RECONSTRUCTION IN NORTH KOREA (RR IM-390)

Created: 7/26/1954

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CIA HISTORICAL REVIEW PROGRAM RELEASE IN

oreign Tfaae* gad-SovietJUoc -Economic Assistance. A. Foreign Trade.

Due to the, unbalanced nature of the North Korean economy and Its integration first Into the Japanese economy and now Into the economy of the Soviot Far East, foreign tradeignificant aspect of the North Korean economic complex. Its significance la underlined by. the large number of items which arc surplus to the needs of the economy that-can be traded-for commodities ln which the economy Is deficient. In the period from0 the major commoditlea exported by North'Korea were pig Iron, steel, nonferrous ores and metals, fertiliser, industrial chemicals, lumber,-marine products, groins, and manufacturedhe major Imports were bituminous coal, petroleum, machinery fabricated metal products, electrical equipment, salt, textiles, paper, pharma-ceutlcala, ondorth Korea's formal trade has been totally disrupted, exports nave virtually ceased except for limited shipments of orec, and Imports have been"financed by loans or outright grants;

with the DSSH.

During the period60 the USSR woe North Korea's most lmpoi'taut trading partner, with value or trade Increasingillionillion Imports and exports between thc two countries generally followed the above listing, with cereal grains, fertilizer oral other chemicals, pig Iron, and lugol *locl accounting for more than half of thc value of North Korean exports. Of tne imports from the USSR, machinery air'. armaments constitutedercent by value, coalercent, petroleumercent. and technical servicesercent toetails of Soviet-North Korean trade agreements are not known. Afiicements were signed9roviding for Soviet shipments ofachinery and ports, crude oil, locomotives, and cotton in exchange for North Korean metals and chemicals pro duclr. nradewas signed providingf the former trade which was interrupted during the war. 'Ihe Soviet. North Korean aid agreement of3 Is discussed below.

1 Trade with China.

Trade with ChinaW was likewise important, but nothe munnitude of NorthSSR trade. traile value being on the order of about |n' million in that period. North Korean exports included fertilizer, carbide, graphite, agriculturalnthracite cool, sheet metal, oiriir productt, and lumber. Imports from Chinj included textiles, foodstuffs, and bituminous coal. Trade agreementsciiuria (Communist China) weren lo^B, but do details ore known. During tne war, trade with Communist Cmoa was in Ilic form of Chinese aid. Inorth Korea and Communist Chinarade conferencearter agreement was proposed under which North Korea would supply local agricultural products for Chinese industrial pro ducts. It is not certain that this agreement uashe Chinese Communist-North Korean aid agreement of3 is discussed below.

4. Trade with European Satellites.

Little if any trade between North Koreu and thc European Satellites existednd since then economic relations between the two hovemainly of Satellite aid. Trade agreements were reported concluded withndut no details are available.

with tbo West.

During theong Kong was Rorth Korea's most important non-Communist trading partner and provided during this period key commodities not obtainable from the USSR. North Korea exported foodstuffs, fats and oils, metallic ores, textiles, chemicals and pharmaceuticals, fertilizers, and gold to Hong Kong. It imported textiles, paper, chemicals and pharmaceuticals, dyoing and tanning materials, rubber, machinery, vehicles and transportation equipment, electric and electronic equipment, glass, and petroleumuring the pre -Korean War period, trade was also carried on vith Macao, India, China, and other countries of Southeast Asia. Clandestine trade was carried on with South Korea and Japan.

Available evidence indicates that there has been little Northrade with non-Soviet Bloc countries since shortly after the start of hostilities. Many Western nations havo Imposed embargoes on such trade.

of Payments.

orth Korean trade vas generally in balance, butith complete disruption of trade, the country has an extreme negative trade balance. Little has been exported, but much has been imported. Partial rehabilitation of gold and silver mines has enabled the country to export these precious matals to help pay for some of the needed imports, and there has been some export of other products since thc truce. Nevertheless, North Korea is heavily dependent on outright grants and loans fron Soviet Bloc countries both to satisfy current needs and to effect reconstruction of the war-devastated economy over the next few years.

B. Soviet Bloc Economic Assistance.

North Korea's recent foreign economic relations have been signified by grants in aid rather than by trade. esult of this aid from the USSR, China, and thc European Satellites, North Korea is beginning to show progress In its rehabilitation effort, but despite this aid rehabilitation of most major industrial installations is still in- the initial stages and most major industrial facilities orehe aid program is interesting as an experiment within the Communist Orbiteemingly genuine and coordinated aidpparently the USSR and Communist China are intent on reconstructing the North Korean economy more rapidly ands an integral part of thc Soviethan the South Korean economy is to be reconstructed by US and UN aid.

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2. Aid from the USSR.

id froa the USSR in the Torn of technical help, loans, and relief has been increasing and has largely taken tbe place of nomal trade relations. 9 the USSRilitary treaty with North Korea, wherein the USSR agreed to supply all the necessary equipment and know-how for the establishmentnfantryechanizod divisions,ecurity forcend0 it was reported that the North Korean People's Army had been armed and equippedwith Soviet9year Economic and Cultural Pact was signed between the two countries. In addition to providing for trade and cultural interchanges, supplemental agreements provided for Soviet aid to North Korea in the form'iO-milllon loan for the purchase of industrial equipment and raw materials, and in technical assistance for industry and/ Although this aid was not particularly It was, as far as thc US embassy In Seoul knew, the only credit extended 3 the largest manifestation of Soviet aid occurred,rant of one billion0 percent of which was to be used for the build-up of military armament,ercent for light Industry, andercent for heavyhis grant was to be expendedear period, and there have been no promises of further aid.

