Abstract
Introduction
Unlike China–North Korea and inter-Korean economic relations, the subject of economic cooperation between Russia and North Korea in the 21st century is relatively unexplored in the broad academic community. The main reason for this is the small volume of bilateral trade, as well as the problems with the availability of data. In the early 21st century, Russian experts in Korean studies have now prepared a number of articles devoted to the subject of Russian–North Korean economic cooperation 1 . Some aspects of bilateral economic relations have been covered in monographs and articles dedicated to the Russian policy on the Korean peninsula 2 . Economic cooperation between Russia and the DPRK has also been studied as part of the research on external economic relations of North Korea 3 and Russian–North Korean relations in general 4 .
Leshakov, P.S. (2005). Russia's Role in the Policy of Economic Engagement of
the DPRK. Leshakov, P.S. (2012). Economic Challenges to the New Political Leadership of
the DPRK and Prospects of the Russian-North Korean Relations. Suslina, S.S. (2006) Russia's Economic Impact on the ROK and the DPRK in the
Context of Integration Processes in the NEA. Trigubenko, M.E. (2006). Russia's Trade and Economic Relations with the ROK
and the DPRK. Zabrovskaya, L.V. (2010). A New Tendency in Russian-North Korean Regional
Economic Contacts. Zabrovskaya, L.V. (2006). Economic Contacts between the DRPK and the Russian
Far East: 1992–2005.
Toloraya, G. (2014a). Vorontsov, A. (2014). Lankov, A. (2011). Lankov, A. (2014).
Haggard, S., Noland, M. (2007). Nanto, D.K., Chanlett-Avery, E. (2009). Nicolas, F. (2010).
Buszynski, L. (2009). Russia and North Korea: Dilemmas and Interests.
Kim, D.J. (2012). Russian Influence on North Korea: Views of Former South
Korean Ambassadors to Russia. York, R. (2015).
The purpose of this study is to present an overview of the information available on the subject, explore the phenomenon of the development of Russian–North Korean economic relations in the 21st century, and identify the main features and trends.
The methodology of studying economic relations between Russia and the DPRK is based on the systems approach. The author investigates basic components of the system structure (cooperation mechanisms, trade, investment, interregional cooperation, etc.), its features, functions, internal ties and interaction with the international environment. Due to the nature of the research subject special importance is attached to exploring the strategic positions of the two countries’ governments which currently determine the development of bilateral economic relations. The comparative method was used to identify major common points and differences in the stances of the Russian and North Korean authorities.
The main information sources are official documents and press releases of the Russian government bodies and companies that are doing business with the DPRK, as well as the author's conversations with Russian representatives from different spheres who have practical experience of working with North Koreans. Statistical data have been sourced from the Federal Customs Service of Russia and related companies.
During the Cold War, the Soviet Union was an important economic partner for North Korea. In the 1970–1980s, its share in the DPRK's foreign trade accounted for 25–50%. In 1990, it reached 53.3% or $2.2 billion 5 . At that time, economic relations between the two countries were largely based on favourable prices and credit. The Soviet Union also provided North Korea with preferential technical assistance. By the early 1990s, the facilities built in the DPRK with Soviet help produced up to 70% of electricity, 50% of chemical fertilisers, and about 40% of ferrous metals. The aluminium industry was created entirely by Soviet specialists. Approximately, 70 large industrial enterprises in North Korea were built with the assistance of the USSR 6 .
Leshakov, P.S. (2005). 201.
After the Soviet Union broke up, the new Russian leadership decided to prioritise economic cooperation with South Korea over formerly brotherly relations with North Korea. This radical turn in the early 1990s led to an almost complete freeze in the relations with the DPRK and a decline in bilateral economic ties. Implementation of joint projects was interrupted. The new system of account settlement in hard currency caused a sharp reduction in trade between the two countries. In 1995, the bilateral trade turnover amounted to mere $83 million 7 .
Leshakov, P.S. (2005). 202.
Within a few years, Moscow realised that equidistance diplomacy towards the two Koreas works best for the interests of Russia 8 . The beginning of the 21st century brought an improvement to Russian–North Korean relations. A new intergovernmental Treaty on Friendship, Good Neighborly Relations and Cooperation was signed in February 2000. The parties agreed to create favourable legal, financial and economic conditions to actively promote the development of trade, economic, scientific, and technical relations between them. Russian President Vladimir Putin visited Pyongyang in July 2000. And North Korean leader Kim Jong II paid two visits to Russia – in 2001 and 2002. The new treaty laid legal basis of modern relationship between Russia and North Korea, and the agreements signed at the summits outlined priority areas of future cooperation. In particular, the Moscow Declaration of the Russian Federation and the DPRK signed on the 4th of August 2001 mentioned such spheres of economic cooperation as “reconstruction of enterprises built by joint efforts particularly in electric energy industry” and “the project of creating a railway transport corridor linking the North and the South of the Korean Peninsula with Russia and Europe”.
Kim, D.J. (2012). 395.
The current Russian policy is generally assessed as characterised by a high degree of pragmatism and lack of ideological approach 9 . In February 2013, the Russian President approved a new Foreign Policy Strategy for the Russian Federation. According to this document, Russia aims to maintain friendly relations with the DPRK and the ROK based on the principles of mutually beneficial cooperation. Russia wants to use the potential of these relations to accelerate regional development, support inter-Korean political dialogue, and economic cooperation, as an essential condition of maintaining peace, stability and security in the region 10 .
York, R. (2015).
According to Russian experts, the significance of the Korean peninsula in implementing the Russian policy of «turning to the East» has been underestimated. Northeast Asia is the window to the Asia-Pacific region for Russia, and the Korean peninsula is the key to Northeast Asia. The issue of the Korean settlement has an international dimension and is regularly discussed when Russian representatives meet their counterparts from other “great powers” 11 .
