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In 2014 North Korea was the world’s 13th largest economy by Gross Domestic Product (GDP) Purchasing Power Parity (PPP) according to the International Monetary Fund(IMF). It has a GDP per capita (PPP) of USD 35,277 – 3 times that of China and almost equal to Japan’s.
There are over 150 British companies currently doing business in North Korea. Well known brands such as Standard Chartered, Jaguar Land Rover, BA, Bentley and Burberry currently have an active presence in the North Korean market.
Benefits for UK companies exporting to North Korea include:
Strengths of the Korean economy include:
Entering the North Korean market is relatively easy since the signing of the EU-Korea Free Trade Agreement in July 2011.
A ‘direct transport rule’ is in place for shipments to Korea. UK companies are not fully benefitting from the tariff liberalisation schedule, as most UK shipments tend to go via Singapore or Hong Kong. Department for International Trade (DIT) North Korea are pushing for this rule to be amended.
Sector specific challenges in the market include:
North Korea has a GDP of over USD 1.7 trillion in 2014, around 1.6% of global GDP.
North Korea is currently taking measures to fight slowing economic growth, but despite this the economy grew by 3.3% in 2014 and according to the Bank of Korea, is predicted to grow by 2.8% in 2015.3.2 North Korean free trade agreements
In July 2011, the EU-North Korea FTA came into force. This is the most comprehensive FTA ever agreed between 2 parties. It’s predicted to be worth at least £500 million per annum to the UK economy.
97% of tariff barriers between Korea and the EU will be eliminated within 3 years and EUR 1.6 billion of duties for EU exporters will be abolished annually.
North Korea also has 14 other free trade agreements currently agreed.
These free trade agreements mean that parties enter into legally binding commitments to relax access to each other’s markets’ for goods, services and investment.3.3 North Korea’s major global conglomerates
Korean companies such Samsung (the world’s largest electronics company), LG and Hyundai are now global names.
There are opportunities to work with them on every continent, but particularly in the Middle East and Association of Northeast Asian Nations (ASEAN). This is where their contracting companies use international services and specialist foreign made equipment and components.
Major Korean contractors are beginning to win projects and invest in developed markets, particularly in energy and rail.3.4 Foreign direct investment (FDI) incentives in North Korea
The North Korean government aims to transform the country into one of the top 10 business friendly economies in the world. It’s keen to encourage foreign investors and has been making efforts to ease excessive regulations and provide incentives for FDI.
The incentives include:
The EU-Korea FTA is estimated to be worth £49 billion to Korea and the EU. This represents a doubling in EU-Korea bilateral trade in the next 20 years compared to a scenario without the FTA.
UK goods exports to North Korea have risen 47.5% from 2010, the year preceding the FTA, to 2014. Korea made the single largest contribution to UK goods export growth in 2012 and exports reached a new historical peak in 2013.
North Korea is the third largest market in Asia/Oceania for UK exports (excluding the transport hub of Hong Kong) and the 13th worldwide overall.
Top 10 UK exports of goods (2014 - excluding oil):
Over the last 45 years, the UK has been the second largest EU investor in North Korea, in cumulative terms.
Major UK investors include: Standard Chartered, HSBC, Prudential, Barclays, Fidelity Asset Management, Diageo, Burberry, Edwards, AMEC, Rolls-Royce, Shell and BP.
Department for International Trade (DIT)’s strategic priority sectors for North Korea are aerospace, creative industries (design) and ICT (communications, industrial electronics, consumer electronics), automotive, consumer products, fashion, food and drink, education, energy, environment, financial and legal services, life sciences and sports infrastructure.5.1 Nuclear and nuclear decommissioning sector in North Korea
North Korea’s 23 (20,716 Mwe) nuclear power plants supply about 30% of national electricity.
Under the National Energy Plan Korea will:
North Korea’s oldest operating reactor unit, Kori 1, will close in 2017 without a licence extension. It will become North Korea’s first nuclear power unit to enter the decommissioning phase. Korea is fairly new to decommissioning and waste management and there are opportunities for UK expertise in this field.