Aid thus far arriving from thc USSR has been consistent with that promised, with shipments including metals, machinery, electrical transportation and agricultural equipment, and chemical fertilisers.

3- Aid from Communist China-

No substantial amount of aid by Communist China to North Korea woo provided before In thatyear cultural and economic cooperation agreement between the countries was announced. Three important sections of this agreement provided: hat any indebtedness Incurred by North Korea to Communist China between0 and3 was to berant, with no remuneration(y) that China was torant of the equivalent0 million overyearo be used for coal, cement, clothing, machinery, textiles, metal products, transportation andequipment, and food;hat China was to provide technical aid, both in personnel in the field and In training in China for Korean students.

It is interesting to compare tbe aid agreements of the USSR and of Communist China with Horthhe value of Chinese aid la larger than that granted by the USSR Both countries vlll supply consumer goods, but the main Soviet contribution is in heavy industrial goods, while the Chinese will supply mainly transportation, light industrial, and row material Items.

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Whether thc Chinese can provide the large emont of aid scheduled in the face of their own pressing economic development and industrialization la open to question. It is significant, however, that substantial implementi tion of this aid tool place ln January and, with textiles, grain, shoes, coal, cement, and railroad equipment as well as technicians and laborers, the main items, arriving in North Korea. Sizable shipments of food also arrived Inut it remains to be seen whether China con deliver the badlyoss of food promised

*. Aid from European Satellites.

Although some examples of Satellite aid to North Korea01 are available, not2 when East Germanyoan agreement, and the last quarterhen other Satellites signed aid agreements for the reconstruction and development of North Korea at the instigation of tho USSR, was substantial aid forthcoming from the Satellites.

The total value of these Satellite aid programs concludedSeptember ands expected to be0 million. They consist mainly of heavy construction programs aimed at North Korean rehabilitation, and extend in some casesenerally theby tho various countries were to provide theis to construct factories, including an auto works, and auto parts and tool factories, and is toement works and three pover generating stations. Poland Is toocomotive repair works and passenger and freight cor works, and is to renovate three coal mines and provide other materiel and technical aid. Hungary is to construct aworkshop, organic chemical works,achine factory, as well as supply machinery and technical aid. East Germany, In addition tothe industrial equipment colled for in2 ogreomont. Is toa diesel engine plant, on electrical equipment factory,ublishing and printing plant'i Rumania is toa new cementew acetylene factory, and the facilities for manufacturing bricks, as well as providing some transportation Bulgaria la to provideU6 various goodscotton yarn, cotton fabrics, and conned food; and Albania and Mongolia ore to provide unspecified items.

Thc Satellites have sent limited quantities of aid during thc first few monthoncluding horses, farm Implements, and various types of machinery, textiles, shoes, and medicine. Czechoslovakia has sent the largest number of technicians, but some have also arrived from roland, Hungary, Bulgaria, and possibly East Germany. As most of thc Satellite aid programs are long-range, it will be some time before actual implementation can be observed.

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VI- Comparison of -Economic Activity In Horth and South Korea.

A- Dependence of Horth and South Korea on Foreign Economic Assistance.

Since the surrender of Japan5 and the withdrawal of Japanese administrators and technicians, both North and South Korea have been dependent on outside assistance in support of their industrial and governmental base. Tn North Korea this assistance has come primarily from the USSR, as outlined in the preceding sections. In South Korea, the US has been thc primary asslstor, vith aid concentrated primarily In the welfare and social sectors.

re the Korean Unr' NortQ Korea WM ableer way in the economic

sector with exports of metallic ores and the like- South Korea, predominantly agricultural, with little to export, was required to acceptrants in aid

hr?Ufihi*m haveRepublic of Korea almostillion exclusive of direct costs of tho US war effort in Korea and US support of the Republic of Korea Army

During and since hostilities both nations have been alike in their positive requirement for foreign assistance. Assistance to Horth Korea has come froc many of the Soviet Satellites as well as from the USSR and Communist China, and South Korea has been assisted by the US and by other countries of tho West throughb*to carry the heavy chare of the aid. Of the approxi-

mtnflJF WCC<,IVGd byhe USand private agencies supplied over/3 (that is, fiscalddition to tbeillion contributed to U* fundi for Korean !Sf Reconstruction, and funds for support of the Republic of Korea Army, the US has allocated about1 million through the FOA program for Korean reconstruction and the Department of the/

Over-all, foreign reconstruction assiotance monetarily0 has beenreater to South Korea than to North Korea. More important than the amount or aid granted,re the programs for the use of this aid. Aid to North Korea has been primarily for use In capital construction, with Imports of consumer goods and tbe welfare of the population receivingecondary share. The

Uln ^grating the reconstruc-

tion program into Bloc economic plans, with thc objective of eventually nakirw Horthart of the Bloc industrial base.

. . outh Korea, on tho other hand, foreign assistance has supportedctive directed primarily towardiable. Independent economy, anatandard,ofof the people, countering Inflationary pressures, and maintaining an adequate military force for defense of the country. The US and

Irith al contro1share control

with the Republic of Korea through the Combined Economic Board. This fact,Korean governmental policies, have resulted in some inefficient useth Korean production can return toevels

U1within the South Korean government to effect economic independence and stability.

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