North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-03-17-1
2010-03-17

Following North Korea’s decision to raise the status of the Rajin-Sonbong region to the ‘Rason Special City’, it has revised the ‘Law on the Rajin-Sonbong Trade Zone’, considerably boosting the likelihood that the region will attract the foreign investment necessary to develop the free trade zone, as the revised law further protects investor activities in Rason.

The Rajin-Sonbong region was designated a ‘Free Economic and Trade Zone’ in 1991, but had very little economic impact. Over the years, North Korean authorities have enacted a few measures to try to keep the project alive, but there has been no significant turnaround. With the revision of the law on Rason, North Korean authorities are again focusing their attention on the region, with the goal of ‘opening the door to a strong and prosperous nation’ by 2012. It is also possible that the regime is eyeing the development of the region as a tool to solidify the transfer of power to yet a third Kim.

In December, 2009, after designating the special economic and trade zone, Kim Jong Il traveled to ‘Rason City’ for the first time in 18 years. Jang Song Thaek, director of the administrative bureau of the (North) Korean Workers’ Party, has also visited the area, leading observers to believe that even working-level preparations are being made following the policy decision to highlight the area.

The law on Rason, revised on January 27, is now made up of 5 chapters and 45 articles. 6 of those articles specifically concern promotion of the investment area and trade with overseas Koreans.

The most eye-catching article is no. 8, which addresses economic and trade activities by overseas Koreans. This type of activity was already protected by the existing law, but the revision reiterates that Koreans living outside of the North are allowed to carry out economic activities and trade in an attempt to snare investments from North Koreans living in China and Japan, as well as other diasporas.

In addition, Article 21 addresses the economic dealings of enterprises, groups and organizations outside of the zone, and stipulates that these groups operating within the Rason Special City would be able to engage in business activities with North Korean businesses in other regions. This essentially legalizes the sale of goods produced in the zone throughout the country.

Article 3, addressing investment opportunities, stipulates that investors are allowed to engage in business regarding manufacturing, farming, construction, transportation, communications, science and technology, tourism, distribution, and finance.

By revising the existing law, North Korean authorities have strengthened incentives for investors.

The latest revision also set the basic income tax of enterprises at 14 percent, while stating that enterprises specifically designated by the government would be taxed at a rate of 10 percent.

Furthermore, Article 2 of the revision emphasizes the tourism and investment roles of the special zone, referring to the zone as one for ‘investment, a transport hub, finance, tourism, and public service,” adding ‘investment’ and ‘tourism’ to those activities stipulated in the original law. The Rason Zone Law has been revised five times since its passing in 1993, undergoing change in 1999, 2002, 2005, 2007 and now 2010.

Authorities also revised the law on coal, which now legally regulates the exploration, distribution and use of coal, by the addition of Chapter 6 Article 76 of the ‘Coal Law’. Article 1 lays out the basis of the North’s law on coal, while Article 2 covers exploration, Article 3, ‘mine development,’ Article 4, ‘coal production,’ Article 5, ‘coal distribution and use,’ and Article 6, ‘management structure regarding the coal industry.’ The new law advocates “expansion of cooperation and exchange with other countries and international organizations on the exploration and mining development, as well as production and use.”

According to Yonhap:

North Korea has recently revised a law governing its Rason free trade zone in a bid to speed up its development and attract more foreign investment, including from South Korea, officials in Seoul said Sunday.

According to the South Korean officials, a clause allowing “Korean compatriots living outside the Democratic People’s Republic of Korea (North Korea)” to engage in economic and trade activities in Rason has been newly included in the legal code.

The Korea Times has some more information:

The North had banned South Korean investors from Rason in a 1999 revision.

Under the latest revision, the reclusive state will lower tax rates and simplify administrative procedures for foreign investors who want to establish branch and agent offices there, the official said.

The revision took effect Jan. 22 when Pyongyang upgraded the status of Rason to a special city, he said.

The official anticipated that South Korean firms would do business in the zone, saying the latest revision is a positive sign of North Korea opening its doors to outside world.

The North designated Rason and nearby Sonbong, located on the country’s northernmost coast close to both China and Russia, as an economic free trade zone in 1991. The zone was renamed Rason later.

But efforts to attract foreign investment and capital have failed. North Korea aimed to attract $7 billion worth of foreign investment into Rason, but actual investment amounted to only $140 million.

There are an estimated 400 foreign businesses operating in North Korea, but most of them are small businesses run by Chinese or North Korean residents of Japan.

The Choson Ilbo adds more:

Article 8 of the revised law makes it possible for “Koreans” living outside North Korea to do business in the special zone, apparently with a view to attracting South Korean investors.

It also removes a clause requiring foreign companies to obtain government approval when they open sales offices or branches in the zone, making it easier to enter the North Korean market.

