Najin-Sonbong Free Economic and Trade Area in North Korea. Plans, Problems and Progress

Abstract The implementation of the concept of a Free Economic and Trade Area (FETA) as a strategic measure to stimulate economic transformation began with the creation of Special Economic Zones (SEZs) in China. Although North Korea denies the compatibility of Chinese-style market orientation with its own self-sufficiency socialism, the sustained economic difficulty in the country is increasingly forcing the ruling communist party to adopt - at least partly - such an open-door policy. In this context, Pyongyang recently declared the two rather remote cities Najin and Sonbong and their surroundings as the first FETA in North Korea, mainly aiming at attracting foreign (including South Korean) investors with superior technologies, stimulating industrial and export activities and modernising the economic structure of this region. However, in contrast to the well-known successes of SEZs and their expansions in China, the recent North Korean experience with the Najm-Sonbong FETA has unfortunately been disappointing, although tax incentives and other privileges offered to foreign investors are more attractive than those in China. Apart from some crucial economic and infrastructure impediments which hinder large-scale foreign direct investments in North Korea, this study suggests that the inflexibility of the communist regime and the persisting political hostility between the two Koreas have damaged the development potentials and opportunities of the Najin-Sonbong FETA.