The August 5th UNSC sanctions on North Korea: new scope, but same old tools. Will this time be any different?

August 6th, 2017

By Benjamin Katzeff Silberstein

On Saturday August 5th, the UN Security Council passed yet another resolution, 2371, following North Korea’s missile tests. Like resolution 2270 that was passed in March 2016, 2371 also takes aim at North Korea’s mineral exports. The new resolution also bans imports of seafood products from North Korea, and bans member states from hiring new North Korean laborers, but they do not need to fire ones already hired, so it is questionable whether this source of income will decrease and/or disappear, or merely stop increasing.

Unlike 2270 last year, it does not appear to contain a humanitarian exemption or any other loophole for mineral imports. In sum, the new resolution appears much more holistic than its predecessors in fully cutting off North Korea’s most central export revenues.

But while the content of the resolution is different, the tools remain the same. Its efficacy still hinges upon implementation by UN member states, and of course, above all, by China, and it is difficult to see why such implementation would be more likely this time. Both President Trump and the US ambassador to the UN, Nikki Haley, have made a big number of China’s and Russia’s vote in favor of the resolution. WSJ reports:

U.S. Ambassador Nikki Haley praised the council’s solidarity, saying more days like this one were needed at the United Nations. She also personally thanked China for helping move the resolution from talk to action. The U.S., which had drafted and put forward the resolution, negotiated for more than a month with China over the text and final measures targeting Pyongyang.

“This resolution is the single largest economic sanctions package ever leveled against the North Korean regime,” said Ms. Haley, adding the council had put the country and its leadership “on notice” and “what happens next is up to North Korea.”

President Donald Trump said on Twitter, “The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!”

However, both China and Russia voted in favor of UNSC 2270 as well, and there are still abundantly clear signs that China did little to implement the ban on imports of North Korean minerals. Had UNSC 2270 been implemented in full, North Korea’s export revenues would already have been badly hit.

Meanwhile, South Korea’s Bank of Korea announced a few weeks ago its estimate that the North Korean economy grew by close to four percent last year. One should read those numbers with a very, very hefty dose of skepticism, given the difficulty in estimating anything relating to the North Korean economy, but at the very least, we can safely conclude that the North Korean economy is not in dire straits. Its foreign trade increased by close to five percent last year, according to KOTRA. Though there have been several reports suggesting difficulties for companies involved in cross-border trade between China and North Korea over the past year, there are no indications that China has implemented the near-blanket-ban in minerals trade that the UNSC resolution from March last year mandates.

So why would this time be any different? My guess is that it won’t be. It is very difficult to imagine that China would have voted in favor of a resolution that would hit North Korea’s economy so badly if it would really have believed that such a resolution would be fully implemented. The basic political dynamics remain: China does not want North Korea to crumble, and China craves geopolitical stability above everything else.

As always, only time will tell. But those who applaud this resolution as a new and radical turn on the global stage in the North Korea issue may want to look back at historical precedent, and moderate their expectations.

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UN security council adopts sanctions banning imports of wide range of North Korean goods

August 5th, 2017

Benjamin Katzeff Silberstein: 

On Saturday August 5th, the United Nations Security Council approved a resolution banning member states from importing North Korean export goods such as minerals and seafood products, and from hiring North Korean laborers. Wall Street Journal:

U.S. Ambassador Nikki Haley praised the council’s solidarity, saying more days like this one were needed at the United Nations. She also personally thanked China for helping move the resolution from talk to action. The U.S., which had drafted and put forward the resolution, negotiated for more than a month with China over the text and final measures targeting Pyongyang.

“This resolution is the single largest economic sanctions package ever leveled against the North Korean regime,” said Ms. Haley, adding the council had put the country and its leadership “on notice” and “what happens next is up to North Korea.”

President Donald Trump said on Twitter, “The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!”

Both China and Russia urged a return to talks with North Korea and told the Security Council that the U.S. must abandon its military exercises with South Korea and dismantle the missile-defense system in South Korea known as Thaad because North Korea perceived that as a threat and it undermined the security of the region.

“We stress that additional restrictions cannot be an end to themselves, they need to be a tool to engage in dialogue,” said Russia’s new ambassador to the U.N., Vassily Nebenzia.

The nine-page resolution steps up trade restrictions with Pyongyang by aiming to cut off a third of its $3 billion annual export revenue. It bans North Korea from trading coal, iron, lead, iron and lead ore, and seafood.

The resolution also prohibits countries from hiring North Korean laborers and bans countries from entering or investing into new joint ventures with Pyongyang.

Diplomats and sanctions experts have long warned that export revenues, even remittances from foreign workers, are cycled back to North Korea’s military and nuclear programs.

A Security Council diplomat offered this estimate on North Korea’s foreign revenue earnings in 2017: $295 million from seafood; $251 million from iron and iron ore, and $400 million from coal trade.

North Koreans work in China, Russia and the Arab countries in the Persian Gulf in a variety of businesses ranging from factories to restaurants and nightclubs and are estimated to send home several billion dollars in revenue, a large portion of which the government claims, according to U.N. sanctions experts.