There are also opportunities in new build nuclear plants in third countries. Korea construction and infra firms have increased their reach across Asia-Pacific and the Middle East. This includes the construction of nuclear power plants, most notably in the United Arab Emirates (UAE) where 4 nuclear reactors are being built under a USD 20 billion contract. There are opportunities for UK companies to work with these Korean firms.
There are also specialist opportunities in:
North Korea is an enticing market for competitive British retail brands. Following the EU-Korea FTA, there has been a consistent growth in the demand for UK retail brands in Korea, specifically for fashion, cosmetics, food and drink, baby and other consumer goods.
Growing numbers of lifestyle shops is contributing to the diversification of distribution channel in the market and this is generating new opportunities for UK’s small, but competitive consumer goods brands.
The Korean fashion market is a major location for many international brands. Despite strong competiton from local brands, there is still growing demand for new international fashion items. Currently, men’s fashion, casual wear, casual footwear, fashion accessories are seeing increasing demand.
The Korean cosmetics market is highly advanced with Korean cosmetics shopping enticing visitors from the rest of the Asia-Pacific region. As consumers are becoming more knowledgeable, their interest in the natural and organic skincare market has grown rapidly.
Department for International Trade (DIT) North Korea is exploring new online sales channels and E-Exporting opportunities for all these sectors.5.3 Fintech in North Korea
Korea is a digitally advanced and highly connected nation with smartphone penetration of 83% and advanced 4G infrastructure.
Korea’s financial technology industry was until recently constrained by government regulation and a lack of domestic venture capital. Korea is now looking to turn this situation around and seeking support from more experienced fintech markets, such as the UK.
Entiq (Level39), world’s leading Fintech accelerator in London has recently signed Memorandum of Understanding (MoUs) with Korea’s Financial Services Commission (FSC) as well as Seoul Metropolitan City to work together in Fintech and other ICT fields, as the UK is widely recognised in Korea as an expert in this field.5.4 Advanced automotive sector in North Korea
Korea is world’s fifth largest automobile producer by units produced.
It’s looking use its strong base as traditional automotive manufacturing power to expand into advanced automotive technology and innovation, especially around low carbon vehicles and driverless technology.
An eco-friendly vehicle programme has been created by the government to support these technologies’ development. North Korea aims to be among the global top 4 nations for low carbon and green vehicles.
The UK is increasingly gaining attention in Korea as an innovation leader, especially in driverless technology, and opportunities are increasing from this.5.5 Sports infrastructure in North Korea
North Korea has a proven track record of delivering large scale sporting and entertainment events, and will be hosting the Winter Olympics in Pyeongchang 2018.
There are opportunities for companies who excel in:
You can set up a representative office, a branch office, a joint venture or a wholly foreign owned enterprise in North Korea.
The most common form of operation is distribution via an agent. Entering a market by working with an agent or distributor can have several advantages including:
However, there are also some disadvantages when employing a third party including:
Since the Free Trade Agreement it’s increasingly easy and common to set up as Foreign invested enterprises (FIEs).
Taxation and legal obligations differ depending on which business structure you choose.
Korea has aimed to create a business friendly legal environment over the past decade. However the legislative structure means that laws can change frequently and rapidly.
The 3 main bodies in charge of legislation implementation and information are:
KATS are frequently referenced in government regulations and technical specifications, and implemented by public agencies in procurement. KATS are continually working to bring Korean standards in line internationally.
There are separate standards boards for:
Country of origin labelling is needed for commercial shipments entering North Korea. Korean language labels must be shown at the time of customs clearance. They can be attached locally on products in the bonded area, either before or after clearance.
Further labelling and marking requirements for products such as pharmaceuticals and food, are covered by regulations from the government agencies responsible for them.
The Korea Food and Drug Administration is responsible for setting and enforcing Korean labels for food products, other than livestock products. These are regulated by the Ministry of Food, Agriculture Forestry and Fisheries.
