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• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00794R000200800001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: January 12, 2017
• Document Release Date: May 17, 2011
• Sequence Number: 1
• Publication Date: July 1, 1986
• Content Type: REPORT

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Secret
North Korea-USSR:
Strengthening Political Ties
But Limited Economic Payoff
Secret
EA 86-10031
July 1986
353
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Directorate of
Intelligence
North Korea-USSR:
Strengthening Political Ties
But Limited Economic Payoff
Northeast Asia Division, OEA,
This paper was prepared by l Office of
East Asian Analysis. Comments and queries are
welcome and may be directed to the Chief,
Secret
EA 86-10031
July 1986
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North Korea-USSR:
Strengthening Political Ties
But Limited Economic Payoff
Summary The past two years have seen renewed Soviet deliveries of major weapon
Information available systems to North Korea and a strengthening of political ties between the
as of 1 July 1986 two countries. The North's strapped economy could benefit if this trend
was used in this report.
carried over into the economic relationship, and, as P'yongyang prepares
for its next long-term economic plan, it is looking to Moscow for increased
supplies of raw materials-especially oil-technology, and equipment.
The USSR has taken a tightfisted approach to North Korea in the past,
however, and we expect it will continue to do so. The volume of the North's
nonmilitary imports from the USSR has essentially stagnated since 1977,
as the Soviets have insisted on balanced trade and repayments of P'yong-
yang's $640 million debt. Reporting from open
sources indicates the Soviets are holding back on new economic commit-
ments to the North. Moscow certainly recognizes that Pyongyang cannot
afford every item Kim 11-song requested during a 1984 visit to the USSR
and probably is unwilling to commit itself to a large financial assistance
package. As it has with its East European allies, we expect Moscow will de-
mand cash for most of its deliveries to North Korea. Because it is unlikely
that North Korea can increase its real exports at a much faster rate than
the 4 percent a year achieved since the mid-1970s, trade between the two
countries probably will fall far short of the 17-percent annual growth
target in the 1986-90 bilateral trade agreement signed in February.
Nor is it likely that North Korea will obtain much economic relief from
other sources. The Chinese probably will at best provide minimal credits,
and P'yongyang is meeting with little success in persuading Western
creditors-to whom the North is deeply in debt-to provide additional
financing.
Moscow could come through with more support if North Korea faced
shortages severe enough to affect political stability or if a North Korean
leadership transition led to a more flexible pro-Soviet attitude in P'yong-
yang. In either case, however, we do not foresee a sustained increase in So-
viet economic support. Nonetheless, although North Korea may be dissat-
isfied with its economic relationship with Moscow, continued military
deliveries would probably encourage P'yongyang to limit its complaints.
Secret
EA 86-10031
July 1986
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Contents
Summary
Setting the Scene
Dependence on Imports
Squeeze on Exports
Soviet Assistance-Truly Aid? 3
North Korea's Alternatives: Not Hopeful 8
Little Prospect for Change 8
A. North Korea: The Role of Imports From the USSR
C. North Korea: Annual Average Trade With the USSR,
by Commodity, 1981-84
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North Korea-USSR:
Strengthening Political Ties
But Limited Economic Payoff
Setting the Scene Figure 1
The warming in North Korean-Soviet political rela- North Korea: Value and Volume Trends in
tions and renewed deliveries of major Soviet weapons Imports From and Exports to the USSR, 1970-85 a
appear to mark a departure in the four-decade-old
alliance between P'yongyang and Moscow, raising the Million 1970 US $ - Value b o Volume c
question of whether the economic relationship will
improve as well. North Korea has been hustling its
than 4 percent a year in real terms during 1975-85. Exports to
Communist, as well as Western, trading partners as it
gears up for its next long-term economic plan, and a
Soviet contribution undoubtedly tops the North's wish
list. At the January 1984 meeting of the Supreme
People's Assembly of North Korea, this priority was
underscored by P'yongyang's establishment of the
impressive-but unrealistic-goal of a tenfold in-
crease in trade with the Soviet Union and other
Communist countries over the next four to five years.