The new resolution restricts North Korea’s technology trade and tightens enforcement of sanctions on North Korean vessels by banning violators from entering ports around the world.

Under the resolution, North Korea’s Foreign Trade Bank, which handles foreign exchange, will be added the U.N.’s sanctions list that freezes the assets of targeted entities.

It remains to be seen whether the new sanctions will deter North Korea’s pursuit of advanced ballistic missiles and nuclear weapons or bring its leader Kim Jong Un to the negotiating table.

North Korea’s economy has managed to stay afloat largely because China, its main trade partner, and Russia and some African nations haven’t fully enforced existing U.N. sanctions. The U.S. Treasury in June sanctioned Chinese entities—primarily banks and shipping companies—and individuals for violating sanctions and conducting trade that contributed to North Korea’s military and nuclear program.

China’s Ambassador Liu Jieyi said his country denounced unilateral sanctions by the U.S. and said action against North Korea must be through the U.N. mechanism. Mr. Liu told the council he welcomed the U.S. position that it wasn’t seeking regime change in North Korea.

“China has always been firmly opposed to chaos and conflict in the [Korean] peninsula,” Mr. Liu said.

Although China and Russia have pushed for a resumption of the six-party talks with North Korea, disagreement remains on how to bring Washington and Pyongyang to the table. China and Russia have called for a freeze-for-freeze plan under which North Korea would halt any more military or nuclear action and the U.S. would end its military exercises with South Korea.

Full article here:
North Korea Hit by $1 Billion Sanctions After Missile
Farnaz Fassihi
Wall Street Journal
2017-08-5

 

The UN summary of the resolution reads as follows:

The Security Council today further strengthened its sanctions regime against the Democratic People’s Republic of Korea, condemning in the strongest terms that country’s ballistic missile launches and reaffirming its decision that Pyongyang shall abandon all nuclear weapons and existing nuclear programmes in a complete, verifiable and irreversible manner.

Unanimously adopting resolution 2371 (2017) under Article 41, Chapter VII of the United Nations Charter, the 15-nation Council decided that the Democratic People’s Republic of Korea shall not supply, sell or transfer coal, iron, iron ore, seafood, lead and lead ore to other countries.

Expressing concern that Democratic People’s Republic of Korea nationals working abroad were generating foreign export earnings to support the country’s nuclear and ballistic missile programmes, it also decided that all Member States shall not increase the total number of work authorizations for such persons in their jurisdictions, unless approved by the Security Council Committee established pursuant to resolution 1718 (2006).

Through the text, the Council decided that States shall prohibit the opening of new joint ventures or cooperative entities with the Democratic People’s Republic of Korea entities and individuals, or expand existing joint ventures through additional investments.  In addition, it decided that Pyongyang shall not deploy or use chemical weapons and urgently called for it to accede to the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and Their Destruction.

Also through the resolution, the Council named nine individuals and four entities to be subject to a travel ban and asset freeze already in place, as well as to request that the International Criminal Police Organization (INTERPOL) issue special notices with respect to designated individuals.

In addition, it reaffirmed that its provisions were not intended to have adverse humanitarian consequences for the civilian population of the Democratic People’s Republic of Korea, and that the Security Council Committee established pursuant to resolution 1718 (2006), on a case-by-case basis, exempt from sanctions those activities that would facilitate the work of international and non?governmental organizations engaged in assistance and relief activities for civilian benefit.

Furthermore, through the text, the Council called for the resumption of the Six-Party Talks between China, Democratic People’s Republic of Korea, Japan, Republic of Korea, Russian Federation and the United States towards the goal of a verifiable and peaceful denuclearization of the Korean Peninsula.

Speaking after the resolution’s adoption, the representative of the United States said the Council had put the Democratic People’s Republic of Korea’s dictator on notice by increasing the penalty of its ballistic missile activity to a whole new level.  All Member States must do more to put more pressure on that country, she said, adding that the United States would take defensive measures to protect itself and its allies, including through joint military exercises.

China’s representative said that, while today’s resolution had imposed further sanctions, it did not intend to negatively impact such non-military goods as food and humanitarian aid.  Calling on all parties to implement the resolution’s provisions fully and earnestly, he recalled that China and the Russian Federation on 4 July had put forward a road map to resolve the issue through two parallel tracks — denuclearization and the establishment of a peace mechanism.  Recalling that the United States had recently indicated that it was not pushing for regime change or for the Korean Peninsula’s reunification, he said an escalation of military activities would be detrimental to all countries of the region.

Japan’s delegate said the sheer number and frequency of the Democratic People’s Republic of Korea’s nuclear and ballistic missile tests “show how unprecedented and unacceptable these provocations are”.  Not only was the quantity outrageous, but the qualitative advancements were alarming.  Noting that today’s resolution would reduce the Democratic People’s Republic of Korea’s revenue by approximately $1 billion, he said all Member States must demonstrate renewed commitment to implement the Council’s decisions.

The Russian Federation’s representative, while calling on the Democratic People’s Republic of Korea to end its banned programmes, said progress would be difficult so long as it perceived a direct threat to its security.  Emphasizing that military misadventures risked creating a disaster, he said sanctions must be a tool for engaging Pyongyang in constructive talks rather than to seek the country’s economic asphyxiation.

