Research Report
Analysis and Prospect of Foreign Investment Legislation in North Korea
Ⅰ. Background and Purpose
▶ Background of the Study
○Given the greater possibility of the North-South Korean cooperation, legislation is the area requiring most liberalization for North Korea for foreign investments for the external economy sector. By examining the legislative system and the reorganization process of North Korea's foreign investment related legislation for the external economy sector, as the prerequisites, it is intended to examine the process through which North Korea's foreign investment related legislation for the external economy sector has evolved.
▶ Purpose of the Study
○The purpose of this study is to comprehensively examine and review the current status of North Korea's foreign investment related legislation for the external economy sector, compare it with the foreign investment related legislation of South Korea and China, examine the special characteristics of the foreign investment related legislation for a decade of Kim Jong-Un in power, prospect on North Korea's foreign investment related legislation overall, and forsee future issues and tasks on top of performing an analysis of the trends of North Korea's foreign investment related legislation for the external economy sector.
Ⅱ. Key Details
▶ Recent Trends in North Korea's Foreign Investment Related Legislation for the External Economy Sector
○The publication of the Chosun External Economic Investment Cooperation Committee (“Investment Guide for the Democratic People’s Republic of Korea” in 2016) states that, "North Korea revised and supplemented over 50 foreign investment related laws and regulations including the Foreign Investment Act, Joint Venture Act, and the Basic Act on Foreigners, which provide the basic laws related to foreign investments from the 1990s and early 2010s to the present, and by enacting or revising over 50 laws and systems related to attracting foreign capital, efforts have been made to fundamentally lay the legal foundations required for attracting foreign capital." p. 22, "Investment Guide for the Democratic People’s Republic of Korea” in 2016, The Chosun External Economic Investment Cooperation Committee.
▶ Constitutional Basis and Legislative System of North Korea's Foreign Investment Related Legislation for the External Economic Sector
○Constitutional Basis for the Foreign Investment Related Legislation
- North Korea revised parts of its economy related provisions through the constitutional amendments on two occasions (in 1992 and 1998).
- In 1992, reflecting the reality of overcoming economic difficulties in North Korea, new provisions were made in the constitution for economy related provisions (Articles 19 through 38) towards new changes in the key areas of economic order. Among which, the new provisions made for guaranteeing the legal rights and interests of foreigners in North Korea (Article 16) and encouraging joint operation and joint ventures with foreign entities or individuals (Article 37) laid the legal foundation for North Korea's economic liberalization policy, based on which North Korea enacted the Joint Venture Act and the Foreign Companies Act (on October 5, 1992) including the Foreign Investment Act as the basic law for the foreign investments.
- In September 1998, North Korea amended the constitution to expand the scope of activities for foreign companies.
○Legal System for the Foreign Investment Related Legislation
- Examining North Korea's foreign investment related legal system on a phased in basis, it may be divided as follows.
(1) The constitution adopted by the Supreme People's Assembly of North Korea
(2) The Foreign Investment Act adopted by the Standing Committee of the Supreme People's Assembly
(3) The foreign investment related laws and regulations adopted by the Standing Committee of the Supreme People's Assembly
(4) The enforcement regulations supportive of such laws and regulations
▶ Special Characteristics of North Korea's Foreign Investment Related Legislation
○Examining the special characteristics of the foreign investment related legislation over a decade of Kim Jong-Un in power, they are as follows.
First, given issue in North Korea's investment related legal system, the legislative system for foreign investments is inadequate, and hence, North Korea demonstrates an incomplete legal structure.
Second, a lack of specificity in the legal provisions may be noted. Since the texts of legal provisions are ambiguous in terms of their structure, there are many areas which may be interpreted arbitrarily by the decision of the North Korean authorities, and if and where investments are made in North Korea, all investment terms and conditions are delegated to the contracts between the relevant parties.
Third, the specific scope and standards of protection are not presented, and while it is provided that the properties, legal rights, interests, or investment capital and income of the foreign companies investing in North Korea legally guaranteed, the specific scope and standards of protection are not presented.
Fourth, in the event of any disputes over foreign investments, North Korea's Foreign Investment Act provides for dispute resolution, yet no specific procedures and methods are provided thereunder.
Fifth, the inadequacy of the institutional consistency in terms of the foreign investment related laws, along with another issue standing in terms of lacking the institutional consistency for the few provisions lacking specificity when compared to the Raseon Economic and Trade Zone Act, which was enacted prior to the Economic Development Zone Act, as well as the Hwanggeumpyeong and Wihwado Economic Zone Act.
