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North Korea looks to spur free-trade zone

By LEE JONG-HEON, UPI Correspondent

SEOUL, Dec. 17 (UPI) -- North Korea's reclusive leader Kim Jong Il made a visit to the country's sputtering free-trade zone for the first time since its foundation two decades ago in an apparent bid to woo much-needed foreign capital.

Kim made an "on-spot" guidance tour of the Rason free economic and trade zone on the country's northern tip bordering China and Russia, the North's official Central News Agency reported Thursday.

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Kim described the zone as an "important post for external trade," the agency said. He toured a general marine products factory, a stock-breeding farm, a wine factory and other sites in the free-trade zone.

Kim ordered workers and officials there to strictly observe "export discipline and improve the quality of goods," KCNA said. "It is very important to abide by the principle of the credit-first policy in foreign trade."

The visit was Kim's first to the Rason zone since it was established as the country's first free-trade zone nearly 18 years ago.

"Kim's visit seems part of efforts to revive the free-trade zone to attract foreign investment," a South Korean government official said.

Cho Bong-hyun, a North Korea analyst at the Industrial Bank of Korea in Seoul, said the unprecedented trip by Kim indicates his "willingness to induce foreign capital to rebuild the North's tattered economy."

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Scott Snyder, director of the Center for U.S.-North Korea Policy at the Asia Foundation, who recently traveled to Pyongyang, said the North's government has taken a set of measures to induce foreign investment, including new rules that "incorporate provisions for repatriation of profit and generous tax incentives."

The North has also unveiled plans for "attracting equity, contractual, and 100 percent foreign-owned joint venture investments," Snyder said. "Even more generous was the offer of special concessions in North Korea's natural resources sector for companies willing to build 100,000 units of new housing in Pyongyang," he said in an article posted at the Asia Foundation.

Snyder said North Korea's interest in foreign investment as part of its goal to become a "strong and powerful nation" by 2012 could play a role in resolving the nuclear stalemate.

But Hong Ik-pyo, a researcher at the Korea Institute for International Economic Policy, a government-run think tank in Seoul, said any bid by Pyongyang to revive the free-trade zone and win foreign capital could not bear fruit unless it reforms its rigid central planning.

The North created the Rason free economic and trade zone in December 1991 by merging its northeast port cities of Rajin and Sonbong and mapped out an ambitious development program to build the area into a base for the high-tech industry, the processing of export goods and the transit of international freight and tourists.

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The North has enacted about 50 laws and enforcement decrees, such as the Law for Foreign Enterprise, to pave the way for active foreign investment. It expanded the areas of the free-trade zone to include the Tumen River basin, where the borders of North Korea, China and Russia converge.

But the region has remained bleak with little foreign investment due to poor infrastructure, rigid management and central government interference. The North had aimed to attract $7 billion in foreign investment but has induced just $140 million, mostly from Chinese hotel and casino operators, South Korean officials said.

In recent years, however, the North has taken measures to reinvigorate the trade zone. In October 2008 authorities conducted a probe to sort out companies that exist only on paper in the Rason zone, Seoul's Unification Ministry said.

"The fact-finding probe seemed aimed at clearing foreign paper companies that do not invest from the special economic zone," it said, adding the measure was in line with the North's plan to redevelop the special economic zone.

The North also granted China an exclusive right to develop and use the Rajin port facing Japan, which will give China access to the Sea of Japan dominated by Japan and the United States.

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North Korea and China are also seeking to build a cross-border railway link between Rajin and the Chinese border city of Hunchun, diplomatic sources in Seoul said.

Last April, North Korea and Russia signed a deal to rebuild a railway line between Rajin and Russia's border town of Khasan. Russia wants to use the Rajin port as a base for development of oil and natural gas in Siberia, the diplomatic sources say.

South Korea has joined the project to develop the Rajin-Khasan railway and Rajin port. Seoul hopes to ship its products to Rajin port, where they would be delivered to Europe, the second-biggest market for South Korea, through the Trans-Siberian Railway via the Rajin-Khasan railway.

"The rail line to Europe would reduce South Korea's transportation costs by 25 percent," said an official at Seoul's national rail operator KORAIL.

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