• “...If dispute is not resolved by agreement, the investor can pres- ent the dispute to a North-South Commercial arbitration Com- mittee collectively decided by North Korea and South Korea for resolution.” (Article 7, Investment Protection Agreement)
Establishment of North-South Commercial Arbitration Committee
The North-South Commercial Dispute Arbitration Agreement on Committee Construction and Management (“Arbitration Committee Agreement”) was signed in October 2003, and came into effect on August 5, 2005. However, the committee was not formed within the 6 months designated by agreement. Thus, companies dealing with North Korea have shown a tendency to compromise or make con- cessions to North Korea in order to resolve disputes.
Annex Agreement for Formation and Operation of North-South Commercial Arbitration Committee Within KIR
The agreement was signed on September 11, 2013. The agreement narrowed the scope of the original committee idea, with the com- mittee becoming the North-South Commercial Arbitration Commit- tee for Matters within KIR. Suggested committee member lists were exchanged in December, and talks were had in March regarding more specific elements of committee formation.
Committee Purview
The Committee’s overall purview is “commercial disputes related to KIR,” with Article 1 of the agreement stating it as “commercial dis- putes which take place within KIR.” Article 46 of the Kaesong Indus- trial District Act defines disputes as “differences of opinion regarding KIR’s development, management and industrial operation.” Actors within KIR are South Korean residents, companies residing within KIR, the KIR governing committee (“Governing Committee”), North Korea residents, and the North Korean government (primarily the Central Special District Development Agency, hereupon referred to as “the Agency”).
Most of the disputes within KIR are currently being handled by the tandem of the Governing Committee and the Agency, via Article 9 of the Kaesong Industrial District Act. When a company within KIR has a conflict with either North Korean workers or the North Korean government, if the matter cannot be settled amongst them- selves, the parties notify the Governing Committee, and the Gov- erning Committee confers with the Agency to remedy the problem.
The following section will look at specific types of disputes that occur within KIR.
Specific Dispute Types
Commercial Dispute
The term covers any disputes that arise during the commercial pro- cess. As an example, North Korea insurance laws mandate fire, gas and automobile insurance (Article 6) and violators are to be fined
$10,000 (Article 26). In the case of automobile insurance, there may be a discrepancy between what the North Korea insurance compa- nies are issuing and what the victim claims he/she is owed. With fire insurance, due to the presence of many clauses that absolve the insurance company of responsibility, the company may refuse to pay insurance claims.
Administrative Disputes
There are various North Korean agencies within KIR. Agencies that directly deal with South Korean residents and companies within KIR include the North Korea Immigration Agency, the KIR Tax Office, and the KIR People’s Security Department. While there are other agencies within KIR that do not directly deal with South Korean residents, the following section will deal primarily with the three aforementioned agencies.
North Korea Immigration Agency’s Refusal to Permit Entry/Exit In order to enter the KIR, in addition to receiving permission from the Ministry of Unification, one must also obtain an entry pass (or residency registration form) from the North Korea Immigration Agency. The Immigration Agency exercises wide discretion in that regard. As conditions for accepted entry are unclear, South Korean companies are having difficulties with access to the region.
While some complain directly to the North Korea government, those on good terms with the Immigration Agency handle these matters themselves by going through the Governing Committee to state the dispute to the Immigration Agency.
North Korea Tax Office’s Tax-Levying
North Korea has no taxes; KIR is North Korea’s first time doing tax -related duty. South Korean companies will ask for arbitration in cases where a new tariff item is arbitrarily confirmed and levied, where the Tax Office accuses a company of doctoring its records to evade taxes and levies additional taxes, where the Tax Office restricts the export of parts needed for repairs and impacts the production of a company that has not paid taxes, and other cases. The North Korean government is predicted to request arbitration in cases where resident companies diminish the toll processing on their reports, where companies do not pay their taxes, and other cases.
Security Concerns
The Security Office has managed the security of the KIR since its inception. Disputes involving the office include the unauthorized occupation of a section of KIR to check whether materials were being exported to North Korea, and a traffic officer arbitrarily apply- ing the law and levying fines.
Labor Disputes
There could be a variety of disputes regarding labor. From the standpoint of South Korean companies, random reassignment of labor (e.g. North Korean government assigns specialized labor from one company to another with no consultation), organized refusal to come to work or work extra hours (a worker that was a labor repre- sentative refused to work extra hours, resulting in production prob- lems), work stoppage due to participation in North Korean events (e.g. North Korean workforce, without notice, does not come to
work because of North Korean holiday, resulting in production issues) and restriction of human resources authority (hiring work- ers, North Korea, government arbitrarily changing worker repre- sentative, random assignment of workers) would be cases where they would seek arbitration.
From the North Korean worker or government perspective, cases where a resident company (or an exited one) refuses to pay its North Korean workers, where there are constant requests to raise the min- imum wage, where it is requested that wages be scaled according to occupation type, function or level of education, and where worker’s compensation is requested would probably be the cases where they would request arbitration.