The Republic of Korea’s delegate said that Pyongyang’s missile provocations on 4 and 28 July, together with its nuclear programme, posed a grave threat to international peace and security.  Indeed, such reckless acts of defiance should be met with stronger measures, he said, adding that additional sanctions contained in resolution 2371 (2017) would significantly cut off the inflow of hard currency that would otherwise have been diverted to illicit weapons programmes.

Full article:
Security Council Toughens Sanctions Against Democratic People’s Republic of Korea, Unanimously Adopting Resolution 2371 (2017)
United Nations Meetings Coverage
2017-08-05

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New Chinese investment in the Yalu bridge

August 2nd, 2017

Benjamin Katzeff Silberstein 

In 2010, North Korean and Chinese authorities decided to build a new bridge across the Yalu River, which is currently estimated to carry 70 percent of all trade between the countries. I recently spoke with a diplomat who was previously based in North Korea, who told me that the current bridge is rather decrepit, and particularly so on the North Korean half. The new bridge was partially built due to an expectation that trade would increase between the two countries, an expectation that seems to have been true for the past few years, including 2016 when North Korea was supposedly under harsh sanctions by the international community.

North Korea, however, has not yet constructed roads to cities on its side of the bridge, making it largely useless. Now, a Chinese businessman has decided to invest in the project — unclear if this is for any expectations of financial gain. Daily NK reports:

Anticipation for the opening of the new Amrok (Yalu) River Bridge connecting Dandong (Liaoning Province, China) with Sinuiju (North Pyongan Province, North Korea) has risen after a Chinese businessman decided to invest money in the project’s infrastructure.
The construction of the new Yalu River Bridge was initiated in December 2010 with the expectation that it will bring an expansion of the trade volume between China and North Korea. The bridge was completed in 2014 after overcoming significant issues. However, the construction of roads on the North Korean side slowed to a halt, delaying further progress.
Recently, a Chinese businessman has announced his decision to invest in North Korea’s road construction efforts, which have remained the biggest obstacle to the opening of the bridge.
A source familiar with North Korean affairs in China told Daily NK on July 24 that according to North Korean traders in Sinuiju, a Chinese businessman has committed 300 million RMB (about US$44.7 million) to the road construction project.
The construction of the new bridge was first proposed due to safety concerns regarding the existing Sino-Korean Friendship Bridge, which although derelict, has been responsible for more than 70% of bilateral trade. The bridge was repaired twice last year alone, highlighting its significant structural issues.
Aware of the situation, China sponsored the construction of a two-way (four-lane) road in the area, paying for the entire construction expenses totaling 2.2 billion RMB (approx US$327 million).
However, the source noted that North Korea suspended the construction of roads between the bridge and North Korean cities, demanding further investment from China.
“North Korea has been continuously demanding investment from Chinese businessmen, threatening them with a suspension of trade unless they invest. It seems that these efforts have produced results,” he said.
But actual construction has yet to start. When asked about this, the source said it is presumably due to the tense bilateral relations between China and North Korea, as well as international sanctions and overall political climate.
Full article:

Chinese investment breathes new life into new Yalu River Bridge
Daily NK
2017-08-02

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North Korea’s economy grew by almost 4 percent in 2017, says BOK

July 21st, 2017

Benjamin Katzeff Silberstein

Yonhap reports:

The estimated expansion of the gross domestic product (GDP) represents a sharp turnaround from 2015 when the economy of one of the world’s most isolated countries shrank 1.1 percent due mainly to a drought.

Last year’s growth is the highest since 1999 when North Korea’s economy expanded 6.1 percent, according to the Bank of Korea (BOK).

North Korea’s economy expanded 1.2 percent on average between 2012 and 2016, a sign that its economy is mired in low growth.

There are no indications that the North’s economy has suddenly improved since late 2011 when North Korean leader Kim Jong-un took power on the sudden death of his father and long-time leader Kim Jong-il, an official said.

“North Korea’s economic structure is very fragile and is not really set up for high growth,” the official spoke on the condition of anonymity.

The BOK estimated North Korea’s gross national income (GNI) stood at 36.4 trillion won (US$32.4 billion) in 2016. South Korea’s per-capita GNI stood at 31.98 million won, which is 22.1 times larger than the North’s 1.46 million won.

Related to last year’s growth, the central bank said North Korea’s mining industry grew 8.4 percent, the highest since 1999 when it expanded 14.2 percent.

North Korea’s trade volume came to $6.55 in 2016, up 4.6 percent from a year earlier, the BOK said. The increase came despite tightened U.N. sanctions imposed on North Korea over its repeated nuclear tests and its long-range rocket launches.

The sanctions call for, among other things, a ban on the country’s exports of coal and other mineral resources to cut off North Korea’s access to hard currency.

Still, the provision will not apply if transactions are determined to be exclusively for livelihood purposes and unrelated to generating revenue for North Korea’s nuclear or ballistic missile programs or other activities prohibited by previous U.N. resolutions.

China accounts for nearly 90 percent of North Korea’s foreign trade, and mineral resources are a key part of their bilateral trade.

