Commercial code revisions, in our own style

February 2, 2012 7:15 AM

Over the past couple of months, a number of news reports have appeared indicating that North Korea is revising various aspects of its commercial code.  A common thread running through these reports has been the absence of detail and lack of understanding of what was actually going on. IFES has summarized the core changes, reputedly passed by the SPA more than a year ago, in a recent report.  The law apparently does not apply to special trade zones, or foreign investment companies. According to the Korea Herald, China has rejected the draft law to be applied to the Hwanggumpyong and Wihwa Island special economic zones and sent North Korea back to the drawing board, reputedly complaining about problems relating to taxation, accounting, the security of investment, management autonomy, and the remittance of profits. Our survey of Chinese enterprises operating in the DPRK found that fear of expropriation does in fact deter investment in North Korea.

The new corporation law to be applied outside the special zones, comes with more than a whiff of central planning. In Article 21 it specifies corporate hierarchy, defining the roles of manager, chief engineer, and assistant manager, and indicates that the assistant manager is to report to the manager and the chief engineer, while the chief engineer reports to the manager. Articles 29 and 30 indicate that written plans must be submitted to the authorities annually, and this plan must be followed on a daily, monthly, quarterly, and index basis. Article 44 states that “the appropriate amount of labor is scientifically determined and managed based on socialist distribution principles and a precise socialist wage system must be implemented.” Sales must be based on supply plans and contracts.  “Those sales that do not follow the plan and contract cannot be sold” (Article 42). Ultimately, the state is in charge: “the managing organization has the jurisdiction to close down corporations for unreasonable or lack of prospects that does not meet the standards and demands of the national policy and reality” (Article 18).

And apart from the law, as our survey of Chinese enterprises demonstrated, North Korean dispute settlement mechanisms have little credibility.  Another reason why the Chinese may be insistent on rules and procedures in their own style.