DPRK Law on Economic Development Zones Enacted

UPDATE 4 (2013-9-6): On May 29, the Presidium of the Supreme People’s Assembly promulgated the “DPRK Law on Economic Development Zones“. Now it appears they have named a body to administer the law. According to the Institute for Far Eastern Studies (IFES):

DPRK Economic Development Committee launched: Special economic and tourism zones to be named (IFES)

In the wake of normalizing the Kaesong Industrial Complex (KIC) agreement, North Korea has announced that it had installed the Economic Development Committee and named special economic and tourism zones, as well as newly appointed officials in charge. In the near future, North Korea has plans to announce specific special economic zones in Sinuiju, Nampo, and Haeju, along with tourism zones in Mount Baekdu, Wonsan, and Chilbosan. The head and director-level executives for the Economic Development Committee are likely to be appointed from the Joint Venture Investment Committee. The head of the Tourism Development is reported to be the former director of Korea Tourism Administration.

Meanwhile, North Korea has released the preamble of the economic development law adopted at the recent Presidium of the Supreme People’s Assembly held on May 29. As inter-Korean relations are progressing with the plans of restarting the Kaesong Industrial Complex and the reunion of separated families moving forward, North Korea’s economic development law is drawing attention once again.

In principle, the selection process for the special economic zones must possess these following elements: Area must 1) be in a favorable location for foreign economic cooperation and exchanges; 2) contribute to the economic and science and technology development; 3) be at a fixed distance from the residential areas; and 4) be at a location that does not intrude in the state protected areas (Article 11). This can be interpreted as the North’s effort to segregate the existing residential areas with the special economic zone similar to the Kaesong Industrial Complex so as to minimize the political and social impact of these zones.

The newly confirmed information for the new Economic Development Law is the list of development activities. “Investors from other countries are permitted to develop economic zones either alone or in collaboration after obtaining state approval (Article 20).” Evidently, North Korean institutions and enterprises may also develop economic zones after receiving approval from the state.

In addition, the law granted comprehensive property rights to the development companies. It states that “Companies have the right to sell, re-lease, bequeath, or transfer the ownership of the buildings and land lease” and “the selling or re-lease price shall be determined by the development company” (Article 29).

As for recruitment of workers, there is a provision that states “our country’s labor force must be given preferential consideration” (Article 41), and “the minimum wage for the employees of the Economic Development Zone shall be determined by central guidance organization of special economic zone” (Article 42). This poses some concern as the employee wage at the Economic Development Zone could be compared to that of the KIC, which could lead to wage disputes after the KIC begins to implement its internationalization process.

Another noteworthy change is the currencies permitted at the zone: “currency for circulation and payment must be Korean Won (KPW) or other specified currency” (Article 46), suggesting that other currencies such as the US dollar and euro will be allowed.

Furthermore, the Act specifies that “Companies in the economic development zone will decide on the commodity and service prices, and all the prices in the Economic Development Zone between institutions, enterprises and organizations shall be determined by the international market price based on agreement of all the parties” (Article 43). This suggests that the products produced in the zone may be traded domestically in North Korea.

In this Act, corporate income tax rate was set at 14 percent of profits and “Economic Development companies that operate for more than 10 years will be considered for a tax cut or exemption from the corporate income tax.” Article 58 grants “communication guarantees” for the usage of mail, telephone, and fax services, but did not include the use of the Internet.

Posts on the Economic Development Commission can be found here.

UPDATE 3 (2013-8-30): In August, the Pyongyang Times issued the following information on the DPRK’s Law on Economic Development Zones:

New law friendly towards investment

The law on economic development zone was enacted and promulgated in the DPRK on May 29.

The Pyongyang Times staff reporter Kim Rye Yong interviewed Kang Jong Nam, PhD and researcher at Law College of Kim Il Sung University, about the law.

What is the difference between this law and other laws that are in force in such special zones as Rason Economic and Trade Zone, Hwanggumphyong and Wihwado Economic Zone and Kaesong Industrial Park?

The recent law is applied to economic development zones to be newly established.

According to the law, an economic development zone is the area where investors receive preferential treatment in their economic activities in line with the legislation specially laid down by the state. Such a zone includes industrial, agricultural, tourist, exports processing and cutting-edge technology development areas. It is a principle to establish such a zone in the area which is favourable for external economic cooperation and exchange, conducive to the development of the country’s economy, science and technology and somewhat distant from residential areas and reserves.

Foreign investors may develop the zone singly or jointly and DPRK institutions and enterprises may be developers.

The zone shall be invested by foreign bodies corporate, individuals (natural persons) and economic groups and overseas Koreans.

