Economy of North Korea

It's time for us in South Korea to assess the past 10-year developments of Outward Looking Economy and FDI Legislation of North Korea. Following is the abstract of a paper presented at a Summer seminar in 2008.

During the past 10 years, the Kim Jong-il regime has been fortified and the North Korean laws in the area of outward economic relations have been aligned with the 1998 Socialist Amendment to the DPRK Constitution. The North Korean government tried to follow the Chinese pragmatic model, but seemed to attain little success. In 1999 and 2002, the foreign direct investment (FDI)-related laws and regulations of North Korea were reshaped. At this juncture, the Act on The Act on Inter-Korean exchange and cooperation was modified to meet the needs from North and South Korea.

At first, foreign investment was confined to the Rajin-Sunbong Free Trade Zone, but since 2002, Sinuiju, Mt. Geumgang and Gaeseong have been added to the special economic zones. Though Mt. Geumgang Zone came to a halt abruptly after a North Korean soldier's accidental killing of South Korean tourist in July 2008, Gaeseong turned out to be highly successful in ushering in South Korean entrepreneurs and tourists, and thus conducive to growth of the North Korean economy.

Key words
foreign direct investment (FDI), free trade zone, special economic zone, rule of law, global standards

When everything goes well
With a probable settlement of the prolonged nuclear issue in the near future, the Six-Party Talks will be presumed and the US government would lift its ban against North Korea. However, it will remain to be seen that foreign investors take to Pyongyang for business It's because the nuclear issue is not the only barrier to foreign investment in North Korea.

Most of all, foreign-investor-friendly environment is in great need. From this perspective, we have to find out what kind of legal system or any improvement thereof is necessary under quickly changing circumstances. In North Korea, one thing is quite different from the case of China, which has been largely dependent upon the overseas Chinese capital. Therefore, North Korea has to put the investment by South Koreans on the top priority than any other foreign investment. It is advisable for the Pyongyang regime to establish a special law which provides preferential treatment of South Korean investors based upon the enhanced inter-Korean relationship so that FDI-related North Korean laws may apply to South Korean individuals and entities.

FDI legislation under process
Basically, FDI-related North Korean legal system seems insufficient to ensure the legal security regarding foreign investment owing to inexperienced and unskilled legislation of capitalist law. Furthermore, a series of amendments to North Korean laws and regulations aimed to fortify centralized control of foreign investment for fear of the negative influence of open economy upon North Korean citizens.

Some improvements to be expected
So what foreign investors want to see is the North Korean government should do the followings among others: - Make clear ambiguous legal words and concepts generally used in North Korea; - Streamline mutually conflicting laws and regulations; - Avoid the centralized control and operation of the governmental authorization process; - Ensure the "rule of law" by protecting ownership and other property rights, and management's rights and privileges; - Secure the fair trial and dispute settlement; and - Adopt global standards demanded by international institutions like IMF and IBRD.

Korean Initiative
In this connection, South Korea is required to help the Pyongyang regime restructure its economy, induce foreign capital, increase foreign trade with Western countries, and apply for the membership of IBRD, ADB and other international institutions. For example, it must be useful for North Korea to receive fiscal assistance from IBRD, which is willing to provide grants to low income countries under stress (LICUS) in order to reduce poverty even though those LICUS are not eligible for public grants.

For more information
You can find further information about North Korea at:

- UniKorea Information Center on North Korean - North Korean Law (statutes) Library - Yonhap News Agency - U.S. Department of State