Full article:

N. Korea’s economy grew 3.9 pct in 2016: BOK

Yonhap News

2017-07-21

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FAO warns of worst North Korean drought since 2001

July 20th, 2017

Benjamin Katzeff Silberstein

FAO sounds the alarm bells yet again this year about drought in North Korea:

20 July 2017, Rome - DPR Korea’s crop production for 2017, including staple rice, maize, potatoes and soybean, has been severely damaged by prolonged dry weather conditions, threatening food security for a large part of its population, according to a new FAO update prepared in collaboration with the European Commission’s Joint Research Centre.

Rainfall from April to June in key crop producing areas in Democratic People’s Republic of Korea were well below the long-term average, severely disrupting planting activities and damaging the 2017 main season crops.

“So far, seasonal rainfall in main cereal producing areas have been below the level of 2001, when cereal production dropped to the unprecedented level of only two million tonnes, causing a sharp deterioration in food security conditions of a large part of the population,” said Vincent Martin, FAO Representative in China and DPR Korea.

Food shortages during ongoing lean season

The severe dry spell also affected the 2016/17 early season crops which were harvested in June and include wheat, barley and potatoes. According to FAO’s latest estimates, production of 2017 early season crops has plunged by over 30 percent, from the previous year’s level of 450 000 tonnes to 310 000 tonnes.

Despite the fact that the early season harvest accounts for only 10 percent of the total annual cereal production, these crops are an important source of food during the lean season from May to September.

Concerns over the 2017 main season crops 

Although rains in the first half of July provided some relief, they were generally too late to allow normal planting and development of the 2017 main season crops, to be harvested in October-November.

The lack of rain is expected to have a serious impact on main season crops in the major cereal producing areas, including the provinces of South and North Pyongan, South and North Hwanghae and Nampo City, which normally account for close to two-thirds of overall main season cereal production.

With forecasts of reduced production of the 2017 main season crop, the food security situation is expected to further deteriorate during the 2017/18 marketing year and cereal import requirements are likely to increase.

Immediate interventions

“Immediate interventions are needed to support affected farmers and prevent undesirable coping strategies for the most vulnerable, such as reducing daily food intakes,” said Martin. “It is critical now that farmers receive appropriate and timely agricultural assistance, including irrigation equipment and machinery.”

According to the report, it is also essential to immediately start rehabilitating and upgrading irrigation schemes to reduce water losses and increase water availability.

Increased food imports, commercial or through food aid, would be required during the next three months at the peak of the lean season, ensuring adequate food supply for the most vulnerable, including children and elders.

Full article:
DPR Korea’s food production hit by the worst drought since 2001
Food and Agriculture Organization of the United Nations
2017-07-20

It is worth noting that many question marks exist on the FAO’s overall methodology. I’ve written about some of these issues before, here and here. Surely, market prices appear to be pointing up in North Korea this summer, but not toward any unprecedented levels. I see no reason to doubt what FAO says about weather conditions, but the consequences for North Korea’s food supply are less clearly outlined, especially since WFP and FAO, for political reasons, often are not able to fully take the market sector into account in their assessments.

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China-North Korea trade up in the first half of 2017

July 14th, 2017

Benjamin Katzeff Silberstein

‘Tis the season yet again for Chinese customs data. Imports are down, but exports are up even more. Reuters:

China’s trade with isolated North Korea rose more than 10 percent in the January-June period from a year earlier, a Chinese official said on Thursday, amid pressure from the United States for Beijing to pressurize its troublesome neighbor.

Last week U.S. President Donald Trump denounced China’s trade with North Korea, saying it had grown almost 40 percent in the first quarter, and cast doubt on whether Beijing was helping to counter the threat from North Korea.

China has repeatedly said it is fully enforcing United Nations sanctions on nuclear-armed North Korea and there is nothing wrong with what it terms “normal” trade with Pyongyang, referring to areas not covered by sanctions.

Chinese customs spokesman Huang Songping told a briefing on China’s overall trade figures that total trade with North Korea expanded by 10.5 percent to $2.55 billion in the first six months of the year.

While China’s imports from North Korea dropped 13.2 percent to $880 million in the period from January to June, exports to North Korea rose 29.1 percent to $1.67 billion, he said.

The exports were largely driven by textile products and other traditional labor-intensive goods not included on the United Nations embargo list, Huang added.

“As neighbors, China and North Korea maintain normal business and trade exchanges,” he said, adding that goods for ordinary people and those used for humanitarian reasons are not subject to sanctions.

Overall trade growth with North Korea slowed in June, compared with previous second-quarter months.

Trade in dollar terms with North Korea rose about 12 percent in June from a month earlier to $499 million, according to Reuters calculations based on previously released data.

The calculations do not reflect revisions to earlier figures that may not have been announced.

In May, trade with North Korea gained 14.5 percent from April to $443.5 million, previously released customs data show.

Numbers showing an increase are not evidence that China is failing to enforce U.N. resolutions, with imports from North Korea falling every month since March, Huang added.

China suspended imports of North Korean coal in February, while imports of iron ore accord with relevant U.N. resolutions, he said.

“China customs have all along fully, accurately, conscientiously and strictly enforced relevant Security Council resolutions.”

