North Korean Economy Watch

By Benjamin Katzeff Silberstein

Responding to North Korea’s second nuclear test within one year in September, the United Nations adopted a new sanctions package yesterday, Wednesday November 30th. These are some of the main points:

• By far, the most significant measure is a “cap” on imports of North Korean coal at $400 million or 7.5 million metric tons in a year, cutting its revenues by about $700 million per year. This is to supplement the current provision that coal can be imported when the proceeds go to livelihood purposes in North Korea, a provision that has proven to be a massive loophole (shocker!).
• Four more minerals have been added to the sanctions list: copper, nickel, silver and zinc.
• Exports of statues have been banned, targeting the somewhat peculiar North Korean practice of building statues in various African countries.
• The resolution also limits the number of staff allowed at North Korean diplomatic missions, and forbids them from opening more than one bank account per person.

So what does this mean for the North Korean economy? Obviously, one shouldn’t speculate too much in advance. As always, China’s enforcement will be the main determinant. Here are some things worth noting:

First, while $400 million cap would certainly be a significant income loss for the North Korean regime, it might not be disastrous. It is worth remembering that North Korean government revenue from minerals exports already fluctuates heavily, since market prices do. Just for a sense of perspective, in 2015, North Korea’s export income stood at about $3 billion, and this was a decrease by 16.4 percent from the preceding year. In 2014, textile exports to China brought in around $800 million. Moreover, the $700 million revenue cut claim does not take into account the extent to which North Korea could make up for the loss through other sectors.

Second, the likelihood of full and consistent Chinese sanctions enforcement remains fairly low at best. Historically, we have seen a pattern where China will increase enforcement during certain time periods, or take single measures that receive a lot of attention (such as the Hongxiang inquiry) but where things return to normal pretty quickly. Case-in-point: the unusually strong sanctions from earlier this year, and the promises of Chinese enforcement, ending with record trade in coal. Obviously the “livelihoods” exemption provided a large enough loophole, particularly after the announcement by the US and ROK that THAAD will be deployed in South Korea. It is difficult to see why this cap would be impossible to circumvent. After all, China is (presumably) responsible for gather the data and for ringing the alarm bells when said cap is reached. (See also Adam Cathcart’s essay on the recent Sino-North Korean rapprochement at Sino-NK).

Third, and relatedly, history tells us that many, many factors other than the international sanctions regime determine Chinese imports of North Korean coal. Domestic demand is arguably far more important as a determinant than sanctions, as evident by the fact that declines in imports of North Korean coal often fluctuate much more with demand than with sanctions.

As always, we can only wait and see, but at the face of it, these new sanctions seem far from revolutionary.

(Update 2016-12-02)

Japan, South Korea and the United States have announced additional, multilateral sanctions independent from those by the U.N. Joshua Stanton over at One Free Korea argues that some of the measures potentially carry some real impact power. For example, they include North Korea’s national carrier Air Koryo. Moreover, they sanction China’s Hongxiang Industrial Development, making it the first time that a single Chinese company is directly targeted by South Korean sanctions. Yonhap:

“We have expanded the number of those subject to sanctions by adding to the list 35 entities and 36 individuals that are playing a critical role in developing weapons of mass destruction and contributing to the North Korean regime’s efforts to secure foreign currency,” Lee Suk-joon, the top official in charge of government policy coordination at the Prime Minister’s Office, told reporters.

Included in the blacklist were Choe Ryong-hae, a vice chairman of the Central Committee of the ruling Workers’ Party, and Vice Marshal Hwang Pyong-so, director of the military’s general political bureau, both of whom are regarded as close aides for North Korean leader Kim Jong-un.

The Workers’ Party and the State Affairs Commission were also added along with other entities suspected of supporting the regime’s efforts to export its coal and generate earnings.

In particular, Dandong Hongxiang Industrial Development and four of its executives were included on the list, marking the first time that a Chinese firm is facing South Korea’s unilateral sanctions.

The company is under investigation on suspicions that it exported aluminum oxide — a nuclear bomb ingredient — to the North at least twice in recent years. In September, the U.S. blacklisted it along with its owner and other company officials.

With the latest action by Seoul, a total of 79 individuals and 69 entities will be subject to sanctions in connection with the North’s nuclear programs. The government announced a blacklist in March as a follow-up move to the UNSC’s Resolution 2270 adopted in the wake of the North’s fourth nuclear test in January.

Any financial transactions with them will be prohibited, while their assets in South Korea will be frozen. The blacklisted people will also be banned from entering the country, which is seen as a symbolic action given that there are no exchanges between the two Koreas.

Other prohibitive measures include blacklisting the North’s state-owned airline Air Koryo on suspicions that it helps its regime transfer workers abroad, and move cash and other embargoed materials into the isolated country.

The Seoul government has also toughened its maritime sanctions by banning any ships that have traveled to the North within the past one year, an extension from the previous 180 days, from entering South Korean ports.

In addition, a watch list “tailored” to enhance the monitoring on activities related to the North’s submarine-launched ballistic missile capability will be prepared and shared with the international community, it said.

Full article:
S. Korea blacklists scores of N. Koreans, entities linked to nuke, missile program
Yonhap News
2016-12-02