Even a doubling of exports by 1990 would require a
15-percent-a-year increase-compared to 1985-in
exports to Communist countries which grew no faster
As in the past, P'yongyang appears to be leaning
toward Moscow for critical goods, largely because the
Soviet Union is better positioned than other Commu-
nist countries to provide equipment-both civilian and
military-as well as technological assistance. In addi-
tion, in the energy sector North Korea requires light
Soviet or OPEC crude oils to fuel the Sungni Chemi-
cal Plant, one of its two refineries.'
We do not know whether P'yongyang believes the
Soviets will supply all its wants, but from our vantage
point the North has little reason to be optimistic.
Although the North Koreans have received Soviet aid,
much of it has been as credits on which Moscow has
increasingly demanded repayment. Moreover, since
the post-Korean war reconstruction, P'yongyang has
' The Chinese have abundant oil, but it is a heavy crude suitable
only for North Korea's other refinery, located in northwestern
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a Including imports of military goods.
b From Soviet foreign trade statistics. Adjusted for fluctuations
in exchange rates.
c Adjusted for estimated changes in commodity prices
as well as for fluctuations in exchange rates.
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Figure 2
North Korea: Imports by Geographic
Area, 1984
Other -
been required to use its exports to pay for the majority
of Soviet equipment and industrial materials or to do
without.
In short, all available evidence suggests the Soviets
have been tightfisted, approaching their economic
relationship with P'yongyang as a "problem" account,
as have North Korea's Western creditors. Essentially,
Moscow's unwillingness to provide financing to offset
the North's poor export performance has kept North
Korean-Soviet economic ties static:
? As figure 1 shows, after discounting the effects of
changes in prices and relative exchange rates, the
balance sheet on North Korea's total imports-both
military and nonmilitary goods-from the Soviet
Union shows a peak in 1971, a fall through 1978,
and relatively stagnant trade since then. Although
imports rose in 1984 because of increased Soviet
deliveries of trucks and of equipment for ongoing
projects, they were still no higher than in 1980.
? Deliveries of nonmilitary goods declined by a total
of some 20 percent in 1971-73 and fell another 40
percent in 1974-77, as the Soviets increasingly
insisted on balanced trade. The imports most affect-
ed were oil, machinery, and equipment.
Figure 3
North Korea: Imports From the USSR,
by Commodity, 1984 a
Cotton - 4
Manufactured
consumer goods - 5
Coal and coke - 7
a From Soviet foreign trade statistics. Adjusted for
fluctuations in exchange rates.
Machinery and
equipment - 29
? The rise in imports last year results only from Soviet
deliveries of 26 MIG-23s and of SA-3 missiles,
rather than to a larger Soviet hand in the civilian
sector. Moreover, most-if not all-of the 45-per-
cent increase in imports in the first quarter of 1986
compared to the same period in 1985 probably was
also due to Soviet military deliveries.
figure 3 and appendix A).
Dependence on Imports
North Korea's record of imports from the Soviet
Union clearly demonstrates the dilemma P'yongyang
faces in its economic relations with Moscow. Al-
though the North has been unable to pay for as many
imports as it would like from its huge trading partner,
it remains heavily dependent on the USSR. Purchases
from the Soviet Union account for about one-third of
North Korea's total imports, as shown in figure 2.
Although these imports probably represent less than 2
percent of North Korean GNP, they have been
essential to P'yongyang's investment program-both
civilian and military-and in providing key raw mate-
rials, notably oil, coke, coking coal, and cotton (see
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Secret
Kim's wish list delivered to Moscow in 1984 demon-
strates that the North sees a key role for Soviet
imports in its development strategy-and a continued
tightfisted Soviet response would clearly cause trou-
ble. To be sure, Soviet plant and equipment as a share
of total North Korean investment in equipment has
declined sharply since the post-Korean war recon-
struction period-and now accounts for only an esti-
mated 1 to 2 percent of the total-but it is considera-
bly more important in terms of its contribution to the
North Korean economy.' Equipment and technology
purchased from the USSR has not only provided the
North Koreans with plants they could not have built
themselves, but has also in many cases permitted the
North Koreans to improve their use of domestically
produced equipment. Plants constructed with Soviet
assistance have been particularly important to the
energy sector, which is vital to the whole economy,
and to the steel industry, which is essential for the
domestic production of machinery and equipment and
up exports, and in fact Soviet trade data show that
since 1977 the North Koreans have run surpluses with
the Soviet Union. But the rising value of P'yongyang's
exports does not amount to the kind of substantial
improvement in North Korean economic performance
that the numbers would suggest:
? Most important, the North Koreans have gotten
"less for more" from the Soviet Union since the
1970s. Because for many years prices on imports
from the USSR rose faster than those of exports,
North Korea's sales to the Soviets actually yielded
less return to the North's economy.
