North Korea making agreements for foreign investment

Though North Korean labor more expensive than previously thought – RFA

The DPRK government made agreements promoting mutual investment and preventing double taxation for foreign investors, particularly highlighting cooperation with Russia, according to an article from the Korean Central News Agency (KCNA) published this week.

Governments often form tax treaties on double taxation to avoid businesses paying tax on the same income in two different countries.

“The DPRK government has already made the agreement on promotion and protection of mutual investment with 28 countries and agreement on prevention of double taxation with 13 countries in Asia, Africa and Europe” departmental director of the Ministry of External Economic Relations Ri Sun Hak, said in the KCNA article.

Though the piece does not specify which countries have agreed to the new measures, experts believe the numbers could be accurate.

“North Korea revised its FDI (Foreign Direct Investment) law in 2013, and has been interested in the issue of double taxation, and it’s a good sign that they are talking about protecting investments and profits for investors,” Andray Abrahamian, director at Choson Exchange told NK News.

According to the KCNA article Ri goes to say that the “DPRK government has made all its efforts to create a legal environment favorable for the rights and interests of foreign investors.”

Historically, North Korea has reorganized its foreign investment laws numerous times since 1984, when it enacted a “Joint Management Law.” After this, the DPRK went back and forth on investment from abroad, influenced by political changes around Korean Peninsula.

“This law reform and agreements didn’t happen suddenly, it should be prepared over the long term. North Korea continuously has wanted to invite foreign investment due to its lack of technology and funds.” Eun-min Kwon, an attorney working at the Kim&Chang law firm told NK News.

As an example of recent successful projects involving foreign companies, the KCNA article mentions recent initiatives carried out with neighboring Russia.

“The DPRK government has been carried forward the cooperation with Russian companies in the fields of railway transportation and harbor express service.”

Cooperation between Russia and North Korea has been on the increase in recent months, particularly around Rason special economic zone.

According to a Voice of Russia article published on February 2, Minister Ri said “Railroad transportation is an important part of investment between North Korea and Russia,” adding “North Korea is trying to provide better conditions in order to attract foreign investment in Rason area, and reforming law for this.”

LABORIOUS PROCESS?

Despite the new initiatives and recent warming relations with Russia,  Radio Free Asia (RFA) reported on February 4 that Chinese businessmen who often trade with North Korea found the the DPRK business environment challenging, with the cost of employing DPRK labor being higher than many realise.

Employing North Korean workers was cited as the most difficult aspect of setting up companies in the DPRK, due to limited supply, red tape and corrupt employee allocation agencies.

However despite potential issues, foreign companies investing in the DPRK are legally required to hire North Korean staff.

“A wholly owned foreign-owned enterprise shall employ the labor of the DPRK, some managerial personnel and technicians and skilled workers for special jobs maybe be employed from abroad,” Article 19 of the law covering wholly foreign owned foreign enterprises reads.

The same wording exists in the legal documents pertaining to contractual and equity joint ventures.

North Korea’s special economic trade zones (SEZs) in Rason, Hwanggumphyong and Withwado also have regulations on hiring DPRK staff, though they rules appear to be less strict in these instances.

“Enterprise in the Zone shall primarily employ the labor of the DPRK. Where foreigners are to be employed as circumstances so require,” article 19 of the Rason economic and Trade zone law reads.

According to the RFA article, North Korean labor can be a scarce due to so many men aged between 17 and 30 doing military service.

Workers also have to be assigned by the Labor Administration Institution, who often require bribing, raising hiring costs by approximately $100 dollars per employee.

Notwithstading the difficulties, the cost of doing business in North Korea is still comparatively cheap, with numerous small Chinese factories currently operating in the country, the article claims.  Historically, Chinese business interests have centred on sea food or medicinal herbs. More recently however they have also been involved in the textile industry.

According to Chinese trade data, along with coal, sea food and textiles are some of the DPRK’s largest exports.