The Legal Environment for Foreign Investment in the DPRK

|Korean Peninsula

In recent years in the Democratic People’s Republic of Korea, we have moved forward with a program for the formulation and updating of laws related to foreign investment and we have readied a legal environment favorable to foreign investment.

The DPRK laws pertaining to foreign investment consist of laws related to investment contracts, investing enterprises, investment banks, special economic zones, the leasing of real estate, customs, and the resolution of investment disputes—which were established upon the basis of the Law of the DPRK on Foreign Investment as the fundamental law.

With the adoption of the Law of the DPRK on Foreign Investment, the Law of the DPRK on Contractual Joint Ventures and the Law of the DPRK on Wholly Foreign-Owned Enterprises on 5 October 1992, the program for enacting legislation related to investment began in earnest. Entering the new century, this program is basically at the completion stage with the adoption of; the Bankruptcy Law of the DPRK for Foreign-Invested Enterprises (19 April 2000); the Law of the DPRK on Mt. Kumgang Tourist Zone (13 November 2000); the Law of the DPRK on Kaesong Industrial Zone (20 November 2002); the Law of the DPRK on North–South Economic Cooperation (6 July 2005); and the Law of the DPRK on the Registration of Foreign-Invested Enterprises (25 November 2006).

From the end of the 1990s the bilateral agreements voted on concerning investment encouragement and protection with other countries have also occupied an important position in the legal environment of the DPRK for foreign investment. The countries that have voted on agreements with the DPRK government number in the dozens, including Russia (28 November 1996), Iran (30 September 2002), Indonesia (21 February 2002) and Mongolia (19 November 2003).

The bilateral agreements and the DPRK laws related to foreign investment deal advantageously with the issues which investors take a particular interest in; preferential treatment, risks, subrogation rights, the disposition of investment money and profits, and the resolution of disputes.

Article 14 of the Law of the DPRK on Foreign Investment gives national treatment to foreign-invested enterprises, and most-favored nation treatment to foreign enterprises. Article 3 of the agreement on investment encouragement and protection between the governments of the DPRK and Mongolia, stipulates preferential treatment on a par with that for investors from their home country or from a third country, for foreign investors (including overseas Korean compatriots). For foreign enterprises which have set up and have invested in the sectors being encouraged by the DPRK government, there is the reduction of or exemption from various taxes, including income tax, the guarantee of favorable conditions for land use, and the preferential supply of bank loans (Article 8 of the Law of the DPRK on Foreign Investment).

In the DPRK, the invested assets of foreign-invested enterprises and foreign investors shall not be subjected to nationalization, seizure, or confiscation. Should unavoidable circumstances arise, and such measures have to be taken, effective compensation shall be given promptly and without discrimination (Article 19 of the Law of the DPRK on Foreign Investment, and Article 6 (1) of the agreement on investment encouragement and protection between the government of the DPRK and the Islamic Republic of Iran).

The DPRK has in a wide-ranging way legally backed up the compensation for losses to investors from out-of-the-ordinary situations, including war and armed clashes, losses incurred to investment assets caused by events beyond human control, including natural disasters, and losses via potential risks faced by foreign investors.

Any difference of opinion pertaining to foreign investment in the DPRK shall be resolved by means of consultation. Where resolution is not possible through consultation, the DPRK shall resolve the issue via the arbitration or judicial process decided upon, with resolution via a proposed arbitration organization in a third country also a possibility.

In the terminology used in the laws of the DPRK related to foreign investment, “foreign investment” is a concept equivalent to “investment from outside the country” or “overseas investment.” “Foreign-invested enterprise” is a generic concept covering “foreigner-invested enterprise” and “foreign enterprise.”

With the principles of full equality and mutual benefit, encouraging investment within the territory of the DPRK by foreign investors, protecting those investments, and protecting the legal rights and profits thereof are the consistent policy position of the government of the DPRK.

The government of the DPRK will always strive to be open at all times to foreign investors and to improve a wide variety of environments for foreign investment, beginning with the legal environment.

[Translated by ERINA]