Full article:
China trade with sanctions-struck North Korea up 10.5 percent in first half
Fang Cheng and Ben Blanchard
Reuters
2017-07-13

As Washington Post reports (citing Kent Boydston’s data), this makes for one massive trade deficit for North Korea. Something seems to be odd with the data, which itself isn’t that odd in this context. A Chinese spokesperson explained the trend as follows:

Monthly figures were more representative of the trend, he said, and China’s imports from North Korea had been “falling sharply for four consecutive months since March,” including by 36 percent in March and 42 percent in April.

“The trade growth between China and North Korea in the first half of the year was mainly driven by exports,” Huang said, adding that the exports were mainly labor-intensive products such as textiles, which are not banned under U.N. resolutions.

Letting North Korea run a trade deficit of this magnitude sure would be awfully selfless of China, unless North Korea is somehow borrowing to make up for it, which seems highly unlikely.

Wall Street Journal also reported the trade data:

The rise in trade was driven by a 29.1% increase in exports from a year earlier, while imports fell 13.2%, said Huang Songping, spokesman for the General Administration of Customs, at a briefing Thursday. He said China was abiding by U.N. sanctions “comprehensively, carefully, accurately and seriously” and that the first-half data doesn’t reflect Beijing’s current stance on its neighbor.

He said imports from North Korea have fallen for the past four months and all coal imports were made in the first two months of the year, before China suspended coal purchases from Pyongyang. He said coal imports were down 74.5% for the full first half from a year earlier.

Goods exported to North Korea were largely items such as textile products not covered by sanctions, Mr. Huang said.

China is by far North Korea’s biggest trading partner, accounting for more than 80% of the hermit state’s external trade for the past five years. After North Korea’s successful launch of an intercontinental ballistic missile on July 4, U.S. President Donald Trump in a tweet cited a rise in China’s trade with Pyongyang in the first quarter, questioning Beijing’s willingness to ratchet up pressure on its neighbor.

The U.S. has since stepped up its rhetoric, moving toward unilaterally tightening sanctions, targeting Chinese companies and banks the U.S. says are funneling cash into Pyongyang’s weapons program.

Beijing has resisted suggestions it isn’t doing enough to pressure North Korea, countering that Washington must directly engage Pyongyang to dissuade its nuclear ambitions. China backed tougher U.N. sanctions last year on North Korea’s coal exports, while ensuring an exemption for “humanitarian” needs. Chinese officials say the February suspension of imports of North Korean coal for the rest of this year was part of efforts to enforce those sanctions.

China’s Foreign Ministry says Beijing has played an “indispensable” role in trying to denuclearize the Korean Peninsula. On Thursday, a ministry spokesman said Chinese imports of iron ore in the first half were allowed under the U.N. sanctions as they are for “civilian use” and generate no income for North Korea’s nuclear-weapons program.

The data on the customs agency’s website didn’t break out iron-ore imports from North Korea in the first half.

China’s imports of the steelmaking material from all countries jumped 16% from a year earlier in June and rose 9.4% for the first half, customs data showed, as a lasting property boom has spurred demand from the construction sector.

The Foreign Ministry spokesman, Geng Shuang, also reaffirmed Beijing’s commitment to the U.N. sanctions. “China is implementing the [North Korea]-related resolutions in a full and strict manner,” he said.

In the first quarter, total trade between China and North Korea grew 29.2% from a year earlier, according to Chinese customs data. Both the first-quarter and first-half increases were in dollar terms.

Full article:
China Defends Its Growing Trade With Sanctioned North Korea
Liyan Qi and Chun Han Wong
Wall Street Journal
2017-07-13

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Washington Post interviews Ri Jong Ho

July 14th, 2017

Benjamin Katzeff Silberstein

A little over a week after the Kyodo News interview, Washington Post has also talked to Ri Jong Ho, the former official from Bureau 39 who now lives in Washington DC. The main takeaway from the interview I think, from an economic point of view, is just how far the North Korean economy has gone in its adaptation to its international environment. Rigidity through flexibility, one could call it:

“We were never in pain or hurting in our trade business because of the sanctions. Instead, we conducted our first nuclear test in 2006,” Ri said in an interview near Tysons Corner.

The 59-year-old, whose job had been to raise money for the North Korean regime, and his family live in Northern Virginia, having defected to South Korea at the end of 2014 and moved to the United States last year.

“I used to be sanctioned, as a North Korean who led trade at the front line, but I never felt any pain from the sanctions. The sanctions were perfunctory,” Ri said.

He described being able to send millions of U.S. dollars to North Korea simply by handing a bag of cash to the captain of a ship leaving from the Chinese port city of Dalian, where he was based, to the North Korean port of Nampo, or by giving it to someone to take on the train across the border.

In first the nine months of 2014 — he defected in October that year — Ri said he sent about $10 million to Pyongyang this way.

[…]

“Unless China, Russia and the United States cooperate fully to sanction North Korea, it will be impossible to hurt them,” Ri said.

China’s interest in North Korea is well known, but Russia’s role in supporting the former Soviet client state is often overlooked. Amid calls for China to limit oil exports to North Korea, Russia has dramatically increased the amount of oil it has sent — some reports suggest exports have quadrupled — to North Korea this year.