Torkunov, A. (2014).
Russia's position has two different sides. On the one hand, Moscow condemns the breaches of global nuclear non-proliferation regime committed by North Korea. On the other hand, Russia is opposed to any military action in the region and the strategy of ‘regime change’ in North Korea that is pursued by some countries. Moscow fully supports the economic growth and engagement of the DPRK in the regional integration processes, it is in Russia's national interest to maintain stability on the Korean peninsula, and prevent possible military escalation of China–US (allies of North and South Korea, respectively) relations in the region.
Besides security reasons, Russia has important economic goals, the achievement of which could be facilitated through cooperation with the two Koreas. For many years, Russia has been promoting plans to implement several large-scale projects involving both countries of the Korean Peninsula. The biggest of these includes connecting the Trans-Korean and Trans-Siberian railways, constructing a gas pipeline to South Korea through North Korea, and supplying Russian electricity to the Korean peninsula. These initiatives are regularly discussed at high-level talks between Russia and the DPRK, as well as between Russia and the ROK. However, none of the three projects mentioned above has reached the stage of implementation in trilateral format yet. The tense situation on the Korean peninsula due to the DPRK's nuclear programme and the deterioration of inter-Korean relations since 2008 has been among the main reasons for this.
Despite the improvement of political relations between Russia and North Korea in the first decade of the 21st century, the two countries could not achieve a breakthrough in bilateral trade. In 2010, the volume of trade between the Russian Federation and the DPRK was less than $100 million. Serious measures were required to restore bilateral trade and economic ties. Judging by the recent developments, which are described in detail below, the Russian leadership has made a political decision to expand economic cooperation with North Korea and stimulate Russia's business interests with the DPRK.
Under Kim John Un, North Korea has been pursuing an active policy aimed at diversifying external trade relations and attracting foreign investment into the country. In his New Year Address on 1 January 2015, Kim Jong Un said that the DPRK should foster external economic relations in a multilateral way and accelerate the planned projects for economic development zones 12 . Currently, China is the main economic partner for North Korea with $6363 billion trade turnover in 2014. The PRC's share in the DPRK's foreign trade is estimated at almost 90% (if inter-Korean trade is not included). Therefore, the North Korean leadership needs to reduce its economic dependence on China and one of its most attractive options is to boost economic ties with Russia 13 .
KCNA. (2015).
Toloraya G. (2012).
Economic relations between Russia and the DPRK have been significantly influenced by the current international political and economic environment. The failure to settle the North Korean nuclear issue, regular escalations of the tense military situation on the Korean peninsula, and American and international sanctions against the DPRK, negatively affect the prospects of bilateral cooperation. At the same time, the current complex relationship between Russia and the West, anti-Russian sanctions, and the proclaimed strengthening of the ‘eastern vector’ of Russian policy create a much more favourable environment for economic cooperation between Moscow and Pyongyang.
A clear sign of the Russian interest in developing economic ties with North Korea was the settlement of the DPRK's debt to Russia inherited from the Soviet Union times. This problem was considered to be one of the main obstacles to the expansion of economic cooperation between the two countries 14 , and the negotiations to solve it continued for many years. On the 17th of September 2012, Russia and North Korea signed an Agreement on settlement of the DPRK's debt to the Russian Federation on loans previously granted by the former Soviet Union. A federal law ratifying the agreement was signed by the Russian President on the 5th of May 2014. According to the document, the debt was estimated at $11 billion including the interest and based on the Soviet-era exchange rate of 67 kopecks to the dollar. Russia agreed to write off 90% of North Korea's debt and the remaining amount ($1.09 billion) should be repaid by North Korea in equal semi-annual tranches over a period of 20 years to an interest-free account opened by Russia's state Vnesheconombank in North Korea's Foreign Trade Bank 15 . The agreement suggests that this residue can be used to finance joint Russian–North Korean projects in humanitarian (education, health care) and energy fields. Thus, a special fund was created for future Russian investment in the DPRK. According to Russian officials, the remainder of the debt can be used to support trilateral gas and railway projects.
Kim, D.J. (2012). 394.
See “A Bill Signed Ratifying the Intergovernmental Agreement on the
Settlement of the DPRK's Debt to the Russian Federation on Loans Previously
Granted by the Former Soviet Union’. 5 May 2014. Available online at
http://www.kremlin.ru/acts/20916 Accessed on 11 May
2015.
Following the political will of the Russian leadership, the Russian Embassy in North Korea, in close cooperation with Russian and Korean economic agencies and commercial organisations, has actively worked on improving trade and economic relations between the two countries. Since the beginning of 2014, Russia and the DPRK have greatly expanded bilateral contacts in the economic field both at governmental and regional levels. Moreover, in 2014 Russia announced the delivery of 50,000 t of wheat in the form of humanitarian aid to North Korea 16 .
See “About the Delivery of the First Batch of the Russian Humanitarian
Assistance to the DPRK”. 7 October 2014. Available online at http://www.mid.ru/brp_4.nsf/newsline/F539FFB9F1956DDE44257D6A0057CED2
Accessed on 11 May 2015.
The main Russian government body pushing for expanded economic ties with the DPRK is currently the Far East Development Ministry which was established in 2012. Russia's Far East Development Minister Alexander Galushka is the chairman of the Russian side of the Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation between Russia and North Korea (Korean part of the Commission is headed by the Minister of External Economic Relations Ri Ryong Nam). Some experts maintain that this young Russian minister has set a personal goal of improving economic ties with the DPRK and is devoting a lot of effort to achieve it 17 .
Toloraya, G. (2014a).
