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Inter-Korean trade halt to deal 'direct blow' to Pyongyang: KDI

All Headlines 15:14 May 24, 2010

SEOUL, May 24 (Yonhap) -- A suspension of inter-Korean trade would deal a "direct blow" to North Korea by blocking its major source of hard currency needed to govern the reclusive and impoverished country, a Seoul think tank said Monday.

The state-run Korea Development Institute (KDI), however, noted in a report that such a move could fail to achieve its intended goal if other global powers like China do not agree, highlighting the importance of securing international cooperation.

The report was announced right after South Korea's President Lee Myung-bak issued a strongly-worded statement against the North, saying that Seoul will immediately use its right of self-defense in the event of additional North Korean provocation, suspend all exchange programs with the North, except for a factory park project, and restrict humanitarian aid for the impoverished neighbor to minimum levels.

The statement was made in response to recent investigation results showing that a torpedo attack by the North sank a South Korean navy ship March 26, killing 46 sailors. The North has denied responsibility and threatened to retaliate for any action by the South.

"North Korea's trade with the South has accounted for up to 38 percent of its total trade volume and makes up 13 percent of its gross domestic product. With the dollars obtained through inter-Korean trade, the North has expanded its businesses with China. It (the trade with the South) also helped Pyongyang to cushion any negative external risks such as sanctions by Japan, while acquiring dollars needed to govern the country," the report said.

"If we push for a measure to suspend the trade, it could translate into a decline in its trade with China and make it tough to find other business partners as a result, dealing a direct blow to its regime by blocking it from obtaining dollars," it added.

The report noted that a trade ban by the Seoul government would have a maximum level of impact if China follows suit, which it expects could place Pyongyang under a situation where "it has to think about its life or death."

Currently, the North depends on South Korea and China for up to 80 percent of its external trade and 35 percent of its GDP, according to the report. Especially, China provides many strategically important materials such as oil to the North.

The report said that if China decides to support the North, it would reduce the overall impact but it will still destabilize its regime in the long term by making it heavily dependent on its closet ally and fast-emerging global economic power.

"It would weaken the regime's principle not to depend solely on a single country even for its trade based on the so-called juche (self-reliance) doctrine. Also China's support would prompt opening of the reclusive nation to outside, making it more difficult for the regime to keep its tight grip on domestic market and those who want and push for market opening," the report said.

"In summary, a political choice by China would have some impact but in the end, a trade suspension with the South would cause a significant amount of pain to the country. We need to have to push for such an action with self-confidence if there is a consensus, while taking diverse efforts to persuade China over such a measure, while establishing an international cooperative framework with the United States and Japan as well," it added.


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