Tag Archive | "Kim Jong-un"

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Provoking the Market: Investors More Worried about Washington’s Response than Pyongyang’s Provocations

By Kyle Ferrier

Analysts have attributed recent market downturns to North Korean provocations, but investors seem to be reacting more negatively to responses from the Trump administration.

Prior to North Korea’s sixth nuclear test on Sunday, Kim Jong-un was cited as a key contributor to recent developments in global markets. The fall in the value of the dollar and the strengthening of the euro and gold this summer have at least been somewhat linked to North Korean provocations. For the dollar and the euro, North Korea is at most exacerbating these trends, not causing them. Since the end of last year, the dollar has been in general decline and the value of the euro has steadily grown. This is primarily driven by looser monetary and fiscal policy in Europe as the Federal Reserve plans to unwind its balance sheet and the White House faces hurdles in its tax reform and infrastructure initiatives. It is harder, however, to argue Pyongyang has played an equally minor role in higher gold prices. Yet, movements in the price of gold and South Korea’s KOSPI stock index this year suggests investors are more concerned with uncertainty stemming from the Trump administration’s approach to North Korea.

Graph of the price of gold, March to September 2017

Graph of the price of gold, March to September 2017

The conventional wisdom has been that the financial impact of North Korean provocations in South Korea decreases over time. My analysis of North Korea’s nuclear tests, long-range rocket launches, and military provocations along the DMZ through February 2016 (after its second “satellite launch” attempt) found this line of thinking applied to nuclear tests, but could not fully explain the other two categories. It is more accurate to state that the impact of North Korean provocations on markets in Seoul depends on whether a given event is viewed to be outside the context of normal geopolitical developments. That the financial impact of North Korean provocations generally diminished merely illustrated investors had been through similar events and their bottom line was minimally affected. It was not necessarily an indicator of future reactions, particularly as circumstances surrounding each provocation can change dramatically.

KOSPI stock index, March to September 2017

KOSPI stock index, March to September 2017

Significant drops in the KOSPI corresponding with North Korean provocations in January and February last year raised concerns that markets were reacting to Pyongyang at levels not seen since the shelling of Yeonpyeong island in 2010, but these can be chalked up to coincidence rather than cause. These concerns were renewed later last year in the aftermath of North Korea’s fifth nuclear test on September 9. Many news outlets linked the 1.25 percent drop in the KOSPI that day to the test, but this was also coincidence and not cause. Of the 1.25 percent drop, only around 0.07 percent occurred after news first broke of the nuclear test at 9:45am. The fall in the KOSPI as well as the won was much more likely linked to Samsung’s Galaxy Note 7 woes as well as a slowdown in global markets. Thus, from 2010 through the end of 2016, North Korean provocations had a negligible impact on markets in Seoul.

The KOSPI’s reaction to the North’s latest nuclear test is the clearest indication that this trend has ended in 2017. On September 4, the first trading day after the test, the KOSPI opened 1.73 percent lower. Though some of these losses were gained back, it was down 1.19 percent by the end of trading. Unlike the previous test last year, the sixth nuclear test is most likely to blame for this drop. The only other instance of a notable drop in the KOSPI caused by a provocation was in response to the July 4 ICBM, though its impact was minimal: The KOSPI closed 0.58 percent lower that day and took five days to recover. The ICBM launch on July 28 saw almost no change in the KOSPI or the value of the won. And, the August 29 ballistic missile that flew over Japan was only met with a 0.23 drop, which was made back the next day.

Timeline of North Korea's rocket launches and their impact on the South Korean KOSPI stock index

Timeline of North Korea’s rocket launches and their impact on the South Korean KOSPI stock index.

That markets would react to the earlier ICBM launch and the nuclear test makes a degree of sense, considering that both added a new component of geopolitical risk on the Korean Peninsula. The July 4 missile launch was the first time Pyongyang demonstrated its capability of hitting a U.S. state and the nuclear test also possibly revealed its ability to miniaturize a nuclear weapon.

However, from stronger market responses to the Trump administration’s approach towards Kim Jong-un, it is highly likely that Washington is playing a greater role in the negative market reactions to Pyongyang this year. From April 4 to 11, the height of confusion over the whereabouts of the USS Carl Vinson, the KOSPI fell six straight days, totaling to a 2 percent loss. From August 8 to 11, after Trump’s “fire and fury” comments, it fell four consecutive days, amounting to more than a 3 percent loss. “Fire and fury” was also a retort to the July 28 ICBM launch, which ironically had no discernible financial impact in Seoul.

Table of North Korea's nuclear tests and their impact on South Korea's KOSPI stock index

Table of North Korea’s nuclear tests and their impact on South Korea’s KOSPI stock index.

Both incidents also had a bigger impact on the price of gold than did North Korean provocations.  Between April 3 to 13 the price of gold shot up 2.75 percent. It rose again by 2.5 percent from August 8 to 11. Market responses to the provocations in July were mere blips by comparison. Gold rose a quarter percent on July 4, but was back to its previous price within two days, and the price actually fell after the subsequent ICBM launch. Though the August 29 and September 3 provocations were met with steep price increases – 2 percent and 0.68 percent, respectively – these reactions seem to be heavily influenced by Trump’s “fire and fury” comments, evidenced by the current increase in gold prices starting around the time of his remarks.

While harder to judge from the KOPSI alone, the comparison with gold prices implies that this week’s drop in the KOSPI was a product of market nervousness about how the U.S. might reply to the test, not North Korea. Further, if geopolitical concerns did play a role in the KOSPI in early July, they were likely caused by anxieties about a U.S. response, fueled by the USS Carl Vinson incident and Trump’s “disruptive” foreign policy.