? The Soviets are demanding exports as payment for
principal and interest on past debt.
provides a surplus for export.
Soviet oil has also been integral to North Korean
energy needs, as well as a major constraint when
Moscow has decided to cut back. P'yongyang relies
completely on imports for crude oil; its efforts to find
onshore or offshore oil, as far as we know, have not
yet been successful. Even if P'yongyang discovered
sizable oil deposits, full exploitation would be many
years off. Declines in Soviet oil deliveries since
198
have aggravated already existing short-
ages. This, in turn, has caused numerous disruptions
in industrial and agricultural production, transporta-
tion, and fishing operations.
Squeeze on Exports
The export side of the North Korean-Soviet trade
picture is also a troubled one for P'yongyang. For
many years, Moscow has pressured the North to step
? Moscow has refused to take more of North Korea's
generally poor-quality manufactures as compensa-
tion for Soviet goods. This has intensified pressure
on the materials sectors-such as magnesium
clinker and zinc-to come up with exports.
Moreover, we have seen many indications that the
growth of North Korean exports to the Soviet Union
has been realized partly at the expense of meeting
domestic requirements for industrial inputs and per-
sonal consumption. In some cases that export growth
has also been at the expense of sales to the West,
which would have allowed the North Koreans to make
additional hard currency purchases. Thus, once again,
the hardline Soviet approach to trade with North
Korea has aggravated P'yongyang's domestic short-
ages (see appendix B).
' According to an article in the North Korean press, the country's
dependence on domestically produced machinery and equipment
has increased from about 75 percent of total investment in machin-
ery and equipment in the 1950s to 99 percent today. Although this
claim may be an exaggeration, what we know about production
trends in North Korea leads us to believe that the share has
increased substantially.
Soviet Assistance-Truly Aid?
Moscow's hardline attitude has extended to aid, and
P'yongyang has never been able to obtain the assis-
tance from Moscow it has hoped for. The USSR has
not been noted for generosity to any of its Communist
allies except in times of reconstruction or crises, such
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Table 1
North Korea: Estimated Economic and
Military Assistance From the USSR a
Million 1970 US $
(except where noted)
Grants
325
NA
300
0
0
300
Economic
325
0
0
0
0
0
Military b
300 c
0
0
300
Net drawings on credits d
0
40
200
250
40
50
25
Price subsidy on oil e
0
0
0
50
250
160
0
a Adjusted for fluctuations in the ruble/dollar exchange rate but
not for changes in commodity prices.
b For imports of major weapon systems. Excluded are grants and
credits for such military items as trucks, jeeps, and Soviet equip-
ment for and advisers involved in construction of North Korean
plants for military production. We cannot break out these pur-
chases from imports of civilian equipment.
Some of these imports may have been delivered under medium- or
long-term credits rather than a grant. If so, North Korea's debt of
about $640 million would be higher than we have estimated.
d Drawings on credits less repayments of principal and interest.
e This presumably is not the only price subsidy the Soviets have
provided, but it is the only one that can be calculated reasonably
well. Nor have we been able to calculate North Korean price
subsidies on exports to the USSR; we believe, however, that such
subsidies probably have been considerably less than those granted
by the USSR.
as domestic unrest (Poland) or the destabilizing oil-
price shocks of the mid-to-late 1970s. Even then, it
has not been overly generous in the amount of its
assistance.