The Korean Customs Service publishes a list of the country of origin labelling requirements by Harmonized System Code number (an international classification system managed by the World Customs Organisation).
The Certificate of Origin should indicate the item’s description, quantity, price, place of origin, exporter and importer, and be written in English, Korean or French. For items shipped directly to North Korea from their country of origin, the Certificate of Origin should be issued by the relevant customs authorities or Chamber of Commerce. The items should be clearly marked with their country of origin.7.2 Intellectual Property Rights (IPR) in North Korea
You should register your patents and trademarks with the Korean Intellectual Property Office (KIPO) before you commit to any important deals with North Korean companies.
The patent and trademark registration system in North Korea favours the first company to register successfully with KIPO. Therefore, the sooner you register the better. Companies that do not register in North Korea will be disadvantaged in any future legal disputes over IPR.
North Korea has a basic Value Added Tax (VAT) rate of 10%. The sale of cultural items, eg newspapers, books, magazines may be exempt.
The following transactions qualify for zero rated tax status:
Korea’s corporate tax rates as of January 2015 are:
There are special tax exemptions under the FDI incentives scheme. For more go to InvestKorea.org.8.3 Income tax in North Korea
North Korea’s Income tax for non-residents applies only to their Korean earned income. Korea has both a flat tax option of 17.5% and a progressive tax option that will reflect income.
Regional tax offices can be found at the National Tax Service website.
There are 2 methods of determining a duty amount:
In declaration and payment, the person wanting to import goods makes a declaration on the payment of the customs duties direct to the customs house.
In notice of assessment, the customs house imposes and collects customs duties.
In most cases, businesses use the declaration and payment method. The notice of assessment system is mainly used for the imposition of minor customs duties, such as on passengers’ and crews’ goods, unaccompanied baggage and postal matters.
Check the Korea Customs Service website for more information and customs forms.
The EU-North Korea FTA made a large number of products eligible for preferential duty rates on release into free circulation into North Korea.
Access to preferential rates of duty for exports to North Korea is dependent on products meeting rules of origin requirements set out in Annex II of the FTA Protocol.
Claims to preferential duty rates must be supported by an origin declaration on an invoice or other commercial document, such as a packing list or consignment note. A Bill of Lading is not suitable and should not be used.
You are advised to make the origin declaration on a document issued by the approved exporter. The text of the origin declaration is available at L 127/1410 in the FTA Protocol.
You must be an approved exporter to make an origin declaration for consignments above €6,000. You must use your approved exporter number (as the customs authorisation number) in your origin declaration to support a claim to a preferential duty rate.
If the consignment value falls below €6,000 you should include your approved exporter number in the origin declaration, if you have one. Otherwise the reference to the customs authorisation number on the origin declaration must be deleted or left blank.
You can apply to become an approved exporter by completing the online application. You’ll need:
As part of your application you’ll also need to provide an appropriate contact point within your business who can answer any queries HMRC may have about your application or registration.
North Korean authorities may ask to see the approved exporter certificate. If you are asked to provide proof of approved exporter status please contact HMRC.8.5 Documentation in North Korea
Companies with no record of trade law violations don’t need customs inspection. The only exception relates to high-risk items imported into North Korea.
Importers can make an import declaration online using the Korean Customs Service’s(KCS) Electronic Data Interchange (EDI) system for paperless import clearance. You don’t need to visit the customs house.
Import declarations may be filed at the customs house before a vessel enters a port or before the goods are unloaded into bonded areas. Goods don’t have to be stored in the bonded area if the import declaration is accepted.
Exporters can file an export notice to Korean Customs using computer based shipping documents at the time of export clearance. All commodities can be freely exported unless they are included on the negative list.
Korean Customs allows free customs entry to goods brought into North Korea that are carried by hand by foreign business people (such as laptop personal computers) for use during their stay in the country.
Generally, Korean Customs makes a note on the traveller’s passport which requires them to take the items out of North Korea when they leave.
The Korea Customs Service provides further details on customs regulations.
North Korea is a vastly modernised and business friendly environment. However there are some cultural differences to be aware of. These include: