INTELLIGENCE MEMORANDUM RECENT TRENDS IN NORTH KOREA'S FOREIGN TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030035-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: October 31, 2011
• Sequence Number: 35
• Publication Date: March 1, 1970
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Recent Trends In North Korea's Foreign Trade
Secret
ER IM 70-35
March 1970
Copy No.
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
CecludeJ Lon noimm~i
d wngrndinry and
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M SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
March 1970
INTELLIGENCE MEMORANDUM
Recent Trends In North Korea's
Foreign Tra e
Introduction
North Korea, as does South Korea, depends
heavily on imports to supply the machinery and
equipment necessary to sustain economic growth.
In recent years the level of imports of machinery
and equipment by South Korea has greatly surpassed
that of North Korea; thus South Korea has come out
well ahead in the competitive race for economic
growth between the two countries. During the
1960s, South Korea benefited from substantial US
aid (both official and private), from Japanese
private investment, and from increased foreign
exchange earnings accompanying the rapid expansion
of exports. After the completion of post-war re-
construction in the early 1960s until 1968, however,
North Korea received little or no financial assist-
ance for the purchase of machinery and equipment.
This memorandum discusses the developments in North
Korea's foreign trade during 1968 and 1969 and the
importance of this trade to North Korea's economic
development.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Strategic
Re s e arch.
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Trade Pattern*
1. After a surprising increase of 24% in 1968,
the growth of North Korea's foreign trade returned
in 1969 to a more normal rate, probably 5%. Most
of the growth in 1968 was the result of an increase
of 36% in imports; exports increased by 12%. Thus
North Korea registered a trade deficit of $52 mil-
lion for the year (see Figure 1) . The deficit was
North Korea: Exports and Imports
Millon US $
almost entirely with the USSR and probably reflects
the resumption of Soviet economic credits to North
Korea. Preliminary estimates for 1969 suggest that
the rapid growth during 1968 was not maintaindd and
that North Korea's trade turnover in 1969 amounted
to more than $580 million. Another sizable trade
deficit was probably incurred during the year.
2. North Korea cQntinued to depend on other
Communist countries for about 80% of its trade.
* Trade data include the value of all goods traded
except military hardware supplied under Soviet mili-
tary grante. M;Zitary imports are discussed in
paragraph 10.
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The USSR has reinforced its predominance as North
Korea's largest ant. most important trading partner,
whereas trade with Communist China has fallen off
since North Korean-Chinese relations began dete-
riorating in 1966 (see Table 1). North Korean-
Chinese trade in 1969 probably remained at about
the same level as in 1968. Trade with the USSR
continued to increase during 1969 but at a much
lower rate than in 1968; the North Korean-Soviet
exchange of civilian goods grew, but imports of
military equipment fell to a very low level. Trade
with Eastern Europe has been relatively constant in
recent years, but rose to a new peak in 1968 and
maintained this level in 1969. Poland, North Korea's
largest East European trading partner, refused to
fulfill its import quotas because of the high North
Korean prices; and, as a result, the level of trade
called for in the 1969 North Korean-Polish trade
protocol was not reached.
3. North Korea's trade with the Free World
during 1968 increased 38% above the 1967 level and
may have increased another 25% during 1969. Because
of its close geographic proxim4.ty to North Korea,
Japan has emerged as North Korea's largest Free
World trading partner. In the past, Japanese-North
Korean trade has been severely unbalanced in North
Korea's favor and P'yongyang has used these foreign
exchange earnings to purchase goods from Western
Europe and Australia. During 196 8 , however, North
Korea more than tripled its imports from Japan
while exports increased by only 15%. North Korea's
favorable trade balance with Japan, therefore, fell
by $10.8 million. Consequently, in order to finance
the larger overall Free World purchases, North
Korea's exports to Western Europe doubled while
imports from those countries remained relatively
stable. Preliminary estimates of 1969 trade indi-
cate that the expansion in Free World trade con-
tinued as North Korea increased its purchases from
Western Europe. For example, North Korea imported
$20.9 million worth of goods from France and West
Germany through the first half of 1969 alone, Con-
sequently, West European-North Korean trade may have
doubled in 1969 and North Korean trade with all Free
World countries could have resulted in a deficit of
as much as $20 million. If so, this would be North
Korea's largest trade deficit with the Free World,
surpassing the 1965 deficit of $15.1 million. More
than half of the estimated 1969 deficit was financed
by the export of gold, valued at $11.3 million, to
France in the last quarter of 1969.