Except for after the Korean war during 1954-60,
Soviet economic "assistance" (minus North Korean
repayments) on average has covered less than one-
fourth of its civilian exports to the North. The share
rose from an estimated 15 percent in the 1960s to
about 26 percent in the 1970s before falling to 15
percent in 1981-84. As table 1 shows, Soviet aid has
consisted of grants, credits, and price subsidies. F_
According to an article in the Soviet press, during the
period immediately after the Korean war, North
Korea received Soviet ruble grants-or "free aid," as
the Communists call it-equaling $325 million to
rebuild its economy. In the 1960s, the Soviet Union-
arguing that the North Korean economy had been
refurbished-replaced economic grants with credits.
As the inset shows, Soviet credits to North Korea
have been on relatively favorable terms, but since the
mid-1970s Moscow has increasingly insisted on being
repaid.
North Korea's debt to the USSR at yearend 1984
stood at about $640 million.' This compares with a
debt to North Korea's other major benefactor, China,
of roughly $500 million and to all Western countries
of about $1.3 billion, of which $240 million is owed to
Japan. We believe P'yongyang wants to diversify its
trade as much as possible, but this nearly even split
between amounts owed to Communist and those to
non-Communist nations is probably coincidental. Ac-
cording to our estimates, North Korea has repaid less
than one-fourth of the credits (including accrued
interest) from the USSR since the early 1960s. Mos-
cow reportedly is displeased with P'yongyang's failure
less about North Korea's record on repayments to
China, but it appears that Beijing has been reluctant
to extend new credits because of P'yongyang's poor
record.
' This debt is denominated in Soviet rubles, the unit of exchange
used in North Korean-Soviet trade.
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1949: The USSR agreed to provide aid to North
Korea in the form of a $40 million a loan for the
purchase of industrial equipment and raw materials
and in technical assistance for industry and agricul-
ture. The Soviets concluded a military treaty with
P'yongyang wherein the USSR agreed to supply all
the necessary equipment and know-how for the estab-
lishment of six infantry divisions, three mechanized
divisions, and seven security force battalions; by 1950
the North Korean People's Army reportedly had been
armed and equipped preponderantly with Soviet aid.
1954-56: North Korea received 'free economic assis-
tance" of $890 million for rebuilding its economy,
including $325 million from the USSR, $135 million
from East Germany, and $90 million from Poland.
1960: The Soviets signed an economic and technical
assistance agreement to provide North Korea $89
million during 1960-70.
1966: The Soviets extended $180 million at 2 percent
a year, to be repaid in equal installments over 10
years, beginning the year after the commissioning of a
given enterprise, for construction-with Soviet help-
of metallurgical, energy, oil, and chemical industry
enterprises. Under this agreement, the USSR accept-
ed postponement of all payments due in 1966-70 on
long-term credits extended earlier.
Although not particularly generous with economic
"assistance" in the form of grants and credits, Mos-
cow has given P'yongyang a substantial break on oil
shipped to North Korea. The discount apparently has
been intended to cushion the impact of the world
market price hikes that began in late 1973. The North
Koreans-like the CEMA countries-have paid in
each year an oil price based on the average world
market price of the previous five years. The savings to
the North Koreans soared to $140 million in 1980
1976: Moscow extended the following credits for use
in the 1978-84 Plan period:
? $50 million for a period of eight years at 2 -percent
annual interest, for expansion of the Kimch'aek
iron and steel works. To be repaid in equal annual
deliveries of the plant's products one year after the
commissioning of the mill.
? $45 million at 2 percent a year, granted for 10
years, for construction of the Ch'ongjin thermal
power station. Repayment in equal annual parts
beginning one year after completion of equipment
deliveries.
? $13 million at 2 percent for eight years, for comple-
tion of construction of the converter and hot and
cold rolling mills of the Kimch'aek iron and steel
works.
? $22 million at 2 -percent annual interest for 10
years, for completion of construction of a ball
bearing plant, an ammonia plant in Aoji-ri, and an
aluminum factory in Pukch'ong. To be repaid in
goods.
? $445 million to cover repayments on earlier debt
plus interest falling due in 1976-80. Repayment to
be made by deliveries of North Korean products for
10 years in equal annual payments beginning in
1981, at 2 percent a year.
before dropping to less than $5 million by 1984 as
falling world market prices took effect, and finally
disappeared by 1986.
