Tag Archive | "sanctions"

U.N. Sanctions Against North Korea: A Look Back

By Juni Kim

North Korea’s two ICBM (intercontinental ballistic missile) tests last month marked an ominous milestone in the reclusive nation’s weapons programs. For the first time, North Korea demonstrated the capability of launching a missile that could reach the lower 48 states. In response to the recent tests, the United Nations Security Council passed its latest resolution sanctioning North Korea over the weekend. The resolution targets some of North Korea’s most profitable industries, including coal, iron, lead, and seafood. U.S. Ambassador to the U.N. Nikki Haley said in a statement that the new sanctions package would reduce North Korean total exports by a third.

Sanctions have played a foundational part in the international community’s efforts to curtail North Korea’s weapons programs over the past decade. Each sanctions resolution was passed in response to either a nuclear or missile technology test by the North, with earlier sanctions targeting weapons materials and the more recent sanctions targeting North Korea’s trade industries. The effectiveness of such sanctions is still hotly debated in policy circles, but the advances that North Korea has made in its nuclear and missile technology in recent years are gravely undeniable. The fiery rhetoric between the U.S. and North Korea in the past few days has only further highlighted the threat that North Korea poses to U.S. security.

The graphic below shows a selected overview of sanctioned materials outlined in U.N. resolutions. The list is not meant to be comprehensive and is meant to give a general idea of what each resolution sanctioned. The resolutions are not designed to replace previous versions, but usually recall and reinforce the prior resolutions while adding new items, organizations, and individuals to the sanctioned list. It should also be noted that individual nations maintain their own unilateral sanctions against North Korea in addition to the U.N. resolutions. For the original resolution texts, you can click on the corresponding links below.

UNSCR Sanctions 2

Links to the U.N. press release on each resolution and the resolution text

UNSCR 1695 – July 15, 2006

UNSCR 1718 – October 14, 2006

UNSCR 1874 – June 12, 2009

UNSCR 2087 – January 22, 2013

UNSCR 2094 – March 7, 2013

UNSCR 2270 – March 2, 2016

UNSCR 2321 – November 30, 2016

UNSCR 2356 – June 2, 2017

UNSCR 2371 – August 5, 2017

 

Juni Kim is the Program Manager and Executive Assistant at the Korea Economic Institute of America. Noori Kim, an intern at KEI, made contributions to the articles. The views expressed here are the author’s alone.  

Graphic created by Juni Kim. Photo from Ashitaka San’s photostream on flickr Creative Commons.

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Are the New UN Sanctions Enough to Slow North Korea’s Missile Development Program?

By Troy Stangarone

The United Nations Security Council has unanimously passed new sanctions on North Korea in response to Pyongyang’s intercontinental ballistic missile tests on July 4 and 28. These measures are long overdue. While the international community has taken steps to sanction North Korea over its development of nuclear weapons, its push to develop the delivery systems necessary to utilize those weapons has faced relatively few sanctions. That has now begun to change.

The new sanctions take important steps to significantly reduce North Korea’s efforts to earn hard currency. The key provisions in the sanctions relate to a new ban on exports of coal, iron ore, lead, lead ore and seafood products. The ban is a step in the right direction, as it continues to remove loopholes from prior resolutions that North Korea has been exploiting. In the case of coal, for example, North Korea was able to earn more from coal exports after the sanctions than it had prior to sanctions due to rising prices. To address this issue, the UN placed a hard cap on coal exports in Security Council Resolution 2321, passed in November 2016. The cap is now gone and a full ban is in place. These new sanctions also ban new joint ventures with North Korea and any additional investment in joint ventures that already exist.

However, the provision prohibiting an increase in the number of overseas laborers will likely have minimal impact. The trend was already in this direction — over the last year, many countries have been reducing their use of North Korean labor. The one significant outlier had been Russia, who earlier this year agreed to expand its usage of North Korean labor. That the new UN sanctions only place restrictions on increasing the usage of North Korean labor likely reflects the reluctance of Russia and China to cut off the usage of low wage North Korean labor completely. Additionally, much as was the case with earlier efforts to reduce Pyongyang’s earnings from coal exports, North Korea could earn increasing amounts from the laborers already abroad if their wages were to increase.