Instead, approval is with a new agency overseeing the Rajin-Sonbong zone.

But foreign firms and their staff are explicitly under North Korean jurisdiction, including all the draconian laws that apply to North Koreans.

The previous law permitted foreign investors unconditional no-visa entry and stay in North Korea, but under the new rules they are restricted to the zone.

Corporate income tax is reduced from 14 percent to 10 percent “in sectors particularly promoted by the state.” But other terms related to customs, land lease and bank loans remain unchanged.

One former investor is shouting caveat emptor.  According to the Choson Ilbo:

“I blew $500,000 on Rajin-Sonbong 15 years ago,” recalls Roh Jeong-ho, who headed the first South Korean business to set up operations in North Korea’s Rajin-Sonbong Economic Special Zone in 1995.

Roh (46) is scathing about North Korea’s latest attempts to woo investment to the impoverished Stalinist nation. “It’ll be a repeat of the 1990s, which ended in a belly-flop,” he said. “Nothing has changed in North Korea.”

Roh was once touted by the South Korean media as one of the young leaders in his early 30s who were expected to lead the post-unification era when he exported 44 km of barbed-wire fences to Rajin-Sonbong in 1995. North Korea had asked Roh to supply the fences to isolate the area from ordinary North Koreans. In return, the North offered him the use of 33,000 sq. m of land in the free zone for 50 years.

But there was a catch. The problem was a clause in the contract stipulating that the groundwork on facilities to be built within the leased land must be completed within two years. North Korea continued to make unreasonable demands regarding construction when the area was devoid of crucial infrastructure like roads, running water and electricity, and construction had to be delayed.

At first, the North threatened to scrap the barbed-wire order, complaining that the deal was revealed to South Korean media. Roh managed to calm the North Koreans, but then they started making new demands. They even told Roh to supply equipment to guards who were posted along the fence, including tazers and high-voltage current generators.

“North Korean government workers operate under a bizarre, performance-based system,” Roh said. “Their performance is gauged based on how much they are able to extort from South Korean businesses.”

Roh said his North Korean business partners often changed as they were either promoted or demoted based on their performance, requiring negotiations to start from scratch every time. After two years passed without Roh being able to complete groundwork on his allotted land, the right was revoked. He ended up wasting close to US$1 million, including expenses on top of the $500,000 cost of producing the barbed wire.

“If you’re not careful, you could end up losing everything,” he warned. He added that the business prospects are riddled with traps. “We tend to believe that the North Koreans would be accommodating since we are ‘compatriots,’ but that’s a big mistake,” Roh said. “North Korea extends its invitation to South Korean businesses in order to use them as window dressing to attract Chinese and Russian investors.”

Additional information:

1. At least one South Korean company is making the move to Rason.

2. China now has a 10-year lease in Rason.

3. I mapped out the fence built with Mr. Roh’s wire.

Institute for Far Eastern Studies (IFES)
NK Brief No.10-03-11-1
3/11/2010

North Korea is actively looking into further development of Rajin Port by extending China’s lease on port facilities for another decade, and granting Russia 50-year rights to Rajin port facilities, as well. Li Longxi, a deputy of the National People’s Congress and head of Jilin Province’s Yanbian Korean Autonomous Prefecture, revealed to a Yonhap News reporter in Beijing on March 8, “The North gave Russia the right to use Pier 3 for 50 years, and is actively looking into extending the right to use Pier 1 granted to China in 2008 for another 10 years.”

Rajin Port has five piers, with Pier 3 being larger than Pier 1. The rights to Pier 1 were granted to the Changli Group, which specializes in the manufacture of environmental materials in Dalian. 10-year use and development rights had already been granted to this company. Deputy Li explained, “China gained rights to Pier 1 in 2008, and is now in negotiations with North Korea over extending those rights for 10 years.” Therefore, if this agreement is reached, China will have exclusive rights to the pier until 2028.

Li added, “Currently, China is in the process of constructing the facilities necessary to use the pier, and will begin to move goods through the port when construction is complete.” It appears China has invested tens of millions of Yuan into this project. Li also pointed out that by being able to use Rajin Port, Yanbian, currently lacking export avenues, will be able to transport Jilin Province’s abundant coal resources, not only through the Yellow Sea to Shanghai and other domestic cities, but to Japan and other countries in the Asia Pacific region.

On February 28, Sun Zhengcai, CCP Secretary of Jilin Province met with North Korean Kim Yong Il, head of the Korean Workers’ Party International Department, and introduced to him China’s ‘Greater Tumen Initiative’ development project. At the time, it was reported that Sun explained to Kim that Jilin provincial authorities had reached an agreement with North Korea for joint venture to construct a network of roads and basic infrastructure facilities. Jilin provincial and city officials, as well as Changchun city representatives, are involved in the project. China is focused on the Tumen river basin and Rajin Port because of their strategically valuable economic role in developing the country’s straggling northeast region.

