North Korea Trade

In recent years, the DPRK’s foreign trade has been reoriented mainly to trade with the PRC, which, however, is significantly unbalanced in terms of quality, and within the leadership of the DPRK, this one-sided dependence probably has its opponents. However, the DPRK is unable to diversify its trade. In 2019, China’s share of the DPRK’s ZO was approximately 95%. Despite partial successes in the export of products with a higher added value, due to its underdeveloped economy, the DPRK continues to focus mainly on the export of coal and iron ore. Due to the largest-scale sanctions regime in history, the DPRK resorted to improving the methods of illegal export and, on the contrary, obtains the much-needed oil resources in the same way. In other areas, however, Kim’s wish is to make the DPRK as independent and self-sufficient as possible in accordance with the regime’s ideology and propaganda.

Trade “exchange” with the DPRK existed essentially only in the form of the Kaesong Joint Industrial Complex, where the DPRK provided land and cheap labor, although no goods manufactured there went to the DPRK. However, the DPRK closed the industrial zone in February 2016 (this was a unilateral measure taken by the DPRK in response to the DPRK’s nuclear and long-range missile test in early 2016).

Currently, all major areas of export are limited or completely prohibited by sanctions. However, Chinese smugglers in border areas, thanks to the politically motivated laxity of the authorities, can bypass them and continue buying and selling sanctioned goods.

  • Trade balance for the last 5 years – exports, imports, balance
  • Territorial structure – position in (k) EU
  • Commodity structure
  • Free trade zones (VT parks, investment zones)
  • Investments – foreign direct investments in the territory (sectoral and territorial structure)
  • Investments – conditions for entry of foreign capital (restrictions, incentives for investors)

Trade balance for the last 5 years – exports, imports, balance

DPRK foreign trade (in billions of USD)
2015 2016 2017 2018 2019
Export 2,7 2,82 1,77 0,24 0,26
Import 3,56 3,71 3,78 2,6 3,0
Balance -0,86 -0,89 -2,01 -2,36 -2,74
Turnover 6,25 6,53 5,55 2,84 3,26

Source: businesscarriers.com

Territorial structure – position in (k) EU

Approximately 95% of the trade exchange is carried out by the DPRK with China. This ratio applies to both exports and imports.

After the introduction of the current sanctions regime at the end of 2017, the trade exchange with the Czech Republic of the EU is marginal.

Commodity structure

The commodity structure of exports and imports was strongly affected after the introduction of sanctions in late 2017.

Sanctions do not allow, for example, the export of black coal, which was the main export item of the DPRK, as well as the export of clothing and marine animals. On the contrary, the import of oil products was severely limited by sanctions.

Currently, the largest items of import are food and petroleum products (even after the quantity is limited), as well as textiles (fabrics) and fertilizers.

Exports are severely limited after the introduction of sanctions (they decreased almost 10-fold). The biggest items include watches, wigs, artificial eyelashes, some unsanctioned raw materials – ferrosilicates, molybdenum, tungsten.

In reality, however, the sanctions regime is being circumvented, especially by the importation of oil products several times over the permitted amount. Black coal, sand and gravel, clothes and others are also exported in violation of sanctions.

Free trade zones (VT parks, investment zones)

There are currently 26 special economic zones formally in the DPRK. Among the most famous and successful of these are the Kaesong Industrial Complex on the border with South Korea and the oldest Rason Special Economic Zone. The other zones are rather smaller and fail to attract foreign investors very much. The fact that the Kaesong complex has been closed again since February 2016 and the development of the Rason zone has stagnated since 2013 is evidence of the not very successful of these projects. Currently, there is a logical interest in the development of these zones near the border with China, where economic activity is concentrated.

Kaesong Industrial Complex

The Kaesong Industrial Complex (KIC – Kaesong Industrial Complex) was opened in 2004 right next to the demilitarized zone on the territory of the DPRK. In 2012, 123 North Korean companies employed 53,507 North Korean workers and produced goods worth US$470 million. The capacity of the KIC with regard to the area and ready-made infrastructure is two to three times larger, but the stormy development has slowed down due to the cooling of relations. In February 2016, the KIC was closed as a reaction of the KR to the DPRK’s nuclear and ballistic tests.

The products produced in the KIC were diverse: clothing and textiles (71 companies), kitchen accessories (4 companies), auto parts (2 companies), semiconductors (2 companies), printer cartridges (1 company), etc. KR and DPRK tried to attract other foreign investors to this zone. For this purpose, the Foreign Investment Promotion Center was opened in 2014 within the KIC Administrative Agency to promote KIC and provide consulting services to potential foreign investors.

The KIC was a politically somewhat controversial project for the KR (as well as the US), which on the one hand helps to maintain stability on the Korean Peninsula, but on the other hand is a significant source of income for the DPRK regime (in 2015 it was supposed to be 120 million USD). This is money paid for wages, but the companies paid them directly to the state, which already deals with the remuneration of employees in its own way.

Rason Special Economic Zone

The oldest North Korean special economic zone, Rason, located in the northeastern part of the DPRK (the cities of Rajin and Sonbong) near the borders with China and Russia, was established in 1991. However, during the twenty-five years of its existence, the zone has basically not attracted any significant investment due to the lack of interest from private entities and the lack of more significant support from the leadership of the DPRK. The basic reason for the failure, unlike the fast-growing zones in China, was that a number of other economic reforms were implemented in the PRC, while the DPRK only offered lower taxes and cheap labor. Rather, for strategic reasons, Russian and Chinese companies began to show interest in the zone, which leased two of the five port piers for a long time and began to invest more massively in the transport infrastructure. They thus gained not only a year-round usable port, but China also has access to the Sea of ​​Japan, which is part of China’s ambitious plan for the development of Jilin Province. This gives China a great opportunity to develop this less developed northeastern region, mainly due to the expected growth in trade with Japan. The development of transportation options between North Korea’s Rason zone and China’s Jilin province, including several steps to secure energy supplies to the area, indicate the PRC’s serious interest.

In September 2013, the railway line between the RF (Chasan city), the Rason zone and the North Korean port of Rajin was put into operation. According to the joint Korean-Russian project, the RF will use the railway and port to transport Russian coal to the PRC. The original project was changed after KR withdrew from the plan to transport containers from KR to Rajin and then by rail to Russia and Europe.

Since 2013, however, further development of the zone has stagnated again. At the end of 2015, 129 foreign companies were operating in the Rason zone. During 2014, however, the operating conditions of companies in the Rason zone worsened significantly (tightened border controls, restrictions on the sale of gasoline and electricity supplies), and in December 2015, a fee for entering the zone was introduced.

Other special economic zones

The DPRK is trying to expand the number of special economic zones (SEZs) to include Nampo (a port about 60 km from Pyongyang), Haeju (south) and Sinuiju (North Pyongan province). However, these projects have not yet been fully implemented.

There has not been much progress in building the two SEZs already enacted together with China on the islands at the mouth of the border Yalu River (around the cities of Dandong – PRC – and Sinuiju in the DPRK). The Guomenwan border trade zone in Dandong, despite its completion two years earlier, was only opened in October 2015. Its purpose is to support the DPRK’s trade with the Chinese living within 20 km of the border by reducing tariffs on low-volume trade. In the Sinuiju zone, China built a bridge over the Yalu River at the end of 2014, however, the DPRK was still unable to build the necessary related administrative and transport infrastructure for the new border crossing (construction did not start until early 2020).

In 2014, the Wonsan Special Economic Zone – Mt. Kumgang in the southeast of the DPRK. This is the only project of this type that was officially visited by leader Kim Jong-un. The zone is focused on tourism. In early 2015, the Wonsan Zone Development Corporation was established to attract foreign investment to the zone. However, the DPRK’s goal of attracting one million tourists to the zone per year and increasing this number to two million by 2020 was not realized due to the conditions set by the DPRK. A greater influx of tourists from KR is also hindered by the sanctions regime, especially sanctions related to financial transfers.

In 2015, the Mubong International Tourism Special Zone in Samjiyon Village (about 37 km from Mount Paektu) and the Kyongwon Economic Zone in Ryudasom-ri near the border with China (Hunchun) were also announced, but neither of them has yet shown signs of operation.

The problems clearly outweigh the successes in this sphere, and everything is caused by the unwillingness of the DPRK leadership to open the economy to investment based on internationally valid principles, and not their own, which do not represent real protection of foreign (or Chinese!) investments.

Investments – foreign direct investments in the territory (sectoral and territorial structure)

The investment climate is unfavorable and risky, which is eloquently evidenced by the Index of Economic Freedom, published regularly by the Heritage Foundation think tank. In it, in 2016, the DPRK was once again ranked last, 178th in the world. Investing in the DPRK is still a risky business, barter trade, outsourcing in the field of services such as programming, database creation, software development, animation studios, etc. could be relatively interesting. However, any type of business remains highly risky. The DPRK has made several legislative changes in an attempt to attract foreign capital, but the enforceability of the law under current conditions could be an insurmountable problem for a private investor. Adding to the uncertainty is the continuing climate of a militarized and centrally planned economy.

Investments – conditions for entry of foreign capital (restrictions, incentives for investors)

In 1984, the DPRK adopted the first law on joint ventures, which opened the way for foreign investors. This law was updated in 1991. The legislation is based on the Chinese model, including tax and other concessions for foreign investors. In 2004, the Chamber of Commerce was established, which manages foreign trade. Since then, the DPRK has adopted approximately 60 laws and regulations facilitating the inflow of foreign investment and has also created special administrative zones (Free Trade District Act). Lower taxation is offered in these zones. In March 2012, the DPRK government approved amendments to the Law on Foreign Investments, which partially addressed criticism of the original law.

In 2020, there is a minimal number of foreign investors operating in the country, the most significant being the Egyptian Orascom, which invested in the country’s mobile telecommunications network under largely non-transparent conditions.

Citizens and other entities from the EU were directly prohibited from investing in the DPRK by the autonomous measures of the EU, adopted beyond the framework of the transposition of the measures set out in the framework of UNSC Resolution No. 2270 (2016).

North Korea Trade