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

Economy of North Korea
North Korea's faltering economy and the breakdown of trade relations with the countries of the former socialist bloc--especially following the fall of communism in eastern Europe and the disintegration of the Soviet Union--have confronted Pyongyang with difficult policy choices. Other centrally planned economies in similar straits have opted for domestic economic reform and liberalization of trade and investment. Despite the introduction of wage and price reforms in 2002, the North Korean leadership seems determined to maintain tight political and ideological control. It has increasingly tolerated markets and a small private sector as the state-run distribution system has deteriorated. Another factor contributing to the economy's poor performance is the disproportionately large percentage of GNP (possibly as much as 25%) that North Korea devotes to the military.

About 80% of North Korea's terrain consists of moderately high mountain ranges and partially forested mountains and hills separated by deep, narrow valleys and small, cultivated plains. The most rugged areas are the north and east coasts. Good harbors are found on the eastern coast. Pyongyang, the capital, near the country's west coast, is located on the Taedong River.

North Korean industry is operating at only a small fraction of capacity due to lack of fuel, spare parts, and other inputs. Agriculture is now 30% of total GNP, even though output has not recovered to early 1990 levels. The infrastructure of the North is generally poor and outdated, and its energy sector has collapsed.

North Korea suffers from chronic food shortages, which were exacerbated by record floods in the summer of 1995 and continued shortages of fertilizer and parts. China and South Korea have responded by making long-term loans on concessional terms to pay for food imports and by direct bilateral food, fertilizer, and energy grants and loans in-kind. International organizations and non-governmental organizations are also providing significant amounts of food. In response to international appeals, the United States provided nearly 2 million tons of humanitarian food aid between 1996 and 2003 through the UN World Food Program and through U.S. private voluntary organizations.

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

North Korea implemented changes in its economic policies in 2002, including sharp increases in prices and wages, changes in foreign investment laws, a steep currency devaluation, and limited increases in flexibility and responsibility for economic enterprises. The changes have failed to stimulate recovery of the industrial sector, though there are reports of changed economic behavior at the enterprise and individual level. One unintended consequence of the 2002 changes has been severe inflation. An increasing number of North Koreans now try to work in the informal sector to cope with growing hardship and reduced government support.

North-South Economic Ties
Two-way trade between North and South Korea, legalized in 1988, had risen to $642 million by 2002, much of it processing or assembly work undertaken in the North. This is an increase of 59.3% over 2001 but the total includes a substantial quantity of non-trade goods provided to the North as humanitarian assistance or as part of inter-Korean cooperative projects. An estimated 50.1% of the total trade ($343 million) was commercial transactions and trade based on processing-on-commission arrangements.

Since the June 2000 North-South summit, North and South Korea have reached agreement to reconnect east and west coast railroads where they cross the DMZ. In addition, the two governments plan to build highways near both railroad lines. Much of the work on the northern side has been funded by the ROK. Groundbreaking on the Kaesong Industrial Complex, located just north of the DMZ near the western railroad line, took place in June 2003. In an effort to reassure potential R.O.K. investors, in August 2003 North and South Korea ratified four agreements first signed in 2002: an investment guarantee agreement; an agreement to avoid double taxation; a dispute settlement agreement; and an agreement on clearance of accounting transactions. It remains to be seen how quickly construction of the Kaesong Industrial Complex will move forward and how many South Korean companies will decide to locate operations there.

Trade with the United States
The United States imposed a total embargo on trade with North Korea in June 1950 when North Korea attacked the South. U.S. law also prohibited financial transactions between the two countries. Since 1989, and most notably in June 2000, the United States eased sanctions against North Korea to allow a wide range of exports and imports of U.S. and D.P.R.K. commercial and consumer goods. Imports from North Korea are permitted, subject to an approval process. Direct personal and commercial financial transactions are allowed between U.S. and D.P.R.K. persons. Restrictions on investment also have been eased. Commercial U.S. ships and aircraft carrying U.S. goods are allowed to call at D.P.R.K. ports. The Departments of Commerce and Transportation repealed joint Transportation Order T-2. This order had previously imposed special restrictions on transport to and from North Korea. To date this easing has resulted in little economic activity.

The Departments of Treasury, Commerce, and Transportation have issued regulations, published in the June 19, 2000, Federal Register, addressing trade and financial transactions with North Korea. Points of contact:
source: http://www.state.gov