This is the abstract of an article regarding the advisable collateral regime for North Korea in view of that of China and Vietnam, which is contained in The North East Asia Law Review, Chonbuk University, published on December 31, 2008.

Although the United States removed North Korea from the list of states sponsoring terrorism, it is not certain that North Korea would enjoy the rush of foreign direct investments (FDIs).
However, it is time for us to prepare for unexpectedly sudden reform and transition of the Pyongyang regime. So far we have plenty of literature with respect to the effect of FDI toward North Korea.
Nevertheless, it is not sufficient. Persuasive suggestions by the South Korean specialists on the economic and legal reform of North Korea call for in-depth comparison of North Korean cases with those of China and Vietnam, typical transition economies in Asia.

This article examines appropriate collateral or security interests available to foreign investors in China, Vietnam and North Korea.
They are essential for foreign investors wishing to recover their investments.
Take an example of ABC Company, a multinational, which constructs and operates a factory and possesses considerable inventory and accounts receivable. And compare the results how much ABC Company can borrow from a local bank or banks in China, Vietnam or North Korea by granting these assets as collateral.

In China, the Collateral Act of 1995 was replaced by the new Realty and Property Law as from October 1, 2007.
It was because new legal framework of property ownership under the socialist system is necessary to enhance the legal safety of property transactions. As a result, ABC Company may take advantage of new legal instrument of secured transactions including common-law-like floating charge.

In Vietnam, the right of land use as well as factory buildings can be granted as collateral to local banks under Decree No. 4 of February 2002.
Likewise, Decree No. 165 of November 1999 allows real estates and moveables owned by a collateral grantor to be provided as security assets, which includes the properties to be acquired by the collateral grantor in the future.
In Vietnam, ABC Company may grant accounts receivable as favorite collateral to Vietnamese banks or local branches of foreign banks.

When the Pyongyang regime takes to the road to the reform and opening of the nation, North Korea will examine the precedents of transition economies in the Eastern and Middle Europe as well as East Asia.
It would be out of question for the North Korean leadership prefers the Chinese or Vietnamese model with the Communist Party still in power for fear of the risk of change of power during the transition.
On the contrary, the capital providers will have stronger voice than anyone to adopt their favorite collateral system when looking at the cases of Poland and Hungary.

What if North Korea is going to adopt the collateral regime of China or Vietnam?
Absolutely no!
Since the largest portion of FDIs in North Korea comes from South Korea, we have to persuade our counterparts in the North to consider positively the South Korean model.
Its gists are the mixture of merits of Chinese or Vietnamese model and South Korean best practices on secured transactions based on the core principles of collateral regime suggested by EBRD.

In this context, ABC Company operating in Gaeseong Industrial District shall be entitled to provide not only the right of land use, building ownership and registered lease but also equipment and machinery, inventory and accounts receivable as collateral to local banks, as far as they make funds available to South Korean customers including ABC Company.

Against these backdrops, it is a kind of imperative to modify and improve the current collateral system of South Korea so that it may be suggested as an ideal model to North Korea.
At present, the Korean government is working out a draft Act Concerning Collateralization of Moveables, etc. so that small and medium-sized enterprises may make the most their assets including moveables, accounts receivable and intellectual property rights.
Under the new initiative, electronic registration is supposed to play a pivotal role as useful notification of incumbent security rights as well as catalyst to make the same collateral regime being used both in the South and the North.