www.nkoreaconsulting.com | Doing business in the DPRK: N. Korea’s contemporary investment climate

www.nkoreaconsulting.com | Doing business in the DPRK: N. Korea’s contemporary investment climate








Doing business in the DPRK: N. Korea’s contemporary investment climate
08:56 30 September in Business by nkcadmin
0 Comments
1Like

North Korea’s business and investment environment is a subject on which little contemporary information exists, despite the country’s strategic location between three of the world’s largest economies.

While in the early 2000s a relatively large number of Western companies expressed interest in the emerging North Korean market, following Pyongyang’s nuclear test in 2006 and a subsequent ratcheting of UN sanctions, much of this interest consequently dwindled.

And although investment and cooperation was once directly encouraged by the Seoul government, it all but halted under President Lee Myung-bak in 2010 – in retaliation for what was said to be a North Korean sinking of a South Korean navy vessel that March.

With the corresponding lack of both Western and South Korean companies interested or willing to invest in the country, Chinese companies made the most out of the vacuum, rapidly increasing their presence in joint-venture enterprises throughout North Korea.

Although Chinese investment has been increasingly dominant in recent years, it has not always gone smoothly, with the Xiyang Group making public its difficulties in working with North Korea in 2012.

Yet, with 24 million people living inside North Korea and an increasingly wealthy middle class emerging, a sizable market does exist for those willing to enter the market.

And with an increasingly educated and capable workforce, a production resource exists that can provide companies with manufacturing, service and value-added capabilities at a highly competitive price.

To kick off the new 2014 specialist opinion survey, NK News spoke to five specialists in the field of business to learn more about the contemporary North Korean investment climate, its opportunities and its hurdles.


Operative at a factory in DPRK | Picture: E. Lafforgue
1. How would you currently characterize the investment climate / appetite for joint-venture cooperation in North Korea?



There is always the risk when answering this question that saying anything positive about this place makes one perceived as an apologist. But here goes.

The appetite remains unquestionably strong, and increasingly so. I would not be here (in Pyongyang) if that were not the case.

What appears to be often misunderstood is that this appetite has been around for years. The developing technical skills and gradually-evolving business experience of DPRK companies might of course suggest a decreasing need for foreign partners, but that is not so — the advances in industrial, commercial and scientific sophistication mean that they are getting involved in increasingly complex areas of business (e.g. transportation, general infrastructure, IT and others) that require them to seek a tie-up with increasingly sophisticated foreign partners. This has a direct impact on the investment climate.


Looking at it as a lawyer, the investment climate is more than positive…This is quite simply not a ‘dirt-track’ country in terms of investment laws.

Looking at it as a lawyer, the investment climate is more than positive. How the climate manifests itself is in both the laws and regulations (principle) and how these are applied (practice). As to the former, continued change and legal revisions can be expected and are certainly coming. This is quite simply not a ‘dirt-track’ country in terms of investment laws.

Looking at it as a business consultant, the overall investment climate remains welcoming – but there is the issue of them getting the message across. The DPRK has set clear priorities for what it wishes in terms of foreign investment and internally how these are addressed once you get down to the nitty-gritty of applying the laws and regulations, on the ground, to specific projects and how they are implemented.

One key issue, among many, is identifying and selecting the correct DPRK counterpart, both at the ministry level and the ‘ground-level’ partner for a specific project. That is critical. But while the choice of supervising ministry is largely seen by them as a domestic matter, one can actually have input on that issue, and this becomes all the more true with the ground-level partner. Again, this is one factor in assessing the overall business environment.



Most people are almost totally unaware that there are credible and serious business opportunities on the DPRK (N. Korea), and those discerning investors who carefully watch what goes on will have seen that the country has settled down after the leadership changes, and economic development is now taking place at a steady and readily identifiable pace.

There are many who I would now have lost by making such a statement; such is the overwhelming and comprehensive demonization of the whole country by the foreign media, that the efforts of the government, very much including the Ministries of both Foreign Affairs and the Foreign Trade, go largely unnoticed, and business people around the world have almost no access to any news of positive progress, indeed such news of ‘normal development’ in itself is not ‘newsworthy’.


