Trade in Thailand

COUNTRY

Mosjeed of Thailand

 

Formal Name: Kingdom of Thailand.
Short Form: Thailand (formerly Siam).
Term for Citizens: Thai.
Capital: Bangkok.
 

GEOGRAPHY

Thailand in map

 

Size: Approximately 514,000 square kilometers.
Topography: Chief topographic features include central plain dominated by Mae Nam (river) Chao Phraya and its tributaries. To northeast rises dry, undulating Khorat Plateau bordered on east by Mekong River. Mountains along northern and western borders with Burma extend south into narrow, largely rain-forested Malay Peninsula. Network of rivers and canals associated with northern mountains and central plain drain, via Chao Phraya, into Gulf of Thailand. Mae Nam Mun and other northeastern streams drain via Mekong into South China Sea. Soils vary. Topography and drainage define four regions: North, Northeast, Center, and South.
Climate: Tropical monsoon climate. Southwest monsoons arriving between May and July signal start of rainy season lasting until October. Cycle reverses with northeast monsoon in November and December, ushering in dry season. Cooler temperatures give way to extremely hot, dry weather March through May. In general, rainfall heaviest in South, lightest in Northeast.

ECONOMY

Salient Features: Mixed economy includes both strong private sector and state enterprises; government assumes responsibility for general infrastructure development. Basically capitalist, committed to free trade. Rapid economic development of 1960s and 1970s slowed by worldwide recession of early 1980s. Strong recovery by 1987. Bangkok metropolitan area faced problems of rapid modernization, including housing shortages and pressure on such basic services as water, sewage, and health care.

Statistic of Thai business

Agriculture:Food surpluses produced by dominant agricultural sector of enterprising, independent smallholders. About 69 percent of labor force engaged in sector, and nearly 80 percent of population dependent on it for livelihood in the mid1980s . Agricultural commodities accounted for some 60 percent of export values in late 1980s. Major crops included rice, maize, cassava, rubber sugarcane, coconuts, cotton, kenaf, and tobacco. Forest cover decreased from more than 50 percent in 1961 to less than 30 percent in 1987. Fisheries important for food supply and foreign exchange earnings.
Industry: Modern enterprises mainly concentrated in Bangkok and surrounding provinces. Majority Thai owned, but joint foreign ventures numerous; state enterprises form important segment. In late 1980s, sector accounted for roughly 20 percent of gross domestic product (GDP) and 30 percent of total exports. Main categories of manufacturing included food and beverages, textiles and apparel, and wood and mineral products. Mineral resources contributed about 2 percent to gross national product (GNP) and included tin, tungsten, fluorite, antimony, and precious stones, all significant foreign exchange earners.

Energy Sources: Exploited domestic resources include small oil fields, large lignite deposits, natural gas in Gulf of Thailand, and hydroelectric power. Extensive, largely unevaluated oil shale deposits also identified, but exploitation economically infeasible in 1980s. Thermal (oil, natural gas, and lignite) power generation accounted for about 70 percent of total 7,570 megawatt installed generating capacity in 1986; hydropower, which remained largely unexploited, supplied about 30 percent. Electricity generally available in Bangkok metropolitan area and in about 43,000 of nation's some 48,000 villages (mostly near Bangkok). Rural program under way for electrification of remaining villages by late 1990s.
Foreign Trade: Major exports primary and processed agricultural products, tin, clothing, and other manufactured consumer goods. Major imports capital goods, intermediate products, and raw materials; petroleum products largest single import by monetary value since mid-1970s. Largest trading partners Japan and United States; trade with Japan characterized by large deficit.

ECONOMIC AND FINANCIAL DEVELOPMENT

In the 1960s and 1970s, the country's abundant natural resources, an enterprising and competitive private sector, and cautious and pragmatic economic management resulted in the emergence of one of the fastest growing and most successful economies among the developing countries. Between 1960 and 1970, the country's average annual growth rate of gross domestic product was 8.4 percent, compared with 5.8 percent for all middle-income, oil-importing countries. Between 1970 and 1980, the GDP rate of growth was 7.2 percent, compared with 5.6 percent for the middle-income oil-importing countries.

Bridge of business

The world slowdown by the late 1970s was mainly caused by the rise in oil prices. The Thai GDP in 1982 was US$36.7 billion. It rose to US$42 billion in 1985. The projected rate of growth for GDP during the early 1980s was around 4.3 percent as a result of falling demand and prices for Thai exports despite a drop in oil price. It was apparent that in the 1980s Thailand had lost its momentum; its Fifth Economic Development Plan targets had not been met because of serious macroeconomic imbalances, such as decreasing savings and investment rates, increasing budget deficits, and increasing debt and debt- servicing obligations. Whether Thailand could regain its former momentum depended on the success of its Sixth Economic Development Plan (1987-91).
Between 1970 and 1980, investment represented on the average 25.2 percent of GDP, compared with 24.7 percent by the mid-1980s. This proportion was one of the lowest investment rates in Southeast Asia. The national savings rate had fallen even more, from an average of 22 percent during the 1970s to around 17.8 percent by the mid-1980s. Hence, the average current-account deficit of 7 percent of GDP during the early 1980s had been caused by a declining savings rate rather than by an increase in investment rate. This imbalance was more serious than one caused by rising investment because rising investment could pay for itself with increased output and, possibly, increased savings so that debt could be repaid. With falling savings, foreign borrowing was used not to raise investment but merely to fill the investment-savings gap, which was mirrored in the external debt ratio of 39 percent of GDP and 146 percent of exports by the mid1980s . The total debt service ratio went up from 17.3 percent in 1980 to more than 25 percent by the mid-1980s. The increase was an important factor in the decision of the government to sharply reduce authorization for new commitments of public debt.

Financial Institutions

Thailand had many types of financial institutions, subject to different laws and regulated by different agencies. Most of them were privately owned, but some were state owned. The primary state-owned facility was the Bank of Thailand, which had responsibility and authority for monetary control in its role as the central bank. It served as the fiscal agent and the financier of the government; regulated the money supply, foreign exchange, and the banking system; and also served as the lender of last resort to the banks. Other state-owned facilities included the Government Savings Bank, the Bank for Agriculture and Agricultural Cooperatives, the Industrial Finance Corporation of Thailand, the Government Housing Bank, and the Small Industry Finance Corporation of Thailand.

By the mid-1980s, the 30 commercial banks had 1,526 branches handling the majority of all financial transactions in Thailand. The 16 largest banks accounted for over 90 percent of assets, deposits, and loans of the commercial banks, indicating a high concentration and little competition in the banking industry. Moreover, despite the impressive growth of banks, entrance by new banks was limited.
Finance and security companies comprised the second largest group of financial institutions with assets equaling nearly 22 percent of those of commercial banks. Concentration also existed in the securities industry, the 5 largest companies (out of 112) holding 19 percent of all finance and security assets. The finance companies were created by many domestic and foreign banks to overcome banking restrictions. Although they were intended to increase competition with commercial banks, the objective was not met because many banks used the companies as an extension of their own activities.

