Emerging outlines of North Korea's economic policy

WPK Party Secretary Kim Jong Un’s speech on March 18 at the nation’s first light industry convention in 10 years reveals quite a bit about the thinking on economic policy among some of the country’s elites. Some changes on the ground provide additional information on how these thinking is being implemented as policy. In his speech, Kim Jong Un urges an export-oriented import-substitution policy. On the export front, he calls for consumer goods “favored by the people…that receive good reviews” and are “impeccable in the global marketplace.” A key policy that appear to follow up on this is the focus on expanding Special Economic Zones (SEZ) to every province with an eye towards having companies invest to produce exports. In addition, there is a requirement for joint-venture companies selling to the domestic market to export a stipulated percentage of their products.

At the same time, his previous criticism of “a preference for imports among workers” reveals an import-substitution approach. This is the setting up of barriers to discourage foreign imports with the aim of replacing these imports with local products. He says in the version of the speech reported in Rodong Sinmun:

“In order to solve the issue of raw and other materials for the light industry the units tasked to provide funds for the people's living should increase their roles for the present. A basic way of solving the issue is to locally produce raw and other materials. The chemical industry has a big role to play for locally producing those materials. It is very important to develop the local industry for boosting the production of consumer goods.”

In terms of policy follow up to this line of thinking, it appears that North Korea has began efforts to limit the import of finished consumer goods, especially of products that have local alternatives. In parallel to this policy, North Korea is encouraging investors to set up joint ventures to produce would-be imports domestically.

As many products lack a local substitute of similar quality, it would be interesting to see if this policy can be sustained, or if trading companies will find loopholes around it. Foreign imports can still be readily found in Pyongyang.

Earlier this year, Marcus Noland noted that North Korea is running current account surpluses (i.e. exports exceed imports). It would be interesting to see if a successful implementation of this policy further increases this surplus.