Russia is also eyeing Rajin Port, because if the port is developed, it could serve as an outlet to export Sakhalin and Siberian crude oil and natural gas to neighboring countries. In July of last year, Russia and North Korea reached an agreement to repair the rail connection between Rajin and Hasan and to improve Rajin Port facilities, investing 1.4 billion Euros. Japanese newspaper Sankei Sinbun quoted a source within North Korea as reporting that Jang Song Thaek, Party administrative chief and brother-in-law of Kim Jong Il, had recently travelled to Rasun (Rajin + Sunbong) and declared that the area would be fully developed within the next 6 months.

The Korea Daepung International Group, serving as North Korea’s window to foreign capital, is said to have a plan to entice international investment in order to support the Tumen river development plan, and plans to develop Rasun Special City and Chongjin Port into key outlets for DPRK-PRC-Russian trade and commerce in Northeast Asia. However, the participation, and investment, of private-sector enterprises will likely depend on the success of the Rajin Port development.

UPDATE:  According to Defense News:

Fears that China will establish a naval presence at a port facility at North Korea’s Rajin Port appear unfounded.

An agreement with a Chinese company to lease a pier at Rajin for 10 years was reported by the Chinese state-controlled Global Times on March 10.

The Chuangli Group, based at Dalian in China’s Liaoning province, invested $3.6 million in 2009 to rebuild Pier No. 1 and is constructing a 40,000-square-meter warehouse at the port. The leasing agreement has given way to suggestions China could be attempting to establish its first naval base with access to the Sea of Japan.

The North Korean Navy does use Rajin as a base for smaller vessels, such as mine warfare and patrol vessels, but for the time being, it appears economics are the primary motivation for the Chinese company’s presence there, said Bruce Bechtol, author of the book “Red Rogue: The Persistent Challenge of North Korea.”

“Chinese investment has increased a great deal in North Korea in the past five years,” he said. “It would not be a military port for the Chinese - as the North Koreans would be unlikely to ever allow such a thing.” He noted there are no Chinese military installations in North Korea.

The Rajin facility will give Chinese importers and exporters direct access to the Sea of Japan for the first time. “It is the country’s first access to the maritime space in its northeast since it was blocked over a century ago,” the Global Times reported.

China lost access to the Sea of Japan during the Qing Dynasty in the 19th century after signing treaties under duress from Japan and Russia.

Various media in Japan and South Korea have suggested the lease might give China an opportunity to place a naval base at Rajin, but Bruce Klingner of the Heritage Foundation in Washington, D.C., also downplayed the notion, saying North Korea’s negative attitudes toward China and a fear of excessive Chinese influence would negate any chance Beijing could establish a naval presence there.

Klingner also said he doubts North Korea would make a success out of the agreement. “Pyongyang’s aversion to implementing necessary economic reform and its ham-fisted treatment of investors suggests the new effort to turn Rajin into an investment hub will be as much a failure as the first attempt in the 1990s.”

ORIGINAL POST: According to the Choson Ilbo:

China has gained the use of a pier at North Korea’s Rajin Port for 10 years to help development of the bordering region and establish a logistics network there.

Lee Yong-hee, the governor of the Yanbian Korean Autonomous Prefecture in China’s Jilin province, made the announcement to reporters after the opening of the People’s Congress at the Great Hall of People in Beijing on Sunday.

He was quoted by the semi-official China News on Monday as saying, “In order for Jilin Province to gain access to the East Sea, a private company in China in 2008 obtained the right to use Pier No. 1 at Rajin Port for 10 years. Infrastructure renovation is currently underway there.”

In an interview with Yonhap News on Monday, Lee said, “We’re considering extending the contract by another 10 years afterward.”

Jilin abuts the mouth of the Duman (Tumen) River in the southeast but its access to the East Sea is blocked by Russia and North Korea. “We hope that an international route to the East Sea will be opened via Rajin Port,” he added.

Lee did not specify which Chinese company obtained the right and which North Korean agency awarded the concession. The Chinese Foreign Ministry on Feb. 25 said business investment in the North Korea-China border area is a normal business deal and does not therefore run counter to UN sanctions against the North.

According to Yonhap:

South Korea is keeping a close watch over North Korea’s efforts to draw greater foreign investment to one of its ports, as the move might indicate Pyongyang is opening up to the outside world and signal its return to stalled international nuclear talks, officials said Tuesday.

The North has agreed to give a 50-year lease on its Rajin port to Russia, and the country is also in talks with a Chinese company on extending its 10-year lease by another decade, according to an official from China’s Jilian Province, currently in Beijing for the National People’s Congress.