Companies like DHL and Orascom have gone ahead and achieved differing degrees of success in quite a public way.

So, in short, there are many normal opportunities to invest, cooperate and to do business. Companies like DHL and Orascom have gone ahead and achieved differing degrees of success in quite a public way, most companies prefer to pursue their objectives drawing less attention to themselves. Opportunities to cooperate in mining, minerals and metals, including rare-earths, and a variety of light industries and agriculture are all there.

There had been a noticeable change in the quality of the output from Pyongyang in terms of their own foreign-facing publicity over the last year. This reflects an improvement in understanding of the foreign audience, as well as a softening in the over-aggressive styles of the past, which often reflected ‘needling’ from their adversaries.



North Korea is still modifying and fleshing out its Special Economic Zone policies (see here for further information). In addition, the Ministry increasingly in-charge of inbound investments, the Ministry of External Economy, is still undergoing restructuring since its recent formation. Externally, DPRK-Japan relations could undergo changes in the coming months.

Investors will want to keep in mind these macro-drivers of the economy and see how things turn out as they consider the North Korean market. While the environment appears easier to navigate today compared to 2-3 years ago, it is still a heavily over-regulated business environment.


While the environment appears easier to navigate today compared to 2-3 years ago, it is still a heavily over-regulated business environment.



It would be useful for European investors or businesspersons to have a closer look to North Korea. In the current financial and economic situation, European companies face many challenges: they must cut costs, develop new products and find new markets. In these fields, there are interesting business opportunities in North Korea. It is opening its doors to foreign enterprises and it has established free trade zones to attract investors.

A growing number of European firms are already exploring the country, for example companies with production facilities in China, and where the wages are rising fast. There are several sectors, including garment production, agribusiness, fishing, shipbuilding, logistics, mining/rare metals, animation, Information Technology, renewable energy, logistics and tourism that can be considered for trade and investment.

Compared with most other Asian destinations however, the country is not well known in Europe. Detailed information about the various business opportunities (including case studies) is hardly available.


Another challenge is finding a suitable business partner, since collecting company information is not easy either.

Another challenge is finding a suitable business partner, since collecting company information is not easy either. Local enterprises mostly do not have a presence on the Internet, and access to them is difficult. It requires many efforts to arrange a meeting in North Korea with local companies (an invitation is needed; a time-consuming visa-procedure, etc.).



While the enthusiasm of North Korean businesses for foreign investment is unabated, the focus of interest has shifted: since it is difficult to obtain investment from countries that strictly back and uphold the economic sanctions, North Korea is looking to those countries which are less supportive of Western embargo policies, such as BRIC and other, primarily South-East Asian, countries.

As a senior economic planner of the DPRK explained to me, there is also another, very pragmatic, reason for currently cultivating Eastern investment over Western: “in a couple of decades half the world’s GDP is produced in Asia, wealth and investment is shifting from the West to the East and it makes therefore more sense to focus on the East.”


North Korea is looking to those countries which are less supportive of Western embargo policies, such as BRIC and other, primarily South-East Asian, countries.


Provisions on sale in a North Korean shop | Picture: E. Lafforgue
2. Which sectors offer foreign investors the best potential for return on investment and why, in your opinion?



The first sector I would propose is garment processing: this is low-risk, requires limited investments and is already one of the most successful export-related activities of North Korea. Companies in the Netherlands, Germany, France, China and South Korea are producing various kinds of clothing in North Korea and some of the local factories have become very large and experienced exporters. Skilled workers are available in large numbers, and they produce a large variety of clothing, such as underwear, bras, leisure wear, trousers, sportswear, winter clothes, children’s clothes, knitwear, suits, overcoats, padded clothes, sportswear, work clothes and uniforms.

The specific quality of the products is made according to the client’s specifications. Quality control is always done by the factory, but additional checks can be done by the client’s staff. It is also possible to outsource these controls to specialized agencies. Apart from the existing infrastructure and skilled workforce, an important advantage of North Korea is the low production costs; these are significantly lower than in other Asian countries.

