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Title NK Brief, June 8, 2017 Date 2017.06.13
Attach 170608_NK Brief_No06-2_(2017)_(Business law, expanding trade, inter-Korean relations).pdf
□ North Korea revises business law to legalize private investments

It is now confirmed that North Korea revised its law in 2014 and paved the way to allow a new class of rich individuals or donju (money masters) to invest in businesses. South Korea’s Yonhap News has obtained a copy of the revised North Korean enterprise law. According to a Yonhap report on June 4, Article 38 of the revised law states: “Following the established procedures, the enterprises can get a loan from the bank or mobilize and use the idle currency and funds in the hands of people to overcome the lack of working capital.”

These new rules were not found in the law when it was revised in November 2010, prior to Kim Jong-un’s inauguration as the chairman of the Workers’ Party. This is the first time for South Korean media to confirm that North Korea has established a legal basis for its businesses to utilize “idle currency and funds in the hands of people” or extra money in the possession of private citizens.

The revised law granted individual “enterprises” such as factories, companies, and shops certain autonomy in their management and listed in detail the rights they need in exercising such autonomy. Article 54 of the new law said: “The Cabinet must make detailed rules and regulations on implementing our own style of economic management at the right time, provide instructions to them, and fully guarantee the necessary conditions so that enterprises may fulfill their duties and play their roles by properly exercising the management rights granted to them by the state.” It also introduced a new system of “managing socialist enterprise under its own responsibility” in Article 4, which prescribed business principles, and Article 29, which defined the exercise of management rights.

In his statement on May 30, Kim Jong-un defined the self-responsible management system of socialist enterprises as a way of managing business in which factories, enterprises, cooperative organizations have “actual control over management based on the socialist-style ownership over the means of production and carry out business activities with creativity to meet their duties to the Party and the State and make workers fulfill their responsibilities and play their roles as masters in the process of production and management.”

The revised law also granted the enterprises specific rights to organize production, to coordinate efforts, to develop new products, to control quality, to manage human resources, to merge and form joint ventures, to manage finances, to set the price of products and sell them, and to make various other decisions needed in managing business.

Although North Korea has not yet officially declared the introduction of a reform and liberalization policy, the recent statutory revisions seem to reflect Pyongyang’s intent to gradually expand its private economic sector and promote reform and liberalization in its own way while not deviating too much from the boundary of planned economy.

□ China and Russia expand trade with North Korea despite sanctions

While the international community maintains strong sanctions against North Korea in response to Pyongyang’s nuclear and missile provocations, both Chinese and Russian trade with North Korea have steadily increased over a period from January to April 2017, said South Korean media in unison quoting a Nihon Keizai report on June 6.

According to the Japanese newspaper, having analyzed the statistics released by the Chinese customs authorities, CEIC, a world-renowned economic data survey company, has concluded that China’s import of North Korean iron ore since January 2017 was more than four times its imports during the same period last year. Particularly, in April, China imported $20.26 million worth of North Korean iron ore, 4.4 times the amount it did in April 2016.

Russia’s trade with North Korea during the first quarter has also increased by 85 percent compared to the same period last year. In particular, its export of energy-related products to North Korea recorded $31.41 million, displaying an increase of 133 percent from the same period last year.

China’s import of North Korean iron ore has shown a sharp increase, perhaps because the United Nations Security Council restricted the latter’s coal export as a way of tightening the sanctions against the country. China had cashed in most of its import quota on North Korean coal in early 2017 and announced complete suspension of the import in February. Now it seems China is importing from North Korea iron ore instead of coal. United Nations Security Council Resolution 2270 adopted in March 2016 prohibited import of North Korean iron ore in principle, while providing an exception for those related to the “livelihood of the people.” Taking advantage of such a loophole, China and North Korea seem to have increased trade of iron ore by a substantial amount. North Korea’s foreign currency earnings, however, must have been considerably reduced given that the total value of iron ore China imports from North Korea is merely 10 percent of coal imports.

Amid an unfavorable environment created by international sanctions, Russia and North Korea tend to reinforce bilateral cooperation having agreed on expanding bilateral trade tenfold by the year 2020. Accordingly, the two countries have recently opened a new ferry service between Vladivostok and Rajin. North Korean vessel Man Gyong Bong carries passengers and cargo between the two port cities.

□ North Korea refuses Moon’s initiative in resuming exchanges through the visits
    by civic groups

In a Rodong Sinmun article on June 4, Pyongyang refused visits by various South Korean civic groups and, along with it, President Moon Jae-in’s initiatives in resuming dialogue on inter-Korean exchange and cooperation, arguing that the South must first lift bilateral sanctions it has imposed against the North since May 24, 2010. The new South Korean president allowed the civic groups to visit the North to discuss having a joint celebration of the first inter-Korean summit held on June 15, 2000 or providing humanitarian aid at the private level. In reply, the North pressed Seoul to first resolve fundamental issues by fulfilling inter-Korean summit declarations signed on June 15, 2000 and October 4, 2007 and removing the bilateral sanctions.

Every time there is a change in government in Seoul, Pyongyang has increased pressure on it in an attempt to take the initiative in inter-Korean relations and drive the South’s policy to its own advantage. This time, in particular, the North might have worried that an expansion of inter-Korean exchanges and cooperation in the middle of the development process may undermine their attempts to advance their nuclear and missile capabilities. In fact, by June 9, North Korea has already made its fifth missile test since President Moon took office in May.

For now, therefore, it seems unlikely that the two Koreas can bring about a change in the bilateral relations through the resumption of dialogue and exchanges between them, at least not until talks between the United States and North Korea begin after Pyongyang’s ambition to have advanced nuclear and missile capabilities is finally fulfilled. Pyongyang may try to take initiative in improving inter-Korean relations after observing the outcomes of the upcoming bilateral summit between the United States and South Korea.