BIG BROTHER Despite tough-looking new sanctions, punishing the gangster state will remain fiendishly difficult. All eyes are on China.
The Economist Mar 5 2016
Time Line of Sanctions
July 2006 – UN Security Council (UNSC) and Japan impose sanctions and South Korea halts food assistance
Oct 2006 – NK carries out first underground nuclear test
Oct 2006 – UNSC imposes additional sanctions, sets up sanctions committee
May 2008 – Second underground nuclear test
Jan 2009 – UNSC expands sanctions
May 2010 – A torpedo sinks the South Korean corvette Chennan
July 2010 – US imposes new sanctions for North Korea’s sinking of Chennan
Aug 2010 – Obama increases financial restrictions: Department of Treasury sanctions 8 N Korean entities
Nov 2010 – Shells the South Korean Island of Yeonpyeong
April 2011 – US prohibits certain transactions relating to North Korea
Dec 2011 – Kim Jong Il, N Korea’s leader dies. Kim Jong Un, his youngest son succeeds him
Feb 2012 : Leap Day Agreement: Agrees to stop enriching uranium, testing missiles and nukes
April 2012 – Tails to launch a satellite using the Unha-3 rocket
April 2012 – US halts plans to send food aid
Dec 2012 – Successfully launches a satellite on the Unha-3
Jan 2013 – UNSC strengthens and expands sanctions; freezes additional assets
Feb 2013 – Conducts a third nuclear test
March 2013 – UNSC unanimously tightens existing sanctions and adds additional sanctions
April 2013 – Says it will restart its nuclear reactor at Yonghyon
Jan 2015 – US expands sanctions
May 2015 – Says it has tested a submarine-launched missile
Dec 2015 – US imposes new sanctions
Jan 2016 – Claims to have carried out a hydrogen bomb test
Feb 2016 – Successfully launches another satellite on the Unha-3
Mar 2016 – UNSC unanimously approves touch new sanctions.
On March 2nd 2016, the UN agreed to the most sweeping sanctions it has yet imposed on North Korea in response to the country’s nuclear and missile tests of the past decade. The measures include inspections of all goods going to or coming from the country; a total embargo on all arms sales to it; and a ban on exports from it of coal, iron and other minerals. They were approved by all 15 members of its Security Council including Russia, after it delayed a vote to negotiate small changes to the text, and China, which opposes its ally’s nuclear programme but has been reluctant to punish it seriously.
Hopes have been raised before that consensus at the UN might force North Korea to abandon its efforts. “Swift and tough” was how America described a resolution passed by the UN after North Korea’s inaugural atomic test in 2006. Yet despite further such resolutions, the North’s bomb-building programme chugs along. Few expect it to give it up soon. But a toughening of China’s stance—assuming it implements the sanctions rigorously—may give North Korea pause. China is by far the country’s biggest trading partner. Most of the trade covered by the sanctions goes through China.
The resolution was the product of nearly two months of delicate negotiation between America and China that began after North Korea’s fourth nuclear test on January 6th. That was followed on February 7th by a long-range missile test (in the guise of a rocket sending a satellite into space), after which South Korea and America agreed to begin formal talks about the possibility of installing an American missile-defence system in the South. That prospect may have helped to stiffen China’s resolve: it fears the kit might threaten its own nuclear arsenal. China may hope that America might now abandon its missile-defence ideas. But it has also made clear that UN sanctions are “not an end in themselves”. China recently called for peace talks between the Koreas. It will hope that the sanctions will encourage North Korea to resume discussions on dismantling its nuclear programme, and not simply choke the North Korean economy.
Chinese enforcement of previous sanctions applied by the UN on North Korea has been poor. Those now being imposed would involve considerably more disruption for China. It receives most of North Korea’s exports of minerals, including coal, gold, titanium and iron ore; in 2014 they made up half of the North’s $2.8 billion worth of sales to the country, according to South Korean figures. Rüdiger Frank of the University of Vienna thinks inspections of goods crossing the border will scare away trading partners and increase transaction costs for all North Korean trade, even the legal sort. But Chinese officials may balk at having to examine every truck. It is possible that they may simply put on a show of doing so. John Delury of Yonsei University in Seoul says that if China thought economic pressure was useful, it would already be applying it unilaterally.
The sanctions include a more explicit ban on the sale of luxury goods, with which the regime pampers its senior officials: no more snowmobiles or fancy watches. But perhaps the most potent provisions of the UN resolution are those that require, and no longer simply encourage, countries to sniff out suspicious North Korean activity. They must expel North Korean diplomats found to be engaging in criminality and shut down North Korean banks if there is evidence they are helping the nuclear programme.
