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We were recently alerted to news of the 6th Rason International Trade Exhibition to be held this August. With Kaesong now closed and the failure of the other zones to take off, Rason is the only somewhat functioning Special Economic Zone left in the country. (Recent blog posts on North Korea’s other SEZs can be found here, here, and here.) Paektu Cultural Exchange is offering tour packages for budding adventure capitalists looking to expand their networks and business opportunities in the DPRK. (The organization recently organized a hockey cultural exchange tour in Pyongyang last March.)
Of particular interest are post-exhibition reflections from Paektu Cultural Exchange on the 2015 Rason International Trade Exhibition last year, some of which provide flavor on the zone. According to the organization, participants received an official visa, which afforded some marginal additional travel freedoms compared to those entering on a standard tourist visa. Despite the additional freedoms, however, there were still critical barriers, particularly in communications with the outside world: cellular service in Rason is complicated and expensive. The immigration process remained cumbersome, even if less so than the rest of the country. At immigration control, USB sticks, cameras, and computers were still meticulously recorded.
One area that we found particularly interesting was mention that the Golden Triangle Bank in Rason was authorized to change small amounts of foreign currency at the unofficial rate for use in the local market. Is Rason trying to devalue to increase its competitiveness? On the other side of the coin, central government officials demanded that profits be repatriated at the unofficial rate, most notably in the Orascom case. The implications of the spread between official and unofficial rates in that case are huge; Orascom stands to repatriate $540 million at the official rate but only $8 million at the unofficial rate. It stands to reason that the regime cannot create a stable business environment by picking and choosing when to require the official or unofficial exchange rate.
We expected the story in Rason to be about exports, but the 2015 trip report spent as much time on North Korean interest in importing consumer goods, an outcome of the process of marketization that has been going on for some time. James Pearson of Reuters reported yesterday on a new advertising culture in a society that previously had no need for marketing.
Finally, no good story on international business in North Korea would be complete without mentioning sanctions. The 2015 exhibition claimed participants from China, Russia, Ukraine, Uzbekistan, Canada, and Italy. Country-specific sanctions notwithstanding, under UNSCR 2270 new ventures in North Korea are not explicitly proscribed unless they are dealing with industries such as weapons, nuclear, coal, certain minerals, or with North Korean financial institutions. But the financial sanctions could obviously have effect and the shadow of secondary sanctions no doubt hangs over larger players. In addition to evidence that China has clamped down on North Korea-linked accounts, Russia announced recently that it will shut down all joint ventures with North Korean financial institutions and ban key mineral imports. This is a stark contrast from the Putin of two years ago who forgave $11 billion of North Korean debt with hopes of developing joint energy and infrastructure projects. Needless to say, those days are over.
