Wednesday, August 24, 2011

Free Trade Area Ensures Road and Rail Freight Links Improve

Investment Continues to Open Asian Borders
Shipping News Feature

RUSSIA – NORTH KOREA - To many businesses in the West just the mention of North Korea is enough to ensure a deaf ear, the Communist state is considered an anathema to any free market supporter. However all countries need the lifeblood of trade and freight must cross borders regardless of politics thus the Free Trade enclave that is the Rajin-Sonbong Economic Special Zone was established by Kim Jong-il’s government to stimulate income through import and export trade.

The area is surrounded by a thirty five mile perimeter fence whilst inside trade using foreign currency is permissible. Despite Western reticence in dealing with the regime Chinese and Russian authorities have embraced the opportunity and, whilst the Chinese are improving the highway infrastructure into the region (and reportedly shipping domestic cargo through the region since last month), the Russians are re-establishing viable rail freight links with a complete revitalisation of the Khasan-Rakin tracks including setting up a construction yard at the Unra station for tunnel repairs and installing 20 kilometres of electric centralization cables linking to stations plus over 34 kilometres supplying the train lines.

The reconstruction of the 54 kilometre line is married to development of a container terminal at Rajin port, and the subsequent use of this infrastructure to organize freight transit linking to Russia’s railway network. A cooperation agreement for this project was signed by Russian Railways President Vladimir Yakunin and North Korean Railway Minister Kim Yong Sam in 2008.

To undertake the works Russian Railways took out a 70% share in a new venture, RasonKonTrans, with the balance of shares going to North Korean interests. The project is run by the joint venture, which holds a 49-year lease of the Tumangan - Rajin rail line from the North Korean Railway Ministry's Tonhe company. Full-scale work on reconstructing the railway began in 2010 whilst overall expenditure on the entire project is estimated at 8.3 billion roubles. Financing is provided from the authorized capital of the joint venture, and funds borrowed by the joint venture in line with the project's business plan.

During the first stage, the line will be used for Russian coal exports via the Rajin port to Asia-Pacific countries. At the same time, the infrastructure will be prepared for transhipping of container freight from North Korea and other Asia-Pacific countries heading for the Russian railway network, in line with the initial plans to link the port with the Trans Siberian route.

Russian Railways tell us that both parties consider the Khasan - Rajin project to be a pilot part of the reconstruction of the entire Trans-Korean Railway. Consultations are currently underway on renewing three-way contacts (Russia, North Korea, and South Korea) and creating the necessary conditions for this large-scale project to be implemented.

As we said earlier, trade is essential to maintain the economic health of all states and whether you believe that the Rajin-Sonbong Economic Special Zone is just a Communist state dipping its toe in the waters of capitalism or the first move toward freeing up the country’s stricken economy by further integration, it is encouraging to see another corner of Asia developing business relations with its neighbours.

Photo:- Detail from an old CIA map of North Korea. The Rajin-Sonbong is shown as a red dot in the far North Eastern corner of the country showing the proximity of the Chinese and Russian borders.