Money trees
But the sanctions do not target China’s vital oil supplies to the North. And North Korea may find ways of mitigating their effects. It has been tapping new sources of cash, such as by sending more workers abroad to earn hard currency at logging camps in Russia and on construction sites in the Middle East—activities that are also not covered by the latest resolution. If the new sanctions deter some traders, others may fill the gap, especially Chinese middlemen attracted by high commissions for riskier dealings on behalf of North Korean state trading companies. North Korea has a thriving black market in everything from computers to fine cognac, oiled by corrupt Chinese customs officials along its 1,400km (870-mile) border with China. The sanctions regime is likely to increase that illegal trade, not crush it.
North Korean coal shipments, by their size, should be easier to track. Yet a large loophole remains that allows exports for “livelihood purposes”. Kim Byung-yeon of Seoul National University says certifying end-use would be wholly impractical. Proceeds from coal exports and most other trading activities typically remain in China in the form of credit. These are pools of ready cash for North Korean elites to draw on for their trade. And North Korea has proven adept at skirting sanctions by setting up front companies and shuffling ownership—shifting control of a trading company from a blacklisted government agency to one that is not, for example.
Recent reports by a UN panel have found that North Korea routinely renames firms hit by sanctions and registers its cargo ships under foreign flags (among them, Cambodia, Kiribati and Sierra Leone). States that neglect to enforce sanctions are not penalised. Since the previous resolution in 2013, more than 150 of the UN’s 193 member states have failed to submit required reports on their implementation of those sanctions; last year, four of them were members of the Security Council.
Today
Yes, there are similarities. Like North Korea’s economy today, Vietnam’s used to be largely collectivised. The Vietnamese Communist party’s ability to retain power at the same time as freeing markets must appeal to Kim Jong Un, North Korea’s dictator, who has vowed to improve his country’s economy. In 1985, on the eve of Vietnam’s doi moi liberalising reforms, its GDP per person was a mere 1% of America’s. In 2015 North Korea was in an identical position relative to America, according to UN figures (rough estimates, since North Korea publishes few statistics).
Diplomatically, the comparison also makes sense. Vietnam shows that a country can go quite quickly from being a sworn enemy of America to a close trading partner. Vietnam’s normalisation of relations came in 1995, just two decades after the two countries ended their war. America is now the biggest destination for Vietnamese exports. The shift could be faster for North Korea: its propagandists may have described America as its arch-enemy until recently, but it has been more than six decades since they fought.
Nevertheless North Korea is different from Vietnam in three ways that could hurt. In Vietnam’s south, its economic heartland, collectivisation of farms and factories lasted just ten years before private ownership was restored. People who had previously run businesses were able to get quickly back in the game. After 65 years of juche, the national ideology of self-reliance, North Koreans are starting from scratch. The growth of informal food and goods markets in recent years shows some entrepreneurship, but the learning curve for big firms will be much steeper.
The structure of North Korea’s economy also complicates matters. More than 70% of the workforce in both Vietnam in the mid-1980s and China in the late 1970s (when its economic reforms started) was in agriculture. Simple changes to incentives—letting farmers profit from the sale of their own crops, for example—led to a surge of agricultural productivity. And the exodus of workers from farms generated a pool of cheap labour for factories, fuelling the rise of export industries.
By contrast, more than 60% of North Korea’s population already lives in cities. For big productivity gains, the government will need to overhaul moribund industries. In that respect North Korea resembles eastern Europe after the Soviet Union’s demise, says Marcus Noland of the Peterson Institute for International Economics, a think-tank in Washington. “There will be losers,” he says. Unemployment might soar. Privatisation could increase already-rampant corruption even further. Sitting between China, South Korea and Japan, North Korea should find it easy to attract capital to create jobs. But its record for foreign investors is poor: it seized South Korean assets at their showpiece joint industrial park in 2016 when relations deteriorated.
Another weakness for North Korea is demography. When Vietnam and China embarked on reforms they were both young countries, with median ages of about 20. They had many workers and few elderly dependent on them. In North Korea, the median age is already 34, making it even older than Vietnam today. As China ages, officials worry that it will get old before it gets rich. In North Korea the risk is that it will get old while it is still impoverished. All the more reason for Mr Kim to get cracking on economic reform. He may have little hope of building the next Vietnam. But better that he look to the outside world than keep North Korea entombed.