INTERNATIONAL TRADE AND FINANCE

International Trade

Thailand sustained a trade balance deficit from the early 1970s to the mid-1980s. Although the trade balance had improved during the first part of the 1970s, it worsened after the oil shocks of 1973 and 1979. In fact the net value of oil imports went from US$52.5 million in 1970 to US$684.7 million in 1982, with dependence on foreign oil reaching 75 percent in 1980 and declining to 50 percent by 1985. Although there was a general decline in the export performance of developing countries in the early 1980s, Thailand's recovery from the oil shock was further delayed by a loss in export competitiveness, a slowdown in the economies of major trading partners, and a growing debt service obligation resulting in part from rising interest rates. The current account balance deficits were not as severe as the trade deficits as a result of improving service balances. By 1986 the balance of payments had moved into surplus on current account. The major contribution to the service balance surplus was tourism, which increased from 630,000 tourists in 1970 to 2.6 million in 1986. Tourism was the top foreign exchange earner from 1981 to 1986. The trade deficit was caused in part by a decreasing growth rate of exports between 1980 and 1983, which improved slightly by 1985. The growth rate of imports also declined, but at a slower rate. Despite an increase in tourism, the trade deficit reached a peak in 1983 of US$3.9 billion. In 1985 exports totaled US$7.1 billion and imports US$9.2 billion, leaving an unfavorable trade balance of US$2.1 billion. By 1986 the deficit had decreased even further, with some of the reduction a result of the lower cost of imported oil.

The composition or structure of merchandise exports changed substantially between 1965 and 1985. Primary commodities accounted for 95 percent of Thailand's exports in 1965, and manufactured exports accounted for only 4 percent. By 1986 manufactured products comprised 55 percent of total exports, with textile products increasing from less than 1 percent in 1965 to 13 percent by 1986. Other major manufacturing exports in the mid-1980s included rubber products, processed foods, integrated circuits, metal products, jewelry, footwear, and furniture. Although agricultural exports as a percentage of total exports declined during this period, rice and other agricultural exports remained important for the Thai economy. By the mid-1980s, rice took the highest share of total agricultural exports. Cassava products, maize, sugar, rubber, fruit, and marine products were the other main exports in this category.
Between 1965 and 1985, the destinations of merchandise exports shifted from 54 percent of 1965 exports destined for developing countries to 56 percent of 1985 exports going to industrialized countries. This increase in the percentage of exports to industrialized countries, in combination with the changing structure of merchandise exports from predominantly agricultural to manufactured products, has fueled Thailand's economic growth. Thailand's major industrialized trading partners included the EEC, the United States, Japan, and the Netherlands. Furthermore, Thailand has developed significant trade relations with the newly industrializing countries (NICs) of Singapore, Hong Kong, the Republic of Korea (South Korea), and Taiwan. Additionally, Thailand has developed trade relations with Malaysia, the Philippines, Indonesia, and China.
Tariff barriers on imports from the developing countries had dropped with the implementation of the Tokyo Round (1973-79) of the General Agreement on Tariffs and Trade. Rising nontariff barriers, resulting from domestic and international economic conditions in industrial countries, had more than offset the tariff reductions. In the United States the proportion of imports subject to such barriers more than doubled, and in the other industrial countries it rose by as much as 40 percent. Examples of nontariff barriers were quotas, voluntary exports restraints, the Multifiber Arrangements, sanitation rules, and subsidies.
Thai rice exports encountered the stiffest barriers in Japan, where the tariff rate was 15 percent and a global quota was in force. In the United States, tariff on rice was only 2.6 percent, and no explicit nontariff barriers existed except for stringent controls by the United States Food and Drug Administration. In the other industrialized countries, Thai rice exports faced varying levies. Thai agricultural exports to the developing countries met with stiff competition from subsidized United States cereal exports. Thailand entered into a voluntary export restraint with France for its cassava exports because of strong resistance to imports from the French producers of cereal-based animal feed. Rubber did not face major barriers except for quotas imposed by Japan. Maize exports did relatively poorly because of subsidized production and high tariffs in the industrialized countries. Sugar exports also faced subsidy problems in Western Europe and a 50 percent quota reduction by the United States. Despite nontariff barriers, Thai agricultural and manufactured exports faced less protectionism than the NICs in the early 1980s.

Of Thailand's manufactured exports, textiles were most affected by barriers because Thailand had to enter into bilateral agreements with industrial countries, which were similar to the voluntary export restraints under the Multifiber Arrangements. In addition, tariffs escalated with the degree of processing. For example, in the United States the average tariff for cotton fabrics was 9.6 percent, whereas it was 18 percent for garments. The United States imposed countervailing duties on Thai textile exports in protest against Thai government subsidies to textile exporters in the form of export packing credits, rediscount facilities for industrial bills, electricity discounts, and tax certificates.
Tariffs in Thailand before the 1970s were primarily used to generate revenues rather than to influence domestic production. The rates ranged from 15 to 30 percent, with higher rates applied to finished consumer goods imports. In the 1970s, however, tariff rates on finished consumer goods imports increased 30 to 50 percent. Rising protectionism continued in the late 1970s and early 1980s, with high tariff rates and the application of surcharges, quantitative restrictions, price controls, and domestic contents requirements.

External Debt

The Thai total long-term public and private debt grew from US$728 million in 1970 to US$13.3 billion in 1985. The external debt was increasing at a faster rate during this period than the growing gross national product. In 1970 the external debt was 11.1 percent of GNP, increasing to 36 percent of GNP by 1985. The ratio of debt payments or debt service to the total export of goods and services, one indicator of Thailand's ability to meet debt payments, increased from 14 percent in 1970 to 25.4 percent in 1985. The growth of external indebtedness averaged 25.2 percent between 1970 and 1980, compared with an average of 21 percent for Southeast and East Asian middle-income oil-importer countries. Public debt as a percentage of exports went from 47.9 percent to 75.9 percent between 1980 and 1983, but the proportion of public borrowing from foreign sources dropped from 52 percent to 42 percent during the same period. This was indicative of the growing concern of the public sector with the enlarged foreign debt and hence a higher reliance on domestic borrowing, which went from 48 percent to 55 percent during the same period. In the early 1980s, Thailand was characterized by high competition between the government and the private sector for scarce domestic savings, which forced private firms to rely more on external borrowing.

The composition of Thai indebtedness in terms of interest rates, maturity, and currency structure appeared to be better than that in most other developing countries. Because of its high credit rating, Thailand could borrow at about 8.4 percent in late 1983, compared with an average rate of 10.1 percent for other middle-income oil-importer countries. It had also the longest loan average maturity, 17.2 years compared with 12.2 years.
In terms of currency denomination, the Thai external debt consisted mostly of two currencies: the United States dollar and the Japanese yen, with increasing reliance on the yen because of the willingness of Japanese banks to lend at a lower spread than the other banks. Thailand was exposed to the risk of yen appreciation in the early 1980s because Japan received only 14 percent of Thai exports while accounting for 26 percent of imports. Meanwhile, the value of the yen had appreciated substantially relative to the baht. The baht was pegged to the United States dollar until 1984 when it had a fixed exchange rate of B23 per US$1. Thereafter, the baht was pegged to a basket of currencies and devalued by 14.8 percent against the dollar. According to some observers, Thailand needed to revise its external debt portfolio as well as limit its reliance on external debt. 

Trade in Finland

Finland Mosjeed

Country Profile

Formal Name: Republic of Finland
Short Form: Finland
Term for Citizens: Finns
Capital: Helsinki
Date of Independence: December 6, 1917.

GEOGRAPHY

Size: About 338,145 square kilometers, slightly larger than Missouri and Illinois combined. About 10 percent of area made up of inland water. A quarter of the country above Arctic Circle.

Finland in Map

Topography: Four natural regions. Archipelago Finland begins in southwestern coastal waters and culminates in Aland Islands. Coastal Finland a band of clay plains, extending from Soviet to Swedish border. Seldom exceeding width of 100 kilometers, plains slope upward to central plateau that forms basis of interior lake district. This core region contains more than 55,000 lakes set within country's densest forests. Rising above central plateau, upland Finland extends into Lapland, where forests gradually yield to harsh climate. Above timber line are barren fells and numerous bogs. Upland Finland crossed by country's largest and longest rivers.
Climate: Gulf Stream and North Atlantic Drift Current moderate temperatures somewhat, but winter still lasts up to seven months in north, and most years gulfs of Finland and Bothnia freeze, making icebreakers necessary for shipping. Long days in summer permit farming far to north. Continental weather systems can bring quite warm summer temperatures and severe cold spells in winter.

ECONOMY

Gross Domestic Product (GDP): US$70.5 billion in 1986 (US$14,388 per capita). Economy grew faster than other Western industrialized countries throughout 1980s, averaging about 3.3 percent per year from 1980 to 1986.
Agriculture and Forestry: Below 8 percent of GDP and about 10 percent of employment in 1986, but sufficient to make country self-sufficient in staple foods and provide raw material to crucial wood-processing industries.
Industry: Major growth sector, contributing nearly 35 percent of GDP and 32 percent of employment in 1986. Main engine of postwar structural change, industry faced increasing competition in 1980s causing restructuring and a shift to hightechnology products.
Services: Largest sector, providing nearly 58 percent of GDP and about 57 percent of employment in 1986. Generally labor-intensive and uncompetitive, but banking, engineering, and consulting showed promise.
Imports: Raw materials, especially fuels, minerals, and chemicals, but growing share of foods and consumer goods.
Exports: Primarily industrial goods, especially forestry products and metal products; growing high-technology exports.

Goods Trade

Major Trade Partners: Soviet Union largest single trade partner, but West European countries together accounted for nearly two-thirds of trade.
Balance of Payments: Despite positive trade balance, Finnish tourist expenditures abroad and debt service caused continuing current account deficits in 1980s.
General Economic Conditions: Standard of living high despite difficult environment. Inflation traditionally exceeded that of other industrialized countries, but fell below 4 percent in 1986; unemployment, at about 6 percent in 1987, was considered Finland's most serious economic problem.
Exchange Rate: In March 1988, Finnish mark (Fmk) 4.08=US$1. Fully convertible, but some capital controls maintained by Bank of Finland.

Economic Development

Export rate

Material conditions were difficult at the birth of the Finnish republic. The country's industries had started to develop after about 1860, primarily in response to demand for lumber from the more advanced economies of Western Europe, but by 1910 farmers still made up over 70 percent of the work force. Finland suffered from food shortages when international trade broke down during World War I. The fledgling metal-working and shipbuilding industries expanded rapidly to supply Russia during the early years of the conflict, but the empire's military collapse and the Bolshevik Revolution in 1917 eliminated trade with the East. The Finnish civil war and the subsequent massacres of the Reds spawned lasting labor unrest in factories and lumber camps, while the plight of landless agricultural laborers remained a pressing social problem.
During the immediate postwar years, Finland depended on aid from the United States to avoid starvation, but by 1922 industrial production had reached the prewar level. While trade with the Soviet Union languished for political reasons, West European, especially German, markets for Finnish forest products soon reopened. In exchange for lumber, pulp, and paper--which together accounted for about 85 percent of exports--Finland obtained needed imports, including half the nation's food supply and virtually all investment goods.
Despite political instability, the state built a foundation for growth and for greater economic independence. The first and most important step was an agricultural reform that redistributed holdings of agricultural and forest land and strengthened the class of smallholders who had a direct stake in improving farm and forest productivity. The government also nationalized large shares of the mining and the wood-processing industries. The subsequent public investment program in mines, foundries, wood and paper mills, and shipyards improved the country's ability to process its own raw materials. By the late 1920s, agricultural modernization was well under way, and the country had laid the foundations for future industrialization.
Although Finland suffered less than more-developed European countries during the Great Depression of the 1930s, the country nonetheless experienced widespread distress, which inspired further government intervention in the economy. Comprehensive protection of agricultural produce encouraged farmers to shift from exportable animal products to basic grains, a policy that kept farm incomes from falling as rapidly as they did elsewhere and enabled the country to feed itself better. Similar policies spurred production of consumer goods, maintaining industrial employment. As in other Nordic countries, the central bank experimented with Keynesian demand-management policies.
In the 1930s, Britain replaced Germany as Finland's main trading partner. The two countries made bilateral agreements that gave Finnish forest goods free access to British markets and established preferential tariffs for British industrial products sold to Finland. Consequently, Finland's largest industry, paper production, expanded throughout the depression years (although falling prices led to declining export revenues). The economic growth of Finland resumed in 1933 and continued until 1939.
Production and employment had largely recovered from the effects of the depression when the Winter War began in 1939. The struggle marked the beginning of five years of warfare and privation. By 1944, after two defeats at the hands of the Soviet Union and severe losses suffered while expelling German troops, Finland's economy was nearly exhausted. Under the terms of the 1944 armistice with the Soviet Union, the country ceded about 12 percent of its territory, including valuable farmland and industrial facilities, and agreed to onerous reparations payments. To many Finns, it appeared that most of the achievements of the interwar years had been undone.
Postwar reconstruction proved difficult. Resettling refugees from the areas ceded to the Soviet Union required another land reform act, subsidies for agricultural infrastructure, and support payments for displaced industrial workers. Reparations deliveries to the Soviet Union absorbed much of the country's export potential. The need to remain politically neutral precluded participation in the Marshall Plan (European Recovery Program), but Finland arranged substantial loans from the United States Export-Import Bank to finance expansion in the forest industries. High inflation rates inherited from the war years fed labor militancy, which further threatened output.
Despite these setbacks, the tenacious Finns soon fought their way back to economic growth. Reparations turned out to be a blessing in disguise--at least for the metalworking industries, which supplied about three-fourths of the goods delivered to the Soviet Union. In effect, forced investment in metalworking laid the foundations for Finland's later export successes. The fulfillment of the reparations payments in 1952 symbolized the end of the postwar difficulties, but the real turning point probably came in about 1950, with the Korean War boom in the West. During the 1950s, the metalworking industries continued to export to the Soviet Union, a market in which the Finns faced virtually no competition from other Western countries. Extensive borrowing in Western financial markets--especially in Sweden and in the United States--financed investments in infrastructure, agriculture, and industry. The consumer goods and construction sectors prospered in the booming domestic market, which remained protected by import controls until the end of the decade.