The law defines that the investors’ rights, interests, properties and lawful profits are under protection by law. The state shall not nationalize or expropriate their properties. Should unavoidable circumstances make it necessary to expropriate or temporarily use their properties for the public good, it shall inform them of this in advance and make a full and timely compensation for this.

The personal safety of investors is also protected by law. Without legal grounds they will not be subjected to detention or arrest and their residences will not be subjected to search.

Where there are treaties concluded between the DPRK and foreign countries as regards personal safety, they shall prevail.

How is an economic development zone managed?

It is managed by the economic development zone management body under the guidance and with the assistance of the central special economic zone guidance organ and the people’s committee of a relevant province or a municipality directly under the central authority.

The management body carries out assignments given by the central organ and the people’s committee including the formulation of rules of the development and management of the zone, creation of investment environment and invitation of investment, licensing of the establishment of enterprise and its registration and the licensing, supervision and cooperation related to the construction, management and operation of project.

The law stipulates that an investor can lease land for a maximum of 50 years and, if need be, continue to use the land by renewing the contract before the expiry date.

The enterprise income tax rate shall be 14 per cent of settled accounts profits and that in encouraged sectors 10 per cent, a very low rate. An enterprise that operates in the zone for over ten years shall enjoy the benefit of exemption from or reduction of taxes. Where an investor reinvests profits to increase registered capital or sets up a new enterprise to operate it for over five years, he shall be paid back 50 per cent or 100 per cent of the income tax.

Tariff in the zone is preferential.

The prices of goods and services dealt between enterprises in the zone and those of goods dealt between the enterprises in the zone and the Korean economic organizations outside the zone shall be fixed by mutual consent between the parties proportionate to international market prices.

UPDATE 2 (2013-6-24): The Institute for Far Eastern Studies (IFES) offers information on the new law:

North Korea passes economic development zone law
Institute for Far Eastern Studies (IFES)
2013-6-14

Since the start of Kim Jong-un regime, internal economic management measures continue to be established. Recently, a new law was enacted for the establishment of economic development zones.

The KCNA reported on June 5 that a law for economic development zones was adopted and “in this regard, ordinance of the DPRK Supreme People’s Assembly’s Standing Committee was promulgated at the session on May 29.”

This legislation is a follow up to the decision reached on April 1 this year by the Supreme People’s Assembly for the creation of economic development zones.

The legislation is composed of 7 chapters and 62 sections, which cover matters such as configuration, development, management, conflict resolution, and so forth.

The report added that “Economic development zones, in accordance with the regulations set forth by the state, are entitled to various privileges as special economic zones.”

In addition, “Foreign corporations, individuals, economic organizations, and overseas Koreans are able to invest in the economic development zones, and can freely engage in economic activities including establishment of businesses, branches, and offices.” It also indicated that “the state will provide preferential terms to investors in areas such as land usages, recruitment, and tax payments.”

The details of the rights granted to investors were expounded, emphasizing that economic development zone is a special zone, and provides legal safeguards to protect the rights, investment properties and legitimate profits of foreign investors.

According to the KCNA, the economic development zones will include various economic and science and technology sectors such as industrial development, agricultural, tourism, export processing, and high-tech development zones.

Chairman Kim Jong-un delivered a speech at the WPK’s Central Committee Meeting entitled “Economic Development Zones Must Be Created in Every Province Reflecting the Regional Characteristics,” hinting at the state’s policy to attract more foreign investment to accelerate the development of the economic zones.

In particular, investments in infrastructure construction, state-of-the-art science and technology sector, and production of goods highly competitive in the international market were especially encouraged.

The management of these economic development zones will be separated into local-level and central-level zones, indicating that economic development zones will be established in all parts of the country.

However, this law does not apply to the preexisting economic and trade zones in Rason, Hwanggeumpyeong, Wihwa Island, Kumgang and Kaesong. The new legislation indicates that North Korea is committed to economic development regardless of the tense relations on the Korean Peninsula.

UPDATE 1 (2013-6-23): Yonhap offers new details of the legislation not published by KCNA:

North Korea will offer a maximum 50 year lease on land for the economic development zones it wants to set up across the country to spur outside investment, an analysis of a propaganda magazine monitored in Seoul showed Sunday.

Close examination of the May 29 edition of the Tongil Sinbo, a weekly magazine that highlights activities taking place in the isolationist country, revealed the lease system.

The 50-year scheme for development zones is on par with land lease favors offered by Pyongyang to businesses operating in the Kaesong Industrial Complex and the Rason Economic and Trade Zone. The plan can offer assurances to investors, which can be a critical incentive.

Kaesong is on the west coast just north of the demilitarized zone, while Rason is located in the country’s northeastern region near the border with China and Russia.

