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THE LAW OF THE DEMOCRATIC PEOPLE'S REPUBLIC OF KOREA ON PROCESSING TRADE

Adopted by Decree No. 1978 of the Presidium of the Supreme People’s Assembly on December 26, 2000, and
approved by Ordinance No. 8 of the Supreme People’s Assembly on April 5, 2001

Chapter 1. Fundamentals

Article 1. The Law of the DPRK on Processing Trade shall contribute to increasing foreign currency revenues and expanding and developing external economic exchanges by establishing a strict system and order in processing trade.
Article 2. The State shall encourage processing trade. Processing trade shall be carried out on the principles of increasing foreign currency earnings and sustaining credit by properly selecting transaction partner, form of transaction and processing indices and estimating processing capacities and demand situation in international markets.
Article 3. Processing trade may take various forms such as consignment processing trade whereby the processor receives raw materials, semi-finished goods or spare parts from a foreign enterprise and process or assemble them in exchange for a processing fee, and bonded processing trade whereby raw materials, semi-finished goods or spare parts are imported free of customs duty from a foreign enterprise under the supervision of the customs and, after being processed or assembled, are exported again.
Article 4. Processing trade may be carried out in various areas. However, bonded processing trade shall take place only in a special economic zone such as the Rason economic and trade zone.
Article 5. Processing trade shall be conducted by trading companies of the State or social and cooperative organizations. Where necessary, a factory or an enterprise may also be engaged in processing trade, in which case it shall be agreed upon with the relevant senior organ.
Article 6. Any matter not provided for in this Law shall be governed by relevant laws and regulations including the Trade Law and the External Economic Contract Law.
Processing trade carried out by foreign-invested enterprises shall be governed by relevant laws and regulations dealing with foreign-invested enterprises.
Article 7. The State shall develop cooperation and exchange with various foreign countries and international organizations in the field of processing trade.

Chapter 2. Selection and Screening of Processing Trade Projects

Article 8. Selection of a processing trade project is a priority of processing trade.
A trading company, factory or enterprise shall select projects with economic and technical potentials and favourable credit conditions, projects that can produce profits by using its processing capacities, projects that can contribute to the development of science and technology and to the renewal of equipment of the unit concerned and projects that are in great demand in international markets.
Article 9. A trading company, factory or enterprise shall agree in writing with the foreign enterprise selected as the processing trade partner on the items, quantity, period of production, trademark, place of origin, processing fee, the method of its payment and the like before concluding a contract.
Article 10. An application for processing trade shall be screened by the central trade guidance organ.
In a special economic zone such as the Rason economic and trade zone, it shall be screened by the Zone Administration.
Article 11. A trading company, factory or enterprise shall submit to the relevant processing trade screening body an application for processing trade stating the following:
1. An application for consignment processing trade shall state the name and address of the trading company, factory or enterprise category of business, the name and address of the foreign enterprise, a list of raw materials, semi-finished goods or spare parts to be provided by the foreign enterprise, the items and quantities of the products to be processed or assembled, the period of production, processing capacity, an economic and technical feasibility study, processing fee and the data used as the basis for its calculation, and
2. An application for bonded processing trade shall state the name of the bonded area, the name and address of the factory or enterprise to be engaged in bonded processing trade, the category of business, processing capacity, a list of raw materials, semi-finished goods or spare parts to be imported, the amount of import, the items and quantities of the products to be processed, equipment and their technical condition, a feasibility study, information as to a guarantee to export realization and the like.
Article 12. No approval for processing trade shall be given to projects that are not capable of carrying out the processing of products, projects that have fixed processing fees at a low level and projects that may do harm to the national security and the common interests of the society.
Article 13. The processing trade screening body shall screen an application for processing trade and notify the applicant of its decision within 15 days of receipt of the application.

Chapter 3. Conclusion and Performance of a Processing Trade Contract

Article 14. Proper conclusion and performance of a processing trade contract is an important guarantee for the success of a processing trade project.
A trading company, factory or enterprise shall conclude a processing trade contract with the foreign enterprise after an approval has been given to the application for processing trade.
Article 15. A consignment processing trade contract shall state the names of the parties to the contract, the items and quantities of raw materials, semi-finished goods and spare parts, the items and quantities of products to be processed or assembled, trademark, place of origin, the period of production, the scope of processing fee and method of its payment and provide for breaches and damages, settlement of disputes and the like.
A bonded processing trade contract shall state the names of the parties, the items, quantities, specification, quality and prices of the goods traded, and provide for the method of delivery, breaches and the like.
Article 16. A trading company, factory or enterprise shall make customs registration within 5 days of the conclusion of the processing trade contract.
Article 17. The parties to a processing trade contract shall implement the contract in time.
A trading company, factory or enterprise may require the foreign enterprise to establish a contract performance guarantee.
Article 18. A party to a processing trade contract may claim a penalty for breach and damages in any of the following cases:
1. Where the performance of the contract has been delayed or rejected without any valid reason,
2. Where package, quality, quantity and the like does not conform to the condition of the contract,
3. Where the processing fee has not been paid or the payment for the goods has not been made in time as specified in the contract, or
4. In case of any other breach of the contract.
Article 19. Where products processed or assembled have not been packaged according to the conditions of the contract or where they have been processed or assembled by using substitute raw materials, semi-finished goods or spare parts, the foreign enterprise may require them to be re-packaged or refuse to take over the processed or assembled products.
In this case, the trading company, factory or enterprise shall bear the resulting expenses by itself and pay a penalty for breach.
Article 20. Where the foreign enterprise fails to take over the processed or assembled products in time, the trading company, factory or enterprise may accordingly receive the payment of a penalty and storage expenses.
In case 3 months have elapsed since the expiration of the period during which the processed or assembled goods are to be taken over, the goods may be sold or disposed of.
Article 21. The parties to a processing trade contract may change provisions and period of the contract through mutual consultation. In this case, the relevant processing trade screening body shall be notified of such change.
Article 22. The trading company, factory or enterprise shall keep confidential the technology provided by the foreign enterprise under the contract.

