Russian-ROK Economic Ties


2012-11-18 By Richard Weitz

Even with the persistent security tensions, economic cooperation between Russia and South Korea has increased dramatically during the past decade.

The commerce involves primarily the exchange of Russian oil and gas in return for ROK machinery and equipment. The South Korean military also purchases some Russian defense equipment. The two governments are seeking to deepen their bilateral economic cooperation as well as extend it into other sectors.

Developing economic ties with South Korea is important to prevent Russia from becoming overly dependent on China for its energy exports and other commercial deals.

Moscow’s leverage with Beijing and other third parties would be enhanced, as China would have to worry about Russia reaching better deals with South Korea. Moreover, these economic goals would promote growth and recovery in Russia’s Far East, which lags behind western Russia economically. The East has also become a security liability in its current state due to the demographic collapse of the ethnic Russian population.

The Russian government has agreed that South Korea can construct a port-and-industrial complex near Vladivostok for exclusive use by ROK companies, marking the first time Moscow has agreed to build an industrial complex for one country’s exclusive use. Credit Image: Bigstock

Russia-ROK economic relations have improved considerably since the end of the Cold War.

Although the Russian and ROK economies are close in aggregate size, the two economies have strengths in different sectors. Their bilateral commerce primarily involves the exchange of Russia’s natural energy resources, mostly oil and gas, in return for South Korean machinery and equipment.

The Russian government has agreed that South Korea can construct a port-and-industrial complex near Vladivostok for exclusive use by ROK companies, marking the first time Moscow has agreed to build an industrial complex for one country’s exclusive use.

The memorandum of understanding envisaging the complex’s creation states that the participating South Korean firms would receive special tax benefits and exemptions from bureaucratic “red tape.”

More than half of South Korea’s civilian helicopters are Russian-made, while Russia provides ROK nuclear power plants with over a third of their fuel.

Another field involves defense products and services.

Since 1996, Russia has supplied tanks, combat vehicles, and military helicopters to the ROK armed forces as partial payment of Russia’s $2 billion debt to the ROK.  In September 2003, ROK negotiators amiably agreed to waive the interest on this debt. The two governments are seeking to expand their economic cooperation into other sectors, including space exploration, nuclear energy, and other high-technology areas.

Still, Russian-ROK economic relations would surge if they realized their ambitious plans for massive transportation and energy projects centered on the proposed Trans-Korean and Trans-Siberian railways.

Plans for such an overland natural gas pipeline originated years earlier but have faced repeated difficulties due to commercial infighting among Russian energy companies, the inability of Russia and China to negotiate a mutually acceptable agreement that would allow Russia to send gas to both the PRC and the ROK, and North Korea’s erratic position on the trans-peninsular pipeline project.

President Lee Myung-bak inspects a Russian honor guard at Sheremetyevo International Airport on September 28, 2008.

The conservative ROK government of President Lee Myung-Bak, which has adopted a more skeptical view of economic cooperation with the DPRK, has encouraged consideration of alternative pipeline routes that would bypass North Korean territory.

When President Lee visited Russia in September 2008, the two governments signed an enormous natural gas deal estimated at around $90 billion. According to its provisions, the ROK will import 10 billion cubic meters of Russian gas annually over a 30-year period beginning in 2015. The two conglomerates that are implementing the gas deal, Russia’s state-controlled Gazprom and South Korea’s state-run Korea Gas Corp (Kogas), initially intended to construct a $3-billion overland pipeline running from Vladivostok in Russia’s Far East through North Korea to the South. Kogas estimated that South Korea will import some 20 per cent of its natural gas needs in 2015 from Russia.

A recent theme in Russian economic discourse regarding South Korea is to work with ROK companies and technologies to help modernize Russian industries and the economy.

Russian officials are eager to attract investment to the Russian Far East as well as priority modernization areas such as computers, telecommunications, civil nuclear technologies, medical technologies, outer space, and energy efficiency.

The two governments recently agreed to grant South Korean business people and their families longer work visas in Russia. They can apply for three-year visas following the expiration of their first one-year work visa.  South Korean investment in Russia continues to expand.

ROK-Russian commerce has proven especially important for some companies. For example, the Hyundai Group in 2009 was selling more cars in Russia than any other firm, accounting for 9.4 percent of the market share, while the giant Korean business conglomerate also buys coal from Russia. Samsung has also begun to emerge as a major high-technology player in Russia. Other profitable joint ventures have arisen in shipbuilding, oil development, and the uranium mining sectors.