ERU billion of Finland

From 1950 to 1974, Finland's gross national product grew at an average annual rate of 5.2 percent, considerably higher than the 4.4 percent average for members of the Organisation for Economic Co-operation and Development. However, partly as a result of continued dependence on volatile lumber exports, this growth was more unstable than that in other OECD countries. The business cycle caused fluctuations in output that averaged 8 percent of gross domestic product. Finland's structural transformation was brutally quick, driving workers out of agriculture more quickly than had been the case in any other Western country. Although manufacturing output increased sharply, many displaced farm workers could not be placed in industry. At the same time, Finnish inflation, which tended to exceed that of the country's major trading partners, necessitated regular currency devaluations. Yet, despite the costs of economic growth, most Finns were happy to have escaped the hardships of the depression and the war years.
Rapid structural transformation led to innovative economic policies. During the 1950s, the state had maintained strict controls on many aspects of economic life, protecting the country's fragile economic balance, but it had lifted many restrictions by the end of the decade. Moreover, in 1957 policy makers chose to liberalize foreign trade in industrial goods, strongly influencing future economic developments. The achievement of prosperity in the 1960s made possible the extension of the welfare state, a development that did much to reduce tensions between workers and management. Finland's increased foreign trade made industrial competitiveness more important, causing greater interest in restraining the inflationary wage- price spiral. Starting in 1968, the government succeeded in sponsoring regular negotiations on wages, benefits, and working conditions. The political consensus that developed around incomes settlements helped to slow inflation and to increase productivity. Liberalization, welfare programs, and incomes policy thus helped to maintain economic growth during the 1960s and facilitated stronger economic relations with both Eastern and Western Europe.
In the 1970s and 1980s, changes in domestic and international economic conditions posed new challenges. At home, Finland was reaching the limits of extensive economic growth. Expansion was incorporating ever- greater amounts of raw materials, capital, and labor in the production process. The economy needed to shift to intensive growth through better resource management, improved labor productivity, and newer technologies. In international markets, the oil crises of 1973 and 1979 caused particular difficulties for the Finns, who imported over 80 percent of their primary energy supplies. The country did suffer less than other West European countries from increased oil prices because of its special trading relationship with the Soviet Union, which supplied petroleum in exchange for Finnish industrial goods. However, recession in Western markets, growing technological competition, and tighter financial markets made Finland's traditional cycles of inflation and devaluation untenable. Thus, although the country managed to delay austerity measures for five years, in 1978 balance-of-payments considerations compelled the government to introduce a far-reaching reform package designed to ensure the competitiveness of Finnish industry in world markets.
Although the austerity package pursued after 1978 slowed growth in personal consumption, the consensus approach to wage and benefit negotiations remained reasonably intact. In addition, many Finnish workers proved sufficiently flexible to accept transfers from declining sectors to those in which the country enjoyed a comparative advantage. As a result of competent macroeconomic management and favorable trading relations with both Eastern and Western Europe, Finland was able to sustain growth in GDP at an average annual rate of about 3.3 percent from 1980 to 1986--a rate well above the OECD average.

Trade rate of Finland

During the 1980s, structural developments in the Finnish economy paralleled those in other West European economies. Although surplus production of animal products plagued agriculture and led to cutbacks in agricultural subsidies, the country preserved family farming. Policy makers continued to monitor forestry, energy, and mineral resources closely, even when falling petroleum prices reduced pressures on the economy. Industry underwent intensive restructuring, eliminating many inefficient producers and consolidating healthy enterprises. Despite mergers and rationalization, Finland lost fewer industrial jobs than most OECD countries, so that unemployment was held below the double-digit levels common elsewhere on the continent. Private services, especially banking and insurance, expanded more rapidly than other sectors, also helping to limit unemployment.

Structure of the Economy

By 1986 postwar economic growth had raised Finland's GDP to about US$70.5 billion, making the country one of the most prosperous in the world. Economic expansion over the years had substantially altered the structure of the economy. By 1986 agriculture, forestry, and fishing had fallen to a little under 8 percent of GDP from nearly 26 percent in 1950. Industry, including mining, manufacturing, construction, and utilities, accounted for about 35 percent of GDP, down from about 40 percent in 1950. Within industry, metalworking had grown most rapidly, its output almost equalling that of wood processing by the late 1970s. In the late 1980s, industrialists looked forward to a shift toward electronics and other high-technology products.
While agriculture and industry had declined in relative terms during the postwar years, the service sector had grown from about 34 percent of GDP to almost 58 percent, leading some observers to characterize Finland as a postindustrial society. Several factors accounted for the expansion of the service sector. Government, very small under the Russian Empire, grew rapidly between the Great Depression and the early 1970s as the state took responsibility for an increasingly greater share of economic life. In addition, transportation, communications, engineering, finance, and commerce became more important as the economy further developed and diversified.

Currency picture of Finland

Control and ownership of Finland's economic life were highly concentrated, especially after the industrial and financial restructuring of the 1980s. Thus, by 1987 three firms controlled most shipbuilding, a small number of woodworking enterprises dominated the forest industries, and two main commercial banks exercised wide-reaching influence over industrial development. Large state-owned firms provided most of the energy, basic metals, and chemicals. The country's farmers, workers, and employers had formed centralized associations that represented the vast majority of economic actors. Likewise, a handful of enterprises handled most trade with the Soviet Union. Some observers suggested that the trend toward internationalization might increase the influence of foreign firms and executives in Finnish enterprises, but this effect would make itself felt slowly. Thus, while Finland remained a land of family farms, a narrow elite ran the economy, facilitating decision making, but perhaps contributing to the average worker's sense of exclusion, which may have contributed to the country's endemic labor unrest.