While the new UN sanctions are an important step to begin imposing a price on North Korea’s missile program, we should not expect the new sanctions to stop North Korea’s missile development. Pyongyang has demonstrated consistently that it is willing to bear the burden of sanctions to advance its weapons programs. Additionally, while some expect that these sanctions will result in a one third reduction of North Korea’s total earnings, the impact may not reach that level, as new sanctions primarily cover goods trade. North Korea likely earns significant amounts from illegal arms trade, smuggling, and other activities as well.

Despite the constraints that come from any new sanctions efforts, this move is an important step forward in sanctioning North Korea over its missile development. Prior to the current set of sanctions, there had been few UN Security Council resolutions explicitly in response to North Korean missile tests, despite a significant increase in tests under Kim Jong-un.  So far this year, North Korea has conducted two ICBM tests and has conducted a new missile test once every 2.6 weeks on average. Demonstrating to North Korea that there will be a cost for these tests is important. However, rather than simply reacting to these tests after they occur, the international community should consider pre-negotiating sanctions measures in advance of tests to make clear to North Korea the cost of its actions. At a minimum, the international community should not allow North Korea to continue to conduct new missile tests at this rate without additional sanctions.

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

Photo from United Nations Photo 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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Scratch North Korea from your Vacation Plans

By Mark Tokola

According to news reports, the State Department will soon publish a new regulation to ban Americans from visiting North Korea for tourism.  State Department spokeswoman Heather Nauert said on July 21, “Once in effect, U.S. passports will be invalid for travel to, through and in North Korea, and individuals will be required to obtain a passport with a special validation in order to travel to or within North Korea.”  It appears the special validation exception is intended to allow the small number of U.S. humanitarian workers to continue their work in North Korea.  There will be a 30-day period after the ban is officially published in the Federal Register before it comes into effect to allow time for Americans in North Korea to depart.

The State Department has made clear that the justification for the ban is “mounting concerns over the serious risk of arrest and long-term detention,” following student Otto Warmbier’s year-long detention in North Korea and his death on June 19.  Three American citizens continue to be held in North Korea.  The State Department has long cautioned against Americans travelling to North Korea because of the U.S. government’s inability to provide protective services in a country in which it has no Embassy or Consulate. But that has not dissuaded several hundred Americans from visiting North Korea every year, usually by means of European travel agencies that offer group tours.

Those who have advocated for a travel ban on North Korea have given reasons other than personal safety.  One is to deprive the North Korean government of the money it makes from tourism.  North Korea charges a great deal for the privilege of visiting their country, and that money goes into government coffers.  Advocates of a travel ban say that tourism revenue directly or indirectly supports both North Korea’s weapons programs and its pervasive system of human rights abuses.  Another reason for a ban would be to prevent North Korea from seizing hostages to gain diplomatic leverage against the U.S.  In the past, North Korea has released American prisoners only in exchange for visits by high-level, current or former U.S. government officials.

Opponents of a travel ban have argued that people-to-people contacts can help change how North Koreans see America.  Even casual contacts with North Koreans, under this theory, will help counter North Korean propaganda that all Americans should be seen as hostile war-mongers.  Some also oppose all U.S. government travel bans on the general principle that American citizens should have the freedom to travel where they choose; travel restrictions are an abridgment of civil liberties.  As a legal matter, the Supreme Court settled this question in the 1965 Zemel v Rusk decision when it upheld the State Department’s power to restrict the use of U.S. passports to travel to Cuba. A final reason to oppose a ban is that it could prove difficult to enforce.  If an American joins a travel group from outside of the United States, to what lengths would the U.S. government go to punish that individual?  How would it even monitor the travels of such individuals?