The cumulative savings from the North's oil-price
subsidy during 1974-84 permitted P'yongyang to pur-
chase an estimated $460 million more in Soviet goods
than it could have otherwise. We do not know how
much this was offset by North Korean subsidies on
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exports to the USSR, but it probably was not substan-
tial. Despite Moscow's unwillingness to lock itself into
long-term compensation trade deals with Pyongyang,
the North Koreans have realized considerable (al-
though nonmeasurable) gains from the fact that they
have been able to pay for many of their "hard goods"
imports-such as oil and coking coal-with relatively
soft goods, such as manufactured products that are
these include con-
not readily marketable in the West.
P'yongyang Hoping for More
Kim II-song's request for further economic support, as
well as for military aid, in our view, almost certainly
was central to his agenda in 1984, when he visited
Moscow for the first time in more than a decade.
Kim tabled
an array of requests that included:
? A postponement of North Korean debts.
? Completion by the target dates of nine plants now
? Assured supplies of crude oil, coke, and other raw
materials.
Deliveries of advanced weapons
? Employment of an unskilled North Korean labor
force in construction work in the USSR.
Kim's list, in our view, almost certainly is a preview of
North Korea's priorities under its new, yet-to-be-
announced economic plan.4 At present, the North
appears to be looking for Soviet aid on some 20
projects. P'yongyang has been seeking help from the
USSR for some of these projects for many years.
struction of a new thermal power plant and expansion
of others, construction of a nuclear power plant(s),
construction of a factory to produce railway freight
cars, participation in offshore exploration and mining
of oil and gas, cooperation in the production of ships,
P'yongyang also is pressing Moscow to accept com-
pensation trade arrangements that would allow the
North to use the output of some of the projects as
partial payment for Soviet credits.
Despite recent Soviet attempts to give the bilateral
economic relationship an upbeat tone, we have seen
little to suggest the North Koreans will get better
than the usual tough response from Moscow. The
Soviets, who have long attempted to extract progres-
sively more in return for goods sent to their East
European allies and appear to be pressing even harder
now, are unlikely, in our view, to take a different tack
with P'yongyang. According to Moscow radio, the
1986-90 trade agreement, signed in February, calls
for a doubling of trade turnover (exports plus imports)
compared with the 1981-85 period-at first glance a
goal that suggests a substantial improvement in eco-
nomic relations is on the horizon. But the agreement
does not provide separate targets for total imports or
exports, and given the likelihood that Moscow will
insist on the same real growth in exports as in
imports-that is, about 17 percent a year-we believe
North Korea will be unable to boost its exports
enough to meet the export requirement and thus its
import goals.
Moreover, the radio accounts overstate the scope of
the "new" agreement. Most of the projects mentioned
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that involve Soviet equipment have been under con-
struction for years and are nearing completion. Only a
few new projects are cited-most notably the Soviets
have agreed to help build a 200,000-kilowatt thermal
power plant in east Pyongyang and a nuclear power
plant of unknown capacity.
The lack of any mention of economic issues in the
communique issued after Foreign Minister Shevard-
nadze's trip to Pyongyang in January 1986 also
suggests Moscow is not being generous with new
commitments to P'yongyang.
Moscow obviously recognizes the North Koreans
cannot afford all of the projects they have requested,
and the Soviets probably remain unwilling to offer a
large financial assistance package. Judging from past
Soviet patterns, we would expect Moscow to offer
project credits for the North's new long-term econom-
ic plan not much higher than the roughly $150 million
extended in the last program. Even with some in-
crease, P'yongyang would be required to defer a
major share of Kim's shopping list.
The terms on any new credits also are apt to be
be somewhat more generous, depending on P'yong-
yang's needs and behavior. For example, it is possi-
ble-although unlikely-that, as it did in 1976, Mos-
cow will allow North Korea to postpone part of the
scheduled repayments.
In our view, other factors also will limit the Soviets'
generosity in deliveries of oil and raw materials.