Sixth, North Korea's foreign investment related laws do not provide specific regulations on the investments made by South Korean companies and entrepreneurs.
Seventh, examining the laws related to the foreign investment related legislation, it is evident that North Korea is endeavoring to improve its relations with foreign countries with a view to promote its external economic liberalization policy
▶ Significance of North Korea's Economic Development Zone Act
○The publication of the Chosun External Economic Investment Cooperation Committee ("Investment Guide for the Democratic People’s Republic of Korea” in 2016) mentions 12 laws, among which is the Economic Development Zone Act.
In this study, the economic development zone related legislation, which has been promoted with focus over the past decade with Kim Jong-Un in power, will be examined, and the legislative significance, impact, and prospect, etc., will be analyzed.
○During the full session f the Central Committee of the Workers' Party in March 2013, Kim Jong-Un said, "Each province ought to establish economic development zones in line with each of their own circumstances and develop them with distinctions!" expressing his will to promote the establishment of economic development zones, and in May, enacted the "Economic Development Zone Act" and move forward full fledgedly to develop the economic development zones.
○The Economic Development Zone Act was enacted to designate the economic development zones with the goal of developing economy and science and technologies across specific regions within North Korea, and was enacted to form 13 economic development zones in some areas of 8 provinces (cities under the direct control of the central government).
▶ Tasks for North Korea's Foreign Investment Related Legislation
○Six tasks may be presented for North Korea to promote with focus moving forward.
First, North Korea needs to declare the promotion of reform and liberalization policies externally, and include the directions for market economy in its constitution.
Second, North Korea needs to systematically improve the foreign investment related legal system. Reorganization of the legal system to prevent the currently theoretical laws and regulations, lack of laws and regulations for the exercise of administrative sanctions, and the enforcement by discretion rather than law and regulations.
Third, North Korea needs to specify the foreign investment promotion related sector and the incentivization regulations for the investment promotion related sector in the Foreign Investment Act.
Fourth, while building the international cooperative relationship by joining the WTO, international organizations or the international community ought to promote the provision of a legal reform support program to help improve North Korea's foreign investment related legislation.
Fifth, an improvement plan for ensuring success for the economic development zones is secure the institutional consistency of the norms in temrs of the reorgnization of the legal system for the economic development zones and strengthen the legal system for the expansion and reinforcement of the North-South Korean cooperation.
Sixth, North Korea needs to compare the special economic zones of South Korea, China, and North Korea and derive policy implications, and explore the promotion of the special unified economic zone as a legal issue for the promotion of successful special economic zone.
▶ Future Prospects
○In connection with future prospects, it will be unfeasible for North Korea to institutionally introduce foreign investment related laws, in particular, the detailed enforcement decrees and enforcement rules, etc., for attracting foreign investment, and it would likely consolidated the 3 laws related to foreign investments (Joint Cooperation Act, Joint Venture Act, and Foreign Investment Act) or choose to incrementally and newly provide sub-regulations of the Economic Development Zone Act for the facilitation for each region of the special economic zone.
Ⅲ. Expected Effects
▶ Academic contribution
○It will operate as a foundational study in this area by comprehensively organizing and analyzing the legislative cases for foreign investments of a wide spectrum and derive implications for the Korean Peninsula.
○It may be utilized as basic data for pursuing studies in this area by analyzing various terms and theories such as the Foreign Investment Act, Joint Operation Act, Joint Venture Act, Foreign Companies Act, and the Economic Development Zone Act.
▶ Policy contribution
○It will derive policy implications for the direction and legal tasks for the foreign investment related legislation which North Korea ought to pursue by conducting a comparative study of the Chinese cases on the foreign investment related legislation.
○It may provide clear definitions for similar concepts such as the Joint Operation Act, Joint Venture Act, and the Foreign Investment Companies Act during the North-South Korean economic cooperation, and may be utilized as basic data for strengthening protective measures for investors, inducing investment acceleration, and dispute resolution.
○It may be utilized as reference data to prepare for the process of incremental changes in the foreign investment related laws and regulations in a "unified Korea” via the analysis and prospecting of North Korea’s foreign investment related legislative trends.
○It may present a systematic and comprehensive policy directions and alternatives for North and South Koreas to overcome the uncertainties in the process of integration and unification of the Korean Peninsula.