North Korea's economy declined sharply in the 1990s with the end of communism in Eastern Europe, the disintegration of the Soviet Union, and the dissolution of bloc-trading countries of the former socialist bloc. Gross national income per capita is estimated to have fallen by about one-third between 1990 and 2002. The economy has since stabilized and shown some modest growth in recent years, which may be reflective of increased inter-Korean economic cooperation. Output and living standards, however, remain far below 1990 levels. Other centrally-planned economies in similar situations opted for domestic economic reform and liberalization of trade and investment. To date, North Korea has not done so. However, North Korea did formalize some modest wage and price reforms in 2002, and North Korea has been forced to tolerate markets and a small private sector as the state-run distribution system continues to deteriorate. An increasing number of North Koreans work in the informal, private sector to cope with growing hardship and reduced government support. The government, however, seems determined to maintain control. In October 2005, emboldened by an improved harvest and increased food donations from South Korea, the North Korean Government banned private grain sales and announced a return to centralized food rationing. Reports indicate this effort to reassert state control and to control inflation has been largely ineffective. Another factor contributing to the economy's poor performance is the disproportionately large share of GDP (thought to be about one-fourth) that North Korea devotes to its military.

In late November 2009, North Korea redenominated its currency at a rate of 100 to 1. New laws were implemented, including regulations on consumption, tightened state control of the market, and a ban on the possession or use of foreign currencies. The redenomination appears to have resulted in increased inflation and confiscation of operational capital and savings earned by private traders and others working outside state-controlled sectors of the economy.

North Korean industry is operating at only a small fraction of capacity due to lack of fuel, spare parts, and other inputs. Agriculture and fisheries were 21.6% of GDP as of 2008, although agricultural output has not recovered to early 1990 levels. The infrastructure is generally poor and outdated, and the energy sector has collapsed.

North Korea experienced a severe famine following record floods in the summer of 1995 and continues to suffer from chronic food shortages and malnutrition. The United Nations World Food Program (WFP) provided substantial emergency food assistance beginning in 1995 (two million tons of which came from the United States), but the North Korean Government suspended the WFP emergency program at the end of 2005 and permitted only a greatly reduced WFP program through a protracted relief and recovery operation. While China and the R.O.K. had provided most of the D.P.R.K.'s food aid in the past, the D.P.R.K. refused to accept food aid from the R.O.K. between Lee Myung-bak's inauguration in February 2008 and January 2010, when the D.P.R.K. accepted the R.O.K.’s offer to provide 10,000 tons of corn. The United States resumed the provision of food assistance to the D.P.R.K. in June 2008 after establishing a strong framework to ensure that the food will reach those most in need. The United States committed to providing up to 400,000 tons of food through WFP and 100,000 tons through U.S. NGOs. From May 2008 to March 2009, the United States provided approximately 170,000 metric tons of U.S. food to the D.P.R.K. In March 2009, the D.P.R.K. stated that it no longer wished to receive U.S. food assistance and requested that personnel monitoring U.S. food distributions depart the D.P.R.K., halting the U.S. food assistance program.

The United States also assisted U.S. NGOs in providing aid to fight the outbreak of infectious diseases following August 2007 floods, and worked with U.S. NGOs to improve the supply of electricity at provincial hospitals in North Korea. Following July 2010 floods, the United States Government supplied medical and other relief supplies to U.S. NGOs for emergency humanitarian assistance for flood relief.

In 1991, following the collapse of the Soviet Union and termination of subsidized trade arrangements with Russia, other former Communist states, and China, North Korea announced the creation of a Special Economic Zone (SEZ) in the northeast regions of Najin (sometimes rendered "Rajin"), Chongjin, and Sonbong. Problems with infrastructure, bureaucracy, and uncertainties about investment security and viability have hindered growth and development of this SEZ. The government announced in 2002 plans to establish a Special Administrative Region (SAR) in Sinuiju, at the western end of the North Korea-China border. However, the government has taken few concrete steps to establish the Sinuiju SAR, and its future is uncertain.

North-South Economic Ties
Two-way trade between North and South Korea, legalized in 1988, had risen to more than $1.68 billion by 2009, much of it related to out-processing or assembly work undertaken by South Korean firms in the Kaesong Industrial Complex. Ground was broken on the Kaesong Industrial Complex (KIC) in June 2003, and the first products were shipped from the KIC in December 2004. Plans envision 2,000 firms employing 350,000 workers by 2012. About 117 South Korean small and medium sized companies operate in the KIC, manufacturing mostly garments and footwear and employing more than 42,560 North Korean workers. Until 2007, a significant portion of total two-way trade had included donated goods provided to the North as humanitarian assistance or as part of inter-Korean cooperation projects. However, beginning in 2008, commercial transactions such as general trading and processing-on-commission have accounted for larger portion in overall inter-Korean trade. Most of the goods exported from KIC are sold in South Korea; a small quantity, about 18% of the KIC products, is exported to foreign markets.