North Korea’s financial networks, moreover, are  intentionally murky. The U.S. Treasury has sanctioned more and more North Koreans and North Korean companies by name to try to cut them off from the American financial system, but few, if any, have any exposure to the United States.

For this reason, Ri’s insights are widely sought after in Washington, where successive administrations have been trying to find North Korea’s pressure points.

[…]

Ri said he worked as president of a shipping company and was chairman of Korea Kumgang Group, a company that formed a venture with Sam Pa, a Chinese businessman, to start a taxi company in Pyongyang. Ri suppled a photo of him and Pa aboard a jet to Pyongyang.

He was awarded the title “hero of labor” in 2002 for his efforts, and said he lived the good life in Pyongyang, with a color TV and a car. “I was very loyal to Kim Jong Il, so I was rewarded by him,” he said. “I was rich.”

His last position was running the Dalian branch of Daeheung, a trading company involved in shipping, coal and seafood exports, and oil imports. The company was given targets to meet in terms of profits, he said, declining to go into details.

But in 2014, Ri grew increasingly disillusioned after Kim Jong Un suddenly denounced his uncle, Jang Song Thaek, as a “traitor for all ages” and had him executed at the end of 2013.

Jang had been leading economic cooperation efforts with China, and dozens of people who worked for him were also purged at the time, Ri said. He worried that his family would be next. They escaped to South Korea before moving to the United States, where his two children, now in their 20s, plan to go to college.

[…]

Ri said North Korea has repeatedly found ways to circumvent whatever sanctions are imposed on it.

“North Korea is a 100 percent state enterprise, so these companies just change their names the day after they’re sanctioned,” he said. “That way the company continues, but with a different name than the one on the sanctions list.”

Ri’s Chinese counterparts weren’t bothered, either, he said.

“My partners in China also want to make a profit, so they don’t care much about sanctions,” he said. “When the Chinese government orders them to stop, they stop for a few days and then start up again.”

Growing impatient with Beijing, Washington is increasingly targeting Chinese companies that help North Korea with what are called “secondary sanctions.” At the end of last month, the Trump administration blacklisted the Bank of Dandong, located on the border between the two countries, for its dealings with North Korea.

But without knowing how to really hurt North Korea and teaming up to do it, it will be “impossible” to change Pyongyang’s calculus on the nuclear program, Ri said.

Full article:

He ran North Korea’s secret moneymaking operation. Now he lives in Virginia.
Anna Fifield
Washington Post
2017-07-13
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What about the Chinese companies that depend on trade with North Korea?

July 9th, 2017

Benjamin Katzeff Silberstein

Domestic conditions within China are often underestimated as a factor when it comes to the country’s enforcement of sanctions against North Korea. In the grand scheme of things, they may not be a major constituency, but it is difficult to imagine that for a government that values economic growth and social stability as much as China does, it would not factor in the sentiments and demands of domestic businesses who depend on trade with North Korea.

Indeed, when one travels to Dandong, the border town most central to trade between China and North Korea, one can begin to appreciate the magnitude of the trade ties between local businesses and their neighbors on the other side of the Yalu river. I have posted some pictures here. Parts of the city are almost wholly dominated by businesses and stores that cater to North Korean customers, some that are clearly tailored for private and large-scale buyers of goods like cars, machinery, kitchen items such as refrigerators, et cetera. Many companies along the border deal in export-import with North Korea. Southern China Morning Post has an interesting story out today about some of these businesses, often an underestimated constituency in the sanctions analyses:

Su Nan, a trader along the China-North Korea border, used to be a busy man. He used to wake early in the morning, fill his schedule with endless phone calls, and in a good year close deals worth millions of US dollars. But now, all of that has gone.

“We have no revenue so far this year,” Su told This Week in Asia. “In fact, we have been struggling since 2016, with fewer and fewer orders coming.”

Although his company hasn’t lowered his salary or laid off workers, Su said he can’t help but worry. After all, “we just sit in the office and do nothing”, he said.

Su works at Dandong Sevsuns Trading, an export firm located in Dandong, a stone’s throw from North Korea. China’s 1,420km-long border with North Korea has fostered many cross-border businesses – Dandong alone hosts 600 such firms by some estimates.

[…]

Since attempts to halt North Korea’s nuclear tests through diplomacy have fallen flat and Beijing doesn’t want a war near its soil, “curbing North Korea’s nuclear ambition through tougher economic sanctions has become the only choice”, Cheng said.

But that worries the many Chinese whose livelihoods rely on trade with North Korea. For Su, the trader in Dandong, such a move could be “a killer blow”.

Su’s firm helps international organisations purchase and deliver supplies of humanitarian aid to North Korea. International relief to North Korea has almost dried up in recent months, and Su said his company had likewise been struggling to stay in business.

“If China suspends more trade activities, then we will have no choice but to shut down,” he said.

Other Chinese traders share his concern.

“Selling fruit to North Korea is the only source of income for my family. What shall we do for a living if China will no longer trade with North Korea?” said Wu Xiuhua, a middle-aged Chinese woman in Tumen, a border city an hour’s drive from North Korea.