Although these reactions are relatively minor and fleeting in the grand scheme of markets, they provide a window into how investors view geopolitical developments on the Korean Peninsula. They may only reflect temporary sentiments, but present the strongest case there has been in recent years that Washington is perceived as the primary driver of risk on the peninsula, not Pyongyang.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Photo from the Rafael Matsunaga’s photostream on flickr Creative Commons.

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Missiles Over Japan – What are the North Koreans up to?

By Mark Tokola

At 5:58 a.m. on August 28, North Korea launched what was probably an intermediate range missile that passed over Japan and landed in the Pacific after a flight of 1,700 miles.  Japanese Prime Minister Shinzo Abe said, “North Korea’s reckless action of launching a missile that passed over Japan is an unprecedented, serious and grave threat.”  Abe also said that he had spoken by telephone with President Trump and the U.S. and Japanese stances “are completely matched.”  Was this North Korean launch indeed unprecedented and what kind of threat does it pose?

This was not the first time North Korea has launched a missile that flew over Japan.  The first time was in 1998, when North Korea attempted to launch a satellite.  They claimed success, but because no satellite could be tracked most observers believe the launch was a failure.  It may have been significant that the 1998 launch was only a few days in advance of the 50th anniversary of North Korea’s independence from Japan.  In 2009, North Korea again attempted to launch a satellite with a missile trajectory that passed over Japan.  That launch also failed, with the missile falling into the Pacific east of Japan.  Since then, there have been other North Korean missile launches that have passed over the Japanese Ryukyu island chain

There are three aspects of the August 28th launch that qualify it as “unprecedented.”  First, North Korea has abandoned any pretense that their missile program is non-military.  It had claimed that its 1998 and 2009 launches were peaceful satellite launches.  Its 2017 launches are overtly for the purpose of threatening other countries.  Secondly, in 1998 and 2009, North Korea announced its launches in advance, providing warning to shipping in the areas where the boosters would fall.  The August 28th launch was a surprise, reinforcing its non-peaceful nature.  Finally, the site of the August 28th launch appears to have been near Pyongyang, rather than in the remote launch sites previously used.  This may have been a signal from Kim Jong-un that in any attempt by the U.S. to carry out a preventative strike, it could not assume it would be able to operate only in non-populated areas of North Korea.  There would be nothing surprising about Kim Jong-un holding his own population hostage.

We know facts about the August 28th launch, but its meaning is open to speculation.  One interpretation would be that Kim Jong-un is pushing the envelope further.  The previous ICBM tests had avoided Japanese air space by falling into the sea west of Japan. One could interpret the August 28th test as highly belligerent and provocative, intended as a sharp, unyielding response to U.S., South Korean, Chinese and Japanese warnings.  It also could be taken as a rebuff to Secretary of State Tillerson’s public remarks that North Korea may be showing restraint, possibly creating an opening for negotiations.

Those looking hopefully for signs that North Korea may be signaling a tough negotiating posture rather than spoiling for a fight will point out that the missile’s path over Japan seemed intended to avoid populated areas passing over a northern stretch of Japan that is relatively sparsely populated.  They may also point out that this was an intermediate missile test, not that of another ICBM designed to reach the continental American homeland.  It also fulfills North Korea’s promise to react to U.S.-South Korean military exercises without threatening Guam, the most recent target of its rhetoric.

The August 28 test will upset Japan, but is likely to irritate China as well.  Giving Japan reasons to enhance military cooperation with the U.S., to strengthen its anti-missile defenses, and to work more closely with South Korea all run counter to Chinese interests.  North Korea’s actions not only roil the U.S.-Chinese relationship, but the Chinese-Japanese relationship.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo from NASA Goddard Space Flight Center’s photostream on flickr Creative Commons.

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Pyongyang’s Deficit Soars: Won Steady But for How Long?

By William Brown

ICBMs are not the only things soaring in North Korean skies.  Comprehensive second quarter data released by China Customs last week shows a huge jump in North Korea’s trade deficit with China—sharply falling North Korean exports and flat imports, a double bad combination.  And, potentially troubling to the Kim regime, the composition of trade seems to be promoting market activity rather than the decrepit, but still enormous, command economy.

China North Korea Trade Balance
*  China stopped reporting crude oil shipments in first quarter 2014 but the trade is reliably said to be continuing, probably at the old aid agreement terms which provides about 150,000 tons of crude each quarter.  The charts, above and below, have added in the value of that volume at generally declining Chinese crude oil export prices–$50 million in the most recent quarter.

Pyongyang has been able to keep a clamp on the exchange rate—won can be traded informally for U.S. dollars in markets around the country—but likely at some cost to the government’s reserves and its ability to expand money supply without sparking inflation, and perhaps with a little help from the balloons. But food and other commodity prices, meanwhile, may be on an upswing as drought followed by flooding diminishes prospects for the critical fall rice crop, and as worries about Chinese supplies may have pushed up gasoline and diesel prices.  An informal inflation index produced by DailyNK has inflation rising to a 16 percent rate in July, suggesting Kim’s signal achievement of fighting inflation may be at risk.

Officially, the Chinese data show a $174 million North Korean deficit in June and $574 million for the quarter, both at record levels. Considering China has taken its crude oil exports “off the books,” the actual North Korean deficit is probably even larger — in the graphics below we have added between $115 to $50 million each quarter to North Korean imports since 2014 to account for the oil.

