The issue with respect to the economy of the Democratic People's Republic of Korea and its economic relations deals with what actions the United States could take that would lead to a verifiable halt to the DPRK's nuclear weapons program; the lessening of tensions between the DPRK and South Korea, Japan, and the United States; the prevention of proliferation of nuclear weapons and missile material by North Korea; and the betterment of human rights and the standard of living of North Korean non-elites. In 2009, the DPRK embarked on a course that included a major shift in power toward the military, emphasis on ideological purity, rising criticism of the United States, an attempt to restart its nuclear plant at Yongbyon, the test of a potential long-range ballistic missile in spite of sanctions and objections from much of the rest of the world, the sentencing of two American news reporters, the capture of a South Korean worker from the joint Kaesong Industrial Complex, and the test of its second nuclear weapon as well as short-range missiles. Following an apparent stroke (and possible cancer), in August 2008, the country appeared to be preparing for succession at the same time it also was preparing for the 100 th anniversary in 2012 of the birth of Kim Il-sung, the nation's founder. As Leader Kim has recovered, official preparation for succession seems to have abated. The Commission currently is headed by Kim Jong-il. The countries considered to have major influence in North Korea are China and Russia. North Korea's leaders seem to be in a policy dilemma. The economy provides the financial and industrial resources for Pyongyang to support its military and nuclear weapons program. It constitutes an important "push factor" for refugees seeking to flee the country. It creates pressure for the country to engage in illicit trade. However, dismal economic conditions may foster forces of discontent in the DPRK that potentially could turn against the ruling regime of Kim Jong-il—especially if knowledge of the luxurious lifestyle of regime leaders and the higher standard of living in South Korea spreads or if the poor economic performance hurts even Pyongyang's elite. Conventional Wisdom and Considerations

Conventional wisdom with respect to North Korea includes the following considerations: (1) without stringent monitoring mechanisms, Pyongyang probably will cheat on any agreement; (2) the DPRK will renege on agreements for what seem to be superficial reasons, (3) Pyongyang's first priority seems to be regime survival; (4) North Korea regularly engages in illicit activity and may take actions opposed to normally accepted international law or standards of national behavior; (5) the DPRK likely will sell nuclear technology and missiles to countries not able to obtain them through other channels; (6) economic privation in North Korea mainly affects the population outside of the political and military elite, particularly in the countryside; (7) popular sentiment opposing the current regime, although reportedly on the rise, appears weak or suppressed sufficiently for Kim Jong-il or his successor to remain in power for an indefinite period of time; and (8) Pyongyang feels justified in its actions given what it perceives as "hostility" by the United States and South Korea and "broken promises" to build a light-water nuclear plant for the DPRK and to deliver energy and food aid. A long-term strategy would be aimed at accomplishing a three-fold transformation in the DPRK: (1) a transformation in its relations with Western nations (to include the DPRK's perceived need for nuclear weapons to protect itself from hostile action by the United States), (2) a transformation in the basis of legitimacy of the ruling regime (to reduce the need to garner support through Stalinist tactics and by grandiose goals such as becoming a nuclear and space power), and (3) a transformation in the DPRK economy so that it no longer has to "extort" food and energy assistance in order to reduce starvation among its people. Positive inducements consist primarily of economic and humanitarian assistance, diplomatic recognition, and increased economic and trade ties. The Six-Party Talks

Engagement with North Korea has been conducted under the Six-Party Talks plus bilateral discussions between Pyongyang and other nations. Life expectancy has been contracting. Since then, operations have resumed. Between 1998 and 2001, North Korea is estimated to have exported some $1 billion in conventional arms to developing nations. U.S.-DPRK Trade Relations

U.S. trade with the DPRK is quite limited. Trade and investment flows have virtually stopped. This has cooled the relationship to some extent.
In early and mid-2009, the Democratic Peoples Republic of Korea (DPRK or North Korea) embarked on a course that included a series of extremely provocative military actions, a shift in power toward the military, emphasis on ideological purity, rising criticism of the United States, and going forward with its nuclear and missile program in spite of sanctions and objections from much of the rest of the world. As 2009 ended, the DPRK was in the midst of a "charm offensive" in which it took specific actions to ease tensions with the United States and South Korea and appears to have reinvigorated its relationship with China. Two factors seem to have operated to compel the more "aggressive" behavior by Pyongyang. The first is the apparent stroke by North Korea's leader, Kim Jong-il, in August 2008. The country appeared to be preparing for succession, and in jockeying for position, the military seemed to have gained power. Kim Jong-il now seems to have recovered his health. The second has been preparations for the 100th anniversary of the birth of Kim Il-sung, the founder of the DPRK, in 2012. By then the country wants to join the club of nuclear and space powers and to be an Asian tiger economy. The "charm offensive" seems to be aimed at restoring inflows of economic assistance and trade flows.
North Korea's economic straits provide one of the few levers to move the country to cooperate in attempts by the United States, China, South Korea, Japan, and Russia to halt and dismantle its nuclear program. These five countries plus North Korea comprise the "six parties" who are engaged in talks to resolve issues raised by the DPRK's development of a nuclear weapon. The Six-Party Talks are now stalled. Western leverage over the DPRK remains limited, but China, and to some extent Russia, are in a position to exert pressure on Pyongyang.
The economy of North Korea is of interest to Congress because it provides the financial and industrial resources for the Kim Jong-il regime to develop its military and to remain in power, constitutes an important "push factor" for potential refugees seeking to flee the country, creates pressures for the country to trade in arms or engage in illicit economic activity, is a rationale for humanitarian assistance, and creates instability that affects South Korea and China in particular. The dismal economic conditions also foster forces of discontent that potentially could turn against the Kim regime—especially if knowledge of the luxurious lifestyle of communist party leaders becomes better known or as poor economic performance hurts even the elite.
North Korea has extensive trading relationships with China and Russia and, until recently, with South Korea. U.S. and Japanese trade with North Korea since 2006 has been virtually nil except for U.S. aid deliveries. The DPRK has been running an estimated $1 billion deficit per year in its international trade accounts, which it funds primarily through receipts of foreign assistance and foreign investment as well as through exports of arms and various questionable activities.
Following the DPRK's second nuclear test and subsequent actions, the focus in 2009 has been on negative incentives and increasing sanctions. The larger question, however, is how to move beyond tit-for-tat actions to a three-fold transformation of the DPRK: a transformation in its international relations, in the Stalinist methods by which the Communist regime maintains its support, and in a moribund economy that cannot feed its own population. This report will be updated as conditions warrant.