Moscow currently faces declining production at home
and must make hard choices among using the oil
domestically, selling it for hard currency, or letting it
The one area where for strategic reasons the Soviets
might be more forthcoming is in the delivery of
additional military hardware (see inset). Moscow per-
mitted large North Korean trade deficits in 1971-73,
when deliveries of major weapon systems averaged
$100 million a year, although since then the North's
receipt of new military hardware has not compared in
volume or sophistication with Moscow's deliveries to
Although civilian imports from the Soviet Union have
not yet increased with the warming trend-and some,
such as oil, have even declined-military deliveries
appear to bear some relationship to the state of
political ties. Moscow's perception of how best to
foster its own strategic aims in the region has also
clearly played a role in the level of military ship-
ments. North Korean imports of military hardware
were especially high in the 1950s, when the Soviets
provided MIG-15s and MIG-17s, and in the late
1960s and early 1970s, with shipments of MIG-21s,
SU-7s, SA-2s, and other major weapon systems.
During 1971-73, these imports averaged an estimated
$100 million a year.
Between 1973 and 1984, the USSR provided no
combat aircraft to North Korea, although it did
continue to deliver communications equipment, some
assistance in ground forces arms manufactures, and
trucks. Imports from the USSR in the late 1960s and
early 1970s had permitted the quality of the North
Korean combat aircraft force to improve at nearly the
same rate as that of the South. But when the Soviets
stopped supplying fighters, Pyongyang fell behind as
it received only technologically inferior aircraft from
China. The recent warming trend in relations between
Pyongyang and Moscow appears to be paying off
once again in the military arena with the deliveries of
26 MIG-23s and of SA-3 SAMs last year.
favored clients, such as India, Syria, and Iraq.
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Nonetheless, there is evidence that the military rela-
tionship is governed by other, noneconomic factors
and constraints. P'yongyang now permits Soviet over-
flights to enable Moscow to increase its intelligence
coverage of US, South Korean, and Chinese forces.
We do not know how valuable these intelligence
collection privileges are for the Soviets, but weapon
deliveries may be part of a longer term bargain in
exchange for continued permission for overflights.
The Soviets may also believe that such deliveries
eventually will lead to air and naval access to bases in
North Korea, although P'yongyang has shown no
inclination to permit this in the past and probably
would resist making territorial agreements that would
look like a concession of sovereignty to the USSR.
North Korea's Alternatives: Not Hopeful
We see little prospect that North Korea will obtain
much economic relief by turning to other sources. The
Chinese, like the Soviets, probably will continue to
press for balanced trade and at best will provide only
minimal credits for P'yongyang's next seven-year
plan. Beijing's recent increased emphasis on earning
hard currencies on the international market may
make it reluctant to provide all of the oil P'yongyang
wants for its west coast oil refinery and to continue to
subsidize prices. In addition, China, at least for the
time being, would find it difficult to provide the type
of equipment available from the Soviet Union. Indeed,
unless the Chinese are willing to provide P'yongyang
with hard currency credits to cover purchases in the
West, the amount of near-term help Beijing can
provide is limited.
North Korea cannot hope for much economic support
from the West. P'yongyang has failed to make much
of a dent in its $1.3 billion debt obligations-missing
interest as well as principal payments-and as a result
has met with little success in persuading Western
creditors to provide additional financing. Nor can it
divert many exports from the USSR to the West
without suffering a decline in imports from the Soviet
Union. Although Moscow might well be willing to see
the North obtain capital equipment and industrial
materials from the West to beef up its economy, it
would be extremely vexed if this were at the expense
of meeting its economic commitments to the USSR.
Little Prospect for Change
For the near term, at least, the North Koreans appear
to be caught on a treadmill created by a faltering
economy. The need to divert resources to pay for
imported goods and materials will continue to reduce
the stock of goods to be consumed or invested at
home. This, in turn, will perpetuate shortages that
further strap the economy.
We doubt P'yongyang will soon be able to reverse this
situation, largely because of the priorities it has set for
itself. The North's commitment to the defense sec-
tor-which accounts for 20 to 25 percent of its
estimated $24 billion GNP-has hindered develop-
ment of a strong civilian industrial base. The burden
has limited the capacity to export to pay for vital
crude oil, other raw materials, technology, and equip-
ment. Moreover, Kim 11-song has raised the central-
ized approach of the Stalinist command economy to
new heights, making it even more ill suited to effective
management. Abrupt changes in direction from the
top, for example, have disrupted production and crip-
pled long-range planning.