China North Korea Trade exports and imports

How North Korea finances this large deficit in the face of sanctions on its nuclear and missile activities is not well understood, making policy analysis of those sanctions next to useless. Even South Korea’s Bank of Korea, which bravely estimates North Korean GDP, says it can’t guess at the country’s balance of payments or its hard currency reserves.  But for the sake of argument, and given the trade deficit with China has averaged about $200 million a quarter for the better part of a decade, it would seem reasonable to expect that about this amount of hard currency is earned or borrowed in a combination of net trade with other countries; foreign aid to North Korea including the offset for the crude oil; UN and other international expenditures inside North Korea; small amounts of inward foreign investment and loans; remittances from overseas workers and refugees or Korean immigrant families in Japan, South Korea, China and Russia; and tourism.

  • Probably to re-build domestic confidence after the country experienced a disastrous currency redenomination in 2009, followed by hyperinflation in 2010, Pyongyang’s monetary authorities appear to have fixed the unofficial won’s value at just above 8,000 won per dollar, and began to ignore the official 135 won per dollar rate.  Monetary stability since then is impressive, probably owing to some combination of market price caps, restrictions on the use of foreign currency, conservativism in expanding won credit, direct intervention using the regime’s own reserves and, most interestingly, a willingness to allow legal trading and use of dollars in the market places. And now, with five years of stability, won holders appear satisfied not to chase the dollar.
  • Still, the mystery of the day is why smart money dealers in Pyongyang aren’t taking advantage of the deteriorating export situation by buying up U.S. dollars and forcing a panic.  Either something else is happening that we don’t know about or there is trouble ahead for the country’s always-tenuous finances. One easily can imagine another breakout in favor of the dollar and panic selling of won—hugely disruptive in North Korea’s newly forming half-market economy.

North Korean Won

  

North Korean Exports Labor Intensive and Mining Products

North Korean exports to China fell to only $361 million in the second quarter, the lowest level since 2010, and even this was suppported by generally higher prices for most items.  Major export commodities included:

  • Apparel and other textiles accounted for almost half of its exports—$149 million, up from $145 million in second quarter 2016.
  • Ferrous and non-ferrous ores rose to $78 million, up from $65 million.
  • Fish product exports at $67 million, were up sharply from $31 million.
  • In contrast, mineral products, including coal, was recorded at only $2 million, down from $236 million in the same period of 2016.

None of these items would appear to be big hard currency earners for the regime, although they help provide employment.  Labor intensive textiles exports have grown in recent years as the industry makes better use of its antiquated mills, allowing exporters to pay workers directly in some cases and thus improving productivity of labor and capital alike.  Ore exports would seem problematic, given the UN sanctions against them, but Chinese firms were said to have invested heavily in the huge Musan iron ore complex on the border with China some years ago and may now be recouping investment costs by trucking the ore over into China.  This mine previously served North Korea’s largest industrial complex, the Kimchaek iron and steel mill in Chongjin, which is now dilapidated and only marginally productive. So the iron ore earnings may be coming at the expense of higher value-added steel products once exported from that plant and are likely controversial, even in North Korea, as they are thought of as a giveaway of the nation’s natural resources. China has also invested in a copper mine, and likely in other non-ferrous metals, but results from these are spotty and now largely sanctioned.  Fish products are essentially traded by fishing boats, with flows going both ways depending on the season.

Textiles lead North Korea’s imports

Imports from China also appear to be increasingly driven by consumer rather than government or investment demand.  Textiles, cell phones and television imports are growing at the expense of some industrial inputs and agricultural inputs, and cereals. Petroleum product imports, plus gasoline and diesel fuels, remain sanctioned and low.

  • Textiles and apparel imports reached $258 million, up from $198 million in second quarter 2016.
  • TV and cell phone imports totalled $50 million, up from $38 million.
  • Food products of all kinds registered $123 million, up from $96 million.
  • Diesel, gasoline, and kerosene imports were $19 million, down from $31 million, again from second quarter of 2016.

 

Selected Imports from China

 

Visibility of Chinese-made consumer products among the general public is spreading the suggestion that the economy is doing fairly well—South Korea’s Bank of Korea estimated last week that North Korea’s proxy GDP rose 3.9 percent in 2016, the fastest in well over a decade and this despite the sanctions. But a large question is how far the regime will let this go, given what is clearly a big drain on limited foreign exchange.  Grain imports also rose slightly in the second quarter but remain much lower than in the recent past, and may need to rise much more if the fall harvest turns out to be weak.  Some grain is provided by foreign aid agencies, purchased in China and shipped to North Korea, thus counting as a North Korean import in the trade accounts, but with an offsetting credit in the (unpublished)  transfers account.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. He is retired from the federal government. The views expressed here are the author’s alone.

Illustration by Jenna Gibson, KEI.

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Target of New North Korea Sanctions Bill: Finances

By Phil Eskeland

(“That’s Where the Money Is.”[1])

Last week, the House of Representatives and the Senate overwhelming passed and sent to President Trump’s desk a new sanctions bill for his expected signature. The bill originally focused on Russia and Iran when it was first adopted by the Senate, but was expanded after bipartisan, bicameral negotiations to include sanctions provisions against North Korea as well.  With all the talk in Washington about the inability of different sides to work together, few issues unite more U.S. public policymakers on both sides of the political spectrum than getting tougher on North Korea.  Last May, the House of Representatives passed the Korea Interdiction and Modernization of Sanctions Act (H.R. 1644) by another overwhelming bipartisan vote of 419 to 1.  Essentially, this new sanctions bill – Countering America’s Adversaries through Sanctions Act (H.R. 3364) – takes almost every word from the House-passed North Korea sanctions bill to include it as part of Title III.

