As processing trade between North and South Korea is important, this study aims to examine the current state of processing trade between the two Koreas and related examples to identify problems and seek solutions.
Processing trade refers to the capitalist practice in which some or all subsidiary materials are exported to manufacturers only to be processed and imported back on the condition that consigned processing fees are paid. In general, processing trade is practiced with the aim of improving product price competitiveness through low-wage workforces. North Korea is interested in processing trade and determined to expand it by making the Najin-Seonbong free trade zone a processing export-centered manufacturing business base.
North Korea’s processing trade, which has flourished in the apparel industries, run by Jochongryeon (pro-Pyeongyang Federation of Korean residents in Japan), is mostly intended to sell products produced in North Korea in the Japanese market. The processing trade with North Korea between small Jochongryeong-run businesses without large-scale investment and market entry has relied heavily on the apparel industry. Processing trade between the two nations is rising consistently as North Korea can obtain foreign currency and adopt Japan’s capital technology through processing trade with Japan, while Japan can take advantage of North Korea’s cheap yet high-quality sewing techniques. In 1992, for instance, import reached JPY 7.741 billion and export totaled JPY 8.781 billion, while import totaled JPY 6.253 billion and export hit roughly JPY 10,374.
North Korea operates roughly 40 clothing manufacturing plants designed to earn foreign currency by importing subsidiary materials from various nations and processing them to export to Western markets.
Since the resumption of an economic relationship between the two Koreas in 1988, processing trade between the two had seen dramatic growth, at USD 556,000 in 1992, USD 4.384 million in 1993, and USD 16.373 million in 1994, but high value-added clothing processing trade, which requires instruction from experts, has been halted due because South Korean technicians cannot visit North Korea now due to political problems. Since there is not an agreement for exchange transactions between the two Koreas, South and North Koreas should use banks in other nations where both Koreas have correspondent account relationships. Or, South Korea should transfer wages to the banks North Korean partners’ request.
Judging from incidents related to processing trade between the two Koreas, it is important to draw up a detailed contract in person with North Korean officials and intermediary agents, and clearly specify the persons in charge in the contract, estimate loss costs in advance by over-calculating loss because it takes time and money to transport subsidiary materials to North Korea, include a detailed work order in relation to supply and delivery, and specify transport duration, deadline, and origin in the contract. Also, a reliable intermediary agency and South Korean technicians who can supervise North Korean technicians in the field for emergency are necessary. For the increase of processing trade between the two, the dispatch of South Korean technicians to North Korea, exchange of human resources, creation of a direct line between the two Koreas, establishment of an international container service system, information accessibility for participating businesses, and a policy related to the establishment of an arbitral institution for the prevention of excessive competition are necessary.
남북 위탁가공교역의 현황 및 확대방안(Processing trade between the two Koreas today and measures for expansion)
|Series Title; No||정책연구시리즈 / 95-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|