Research Report
Analysis and Prospects of North Korea’s Foreign Trade Laws:In Relation to the Impact of the CISG
Ⅰ. Backgrounds and Purposes
▶ 30th Anniversary of the simultaneous joining of the United Nations (UN) member states of South and North Korea, North Korea's accession to CISG (March 27, 2019) and it entry into force (April 1, 2020).
○ It is an encouraging change for North Korea to join the CISG as the 90th member state and to recognize and accept the CISG, which can be adopted as a governing law in foreign trade.
▶ Diversification and structural improvement of foreign trade in North Korea
○ Diversification and structural improvement in the direction of protecting credit in foreign trade, eliminating one-sidedness, and increasing the proportion of processed goods exports, technology trade, and service trade.
○ Emphasis on the principle of independence, equality and reciprocity, and the principle of trade-off in foreign trade.
▶ Self-reliance first based on independent national economy in North Korea
○ The independent national economic policy is based on international economic sanctions against North Korea and Domestic Actions to Response to Isolation Policy.
○ These measures appear to be self-reliance-first in the foreign trade sector.
- By reinforcing capabilities based on North Korea's own strength, technology, and resources, the problem of raw materials, materials, and fuel is resolved first.
- Reducing or replacing dependence on imports and increasing production of exports.
▶ Comprehensively exploring the foreign trade laws and regulations developed during the 10 years of Kim Jong-un's era; review of interactions with CISG; additionally, the impact and prospects of the CISG
Ⅱ. Major Content
▶ Trends and characteristics of North Korea's Foreign Trade Laws
○ Rivision of 「Socialist Constitution」 in 2019
- 「Socialist Corporate Responsibility Management System」 was codified by amendment of the 「Socialist Constitution」 in the 2019.
- Legally specify the exercise of management rights of enterprises that can include trade rights.
○ Rivision of 「Foreign Trade Law」 in 2015
- Without establishment of a trading company, institutions, enterprises, and organizations can acquire trade transaction qualifications (changed from company establishment principle to business license principle). Individuals are not parties to trade transactions.
- According to the 「Foreign Trade Law」, a business license is a trade right.
- Basically, the payment method.
- Trade prices and freight rates change with the approval of the Central Foreign Trade Guidance Organ.
- If there is no export record for 3 years from the date of receipt of the business license, the business license is retrieved.
- Debt relationship arising from foreign trade transactions are not the responsibility of other parties to the transaction or the State.
○ Rivision of 「Foreign Trade Law」 in 2018
- Business license must go through the Central Foreign Trade Guidance Organ every year.
- The parties to a foreign trade transaction must obtain price approval and import/export approval for trade transaction indicators from the Central Foreign Trade Guidance Organ.
- Institutions, enterprises, and organizations must join the electronic trade procedure system.
- Establishment of a non-permanent Foreign Trade Accident Deliberation Committee
- Certificate of origin of export products
- ‘In case of taking sanctions or discriminatory measures against North Korea’ is added to the reasons for import/export restrictions or bans.
- In the event that a trade contract is concluded without being reviewed by the Central Foreign Trade Guidance Organ, or if the price and import/export approval are not obtained, the import/export of the relevant goods is suspended.
- In case of import/export of restricted or prohibited goods or trading without passing through the business license, the business license will be revoked.
○ 「Procession Trade Regulation of Rason Economic and Trade Zone」 (enacted in 2016, revised in 2017)
- To regulate specific systems and orders related to processing trade.
- The parties to the processing trade are North Korean institutions, enterprises, organizations and foreign-invested enterprises.
- The subject of processing trade is the assembly and processing of electronic products, processing of aquatic products, processing of light industrial products, etc.
- List the details to be specified in the contract.
▶ Interactions with the CISG, its impact and prospects
○ In China, which can be seen as a country in economic transition, and the Czech Republic, which can be seen as a country in political and economic transition, the influence of the CISG is approached from the legal and historical perspective.
- China's old the 「Foreign Economic Contract Law」 has already borrowed some provisions of the CISG (for example, the obligation to mitigate damages, interest payment in case of delay in performance, immunity due to force majeure reasons, etc.).
- After the CISG came into force in China, the 「Economic Contract Law」, the 「Foreign Economic Contract Law」, and the 「Technology Contract Law」 were merged into the 「Contract Law」.
- In the Czech Republic, the CISG applies directly and takes precedence over national law. There are trade provisions that apply internationally in the Commercial Act. The effect of the CISG on the legal system can also be seen in the recently enacted 「Civil Law」.
○ CISG applies where the contracting parties have a relationship with a contracting State.
- In the case where the places of business of both parties are in a Contracting State, or the law of a Contracting State becomes the governing law according to the rules of private international law of the forum.
- Under private international law, where North Korean law is applied, the CISG can be applied of course. Respect the treaties and international customs concluded with other countries in relation to the foreign economy (Article 5 of the Foreign Economic Contracts Law).
- In the event that North Korea's special economic zone law system does not match the contents of treaties concluded with other countries, the provisions of the treaty or treaty shall prevail.
○ Since North Korea's foreign trade law is basically a managed trade system, the influence of the CISG is insignificant. However, based on research on the CISG even before North Korea joined the CISG, some foreign trade-related laws and regulations partially regulate contents comparable to the CISG norms.
○ In particular, in Processing Trade Regulation of the Rason Economic and Trade Zone, it is possible to capture the force majeure under the CISG and its notice, penalty payment or damage compensation, and content comparable to damage reduction.
- In the event of a force majeure event such as a natural disaster, the performance of contractual obligations may be suspended.
- In the event of damage caused by the other party's breach of contractual obligations, the contracting party shall immediately take measures to prevent it. The contracting party cannot claim compensation for damage caused by not taking measures to prevent damage in a timely manner.
- If the orderer has not received the processed product after 3 months, the processor may sell the processed product.
○ North Korea is not a party to the Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Therefore, there is no obligation to approve and enforce foreign arbitral awards, and enforcement against assets located in North Korea is impossible or difficult to predict.
- However, according to the Foreign Economic Arbitration Law, the approval and enforcement of judgments made by arbitration departments in other countries are stipulated in accordance with the relevant North Korean laws (eg., Article 291 et seqq. of the Civil Procedure Law).
- In particular, under the Foreign Economic Arbitration Law, the grounds for refusal to enforce the judgment made by the arbitration division in other countries are almost identical to Article 5 of the New York Convention. However, if it is proved that the dispute cannot be resolved by arbitration according to the law of the country in which the award was made, or if it is proved that the execution of the award is contrary to the sovereignty, safety and social order of North Korea, the execution may be refused.
Ⅲ. Expected Effects
▶ Expand the systematic understanding of North Korea's foreign trade-related policies and laws, and contribute to better exchanges and cooperation between the South Korea and North Korea.