A. Galushka visited North Korea in March 2014 to discuss various joint projects and ways to boost bilateral trade and economic cooperation with his North Korean counterparts. At those meetings, they declared a goal to bring trade relations between the two countries to a new level and increase the annual direct turnover to $1 billion by 2020. In the 21st century, the volume of direct trade between Russia and the DPRK did not exceed $250 million per year, and in 2013, it was just a bit over $100 million. It is clear that substantial expansion of economic cooperation will be required to increase bilateral trade by 10 times in less than 10 years. According to the Russian Far East Development Minister, this result will be achieved due to the projects of such companies as “Russian Railways”, “Mostovik”, “Severnye Priisky”, “Basic Element”, “Altay Mills” and “Farmasyntez” 18 .
See the remarks by Russia's Far East Development Minister at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=2265&sphrase_id=10627
Accessed on 11 May 2015.
In April 2014, a 40-strong Russian delegation headed by Deputy Prime Minister and Presidential Envoy in the Far Eastern Federal District Yuri Trutnev visited the DPRK and held talks with Kim Yong Nam, the Chairman of the Presidium of the Supreme People's Assembly, Pak Pong Ju, Premier of the Cabinet of the DPRK, and other senior officials of the country. The Russian delegation included the Governor of the Primorsky Territory V. Miklushevsky, Governor of Khabarovsk Territory V. Shport and Amur Region Governor O. Kozhumyaka who confirmed their interest in further development of regional economic cooperation with the DPRK. In addition, the Governor of the Amur Region and the Minister of Foreign Trade of North Korea signed an agreement on trade and economic cooperation and agreed to develop cooperation in agriculture, forestry and construction 19 . During the visit, Russia donated 50 fire engines to North Korea (Matsegora, 2015).
Vorontsov, A. (2014).
Another high-level Russian official who got involved in economic talks with North Korea at the request of the federal government was Rustam Minnikhanov, President of the Republic of Tatarstan. He headed a large delegation that visited North Korea in March 2014 and was accompanied by representatives of the Tatarstan Ministry of Industry and Trade, Ministry of Agriculture, Chamber of Commerce and Industry, JSC “Tatneftekhiminvest Holding”, JSC “TAIF” and Kazan University 20 . Before the visit, the Republic of Tatarstan had almost no economic contacts with North Korea. However, the talks revealed a lot of areas of common interest. Discussions focused on cooperation in the oil industry, construction, agriculture and other fields. The first result of the visit was an agreement to establish a joint working group on cooperation between Tatarstan and the DPRK and expand bilateral trade.
See “The President of Tatarstan Goes to the DPRK to Develop Economic
Cooperation”. 21 March 2014. Available online at http://rt.rbc.ru/tatarstan_topnews/21/03/2014/912657.shtml
Accessed on 11 May 2015.
After a three-year break in June 2014 the 6th meeting of the Intergovernmental Commission (IGC) on Trade, Economic, Scientific and Technical Cooperation was held in Vladivostok where the parties discussed potential conditions and projects to intensify economic cooperation between Russia and the DPRK. Existing international and American economic sanctions against North Korea make bank transfers to the country and from it very difficult. To solve the problem, the Russian Federation and the DPRK agreed to account settlements in rubles in all trade transactions between the two countries. The first contracts on opening of North Korean accounts at Russian banks were signed in June 2014 between Russian AKB “Regional Development Bank” and “Foreign Trade Bank of the DPRK” and “Korean Bank of Unification and Development”. The first settlements in rubles between the assigned banks were conducted in October 2014 21 .
During the IGC meeting, the North Korean participants made a presentation of special economic zones of the DPRK. The parties outlined priorities for the expansion of bilateral cooperation in trade, energy and natural resources sectors. Exploration of oil and gas in North Korea, participation in the development of mineral deposits, including non-ferrous and rare metals, cooperation in gold mining, manufacturing of goods in North Korea, joint agricultural projects and others can be mentioned among the regularly discussed areas of mutually beneficial cooperation.
In 2014, North Korea demonstrated an unprecedented level of openness and willingness to cooperate in negotiations with the Russians. The DPRK authorities expressed their willingness to create improved business conditions for Russian companies. In particular, they agreed to facilitate issuing of multiple-entry visas, provide Russian investors with modern communication systems (mobile phone and Internet) and provide easier access to information on legislation in the DPRK. In the second half of 2014, twelve Russian businessmen received long-term multiple-entry visas to the DPRK for the first time 22 .
See “DPRK Issues Long-Term Multiple-Entry Visas to Russian Citizens for the
First Time”. 08 September 2014. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=2150&sphrase_id=10023
Accessed on 11 May 2015.
In September–October 2014, North Korean Foreign Minister Ri Su Yong held a 10-day visit to Russia. He visited Moscow and a number of Far Eastern regions of Russia (Sakhalin and Amur Regions, Primorsky Territory). Special attention at the meetings with Russian officials was given to the projects of economic cooperation between the two countries, especially in the agricultural sector. North Korea is interested in developing long-term bilateral agricultural projects with Far Eastern regions of Russia 23 . A memorandum of understanding between the two countries’ Agriculture Ministries was signed during the visit.
Macdonald, H. (2014).
In February–March 2015, a DPRK government economic delegation led by Ri Ryong Nam, Minister of External Economic Relations, visited several Russian cities – Moscow, Khabarovsk and Vladivostok, as well as Kaluga, Lipetsk and Kazan. In Kaluga and Kazan, the North Korean delegation explored the experience of these Russian regions in attracting foreign investment. At the talks with Russian Minister A. Galushka, the parties agreed to consider creating areas of advanced economic development in the Far East of Russia and in the DPRK in a trilateral format with the participation of the Russian Federation, North Korea, and South Korea 24 .
