poor North Korean statistical
and recording techniques.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
S-E-C-R-E-T
APPENDIX B
VALUE OF POLISH AID TO NORTH KOREA
During the visit of the Polish governmental delegation to North
Korea in March and April 1957, North Korea made the first announce-
ment concerning the value of the Polish aid commitment. The Polish
commitment was stated to be 364 million zlotys covering-the period
1954-57. 80/ Conversion of this pledge from zlotys into dollars at
the official exchange rate appears greatly to overstate its value,
although the other Sino-Soviet Bloc aid commitments, announced in
terms of rubles and Chinese yuan, have been converted at official rates.
The Polish commitment converted at the official gold parity rate of
4 zlotys to US $1 totals $91 million. Polish aid of this magnitude
appears too large in comparison with aid from East Germany, which is
committed to an aid program only 25 percent larger than that of Poland
but covering a period two and one-half times as long, and Czechoslo-
vakia, which is committed to an aid program only 30 percent as large
as Poland but covering a period twice as long. 81 Moreover, the
yearly North Korean announcements concerning aid deliveries show that
Poland has delivered a maximum of $25 million (converted from rubles
at the official rate) of aid during the period 1954-56. 82/ If the
zloty commitment is converted at the official rate, a balance of at
least $66 million of aid is left for Poland to deliver in 1957 to ful-
fill its commitment on time. Deliveries of this magnitude appear too
large when the largest yearly total of aid sent by Poland was $11 million
in 1955. L3/ Furthermore, the aid commitments of the other European
Satellites and the USSR have been stated in terms of rubles. The state-
ment of the Polish aid in terms of zlotys differs from this pattern and
suggests a different valuation process.
The Polish commitment in zlotys appears to represent a value in
internal Polish prices which, unfortunately, are difficult to convert
to dollars. The Poles have stated that the best approximation of the
exchange rate between internal zloty values and dollars is 24 zlotys
to US $1, although individual goods may have rates varying between
10 and 40 zlotys to US $1. 84/ If the Polish aid commitment of 364
million zlotys is converted at 24 zlotys to US $1, the aid amounts to
$15 million. It is known, however, that Poland sent $16 million (con-
verted from rubles) worth of aid in 1955 and 1956 alone, thus indicating
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
that the exchange ratio for the Polish deliveries must be something
less than 24 zlotys to US $1. The precise amount of Polish deliveries
in 1954 is unknown but is believed to be about $5 million, with a
maximum of $9 million. Assuming that Poland will make deliveries of
approximately the same magnitude during 1957, the approximate dollar
value of the Polish commitment is in the neighborhood of $25 million.
This is the value for Polish aid that has been used in Table 9.*
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
S-E-C -R -E-T
APPENDIX C
METHODOLOGY
The methodology used in arriving at estimates of the foreign trade
of North Korea differs by time period. For the 1946-50 period the
methodology consisted primarily of selecting and consolidating data
from the extensive documentary material obtained during the Korean War.
The chaotic state of North Korean statistical and financial procedures
caused many conflicts in data, and selection had to be on the basis of
what appeared most reasonable. For example, there is a complete trans-
lation of the statistics of the North Korean Statistical Bureau for
1946 85/; the trade figures are identical with figt.res in a Ministry
of Foreign Trade table for 1946-48 86/ except that there is a large
difference in the imports from China. The figures of the Ministry of
Foreign Trade were used on the basis that there would be a consistency
in data for 1946-48 and that probably this table would include any
revisions after the publication date of the figures of the Statistical
Bureau.
For the period since the Korean War the methodology consists
primarily of the compilation of statements both from Sino-Soviet Bloc
sources The statements varied in 50X1
scope from announcements of over-all value of aid imports to reports
of the movement of individual items. From the source material and
the two methodologies it has been possible to derive a reasonably
accurate estimate of North Korean foreign trade, as well as its com-
position and direction.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
 Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-R DP79RO1141A000900100002-8