In yesterdays senate estimates, AWI was grilled on comments they made referring to North Korea as an emerging market.
This is clearly interesting as North Korea is a nation effectively closed to Australia as a trading partner, and rightly so. There are a huge number of items that are sanctioned for trade into North Korea, and luxury items are one of those.
These days we like to think of wool as a high-cost luxury clothing item. Therefore it would likely be sanctioned. The only products feasible for trade with North Korea are medicines and foods.
This covers both direct and indirect trading with the communist nation. We cannot legally sell wool or clothing directly with this nation or sell through a third party.
The reality is that North Korea will likely indirectly be receiving our wool. Approximately 80% of our wool clip heads to China. This is then processed into all manner of woollen items, a large percentage of which will be exported worldwide.
China and North Korea are close trading partners. While there are some sanctions, they are limited and not necessarily adhered to (see here). The North Korean economy is likely to benefit from a robust Chinese economy.
I travelled to North Korea in May 2014, and whilst anecdotal, there was plenty of trade over the border at Dandong. Our guides informed us that processing and manufacturing was carried out in North Korea due to the cheaper labour costs and then sent back across the border.
The first chart shows the exports from China to North Korea of woven fabric. The second chart shows the value of apparel articles (knitted/crotchet) exported from China to North Korea. Whilst both markets are still relatively small, they are growing.
Having spent five days in North Korea, my thoughts would be that North Korea could become a strong market if opened up to the world. It will take them a long time to move from their current communist economy to a developed capitalist economy.
I don’t see North Korea as a market for us anytime soon. However, our wool will likely end up there despite any sanctions.
Let’s make sure we don’t fall into the same mistakes as AWB during the oil for food scandal!