Much of the attention to this legislation has been directed at the first title of the bill affecting Russia.  The debate has primarily focused Congressional limitations on the flexibility given to the Executive Branch to implement the bill.  In the past, most sanctions-related legislation grants the President some discretion to waive or delay the imposition of sanctions, because the U.S. government may need flexibility in diplomacy and cannot wait for Congress to pass a bill to amend or end sanctions.  If there was any constraints on the Executive Branch, it was usually done when there was divided government (i.e., the Republican Congress passed the Helms-Burton Act in 1996, when Democrat President Bill Clinton was in office, that placed into statutory law many of the presidential Executive Orders affecting U.S. trade with Cuba, and thus cannot be unilaterally lifted or altered by the President without the consent of Congress).  It is interesting to observe a Republican Congress reasserting itself as a co-equal branch of government by imposing a series of constraints on the ability of a Republican president to unilaterally waive part of the sanctions against Russia.

However, any additional Congressional limitations on the President’s ability to waive or delay the imposition of these new sanctions do not affect the provisions of the bill dealing with North Korea, despite a last-minute effort by some Senate Republicans.  Nonetheless, the primary purpose of Title III of H.R. 3364 is to close loopholes and target new areas to deprive the North Korean regime of the money it needs to operate.  The fundamental philosophy behind the effort is to “cut off the Kim Jong Un regime’s access to hard cash” and “to restrict North Korea’s ability to engage in illicit trade.”

How does this bill accomplish these goals?  First, the legislation mandates sanctions against foreign persons who engage in five activities that have been identified as major revenue-generating activities for the North Korean regime – high-value metals or minerals, such as gold and “rare earths;” military-use fuel; vessel services; insurance for these vessels; and correspondent accounts, which are used in foreign currency exchanges to convert U.S. dollars into North Korean won.

Second, H.R. 3364 increases the discretionary authority of the U.S. government to impose sanctions on persons who engage in one or more of 11 different activities that generate revenue for North Korea, including those who import North Korean coal, iron, or iron ore above the limits set by the United Nations (U.N.) Security Council resolutions; who buys textiles or fishing rights from North Korea; who transfers bulk cash or precious metals or gemstones to North Korea; who facilitates the on-line commercial activities of North Korea, such as on-line gambling; who purchases agricultural products from North Korea; and who are engaged in the use of overseas North Korean laborers.

Third, there is a provision closing one loophole in the international financial system that would prohibit North Korea’s use of indirect correspondent accounts.  These accounts temporarily use U.S. dollars when converting one foreign currency into another, such as North Korean won.  The aim of this provision is to further cut off North Korea from the U.S. financial system and restrict the ability of the DPRK to conduct business with other nations.

Fourth, the legislation curtails certain types of foreign aid to countries that buy or sell North Korea military equipment in the effort to dry up another source of revenue to the regime.  Nations will have a choice: buy North Korean conventional weapons or receive U.S. foreign aid to help their people.

Fifth, H.R. 3364 augments sanctions that target revenue generated from North Korea overseas laborers who work under inhumane conditions.  It would ban the importation into the U.S. of any product made by these laborers.  The bill would also sanction foreign individuals who employ North Korean laborers.

The legislation also ensures that humanitarian aid destined for North Korea is not affected by heightened U.S. sanctions.  However, H.R. 3364 did not retain a provision in the original House version that contained an exemption for planning family reunification meetings with relatives in North Korea, including those from the Korean-American community meaning that family reunions will still be subject to sanctions.  In addition, the bill contains a reward for informants who report violations of financial sanctions on North Korea, in the hopes of increasing the government’s ability to enforce these sanctions.  Finally, it requires a report from the Administration within 90 days after the bill becomes law on the efficacy of putting North Korea back on the State Sponsors of Terrorism list. The debate over reinstating North Korea on the list was revitalized in light of the assassination of King Jong Nam, the exiled half-brother of the ruling leader of North Korea, at the Kuala Lumpur international airport in Malaysia using the VX nerve agent, a banned chemical weapon.

H.R. 3364 should not be seen as an end-goal, but as part of a continuing process of ratcheting up pressure on North Korea to denuclearize.  As this bill is implemented, North Korea will find new ways to evade sanctions.  Further legislation or action by other nations and the U.N. Security Council may be required to further clamp down on these loopholes.  However, the question remains unresolved if heightened sanctions from both the U.S. and the international community will produce the desired outcome – a nuclear-free Korean Peninsula – particularly before North Korea acquires the ability to launch a nuclear warhead on top of an intercontinental ballistic missile (ICBM) capable of reaching the mainland of the United States.   Sanctions are only as strong as its weakest link.  Thus, North Korea’s main trading partner, China, needs to do much more if it is to live up to its rhetoric that “they will strive for the complete, verifiable and irreversible denuclearization of the Korean Peninsula.”

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Image from Shawn Clover’s photostream on flickr Creative Commons.      
———-
[1] Response by bank robber Willie Sutton to the question as to why he robbed banks, January 20, 1951, edition of the Saturday Evening Post, “Someday, They’ll Get Slick Willie Sutton.”

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Drought in North Korea — What Should Be the Response?

By Robert R. King

Just a few days ago, the UN Food and Agriculture Organization (FAO) issued a report that North Korea is facing its worst drought in 16 years.  The report, prepared by the FAO in cooperation with the European Union’s Joint Research Center, concludes that the period April through June of this year was particularly dry, which has delayed planting and stunted plant growth in key crop-growing areas.  Food security in the DPRK has been precarious since the famine of the late 1990s and early 2000s, and now the UN agency is warning that “cereal output may decrease significantly.”

The other shoe that has yet to drop this year are floods.  North Korea frequently faces late summer monsoon rains and occasional typhoon rains in September that complicate farm production.  Because North Korean government policies limit private farming on good farm land in the flatter bottomlands, farmers end up over-cultivating hillsides.  Then when the late-summer rains come, they can accelerate the runoff, causing devastating damage to the hillsides through erosion.