Although North Korea has received much criticism for its characterizing a thinly disguised ballistic missiles program as a space exploration program, South Korea has been developing its own rocket capability, with considerable Russian assistance.

South Korea is an attractive defense market due to its large economy and justifiable need for military equipment to defend against the North Korean threat.

The United States is the main supplier of weapons to the Republic of Korea Armed Forces. The ROK bought almost $1 billion worth of U.S. arms in FY2010. Yet, in addition to European defense companies, Russia has sold the ROK many weapons and will likely continue to do so. In addition to oil and gas, weapons represent one of the few items that South Korea can logically purchase to help balance its own high-technology exports to Russia.

The first two so-called “Brown Bear” arms-for-debt swap deals were negotiated in 1995 and 2003. Under their terms, Russia provided the ROK armed forces with Soviet-era T-80U main battle tanks, METIS-M anti-tank missiles, BMP infantry fighting vehicles, Kamov Ka-32 transport helicopters, and Murena-E hovercraft. Although South Korea had originally planned to purchase 80 tanks, the ROK ended up buying only 35 T-80U tanks.

South Korea also received 70 BMP-3 Infantry Fighting Vehicles from Russia. The Republic of Korea Army (ROKA) uses these Soviet-era weapons primarily to simulate a North Korean opposing force in training exercises.

The ROKN has bought three Project 12061 Murena E hovercrafts from Russia.

Ironically, the T-80U and BMP-3 are more advanced than their DPRK counterparts. North Korea’s most advanced main battle tank is the ‘Pokpung-Ho’ (Storm), which is believed to be based on the Soviet-built T-62 tank.  The DPRK’s main infantry fighting vehicle is the BMP-1 IFV, which is 20 years older than the models Russia sold South Korea.

The ROKA has no need to incorporate these Soviet-made tanks and infantry fighting vehicles into its regular order of battle since the ROK Armed Forces possess more than 1,500 domestically manufactured K-1 and K-2 main battle tanks and hundreds of ROK-made K21 Infantry Fighting Vehicles.

In contrast, the Igla Man Portable Air Defense Systems (MANPADS) as well as the short-range portable Metis-M antitank missiles have entered into regular service with the ROKA. The capabilities of these two Russian imports are closer to those of the infantry-launched guided missiles the ROKA has acquired from the United States and ROK domestic suppliers.

As part of the “Brown Bear” debt for weapons swap arrangements, the ROK Navy (ROKN) received seven Ka-32 transport helicopters.

The Navy uses them primarily for combat search-and-rescue missions.

The ROKN also bought three Project 12061 Murena E hovercrafts from Russia.

These craft, built at Khabarovsk, can carry payloads of 45 tons and move at a speed of 50 knots on the basis of its Zorya Mashproekt MT70 gas turbine engine and UGT 6000 turbines.  The Murena E can be deployed from the ROKN’s Dokdo landing platform helicopter warships. The hovercrafts have been fitted with American-made navigation systems.  Despite being less advanced than the U.S.-made LCAC, the Murena E has a potential amphibious role for transporting the Republic of Korea Marine Corps (ROKMC) in either Korean Peninsula contingencies or for overseas peacekeeping missions.

The more recent Russian weapons sales to South Korea look to deviate from this model.

Instead of another arms-for-debt swap, South Korea is interested in buying Russian defense items outright, with new money.

In addition, the ROK no longer wants to purchase mostly complete and somewhat dated turn-key weapons systems.

Instead, South Korea aims to acquire some of Russia’s most sophisticated military equipment and technologies, which can then be incorporated as elements and subsystems into ROK-built platforms.

For example, since 2007, the ROK has been discussing the possible purchase of Russian-made submarine fuel cells, long-range radar systems, and technologies designed to defend electronics against an electromagnetic pulse (EMP).  Meanwhile, Russia has agreed to repay its remaining $1.3 billion debt in cash.

The reason for Seoul’s new defense technology sourcing strategy regarding Russia is that, as in China, South Korea’s own domestic defense industry has improved to the point that ROK firms can often research, develop, and manufacture weapons systems as good as those available from Russian defense exporters.

In addition, acquiring some Russian systems would create more problems than they are worth.

Russian weapons systems like the Mi-28N Havoc attack helicopter and Su-30MK Flanker strike fighter are incompatible with South Korea’s NATO-standard arsenal. The ROK aims for strong joint service and multinational interoperability with Western partners in its weapons purchases.