FOREIGN ECONOMIC RELATIONS

International economic relations--especially foreign trade-- have been vital for Finland throughout the twentieth century, but never have they been more so than during the 1980s. The country was self-sufficient in staple foods, and domestic supplies covered about 70 percent of the value of the raw materials used by industry. However, imports of petroleum, minerals, and other products were crucial for both the agricultural and the industrial sectors. From the end of World War II until the late 1970s, the development of modern infrastructure and new industries required substantial capital imports. Sound foreign economic relations made it possible to exchange exports for needed imports and to service the large foreign debt. A policy of removing obstacles to the mobility of commodities, services, and factors of production facilitated economic modernization.

Foreign trade growth

Business leaders and government policy makers devised innovative strategies to manage economic relations. Close economic ties to the Soviet Union grew out of the postwar settlement under which Finland agreed to pay reparations and to maintain a form of neutrality that would preclude threats to Soviet security. Except for agriculture, which remained strictly protected, postwar commercial policy sought to link Finland's economy with the economics of the Nordic area and of Western Europe as closely as possible without aggravating Soviet fears that such economic ties would undermine loyalty to the East. Thus, since 1957 Finland had pursued trade liberalization and had established industrial free-trade agreements with both West European and East European countries. Spurred by these liberal policies, exports and imports had each grown to account for roughly one-quarter of GDP by the mid-1980s. By the late 1980s, Finnish industrial and service firms were going beyond trade to internationalize production by attracting foreign partners for their domestic operations and by acquiring foreign firms. Most observers believed that Finnish firms needed to follow an international tack not only to protect export shares but also to maintain their positions in domestic markets.

Foreign Trade

Trade in agricultural commodities, consumer products, and services had been relatively limited, but exchanges with the outside world were crucial for industry. Not only had the forest industries grown largely in response to foreign demand for wood and paper, but the metal-working industry had also taken off only under the goad of postwar reparations deliveries to the Soviet Union. By the mid-1980s, exports accounted for half of all industrial output and for as much as 80 percent of the output of the crucial forest industries. Similarly, imports of energy, raw materials, and investment goods remained essential for industrial production. The development of export-oriented industries had driven Finland's postwar structural transformation, indirectly affecting the rest of the economy. Industrial competitiveness would largely determine the economy's overall health into the 1990s.
During the postwar period, Finnish exports shifted from lumber and other raw materials to increasingly sophisticated products, a change which reflected the increasing diversification of the country's economic structure. The forest industries continued to dominate exports, but, while they had accounted for about 85 percent of total exports in 1950, they accounted for only 40 percent by the mid-1980s. The relative shares of different forest exports also shifted. Sawn timber and various board products accounted for more than one-third of total exports in 1950, but by 1985 they had fallen to only 8 percent. Exports of pulp and paper fell more gradually during the same period, from 43 percent of exports to about 30 percent. Pulp and cardboard, the main exports of the chemical wood-processing branch, declined in importance, while specialized paper products incorporating higher value added, such as packing material, printed paper, and coated paper, grew in importance.
Taking the place of forest products, exports of metal products grew rapidly during the postwar period from a little over 4 percent of exports to about 28 percent. Here, too, exports of more sophisticated manufactured goods grew faster than those of basic products. By the late 1980s, basic metals accounted for about 20 percent of metal exports, ships for about 25 percent, and machinery and equipment for about 20 percent. Advanced products such as electronics and process-control equipment were gaining on conventionally engineered products. The chemical industry had exported relatively little until the 1970s, but by 1985 it had grown to account for about 12 percent of exports. By contrast, the textile, confectionery, and leather goods industries had peaked at over 10 percent in the late 1970s and early 1980s, and then they had fallen to about 6 percent of exports by the mid-1980s. Minor export sectors included processed foods, building materials, agricultural products, and furs.
Up to the 1970s, Finland tended to export wood-based products to the West, and metal and engineering products to the East. By the mid-1980s, however, Finnish machines and high-technology products were also becoming competitive in Western markets.

Statistic of foreign trade

Finland's imports had consisted primarily of raw materials, energy, and capital goods for industrial production, and in the late 1980s these categories still accounted for roughly twothirds of all imports. The commodity structure of imports responded both to structural changes in domestic production and to shifts in world markets. Thus, the heavy purchases of raw materials, energy, and capital goods up until the mid-1970s reflected Finland's postwar industrial development, while the subsequent period showed the influences of unstable world energy prices and Finland's shifts toward high-technology production. Imports of investment goods climbed from about 15 percent in 1950 to almost 30 percent in the late 1960s and early 1970s, only to fall again by the 1980s to about 15 percent. Foodstuffs and raw materials for the textile industry accounted for about half of all raw material imports during the 1950s, but by the 1980s inputs for the chemical and metal-processing industries took some 75 percent of raw material imports. World energy prices had strongly influenced Finnish trade because the country needed to import about 70 percent of its energy. After rising slowly until the early 1970s, the value of oil imports had jumped to almost one-third of that of total imports in the mid-1970s, then had fallen with world oil prices to about 13 percent by the late 1980s.
Like its export markets, Finland's import sources were concentrated in Western Europe and the Soviet Union. The country usually obtained raw materials, especially petroleum, from the East and purchased capital goods from the West.
Finnish service exports had exceeded service imports until the early 1980s. Up until this time, shipping and tourism earnings had generally exceeded interest payments to service the national debt. In the mid-1980s, however, the balance was reversed as the earnings of the merchant marine declined and Finns began to spend more on tourism abroad. Although Finnish businesses tried to compete in these labor-intensive sectors, the country's high wage levels made shipping and tourism difficult to export.
Like other Nordic countries, Finland's trade was concentrated in the Nordic area and in Europe. Unlike the others, however, Finland had, as its most important trading partner, the Soviet Union. During the postwar years, trade with the Soviets had expanded and contracted in response to political developments and market forces. During the immediate postwar period, the Soviet share of Finland's trade, spurred by reparations payments, rose to over 30 percent. However, the following two decades saw this share gradually decline as Finland expanded exports to Western Europe. A second cycle began after the 1973 oil crisis, when recession in Western markets cut demand for Finnish products while the increased value of Soviet oil deliveries to Finland allowed expanded exports to the East. Finnish exports to the Soviet Union rose sharply during the years after 1973, only to fall--along with world petroleum prices--by 1986.
By the late 1980s, the geographical distribution of Finland's trade was moving back to the pre-1973 pattern. In 1986, for example, although the Soviet Union continued to be Finland's single largest trade partner, trade with West European countries, which together accounted for about 61 percent of Finnish trade, was much more important than trade with the Soviet Union. Finland's main trade partners in Western Europe were Sweden, which took the biggest share of Finnish exports, and the Federal Republic of Germany (West Germany), which supplied the largest slice of Finnish imports. East European countries other than the Soviet Union accounted for only slightly over 2 percent of trade. Non-European countries were responsible for some 19 percent of trade. The United States, Finland's main non-European trade partner, accounted for over 5 percent of Finnish exports and imports in 1987.
As in many small European countries, the postwar trade policy of Finland had been to pursue free trade in industrial products while protecting agriculture and services. During the 1980s, strict quotas still blocked imports of most agricultural commodities (except for tropical products that could not be produced domestically), but liberalized regulations allowed increased imports of services, especially financial services. Most industrial imports and exports were free of surcharges, tariffs, and quotas under multilateral and bilateral agreements between Finland and its major trading partners. Health and security concerns, however, inspired restrictions on imports of products such as radioactive materials, pharmaceuticals, arms and ammunition, live animals, meat, seeds, and plants. With a few exceptions, Finland discontinued export licensing in the early 1960s. The State Granary, however, controlled all trade in grains, while the Roundwood Export Commission reviewed all lumber exports.

