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Businesses turn a blind eye to Volvo's experiences in North Korea

While the Swedish government continues to try to recoup 280 million euros owed since 1974, some foreign companies are not put off by sanctions and are still looking for opportunities in North Korea. Julian Ryall reports.

Twice a year, every year since 1974, the Swedish government has submitted a formal request for North Korea to settle its debt for the purchase of 1,000 Volvo 144 sedans. And on each occasion, the request is simply ignored by Pyongyang.

The original deal was for SEK600 million (62.02 million euros at current rates), but that has soared over the last 43 years to SEK2.7 billion (280 million euros) as interest payments continue to mount. It appears unlikely that North Korea ever intends to honor its debt, although a spokesman for the car manufacturer points out that it was fortunate to take out protection.

"Volvo Cars insured the deal through the Swedish Export Credit Agency, EKN," company spokesman Per-Ake Froberg told DW. "When North Korea failed to pay for the cars, EKN stepped in, meaning that Volvo did not suffer financially."

Volvo Logo (picture-alliance/dpa)

A number of Swedish engineering companies have also not been paid for projects dating back to the 1970s

Read more: North Korea snubs South, restarts Kaesong industrial park

Debts outstanding

A number of Swedish engineering companies have also not been paid for projects dating back to the 1970s, while Pyongyang owes 26 million euros to the government of Finland and a further six million euros to Finnish companies for paper-making machinery that it purchased around the same time. Similarly, it has never made good on a bill for SF205.1 million (176.01 million euros) racked up with Swiss watch manufacturer Rolex.

Those companies may have learned their lessons long ago in signing deals with North Korea, but their experiences failed to deter others who more recently seen a business opportunity. But the outcome was largely the same; Egyptian telecommunications firm Orascom gave up what initially appeared to be an excellent opportunity to build the North's mobile phone network when the regime in Pyongyang refused to allow it to repatriate its earnings and, when the company protested, simply took over control of the company it had set up.

The imposition of draconian sanctions on companies and individuals doing business with the North by the international community as a result of Pyongyang's ongoing development of nuclear weapons and long-range ballistic missiles should have served as yet another warning of the perils of doing business in the North, yet there are some still willing to take that risk.

In late September, Pyongyang hosted a four-day international trade fair for more than 250 companies. The majority were domestic firms seeking export markets for their products, although the event still attracted 80 foreign companies from 14 countries, including China, Taiwan, Indonesia and Vietnam.

- China orders North Korean businesses to close in line with latest UN sanctions

- A closer look at which countries trade with North Korea

International trade fair

Opening the 13th Pyongyang Autumn International Trade Fair, O Ryong Chol, a vice minister of external economic relations, said it would, "create opportunities for the development of friendship and external economic relations."

According to state media, he added that the North would continue to defy economic sanctions by "hostile forces."

"These companies see an opportunity in a new and emerging market - albeit one with some serious issues - and they just convince themselves that this time it will be different," said Robert Dujarric, director of the Institute of Contemporary Asian Studies at the Tokyo campus of Temple University.

"They might say the threat to their businesses has changed and that if they are in the country now, they will have a solid base in the future if things suddenly improve," he told DW.

And it is also likely that North Korea is being "strategic" in the payments that it does honor.

"Rolex, for example, is not a strategic consideration and the regime can afford to ignore that bill, which is just tough luck for Rolex," Dujarric said.

"But there are going to be a lot of Chinese companies that can provide products that are much more essential to the regime - such as refined oil, for example - and they will almost certainly make a bigger effort to pay those bills if they want more of the product in the future," he added.

"They will pick and choose the ones that will be priorities for them to pay."

Ken Kato, a director of Human Rights in Asia and a member of the International Coalition to Stop Crimes Against Humanity in North Korea, says companies that believe they will earn a windfall from doing business in the North are "deluding themselves" - but are also morally wrong for supporting a regime that abuses and enslaves millions of its own people.

Read more: Is Trump using North Korea threat as trade leverage with South?

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'Criminal behavior'

"Even when it would clearly be in their best interests to remain on good terms with companies that are providing goods and services, they behave criminally," Kato told DW. "But we should not be surprised because this is how the regime has always acted."

"Back in the 1980s, thousands of ethnic North Koreans living in Japan were convinced to invest heavily in their homeland, but they received absolutely nothing in return," he said. "If the regime treats its own people like that, what chance do foreign companies have?"

Kato says it is absurd for a foreign capitalist to expect that he or she will be the first exceptional case in decades.

"Any firm that does business with the North is morally wrong because of the way in which the regime treats its people," Kato said, pointing to the network of penal colonies and punishment camps for political opponents of the system. Estimates suggest that as many as 250,000 people are detained at these camps, many of whom have no likelihood of ever being released.

"Trade with the North is also broadly banned by several United Nations resolutions because the state owns and runs everything in the country, meaning that it is impossible to work with anyone that is not an employee of the state," he added.

Watch video 01:04

China was North Korea's last major trading partner.

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