This content is from: Local Insights

South Korea

In one of the most dramatic policy decisions to come out of North Korea, the Pyongyang government announced in late September the adoption of legislation to create a 132-square mile special administrative zone (SAZ). The zone will be in the north-western city of Shinuiju, just across the Yalu River from the Chinese city of Dandong. For a 50-year term, the SAZ will operate its own legislative, judiciary and administrative functions and have its own legal and economic system, relatively free of central government interference, and even issue its own passports. However, the SAZ will not have defence or military and diplomatic functions. Some observers have remarked that the SAZ is modeled on the Shenzen and Suzhou developments in China, and may represent the adoption of an open-door policy in North Korea, signaling an irreversible change in the country.

On September 26 2002, the Basic Law Concerning the Shinuiju Special Administrative Zone was promulgated. The following is a para-phrased summary of salient provisions of the Basic Law, which comprises 101 Articles and four Supplementary Articles.

The relationship between the central government and the SAZ: The SAZ will enjoy its own legislative, judiciary and administrative functions (Article 2), and the legal status of the SAZ will not change for a term of 50 years (Article 3). The central government and its units will not interfere with the SAZ and any central government personnel to be stationed within the SAZ must obtain the prior approval of the SAZ minister (Article 6). The minister is the highest-ranking official in the SAZ (Article 76) and the appointment or discharge of the minister will be the function of the Supreme Legislative Body of North Korea (Article 77). The SAZ's judges and jury are to be selected from the residents of the SAZ and the central government cannot take part in the administration of justice within the SAZ (Articles 94 & 95). The official documents of the SAZ will be in Korean (Article 8).

Ownership and freedom of economic activity: Residents of the SAZ will enjoy freedom of speech, press, and collective action (Article 45) and the freedom of religion (Article 46). Similarly, the freedom to travel and change residence is protected (Article 49). Within the SAZ, land lease and sub-lease, land usage, sale of buildings and structures, and mortgage activities are all permitted (Article 16). The initial land lease period is to expire on December 31 2052, but the lease term may be extended on similar terms and conditions (Article 15). Private ownership and inheritance rights are protected and privately-owned property will not be nationalized (Article 17). The weekly total working hour will not exceed 48 hours (Article 19) and the SAZ will maintain its own minimum wage system (Article 21) and a social welfare system (Article 22).

The SAZ economic system: The purpose of the SAZ is to create an international region for financial, trade, commercial, industrial, high-tech and leisure activities (Article 13). The central government of North Korea provides a guaranty of a favourable investment environment and the freedom of passage of personnel, materials, information/data and capital (Article 31). The SAZ will have its own monetary and fiscal policies (Article 23), tax system (Article 24), customs regime (Article 25) and accounting practice (Article 26). The SAZ will create and execute its own budget, but the SAZ's adoption of a budget must be registered with the Supreme Legislative Body of North Korea. Business activities within the SAZ must be administered exclusively by an administrative organ of the SAZ. However, activities concerning maritime and air transportation must be subject to approval by relevant authorities of the central government (Article 30).

The Basic Law further provides that the SAZ shall have a Legislative Council as the zone's highest legislative organ. Fifteen council members are to be elected through direct voting from SAZ residents (including foreigners) and the term of a council member will be five years. A resident of the SAZ is defined, among other things, as a person of any nationality recommended by the minister or who has been in a lawful employment in the SAZ for a period of seven years or more (Article 42).

The SAZ faces many challenges in the immediate future. It will be competing with China, among others, for foreign investment. North Korea does not yet generate investor confidence and its political relationship with some OECD nations, namely Japan and the US, must improve in order to stimulate meaningful financial and commercial activities. However, the SAZ is a leap forward for North Korea in terms of opening its borders to foreign investment. Because of its strategic geographical location, Shinuiju, along with the city of Dandong, is likely to benefit from TSR and TCR rail transportation connections (which are being actively reconstructed), that will allow people and goods to move from the Korean peninsula to Europe on land.

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