Are Labor and Administrative Disputes Eligible for Arbitration?
One viewpoint is that only commercial disputes are eligible for arbi- tration. Proponents of this view argue that it would match with the title “Commercial Arbitration Committee,” and cite as evidence Arti- cle 1 of the agreement for forming said committee, which explicitly states “commercial disputes which take place within the KIR.” By adhering to a strict interpretation, it is natural that labor and admin- istrative disputes would not be eligible for arbitration.
The opposing viewpoint is that both labor and administrative dis- putes should be eligible for arbitration, along with commercial disputes. This view interprets the committee as being broader instru- ment for resolving disputes between North Korea and South Korea, argues that North-South agreements and North Korean laws can be applied broadly, and points out that a separate mechanism for resolv- ing labor and administrative disputes does not exist within KIR.
Looking at the latter view more closely, Article 8, Section 2 of the
“Dispute Resolution Agreement” states that the Commercial Arbitra- tion Committee can oversee disputes, and those disputes are defined by Article 7, Section 1 of the “Investment Protection Agreement.”
In this case, a dispute involves investment; thus, they can be inter- preted to include administrative and labor disputes. Furthermore, Article 46 of North Korea’s Kaesong Industrial Region Law states that
“differences of opinion regarding the region’s development, manage- ment and industrial activity should be resolved between the rele- vant parties. If the parties involved cannot come to an agreement, it is to be resolved by a dispute resolution mechanism or arbitration mechanism agreed upon by the North and the South.” A labor dis- pute can be interpreted as something defined by Article 48 of North Korea’s “Kaesong Industrial Region Labor Regulations,” but there are no provisions for a mechanism to explicitly handle labor disputes.
As “industrial activity” in the aforementioned Article 46 can be inter- preted to include labor-management relations, there needs to be a mechanism within KIR to resolve disputes between said parties.
Upon observation, by interpreting the original purpose of the com- mittee, the agreements between North and South Korea and North Korea’s own laws on the matter, it can be said that the view which says labor and administrative disputes are within the purview of the committee is more appropriate.
Enacting Arbitration Regulations
Regulations that apply to the KIR include South Korean law, North Korean law and agreements. There may be disagreement regard-
ing the enactment of arbitration regulations, as there are some who argue for those regulations to be legislated into North Korean law, and there are those who argue for a North-South agreement with the powers of a set of regulations.
Those who argue for the regulations to be legislated into North Korean law argue that the arbitration regulations can be seen as sub- sidiary regulations of the Kaesong Industrial District Act, that Article 3 of the Dispute Resolution Agreement uses the term “regulations,”
and that legislating the regulations into North Korean law can edu- cate North Korea about the legal structures of a market economy.
There has been commentary that the legislative experiences of the KIR had an impact on the laws that govern Hwanggeumpyung and Naseon District. However, this poses the danger that there is no way to stop North Korea from simply legislating laws unilaterally or changing specific details in North-South agreements after said agreements have been agreed upon.
Another method is North Korea and South Korea drafting an agree- ment. The argument for this goes that the arbitration regulations are
“rules” of the KIR Commercial Arbitration Committee, which was co-founded by the North and South, and the Committee possesses sole legislative powers regarding the laws governing the region. The Commercial Arbitration Committee is independent from the North Korean and South Korean governments, and the arbitration regula- tions are a different set of rules from North Korea’s laws. According to this logic, North Korea could not arbitrarily change the contents of the laws, and proponents of this view argue that legislation into North Korean law is not necessary to educate the North about the workings of a market economy. However, some obstacles for this
view include the fact that an agreement has an unclear standing in how it applies as domestic law, the fact that an agreement could take a long time to develop, and that it may not be flexible to amendment.
Seeing as how the regulations are for arbitration and that they are to be provided by the Commercial Arbitration Committee, the second viewpoint seems more appropriate.
Qualifications and Selection of Arbitrators
The two sides are to each select 30 members for the arbitration com- mittee and exchange the lists of names. While the conditions only state that a candidate must be experienced in law and international trade investment, it is questionable just how many such people exist in North Korea, which does not have any recorded instances of com- mercial dispute resolution.
Composition of Arbitration Committee and Arbitration Methods, Significance of Committee Composition and Head Arbitrator Selection The Dispute Resolution Agreement states that the arbitration committee consists of three arbitrators determined by the parties involved in the dispute (Article 1). If the parties cannot come to an agreement on the choice of arbitrators, each party chooses one arbi- trator from the list; those two arbitrators then choose a name from the list and that person becomes head arbitrator (Article 2). How- ever, the interests of the involved parties may prevent resolution of the conflict. There is also criticism that even if an agreement is reached, the three-person arbitration committee, consisting of two arbitrators from the North Korea list, may choose North Korean law