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North Korea: Witness to Transformation

Squeezing the lemon

by | January 9th, 2013 | 05:28 am

You have to hand it to the North Koreans: sometimes they come up with really clever wheezes to extract money from others. Last week the Ministry of Unification announced that they had been informed that on 30 December the Supreme People’s Assembly had added 2-3 January to the list of public holidays for 2013.  No documentation of this action was provided by the North and these dates had not been listed when the Kaesong Industrial Complex Management Committee issued the 2013 holiday calendar in mid-December.

Why does it matter? Because workers at KIC in effect are paid double-time for working on holidays.  Or more accurately, firms operating at KIC have to pay the state double-time wages on holidays.  No one knows how much actually makes it to the workers.

The firms have filed a formal complaint.

In the meantime, the North Koreans have created regulatory authority to seize the assets of South Korean firms operating in KIC accused of tax avoidance via transfer pricing.  According to an unnamed MOU official quoted by Yonhap, “The North has newly added a clause … allowing forcible confiscation from companies that do not pay their taxes within the deadlines..the rule also allows the North to claim collateral for unpaid taxes, with the country free to sell the collateral.”

Our own survey work suggests that KIC functions as a kind of South Korean oasis in the midst of North Korea’s otherwise dysfunctional business environment. Subjecting firms operating there to the same sort of arbitrary and capricious regulation that obtains elsewhere in the country would further narrow North-South commercial opportunities.