Beginning in 1968, U.S. passports included a list of countries to which the passport holder could not travel: North Korea, the People’s Republic of China, North Vietnam, and Cuba.  Those restrictions were eventually dropped and there currently are no countries which a U.S. passport holder is prohibited from visiting.  You will ask, “What about Cuba?”  In fact, the current U.S. bar on tourists visiting Cuba is not a State Department ban on using a U.S. passport to visit Cuba; it was a U.S. Treasury Department ban on making any payment to the Cuban government, which had the effect of making travel to Cuba virtually impossible for tourist purposes.  The Obama Administration eased those financial restrictions, but the Trump Administration is restoring some of them.  For more on travel to Cuba, see the Treasury Department’s FAQs from June 16, 2017.

In addition to the State Department’s ban on tourism for the purpose of protecting American citizens from the dangers of travel to North Korea, watch for the U.S. Treasury to impose its own restrictions on American payments to visit North Korea as part of the U.S. sanctions regime, along the lines of the Cuban restrictions.  Although this would seem redundant, it might aid in enforcement of the travel ban once it comes into effect.

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

Photo by KEI.

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Secondary Sanctions on North Korea Should Be About More than China

By Troy Stangarone

In late June, President Donald Trump signaled a shift in the administration’s North Korea policy when he tweeted that “While I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out. At least I know China tried.” Little more than a week later the administration placed sanctions on a Chinese bank and shipping company and two individuals. More recently, there are reports that the administration will continue to increase the pressure on China by placing sanctions on additional small banks and firms doing business with North Korea. While sanctioning Chinese entities that are evading sanctions to do business with North Korea is a key step, the administration should continue to go after non-Chinese actors engaged in sanctioned activities with North Korea.

Shortly before shifting track on China, the administration sanctioned two Russian firms for their ties to North Korea’s weapons programs. Now there may be an interesting new case to consider. Recent investigative reporting by NK News found that Singaporean based OCN (S) Pte Ltd., which built a new commercial development in North Korea and operates two high-end department stores in Pyongyang, has ties to Office 39 and is involved in importing luxury goods banned under UN sanctions. If the claims are corroborated, it could expose OCN to U.S. sanctions. Under tools available to the administration OCN would be subject to U.S. sanctions for both its ties to Office 39, which is an entity sanctioned by the United States and the United Nations, as well as it aid in the facilitation of luxury goods imports into North Korea.

There are three good reasons for the administration to pursue sanctions on entities not based in China. First, for sanctions to be effective against North Korea they need to deprive the regime not simply of access to resources, but the effects need to be felt by the ruling elite in Pyongyang. While North Korea will not give up its weapons due to a few less bottles for cognac or a decrease in other luxury goods, limiting the regimes access to luxury items is one means to create discontent among the ruling elite with the regime’s policies. If the burden of sanctions is only borne by the broader population, it will have little impact on North Korean policy.

Second, while China receives the majority of the attention on sanctions enforcement, as North Korea’s most significant trading partner should, it is not the only source of revenue and goods for the regime. If the administration is able to utilize secondary sanctions against Chinese entities to either restrict North Korean trade or induce greater Chinese cooperation, it also needs to be closing off alternative sources that might be able to provide the regime in Pyongyang a lifeline in a crisis, if not to the same degree as China. Focus on China is necessary, but not sufficient for sanctions to work.

Going after sanctions violating entities in other countries sends a signal to those doing business with North Korea that they are not safe merely by not being a Chinese entity.  It also begins to constrict Pyongyang’s options.

Lastly, targeting third countries provides political space for both the United States and China. China has long opposed the use of U.S. domestic laws to achieve foreign policy goals. However, while China may oppose the method, if the evidence for the violations is solid and firms other than those in China are targeted it may provide space for Beijing to begrudgingly continue to cooperate with the United States. For the United States, it demonstrates that Washington is going after any and all entities that are violating sanctions on North Korea and avoids leaving the appearance of solely targeting China. Maintaining space for Chinese cooperation is important as the United States eventually will need China’s cooperation to deal with North Korea.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are his own.

