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North Korean Trade
An alternative solution for opening up North Korea?
Kim Jong-Il's demise in December 2011 recast the spotlight on North Korea and the plight of its citizens. All of a sudden, the media, not known to ever refuse a good apocalyptic scenario, seized the opportunity to interview all kinds of pundits and diplomats about what the future of the regime may look like; whether a nuclear holocaust on the Korean peninsula is imminent and a litany of outcomes flirting with the dramatic and the downright ridiculous.
The truth of the matter is, nobody knows. And for a simple and very good reason. North Korea is all but hermetically sealed off in its contacts with the outside world. Foreign (and South Korean) media are banned there. The Associated Press (AP) only just opened a severely restricted, tiny office in Pyeongyang and the only other source of information, not renowned for its impartiality, is Xinhua, the Chinese news organisation.
Unable to conduct field work and operate freely, journalists have decided that the most likely outcome is war and that Seoul will be razed to the ground in a re-enactment of the Korean War. But the political and journalistic deadlock that we are currently facing on the peninsula have also deflected attention away from other solutions. Though paralysed by increasingly bellicose heads of state in the North and the South, forms of 'soft power' such as business and culture offer the possibility of treading a different path than war.
It is against this backdrop that The Beginner.eu conducted an interview of Mr. Jean-Jacques Grauhar, Secretary General of the European Union Chamber of Commerce in Korea (EUCCK), to discuss EU business contacts with North Korea.
“Despite diplomatic presence, European businesses are not interested in the short-term”, he says answering a question on the nature of EU business ties with the North and setting the tone for what turned out be an unexpectedly surprising and counter-intuitive interview.
“These ties can be divided into two categories, investment and trading. On the investment front, no EU company would invest there because of the legal and political framework”, he continues referring to the international sanctions to dissuade North Korea from pursuing uranium enrichment, “But there is also a more practical aspect. Cash-strapped European businesses cannot afford the risk of venturing into 'exotic' locations in a post-financial crisis economic environment.”
Indeed, not only is the attraction to business as an untapped market greatly eroded by the impossibility of maintaining any control over the investment, but it is hugely expensive, in political terms, at home. Companies with such international clout and capacity to penetrate new markets at high levels of risk are usually multinational corporations (MNCs).
Ventures are still being explored by international companies such as KFC and talks apparently reached a positive outcome for these companies in last July. Coca-Cola arrived in the North in 2000, greatly helped by the warming of cross-border ties due to Kim Dae-Jung's 'Sunshine Policy'.
On the European front, the most famous example of a famous multinational penetrating the market was ABB, a Swedish and Swiss energy group. ABB was contracted by the governments of the US, Japan, the EU and South Korea in a group called the Korea Energy Development Organization (KEDO).
KEDO was created to assist North Korea in producing its own electricity, through civilian nuclear power, and remedy the dire energy situation which affects its citizens directly. A dozen years later, hindsight offers a starker perspective on the results of that programme. And ABB's office in Pyeongyang was also closed down.
The reasons for investment there are numerous and do not correspond to the putative idea people have of North Korea. Mr. Grauhar explains that the North's main export is minerals, which it owns in vast quantities and are highly valued economically these days because of the components in electronic equipments such as mobile phones and laptops.
The United States Geological Survey states in its 2009 yearbook that over 58% of the Democratic People's Republic of Korea's exports are minerals. The country has vast resources of magnesite, iron ore, coal and copper.
Besides minerals, the country also benefits from a skilled labour force, more so even, than the Chinese apparently. But Mr. Grauhar points out that despite having this potential, the labour force is hampered in making any true contribution to the economy through the obsolescence of their industrial equipment.
And one of the final key investment assets for the North, he continues, is the fact that North Korea is not so much a developing nation as a 'disindustrialised' one. It has infrastructure and roads in place dating back to the Soviet era, all obsolete and in need of dire refurbishment but there nonetheless. The cost of investment is therefore increased manyfold due the need for reconstruction.
On the trading front, EU companies usually use Chinese partners for their interactions with the North, because of the relative freedom of circulation and contacts that China is allowed in comparison to the rest of the world.
Some of the all too rare short-term opportunities in North Korea are in information technology and processing. European SMEs, in collaboration with South Korean and Chinese partners, are helping in the creation of a burgeoning 3D animation industry there, together with more mundane data storage operations.
As for processing, North Korea could possibly be hailed as the next Indonesia or Vietnam in the world of textiles, continues Mr. Grauhar. With similar prices to China, investors benefit from a more highly skilled labour force with a history of knowledge in this sector. There are allegedly hundreds of textile factories scattered across the country.
The way EU companies reach out to the North is through regular trade missions organised with North Korean embassies in the home countries. But despite negotiated agreements, it remains extremely difficult for EU companies to pursue any follow-up.
This is mostly due to communication issues, as each and every international phone call and email can only be answered after authorisations from higher ranking officials therefore affecting any attempt at efficiency.
Breakthroughs were thought to have been made with the Kaesong International Complex (KIC), a joint-venture with South Korean funding and North Korean labour. This was a product of the aforementioned 'Sunshine Policy'.
“During the negotiations for the free trade agreement with the EU, South Korea was actively trying to obtain international recognition of Keasong”, recalls Mr. Grauhar, “but all signs of EU interest have been reduced to nothing after the current government of Lee Myung-Bak has ceased to promote Keasong, and indeed, any economic relations with the North.”
This is in complete opposition with the policies of past South Korean Presidents Kim Dae-Jung and Roh Moo-Hyun who made Kaesong a sine qua non condition of the signing of any free trade agreement. Spurned by the idea that the 'Sunshine Policy' has failed and that a tougher stance is needed with the North, Lee Myung-Bak's administration has abandoned promoting economic friendship to voice the demands of more extreme elements of its political party.
Dealing with North Korea is complex and convoluted as much diplomatically as economically. But where politics can stall, victims to their own shortfalls at home, business can truly represent a great opportunity for change in this ailing dictatorship.
The track record of business bringing cultural benefits and regime change in its wake extend back to Ancient Greece and Athens, which once democratic actively pursued an embryonic 'free trade policy' across the Mediterranean. Likewise for Venetian merchants and Arab traders of the Middle Ages whose exchanges were instrumental in triggering the seismic changes of the Renaissance.
Recalling these achievements, it can only be hoped that political change will occur to help this nation from sinking into further international isolation. Hope, in North Korea, is itself a rare commodity for the starving population which was formatted by a dynasty of despots.
Business can open up North Korea and spark hunger for change from the inside of the regime, something which politics have shamefully failed to do both on the Korean and Western sides for over 60 years now.
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