Like other traders, Wu used to drive her produce straight over the Tumen River; now all must apply for permits to take their goods across the border.

Since the summer months are traditionally a low season for fruit sales, Wu is able to cope with the financial losses – for now. But other Tumen traders recently took to the street, she said, angry about the costly and time-consuming change.

The local authority in Tumen declined to comment.

It is unclear how many Chinese traders living along the border have been, or will be, affected by the sanctions, but Wu is not optimistic.

“Many people here are running cross-border businesses,” she said, adding that some of her friends had even invested in North Korea, building warehouses equipped with industrial cooling systems to store imported seafood.

“All these investments will go down the drain if China cuts off economic ties with North Korea,” she said.

Besides traders, any business that deals with North Korea, however indirectly, is also at risk.

At a garment factory in Fengcheng, another city near Dandong, an executive told This Week in Asia that although his company did not sell to North Korea, it had hired at least 100 North Korean workers to make clothes – ironically – for customers in Europe and the US.

“If Beijing expands its sanctions to include the hiring of North Korean workers, that would have a negative impact on our business,” said the executive.

“North Koreans work for a lower salary,” he said. “It is also hard to find enough Chinese workers, as Fengcheng, like many cities in China, faces a labour shortage.”

Labour exports are considered a major source of income for North Korea.

Nearly 80,000 North Korean working overseas send up to US$2.3 billion back home annually, according to a report by the North Korean Strategy Centre, a defector group. The report said more than half of them work in China and Russia.

The factory has yet to receive any official notices that restrict hiring, but some residents say changes are already underway. “A restaurant here used to have a lot of North Korean waitresses, but many have disappeared in the past few months. Nobody knows why they left or where they went,” said one resident.

The only businesses that remain unaffected, and at least in some respects optimistic about the future, are Chinese companies that arrange cross-border trips to North Korea.

In fact, an agent at Dandong China International Travel Service said their business had been going so well that the company now ran the tour daily.

“Many Chinese are curious about North Korea,” said the travel agent, who gave only her surname, Wang. “We now send more than 30 tourists to North Korea every day, with some clients coming all the way from Hong Kong and Macau.”

Full article:
SANCTIONS ARE FINE, BUT WHAT ABOUT THE CHINESE WHO DEPEND ON TRADE WITH NORTH KOREA?
Coco Liu
South China Morning Post
2017-07-09

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US government seizes millions from big banks though to have dealt with North Korea

July 6th, 2017

Benjamin Katzeff Silberstein 

Reuters reports:

U.S. authorities have tried to seize millions of dollars associated with several companies that deal with North Korea, including the country’s military, from eight large international banks, according to court filings made public on Thursday.

The effort was revealed two days after North Korea tested a long-range missile capable of reaching Alaska, ratcheting up tensions with the United States and adding to worries about North Korea leader Kim Jong-un’s nuclear weapons plans.

Thursday’s filings show that Chief Judge Beryl Howell of the federal court in Washington, D.C. on May 22 granted U.S. prosecutors’ applications for “damming” seizure warrants against Bank of America Corp (BAC.N), Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), Standard Chartered Plc (STAN.L) and Wells Fargo & Co (WFC.N).

Prosecutors believe the banks have processed more than $700 million of “prohibited” transactions on behalf of entities tied to North Korea since 2009, including the period after Donald Trump was elected U.S. president, the filings show.

Some of the transactions were processed for Dandong Zhicheng Metallic Material Co and four affiliated “front” companies that prosecutors said tried to evade sanctions through transactions that would benefit North Korean entities, “including the North Korea military and North Korea weapons programs,” according to the filings.

The filings did not say any of the banks knowingly violated sanctions against North Korea.

In her decision, Howell authorized warrants requiring the eight banks to accept incoming transactions but not allow outgoing transactions involving the five companies for 14 days, and thereafter to seize what they collected.

Full article:
U.S. seeks funds tied to North Korea from eight big banks
Jonathan Stempel
Reuters
2017-07-06

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North Korea’s ICBM-test, Byungjin and the economic logic

July 4th, 2017

By Benjamin Katzeff Silberstein

At 3:30PM GMT+9 on Tuesday July 4th, North Korean television announced that the country had successfully tested an intercontinental ballistic missile earlier in the day. Wall Street Journal

The missile, identified as the Hwasong-14, was launched at a steep trajectory and flew 933 kilometers (580 miles), reaching an altitude of 2,802 kilometers, according to North Korean state television. The numbers are in line with analyses from U.S., South Korean and Japanese military authorities.

US Secretary of State, Rex Tillerson, later confirmed that the launched missile was an intercontinental ballistic one.

Here in Seoul, things seemed to continue on as usual, which tends to be the case in this city more than used to its fair share of similar news. The biggest strategic consequence, of course, is that for the US. A successful intercontinental ballistic missile of this sort could potentially strike anywhere in Alaska.

