Regulatory Readiness of the DPRK for Attracting Foreign Direct Investment

Since the inter-Korean summit of April 2018, a string of diplomatic exchanges involving the Democratic People's Republic of Korea (DPRK) as well as indications by Chairman Kim Jong Un himself hinted at alternative economic development models for North Korea, ushering in a swell of optimism. Especially buoyant have been investors, both within and beyond the Korean Peninsula, who have been showing manifestly enthused preemption in prospecting profitable enterprises in the North Korean economy with its promising capital endowments. Meanwhile, the DPRK nuclear program and military provocations remain at large and at odds with geopolitical sentiment, which finds expression through a multilateral sanctions regime.

This report sidesteps this reality in order to examine the issue of FDI and the DPRK within a normative space of inquiry. By examining the laws and treaties of the DPRK as well as anecdotal evidence, this report evaluates the regulatory readiness of the DPRK as it pertains to the hosting of FDI, specifically on the issue of fair and equitable treatment (FET). The body of laws of the DPRK and the treaty provisions are both modern and at times more expansive in their treatment of FET than other states with more globally integrated economies. However, there remain at least three fundamental challenges to FET that shall undoubtedly influence the DPRK's investment climate.

This report concludes by proposing the creation of a joint interpretation mechanism, e.g., joint government interpretation of treaties, as a policy solution that can help to not only strengthen the rule of law in the DPRK, but also boost North Korea's business climate to increase foreign capital injections. In addition to these medium-term benefits, providing incentives to pursue formal rather than informal economic transactions in North Korea can bolster long-term goals such as improved transparency, accountability and reduced reliance on shadow economies. Entering into treaty-based agreements on the harmonized interpretation of treaties represents a diplomatically flexible yet effectually robust means to strengthen confidence in the foreign investment regulatory climate of the DPRK.