RASON, North Korea: At the northeastern tip of North Korea, where the isolated, nuclear-armed country meets its giant neighbors China and Russia, United Nations sanctions on the regime over its weapons programs are having an impact.
And with the North possibly facing further sanctions following its ICBM missile test on Wednesday, things are unlikely to get any easier for traders involved with the remote region’s Rason Special Economic Zone (SEZ).
Rason is one of Pyongyang’s showpiece development projects, looking to exploit its geographical location between the borders with China and Russia, and the Pacific Ocean.
Formally established in 1991, it was the first of its kind in the country and has only come up to speed in recent years, but officials are defiant about the setbacks.
Foreign firms are given tax, visa and legal concessions — they can set up wholly-owned units, rather than joint ventures — to lure them to the SEZ, as leader Kim Jong-Un seeks to pursue a policy of “byungin”, or “simultaneous development”, of both the economy and atomic arms.
But eight sets of UN Security Council sanctions have been imposed on Pyongyang over its nuclear weapons and ballistic missile programs.
North Korean coal exports have been banned, leaving the material piling up on quaysides in Rason, as have iron ore and seafood.
The most recent resolution — passed in September after Pyongyang detonated by far its most powerful nuclear device to date — forbade trading in textiles and imposed limits on oil supplies to it.
“There is some impact,” said Han Yue, deputy manager of the Chinese-owned Rason Songsin Building Materials cement plant.
“Many things can’t be imported from China anymore because of the UN sanctions, in terms of the transfer of funds from both sides you could say it has been cut off.”
Beijing — Pyongyang’s sole major ally — has long been accused of failing to enforce UN resolutions against its wayward neighbor, with US President Donald Trump constantly demanding it do more.
‘People don’t have money
But Han — aged 43, who comes from Singtai in Hebei province, next to Beijing — said China’s actions had slowed development and construction in Rason.
“This is affecting our sales,” he said, with parts imports another problem. “Because of the economic sanctions, so far this year we have only completed 70 percent of the output of last year.”
The company was seeking North Korean suppliers for the limestone and coal raw materials it has so far brought in from China, he said, and measures on oil and natural gas were affecting ordinary citizens. “We see fewer vehicles on the road.”
Cho Bong-hyun, director of the IBK Economic Research Institute in Seoul, said increasingly strong sanctions were likely to deal “a big blow” to the economy at Rason.
“North Korea’s plans for the development of these economic zones will be hard to carry out for now,” he added.
There used to be more than 5,000 foreign businessmen in Rason, around 80 percent of them Chinese, but officials privately admit some have left.
Chinese trader Pai Yuenlong has been selling shoes in North Korea for a decade, and would also like to switch businesses.
“Of course there’s an impact. People don’t have money, there’s little consumption,” he said. “But I have massive stocks, so I can’t change even though I want to.”
Even so, North Korean officials insist they will not be cowed — and are working on ways to minimize the effects of sanctions.
So far around 500 million euros ($595 million) have been invested in the SEZ, a third of it by North Korea and the rest by foreign investors, according to Kim Yong Nam, who has the challenging task of trying to draw in foreign investors as director of the Rason local government’s economic cooperation bureau.
Crumpled tin can
“Of course, it is poorer than the previous period,” he says of trade with China. “But only fisheries have been affected,” he said, and the impact was “not that big”.
North Korean seafood producers could sell their products domestically instead, he added.
The textile trade ban is clearly on his mind. Asked about its impact, he responds instantly that it only comes into force on December 11, and so has had no effect yet.
“We can manufacture other textile goods with our clothing manufacturing facilities so we are making adjustments in that direction,” Kim said. “It could be things like bags and gloves.”
According to the US mission to the United Nations, North Korea earned an average of $760 million from textile exports in the past three years.
The SEZ is looking to develop transshipment trade, Kim said, bringing in more Chinese and Russian goods to ship them on to other destinations from the renovated port of Rajin.
Tourism is another growth target — despite winter temperatures that fall to minus 30 Celsius (minus 22 Fahrenheit) cold enough for the sea to freeze — as are services.
“Sanctions will have little impact on us,” Kim insisted. “I am over 50 and I’ve been hearing the word ‘sanction’ almost since my birth but we are still alive and well.
“We Korean people know how to survive under sanctions,” he went on.
“We are nothing like a tin can that simply crumples when it is beaten. We are more like steel that becomes stronger when you pound it”.