See “A. Galushka: We Are Interested in Cooperation with the DPRK both in the
Far East and on the Korean Peninsula”. 23 March 2015. Available online at
http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3052
Accessed on 30 December 2015.
Another visit of the Russian business delegation to North Korea headed by Minister A. Galushka took place in October 2014. The two countries’ authorities agreed to establish a Business Council comprised of the businessmen interested in developing economic ties between Russia and the DPRK. Russian delegation visited Kaesong industrial complex, which is currently the only functioning inter-Korean cooperation project, in which the North and the South would like to attract investors from third countries. Some Russian businesses, especially from the agricultural sector, showed their interest in Kaesong. During the visit, A. Galushka said that the issue of introducing a visa-free regime between Russia and North Korea was put on the agenda for future negotiations.
At the beginning of 2015, Russia and North Korea set up Russia-DPRK Business Council at the Chamber of Commerce of the Russian Federation (Kazimirko-Kirillova, 2015). Its main goal is to assist businessmen and companies of the two countries in searching and establishing business relations to ensure effective development of trade and economic relations between Russia and North Korea (Survillo, 2015). The first meeting of the Business Council took place on the 25th of February and lasted for more than five hours. Among the participants were senior officials of both countries as well as Russian companies’ representatives interested in dealing with North Korea. According to the Russian officials, the new mechanism will play a coordinating role for Russian companies, consider their business projects, and submit them to the level of intergovernmental discussion 25 .
See “Business Cooperation between Russia and DPRK was Discussed in Moscow. 26
February 2015. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=2988
Accessed on 11 May 2015.
So, in the period of 2012–2014, Russia and the DPRK completed important preparatory work to boost bilateral economic ties. They resolved the debt problem, intensified economic contacts, facilitated bank transactions, created new bodies, and favourable conditions were provided to Russian businessmen in North Korea – all this can become a solid base for the future expansion of business cooperation between the two countries. Russia's Far East Development Ministry set up a special working group to closely monitor projects of Russian companies in North Korea. Its first meeting was held in September 2014 with the participation of North Korean representatives. Russian officials also expect the DPRK to establish a special government body responsible for economic cooperation with Russia.
To sum up, it can be said that Russia is now trying and developing a new mechanism of long-term economic cooperation with the DPRK in which on the Russian side, both government and private business are actively involved. It is a new model of interaction with North Korea completely different from the Soviet period. The core of it is mutual benefit and economic pragmatism with support of specific projects.
This approach was confirmed at the 7th meeting of the Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation which was held in Pyongyang in April 2015. In the final protocol, more commercial projects were mentioned in transport, energy, industrial, agricultural spheres as well as in exploring mineral resources. For example, Russia's Gazprom International showed its interest in cooperation with North Korea in the exploration and development of natural gas. Another Russian company RAO Energy Systems of East is exploring a possibility of constructing a 20 MW wind farm in North Korea. The parties also agreed to set up a new working group to analyse the feasibility of revitalising North Korea's hydro and coal fired power plants by Russian companies.
The DPRK offers different kinds of its mineral deposits as the main source of finance for these projects and payment for the Russian goods. However, the Russian companies need to have accurate information on the potential of developing the North Korean mineral deposits. For this purpose, Russia needs to compile a catalogue of the mineral resource base of North Korea, and sees this as a critical task for the near future 26 .
See “Intergovernmental Commission Russia-DPRK: the Main Principle is Equality
and Realization of Economically Viable Projects”. 27 April 2015. Available
online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3131
Accessed on 11 May 2015.
In the first 5 years of the 21st century, Russia's trade with the DPRK increased from $105 million in 2000 to $233 million in 2005. However, in 2006 the trend reversed and with the global financial crisis the bilateral turnover reduced to $49 million in 2009. As a result of the subsequent partial recovery trade between the Russian Federation and North Korea grew to $112.7 million in 2013. So, in the middle of the first decade of the 21st century, Russia's share in the foreign trade of North Korea was more than 5% but after 2009, it fell below 2% on the backdrop of growing North Korean economic exchanges with other countries. At the beginning of the 2010s, the trade turnover between Russia and the DPRK was almost 50 times less than the volume of trade between China and North Korea and 15 times less than the turnover of inter-Korean trade.
Among the reasons for such a small turnover between Russia and North Korea, some experts identified economic stagnation, a narrow range of export products from the DPRK, low solvency of North Korean companies, and distrust in them by Russian firms, a lack of modern infrastructure, and difficulties with financial transactions due to international sanctions imposed against the DPRK 27 .
Leshakov, P.S. (2012). 43-53.
Table 1 shows that bilateral trade is mostly based on exports from Russia to the DPRK. Imports from North Korea remain insignificant. As a result, in economic relations with Russia, North Korea has a chronic trade deficit which reduced from $219.5 million in 2005 to $94.1 million in 2013 primarily due to the decrease in the total trade volume.
Trade turnover between Russia and the DPRK in 2001–2013 (million $).
Source: Russia's Federal Customs Service.
Russia and North Korea will have to work hard to increase and diversify commodity supplies for the expansion of bilateral trade. However, there are some good opportunities for it. Over the past three years, several large Russian companies have expressed interest in cooperation with North Korea. For example, at the end of 2012, coal company Raspadskaya (part of Evraz holding) signed a contract to supply coking coal to the DPRK and in 2013 delivered more than 170,000 tons of coal worth about $19.9 million to North Korea 28 . In 2014, coal deliveries continued. In 2015, the Russian SEVER group of companies started to supply coal to the DPRK in exchange for cast iron 29 .
According to the data of Russia's Federal Customs Service.
See “DPRK Delegation to Participate in Eastern Economic Forum”. 22 August
2015. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3566
Accessed on 30 December 2015.
According to the Russian Embassy in the DPRK, Russia's main exports to North Korea in 2013 were: coking coal, diesel fuel, metals, metal products, machinery, equipment, vehicles, foodstuffs, and agricultural raw materials. Russia's imports from North Korea in 2013 included textiles and footwear, chemicals, mineral fuels, metals and metal products 30 . More than 90% of bilateral trade was represented by Russian exports. To improve this situation, North Korean officials are actively trying to offer export goods and services from North Korea to Russian partners. For example, in summer 2014, the DPRK embassy in Russia offered Russian IT companies the opportunity to hire several dozen North Korean programmers. However, as for now all these offers find little interest at the Russian market.
Embassy of Russia to the DPRK. (2015).
Despite all the efforts of the two countries’ authorities and the declared goal of achieving $1 billion turnover by 2020, in 2014 bilateral trade fell again – to $92.8 million. However, Russian officials believe that the situation will improve considerably after the successful implementation of several projects which are being discussed between Russian and North Korean companies. At the same time, the actual volume of trade between Russia and North Korea is likely to be higher than the official statistics. Some Russian companies have been supplying their products to the DPRK for several years through intermediaries in China. Steps should therefore be taken to convert trade through third countries into direct trade between Russia and the DPRK. This would reduce transaction costs for the participants and significantly improve bilateral cooperation. The main obstacle to this is the mutual lack of trust between the Russian and North Korean companies involved.
At the 7th meeting of Intergovernmental Commission in April 2015, Russia and North Korea signed 16 veterinary certificates for live animals and animal products for export from the Russian Federation to the DPRK. Expanding cooperation in agriculture can contribute to increasing the bilateral turnover. In particular, North Korea expressed interest in importing pork and poultry from Russia 31 .
See “Intergovernmental Commission Russia-DPRK: the Main Principle is Equality
and Realization of Economically Viable Projects”. 27 April 2015. Available
online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3131
Accessed on 11 May 2015.
To boost trade cooperation between Russia and North Korea, it is also important to improve logistics between them. The two countries do not share a land border, so all trade between them is conducted by sea, or by rail across a single bridge. However, the North Korean side has long been asking for the construction of a road bridge. In March 2014, the two sides agreed to speed up the preparation of an intergovernmental agreement on international road transport. And in April 2015, such an agreement was signed in Moscow (Kiryanov, 2015a), which gives hope for the start of practical work in this field in the near future. The prospect of building a floating road bridge between Russia and North Korea at the Khasan border crossing is currently being discussed by the Business Council, and has the support of both the Russian government and the authorities of the Primorsky Territory 32 . The main task now is to find a funding source for it.
See “Expansion of Cooperation between Russia and the DPRK Was Discussed at
the Eastern Economic Forum”. 3 September 2015. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3590
Accessed on 30 December 2015.
The biggest investment project pursued by Russia to date within the DPRK was launched in 2008 and is called the Khasan-Rajin railroad project. It involves the renovation and operation of a 54-kilometer double-track stretch of railway from the border station of Khasan (Russia) to the port of Rajin (the DPRK), and the construction of a universal freight terminal in Rajin port for transit transportation and access to the Trans-Siberian Railway. The Russian side of this project is represented by OJSC Russian Railways which has already invested 10.6 billion roubles (about $300 million) in constructing the infrastructure in North Korea. In September 2013, the renovated section of the railway was officially reopened, and in July 2014, the universal freight terminal in the port of Rajin went into operation 33 .
Kiryanov, O.V. (2015b). Russia-DPRK: Khasan-Rajin Project. //
In 2006 Russia, the ROK and the DPRK declared this project to be the first stage of the entire Trans-Korean Railway reconstruction (its eastern route), but since 2008 inter-Korean relations have deteriorated and South Korea suspended its participation in the project. According to the original business plan, the infrastructure in Rajin was to be used for handling containerised cargo from South Korea (and other countries of the Asia-Pacific region) and transporting it to the network of Russian railways. However, with the suspension of South Korean participation in the project, and the lack of a confirmed freight base, Russia and North Korea have had to change the configuration of the terminal to handle bulk cargo. At this initial stage, the plan is for the terminal to export up to 5 million tons of Russian coal annually to the Asia-Pacific 34 .
Zakharova, L. (2013). North Korea's International Economic Ties in the 21st
Century and Prospects for Their Development under Kim Jong Un. //
In April 2014, OJSC Russian Railways successfully carried out a trial operation moving two freight trains with coal from Russian Kuzbass region to the port of Rajin. After that, the terminal has been mainly used for shipments of coal from Russia to China. In 2014, more than 100,000 tons of coal was shipped through the port of Rajin 35 . In 2015, it was already almost 1,200,000 billion tons of cargo 36 .
See “Russia Transports 432,000 Tons of Freight to North Korea's Rajin Port in
1Q2015”. 27 May 2015. Available online at http://eng.rzd.ru/newse/public/en?STRUCTURE_ID=15&layer_id=4839&id=106602
Accessed on 30 December 2015.
See “Freight Turnover between Russia and APR Countries through Land Border
Crossings Grew 22% in 2015”. 12 January 2016. Available online at http://www.rzd-partner.ru/news/transportnaia-logistika/rost-gruzooborota-so-stranami-atr-cherez-sukhoputnye-pogranperekhody-vyros-v-2015-godu-na-22/
Accessed on 14 January 2016.
At the same time, Russia does not lose hope in the eventual implementation of the trilateral model of the project. During the visit of Russian President Vladimir Putin to Seoul in November 2013, Russia and the ROK signed a memorandum of understanding according to which a consortium of South Korean companies including POSCO, Hyundai Merchant Marine Co. and Korail Corp. would consider an opportunity to join the Khasan-Rajin logistics project (RIA Novosti, 2014). On the 24th of May 2010, the South Korean government imposed trade and economic sanctions against the DPRK prohibiting any investment cooperation between the two countries. Therefore, South Korean businesses can enter this project only through cooperation with Russia, for example, by acquiring part of the Russian share in the joint venture of Russia and the DPRK called RasonKonTrans, which operates the created infrastructure. Currently, 30% of the shares in the joint venture are owned by the North Korean side and 70% of the shares belong to the Russian OJSC Russian Railways Trading House (a subsidiary of OJSC Russian Railways). Part of this 70% can be sold to South Korean companies 37 .
Kiryanov, O.V.(2015b). 65.
Russia and the DPRK welcome participation of South Korean companies in the Khasan-Rajin logistics project. In 2014 representatives of POSCO, Hyundai Merchant Marine Co. and Korail Corp. visited Rajin twice and inspected the port infrastructure, railways and other objects. After these visits, they decided to carry out trial transportation of coal from Russia to South Korea through Rajin port. The first pilot shipment took place in late November 2014. A Chinese ship carrying 40,500 tons of coal from West Siberia departed Rajin port on 27 November and arrived in the South Korean port of Pohang on 29 November (Kiryanov, 2014). The new transportation route allows South Korean coal buyers to save about 10–15% of delivery time and shipping costs 38 . The second trial shipment was carried out in late April–May 2015 (Kiryanov, 2015).
Kiryanov, O.V. (2014a). South Korea Receives Russian Coal. http://www.rg.ru/2014/12/03/ugol-site.html Accessed on 30
December 2015.
Another ambitious undertaking by Russian companies in the DPRK was officially launched in October 2014. Project ‘Pobeda’ (which means Victory) involves modernising the transport infrastructure and mining industry in North Korea with the participation of the Russian Scientific and Production Association, Mostovik. This company is particularly famous for designing and constructing the bridge to the Russky Island in Vladivostok for the APEC summit and several Olympic facilities in Sochi.
Unlike the Khasan-Rajin railroad project which was carried out by Russian Railways at their own expense with the hope of the funds’ subsequent return, the Pobeda project will be implemented on a “money first – investment later” basis. In particular, as Russian Minister A. Galushka explained, expenses of Russian companies will be covered by access to the mineral resources of North Korea including rare earth metals and coal 39 . It means that Russian companies will develop the natural resources of North Korea, sell them, and the DPRK government will invest the received funds in the modernisation of its railways.
See “Russia's Far East Development Minister Speaks about the Results of His
Visit to the DPRK”. 28 October 2014. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=2530
Accessed on 12 May 2015.
Mostovik plans to set up a joint venture with North Korea in which technology, equipment and specialists will be provided by the Russian side and workers by the Korean side. The plan involves modernisation of 3,500 km of railways (or half of the DPRK's railways network) as well as tunnels, bridges and station roads. The section Jaedong-Kangdong-Nampho was selected as the first part of the first stage of this infrastructure project. The whole plan for the reconstruction of North Korea's railways is divided into 10 stages and will require an investment of approximately $25 billion 40 .
Labykin, A. (2014). Russian “Victory” in North Korea. Expert. 22 October
2014. http://expert.ru/2014/10/22/rossijskaya-pobeda-v-kndr/
Accessed on 12 May 2015.
If the Pobeda project is successfully implemented, it will become a real example of a mutually beneficial model of trade and economic cooperation between the two countries, where participation of Russian companies in infrastructure and other projects takes place in exchange for access to the North Korean mineral resources.
However, it is insufficient to only modernise the transport infrastructure as a way of resolving the urgent problems of the North Korean economy. Improving the country's electricity supply is also on the agenda. Russia and the DPRK have been discussing the organisation of electricity supplies from Russia to North Korea. In the past, Russian energy holding OJSC RusHydro carried out a feasibility study for this project, and as Minister A. Galushka said in October 2014, the project turned out to be commercially attractive and would be considered for further discussions. To study options for energy supply from Russia to the North Korean trade and economic zone Rason, it is planned to establish a joint working group of RusHydro and the People's Committee of Rason 41 . A feasibility study for this project is being prepared by Russian company RAO Energy Systems of East. Russia also held talks with potential participants from the Republic of Korea. As a result in January 2015, RusHydro signed a memorandum of understanding with the South Korean company K-water where they agreed to start preparing a feasibility study for creating an energy bridge from Russia to the Republic of Korea through the territory of the DPRK 42 .
See “Russia and North Korea Will Work on Abolishing Visas”. 6 February 2015.
Available online at http://www.interfax.ru/404369 Accessed on 12 May 2015.
See “Russia-DPRK: New Cooperation Horizons and Prospects of Trilateral
Projects”. 4 March 2015. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=2999
Accessed on 12 May 2015.
Russian companies are also looking to invest in some other areas of the North Korean economy 43 . The principle challenge facing them is that they need to be confident that these projects will be profitable, and that they will then be able to get these profits out of the DPRK. The case of Egyptian company Orascom's investment within the telecom sector of North Korea has often been cited as the most successful example of foreign investment in the DPRK 44 . However, because of international sanctions, and after years of profitable operation, Orascom are now experiencing severe difficulty in exchanging its income from local currency into dollars, and with getting these funds out of North Korea 45 . This high profile example could seriously discourage potential private Russian investors who have not yet gained enough confidence to invest in the DPRK.
See “DPRK Delegation to Participate in Eastern Economic Forum”. 22 August
2015. Available online at http://minvostokrazvitia.ru/press-center/news_minvostok/?ELEMENT_ID=3566
Accessed on 30 December 2015.