Outsourcing of IT-related work is another interesting sector, which also requires low investments with the potential for high returns. Using local software companies gives access to a pool of highly-technically-skilled and English speaking labor. A unique selling point for the country is the low cost, and North Korea undercuts not just India but also software locations like China, Vietnam or the Philippines. The Koreans can be used to produce websites, enterprise resource planning systems, business process management systems, and e-business applications.


There are also emerging specialisms within North Korea’s IT export sector, for example related to cyber security.

There are also emerging specialisms within North Korea’s IT export sector, for example related to cyber security. Fingerprint identification products used for access control have already been exported, and there are other products developed in areas of car license plate identification, face-recognition and voice/face recognition. There is also a lot of export production capacity for high-quality cartoons and animation. Other foreign clients have worked on 2D and 3D animation contracts, and also computer graphics and games exports for Wii, iPhone, Blackberry and other platforms took place. (More information on these industries here).




For foreign investors there could be a positive aspect to the embargos as there is an absence of large multinational companies in North Korea and of possible competitors of any size from the U.S., Japan and South Korea. There is the opportunity, therefore, for small and medium sized enterprises from Asia, Europe and Latin America to step into this gap.

The domestic market is still very limited and little growth can be expected in the foreseeable future.

Having said this, North Korea is attractive for the processing of products. For example, if a company were to supply raw materials such as leather or cloth, they could depend on a return of high quality finished products of garments, shoes or bags.

Similarly, there are massive reserves of metals and minerals in DPRK, but the technology for extraction is scarce, so investing in and providing equipment could result in a worthwhile accruement of mined products.

In addition, the manufacturing of low to medium technology items can be very competitive in North Korea: products such as artificial flowers, furniture and false teeth are already being produced and partly exported through foreign investment. I was involved in making the business plan for an artificial teeth joint venture and therefore know that such products can be manufactured with a much better profit margin than, for example, in the Philippines, where they were previously produced.


There should be no illusion about the potential, however: The domestic market is still very limited and little growth can be expected in the foreseeable future.

North Korea also has an unrivalled pool of highly skilled mathematicians and scientists, both in terms of numbers and ability, which makes IT a particularly promising industry. However, its potential will always be severely limited while North Korean software engineers are unable to use the Internet and communicate with foreign clients online while developing their projects.



“Return on investment” hits the nail on the head, appealing as it does to both foreign investors and the DPRK. The DPRK Joint Press Editorial, January 1, 2002 spoke of the desire to “… ensure the largest profitability while adhering to socialist principles” – so in some respects, they do speak a common language.

In terms of ROI you have not just the profit issue as such but also the question of how long you are willing to wait in order to see that profit materialize. In this regard, the areas of agriculture, generally and the rearing of animal stock remain of very great importance, and this has been recently reinforced. Again, nothing new – take a look at the huge “Mr. Potato Man” figures on the parade floats in Pyongyang more than 10 years ago. So you are looking at a relatively short timeline for producing results, which is something that fits both the priorities of many foreign investors and the priorities of the Koreans. These kinds of projects can often, from experience, receive favorable attention in terms of fast-tracking foreign-investment procedures and protocols. These were re-stated to be clear priorities earlier this year.


The areas of agriculture, generally and the rearing of animal stock remain of very great importance, and this has been recently reinforced.

Other areas, but obviously more complex, and with different timelines, are the usual suspects: mining and minerals — the stuff does indeed appear to be there in large quantities as they claim, but is lying in the ground, and it takes updated equipment, advanced technical know-how and sheer manpower (all of which, frankly, they do already possess, albeit to varying degrees) to extract it, which explains the various incentives, enshrined in the laws and regulations, that continue to be offered to foreign investors; also, general infrastructure, including specifically the transportation and construction sectors; IT remains very much a priority; equally, tourism; all backed up by the traditional one of trading, pure and simple, the continued significance of which is reflected by the Pyongyang International Trade Fair, which has now expanded to two floors, as opposed to one.