With the latest launch, North Korea takes one step further along the nuclear side of the Byungjin line of parallel development of nuclear weapons and the national economy, and arguably, one step back on the economic side of the dual-track policy. In the formulation of the Byungjin line, of course, both are interrelated. Missile launches are often described as evidence of progress in industry and science, ultimately benefitting economic progress. This launch was no exception. From KCNA:s statement yesterday, July 4th 2017 (my emphasis):

The success in the test-fire of inter-continental ballistic rocket Hwasong-14, final gate to rounding off the state nuclear force, at just one go is a powerful manifestation of the invincible state might and the tremendous capability of the self-reliant national defence industry of Juche Korea that has advanced at a remarkably rapid pace under the great Workers’ Party of Korea’s new line on the simultaneous development of the two fronts, and a great auspicious event to be specially recorded in the history of the DPRK which has long craved for powerful defence capabilities.

This launch happened in a context where North Korea is already under sanctions designed to strike at its coal exports, one of its most important sources of income, and where the US has just signaled its resolve to go after North Korea’s financial channels through secondary sanctions of Chinese entities. At the same time, Kim Jong-un’s tenure has very much come to be associated with some economic progress (albeit from a low level, and primarily benefitting the relatively privileged classes), symbolized by projects such as the recently opened Ryomyong street.

It is not yet clear what the consequences will be. The US will likely try to add more sanctions targeted against specific entities and persons that help North Korea evade sanctions, and acquire equipment for its nuclear and missile programs.

The US will probably also call for international sanctions, but as Chad O’Carroll points out, the US may have a hard time getting such measures through in a quick manner given its currently tense relationships with both Moscow and Beijing. The US may also further push Beijing to implement the already existing sanctions against North Korea, but nothing appears to have changed with the claimed ICBM-test that would fundamentally alter China’s strategic calculations in the region. In other words, it continues to regard North Korea as a buffer between itself and US forces in the region, and as a geopolitical asset.

Whatever happens, it is safe to assume that it will not be good news for North Korea’s international ties in diplomacy, trade, finance, you name it. It would be easy to assume that economic progress and nuclear weapons development are mutually exclusive, since the second leads to further international isolation and economic sanctions, and therefore hampers the first.

In reality, that may be true. The North Korean Byungjin narrative, that weapons development helps economic progress, is difficult to swallow, especially when one considers the opportunity cost that the weapons programs carry, both in terms of domestic resource dedication and the cost in international isolation.

But there is another way to look at it. Whatever the actual consequences will turn out to be, North Korea is making a strategic calculation that the gains from the test, and from overall nuclear weapons and missiles development, will be greater than the potential costs and downsides. Consider the following two factors:

First, North Korea has made economic progress in the past few years, and particularly since Kim Jong-un came to power, even under years of severe sanctions.  North Korea has been under various forms of UN Security Council sanctions since its first nuclear test in 2006. During these years, its economic development has been impacted far more by domestic policy decisions than by international developments.

Again, we are absolutely not talking about any growth miracle, and some probably exaggerate the degree of the wealth increase in North Korea over the past few years. But without a doubt, North Korea is far better off now than it was eleven years ago, and worlds apart from the famine of the 1990s. Food insecurity prevails in North Korea but the country has not seen widespread starvation since the late 1990s, and largely thanks to better economic frameworks (or rather less predatory), and increased space for private production and trade within the economic system, things are looking much better today than in many years.

Just look at this video recently published by the Daily NK, from Chongjin, one of North Korea’s largest cities in its northeast. Is this long-term, sustainable growth that will eventually lead North Koreans to enjoy the same prosperity as their counterparts in South Korea or even China? Probably not. But at least it’s something.

Second, and relatedly, North Korea likely has a significant amount of channels for trade and various transactions that are not commonly known, but that play highly significant roles for the economy. For example, consider the information that Ri Jong Ho, a former official in North Korea’s Office 39, supplied in a recent interview with Kyodo News. Ri claims that North Korea procures up to 300,000 tons of fuel and various oil products from Russia each year, through dealers based in Singapore. As a point of comparison, a commonly cited figure for crude oil supplies from China is 520,ooo tons per year. Proportionately, then, 300,000 tons is not close to a majority, but still a significant amount for North Korea. While intelligence services or others with access to classified information may have known this already, Ri’s claims, if true (they have not and in all likelihood cannot be fully corroborated),

The point here is that North Korea has gotten so used to going through back channels and unconventional means to acquire highly significant amounts of supplies required for its society to function. It is an economic system where unconventional (and often illicit) channels of trade are not exceptions, but core parts of the economic management toolbox. This is not to argue that sanctions do not or cannot work. Rather, it shows the extent to which unconventional methods are institutionalized within economic management in North Korea.

The North Korean government is no monolith, and there are almost certainly some parts of the governing apparatus that are more and less pleased with the ICBM-test. But in the higher echelons of the leadership, the strategic calculation is probably that even with the added sanctions that are very likely to come, North Korea will be able to continue along roughly the same economic strategies as it has thus far. Perhaps we can call it North Korea’s own “strategic patience”: continuing with patchwork strategies for international economic relations, with little concern for the impact of lack of sustainable growth on people’s livelihoods, while banking on eventual recognition as a nuclear power. Only time will tell whether targeted secondary sanctions will change that calculation.

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An affiliate of 38 North