The North’s opening of the port on its east coast has a significant meaning for China as it will give the latter a direct access to the Pacific, but it also means millions of dollars, at the minimum, in investment for the cash-strapped North.

Officials at Seoul’s foreign ministry said the North’s opening of its port or its economy was a positive sign, but that it was too early to determine whether the move will also have a positive effect on international efforts to bring North Korea back to the nuclear negotiations.

“We are trying to confirm the reports, though they appear to be true because they were based on China’s official announcement,” an official said, asking not to be identified due to the sensitivity of the issue.

“We are trying to find out the exact details of the contracts (between North Korea and Russia and China),” the official added.

Additional information 

1. A previous report indcated that there were 250 Chinese companies registered in Rason.  The North Koreans reportedly closed out the insolvent and inoperable businesses. I do not know how many are there now. Read more here.

2. The Russian government recently built a Russian-gauge railway line from Kashan to Rason. Read more here.  It will be interesting to see if China upgrades roads and railways which could connect Rason to China.

3. Rason is sealed off by an electric fence. Read more here.

4. Many other stories about Rason here.

Read the full stories here:
China’s Jilin Wins Use of N.Korean Sea Port
Choson Ilbo
3/9/2010

Seoul closely watching N. Korea’s opening of port to China: officials
Yonhap
Byun Duk-kun
3/9/2010

According to the AFP:

A South Korean company said Tuesday it is planning a joint-venture factory in a free-trade zone in northeastern North Korea, the first such investment by Seoul in the faltering project.

Food processor Merry Co said Pyongyang last month approved its partnership with state-run Korea Gaeson General Trading Corp in the Rason zone near the North’s border with China and Russia.

“We’re going to have a first joint venture between the two Koreas in Rason,” Merry president Chung Han-Gi told AFP.

The North this month upgraded the status of the zone in an attempt to invigorate anaemic foreign investment there.

Chung said his company would invest 60 percent of the 7.5 million dollar cost of the new plant while its North Korean partner would put in 40 percent.

He said he would this week ask the South’s unification ministry, which must authorise all cross-border contacts, to approve the joint venture.

The communist state designated the Rajin-Sonbong Economic Special Zone — later renamed Rason — in 1991, its first such project. But little foreign investment materialised and senior officials who headed the project were reportedly sacked.

In recent years the North has begun trying to revive it, signing an accord with Russia to rebuild railways and the port there. China has also been exploring investment opportunities in the city.

The North’s leader Kim Jong-Il paid his first visit to the zone last month and state media said later that parliament has designated Rason as a municipality to upgrade its status.

South and North Korea have a joint-venture industrial estate at Kaesong near their border. Its operations have often been hit by political tensions, but the two sides were to start talks Tuesday on ways to develop it.

Chung said his firm’s joint venture at Rason, which would have some 200 North Korean employees, plans to produce canned and processed food including tuna for exports.

Merry, which also has a factory in Shanghai, will send Chinese engineers to Rason next month to install production facilities.

The Choson Ilbo adds some interesting details:

This is the first time that Pyongyang has allowed for direct business collaboration, set to take place between North Korea’s Gaeson General Company and the South’s Chilbosan Merry Joint Venture.

The firms are slated to split investment 60/40 and will work together to process and export canned marine and agricultural products starting in March.

UPDATE 1: As reader Gag Halfron points out, this is not the first DPRK-RoK joint Venture. Remember Pyonghwa Motors and Pyongyang’s fried chicken restaurant?

UPDATE 2: In the comments, Werner notes the following: http://www1.korea-np.co.jp/pk/149th_issue/2000101405.htm

Read the full articles below:
N.Korea OKs joint venture with South in trade zone
AFP
1/18/2009

First Inter-Korean Joint Venture to Be Established
Choson Ilbo
1/20/2010

UPDATE:   In addition to the information below, the Choson Ilbo reports that  the DPRK’s former trade minister has been appointed mayor of Rason.  According to the article:

The North Korean regime has appointed former foreign trade minister Rim Kyong-man as the mayor of the Rajin-Sonbong Economic Special Zone, which was promoted to a special city in January. A source said Rim was appointed as part of a reshuffle and new regulations for the city.

Rim is known as an expert in trade who served as the minister for foreign trade from April 2004 to March 2008, and headed the North Korean trade representatives to Dalian in China. He also toured Africa (June 2005), Latin America (November 2005), Libya and Malaysia (June 2006) and Russia (March 2007) as the leader of the North Korean economic delegation.

“It seems that North Korea appointed Rim, who is very experienced in trade with foreign countries, with an aim to further open Rajin-Sonbong as a free trade area,” the source added.

ORIGINAL POST: The designation of Rason as a “special city” this week left me a bit confused, but I believe I have sorted it out.

This week, Reuters reported:

“The city of Rason has become a special city,” the North’s KCNA news agency said in a brief dispatch on Monday.