Finnish Direct Investment Abroad

From the end of World War II until the 1970s, Finland imported large amounts of capital to finance infrastructure investment and industrial development; however, by 1987 Finnish capital exports exceeded capital imports by about six to one. During the earlier period, foreign firms had set up subsidiaries in Finland, but few Finnish enterprises had established branches abroad. In the 1970s, the forest industry led a shift toward capital exports by founding sales outlets in the most important foreign markets, especially in Western Europe. The metalworking and chemical industries did not begin to expand overseas until the late 1970s, but they made up for lost time during the following decade. These industries first invested in Sweden, Norway, and Denmark, important markets sharing Nordic culture. Next came subsidiaries in the United States, which by the mid1980s became the second-largest recipient of Finnish investments after Sweden and which hosted more than 300 Finnish manufacturing and sales firms. In the late 1980s, some firms targeted markets in the rapidly expanding economies of the Pacific basin. Beginning in the late 1980s, the service sector began to follow industry abroad. Banks, insurance companies, and engineering and architectural firms established branches in major business centers worldwide. By the late 1980s, Finnish firms owned more than 1,600 foreign concerns, of which some 250 were engaged in manufacturing; more than 900, in sales and marketing; and 450, in other functions.
Businessmen had many motives for setting up overseas operations. In general, the Finns wanted to deepen ties with industrialized countries where consumers and businesses could afford high-quality Finnish goods. Maintaining access to important markets in an era of increasing protectionism and keeping up with new technologies had become crucial. Finnish enterprises, generally small by international standards, needed additional sources of capital and know-how to develop new technologies. Analysts believed that, despite their small size, Finnish firms could succeed abroad if they followed a comprehensive strategy, not only selling finished products but also offering their services in the management of raw materials and energy, development of new technologies, and design of attractive products.

GDP of Finland

Government policies helped achieve greater international integration of productive facilities. During the 1980s, legislation relaxed limits on foreign investment in Finnish firms, allowing foreigners to hold up to 40 percent of corporate equities; likewise, the BOF loosened restrictions on capital exports. The Technology Development Center (TEKES), under the Ministry of Trade and Industry, sponsored international cooperation in research and development. The government also arranged for Finnish participation in joint projects sponsored by the European Space Agency (ESA) and the European Community, including the EC's Eureka technology development program. Although it was still too early to predict how Finland would perform in international joint ventures, many observers felt that such enterprises were the best way for the country to achieve industrial progress.

Trade in North Korea

North Korea

DRPK of North Korea

 

Formal Name: Democratic People's Republic of Korea.
Short Form: North Korea.
Term for Nationals: North Koreans.
Capital: P'yongyang.

GEOGRAPHY

Map of North Korea

 

Size: North Korea occupies about 55 percent of total land area of the Korean Peninsula, or approximately 120,410 square kilometers of land area; it is about the size of the state of New York or Louisiana.
Topography: Approximately 80 percent of land area mountain ranges and uplands. All mountains on peninsula over 2,000 meters high are in North Korea.
Climate: Long, cold, dry winters; short, hot, humid summers. Approximately 60 percent of rainfall falls in June through September.

ECONOMY

Character and Structure: Socialized, centralized, planned, and primarily industrialized command economy. Principal means of production owned by state through state-run enterprises or cooperative farms. Prices, wages, trade, budget, and banking under strict government control. Growth rate 1984-90 averaged about 3 percent annually. Poor domestic economic performance; gross national product (GNP) down 3.7 percent in 1990 and down 5.2 percent in 1991. Total 1991 GNP US$22.9 billion, or US$1,038 per capita. Withdrawal of Soviet aid in 1991 negatively affected economy.

North Korea

Agriculture, Forestry, and Fisheries: Traditional source of employment and income but, under party rule, secondary to industry. Completely collectivized by 1958. Estimated 18 percent land, agricultural use; approximately 25 percent GNP. Principal crops: rice, corn, potatoes, soybeans, and pulses. Largely self-sufficient in food production, but reported food shortages. Growth in agriculture, forestry, and fisheries sector 2.8 percent in 1991; increase in rice and other crops offset decrease in fish products.
Industry: Machine building, military products, electric power, chemicals, mining, metallurgy, textiles, and food processing. Manufacturing concentrates on heavy industry; ratio of heavy to light industry in 1990 was 8:2. In 1991 oil imports fell 25 percent; coal production, 6.5 percent; and electricity generation, 5.2 percent. Shortages in oil, coal, and electricity in 1991 led to idled plants and 13.4 percent decrease in manufacturing output.
Labor: Labor force estimated at about 11.2 million in mid-1990; approximately 33.5 percent agricultural, down from about 43 percent agricultural in mid-1980. Shortage of skilled and unskilled labor.
Currency and Exchange Rate: 1 wn = 100 chon. As of December 1991, US$1 = 97.1 chon.

Trade Statistic

Foreign Trade: Major exports: minerals, metallurgical products, agricultural products, and manufactures, for a total of US$1.95 billion (free on board, 1989). Trade statistics according to North Korean source: imports US$2.28 billion, exports US$1.24 billion, and deficit US$1.04 billion in 1991. Estimated 1991 trade decreased by approximately 25 percent, especially affected by withdrawal of Soviet trade concessions beginning January 1991- -almost 40 percent--but trade with China up about 17 percent and increased trade with South Korea. Major imports: petroleum, machinery and transport equipment, coking coal, and grain, for a total of US$2.85 billion (free on board, 1989). Major trading partners: Russia, China, and Japan; to a lesser degree, Hong Kong, Germany, India, Canada, and Singapore. Trade with South Korea classified as internal, not international; major hardcurrency source. Lack of foreign investors. Joint Venture Law enacted in 1984, but few projects to mid-1993 and mostly Ch'ochongryn (General Association of Korean Residents in Japan) firms. Foreign investment, contractual joint venture, and foreign enterprise laws enacted October 1992 to induce investment.

