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Thursday, October 27, 2016

The restoration of trade relations with the DPRK even more delayed

Russia is going to suspend financial ties with North Korea and abandon the purchase at the Pyongyang gold, rare earth and other metals. All this is done in the framework of UN security Council resolutions. We are not talking about a complete interruption of economic relations, but Russia’s attempts to establish with the DPRK economic convergence in any case not a great success.

The foreign Ministry has prepared a draft presidential decree, almost completely freeze of financial relations with the DPRK in accordance with the resolution of the UN Security Council.

“This step of Russia will be negatively perceived in the North Korean Republic, so the future relations between the two countries will be called into question”

“To take the necessary action for closing on the territory of the Russian subsidiaries, branches or representative offices of DPRK banks, joint ventures with banks in Korea, prohibition of equity participation in the ownership of banks in the DPRK, correspondent relationships with banks in Korea within 90 days from 2 March 2016”, – stated in the draft, which is posted on the Federal portal of projects of normative legal acts.

Another clause requires “to take all necessary measures to close within 90 days of the existing offices/branches of banks and Bank accounts in the DPRK if the Russian Federation there is information giving reasonable grounds to believe that such financial services could contribute to DPRK’s nuclear program or ballistic missile programme in”.

Will also be banned from opening in Russia new subsidiaries, branches or representative offices of DPRK banks, and the creation of financial institutions that are in the territory of the Russian Federation, new joint ventures with banks in North Korea, the establishment or maintenance with them of correspondent relations.

The UN security Council earlier unanimously approved a package of sanctions against North Korea, which was called the most violent in the last twenty years. In particular, it introduces mandatory inspection of cargo going to North Korea and back, prohibits the sale of small arms and light weapons and more.

In fact, Russia is talking only about the limitations of the financial relations between the two countries, instead of their complete rupture. That is the trade that is now, this should not greatly harm. But in fact the activities of all financial institutions associated with North Korea, may be terminated.

“Given the generally closed nature of the DPRK economy, it is extremely difficult, if not impossible, without government participation to identify financial institutions that are not associated with nuclear programs. Naturally, this step of Russia will be negatively perceived in the North Korean Republic, so the future relations between the two countries, at least at the state level, will be called into question”, – says Ivan Andrievsky, first Vice-President “Russian Union of engineers”.

After the collapse of the Soviet Union, economic relations between Russia and North Korea have declined sharply. Turnover hovered around a paltry $ 100-250 million. According to the statistics of the Eurasian economic Union (EEU), all officially disclosed import of the Russian Federation from North Korea last year amounted to slightly more than $ 6 million.

However, for some products data are not disclosed, in particular in respect of the gold or rare earth metals. Anyway, but now Russia is planning to abandon the procurement in the DPRK coal, iron ore, gold, titanium and vanadium ores, rare earth minerals (REM), their acquisition is forbidden. It also follows from the draft presidential decree on the execution of the resolutions of the UN security Council.

An exception is made only for a project on the transit of Russian coal by Russian Railways via the North Korean port of Rajin for subsequent export to third countries, the document says. Russia, along with the port of Rajin in 2013 reconstructed the railway section Khasan – Rajin to transport 4 million tons of cargo per year, and in 2014 built a new transshipment terminal capacity to five million tons per year. In addition to the transit of coal from Russia for export, is planned in the future to make this area a pilot project in the development of the TRANS-Korean railway (railway, passing through North and South Korea).

The consequences

A new milestone in relations between the two countries began in 2012, when Russia forgive North Korea 90% of the 11 billion debt, the remaining amount was used in operations “debt in exchange for help”. From this moment begins the revival of the partnership, and in 2014 on the background of aggravation of relations of Russia with the countries of the West there is even greater convergence with the DPRK.

However, many plans were not implemented. In particular, the parties wanted to increase the volume of mutual trade. In Soviet times, for example, the DPRK has put on far East food products – fruits, soy sauce, alcohol and more. But then the role of North Korea as source of food has gone virtually no. The trade turnover between the countries is still small.

Thus, according to the recent data, in the first quarter of 2015, the trade turnover between Russia and the DPRK fell by 30%, to $ 18.2 million from $ 26.1 million in the first quarter of 2014. The share of Russian exports in the first quarter of 2015 was $ 17.7 million, the share of imports of North Korea – a total of 573 thousand dollars.

The main importer in the DPRK is China (87,6%), plus Thailand is 2.7 percent. Russia in third place. A share of less than 2% are India, Singapore, Philippines and the United States.

Quite a long time Russia was also discussed the draft of the transit gas pipeline through North Korea to supply fuel from the Far East to South Korea. To sell gas in Asia has always been profitable, so there are fuel prices more expensive than in Europe or North America. In 2012 even signed a contract with South Korea’s Kogas, to begin deliveries of 10-12 billion cubic meters a year was going in 2017. However bring to mind this project failed due to political risks closed North Korea. The DPRK do not need Russian gas, but they could be a good idea to make a transit.

Thus, after the collapse of the USSR, DPRK and Russia were each other’s key and strategic partners and to the current time so they did not. “In the trade turnover, the share of the DPRK is negligible. The share of Russia in trade turnover of the Republic of Korea does not exceed 1%, according to data for 2014. Thus, from the rupture of relations, to which, in fact, is all there is, neither the Russian nor the DPRK not much to lose”, – says Ivan Andrievsky.

On the other hand, it might put an end to the recent plans. So, the year 2015 was declared the year of friendship between the two countries, in connection with which North Korea has offered Russia to think about the organization of the Asian trading houses to strengthen diplomatic and trade relations.

“The work of this house can boost imports and exports through direct trade between countries, as well as more efficient use of national currencies – one of the arguments and desires of the DPRK was to create preconditions for the opening of Bank accounts of North Korean companies in Russia. Given the current situation – all these initiatives are likely to already have no chance of becoming reality,” says Kirill Yakovenko from “ALOR Broker”.

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