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Table 1
North Korean Foreign Trade
a. Because of rounding, components may not add to the totals
shown.
b. Including Albania.
C. Including North Vietnam, Mongolia, Cuba, and Yugoslavia.
d. Less than $50,000.
by Country a/
Million US $
North Korean
North Korean
Exports
Imports
1966
1967
1968
1966
1967
1968
Total 221.4
225.8
253.2
201.5
224.1
305.4
Communist 189.0
188.7
206.3
170.0
191.9
256
4
USSR
92.3
108.0
120.9
85.6
110.3
.
172.2
Communist China
60.0
50.0
45.0
60.0
50.0
45.C
Eastern Europe b/
Of which:
28.0
22.0
31.7
21.2
28.3
35.9
Bulgaria
1.6
1.0
0.9
0.9
0.8
0.8
Czechoslovakia
10.1
6.7
7.1
4.1
3.7
3.8
East Germany
3.1
4.7
5.5
4.2
8.0
8.7
Hungary
3.1
1.7
2.2
0.9
1.6
2.6
Poland
6.4
2.5
9.3
6.4
7.8
11.8
Romania
3.1
5.1
6.3
3.9
5.6
7.4
Other Communist c/
8.7
8.7
8.7
3.2
3.3
3.3
Free World 32.4
37.1
46.9
31.6
32.2
49
0
East Asia
Of which:
26.9
31.5
36.4
6.1
7.1
.
24.8
Japan
21.6
28.1
32.4
5.3
6.7
21.8
Western Europe
Of which:
3.6
4.9
9.7
16.7
15.4
15.0
France
d/
0.3
0.7
7.6
9.3
4.0
West Germany
1.1
0.6
2.3
1.2
3.7
8.4
Netherlands
1.0
1.6
2.7
1.5
0.8
0.2
United Kingdom
0.5
1.3
1.4
0.1
0.1
0.3
Other Free World
1.9
0.7
0.8
8.7
9.7
9.2
Australia
0
0
0
3.4
6.5
8.6
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Commodity Composition
4. North Korea primarily exports semifinished
manufactured goods and food products in order to
purchase machinery and equipment, fuels, and finished
manufactured goods which cannot be domestically pro-
duced in sufficient quantities. Although North
Korea's exports have grown steadily, the commodity
mix does not change significantly from year to year.
The commodity composition of imports, however, has
been changing as North Korea's requirements for
wheat, fuel, and machinery and equipment change.
Figure 2 shows the relative commodity composition
of North Korea's total imports and exports, and the
Figure 2
North Korea: Commodity Composition
of Trade, 1968
Imports Exports
US $305 million US $253 million
Machinery and 1.8%ls Unidentified
E4uipmcnt j Z4.O%
Chemicals
Crude
Materials
Appendix presents a more detailed breakdown of North
Korea's trade with the USSR and the Free World during
1967-68.
