What can North Korea offer to international markets in a possible sanction-free economy?

By Richie Santosdiaz

The news of Mike Pompeo, head of the CIA, secretly visiting North Korea ahead of President Donald Trump's meeting with North Korean leader Kim Jong-un is catching headlines.

No sitting American president has ever met a leader of North Korea face-to-face, since Washington and Pyongyang do not align at all politically. However, what sort of impact will the world see in international markets if North Korea, the U.S. and South Korea strike some sort of nuclear arms agreement, which many would expect would include lifting current economic sanctions against North Korea? Has North Korea anything it could offer to the world if sanctions were lifted?

The 15-member U.N. Security Council has passed nine rounds of sanctions against North Korea since its first nuclear test. This also includes additional sanctions by other countries such as EU members, Japan, South Korea and the U.S. To note, the U.N. sanctions allow humanitarian assistance, but there is much controversy in terms of whether it is helping the impoverished in North Korea.

Unlike the developed and technologically advanced South Korea, North Korea has an economy that is both isolated and stagnant. Comparing gross domestic product (GDP) between the two Koreas, for instance, South Korea's GDP per capita is $29,114, while North Korea's is $1,800. According to the CIA World Factbook, China accounted for an estimated 67.2 percent of North Korea's exports and 61.6 percent of imports in 2011 (second was South Korea _ 19.4 percent of exports and 20 percent of imports).

Even though North Korea is generally underdeveloped, there potentially will be some benefits for them if sanctions, assuming it will be on the road to denuclearization, are lifted in May or June after the Trump-Kim meeting.

First, the country has a population of over 25 million according to the World Bank. This would give any global businesses potential access to a new market of consumers, assuming sanctions are lifted and there is easier market access. Although North Korea's government heavily regulates its society, there have been import successes, such as with cell-phones.

The country is estimated to have 4 million mobile phone subscribers. Although with cell-phones, like with other goods in North Korea, much is locally made but also some get imported, particularly from China. As China is North Korea's largest trading partner, North Korea has many goods across many industries coming in from the country.

Second, one of North Korea's most visible exports has been its people. North Korea caught attention during the recent Winter Olympics, and despite only sending 22 athletes, had a 200-plus delegation of cheerleaders alone.

Less visible, but impactful for the country, has been exporting its people to work in the construction sector. In 2015 it was estimated there were about 90,000 bringing in roughly $2 billion a year to the regime. North Korea sends laborers across the world to participate in construction and mining projects. In addition, the regime has also operated North Korean restaurants across the globe and sent carefully selected individuals to run them as a way to also generate revenue.

Third, the country, according to the CIA World Factbook, has the following industries: military products, machine building, electric power, chemicals, mining (such as coal), metallurgy, textiles, food processing and tourism. With tourism, there is potential but it is heavily underutilized. Given its isolation from the rest of the world, there are people out there who are intrigued by the country and want a glimpse of the “hermit kingdom.”

The Chinese, for instance, in 2012 had around 237,000 of its citizens visit the country (China has not published figures of tourists visiting the country since then). However, in the second half of 2016 alone, there were 580,000 people visiting from the border town of Dandong, according to the state-run China News Service; the report said 85 percent of Chinese tourists visiting North Korea originated from Dandong.

Clearly there is some interest among curious travelers from China and there is potential for much of the world with those interested in seeing the isolated North Korea. There are foreign-run North Korea tour groups like Young Pioneer Tours, controversially in the headlines for taking the American Otto Warmbier who was imprisoned and later released in a coma and died afterwards in the U.S.

South Korea, although a strong ally of the United States, can potentially see much benefit in a more open North Korea, which would be willing to open the doors for international trade and foreign direct investment (FDI).

Highlighting the North's market of 25 million people, cheap labor and key industries, South Korea has and can further benefit moving forward, especially if planned talks with President Donald Trump and Kim Jong-un go well in May. North Korea would be an obvious market for South Korean companies, given the common language and culture, as well as for the many who desire unification.

One way the South Koreans have tried to utilize economic development, specifically in the realm of internationalization, has been the Gaeseong Industrial Complex. The industrial park was a collaborative economic development between the two countries. However, it was closed in 2016 due to the increase of tensions and nuclear testing from North Korea, as well as South Korea accusing North Korea of taking workers' wages to fund its arms programs.

At its peak in April 2013, there were 123 South Korean companies employing approximately 53,000 North Korean workers. What might be an instant benefit if the Trump-Kim summit goes well could be an official reopening of the industrial park. South Korea, not just with the park but as far as future expansion of trade and FDI in North Korea, can use both its innovation and expertise, coupled with the potential access to cheap North Korean labor.

There will be pressure from the international community, especially with the upcoming meeting with President Trump, to stop not only the North's nuclear program but potentially its arms sales to the world.

North Korea, in whatever possible elimination of sanctions, might be able to future utilize the opportunity to export other goods and services. It will be interesting to see following any potential developments after Trump meets with Kim if other countries would be interested in doing business with North Korea.

Despite the restrictions because of sanctions, there has been some trade flow, in particular with China. However, if North Korea does comply and give up its nuclear arms aspirations, there can be a window of opportunity in international trade it is probably secretly looking for to help boost its stagnant economy.

Richie Santosdiaz (santosdiazr2@gmail.com) is an expert in international trade. He has worked as a consultant and adviser with various governments and multinationals on the realm of internationalization. In addition, Richie is a regular contributor and commentator on various outlets with respect to economic development and wider international trade topics. He is currently based in the Middle East.