The late August 2016 floods along the Tumen River on the northern DPRK border with China and Russia were caused by Typhoon Lionrock.  In North Korea, the floods killed over 500 people, left over 100,000 homeless, and did major damage to farmland in the area.  Flooding such as this is an all too common occurrence, and exacerbates existing food scarcity.

Unfortunately, food shortages in the North are not unusual.  Even in an average year, the country has to stretch to meet the food needs of its 25 million people.  The government provides only limited resources for agricultural inputs and equipment, farming methods are not the most modern or effective, and central planning generates further inefficiencies.  Some improvements have been made in recent years with better farming practices that reward individual efforts to encourage greater efficiency, but shortages are still serious.

In the 1980s, annual grain production (principally rice and corn) averaged around 8 million tons.  During the famine (1996-2003), annual production averaged 3 million tons, with some years considerably lower.  For the last five years, it has averaged just below 5 million tons.  Furthermore, gaps between regions and a poor transportation system make it difficult to adjust for regional differences.

The suffering of the North Korean people is certainly not their own fault.  They have little, if any, ability to influence the decisions of the tyrants that control their fate.  The food shortages are the responsibility of the regime.

In fact, the regime provides ample food and luxuries for the elite in Pyongyang, and the military leadership and elite military units will have sufficient food.  Resources that could provide much-needed inputs for agricultural production will be spent for nuclear and missile development and maintaining the military, and of course the supply of luxuries will continue to flow to the privileged.

Certainly UN agencies will appeal to member states to help North Korea. However, humanitarian assistance from the UN, particularly the World Food Program, will likely be difficult to secure.  There are great demands on UN humanitarian resources in other parts of the world right now, and in recent years special appeals to provide aid to the North Koreans have secured only limited help.  North Korea has lavished resources on missile and nuclear capabilities, despite the urgent humanitarian needs of its own people and the condemnation of its military actions by the UN Security Council.  Thus, aid to North Korea will be a particularly difficult case to make to elected political leaders.

In addition, the U.S. government is unlikely to be responsive.  A sharply divided Congress, preoccupied with healthcare, taxation, and other divisive domestic issues, will find it very difficult to support humanitarian aid to a country which has announced that its nuclear and missile programs are aimed at Washington.  Furthermore, the Trump Administration has indicated its intent to significantly cut back on all U.S. foreign assistance.

The new government of the Republic of Korea is likely to give the most serious consideration to the humanitarian needs of the North.  These suffering Koreans are their cousins, and many Koreans in the South have roots in the North.  In fact, Seoul has put forward an initial proposal for engagement with Pyongyang.  Based on previous experience, the North will likely expect to be paid to engage, and in the past humanitarian aid has been a place to start.

Another avenue for assistance in coping with the effects of drought is private humanitarian groups.  A good number of them are American Non-Governmental Organizations (NGOs), which have a good record and experience in aiding the North.  Unfortunately, these NGOs face serious difficulties raising funds.  These groups are well-organized and managed, do extremely good work, and have dedicated and compassionate leaders.  The DPRK, however, has become such an international pariah because of its nuclear and missile programs, its periodic provocations, and crude verbal outbursts that large and small donors alike are reluctant to be involved.

In considering a possible response by governments, international organizations, and private non-profit organizations to the growing signs of an impending food shortage in the DPRK, two considerations are important.

First, they must assess the need for help.  Our satellite imagery is remarkable, and we can make reasonable estimates about the extent of the need from afar.  But on-the-ground assessment is essential to determine the reality.  What crops and which regions are most affected?  What steps is Pyongyang taking to deal with this problem?  What are the transportation issues?  Does the North have the capacity to move aid from ports to affected areas?

Second, agreements must be reached to allow on-the-ground monitoring by designated representatives of the country or organization providing the aid.  In the past, South Korean and international organizations delivered food aid to the border or to the ports, and Pyongyang determined where the aid was sent.  Some was apparently sold on the black market and the payments may have helped fund the military. Other funds subsidized the lifestyles of the rich and infamous.  If aid is provided, foreign donors and the international community need to be assured that humanitarian assistance is going to those most in need.

The longsuffering North Korean people have limited alternatives for humanitarian help.  Unfortunately, the bad decisions and self-destructive policies of its own leadership, over which they have little or no control, make it very difficult to find help for them.

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America.   He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.

Photo from (stephan)’s photostream on flickr Creative Commons.

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The North Korean ICBM Test: A Significant Step, But Still Just a Step

By Mark Tokola

It usually takes some time to figure out the details of what a North Korean missile test has accomplished – what type of missile it was, how it performed, its capabilities – but from the initial information regarding North Korea’s July 4th missile test, it appears that they have successfully tested an Intercontinental Ballistic Missile (ICBM).

The accepted technical definition of an ICBM is a missile that can travel 3,400 miles. The North Koreans test fired their missile to fly a short range but with a high trajectory; it landed off the west coast of Japan. If the trajectory was flattened out, the missile in theory could have flown over 4,000 miles, enabling it to reach Alaska but not the lower 48 states.

Conducting an ICBM test is a significant step in North Korea’s weapons program, but it is just a step. Kim Jong-un’s stated objective is to develop a reliable ICBM that can carry a nuclear warhead to the American homeland. The July 4th missile did not demonstrate that kind of range, and there is no evidence (yet) that North Korea has a nuclear warhead that could be carried by an ICBM. We shouldn’t downplay the significance of this test, but calling it a “game changer” may be an overstatement.