In the short-term, “protected’ manufacturing industries seem interesting with certain caveats. These industries have import restrictions (e.g. cosmetics/cigarettes) meant to protect local producers. As a result, domestic products often lack variety and quality. Introducing higher-quality products and building brand loyalty with limited competition make these sectors interesting. However, manufacturers might be required to export a certain percentage of their output, which reduces the attractiveness of the investment proposition.

In the medium-term, the retail sector is attractive. There is a shortage of retail spaces and channels and a society with increasing levels of consumption. I know Koreans who have already drawn up plans for a chain of convenience stores. Successful players can bring increased distribution coverage, better supply chain management, more product variety and attractive storefronts.

In the longer-term, commercial property development could be an interesting proposition. Most of the construction projects now are centered on residential estates. As commercial activities expand, there will be a greater need for office space. We are training people on understanding the mechanisms for property development, and it will be interesting to see if North Korea opens up the property sector in the longer-term. At the moment, foreign-led property development happens only on an ad hoc basis in the country.


I know Koreans who have already drawn up plans for a chain of convenience stores.



The whole mining, minerals and metals sector is littered with opportunities, throughout much of the mountainous areas of the country. For 120 years or more Korean organizations and their foreign counterparts have been working with their foreign counterparts to extract and export for mutual benefit. The Korean side is often in need of funding and technology, and Chinese counterparts have sometimes taken advantage of the fact that for much of the last 15-years they have been the only investors, as the western-led demonization, including sanctions, has kept away most of the rest of the world. Being isolated from three directions left the Koreans and their Chinese ‘benefactors’ with little choice.

By systematically selecting companies from strategic industries like telecommunications (mobile) and the construction industry, the Koreans have been able to bring investors and partners to be effective in market entry and penetration.

In fact there are opportunities across the board from A to Z, from animation to zinc, and agriculture to zoos; the marine park is a recent example of ‘normal’ development that enriches the people’s lives.

Foreign companies can best evaluate if they have the products and services (and technology) with which they can help an emerging market to ‘leap-frog’ into a more developed, profitable or mature market.


Being isolated from three directions left the Koreans and their Chinese ‘benefactors’ with little choice.

Whilst the government has worked so effectively to improve the skyline and habitat for the residents of Pyongyang, it is now turning to the rest of the country, where development zones and other encouraging measures are in-place for foreign partners and investors. So, not only in agriculture, construction and light industry, but right across the board investors and business-people generally are warmly welcome.


Computers at an educational facility in the DPRK | Picture: E. Lafforgue
3. As someone with knowledge of working inside the DPRK, which practical measures could the DPRK government take to better assist or facilitate the work of foreign business people?



We come back to the perennial problem of “getting the message out” and bridging the considerable information gap that persists. I saw this close-up in South Korea when I was based there, and it still persists. Just a few examples out here: there are numerous laws and regulations covering foreign investment, some of which are revised quite often to keep up with changing needs and developing international legal and business norms.

As to “facilitat(ing) the work of foreign business people”, it is necessary for the DPRK to convey clearly the reassurance that there is a quite well-developed system of dispute resolution in place (notably arbitration), and that foreign companies can – and, more importantly, do – win disputes against North Korean companies, decided by North Korean tribunals applying North Korean law (or indeed, other law), if the facts and the law are in their favor. I speak from direct professional experience.

I still do sometimes get doubting smiles here in Pyongyang from foreigners when I tell them this, despite the numerous challenges that do exist. Most people, however, are both very surprised and interested to learn this – including numerous economic counselors here who spend considerable time watching and researching these matters, but are curiously often unaware of some quite basic issues and facts.

DPRK legal counterparts, some of whom I have worked opposite and/or in co-operation with, since 1999, remain seriously overworked, as they both address foreign investment laws and work to ensure a credible dispute-resolution framework, among other areas.


“Are they genuinely serious?”; “Can we make money?”; “If we have a dispute, do we have a chance of winning?” My answer is “Yes” to all three.