In addition, the weekly said companies will be able to freely buy and sell rights on buildings and land in the economic zones and even hand over property deeds with a clause being fixed that can allow the present rights holder to release it to a third party.

Development of land leased can be assisted by North Korean state organizations and companies.

The weekly said Pyongyang has set corporate tax rates for these zones at 14 percent of earnings after the settlement of accounts, with the government pledging the safety of all foreigners in the special zones under North Korean law.

In regards to where the development zones will be set up, the weekly said the North will give priority to areas that can trade easily with the outside world, a region that can contribute to the advancement of the national economy, and a location that is separate from local residences.

The report said that all authority for the new development zones will be given to a centralized economic oversight organization to make it easier for investors to talk to authorities and receive administrative assistance.

Read the full story here:
N. Korea to offer max 50 years lease on land in economic development zones
Yonhap (via Global Post)
2013-6-23

ORIGINAL POST (2013-6-5): According to KCNA (2013-6-5):

DPRK Law on Economic Development Zones Enacted

Pyongyang, June 5 (KCNA) — The DPRK enacted a law on economic development zones.

A decree on the law was promulgated by the Presidium of the Supreme People’s Assembly of the DPRK on May 29.

The law has seven chapters (62 articles) and additional rules (two articles).

The law deals with fundamentals of the law, establishment, development and management of economic development zones, economic transactions in the zones, their encouragement, preference and settlement of complaints and disputes.

According to the law, economic development zones are special economic zones in which preference is granted as for economic activities under the laws and regulations specially provided for by the state.

The economic development zones include industrial development zone, agricultural development zone, tourism development zone, exports processing zone, ultra-modern technological development zone and other development zones in the fields of the economy and science and technology.

The state will assort the economic development zones into local-level economic development zones and central-level economic development zones and manage them according to their affiliations.

Foreign corporate bodies, individuals and economic organizations and overseas Koreans can invest in the economic development zones and also set up businesses, branches and offices and conduct free economic activities.

The state shall provide investors with conditions for preferential economic activities regarding the use of land, employment of labor, payment of taxes, etc.

The state shall specially encourage investment in the fields of infrastructural construction and ultra-modern science and technology and in the field producing goods with high competitiveness in international market in the economic development zones.

Rights granted to investors and investment properties and legal income are protected by law in the zones.

The law on economic development zones and regulations and rules for its enforcement will be applied as for economic activities like development and management of the economic development zones and the operation of businesses.

This law is not applied to the Rason Economic and Trade Zone, Hwanggumphyong and Wihwado economic zones, Kaesong Industrial Zone and Mt. Kumgang Tourist Special Zone.

Here is the Korean version of the article from KCNA (2013-6-5):

경제개발구법 채택

(평양 6월 5일발 조선중앙통신)조선에서 경제개발구법이 채택되였다.

이와 관련한 조선민주주의인민공화국 최고인민회의 상임위원회 정령이 5월 29일에 발표되였다.

법은 7개의 장(62개조)과 부칙(2개조)으로 구성되여있다.

경제개발구법의 기본, 경제개발구의 창설, 개발, 관리와 경제개발구에서의 경제활동, 장려 및 특혜, 신소 및 분쟁해결에 대해 서술되여있다.

법에 의하면 경제개발구는 국가가 특별히 정한 법규에 따라 경제활동에 특혜가 보장되는 특수경제지대이다.

경제개발구에는 공업개발구, 농업개발구, 관광개발구, 수출가공구, 첨단기술개발구 같은 경제 및 과학기술분야의 개발구들이 속한다.

국가는 경제개발구를 관리소속에 따라 지방급경제개발구와 중앙급경제개발구로 구분하여 관리하도록 한다.

다른 나라의 법인, 개인과 경제조직, 해외동포는 경제개발구에 투자할수 있으며 기업, 지사, 사무소 같은것을 설립하고 경제활동을 자유롭게 할수 있다.

국가는 투자가에게 토지리용, 로력채용, 세금납부 같은 분야에서 특혜적인 경제활동조건을 보장한다.

경제개발구에서 하부구조건설부문과 첨단과학기술부문, 국제시장에서 경쟁력이 높은 상품을 생산하는 부문의 투자를 특별히 장려한다.

경제개발구에서 투자가에게 부여된 권리, 투자재산과 합법적인 소득은 법적보호를 받는다.

경제개발구의 개발과 관리, 기업운영같은 경제활동에는 이 법과 이 법에 따르는 시행규정, 세칙을 적용한다.

라선경제무역지대와 황금평, 위화도경제지대, 개성공업지구와 금강산국제관광특구에는 이 법을 적용하지 않는다.

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