FOREIGN ECONOMIC RELATIONS

Foreign economic relations have been shaped largely by chuch'e ideology and the development strategy of building a virtually autarkic economy. These factors have led to an inward-looking and import-substituting trade policy, which has resulted in a small scale of foreign trade and a chronic trade deficit. North Korea's main trade partners have been communist countries, principally the Soviet Union and China, and Japan has been a major trading partner since the 1960s.
Although still adhering to the basic principle of selfreliance , P'yongyang is flexible in its application whenever the economic need arises. After the Korean War, North Korea received a substantial amount of economic aid from communist countries for reconstructing its war-torn economy. In the early 1970s, the country accepted a massive infusion of advanced machinery and equipment from Western Europe and Japan in an effort to modernize its economy and to catch up with South Korea. By the late 1980s, P'yongyang had moved towards making exporting a priority in order to garner foreign exchange so as to be able to import advanced technologies needed for industrial growth and to pay for oil imports.
The most recent and important manifestation of a flexible and practical application of self-reliance--prompted by severe economic difficulties--is the gradual move toward an open-door policy. This policy shift, which involves North Korea's attitudes toward foreign trade, tourism, direct foreign investment, joint ventures, and economic cooperation with South Korea, has the potential to significantly change the country's foreign economic relations.

Statistic of North Korean dollar

The importance of trading with Western developed countries was expounded by Kim Il Sung as early as 1975. The origin of the open-door policy, however, was Kim Il Sung's 1979 New Year's address, in which he mentioned the need to expand foreign trade rapidly in order to meet the requirements of an expanding economy. Kim publicly alluded to some serious problems impeding North Korean exports, exhorting the population to adhere to a reliability-first principle: improving product quality, strictly meeting delivery dates, and expanding harbor facilities and the number of cargo vessels. In his 1980 New Year's address, Kim repeated this theme and announced that foreign trade had increased 30 percent in 1979 over 1978. This speech marked the first time in a decade that trade statistics had been made public--even in this limited and relative form. Unexpectedly and uncharacteristically, North Korea joined the UNDP in 1979 and accepted US$8.85 million in technical assistance. This action was further evidence of a small opening to outside economic involvement.
The year 1984 was the benchmark in officially launching the open-door policy. The Supreme People's Assembly's policy statement, entitled "For Strengthening South-South Cooperation and External Economic Work and Further Developing Foreign Trade," stressed the need to expand economic relations with the developing world as well as to promote economic and technical cooperation with advanced industrial countries. The document also repeated the export bottlenecks listed by Kim in his 1979 and 1980 New Year's addresses. North Korea indicated its readiness to accept direct foreign investment by enacting a joint venture law in 1984. And, since 1986, the country has begun to encourage tourism by accepting some tour groups from the West.
The most far-reaching change in foreign economic relations occurred in 1988 when North Korea began to trade with South Korea. Inter-Korean trade has grown rapidly, and by 1993 the two Koreas expanded into joint ventures and other forms of economic cooperation. North Korea's readiness to open its economy to the West and to South Korea is, no doubt, prompted by its need to import sophisticated Western industrial equipment, plants, and up-to-date technologies in order to modernize and jump-start the economy, and to catch up with South Korea. Given its sizable foreign debt, sagging exports, and the dissolution of the Soviet Union, its largest trade partner, North Korea does not have much choice and recognizes the need to revise its trade laws so as to encourage foreign investment.

Foreign Trade

North Korea's foreign trade is characterized by its relatively low value, chronic trade deficits, and small number of trading partners. In 1990 almost 83 percent of total trade was conducted with the Soviet Union, China, and Japan. Although modest in scale, accompanied by wide and frequent swings from year to year, and even negative growth in some years, trade levels have grown over the years. Based on estimates from the returns of trading partners, exports and imports grew from US$307.7 million and US$434.1 million, respectively, in 1970, to US$1.86 billion and US$2.92 billion, respectively, in 1990. North Korea's total exports were comparable to only 2.9 percent of South Korea's exports of US$65.02 billion in 1990. North Korea's trade value also is small in relative terms when compared with that of South Korea and other newly industrializing economies. The trade ratio (total trade value relative to GNP) in 1990 was 20.7 percent, with export and import ratios of 8.1 percent and 12.6 percent, respectively. The comparative ratio for South Korea was 56.7 percent--with 27.3 percent and 29.4 percent, respectively, for exports and imports.
Except for a few years since 1946, the trade balance has been characteristically unfavorable. North Korea attracted worldwide notoriety in 1976 when it defaulted on its payment of foreign debt to Western countries. The debt had resulted from massive purchases of capital goods from West European countries and Japan in the early 1970s, which had drastically increased the trade deficit. Imports are supposed to be paid for by increased export earnings and short-term credits, neither of which has occurred. The oil shock of late 1973 and the onset of the recession and worldwide stagflation also took their toll. Prices of North Korea's minerals declined sharply because of a worldwide recession that lowered demand. Foreign exchange reserves dwindled, leading to the debt crisis. After suspending payments, North Korea tried to reschedule the payments, but its payment record is erratic; the debts continue in the early 1990s, and unpaid interest continues to mount. At the end of 1989, the total foreign debt was estimated at US$6.78 billion: 45.9 percent, or US$3.13 billion, was owed to the Soviet Union; US$900 million to China; and US$530 million to Japan. According to South Korean sources, the total debt had increased to US$7.86 billion at the end of 1990.
Despite North Korea's flirtation with Western developed countries, the Soviet Union, China, and Japan remain its principal trading partners. In the late 1940s and 1950s, more than 90 percent of trade was conducted with communist countries. In the 1960s, this dependency began to gradually decrease, and in the mid-1970s, with P'yongyang's sudden turn to the West for imports of machinery and equipment, the slide accelerated. This dependency fell to its lowest point in 1974--only 51.5 percent of total trade; it began to rise again when North Korea, having defaulted on payment of its debt, found it difficult to obtain credit to finance imports from the West. The ratio of trade with communist countries was 72.7 percent and 71.4 percent, respectively, in 1989 and 1990.