The true importance of the July 4th test is the timing – following a series of other missile launches in 2017, it is clear that North Korea is not slowing the pace of its quest for nuclear weaponry that can threaten the U.S. Further, Kim Jong-un has crudely described it as a “gift for the American b******ds,” implying it was timed for Independence Day. The language choice shows that the North Korean regime sees no hypocrisy in using such language about other countries while having a hair-trigger sensitivity to slights to its own national dignity. The test also comes on the eve of a G20 meeting, demonstrating North Korea’s desire to be in the international limelight.

Perhaps the most important fact about the timing of the North Korean ICBM test is that it comes on the heels of the first visit of new South Korean President Moon Jae-in to Washington, where he spoke clearly of his desire to engage North Korea in dialogue. If North Korea had any interest in demonstrating an openness to President Moon’s overture, it would not have conducted an ICBM test only days after President Moon’s public remarks. We should all hope that North Korea would be responsive to a South Korean initiative to defuse tension, but the July 4th test makes it hard to believe that there is any basis for that hope. North Korea seems unresponsive to China’s efforts to defuse tensions, and even less so to South Korea’s initiatives. North Korea seems single-mindedly focused on trying to acquire a reliable ability to credibly threaten the United States with a nuclear attack — truly a high stakes gamble on North Korea’s part.

Still, it is not too late for a diplomatic solution. That would be in the best interest of South Korea, China, Russia, Japan, the United States – and even for North Korea. That diplomatic path may be narrowing, and it will only be possible if South Korea, China, Russia, Japan, the United States, and others are able to maintain a common front against North Korea’s nuclear ambitions. There is some evidence that sanctions are beginning to bite – which may be also be contributing to Kim Jong-un’s rush. As the world’s leaders gather for the July 7-8 G20 summit in Hamburg, watch for signs of unity or division to see how the international community may handle this growing threat.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo from Stefan Krasowski’s photostream on flickr Creative Commons.

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Dennis Rodman and “the good side” of North Korea

By Robert R. King

Former NBA star Dennis Rodman made his most recent visit to North Korea at the same time American college student Otto Warmbier was medically evacuated to the United States after being imprisoned there for the last 17 months, and during the last 14 of those months he was in a state of “unresponsive wakefulness.”

Rodman was interviewed about his trip by ABC News on June 23—the day after Warmbier’s funeral.  In defending his latest visit to North Korea, he complained “people don’t see . . . the good side about that country.  It’s like going, like, to Asia.  It’s like going to like Istanbul, Turkey, or any place like that.  It’s pretty much just like that.  You know, you going to see some poverty.  You’re going to see some people that’s not doing too well.”

It may be that the former NBA star doesn’t see some aspects of life in the North that others see.  It may be that he doesn’t see because he doesn’t want to see, and the North Koreans are certainly not calling his attention to their well-known problems.

Rodman’s very first visit to Pyongyang began February 26, 2013.  On this first visit, he met Kim Jong-un and sought to promote basketball.  Rodman sang Frank Sinatra’s “My Way” to the young leader and told a crowded basketball arena:  “But for me, and your country, you’re a friend for life.”  Rodman arrived in Pyongyang on that visit just 11 days after North Korea conducted its third nuclear test—the first under Kim Jong-un.  Rodman may not know it, but North Korea is the only nation in the world to conduct nuclear tests in the 21st century, and in the last 11 years North Korean has tested five such weapons.  It is clear that their target is the United States since North Korean propaganda video show Washington under a mushroom cloud.

The basketball star made his second visit to DPRK in September 2013.  His purpose was to promote basketball, and he and Kim Jong-un spent time jet-skiing, horseback riding and sailing on Kim’s yacht.  Rodman held Kim Jong-un’s new daughter, and informed the world, “He’s a good dad and has a beautiful family.”  In the rest of the world, the most important news of that summer was the United Nations Human Rights Council’s decision to appointment of three distinguished judicial and human rights authorities as a Commission of Inquiry to investigate human rights abuses in North Korea.  The Commission later concluded that the North Korean government is committing systematic human right abuses at a scale “without parallel in the contemporary world,” including extermination, enslavement, rape, forced abortions, and brutal prison camps.

In December of that year, Rodman made a brief visit to Pyongyang to make final arrangements for his January 2014 visit for the gala birthday celebration of Kim Jong-un that was being planned.  That visit came at about the same time that Kim Jang-un executed his Uncle Jang Song-thaek, and the arrest just days before the execution took place at a communist party meeting that was broadcast on national television.  In North Korea public executions are common, and in some cases, anti-aircraft artillery is used for the executions.

The fourth Rodman trip to North Korea came in January 2014.  This was the occasion for the celebration of the birthday of Kim Jong-un.  Rodman brought twelve former NBA players with him for the basketball game that was played as part of the festivities.  During the celebration, Rodman sang “Happy Birthday” to the leader to a packed basketball arena.  That was the occasion for Rodman’s interview with CNN which raised questions about American citizen Kenneth Bae.  This American had been imprisoned in North Korea for well over a year at that time for bringing information inadvertently into the DPRK on a computer hard drive while leading a tour group to the country.  Rodman lashed out “If you understand what Kenneth Bae did …. Do you understand what he did in this country?  Why is he held captive in this country?”  Bae was finally released ten months later after U.S. Director of National Intelligence James Clapper went to Pyongyang.  Bae graciously suggested that the furor over Rodman’s CNN interview may helped his release, however, I have seen no evidence at all to indicate that it had any impact.

Rodman’s fifth and last visit, thus far, came just a couple of weeks ago.  On this trip, he met with the Minister of Sport, but he did not see his “friend for life” Kim Jong-un.  He arrived in the North Korean capital at about the same time that Ambassador Joseph Yun was there with medical personnel to medivac American citizen Otto Warmbier to the United States.  Rodman had nothing to say about the American student for the previous 17 months that he was held in the North, but he claimed credit for the release after returning to the United States.