Although we do not believe the Soviets are willing to
offer the North extensive help, there are situations
under which that attitude could change. If Moscow
believed, for example, that shortages in North Korea
had become bad enough to affect political stability,
we believe the Soviets could alter their approach. A
North Korean leadership transition that promised to
create a more flexible, pro-Soviet attitude in P'yong-
yang could have beneficial effects as well, although in
either case we would not foresee Soviet generosity
that extended beyond stopgap measures to steps that
would provide real impetus to the economy.
It is difficult to imagine that the North Koreans are
satisfied with the economic assistance they receive
from the Soviet Union. But, among P'yongyang's
policy priorities, we expect that security remains at
the top, and overall we believe North Korea will mute
its objections as long as the renewed military aid
continues to flow.
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Appendix A
North Korea: The Role of
Imports From the USSR 5
Plant and Equipment
Imports of Soviet machinery and equipment since
1950 have played a major role in North Korea's
efforts to develop its industrial capacity. We believe
the following claims, which are mainly from the
Soviet press, are fairly accurate, given what we know
about the capacity of the plants built by the USSR,
the North's own production capabilities, and imports
from other countries:
? Key among the approximately 60 projects that the
USSR has helped construct are the Kimch'aek steel
complex, Sungni oil refinery, and Pukch'ang ther-
mal power plant (see inset and figure 4).
? Projects built with Soviet assistance account for
nearly two-thirds of North Korea's electric power
output, half of its output of petroleum products and
coal, more than two-fifths of its production of iron
ore and organic fertilizers, one-third of its steel
output, and one-fourth of its production of fabrics.
? Plants constructed with Soviet assistance in the
1970s reportedly ensured a 40-percent increase in
electric power and rolled metal output, a 30-percent
increase in the production of coal and steel, and a
25-percent increase in nitrogenous fertilizer output.
Work continues on several projects agreed on for the
1978-84 plan period. Soviet shipments of equipment
began in 1984, for example, for the second stage of
the Kimch'aek steel plant, which will help to double
the plant's output.
In addition to equipment for plants, North Korea has
depended on the USSR for imports of aerial commu-
nications facilities and transport equipment:
? The Soviet Union has provided all of North Korea's
seven jet transports, with the most recent deliveries
being a fourth TU-154 in 1983 and a TU-134 in
1984.
? Imports from the USSR account for a large share of
North Korea's truck pool (civilian and military) and
its passenger car inventory.
Petroleum
In 1984, the USSR provided about 30 percent of 25X1
North Korea's oil imports, with China supplying
about 40 percent, and Iran the remainder (see table 2).
The case of the Sungni refinery, which requires the
light oils Moscow exports, clearly illustrates the im-
portance to North Korea of the USSR as an oil
supplier. Although the North's demand for oil has 25X1
risen, imports of Soviet crude oil and petroleum
products fell from an annual average of 25,000 b/d in
1978-80 to 17,500 b/d in 1981-82 and to only 12,500
b/d in 1983-84. Imports from Iran have not complete-
ly covered the drop in Soviet deliveries, thus com-
pounding already serious shortages of crude oil for the 25X1
Sungni refinery, which in 1984 may have operated at
little more than half its capacity. 25X1
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Pukch'ang Thermal Power Plant. By far the largest
electric power plant in North Korea. Capacity report-
ed to be 1.6 million kW, or about one-fourth of the
country's total capacity.
operating for the first time in 1970. Six additional
generators were installed between 1972 and 1975. By
June 1985, 16 generators were operating.
Ch'ongjin Thermai Power Plant. First generator went
into operation in 1984. Construction of additional
generators was continuing as of May 1985. Total
capacity planned to be 300,000 kW.
Sungni Petroleum Refinery (Sungni Chemical Plant).
