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Red Threat: Kim Jong Un Makes the Koreas’ Best Beer

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If there's one key art form where North Korea beats the South, it's beer-making.

Pyongyang is home to Taedonggang, a government-made, full-bodied lager that The New York Times called one of the finest beers on the Korean peninsula. The beverage is named after Pyongyang's Taedong River.

In 2000, North Korea's former ambassador to Switzerland backed a plan to take apart and ship home an entire 180-year-old British brewery. The edifice was reassembled in the isolated state, despite the seller's fears that the machinery could be used to make chemical weapons.

South Korea lacks similar tales of a globe-trotting beer quest. For decades, a maze of regulations has protected big South Korean brewers and their dull beer, smothering the entrepreneurial creativity that North Korea showed with Taedonggang.

Before 2007, drinkers stuck in the south could purchase legally-imported Taedonggang at DMZ tourist shops along the North-South border, and at a handful of Seoul bars. It's not a superstar beverage. The lager tastes more like ale. But it is exotic (although not wacky, as this North Korean commercial suggests) — a slightly sweet alternative to the deadening South Korean fare.

Sadly, Taedonggang has vanished from the south due to an unexplained price hike.

But tastes are changing, and South Koreans are pushing back.

The country is home to an oligopoly of two beer makers known as Hite and OB, which command 96 percent of market share. Grocery stores also sell imported beers like Miller and Japan's Asahi, with sales of many foreign beers on the rise thanks to two trade agreements (FTAs) with the US and European Union that went into affect over the past two years.

Critics say the giants, which have been insulated from competition since the 1950s, churn out bland drinks that sometimes include cheap ingredients like corn.

The mediocre swill has caught the attention of the National Assembly, which is attempting to enact beer reform by year's end. The law would lower import taxes for microbrewers, and halve the minimum production capacity needed to get a license.

South Korean Craft Breweries Poised for Growth

A lineup of craft breweries are poised to seize the opportunity.

"For decades there were few people with the expertise to do malting, which is a complicated process," said Kim Kyo-ju, a building architect who became the director of 7brau, a recent start-up that imports barley malt from Germany.

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A few Western boozers have also gained quasi-celebrity serving up good beer to Koreans.

Daniel Tudor, The Economist's Seoul correspondent, recently resigned from the magazine and helped set up The Booth, an enormously crowded pub serving an IPA craft beer. After its third month, the hangout is already expanding to a second location.

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In 2011, a first, minor beer law liberalization allowed Kim's small-time business to get the country's first beer production license in 77 years. "The hard part was that all the officials who understood the process of setting up a factory and getting a license were dead," he explains.

Under the National Assembly's proposed reform, the government could lower the tax for microbrewers to 30 percent, from the 72 percent percent tax that both microbrewers and regular brewers face. Currently, any firm with the capacity to produce 120,000 liters can get a license.

The craft brewers' efforts are a testament to how badly drinkers yearn for better beer. South Korea, long dominated by large conglomerates, has never been home to a vibrant start-up culture.

During the military dictatorships of the 1960s to the 1980s, tariffs and laws insulated South Korean businesses from foreign and local competition. To drive national development, the government poured easy loans into conglomerates that encouraged them to expand.

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Today, many of the same corporate players are pushing out smaller competitors. In its 2012 Doing Business rankings, the World Bank reported that starting a company in South Korea was harder than in Madagascar and Azerbaijan.

Before 2011, the state alcohol regulator required that businesses have the capacity to produce more than 1 million liters at a time before doling out a wholesale license.

Barley Malt From Wisconsin

Another source of red tape lies in South Korea's tax laws.

The government treats some ingredients as agricultural imports, which are subject to higher taxes to protect country's farmers.

Seoul Homebrew, the country's first storefront home brewing shop, is bringing in its first shipment of barley malt from Wisconsin. But much of the stock could be dumped in the ocean thanks to the endless pit of regulations. Some customs brokers "don't seem to know what the laws are and what's going on," said Mitchell Nichols, the part-owner of Seoul Homebrew, which is set to open in July.
 "Finding out what we need to bring in barley has been incredibly difficult."

He added that his original plans are up in the air thanks to inspection fees and excessive taxes.

Bizarrely, one private customs broker "told us we needed a physical [health exam] to get our ingredients," he said. After getting a note from the doctor, he later learned the books contained no such rule.

He thinks the coming legislation, and the changing taste of Korean consumers, could be the best chance for fostering a vibrant beer scene, regardless of the obstacles of Korean bureaucracy.

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