And Yonhap reported:

North Korea designated Rason, the country’s first free trade zone, as a “special city” on Monday, the North’s official news media reported.

North Korea designated Rason and nearby Sonbong, located on the country’s northernmost coast close to both China and Russia, as an economic free trade zone in 1991, though foreign investment has never materialized.

According to the Korean Central News Agency (KCNA) monitored here, the Standing Committee of the North’s Supreme People’s Assembly designated Rason as a special city in a decree.

So aside from the fact that Rason was named “special” there were no other details given.  What does it mean to be a “special city”?

Well, today the nice Chongryun individual in Japan who updates the KCNA web page finally came back from vacation and posted the story to the official KCNA web page.  Here is what it says:

Rason City Designated as Municipality
Pyongyang, January 5 (KCNA) — Rason City was designated as a municipality.

The Presidium of the Supreme People’s Assembly of the DPRK said in its decree promulgated on Jan. 4:

1. Rason City shall become a municipality.

2. The DPRK Cabinet and relevant organs shall take practical measures to implement the decree.

Without seeing any additional information it seems that what has actually happened is that the municipalities of Rajin and Songbon have been dissolved, merged, or been made subject to a newly created Rason municipal government which controls both cities.  So Rajin-Songbon is dead.  Long live Rason.

So why would the North Korean government do this?  Here is one theory: Since the district was under the direct control of Pyongyang (not the provincial government of North Hamgyong), the DPRK government simply thought that two municipal governments in the special economic zone were one more than was necessary.  So this could mean something significant–in terms of the DPRK’s intent to increase foreign trade–or it may not.

If anyone else has a better idea please let me know in the comments.

UPDATE:

1. Here is a decent story in the AFP which interprets the change as a significant policy signal.

2. Here is a decent story in the Daily NK which offers lots of additional information.

Choson Ilbo
12/10/2009

Even as North Korea struggles under UN sanctions and is in the midst of a controversial currency reform aimed at breaking the back of a nascent free market, the reclusive country is apparently in the process of changing laws in order to attract more foreign investment, an expert said Wednesday. It is even offering foreign companies wages cheaper than those paid to North Korean workers at the joint-Korean Kaesong Industrial Complex, according to Jack Pritchard, president of the Korea Economic Institute in Washington D.C.

Pritchard, who visited Pyongyang last month along with Scott Snyder, director of the Center for U.S.-Korea Policy at the Asia Foundation, told reporters in Washington. The North Korean trade department official they met there told them there are no strikes among North Korea’s skilled workers and were very aggressive in luring foreign investment. He added North Korean officials offered wages of 30 euros a month (around US$44), which was lower than the average $57 paid to workers at the Kaesong Industrial Complex. The officials said they were also willing to offer various incentives to foreign companies interested in taking part in the construction of 100,000 homes in Pyongyang. North Korea appeared to be changing its attitude toward foreign countries as part of its goal to become a strong and powerful nation by 2012, he said.

In an article for Global Security [Posted below], the Internet-based provider of military and intelligence information, Snyder wrote, “North Korean colleagues at the Ministry of Trade appeared genuinely surprised and dismayed when we mentioned that UN Security Council Resolution 1874… contains provisions prohibiting companies from making new investments in North Korea.”

Snyder said North Korea’s interest in foreign investment as part of its goal to become a “strong and powerful nation” by 2012 is a new development and one that could play a role in resolving the nuclear stalemate.

But efforts to attract foreign investment and capital over the past 25 years have been a disaster. North Korea announced new regulations in September of 1984 to allow businesses from capitalist countries to operate there. It set up special economic zones in Rajin-Songbong in 1991 and in Sinuiju in 2002. But the Sinuiju project never got beyond the ground-breaking stage due to conflict with China, while empty factories litter Rajin-Sonbong.

North Korea aimed to attract $7 billion worth of foreign investment into Rajin-Sonbong, but actual investment amounted to only $140 million. According to the South Korean government and other sources, there are an estimated 400 foreign businesses operating in North Korea. Most of them are small businesses run by Chinese or North Korean residents in Japan. The shining exception is the Egyptian telecom company Orascom, which offers mobile phone services in the North. “It’s more accurate to say that there are no major foreign businesses operating in North Korea,” said Cho Dong-ho, a professor at Ewha Woman’s University.

North Korea forged its first pact guaranteeing foreign investment with Denmark in September 1996 and signed similar pacts with around 20 countries, including China, Russia, Singapore and Switzerland, as of 2008. There have been consistent reports that businesses in Europe and Southeast Asia were interested in doing business in the North, but hardly any made the move.

Cho Myung-chul, a professor at the Korea Institute for International Economic Policy, who taught economics at Kim Il Sung University in North Korea, said, “The reason why no listed foreign companies are operating in North Korea is because they may end up on the list of businesses subject to U.S. sanctions.” This is one of the reasons why North Korea has tried so desperately to be removed from the U.S. list of terrorism-sponsoring countries.

And even if foreign businesses are interested in investing in North Korea, its lack of infrastructure, including steady power supply and adequate roads and ports, make it impossible to operate factories there. Cho Young-ki, a professor at Korea University, said, “You have to build a power plant if you want to build a factory in North Korea. Cheap labor does not mean businesses will profit there.” The electricity used by the Kaesong Industrial Complex is provided by South Korea, while Hyundai Asan operates its own generator at the North Korean resort in Mt. Kumgang.

Dispatch from Pyongyang: An Offer You Can’t Refuse!
Global Security
Scott Snyder
12/07/2009

Every North Korean seems to have been mobilized for an all-out push to mark their country’s arrival as a “strong and powerful nation” in 2012, which marks the 100th anniversary of Kim Il Sung’s birth, Kim Jong Il’s seventieth birthday, and the thirtieth birthday of Kim Jong Il’s third son and reported successor, Kim Jong-Eun. Pyongyang citizens have cleaned up the city during a 150-day labor campaign, followed by a second 100-day campaign now underway. The Ryugyong Hotel in the middle of Pyongyang, unfinished for over two decades, has been given a facelift courtesy of the Egyptian telecommunications firm Orascom, which expects to have 100,000 mobile phone customers in Pyongyang by the end of the year. But it is still difficult to shake the feeling in Pyongyang that one has walked onto a movie set in between takes. Or that the used car looks good on the outside, but you really don’t know what you might find if you were able to look under the hood or give it a test-drive.

North Korean foreign ministry officials saw United Nations condemnation of their April missile launch as an affront to their sovereignty. This is the ostensible reason the North Koreans have walked away from six party talks. Having conducted a second nuclear test, North Korean officials want to be considered as a nuclear power, choosing instead to “magnanimously” set aside nuclear differences in order to focus on the need to eliminate U.S. “hostile policy” by replacing the armistice with a permanent peace settlement. Essentially, Pyongyang’s new offer–as a “nuclear weapons state”–has shifted from the denuclearization for normalization deal at the core of the 2005 Six Party Joint Statement to “peace first; denuclearization, maybe later.” There was no mention of “action for action” by our North Korean interlocutors.

But the North Koreans are likely to find when Ambassador Stephen Bosworth arrives in Pyongyang next week that the United States will not accept North Korea as a nuclear weapons state. There is virtually no area of agreement between the two governments on the nuclear issue based on public statements made by the two sides thus far, suggesting the likelihood that both sides will face a difficult conversation.

A new component of North Korea’s strategy for achieving its economic and infrastructure goals in the run-up to 2012 is its effort to attract investment from overseas. The Director of North Korea’s newly established Foreign Investment Board unveiled a new plan for attracting equity, contractual, and 100% foreign owned joint venture investments. On paper, the rules incorporate provisions for repatriation of profit, generous tax incentives, and a labor rate of thirty Euros per month. This rate undercuts the compensation of $57.50 per month currently offered at the South Korean-invested Kaesong Industrial Zone. Even more generous was the offer of special concessions in North Korea’s natural resources sector for companies willing to build 100,000 units of new housing in Pyongyang that have already been promised in the run-up to 2012.

North Korean colleagues at the Ministry of Trade appeared genuinely surprised and dismayed when we mentioned that UN Security Council Resolution 1874, which condemned North Korea’s May 25, 2009, nuclear test, contains provisions prohibiting companies from making new investments in the DPRK. This is all the more unfortunate because on paper, North Korean efforts to open its economy through foreign investment are exactly the course that should be encouraged, and North Korea’s goals for 2012 could be advanced significantly with inward investment from companies that might be willing to take the risk, but the nuclear issue stands in the way. This is not to mention that North Korea’s own economic retrenchment and anti-market policies, including the “currency reforms” announced earlier this week, stretch the credibility of the North Korean government to back up these laws. Recent surveys of Chinese investors suggest few demonstration projects for successful investment in North Korea and a high probability of getting scammed or fleeced on the ground.

But the North Korean plea for foreign investment does suggest a potential point of leverage that deserves careful consideration, and that is the possibility of an investment in a strategic commodity that is of special interest to the United States: North Korea’s plutonium stock. During the Clinton administration, former Defense Secretary William Perry led efforts to make similar purchases of nuclear materials from the Ukraine and Kazakhstan, which had inherited stocks of nuclear materials from the breakup of the Soviet Union. These transactions advanced the cause of nuclear non-proliferation by ensuring that these countries would not become nuclear states. A 2004 report of a Task Force on U.S.-Korea Policy co-sponsored by the Center for International Policy and the University of Chicago, also suggested a plutonium “buy-out” proposal for North Korea, despite the obvious moral hazard of appearing to reward North Korea’s bad behavior. Any transaction with North Korea involves moral hazard, and North Korea has already proven that it will sell or sub-contract nuclear materials to the highest bidder. One positive of this approach is that any transaction involving removal of nuclear materials or capabilities from the North would be irreversible, in contrast to past practice of offering irreversible food-aid benefits to North Korea in exchange for participation in multilateral dialogue, but not for irreversible steps toward denuclearization.

In a post-9/11, post-North Korean nuclear test world, the Obama administration must find a formula that facilitates North Korea’s irreversible actions on the path toward denuclearization rather than agreeing to half-measures: North Korea’s immediate focus is on gaining the resources necessary to mark 2012 as a year of accomplishment, yet the North has been highly critical of Lee Myung-bak’s “grand bargain” Proposal. Denuclearization needs to be placed on the North Korean agenda as an accomplishment that North Korea will be able to justify as part of its broader 2012 objective of becoming a “strong and prosperous state.” Unless a new formula can be found by which to bring these two objectives into line with each other, it is likely that the United States and North Korea will continue to talk past each other.

North Korea Uncovered version 18 is available.  This Google Earth overlay maps North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks.

This project has now been downloaded over 140,000 times since launching in April 2007 and received much media attention last month following a Wall Street Journal article highlighting the work.

Note: Kimchaek City is now in high resolution for the first time.  Information on this city is pretty scarce.  Contributions welcome.

Additions to this version include: New image overlays in Nampo (infrastructure update), Haeju (infrastructure update, apricot trees), Kanggye (infrastructure update, wood processing factory), Kimchaek (infrastructure update). Also, river dredges (h/t Christopher Del Riesgo), the Handure Plain, Musudan update, Nuclear Test Site revamp (h/t Ogle Earth), The International School of Berne (Kim Jong un school), Ongjin Shallow Sea Farms, Monument to  “Horizon of the Handure Plain”, Unhung Youth Power Station, Hwangnyong Fortress Wall, Kim Ung so House, Tomb of Kim Ung so, Chungnyol Shrine, Onchon Public Library, Onchon Public bathhouse, Anbyon Youth Power Stations.

North Korea Uncovered v.16
Download it here

The most recent version of North Korea Uncovered (North Korea Google Earth) has been published.  Since being launched, this project has been continuously expanded and to date has been downloaded over 32,000 times.

Pictured to the left is a statue of Laurent Kabila of the Democratic Republic of Congo.  This statue, as well as many others identified in this version of the project, was built by the North Koreans. According to a visitor:

From the neck down, the Kabila monument looks strangely like Kim Jong Il: baggy uniform, creased pants, the raised arm, a little book in his left hand. From the neck up, the statue is the thick, grim bald mug of Laurent Kabila (his son Joseph is the current president). “The body was made in North Korea,” explains my driver Felix. In other words, the body is Kim Jong Il’s, but with a fat, scowling Kabila head simply welded on.

This is particularly interesting because there are no known pictures of a Kim Jong il statue.  The only KJI statue that is reported to exist is in front of the National Security Agency in Pyongyang.  If a Kim Jong il statue does in fact exist, it might look something like this.

Thanks again to the anonymous contributors, readers, and fans of this project for your helpful advice and location information. This project would not be successful without your contributions.

Version 16 contains the following additions: Rakwon Machine Complex, Sinuiju Cosmetics Factory, Manpo Restaurant, Worker’s Party No. 3 Building (including Central Committee and Guidance Dept.), Pukchang Aluminum Factory, Pusan-ri Aluminum Factory, Pukchung Machine Complex, Mirim Block Factory, Pyongyang General Textile Factory, Chonnae Cement Factory, Pyongsu Rx Joint Venture, Tongbong Cooperative Farm, Chusang Cooperative Farm, Hoeryong Essential Foodstuff Factory, Kim Ki-song Hoeryong First Middle School , Mirim War University, electricity grid expansion, Tonghae Satellite Launching Ground (TSLG)” is also known as the “Musudan-ri Launching Station,” rebuilt electricity grid, Kumchang-ri suspected underground nuclear site, Wangjaesan Grand Monument, Phothae Revolutionary Site, Naedong Revolutionary Site, Kunja Revolutionary Site, Junggang Revolutionary Site, Phophyong Revolutionary Site, Samdung Revolutionary Site, Phyongsan Granite Mine, Songjin Iron and Steel Complex (Kimchaek), Swedish, German and British embassy building, Taehongdan Potato Processing Factory, Pyongyang Muyseum of Film and Theatrical Arts, Overseas Monuments built by DPRK: Rice Museum (Muzium Padi) in Malaysia, Statue de Patrice Lumumba (Kinshasa, DR Congo), National Heroes Acre (Windhoek, Namibia), Derg Monument (Addis Ababa, Ethiopia), National Heroes Acre (Harare, Zimbabwe), New State House (Windhoek, Namibia), Three Dikgosi (Chiefs) Monument (Gaborone, Botswana), 1st of May Square Statue of Agostinho Neto (Luanda, Angola), Momunment Heroinas Angolas (Luanda, Angola), Monument to the Martyrs of Kifangondo Battle (Luanda, Angola), Place de l’étoile rouge, (Porto Novo, Benin), Statue of King Béhanzin (Abomey, Benin), Monument to the African Renaissance (Dakar, Senegal), Monument to Laurent Kabila [pictured above] (Kinshasa, DR Congo).

