In December of 1991, North Korea merged Rajin and Sunbong, on the northernmost borderland of North Hamkyung Province where North Korea, China and Russia meet, and designated Rasun City a Free Economic Trade Zone. Drawing up a plan to make this area a hub for Northeast Asian freight, export processing, tourism and finance, North Korea enacted the “Rasun Economic Trade Zone Act” in 1993.

However, due to irrational investment conditions, it did not attract much foreign capital. As a result, it was neglected; not functioning as an open special economic zone and all but deserted for a long time. The original plan was to attract $4.7 billion dollars of foreign capital in total, but the actual amount invested was just $60 million.

Then, as the economic crisis started getting more severe following the second nuclear test, strengthened international sanctions and then the whirlwind of the currency redenomination, North Korea pulled out the Rasun Special Zone card.

After an onsite inspection in the Rasun region at the end of last year, Kim Jong Il emphasized, "We should carry out foreign activities intensively and constantly extend our foreign markets." Accordingly, at the start of this year, Rasun’s status was raised to that of “Special City.” The development of Rajin Port by China is also being promoted. It seems like a movement motivated by economic openness, with Rasun Special Zone as its base.

Naturally, then, a Rasun Economic Law with exceptional conditions for investment attraction was expected, so North Korea's revised Rasun Economic Trade Zone Act was a big disappointment.

In the revised Act, even though special economic zone policies should always aim to facilitate a market economy, North Korea only strengthened its controls for the purposes of blocking capitalist influences, the so called “yellow wind,” that might reach its people. Foreigners in Rasun are not even exempt from North Korean laws, so even the status of visitors cannot be guaranteed.

Before the revision, hiring foreigners happened following negotiations with the competent institution. Now hiring is approved, or not, without negotiation. Personnel management, a key factor in business management, regressed even more. Entrance and passage became very difficult, too. Unconditional no-visa entry was revised, and now a visa is required when entering Rasun after visiting other regions of North Korea.

Although at least the Act alleviates the approval process for corporations, encourages investment in science and technology and opens the door to South Korean corporations, it is unlikely to have a big effect on foreign investment. Blocking out the market economy and still wanting to earn money at the same time makes investment attraction impossible. It is nonsense that North Korea is trying to revitalize foreign direct investment while strengthening state controls and aiming for a planned economy. In order to solve its economic problems by attracting foreign capital, fundamental changes in domestic and foreign policies are essential.

First, there has to be a peaceful foreign policy. The most urgent need is to increase trust through real changes in attitude towards denuclearization. In the situation where an entire corporation could be affected by dealing with North Korea due to UN Security Council sanctions, obtaining actual investment will be very difficult.

Secondly, the North’s authorities have to throw away the framework of socialist economic management and apply bold reforms and open-door policies. Though North Korea took “towards the world” as its slogan this year, it should give assurances that it will actually enter the international community instead of stopping at a slogan. This is only possible when they accept advanced economics and an ideology that works in a modern society.

Third, basic infrastructure has to be provided in order to draw the attention of other countries to the development of the Rasun Special Zone. Currently, Rasun Special Zone's electricity supply, harbor and roads are so inadequate that foreign investors end up spending more on infrastructure than on their original investment. Absolutely lacking finance, North Korea should draw support from neighboring countries and international financial capital by means such as providing incentives. Increasing transparency and economic independence is also important.

Fourth, North Korea has to provide investment systems and administrative services. It should also guarantee the investing corporations the self-regulating right of management and free passage into the city. By reducing investment uncertainty, the North should make it possible for corporations to generate profits.

Fifth, it has to set up a system for South Korean corporations to enter the market, focusing on economically efficient fields. Once South Korean corporations enter Rasun, they will have the effect of attracting other foreign corporations. Depending on China too much is not an appropriate strategy for a special economic zone. North Korea should throw away its stubborn, superior attitude regarding North-South economic interaction and adhere to an appropriate attitude for a country trying to attract investment.