BEIJING (Reuters) - Strengthened sanctions are unlikely to dent North Korea’s trade with benefactor China, but the global slowdown is taking its own toll on the isolated North, which said on Tuesday it will abandon nuclear talks.
North Korea’s announcement that it will abandon the “useless” six-party disarmament talks and restart a nuclear plant followed the U.N. Security Council’s condemnation on Monday of its rocket launch nearly two weeks ago. The security council demanded enforcement of existing sanctions.
Lower commodity prices may prove more painful to North Korea than the tightened sanctions, which will likely blacklist certain firms known to deal in military goods.
“Sanctions won’t have a big effect, they won’t change their actions,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.
“There will be no impact on trade with China, which is mostly grains and basic materials ... Sanctions may have some influence on luxury goods, but only a weak effect on overall trade volume.”
The isolated country’s $2 billion annual trade with China, equal to about 10 percent of the North’s annual GDP, is its most important economic relationship.
China repeatedly urged restraint as North Korea prepared its rocket launch. But it was reluctant to take a harder stand for fear of losing influence in Pyongyang and due to worries about the major political and economic risks if North Korea collapsed.
Trade between the two countries has slipped in recent months, as a plunge in metals prices closed one of North Korea’s few channels of export revenues. The value of trade between the two countries dropped 3 percent in the first two months of 2009.
North Korea profited from strong prices for minerals and ores over the last few years, ramping up exports of zinc, lead and iron ore to resource-hungry China.
Most of those exports have dropped again since last summer, in line with sharp decreases in metals prices buffeted by the global economic crisis.
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The North’s mineral deposits could be worth $2 trillion, according to an estimate by the South’s Korea Resources Corporation. But dilapidated infrastructure and a broken power grid hinder mining and the transport of minerals out of the country.
The irregular pattern of North Korea’s alumina imports implies that its smelter only runs in fits and starts. Other ore exports are equally ragged, possibly indicating that North Koreans are only digging the easily accessible ores.
Chinese companies that have tried to invest in North Korean mines complain of constant changes in regulations and report that the North tries to tie mining access to commitments to build mills and other industrial projects.
“China and North Korea are friendly neighbors and we will continue to develop friendly cooperative relations with North Korea,” Chinese foreign ministry spokeswoman Jiang Yu said on Tuesday after the North’s withdrawal from the six-party talks.
Diplomats’ expectations that China might use trade to influence its prickly neighbor rose when China cut off crude oil shipments in September of 2006, as North Korea prepared to test a nuclear bomb. It had tested ballistic missiles that July.
In fact, energy trade data shows that China is reluctant to apply trade pressure. Increased oil products shipments offset the brief cut in crude supplies in 2006.
“The imposition of these sanctions (in 2006) has had no perceptible effect on North Korea’s trade with the country’s two largest partners, China and South Korea,” wrote Marcus Noland, of the Washington-based Peterson Institute for International Economics.
Data since early 2006 show that Chinese crude shipments have in fact been overwhelmingly consistent, at 50,000 tons a month.
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But imports of liquefied petroleum gas (LPG), normally used as a cooking fuel in Asia, have plummeted since August 2007.
Aid agencies have said when North Korea stirs global tensions it is more difficult for them to receive food pledges for the impoverished state, where handouts account for about one-fifth of food supplies.
Nonetheless, the United States provided 500,000 tons of rice after South Korea cut off food aid. But it was slow to provide fertilizer, which could harm agricultural output again in 2009 after better weather brought an improved harvest in 2008.
North Korea has imported very little Chinese grain since the 2008 harvest, reflecting the better harvest. Flooding and a disastrous harvest in 2006 and 2007 required heavy imports of grains from China in those years.
Chinese corn shipments to North Korea since August have dropped to 2,670 tons, from 136,595 tons in the previous twelve months and 32,186 tons in the year before that.
Rice and soybean shipments show a similar pattern.
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Additional reporting by Ben Blanchard, and Jon Herskovitz in Seoul