So these are two areas that are in fact the most common (business-related) questions posed to me in briefings and seminars, and which can be summed up as follows – “Are they genuinely serious?”; “Can we make money?”; “If we have a dispute, do we have a chance of winning?” My answer is “Yes” to all three.

Related to the above, I might add this year’s changes affecting the Ministry of (Foreign) Trade, and the appearance of a new name for a modified structure. I remain somewhat intrigued at one or two theories still doing the rounds abroad as to why this occurred. They seem to discount the possibility that this move actually may have been (largely) dictated by very practical considerations in terms of continuing to try to “get the message across” to potential foreign investors. There are very sound reasons to believe this to be the case.

There are many specific measures that could be taken, whether formal rules or other, but they simply cannot be addressed in one interview.

From my experience, the DPRK fully understands that if there is not a proper environment in place for foreign investment/business, in terms of laws and regulations, as well as an adequate and credible system for dispute resolution, then foreign companies will simply not come. That simple. That raises two challenges for the North: (1) translating that understanding into action, which I see taking place on a daily basis as I watch many officials at their tasks and discuss these issues with them; and (2) conveying that fact to foreign investors in terms of bridging the information gap. This is an evolving process.



As mentioned before, detailed information about the various business opportunities in North Korea is often not available. In addition, company details are also difficult to find. It would be useful if the DPRK government initiates a general trade and investment-related portal, providing relevant and up-to-date information about the various business sectors. This website should also include information about relevant trade laws, the international trade fairs taking place in the country (e.g. in Pyongyang, Rason) etc. The government could also initiate an e-commerce website, making it possible for foreign consumers to purchase products made in DPRK.

For individual business sectors, it would be helpful if specific trade promotion activities could be set up in order to increase the number of international business contacts. Such a promotion project includes the preparation of a directory (catalogue of available products, services and skills within the business sector); the preparation of informative marketing material; conducting marketing activities in foreign markets (including e-commerce, organizing seminars, trade missions and participation at trade fairs).


“It would be useful if the DPRK government initiates a general trade and investment-related portal, providing relevant and up-to-date information about the various business sectors”



The problems facing the DPRK are not new, but are exactly those faced by China and Vietnam when they started opening up. The DPRK, therefore, needs to learn from the experiences of its neighbors and also be encouraged by their success and know that despite the many difficulties and setbacks the process will become less fraught for both the country and investors over time.

Dialogue with countries ready to engage the DPRK is of paramount importance: In the nineties the German chancellor and the Vietnamese prime minister set up a German-Vietnamese forum where complaints and issues between German (and other foreign) investors and their Vietnamese counterparts were addressed. I was an active participant as I was representing a large pool of German companies in Vietnam. Over the years the thick book full of issues became thinner and thinner. Both sides went through an important and unavoidable learning process leading to a smoother investment and business environment which helped Vietnam’s economy achieve extraordinarily high growth rates.


Dialogue with countries ready to engage the DPRK is of paramount importance.

I suggest that a similar body be created in Pyongyang, where foreign investors and North Korean decision makers could have regular discussions, airing all pertinent issues and working on a road map aimed at removing all obstacles to foreign investment and trade.



My wish list for the government at this early stage would be:

(a) Provide more access to communications to foreigners, as well as for selected Koreans who deal with them

(b) Provide more information and transparency on economic plans, data and decision-making processes

(c) Enable foreign investors to more easily interact and mix with a range of North Koreans, so that they are not trapped with working with one business partner

and…

(d) Representing an organization particularly supportive of startups, I am particularly keen to see steps taken to make it easier for young North Korean entrepreneurs to leave their job and set up their own companies



Promote themselves better – in a more wholesome and comprehensive manner. Business-promotion starts with ‘awareness building’, and that is a process that has to overcome the overwhelming negativity enshrouded by the ‘comprehensive demonization’ referred to in answering question one.


Sanctions clearly don’t work; when I raised the subject a few days ago, the Koreans chuckled quietly.

Sanctions clearly don’t work; when I raised the subject a few days ago, the Koreans chuckled quietly and said that “sanctions have been in place for 65 years … meanwhile we make good progress”.