Korea Dom

The Soviet Union has consistently been North Korea's largest trading partner, accounting for about half of total two-way trade in the late 1980s and 55.9 percent and 56.8 percent in 1989 and 1990, respectively. It is followed by China, with 12.5 percent and 11.4 percent in 1989 and 1990, respectively. Since the early 1960s, Japan has emerged as the third largest trading partner-- 10.7 percent and 19.7 percent in 1989 and 1990, respectively. Japan remains a major continuing link with the advanced market economies. For some years in the mid-1980s, imports from Japan exceeded those of China. Most of the trade deficits originate in communist countries; an exception was in 1974-75 when an import surplus from Western countries exceeded that from communist countries.
The Soviet Union also is the largest source of import surpluses. In 1989 and 1990, trade deficits with the Soviet Union constituted 63.5 percent and 57.7 percent, respectively, of the total deficit. The corresponding ratio for China was 20.3 percent and 28.6 percent, respectively. North Korea had depended predominantly on the Soviet Union and China for its trade credits in the late 1980s, but in 1990 P'yongyang began to lean more toward Beijing. From 1987 to 1990, North Korea consistently accumulated a trade surplus with Japan.
A major factor in North Korea's renewed reliance on the Soviet Union in the 1980s--both as supplier of imports as well as the chief destination for exports--was the difficulty of marketing its products elsewhere; a second important factor was the West's reluctance to extend additional credits. In a trade agreement signed in November 1990, North Korea was required, for the first time, to use hard currency in its commercial transactions with the Soviet Union beginning in 1991. China also notified North Korea to use hard currency in their mutual trade beginning in 1992. This requirement will have a serious adverse effect on the trade value, the balance of payments, and the domestic energy situation. There are signs that the initial attempts to enforce the hard currency rule caused Soviet-North Korean trade to plummet in early 1991. For example, petroleum deliveries from the Soviet Union plunged from 410,000 tons in 1990 to 45,000 tons in the first half of 1991. In order to prevent a further decline, the Soviets conceded some unidentifiable amount of transition time before fully enforcing hard currency payments. Because of the decline in oil imports, the Soviet-aided Sngri oil refinery in Ch'ngjin was at least temporarily closed. Consequently, North Korea has increasingly turned to China and Iran for petroleum.
North Korea's principal exports are non-ferrous metals-- mostly zinc, lead, barites, gold, iron and steel, and textile yarn and fabrics, magnesium, metal-working machine tools, military equipment, cement, vegetables, and fishery products. Its main imports are advanced machinery, transport equipment, highgrade iron and steel products, crude petroleum, wheat, and chemicals. Of almost US$1.7 million of imports from the Soviet Union in 1990, machinery and transport equipment constituted by far the largest category of imports--22.4 percent; garments constituted 53.6 percent of exports amounting to approximately US$1 million that same year. Petroleum and petroleum products imported from the Soviet Union declined sharply from 21.5 percent in 1987, to 10.9 percent in 1988, and to 6.7 percent in 1990.

North Korea's main imports from China are energy-related products--coal, briquettes, petroleum, and petroleum products; they constituted 38.4 percent and 38.5 percent of imports, respectively, for 1989 and 1990. Other imports include cereals and cereal preparations, oil seeds, rubber products, textile fibers, fruits and vegetables, foodstuffs, and machinery and equipment. Metallurgical exports, including magnesium, steel, and nonferrous metals, are the largest category of exports to China, comprising 37.2 percent of total exports in 1990. Other exports to China include anthracite coal, cement, fish, and seafood.
Machinery is the largest import from Japan, making up 23 percent of the total, followed by textile fibers and products, base metal and products, chemicals, plastic and rubber products, and electric and transport equipment. Making up about 40 percent of the total in 1989-90, the main exports to Japan are minerals, in particular iron and steel, zinc, magnesium, aluminum, and lead. Other export items to Japan are vegetables, marine products, textile fibers, anthracite coal, apparel and clothing accessories, and precious metals.

Foreign Investment and Joint Ventures

Direct foreign investment in North Korea had been virtually absent until 1984, when North Korea made a surprising turnabout by proclaiming the Joint Venture Law. The twenty-six-article law on joint ventures appears to have been fashioned after China's law on the same subject. Joint ventures are allowed in "industries necessary for the people's economy," specifically electronics, automation equipment, metals, machine building, chemicals, food processing, clothing-processing industries, consumer goods, construction, transportation, and tourism. Overseas Koreans, particularly those in Japan, are singled out as parties who might wish to participate in joint ventures. Foreign participants are allowed to repatriate profits. There are no stated limits on foreign equity shares. A Ministry of Joint Venture Industry was created in 1988 but in 1990 was scaled down to a bureau, presumably under the Ministry of External Economic Affairs, which handled foreign market development, foreign investment, and joint ventures.

Crane of North Korea

Attempts to accelerate the transfer of hoped-for and muchneeded advanced technology and the infusion of capital through joint ventures has had limited success. Until the early 1990s, North Korea was unable to attract major investment by West European or mainstream Japanese firms. Many factors influence the slow pace and low level of participation in joint ventures by firms other than those owned by Choch'ongryn (General Association of Korean Residents in Japan) an organization of North Korea-supporting Korean residents of Japan. In fact, the majority of joint venture deals have been concluded with Choch'ongryn firms. Of a total of 100 joint ventures reported toward the end of 1991, with a total capitalization of 13 billion yen (approximately US$96.5 million), over 70 percent involve Choch'ongryn firms.
Because the foreign debt problem still is unresolved, North Korea has not improved its shaky credit rating. As a result, Western firms consider any venture with North Korea highly risky. Although the joint venture law is liberal with regard to the repatriation of profits, the dearth of hard currency holdings make profit repatriation questionable, thus discouraging potential investors. Another inhibiting factor is the relatively small size of the domestic market, particularly in terms of per capita income. Moreover, the market's restrictive nature--with prices and distribution channels controlled by the state--make the prospect of successful penetration both dim and problematic.
Approximately ten joint ventures have Chinese participation; other partner countries include the Soviet Union and Bulgaria. The largest joint venture project is the Hamhng Rare Earth Separator Plant, which has both Chinese and Choch'ongryn participation and an investment of approximately US$10.25 million. There also are thirty overseas joint ventures; they are mostly in the former Soviet Union with a few in China. The majority of the firms are engaged in light manufacturing. The first joint venture with China, begun in 1989, was a marine fishery products firm located in Ch'ngjin that had an initial capitalization of US$1 million. The Hich'n-Gorky joint venture company run by the Hich'n Machine Tool General Works of North Korea and the Gorky Machine Production Complex of the Soviet Union was commissioned in October 1989. Other projects under way include a joint shipping company, a luxury hotel, a store selling soft drinks, a department store, an apparel plant, a restaurant, a silk fabric plant, and a gold mine. Both Kim Il Sung and Kim Jong Il attended an exhibition of goods produced by a joint venture with Choch'ongryn firms from Japan in P'yongyang on April 13, 1991; the first such event ever held in North Korea.