Chapter 4. Operation of a Processing Trade Project

Article 23. Establishment of a proper operational order is an important requirement for processing trade.
Trading companies, factories or enterprises engaged in processing trade shall carry out their business activities according to an order set by the State.
Article 24. A trading company, factory or enterprise may receive or import from a foreign enterprise raw materials, semi-finished goods, packaging materials, machinery and equipment and management supplies that are necessary for processing trade. In this case, no permission shall be necessary and no customs duty shall be payable.
Article 25. A trading company, factory or enterprise shall submit to its senior institution information on the requirements of domestic labour force, raw materials, power, water, packaging materials, funds, and the like that are necessary for the processing work.
The relevant senior institution shall review the requirements and take measures to meet them by their inclusion in the State plan or the Zone plan.
Article 26. Where the enterprise cannot process some special parts due to a shortage in its processing capacity, it may commission another factory or enterprise, or a foreign-invested enterprise or a foreign enterprise to process them. In this case, a contract shall be made.
Article 27. A trading company, factory or enterprise shall pay to the State a specified portion of its revenue earned from processing trade.
No depreciation charge shall be payable with respect to machinery, equipment, vehicles and other fixed assets that have been provided by the contract partner and are used for the purpose of processing trade.
Article 28. A trading company, factory or enterprise shall deposit in its bank foreign currencies earned from processing trade and use specified portions of them for the procurement of machinery, equipment, management supplies and bonus goods and to cover the expenses of trade negotiations, technological exchange, research and training.
Article 29. A trading company, factory or enterprise engaged in processing trade shall not:
1. Misappropriate foreign currencies earned or deposit them in a foreign country,
2. Change or expand the category of business or indices without approval,
3. Sell processed or assembled products in the domestic market, or
4. Misuse the materials to be processed.
Article 30. Where a trading company, factory or enterprise is to use the materials to be processed for other purposes or sell the processed goods in the domestic market as may be required by a national measure, it shall notify the relevant customs office after reaching agreement with the contract partner in advance.
Article 31. Where a trading company, factory or enterprise is to change the category of business of processing trade, it shall submit a written application to the processing trade screening institution.
The screening institution shall review the application and notify the applicant of its decision within 10 days of receipt of the application.
Article 32. Any liability arising in the course of processing trade shall be satisfied at the expenses of the trading company, factory or enterprise.
Article 33. A trading company, factory or enterprise may receive technical assistance from a foreign enterprise for the processing and assembling of goods.
In this case, it may invite a foreign technician or send its technicians and workers to a foreign country for technical training after undergoing due procedures.
Article 34. A trading company, factory or enterprise may station a quality inspector of the foreign enterprise and bring in or out processing equipment provided by the foreign enterprise for the purpose of replacement or repair.
Article 35. The period of operation of a processing trade business shall be the same as the period of the underlying processing trade contract.
Where the period of a processing trade contract expires or an approval for processing trade is cancelled for other reasons, the enterprise shall request the relevant customs to cancel its registration within 5 days of the cancellation.

Chapter 5. Guidance and Control over Processing Trade

Article 36. Intensification of guidance and control over processing trade is an important guarantee for the proper implementation of the processing trade policy of the State.
The State shall strengthen its guidance and control over processing trade in step with its development.
Article 37. The Cabinet shall undertake a unified guidance over processing trade on behalf of the State. The Cabinet shall control and guide the work of processing trade through the central trade guidance organ and the management institution of a special economic zone.
Article 38. Bonus and other preferential treatment shall be granted to trading companies, factories and enterprises that have brought great benefits to the State through processing trade.
Article 39. The central customs guidance organ shall intensify customs control as processing trade is carried out in various forms and manners.
In close cooperation with the central trade guidance organ or a special economic Zone Administration, the customs shall ensure that no materials brought in for processing trade be misappropriated and that no processed goods be sold in the domestic market.
Article 40. Where a trading company, factory or enterprise has used materials to be processed for other purposes, or sold processed goods in the local market, or misappropriated foreign currencies earned or deposited them in a foreign country, or changed or expanded the category of business of processing trade, thereby hindering the work of processing trade, such measure shall be taken as the suspension of operation, cancellation of the approval for processing trade, confiscation of the materials in question or imposition of a fine.
Article 41. Where a grave consequence has been ensured as a result of violation of this law, the trading company, factory, enterprise, senior officials in the supervision and control institutions and individual citizens concerned shall be subject to administrative or criminal punishment depending on its gravity.
Article 42. Any disagreement arising in connection with processing trade shall be settled through consultation. Where it cannot be settled through consultation, it shall be brought before an arbitration body or a court of the DPRK for settlement.


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