The government goes to great length to feed the people; but the belief in much of the world is that ‘they starve their people’. The food shortage is caused by lack of fuel to transport goods from the fertile regions around the capital, into the mountainous regions that occupy 80% of the country, and that are full of metals and mining opportunities, which is greatly affected by sanctions.


Operative at bottle plant in North Korea | Picture: E. Lafforgue
4. How are multilateral and unilateral sanctions against the DPRK impacting foreign investment and business there currently?



Financial sanctions give Chinese businesses an inherent business advantage.

That’s because Chinese business have far more options, and lower costs, in their financial transactions with North Koreans.

The Chinese still have ways to engage in financial transactions, while many other businessmen have to route their transactions through China.



Because of the existing sanctions against certain types of trade with DPRK, research is always needed and this can be time-consuming (even though in most cases European business with DPRK can be conducted without any problem). The sanctions also make payments with North Korea more complicated, although solutions can be arranged.

These ‘Cold War’ types of activities obviously does not help the growth of international trade with North Korea, while it is my belief that nations are reformed by engagement rather than conflict and isolation. For this reason, and despite these sanctions, I would suggest European companies to start investigating business and investment opportunities in North Korea. This preparation work could also involve taking part in a business mission, which is always informative and an useful way in getting access to Korean companies.


The sanctions also make payments with North Korea more complicated, although solutions can be arranged.



It is the perception that ‘there is no business to be done in the DPRK’ that is the greatest obstacle to foreign investment. Hence my answer to question three.

The continuous ratcheting up of tensions, is designed as much to keep a strong American presence in Asia, to keep an eye on China, as it is to demonize the place; and the two have worked well together. However the world is changing, and is arguably becoming less unipolar, and much of the rest of the world has it’s own (serious) problems. We can therefore say in this ‘quiet corner of the world’ quietly getting on with business is the way forwards.

As good projects gather momentum, more foreign companies will go there and help develop the economy for mutual benefit.



They are certainly having an impact on the foreign business community – and HK&A has seen that in its own work, both on the legal side and consulting side. So they are a factor, and we make sure people understand we don’t accept inquiries that seek to circumvent sanctions.

Many companies worldwide are therefore now sitting the game out on the sidelines, waiting to see what happens before stepping out onto the field, and there seem to be three key factors driving this: the specific reach of formal sanctions; the extended ripple effect they have created, resulting in a “grey-area” of ‘market-based sanctions’ based on perception and to be blunt, fear, whether intentionally or otherwise created (influencing, for example, the behavior of banks and financing companies); and third, public perception, shareholders included – all of which are affecting some foreign investors.

But there are major notable exceptions. First, Chinese companies continue to pile in and still take the largest slice of the pie. Second, Russian companies are of late now taking on a much higher profile. The third category comprises individual companies from numerous different countries worldwide, including from Western Europe and Australasia, which basically have their own specific reasons for wishing to enter an emerging market early and are willing take a business risk on this market. One could of course add other players, such as Mongolia and Brazil that have been involved in some important dealings, recently at the governmental level, with the DPRK. Mongolia appears be quite an interesting player in the overall mix.


However, I am seeing continued close monitoring by the foreign private sector of the business opportunities and legal climate here, sometimes directly by corporations, other times by law firms — interestingly, many are from the U.S.

Which leaves the U.S. The ones who to me probably have the staying power, and at least in theory still the means, to invest but clearly, for obvious domestic economic reasons and foreign-policy related ones are simply not doing so and won’t in the near future.

However, I am seeing continued close monitoring by the foreign private sector of the business opportunities and legal climate here, sometimes directly by corporations, other times by law firms — interestingly, many are from the U.S. Again, though, they are for the most part watching the play from the sidelines.

Despite the above, some foreign companies are still setting up offices here on the ground, or trying to, although in reduced numbers; they simply are not talking about it publicly.

As to sanctions, so far as DPRK companies are concerned I see very little evidence of a major impact of sanctions up on them, although there are of course numerous notable, and individual, exceptions. Also, very little evidence, overall, of impact when viewing the general environment here, whether on the streets, in the luxury (or other) restaurants or in the leisure complexes that are springing up. They appear to be at their highest level of self-confidence in years — nationally and individually – and it shows.

More and more people have money in their wallets; bank charge/top-up cards are now quite commonplace, along with of course the ubiquitous mobile phones; traffic density is at its highest; blackouts and brownouts are nowhere near as commonplace as a few years ago. Whether viewing things on the ground here or stepping back for a different, and perhaps more objective, perspective, I still see no sign that this overall trend is likely to be rolled back.



When living in Pyongyang I represented a large number of multinational groups, which all withdrew from the DPRK following the nuclear and missile tests which led to the Western governments’ imposition of sanctions. They all feared that association with the demonized DPRK would lead to the loss of lucrative markets in the West. Even foreign sponsors that pledged funding for the Pyongyang Business Schools I co-founded gave up as a consequence.

Before the tests, the twelve resident business people representing European companies in North Korea founded the European Business Association, the first foreign chamber of commerce in Pyongyang. But today there are not even half that many European business people resident in the whole country. Conversely, the number of Chinese and other Asian business people living in the country has grown substantially.


I represented a large number of multinational groups, which all withdrew from the DPRK following the nuclear and missile tests which led to the Western governments’ imposition of sanctions.

It is not only multinationals, but also smaller and medium-sized enterprises, that have no significant business interests in the U.S., that are circumspect about investing in North Korea. There are so many banned dual-use products, i.e. deemed to be of use for both military and civilian purposes, that it can be problematic for companies not to inadvertently supply prohibited products. Many of the items are indispensable in a wide range of industries, including the manufacture of pharmaceuticals, foodstuff, plastics, and vehicles. And to add to the difficulties the definition of many banned items are interpreted differently by different countries (see below).

If a company is caught, however innocently, supplying a proscribed commodity, punishments are triggered and the resulting taint to reputation can be extremely damaging. This was exemplified recently by the outrage in the U.S. following extensive media hype concerning North Korean gold used in products by American hi-tech companies.

Further considerable obstacles to attracting foreign investment were mounted when the U.S. treasury department banned a wide range of internet services including Google, Yahoo, Microsoft, Oracle and Linkedin and when Western governments prohibited banks around the globe from carrying out ordinary bank and credit card transfers with North Korean banks. The latter led directly to the demise of North Korea’s first e-commerce enterprise.

In July 2012, the UN Security Council released a report on sanctions. According to the AP news agency: “No violations involving nuclear, chemical or biological weapons or ballistic missiles were mentioned in the 74-page report to the Security Council committee monitoring sanctions, published Friday.” On the other hand, the document highlighted North Korea’s responsibility for illegal imported luxury goods including tobacco, bottles of sake, second-hand pianos and several second-hand Mercedes Benz cars.

In 2006, in UNSC Resolution 1718, the United Nations introduced for the first time a ban on “luxury goods” being exported to North Korea. In 2013 it re-confirmed this action, in UNSC Resolution 2094. Following these resolutions individual countries defined “luxury goods” differently. The U.S. have banned, for example, ale and beer whereas Switzerland and Singapore considered only wine and spirits as luxury goods. To give another example: The U.S. banned beauty and makeup including lipsticks whereas Canada considered only perfumes & toilet waters as luxury items to be prohibited.

By referring to the UNSC luxury goods provision a country can declare any product as luxurious and ban it. Under this provision, Switzerland banned the sale of ski lifts and billiard tables to North Korea. If I had been unaware of that ban and had sold billiard tables to North Korean restaurants, I would have been arrested next time I travelled to Switzerland. Or if I travel to any other country I might be arrested for any other civilian product I might have innocently sold in North Korea because I was unaware it happens to be on that country’s personal sanctioned items list.

***

By Chad O’Carroll, for NK News
Main picture: E. Lafforgue


nkcadminchad.ocarroll@nknews.org

No Comments