Zakharova, L. (2013). 128–148.
Williams, M. (2015).
More than 40 Russian regions currently pursue economic cooperation with the DPRK in various fields, including construction, forestry, agriculture, fishing industry, health care and the garment industry. In 2013, the biggest trade volume with North Korea among Russian regions was demonstrated by Primorsky Territory ($23.4 million), St. Petersburg ($23.1 million) and Kemerovo Region ($19.4 million). According to the results of recent negotiations, such regions as Tatarstan, Chuvashia, Yakutia, Sakhalin and Ulyanovsk Region are also interested in cooperation with the DPRK in various fields, especially in supplying their goods to North Korea.
Traditionally an important form of bilateral economic relations is cooperation between North Korea and the Far Eastern regions of the Russian Federation, the most active of which are Amur Region, Primorsky and Khabarovsk Territories. In Khabarovsk Territory, for example, there were 15 enterprises with investment from the DPRK, including 6 companies with 100% of North Korean capital, 1 joint venture with Russian capital, as well as 8 representative offices of North Korean companies at the beginning of 2014.
The most dynamic area of interregional cooperation is attracting North Korean labour for temporary work in the territory of the Russian Federation 46 . Implementation of federal and regional programmes in the development of the Russian Far East has led to a significant increase in the number of workers from the DPRK. In 2010 about 21,000 North Korean citizens worked in Russia in such spheres as construction, agriculture, forestry, health care, fishing and light industry. In 2013, Russia increased the permits quota for foreign workers from North Korea to 35,000. This area of cooperation is highly beneficial both for Russia (disciplined, law-abiding and inexpensive workers help alleviate labour shortages in Siberia and the Far East) and North Korea, which receives significant currency earnings. As a result of increased cooperation between North Korea and the Russian Federation passenger traffic of the North Korean aviation company Air Koryo between Vladivostok and Pyongyang grew by 22% in the first half of 2014 47 . In 2015, the amount of North Korean workers in Russia increased to 47,364 people, which is 27% more than in the previous year. As a consequence, the DPRK became the 3rd most significant foreign country, after China and Turkey, in terms of the number of work permits issued in Russia 48 .
Matsegora, A.I. (2013). Korean peninsula in Russia's policy.
See the website of Vladivostok airport. http://vvo.aero/press-center/news/mezhdunarodnyy-aeroport-vladivostok-podvel-itogi-raboty-v-pervom-polugodii-2014-goda.html
Accessed on 12 May 2015.
Napalkova, A., Opalev, S. (2015) Where Do Foreign Workers Work in Russia. 22
April 2015. http://rbcdaily.ru/industry/562949994889031 Accessed on 12
May 2015.
North Koreans have recently shown an increased interest in the implementation of agricultural projects in the Russian Far East. Since 2011, various options for cooperation with Amur region including joint projects for setting up dairy and beef farms, as well as cultivation of grain and soybeans have been discussed. In mid-2013, the Consul General of the DPRK in Nakhodka at a meeting with the Governor of Primorsky Territory said that North Korea plans to invest $1 million in processing corn and soybeans as well as to consider joint projects in cattle breeding in Primorye 49 . North Koreans currently have experimental agricultural enterprise in the Dalnerechensk district of Primorsky Territory 50 .
See “V. Miklushevsky meets new Consul General of DPRK to Nakhodka”. 20 June
2013. Available online at http://miklushevskiy.ru/news/1660.html Accessed on 12 May
2015.
See “Primorye and North Korea Discuss Common Plans in Agriculture”. 26
November 2014. Available online at http://primorsky.ru/news/common/77640/ Accessed on 30
December 2015.
In 2014, the DPRK officials announced they were interested in renting 10,000 hectares of land in Khabarovsk region to grow vegetables, breed cattle and set up processing enterprises using Korean labour and equipment. There were reports of possible involvement of investors from the Middle East in the financing of these projects. Most of the products produced in Russia at North Korean agricultural enterprises would then be exported to the DPRK to improve the food situation 51 .
Land for Work: DPRK Wants to Rent 10 Thousand Hectares. 14 November 2014.
Available online at http://realty.newsru.com/article/14nov2014/kndr_habarovsk
Accessed on 30 December 2015.
The most profitable model of cooperation between Russia and North Korea also involves the participation of South Korea. However, despite all of the potential benefits, in the second decade of the 21st century, there are still a number of barriers to inter-Korean economic dialogue, and trilateral cooperation. The most important of these barriers are military and political factors such as the nuclear issue on the Korean peninsula and the unsettled bilateral relations between South and North Korea. Nevertheless, Russian proposals on trilateral cooperation seem to have good potential for long-term strengthening of South Korean relationships with North Korea and the DPRK's participation in the regional integration process. The multilateral format will help alleviate Pyongyang's concerns about excessive dependence on Seoul, lessen Seoul's financial burden of the DPRK economic recovery, and also give impetus to the development of inter-Korean economic relations. So, when the two Korean states manage to reach a compromise, and continue their economic dialogue, multilateral cooperation with Russia is likely to be high on the agenda.
South Korean companies have already successfully tried to use the transport infrastructure built by Russia and North Korea, and now they are considering the most appropriate form of participation in the Khasan-Rajin logistics project. If this project works, an important precedent will be created for other “big” trilateral initiatives. If the ROK companies join the Russian–North Korean logistics project and proceed with reconstructing North Korean railways from Rajin to the border with South Korea, it will be possible to restore the whole Trans-Korean railway in its east direction. This will enable it to launch cargo rail services from Busan to Europe via the Trans-Siberian Railway, making the entire Korean peninsula an important logistics hub, and bringing Russia considerable transit profit.