5. North Korea has only limited control over
many of the commodities it must import. For ex-
ample, grain imports probably fluctuate with the
agricultural performance in previous years, and
the level of Soviet deliveries of machinery and
equipment has apparently been dependent upon Soviet
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willingness to provide credits. North Korea's im-
ports of grain (mostly wheat and wheat flour) since
1965 from the USSR and Free World countries are
shown in Table 2. Grain imports rose in 1966-67
Table 2
North Korean Grain Imports
Thousand Metric Tons
1965
1966
1967
1968
USSR
100.5 a/
117.7
250.7
105.4
Australia
45.7
46.0
92.0
135.0
Canada
0
150.0
b/
0
0
France
67.0
68.1
117.0
0
Other
10.0
120.2
0
0
Total
23;;.2
502.0
459.7
240.4
a. Corn.
b. These shipments were on Chinese-
chartered ships and apparently on Chinese
account. No other information is available
on Chinese wheat exports to North Korea.
following the relatively poor crop years of 1965
and 1966. A good grain crop during 1967, however,
permitted imports to drop by nearly one-half in
1968. However, wheat imports from the USSR are
apparently matched with rice exports to that coun-
try suggesting a rice-wheat exchange ,with the North
Koreans gaining calories per dollar by the exchange.
6. North Korea also depends on imports to sat-
isfy its requirement for high-quality coking coal
and petroleum products. It imported bituminous coal
for coke production from Communist China before the
Cultural Revolution, but since 1966 China has been
unable or unwilling to meet North Korea's require-
ments., Consequently, North Korea turned to the
USSR as an alternative source for coke and coking
quality coal. Purchases of these goods increased
from virtually nothing during 1966 to $17.4 million
in 1968. The USSR supplied between 350,000 and
450,000 metric tons of petroleum annually during
1961-67 to satisfy North Korea's requirements for
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these products. But in 1968 the USSR increased
its shipments of petroleum products to North Korea
to 714,000 metric tons, valued at'about $26 million.
Some of the growth -In these petroleum imports can
be attributed to increased transportation and indus-
trial activity within North Korea. But in addition,
North Korea recently has been increasing its petro-
leum storage facilities; consequently, some of these
increased imports have probably been stored for
future use.
7. North Korea depends heavily on imports to
supply the machinery and equipment necessary to
sustain economic growth. Although the USSR is the
primary source for these goods, the following tabu-
lation indicates how quickly Free World shipments
of technical equipment to North Korea have been
increasing in recent years -- nearly tripling from
1967 to 1968:
Million US $
1966
1967
1968
Total
6.2
6.3
18.2
Japan
0.7
1.1
7.8
Western
Europe
5.5
5.2
10.4
Most of the increase during 1968 resulted from
large purchases of r;etalworking machine tools and
electrical equipment from Japan and West Germany.
in 1969, North Korea's imports of machinery and
equipment from Japan increased to $9.8 million and
purchases of these goods from Western Europe may
have grown to between $15 million and $20 million.
Detailed data are insufficient to determine the
composition of these goods, but they probably were
the same types of equipment purchased in previous
years.
8. The tabulation below shows North Korea's
continuing dependence cn the USSR for its machinery
and equipment:
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Million US $
Machinery and
equipment
29.2
29.5
20.0
47.2
Complete plants
13.2
17.5
3.1
16.8
These imports more than doubled during 1968 and are
well above any previous level. The value of com-
plete plants imported from the USSR recovered to
the 1966 level after falling in 1967 to the lowest
level since 1961. These plants account for a large
part of the total increase in machinery and equip-
ment imported from the USSR, while larger purchases
of transportation and electrical power equipment
account for most of the remainder.
9. During 1966-67, North Korea and the USSR
discussed the resumption of the 1961 Soviet economic
aid agreements which called for Soviet assistance in
the construction of an oil refinery, a thermoelectric
powerplant, and an addition to the Kimchaek Iron and
Steel Plant. Construction activity is reportedly
progressing at a rapid pace at all of these locations.
Deliveries for these projects probably accounted for
a large part of the Soviet machinery and equipment
shipped to North Korea and for most of the $51 mil-
lion trade deficit in 1968. A $30 million to $40
million trade deficit could have been generated
again during 1969 as a result of the continuing
construction of Soviet assisted projects in North
Korea.