The Institute for Far Eastern Studies (IFES) published an interesting paper (with the above title) on legal reform in the DPRK.  Below are some highlights.  Links to the entire paper at the bottom.

As citizens have been left without state provisions for subsistence since the state did not have the material resources to supply the people through its central rationing system, the vast majority of individuals and organizations had to support themselves. Legitimizing commercial and market activity and expanding the scope of private ownership were a part of this effort. One of the most important laws reflecting this transformation is the Damage Compensation Law (sonhae bosang-beop), which is the North Korean version of a general torts law. This law holds an individual or any legal entity liable for its tort when damage is inflicted. Monetary compensation is the rule, while restoration is allowed when possible.

Under the socialist system, where the state is responsible for the provision of a citizen’s livelihood, tort law was of little use. Even in the case of death, one’s family would not suffer economically since the state provided sustenance rations. However, with the collapse of the public distribution system, the North Korean authorities could no longer maintain their socialist system. Since an individual now has to rely on his or her own devices, the loss of the employment, for example, directly inflicts a financial burden on the individual or family. Therefore, damage to property or person should be compensated for by the responsible party. Therefore, the new damage compensation law acts as a new mechanism for the protection of private property, and strengthens individual responsibility for negligent acts that inflict damage on others.

and…

Relaxation of law and order, along with the laxity of organizational control due to economic difficulties, changed individual attitudes toward government authorities and organizations in which these individuals were members. Individuals became more independent from the state and its organizations, since both the state and more directly engaged organizations lost important means of control over individuals in society due to the lack of resources and the inability to provide basic necessities to the people.

Under these circumstances, individual victims had no appropriate method to seek compensation for damage through an official dispute resolution process. This has led to an environment in which self-remedy has become the rule, rather than the exception. Although new criminal law punishes those who have used force in asserting their rights, there is no effective means of dispute resolution outside of taking advantage of officials willing to look the other way in exchange for favors, or hiring thugs to more directly resolve disagreements. Citizens can buy justice through bribes, and law enforcement officials are especially helpful in these endeavors when their palms are greased. This is much more economical as well as effective than bringing a case to the relevant official agency, which is generally incapable of resolving problems and instead further exploits the situation.

On courts and lawyers…

For example, the most prominent role of the court in North Korea, where other types of lawsuit are very unusual, was to handle divorce settlements, since divorce through simple agreement of the two parties was not allowed. Ordinary citizens went so far as to perceive settlement of divorce to be the most important role of the court. Criminal cases were also unusual. Political crime is handled through a non-judicial process, while many deviances are resolved through unofficial processes within more local organizations. The role of the court in resolving disputes was negligible, aside from divorce. Since the role of law enforcement agencies is to protect the state and secure the socialist system, the most important qualification for them is not legal expertise, but rather, loyalty and devotion to the North Korean ideology and system.

On the other hand, the Lawyer’s Act of 1993 prescribes the required qualifications of a lawyer. Those who are eligible to work as lawyers are those who are certified legal professionals, those who have working experience of no less than 5 years in legal affairs, or those who have a professional license in a certain area and have passed the bar examination after a short-term course in legal education. This qualification for working as a lawyer signifies that the state wants to equip the judicial system with legal professionals. Although there is no explicit professional qualification for a judge or prosecutor, we may assume that legal professionals have been elected or recruited in practice. This trend is likely to be reinforced as these social changes continue to unfold.

New provisions were also introduced to reinforce the judicial system. For example, interference with a law enforcement official’s performance of duties is now a punishable offence ; Threatening a witness or exacting revenge has been criminalized ; Non-execution of judgment will now be punished. Although the introduction of these provisions was an expression of the government’s effort to bring in a more effective judicial system, it would not be an easy task under the vague status of transformation. The state is very cautious and reluctant to undertake bold or fundamental changes due to concerns about political instability. Therefore, it takes time for various coherent mechanisms to fully support a market system.

You can download the entire paper in PDF format here.

You can read it on the IFES web page here.