One of two North Korean oil refineries. Capacity is
about 44,000 b/d
Refinery appeared capable of operation in
Kimch'aek Iron and Steel Plant. Annual capacity is
1.1 million metric tons of steel, or about one-fourth
of North Korea's total output. Older section was
rebuilt after the Korean war. Plant's newer section is
believed to have been operational by 1976. Construc-
tion of a second rolling mill began in 1974 and was
externally complete by 1978. Construction of a new
electric steel building, which began in 1983, is de-
signed to increase production to 2.4 million tons a
year.
Pukch'ang Aluminum Plant. North Koreas's only
aluminum plant. Annual capacity is 20,000 tons.
Construction began in the mid-] 970s and probably
was completed by early 1985.
Aoji-ri Ammonium Nitrate Plant. Annual capacity is
140,000 tons. Construction was not completed until
1979, more than four years behind schedule.
a The term "assistance" is used loosely here. Some of the Soviet
projects listed may have been financed by an outright grant, but
most were covered by credits (which P'yongyang is in the process of
Table 2
North Korea: Annual Average
Estimated Oil Imports a
1980b
27
16
5
48
1981 b
16
14
10
40
1982b
19
17
15
51
1983b
13
20
15
48
19846
12
15
12
39
a Includes imports of petroleum products, which we estimate have
averaged less than one-fifth of the total in the 1980s.
b Estimates for China for 1980-84 represent a midpoint, with the
assumption being that the Chinese discount their oil to North
Korea by 20 to 40 percent of the world market price.
Other Materials
North Korea also depends on imports for all of its
supplies of coking coal, with about one-fourth coming
from the USSR, and of potassium fertilizer, with
most coming from the USSR. In most years, North
Korea has exchanged rice for Soviet wheat on a fairly
balanced basis in value terms. North Korea also
imports Soviet steel and steel pipe, chrome ore, tim-
ber, paper, and some consumer goods (see appendix
C).
credits received from the USSR
Services
P'yongyang depends on Moscow for services as well as
commodities. Over the years, Moscow has trained
North Korean workers, provided Soviet specialists at
construction sites, and provided rail transport services
(for which the North Koreans reportedly have paid a
substantial amount) for shipping North Korean goods
to Europe across the USSR. The nature of these
services leads us to believe that their value has
outweighed that of North Korean services, which have
included provision of forestry workers to Siberia and
the use of the railhead at Najin for transshipments. In
addition, P'yongyang has had to pay interest on the
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Appendix B
North Korea:
Export Patterns
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North Korea's exports to the Soviet Union consist
mainly of raw and semimanufactured materials, with
magnesium clinker and rolled ferrous metals account-
ing for more than two-fifths of total exports (see
Figure 5
North Korea: Exports to the USSR,
by Commodity, 1984 a
figure 5 and appendix Q. Roughly half of North Percent
zinc, lead, cement, tobacco, and rice. Except for some Other - 21 Rolled ferrous
machine tools, electric motors and batteries, ciga- metals - 22
Korea's production of magnesium clinker, used in
making furnace linings and other refractory products,
is exported to the USSR. Other exports include steel,
have been important in some instances. According to Machinery and
an article in the Soviet press, four-fifths of the electric equipment - 14
batteries, three-fifths of the electric motors, and half
of the calcium carbide produced by specific North a From Soviet foreign trade statistics. Adjusted for
Korean enterprises were slated for export to the fluctuations in exchange rates.
USSR in payment for the credit used to build those
than 5 percent of the North's total exports, but they Outer garments - 14
ufactured goods in the USSR. Compensation arrange- tobacco - 8
IMW Magnesite
ments with the Soviets probably account for no more powder - 21
rettes, and outer garments, North Korea has met with
little success in selling its generally poor-quality man- Food stuffs,
industrial factories.
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Appendix C
North Korea: Annual Average Trade
With the USSR, by Commodity, 1981-84 a
Machinery and equipment
94
Machinery and equipment
34
For construction projects
47
Metal cutting machine tools
15
Aerial communication facilities
13
Motor vehicle batteries
15
Motor vehicles and parts
6
Other
4
Other
28
Magnesite powder
89
a Adjusted for fluctuations in the ruble/dollar exchange rate but
not for changes in commodity prices.
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