Here again it is hard to “see the good side” of a country that arrests a visitor for taking a framed propaganda slogan off the wall and sitting it on the floor.  Even if there was intent to take the poster, it hardly merits a fifteen year prison sentence.  But even more, medical test data on Mr. Warmbier given to American officials by North Korean medical authorities was date stamped April 2016.  He was in the state of “unresponsive wakefulness” for 14 months.  The North apparently retained him in the hope that he would recover and only released him after this length of time when it appeared likely he would not.

Is the “good side” of North Korea evident in the statement issued by the Foreign Ministry a few days ago that the DPRK was the “biggest victim” in Mr. Warmbier’s illness, which occurred when he was being held incommunicado in their custody?

Dennis Rodman’s claim that “people don’t see . . . the good side about that country” suggests he has a very limited understanding of the reality of life in the DPRK.  Yacht trips, horseback riding, karaoke, cheering adoring crowds—these are are not the reality of North Korea.  A quick look at what was really happening at the very times that Rodman was in Pyongyang gives a dramatically different picture.  

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America.   He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.

Photo from OPEN Sports’ photostream on flickr Creative Commons.

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North Korea, Fake News, and getting Clickbaited by Kim Jong-un

By Nathaniel Curran

Fake News has been the hot topic of the past year, following the election of Donald Trump. The term has evolved from a description of false-fact to become something of a general pejorative. When Donald Trump denounced CNN as fake news, the subsequent rhetorical effect was less to question the veracity of CNN’s reporting than to insinuate that the news agency was morally bankrupt (or put differently, “not nice”).

We now live in a post-truth society where elections can be influenced by clickbait, and the topic of North Korea is one that lends itself incredibly well to this new-era of sensationalist headlines and questionable reporting. For one thing, the country is sensational, in the sense that any details that emerge concerning Kim Jong-un do indeed promote intense curiosity. A nuclear-capable rogue nation ruled by a third-generation despot is sure to arouse an interest in anyone with an even passing interest in international affairs.

I can’t count how many times I’ve clicked on an article on Facebook that promised to show me “shocking but true” photos from North Korea, only to find out that the article featured photos from a Pyongyang planned tour, featuring nothing more than a few snapshots of statues of Kim Il-sung. Other times the headline will describe a provocation that I learn, having clicked on the link, is actually several years old. People love to share news, and in the case of North Korea, they seem to have a difficult time separating the wheat from the chaff.

But even beyond the well-known phenomenon of clickbait, North Korea seems persistently plagued by a fake news-esque problem that is perpetuated by even reputable media outlets. Often these articles involve wild speculation that lacks substance yet maximize clickability. Such reports vary from whimsical bits of gossip, with titles like “You’ll never believe which American celebrity is popular in North Korea!” to voyeuristic pieces about the Kim family’s quirks or spending habits.

One explanation for this glut of coverage is that these stories are easy to write; North Korea consistently provides plenty of fodder. What these articles don’t always do, however, is put the North Korean situation in context. For example, when an article mentions that the North Korean state media has said North Korea will drown country X’s city Y in fire, it often fails to mention that such pronouncements are not out of the ordinary. Frequency of the threat is an important distinction to make; North Korean state media demonizing the U.S. is by no means a rare occurrence, whereas, say, Canadian threats of fire-drowning, should they appear, warrant immediate attention.

This is not to say that the situation with North Korea is not both dangerous and evolving; the North Korean situation is without a doubt one of the most vexing problems facing both the U.S. and South Korea. When one factors in China’s support for the Kim regime, along with China’s position as a new superpower, the situation becomes even more pressing and complex.

This is precisely why the American news media needs to do a better job of putting the situation into context. The American public is presented with an image of North Korea that is anachronistic and inaccurate. On the one hand, the situation is made to appear simpler than it is –either they nuke us or they don’t- while on the other hand the constant threat of nuclear annihilation obscures important issues like China and South Korea’s relationship with North Korea, as well as the ongoing humanitarian crisis in North Korea.

Stories on North Korea -at least those that seek to adhere to even the most basic of journalistic standards- need to contextualize their coverage. Simply reporting a news release from Pyongyang isn’t enough; stories need to also include an explanation for how the geopolitical situation has shifted as a result. Otherwise, such stories are probably less the result of a new development and more the result of a slow news day.

However, the onus is also on us as social media users. We must all refrain from clicking “share” just because the title contains the word “nuclear” or features photos of lockstep soldiers and rocket artillery. North Korea is volatile and unstable as it is, and the last thing anyone wants is a Boy-who-cried-wolf situation if things take a turn for the worse on the peninsula.

Nathaniel Curran is a PhD student at USC’s Annenberg School of Communication and a 2017 COMPASS Summer Fellow. The views expressed here are the author’s alone.

Photo from driver Photographer’s photostream on flickr Creative Commons.

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By the Numbers: The Frequency of North Korean Missile Tests Under Kim Jong-un

By Troy Stangarone

Since Moon Jae-in won the South Korean presidency in May, North Korea has conducted five missile tests. This is somewhat of a quickened pace of tests, with five tests in the four weeks of the Moon presidency, but not unprecedented by North Korean standards. North Korea conducted seven tests, for example, in a four week time period in 2014. Based on the dataset maintained by Beyond Parallel, North Korea conducted 20 missile tests in 2016, the most since Kim Jong-un succeeded his father in late 2012, and only a handful of tests less than all of the tests North Korea conducted under Kim Jong-il.