Photo from aotaro’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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Is China Helping? We Might Be Surprised

By William Brown

President Trump made lots of people a little nervous last week, tweeting that China had been “helpful” on North Korea but that “It just hasn’t worked out.” As if resigned to the inevitable, he typed “At least it tried”.  With breaking news TV stations reporting activity at the nuclear test site it seemed something actually might happen.  Maybe years of crossed red-lines was finally coming to this, a Kim Jong-un test of Trump’s resolve.  I must admit, I woke up in the middle of the night just to check my USGS earthquake tickler.  It, and KOPSI, was quiet.

 

China Tried Tweet by Trump

North Korea, we all know by now, can surprise us with a nuclear test at any time but so far, in the five months of Trump’s tenure, it hasn’t, nor has it crossed a different red line and tested an ICBM, despite warning of such in January.  Many short and medium range missiles have been test fired, of great danger to South Korea and Japan, but nothing close to one capable of hitting the US mainland.  So, while it is still early, it is fair to ask; is China finally bringing effective pressure to bear on Pyongyang to stop the tests that so worry the United States, as we and others have demanded?

China Trade May 2017

Surprisingly, after so many years, perhaps so.  Over the week-end, China released trade data for May and it seems to show, despite lots of naysaying from Washington pundits, that the economic pressure is building.  Monthly data is volatile, and this is not seasonally adjusted, but the trend clearly is not in North Korea’s favor.  Chinese exports to North Korea were fine, in fact up 19 percent in the year through May from the same period of 2016, but imports plummeted 24 percent, largely attributable to a zeroing out of anthracite coal imports.

For Pyongyang, the rise in imports and fall in exports pushed the long-term average $50 million monthly goods trade deficit to about $200 million in each of March, April, and May.  This seems unsustainable, meaning it is likely larger than the funds North Korea can garner from other activities, i.e. trade with other countries, and from services sales and remittances from overseas workers and from families who have fled, leaving their relatives.  Almost no aid is flowing into the country, the Kaesong money pot is broken, and the capital account, usually a balancer for a poor country with a large trade deficit, is likely flat given no one is willing to lend anything to Pyongyang, let alone invest. If all this is correct, imports will not hold up for long and the people will begin to experience the brunt of shortages of all kinds of imported goods.

The first of these might have already happened.  In May, after mere threats that China may reconsider its decades long provision of free crude oil, a legacy of the Mao-Kim era, lines for gasoline formed and prices leapt in Pyongyang, holding high at least through the end of May  (see May blog).

China NK Trade Surplus

Of course, one has to be cautious in depending too much on published Chinese trade data, especially in an area like this with such important policy dimensions and with great lack of transparency.  Ever since Beijing prohibited imports of coal from North Korea back in February, the data has shown exactly zero imports, an unlikely proposition.  The same can be said for other products such as precious metals although it is not true for all UN sanctioned items which have seen reductions but not to zero.  Observers have seen some North Korean coal in Chinese ports and are thus skeptical the coal really has been stopped. And Beijing has a track record of fooling around with its crude oil export data, off the books since mid-2014 (this flow is not counted in the above graphics).  If North Korea had to pay for the vital crude oil, this would likely add another $30 million or so to the monthly deficit.  And even if Chinese customs faithfully records what it sees, there is no doubt a lot of smuggling takes place.  Even so, the data, even if inaccurate, is telling North Koreans who can see it an important story; as Trump says, China is trying to limit economic interchange, a strong and worrisome message in and of itself.

China Coal May 2017

Market data should begin to help confirm if the Chinese cutback on imports is real.  With Kim Jong-un having bought in to at least passive acceptance of a partial market economy, domestic prices are reasonably free to rise sharply, if and when the market exchange rate deteriorates and demand for dollars rises. So far, except for gasoline and diesel, though, such changes have been only slight, as indicated by the DailyNK website.  And clever North Koreans may find other things to sell in exchange for hard currency or imports.  Nonetheless, price and exchange rate stability are two of Kim’s most important success stories to date and are something his father or grandfather never achieved.  It will thus be important to watch these indicators to see if Chinese pressures really are building, giving the young leader worrisome things to think about, even more than Trump’s tweets.

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.