Military Trade
10. North Korea has imported about $200 million
worth of mllitary equipment from the USSR since
1965 -- $60 million to $70 million in 1968 and less
than $5 million in 1969 -- while military deliveries
from Communist China have amounted to about $15 mil-
lion over thn same period. Soviet deliveries in-
clude MIG-21 jet fighters, SA-2 surface--to-air
missile equipment, W-class submarines, Osa-class
and Komar-class guided missile patrol boats, and
ground force weapons and materials. It is unclear
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to what extent these Soviet deliveries were financed
under credit, grant, or current account. However,
an analysis of the residual* in Soviet exports to
North Korea, as derived from the Soviet trade sta-
tistics, allows some generalizations about the
method of payment for military goods. During
1964-67 the residual averaged about $8 million
each year, but grew to $24 million in 1968. This
increase, together with the large trade deficit
built up with the USSR, suggests that as much as
$20 million worth of military equipment may have
been imported in 1968 from the USSR under credit
or on current account. If the analysis of the
residual is correct, the remaining Soviet military
equipment received by North Korea during 1968 was
probably financed by grants. Known military ship-
ments in 1969 consisted of two Korr,:r-class guided
missile boats and some ground equipment; the values
of this equipment are so small that, the method of
payment cannot be determined.
Impact on the Economy
11. North Korea's seven-year plan, which was
originally scheduled to end in 1967, will finally
draw to a close in 1970, and the North Korean
leaders have announced a new five-year plan for
1971-75. Consequently, during 1970, the prospects
for increased trade are bright as North Korea steps
up purchases of machinery and equipment to complete
the current plan and to prepare for the new plan.
The level of North Korea's trade, however, will
still be far below that of South Korea's, in part
because P'yongyang exports much less than the South
and also is unable to obtain medium-term and long-
term credits from the countries of the Free World.
In 1968, South Korea's exports were valued at
$455 million and imports at $1,463 million, of
which goods under credit agreement totaled $425
million -- more than eight times the credit received
by the North. The relative benefits derived from
imports by North Korea and South Korea are perhaps
better shown by the respective receipts of machinery
The residual is the difference between the value
of total Soviet exports reported and the sum of the
values of the commodities reported. This category
of unidentified commodities is generally believed
to contain Soviet military shipments to other coun-
tries under credit or current account: Deliveries
under grants are not included in the trade statistics.
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and equipment. During 1968, South Korean imports
of machinery and equipment amounted to $533 million,
more than five and one-half times that of North
Korea, thus increasing capital stock and productive
capacity more rapidly than in the North. This con-
trast indicates one major reason why the North
Korean economy is not likely to match the recent
economic growth of South Korea, which has been two
to three tim3s that of the North since 1964.
Conclusions
12. North Korea's foreign trade grew by a sur-
prising 24% during 1968 -- from $450 million to
$559 million -- but gains leveled off to a more
usual rate of probably 5% during 1969 (increasing
to more than $580 million). The rapid growth during
1968 was made possible by a trade deficit of $51
million with the USSR, which suggests the first
Soviet economic credit to North Korea since the
post-Korean War reconstruction was completed in the
early 1960s.
13. Thus North Korea was-able in 1968 to expand
purchases of complete plants and other equipment
from the USSR and probably has maintained the 1968
level of such imports in 1969. Trade with countries
of the Free World increased from $69 million in 1967
to $96 million in 1968 and perhaps reached $120 mil-
lion during 1969. While still secondary to Soviet
deliveries, machinery and equipment from Japan and
Western Europe are playing an increasingly impor-
tant role in North Korea's economic development.