Since assuming leadership in North Korea, Kim Jong-un averaged 10.8 missile tests per year in the 2012-2016 period. Though, these numbers are driven up by the higher volume of tests in recent years. In 2012 and 2013, North Korea conducted a total of eight missile tests. If those initial years are excluded and only the more recent period where the rate of testing has increased are examined, the average is 15.3 tests per year in the 2014-2016 period.

 

While there is no linear pattern to North Korea’s missile tests, if North Korean tests continue at the same pace as they have so far this year we should expect a new missile test every 2.1 weeks and another 13-14 tests. If that is the case, which it may not be, North Korea would exceed last year’s total number of missile tests by 3-4 tests.

The international community should be prepared to more quickly respond to the advancing pace of North Korea’s missile tests by preparing a menu of tightening multilateral sanctions options that have been informally agreed to in advance.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Prachatai’s photostream on flickr Creative Commons.

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Does North Korea Belong Back on the List of State Sponsors of Terrorism?

By Gwanghyun Pyun

After the assassination of Kim Jong-un’s half-brother, Kim Jong-nam, there have been increasingly active calls to reinstate North Korea to the U.S. government’s list of State Sponsors of Terrorism. Congressman Ted Poe introduced a bill last month that would put North Korea back on the list, and Ted Yoho (R-FL), the chairman of the House Foreign Affairs Subcommittee on Asia and the Pacific, mentioned that there is a “strong consensus” in Congress on designating North Korea as a State Sponsor of Terrorism. With the U.S. government set to release the next update on the State Sponsors of Terrorism list in April, many will be watching with keen interest in April to see what position it takes.

North Korea had previously been on the list from 1987 until the Bush administration removed it from the list in 2008 as part of the negotiations on the DPRK’s nuclear program. Since the removal, there has been much debate about whether North Korea should be reinstated, adding it to the three countries now on the list (Iran, Syria, and Sudan). There have been two important components to the conversation:  legal considerations and diplomatic considerations. First, is it legally possible to call North Korea a State Sponsor of Terrorism? Second, if the United States were to put North Korea on the list, will it truly influence North Korea’s future behavior?

In order to legally determine whether a country should be on the list, the U.S. government has to demonstrate that the country has repeatedly provided support for acts of international terrorism. “International terrorism” means terrorism involving the citizens or the territory of more than one country, while the term “terrorism” means premeditated, politically motivated violence perpetrated against non-combatant targets by subnational groups or clandestine agents. The reason for the removal in 2008 was, in part, because according to a Congressional report North Korea has not been conclusively linked to any terrorist acts since 1987. In addition, some experts said that many of North Korea’s provocations are state vs. state activities that cannot be legally considered terrorism.

Last February in a hearing, Congressman Brad Sherman insisted that the United States should never have taken North Korea off the State Sponsor of Terrorism list. North Korea demonstrated it is ‘acting with impunity’ in assassinating Kim Jong-nam. In addition, it launched a new type of medium range missile a day before the assassination while Japanese Prime Minister Abe Shinzo was visiting the United States. Additionally, North Korea has continued to develop its nuclear program and conducted four tests since being delisted as part of the denuclearization process.

The assassination of Kim Jong-nam has led to increasing calls to reinstate North Korea on the terrorism list. For many, the assassination is an apparent terrorist act because Kim Jong Nam was assassinated at a public airport, allegedly using the highly toxic VX nerve agent, which is classified by the United Nations as a weapon of mass destruction. In addition, the chief of the Malaysian National Police Agency announced that the assassination involved a North Korean diplomat and an officer of Air Koryo, an airline run by the North Korean government. Yun Byung-se, the South Korean Minister of Foreign Affairs, has said that if the assassination was backed by the North Korean government, it is clearly nation-led terrorism. In addition to the latest incident, North Korea has been responsible for several other terrorist-like activities since 2008, such as the cyberattack against Sony Pictures and assassinations plots against high rank defectors and Korean agents.

However, it is far from clear that North Korea can be reinstated to the list. For years, the United States has held its ground and not defined North Korea’s activities as terrorism, especially, in the case of cyberattacks, which have never been defined as terrorism.  Some of North Korea’s other actions, including the assassination, may not meet the requirement of the definition of “terrorism” perfectly.

From the diplomatic view, there is a debate on whether reinstating North Korea to the list would be effective in changing North Korea’s behavior. According to U.S. law, a country on the State Sponsors of Terrorism list faces mandatory sanctions including restrictions on U.S. foreign assistance, a ban on defense exports and sales, certain controls over the export of dual use items, and miscellaneous financial and other restrictions. However, even if the U.S. does not designate North Korea as a state sponsor of terrorism, North Korea is already one of the most heavily sanctioned countries in the world.

Although North Korea is already heavily sanctioned, the effect of relisting would be largely symbolic, without any new sanctions. However, a spokesperson from the Ministry of Foreign Affairs said reinstating North Korea on the U.S. terrorism list would have the effect of highlighting North Korea’s brutalities. In addition, Professor Robert Kelly of Pusan National University stated “It might tell China that the U.S. is running out of patience, but the U.S. has signaled that before.”

The purpose of the Kim Jong-nam assassination was to strengthen the Kim regime’s hold on power by removing a possible successor. Although the regime’s actions mainly dealt with a domestic situation, it is clear that the assassination deteriorated North Korea’s foreign relations. Its behaviors are also threatening the security of South Korea and Japan, and both countries are supporting calls to put North Korea back on the list of State Sponsor of Terrorism. Now, the voices calling to reinstate North Korea as a sponsor of terrorism are louder than ever in the United States and abroad. The United States government should sincerely listen, and look into restoring North Korea to the list.

Gwanghyun Pyun is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Sogang University in South Korea. The views expressed here are the author’s alone.

Photo from Roman Harak’s photostream on flickr Creative Commons.

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.