Trade ban to cause NKorea huge losses

May 25, 2010
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, SEOUL, May 25 – South Korea\’s ban on most trade with North Korea will cost the impoverished communist state hundreds of millions of dollars a year, according to figures from a Seoul research group.

The state-run Korea Development Institute said in a report seen Tuesday that the North had a 333 million dollar trade surplus with its neighbour last year.

Seoul on Monday banned most cross-border trade after an international investigation found that a North Korean submarine had torpedoed a South Korean warship on March 26, killing 46 sailors.

"The sanctions are expected to bring significant pain to the North Korean government," institute researcher Lee Seok said in the report.

The South also banned the North\’s merchant ships from using its sea lanes, meaning they face bigger fuel bills from taking longer routes.

It excluded a jointly run industrial estate at Kaesong, just north of the border, from the trade ban.
The institute said the North had consistently achieved a surplus in purely commercial trade with the South, excluding aid and government-led economic cooperation projects. The surplus amounted to 333 million dollars in 2009. The communist state\’s exports were mainly farm products or seafood.

The North earned another 40 million dollars from workers\’ wages at Kaesong last year, which are unaffected at present.

The government-funded Korea Institute for National Unification separately estimated the North\’s likely annual trade losses at more than 250 million dollars. This includes an extra one million dollars in extra fuel costs for ships, it said in a report published by Dong-A Ilbo newspaper.

But analysts cautioned that Seoul\’s trade cut-off could push its neighbour further into the arms of China, which is already the North\’s main trade partner and energy supplier.

"The North will strengthen its economic cooperation further with China to make up for a loss in trade with the South," Kim Yong-Hyun of Seoul\’s Dongguk University told AFP. "The South\’s economic leverage is weakening and actually on the brink of collapse."

Dong Yong-Seung of Samsung Economic Research Institute in Seoul agreed that the South\’s move could deepen the North\’s economic dependence on China. But he said it could also create a shortage of hard currency in the North, causing it problems in settling business deals with China.

The trade ban caused jitters among South Koreans trading with the North, including those at Kaesong, where 42,000 North Koreans work at 110 South Korean-funded plants.

Even though the estate was excluded from the ban, factory owners are suffering from chilled relations.

"That (ban) was like slapping a death penalty on us," Park Yong-Man, owner of a garment factory in Kaesong, told Yonhap news agency. "Orders have completely dried up."

Lee Kwan-ho, an official at Seopyong Energy, which imports smokeless coal from North Korea, said his company could not survive if the deterioration in relations continued.

Choi Yong-gwan, head of an association of South Korean businessmen that supports inter-Korean trade, said Seoul was abandoning the opportunity to open up the reclusive North.

"North Koreans now understand the taste of money," Choi said. "Abandoning economic cooperation is equal to withdrawing our most effective means of prying the country open."
 

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