Photo from Global Panorama’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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It’s Time to Change How We Handle North Korea’s Missile Tests

By Troy Stangarone

It took all of five days after the election of Moon Jae-in as South Korea’s president for North Korea to test a ballistic missile. The test, perhaps intended to gain maximum effect by simultaneously sending a signal to China, took place only hours before Xi Jinping was set to give a major address at an international summit hosted by Beijing on the One Belt, One Road initiative.  Two additional missile tests have since followed, the first of which was likely designed to simulate the reentry of an intercontinental ballistic missile (ICBM) without provoking the United States by conducting an actual ICBM test, and the second of which was thought to be a demonstration of North Korea’s capabilities.

While the international community has largely focused on North Korea’s nuclear tests, its continuing development of delivery devices is equally dangerous to international peace and stability. In recent years, Pyongyang has made significant progress on its missile development and is likely able to mount a nuclear warhead on a missile capable of reaching South Korea and Japan. It has also made progress on developing missiles that could serve as a second strike capability and which would provide little warning prior to launch. It has been most successful in developing a mobile launched solid fuel rocket, but has also begun the process of developing a submarine launched ballistic missile.

Despite the danger that North Korea’s missile tests present, to date they have largely been consequence-free for the regime. While the international community condemns the tests, there has been little real cost to North Korea for its decision to keep advancing the development of delivery systems for its nuclear weapons. In contrast, its nuclear tests have sparked far harsher responses. Since Kim Jong-un has come to power, North Korea has conducted three nuclear tests and more than 60 missile tests. The United Nations has passed new sanctions resolutions after each of North Korea’s nuclear tests, but only four resolutions related to North Korea’s missile development.

The first resolution related to North Korea’s development of ballistic missiles, Resolution 1695, pre-dates Kim Jong-un and calls for the suspension of North Korea’s missile programs and for member states to prevent missile technology from being transferred to North Korea in accordance with national and international laws. While further resolutions have added sanctions or placed restrictions on missile related activities, only Resolution 2087 was explicitly related to a North Korean ballistic missile test while Resolution 2270 was in response to the quick succession of North Korea’s nuclear test and space launch.

On the international level, this may be slowly changing. The UN Security Council recently passed a small set of new sanctions tied to North Korea’s missile programs which sanctioned four entities and fourteen individuals. However, much as with prior sanctions, the lesson North Korea will likely draw is that there will be little cost to continuing on its current trajectory.

While U.S. sanctions are designed to slow the progress of North Korea’s weapons programs, they do not necessarily impose new costs on North Korea for each additional missile test.

Outside of the sanctions regime, the international community has tried a few other options to cut off the DPRK’s weapons program. For example, the United States and its allies have also worked to interdict the technology that North Korea needs for weapons development, specifically through programs such as the Proliferation Security Initiative (PSI). But there are limits to this approach. While PSI has been endorsed by over 100 countries, key countries such as China, Pakistan, and Iran have not done so to date. In addition, there are limits to interdicting materials in transit, even though UN sanctions also call for the inspection of all cargo destined for  North Korea.

Additionally, military options in the absence of a clear threat by North Korea to attack are unlikely to be a solution. Preemptively attacking missile sites prior to tests or attempting to shoot down North Korean missiles once they have been launched would both entail risks. A preemptive strike could precipitate retaliation by North Korea, while attempting to shoot down a North Korean missile and failing could lead Pyongyang to conclude that the U.S. and allied missile defenses are vulnerable. That leaves increasing sanctions as the only viable option for raising the costs of North Korea’s missile tests.

However, given the frequency of North Korea’s missile tests and the traditional slow pace of the UN Security Council’s response, it’s time to consider a different method. To do this the United States should consider working with China and Russia to develop a new set of sanctions that would go into place incrementally for each additional test that North Korea conducts, while also leaving room to address other issues with the regime in Pyongyang. Without raising the level of sanctions after each North Korean missile test, there is little deterrent to stop the regime from continuing to move its program forward.

While this is something that China and Russia would likely be reluctant to consider, what we do know is this – North Korea will conduct another missile test in the near future. The question is what the international community will do to try and prevent the regime in Pyongyang from perfecting their missile technology.

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 Ahsitaka San’s photostream on flickr Creative Commons.

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