The revitalization of Russia – North Korea relations has become increasingly clear in recent months, taking place amid a sharp deterioration of relations between Russia and the West following the Ukraine crisis. There is a temptation, therefore, to explain this Russia-North Korea thaw as an “answer” by both sides to what they see as the hostile policy of the United States. Indeed, the DPRK was one of the few countries which supported the reunification of Crimea with Russia. And for it’s part, Russia reacted in a low-key manner to the missile tests conducted by DPRK in April, although a possible nuclear test in North Korea would be hard for Moscow to swallow. However, in the event a much anticipated fourth nuclear test does go ahead, Russia’s reaction would probably be milder than to last year’s test and would likely amount to nothing more than a formal condemnation without any practical measures. Above all, Russia will certainly not support any stricter measures at the UN.

So what caused this revitalization of bilateral relations? In actual fact, improving economic relations preceded this thaw – developing for about a year – paving the way for political rapprochement. Now, it seems, a political decision to increase economic cooperation on more lenient terms could be taken – especially given now closer positions on international issues and North Korea’s desire to balance out its economic dependence from China.

FROM LOW TO HIGH

Russia – DPRK relations reached their lowest point following the 2013 nuclear test and provocative gestures of the Pyongyang government in Spring 2013. It was only after the acute phase of crisis ended that Pyongyang started its overtures towards Russia. One of the most overt and initials symbols of public support towards Russia was the depiction of Russia’s role in the Korean war during the Arirang mass games in July 2013 – when slogans and pictures about Russia were shown (Note however though that Russia, unlike China, abstained from sending an official delegation to the 60^th anniversary celebrations of the end of the Korean war). Later, the Russian side noticed progress in economic negotiations, fuelled by increased North Korean readiness to find compromises.

“Russia – DPRK relations reached their lowest point following the 2013 nuclear test and provocative gestures of the Pyongyang government in Spring 2013”

North Korea later sent its nominal head of state Kim Young Nam to the opening ceremony of the Winter Olympics in Sochi in February 2014 – even in the absence of North Korean athletes attending the games. The demonstrative effect was made greater by the fact that South Korea correspondingly sent a low-level delegation. Kim had a short but productive and highly symbolic meeting with President Putin, where, as rumors go, even the possibility of a Russia-DPRK summit was discussed.

Next, a flurry of visits by Russian dignitaries to Pyongyang followed. R.Minihannov of the Russian Tartar Republic in March agreed on a regional economic development plan with the DPRK. In April a very significant meeting of the Co-Chairmen of the Inter-Governmental Commission on Economic Cooperation rook place in Pyongyang. The Russian Minister for Far Eastern development A. Galushka and his 20-person team discussed with North Korean counterparts key issues, such as bilateral trade and investment, transport, energy and mineral resources, labor force exchange, and interregional cooperation. Importantly, they agreed that direct trade should increase up to U.S. $ 1 billion by 2020 (currently less than U.S. $100 million), and that bilateral transactions should be carried out in Russian roubles. Among other issues discussed were new legal documents on bilateral cooperation, the easing of multiple visa issuance for businesspeople, the improvement of cross-border communication systems – including phone and internet, special legal guarantees for Russian investors, and easier access to information on legislation in the DPRK. The presence of businesspersons in the delegation made it also possible to discuss such issues as the construction of an additional terminal in Rajin port, the modernization of the mineral industry, the extraction and exports of coal (“Victory” project), automobile and energy projects by “Basic element”, direct road connections and mutual visits by local citizens.

“They agreed that direct trade should increase up to U.S. $ 1 billion by 2020 (currently less than U.S. $100 million), and that bilateral transactions should be carried out in Russian roubles”

In a further development the Russian Vice-Prime-Minister Yu.Trutnev visited Pyongyang in late April, heading a 40-strong delegation, which included governors of the Maritime province, Khabarovsk and Amur regions. High-level representatives of the Russian ministries of economic development, agriculture, industry and trade, representatives of Russian banks and large companies were also present and held sectoral discussions. Agreements of cooperation between the Amur region and North Korean provinces were signed, and current and new economic projects were discussed. Although the delegation did not meet Kim Jong Un, who was away, the visit resulted in a considerable boost to the speedy implementation of economic cooperation projects, with the North Korean side demonstrating its desire to solve issues of contention.