Regarding inter-Korean transportation links, as of September 2010, after the Cheonan sinking incident, South Korea suspended all inter-Korean trade with the exception of the Kaesong Industrial Complex. Since the June 2000 North-South summit, North and South Korea have reconnected their east and west coast railroads and roads where these links cross the DMZ and are working to improve these transportation routes. North and South Korea conducted tests of the east and west coast railroads on May 17, 2007 and began cross-border freight service between Kaesong in the D.P.R.K. and Munsan in the R.O.K. in December 2007. Much of the work done in North Korea has been funded by South Korea. The west coast rail and road are complete as far north as the KIC (six miles north of the DMZ), but little work is being done north of Kaesong. On the east coast, the road and the rail line are complete but the rail line is not operational.

R.O.K.-organized tours to Mt. Kumgang in North Korea began in 1998. Since then, more than a million visitors have traveled to Mt. Kumgang. However, the R.O.K. suspended tours to Mt. Kumgang in July 2008 following the shooting death of a South Korean tourist at the resort by a D.P.R.K. soldier.

In August 2009, Hyundai Group Chairwoman Hyun Jung-eun met with Kim Jong-il and obtained the release of a South Korean worker who had been detained in the D.P.R.K. since March. As part of those discussions, the D.P.R.K. expressed a willingness to resume tourism links and continue talks regarding the KIC. The D.P.R.K. resumed normal cross-border passage to the KIC on September 1, 2009, and D.P.R.K. and R.O.K. officials conducted a joint visit to international industrial zones in China and Vietnam in December 2009. Between September 2009 and February 2010, D.P.R.K. and R.O.K. officials had several meetings to discuss joint tourism projects, the KIC, and other issues. However, the talks resulted in no progress.

Economic Interaction with the United States
The United States imposed a near total economic embargo on North Korea in June 1950 when North Korea attacked the South. U.S. sanctions were eased in stages beginning in 1989 and following the Agreed Framework on North Korea's nuclear programs in 1994. U.S. economic interaction with North Korea remains minimal, and North Korean assets frozen since 1950 remained frozen. In January 2007, pursuant to UN Security Council Resolution 1718, the U.S. Department of Commerce issued new regulations prohibiting the export of luxury goods to North Korea. Many statutory sanctions on North Korea, including those affecting trade in military, dual-use, and missile-related items and those based on multilateral arrangements, remain in place. Most forms of U.S. economic assistance, other than purely humanitarian assistance, are prohibited. North Korea does not enjoy "Normal Trade Relations" with the United States, so any goods manufactured in North Korea are subject to a higher tariff upon entry to the United States. At this time, goods of North Korean origin may not be imported into the United States either directly or through third countries, without prior notification to and approval from the Office of Foreign Assets Control.

On June 26, 2008, President Bush announced the termination of the application of the Trading with the Enemy Act (TWEA) with respect to the D.P.R.K., though some TWEA-based restrictions remain in place. The United States has issued sanctions targeting the D.P.R.K.’s weapons proliferation and illicit activities under Executive Orders 13382 and 13551. The Executive Orders are directed at those involved in proliferation or other illicit activities and their supporters.

Following the D.P.R.K.’s May 25, 2009 nuclear test, the UN Security Council passed Resolution 1874 on June 12, 2009. Resolution 1874 condemned North Korea’s second nuclear test, demanded that the D.P.R.K. not conduct additional nuclear tests or ballistic missile launches, and called on the D.P.R.K. to return to the Non-Proliferation Treaty (NPT) and Six-Party Talks without preconditions.

In addition, the Financial Crimes Enforcement Network (FinCEN) issued an initial advisory June 18, 2009 (amended on December 18, 2009) on North Korean Government agencies’ and front companies’ involvement in illicit financial activities. In light of the financial measures in UNSCRs 1718 and 1874, and the use of deceptive financial practices by North Korea and North Korean entities, as well as individuals acting on their behalf, to hide illicit conduct, FinCEN advised all U.S. financial institutions to take commensurate risk mitigation measures.

Economy*
GDP (2008 estimate): $24.8 billion; 46.2% in industry, 32.2% in services, 21.6% in agriculture and fisheries.
Per capita GDP (2008): $1,800.
Agriculture: Products --rice, corn, potatoes, soybeans, cattle, pigs, pork, and eggs.
Mining and manufacturing: Types --military products; machine building; chemicals; mining (gold, coal, iron ore, limestone, magnesite, etc.); metallurgy; textiles; food processing; tourism.
Trade (2008): Exports --$ 2.06 billion (South Korean Trade and Investment Promotion Agency): minerals, non-ferrous metals, garments, chemicals/plastics, machinery/electric and electronic products, animal products, wood products, vegetable products, and precious metals. The D.P.R.K. is also thought to earn hundreds of millions of dollars from the unreported sale of missiles, narcotics, and counterfeit cigarettes and currency, and other illicit activities. Imports --$3.58 billion: minerals, petroleum, machinery/electronics, vegetable products, textiles, chemicals, non-ferrous metals, plastics, vehicles, and animal products.
Major trading partners (2008): (1) China, (2) R.O.K., (3) Singapore, (4) India, and (5) Russia.


*In most cases, the figures used above are estimates based upon incomplete data and projections.

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