The project of supplying Russian gas to South Korea through North Korea has been discussed for more than 20 years. After the construction of the “Sakhalin-Khabarovsk-Vladivostok” main gas pipeline was completed in 2011, the infrastructure for building an extension to the Korean peninsula was ready. North Korea for its part, agreed to provide land for the construction of a gas pipeline 52 , and Russia and South Korea came close to discussing commercial gas supply contracts. However, in 2012, the parties were unable to agree on the price of gas. After that, the communication on this subject was frozen but neither side said that it was buried forever.
Matsegora, A.I. (2013). Korean Peninsula in Russia's Policy.
Regarding the electric energy project, little progress on it has been reached. However, building a power line from Russia through North Korea to South Korea is strategically important for energy-intensive railway and pipeline projects and is inextricably linked with them. Recent renewed interest within South Korea to energy cooperation with Russia gets all three parties back to discussing the project of building an energy bridge from Russia to the Republic of Korea. If this project is implemented it will become a great contribution to developing economic ties of Russia and North Korea.
The Russian government is gradually coming to realise that it cannot expect quick implementation of trilateral projects with the participation of South Korea. And therefore, it is necessary to expand bilateral economic relations with the DPRK to strengthen Russia's position on the Korean Peninsula, as well as in the dialogue with the Republic of Korea. At the same time, Moscow will most probably keep pushing for progress with the long-discussed infrastructure projects on the Korean peninsula in anticipation of better times in the inter-Korean dialogue. In bilateral talks with the Russian representatives the leadership of both the Republic of Korea and the DPRK strongly support the trilateral format of economic cooperation.
Russia and North Korea are currently at the stage of testing new principles and models of economic cooperation. A lot of work has already been done to remove obstacles and create favourable conditions on both sides. What is needed now is a successful result in boosting trade and investment cooperation. Russian officials hope that the aim of one-billion-dollar turnover by 2020 will be achieved by implementing several significant projects with private Russian companies, as well as joint development of the special economic zones in the two countries.
Some researchers claim that to boost the trade volume between Russia and the DPRK the Russian government will need to provide subsidies from the Russian budget to the businesses involved in cooperation projects. There is a high probability that Pyongyang is counting on that, but the current state of the Russian economy means that this is unlikely to happen in the foreseeable future 53 .
Cherkashin, P. (2015).
It is important to emphasise that at the current stage, Russia is ready to expand economic relations with the DPRK on the terms of mutual benefit and economic pragmatism with support for commercially viable projects. It is not possible to return to the Soviet-period model of the bilateral relations, although the North Koreans are still trying to offer cooperation “on credit”. Despite the decisive role currently played by the Russian government to boost economic cooperation with North Korea, after the necessary institutional mechanisms are created and certain business experience is accumulated, the initiative should be passed into the hands of private companies. To make it happen, North Korea needs to increase its efficiency in the negotiations, create special bodies, and define specific people responsible for interaction with Russian companies, as well as provide complete and accurate information on the mineral deposits that will be offered in exchange for Russian investment and the supply of goods. The two parties also need to urgently agree on the sources of finance for the joint initiatives.
Russian private business interest in North Korea is gradually increasing, and Russian ministries and agencies are providing the interested companies with full support, but the DPRK needs to provide an appropriate level of information and organisational cooperation with their Russian partners so that the investment projects which are being actively discussed can be implemented.
In the second decade of the 21st century, Russia and North Korea have been very active in finding new forms and creating appropriate conditions for revitalising their economic cooperation. The interests of the two governments coincided; Russia is seeking to increase its influence in Asia and activate regional mechanisms to boost the development of the Russian Far East, and North Korea needs to improve its economic situation and reduce the unilateral dependence on China in terms of trade and investment. The new model of cooperation which can be described as “Russian investment in exchange for North Korean mineral resources” still has to prove its viability. If the rumours of abundant mineral deposits in the DPRK are confirmed, and Russian companies get access to them, the two countries have a real chance of growing trade and investment volumes.
Expanding cooperation between Russia and North Korea also gives South Korea a good opportunity to achieve the Eurasian initiative declared by President Park Geun-hye in 2013. With the big railroad project completed, it will be possible to “build the Silk Road Express, which will run from Busan all the way to Europe via North Korea, Russia, China and Central Asia, by connecting the northeastern part of Eurasia with railways and roads to establish a multi-purpose logistics network, which would eventually be extended to Europe”. Energy cooperation of Russia, North Korea and South Korea is also crucial for creating an energy network in Northeast Asia and further in Eurasia. So, the countries need to go ahead with “connecting energy infrastructures, including electric power networks and gas and oil pipelines” 54 .
Park Geun-hye. Remarks by President Park Geun-hye at the 2013 International
Conference on Global Cooperation in the Era of Eurasia. 18 October 2013.
http://english1.president.go.kr/activity/speeches.php?srh%5Bpage%5D=2&srh%5Bview_mode%5D=detail&srh%5Bseq%5D=2636&srh%5Bdetail_no%5D=16#sthash.kWhW9VVt.dpuf
Accessed on 12 May 2015.
At the same time, it is difficult to imagine how the two Korean states can be engaged in any joint economic project in the region without first settling their bilateral relations and removing the existing obstacles in the form of economic sanctions. Therefore, progress in economic cooperation between Russia and North Korea also requires improvement of inter-Korean ties. Russia's influence over the entire Korean peninsula has been underused due to political and military reasons. Russia could become a balancer and a faithful mediator between the two Koreas 55 . If necessary, Moscow is ready to help the ROK and the DPRK to revitalise their relations, starting with the aforementioned multilateral projects.
Kim, D.J. (2012). 393.