The ROK government lobbied hard to secure recent approval in the U.S. Congress for an elevation of South Korea’s status to that of a NATO Plus Four category ally for U.S. arms purchases, a step above the more common Major Non-NATO Ally category.

ROK defense firms are also incorporating Russia’s traditionally leading-edge surface-to-air missile (SAM) technologies into their own systems. Samsung Thales, a joint venture between the ROK heavy industry conglomerate Samsung Group and French electronics defense contractor Thales Group, is developing a medium-to-long range surface-to-air missile, the M-SAM Cheolmae-2, for the ROK military.

The system is designed to engage both ballistic missiles and aircraft.  The M-SAM will use S-400 missile technology provided from the Almaz Antey Joint Stock Company, including proprietary information from the S-400’s multifunction X-band radar. LG Corp’s missiles’ guidance systems are expected to also use Russian design elements.

As in other cases, Russia’s armed sales policy regarding the Koreas could conflict with its political-military strategy for the region.

The immediate purpose of South Korea’s missile defense systems is to counter the several hundred short-range ballistic missiles North Korea has aimed at Seoul and Pusan, South Korea’s two largest cities. The Russian government has no objection to the ROK’s using Russian and other air defense technologies to counter this threat.

But South Korea’s close alliance with the United States means that ROK missile defenses could also help defend U.S. forces in South Korea and perhaps elsewhere from missile attack.

Russia’s main concern is probably that the ROK will seek to integrate its missile defenses with those of the United States and Japan.

The North Koreans would likely respond by further expanding their own missile arsenal, which in turn could threaten Russia directly, through an errant missile launch landing on Russian territory, and indirectly, by leading to further missile defense cooperation between the United States and its East Asian allies. The resulting missile defense network could then help counter the offensive missile forces of China and Russia.

Another Russian concern is that South Korea has received U.S. permission and assistance to develop and deploy its own strike weapons, including a longer-range ballistic missile that could reach targets in Russia as well as China and North Korea.

Until recently, an agreement with the United States prevents the ROK from deploying ballistic missiles with ranges longer than 300 kilometers or with a payload greater than 500 kilograms. South Korean officials may now deploy ballistic missiles with a range of 1,000 kilometers and a payload ceiling of 1 ton. Although relations between Russia and South Korea are currently their best in history, Russian defense planners would need to consider the increased threat to the Russian Far East should they ever deteriorate again. Indeed, the military technology South Korea has recently been seeking and acquiring from Russia indicates Seoul’s interest in developing its power projection capabilities.

Since South Korea has attained the capacity to manufacture armored vehicles, artillery systems, and other basic weapon and communications systems, and since Russia’s shipbuilding capabilities have deteriorated, ROK military leaders will likely be most interested in purchasing Russian niche capabilities in the areas of heavy transport aircraft and air defense systems.

Ambitious Russian development projects like the 5th generation PAK-FA fighter are not suitable for South Korea’s expeditionary ambitions because of they are unlikely to be interoperable with the armed forces of the United States and key U.S. allies, with which any regional ROKAF deployment would have to operate.

As part of its developing power projection capacity, South Korea might resume purchasing select turn-key Russian weapon systems, in this case a Russian-made heavy transport aircraft.

Russia is the largest buyer of the CN-235 aircraft. Will they supplement these with Russian transport aircraft?

For example, the Antonov An-124-100M-150 is capable of carrying a 120-ton payload for more than 5,000 kilometers in its 36m X 6.4m X 4.4m cargo compartment. Chartered An-124s has already been heavily used by the NATO-led International Security Assistance Force (ISAF) in Afghanistan.

U.S. forces in Iraq also have employed the Antonov An-124 to carry outsized payloads like self-propelled artillery and MRAP vehicles. To improve performance in areas like navigation and make the planes more interoperable with NATO, South Korea is likely to modify any Russian military transport planes it purchases by equipping them with Western avionics.

The Russian-ROK arms trade first arose as a logical means to liquidate a Cold War-era monetary debt. It has since developed as a means for the ROK to acquire certain niche capabilities.

Two other considerations that might also lead to further South Korean purchases of Russian weapons could include a desire to gain negotiating leverage with other foreign arms suppliers and an incentive to help sustain good relations between Russia and the ROK, especially in the complex negotiations with Pyongyang.

Editor’s Note: For a look at how North Korea is using its hovercrafts to shape an attack asset see the following:

North Korea is in the process of building a naval hovercraft base 30 miles off the South Korean coast. The hangar-shaped buildings spotted across the international waters will house 60 “attack hovercraft”, to be used for “infiltration attacks and landing”.