14. Although North Korea's imports of machinery
and equipment are at a higher level than they were
prior to 1968, they are still only 15% to 20% of
the level of these imports by South Korea. This
comparison illustrates why the recent growth of
the South Korean economy has been two to three
times that of North Korea. The relative impor-
tance of North Korea's major trading partners and
the changes in their trade during 1967-69 are in-
dicated in the following tabulation:
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Million US $
Preliminary
1966
1967
1968
1969
USSR
178
218
293
300
Eastern Europe
49
50
68
65
Communist China
120
100
90
90
Free World
64
69
96
120
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APPENDIX
Commodit Composition of North Korean Trade
wi a Free World an a USSR
Thousand US $
1967
1968
Free World
USSR
Free World
USSR
Total imports
32,183
110.,332
4 9 039
172,222
Foodstuffs
14,279
27,992
385
16
052
n
,
,
w
y
Of which:
Wheat and wheat flour
Refined sugar
14,245
24,772
8,158
8,233
0
3,C22
0
7,589
Crude materials, fuels, and edible oils
1,630
12,474
6
026
16
153
,
,
Of which:
Cotton
Vegetable oils
924
8,180
0
10,683
123
1,828
254
2,810
Petroleum products and fuels
92
19,340
182
43,440
"1 which :
Petroleum products
Coke
0
16,784
171
25,528
Coal (bituminous)
0
2,282
0
4,527
0
2?4
0
12,879
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Thousand US $
Free World
USSR
Free World
USSR
Chemicals
2,413
1,925
5,509
5,423
Of which:
Fertilizers
812
a
0
1
118
Organic chemicals
812
0
1
126
,
0
Medicines and pharmaceuticals
297
467
,
299
917
Manufactured goods
3,614
19,989
9,729
20,131
fi
Of which:
n
[T1
A
Rubber tires
T
i
107
5,454
251
5
409
ext
les and synthetic fibers
1,454
879
1
305
,
1
072
Ferroalloys
I
443
2,907
,
390
,
2
992
ron and steel products
Aluminum
391
11
3,830
1,131
2,276
768
,
3,296
1
137
Timber products
0
1,154
644
,
1,832
Machinery and equipment a/
6,298
19,969
18,205
47,217
Of which:
Transportation equipment
N
l
3,187
6,350
1,750
8
942
one
ectric machinery and equipment
El
2,006
7,700
3,335
,
23
243
ectric machinery and equipment
U
i
883
2,549
5,450
,
6
186
nspec
fied machinery and equipment
0
--2,898
0
,
5
050
Metalworking machine tools
222
472
7,670
,
3,796
Unidentified
3,857
8,643
1,003
23,806
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Thousand US $
1967
1968
Free World
USSR
Free World
USSR
Total exports
37,078
108,000
46, 914
120,888
Foodstuffs, tobacco, and beverages
2,433
23,144
19,114
Of which :
Fish
1,338
0
1,938
0
Rice
147
17,354
0
8,237
Corn
374
0
419
0
Apples
72
2;768
0
6,169
Tobacco
92
1,398
0
4,080
C7--'
L8
Crude materials and edible oils
9,269
3,036
11,770
4,325
y
Of which:
Silk
1,508
0
2,248
0
Iron ore
5,258
0
5,775
0
other minerals and ores
2,074
2,803
875
4,303
Petroleum products and fuels
1,370
0
1,419
0
Of which:
Coal
1,370
0
1,419
0
Chemicals
98
3,070
363
5,316
Of which:
Calcium carbide
0
2,272
294
1,516
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Thousand US $
0-3
Free World
USSR
Free World
USSR
23,106
76,010
29,584
85,088
Pig iron
9,549
3,907
12,574
4,470
Rolled steel products 5,571
40,853
3,623
40,661
Zinc 4,596
1,938
6,433
1,136
Lead 305
5,117
2,122
5,777
Other nonferrous metals
2,519
175
2,912
127
Magnesite powder
0
8,937
37
11,890
Cement
0
3,716
0
4,307
Other construction materials
0
2,405
0
4,112
Clothing
0
3,671
0
6,321
Machinery and equipment 187
510
0
2,654
1nidentified TIT
2,3
1,o2r
~~
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030035-0