Thursday, December 23, 2010

The High Politics of ROK/DPRK Trade

. Thursday, December 23, 2010



It is hurting:

Inter-Korean trade has fallen about 30 percent this year, largely affected by South Korea's move to cut almost all business relations with North Korea after the North sank one of its naval ships in a torpedo attack in March, the customs office said Wednesday.


This is to be expected. But this surprised me:

According to data provided by the Korea Customs Service (KCS), trade between the two Koreas amounted to US$464 million during the January-November period, down from $649 million recorded a year earlier.


That is more trade than I thought. North Korea's GDP is ~ $27bn, so that $650mn in trade represents about 4% of DPRK GDP*. To put that in perspective, in 2009 the U.S. and China traded $366bn in goods, or about 3.8% of (U.S.) GDP.

Perhaps that plays into why the DPRK backed down earlier this week: they literally can't afford to keep playing high stakes poker when they're so short-stacked. As any poker player knows, "in a heads-up game, the size of your stacks is as important as the cards in your hand". The ROK is in a position to lean on the DPRK, the DPRK doesn't have a bankroll to fall back on, and both know it. Especially because much more than just $650mn is at stake:

Despite such a sharp shrinkage, trade through the Kaesong industrial complex, tallied in a separate statistic, remained robust. Trade amounted to $1.31 billion during the 11-month period, up 62 percent from a year earlier. ...

South Korea is the North's second-largest trade partner after China. A suspension of inter-Korean business would significantly impact the reclusive communist nation's efforts to secure cash, according to experts.


Long and short: the ROK can trade with the U.S., Japan, and everyone else in the world. The DPRK can't. There's an important asymmetry here that the ROK can, and apparently is, using to its advantage.

*To be clear, that $650mn is not entirely on the North's end. It's total trade. But the North exports more to the South than vice versa, and is definitely more dependent on that trade. From the article:

South Korea's exports to the North came to $130 million during the cited period, down 28 percent a year earlier, while imports dropped 29 percent on-year to $334 million, the data showed.


Via.

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The High Politics of ROK/DPRK Trade
 
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