DEBT RELIEF AND TRILATERAL INVESTMENT

Coincidentally – and symbolically – the finalization of an accord to solve the debt issue took place in early May, with President Putin signing the documents for entrance into force of the 17.09.2012 agreement. According to the agreement, the rouble-calculated debt was converted at the former Soviet official rate of 0.6 roubles per U.S. dollar, with 90% of the sum total (North Korean debt minus a small Russian debt to the DPRK) U.S. $10096 million written off. The remaining 10% (US$ 1090 million) of debt would consequently be required to be settled within 20 years by 40 equal installments to the special account to the special account of the Russian Foreign Economic Bank in the DPRK Foreign Trade bank. This money is to then be used for Russian investment in North Korea projects in the health, education and energy sectors. There are indications this money could be used to help finance the construction of the railroads and trans-Korean gas pipeline.

For example, the Russian company “Mostovik” is planning to tackle North Korean coal deposits and modernize the West coast railroad for exporting coal abroad. During Yu.Trutnev’s visit an agreement was signed regarding the creation of a joint venture company with North Korean partners. So far, the state Russian railways company (“RAO ZHD”) has achieved considerable progress in its Hasan-Rajin development project, with the first batch of coal recently being transported from Russia to Rajin port. It is noteworthy that thanks to agreement reached at the Russia-ROK summit in November 2013 South Korean companies can now participate in such projects. The first group of South Korean experts visited the Rajin area alongside Russian and North Korean colleagues and further exchanges are to follow, giving strong hope for ROK investment into this and possibly other projects. Russia is also interested in investment in the Kaesong industrial zone.

“The first group of South Korean experts visited the Rajin area alongside Russian and North Korean colleagues … giving strong hope for ROK investment into this and possibly other projects”

RUSSIA’S RATIONALE

What are the reasons for Russian interest in trilateral projects, which are the back-bone of its economic strategy to North Korea? First, these multilateral projects are meant as a new tool for Russia to be more involved economically – and as a consequence, politically – in North-East Asia. This is seen as a first step to raise Moscow’s clout in the Asia Pacific region within the framework of a “turn to the East” policy.

Secondly, such projects (especially in the energy sector) can help improve Russia’s competitive edge in East Asian markets, especially energy ones that are currently dominated by China. This fits well into the overall Russian energy strategy not only in Asia, but world-wide as well. Moreover, these projects indicate new long-term business areas for Russian companies, which could become very profitable in the long run.

“This is seen as a first step to raise Moscow’s clout in the Asia Pacific region within the framework of a “turn to the East” policy”

Thirdly, such projects, for which cooperation and improved understanding between South and North Korea are needed, fit well into the Russian strategy of preserving peace and stability in its neighborhood by lessening tensions in Korean peninsula.

Fourth, these project mean development of certain sectors of the North Korean economy, making it more open, which is necessary for the overall economic stabilization and development of the neighboring country, in turn creating new possible areas of Russian-North Korean cooperation.

But given the problems in the North Korean economy and investment climate, will these efforts really lead to positive outcomes? In the case that Russian business owners have less opportunities to invest in the West, it is certainly possible that they might explore even such exotic markets as North Korea, being less concerned with possible  “punishment” from the U.S.  The possibility of settling the accounts in rubles, without the involvement of U.S. banks or U.S. dollars could therefore be a great help. And if South Korea would not be discouraged from participation in trilateral projects, a very lucrative field of economic cooperation in North East Asia could emerge. Such “involvement” of North Korea could be timely as Kim Jong Un seems to have fully consolidated his power base and might now be looking for opportunities to engage in economic modernization through increased external cooperation. Acting together, countries such as China, Russia and South Korea could play a crucial role on changing the economic basics of DPRK.

Main picture: KCNA

The revitalization of Russia – North Korea relations has become increasingly clear in recent months, taking place amid a sharp deterioration of relations between Russia and the West following the Ukraine crisis. There is a temptation, therefore, to explain this Russia-North Korea thaw as an “answer” by both sides to what they see as the