Features and Structure of the Current International Economic Sanctions on the DPRK 

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William B. Brown 
University of Maryland Global Campus

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March 13th,  2023

 

Much has been written on the various sanctions regimes presently imposed on North Korea by the global community. The US is usually presented as the major country forcing these sanctions, and with reason, Washington having taken the lead in trying to force Pyongyang to halt its nuclear weapons program and in using the UNSC process to impose global hard-hitting sanctions. Clearly the effort has not yet been successful in stopping the nuclear program although it may have slowed its development. It certainly has imposed large costs on the North Korean economy and other countries thinking of following the same nuclear path have much to think about. Meanwhile, fruitless debates over whether such sanctions can ever force Pyongyang’s hand have ensued for at least a decade. Often lost in the arguments, however, is the original understanding, well expressed by former UN Panel of Experts member Katsuhisa Furukawa. “We need to be realistically mindful about what we can expect from the use of sanctions. … When it comes to North Korea, there are only sanctions and unrealistically high expectations on what sanctions can achieve.”

In this paper I aim to expand the debate, at least on the US side, by looking at what I would say are more important impediments to US-North Korea normal economic relations going back even before the Korean War to the creation of the North Korean state under Soviet tutelage. These impediments, though necessary and proper in my view, have diminished the impact of the additional nuclear weapons and missile sanctions by the United States, enhancing the role of other countries, especially China, now the most influential though reluctant player influencing Pyongyang. Resolving historic US-North Korea economic and trade issues may be critical in raising American leverage and giving Pyongyang a better set of incentives toward arriving at a political settlement with Washington.

There is little doubt that North Korea is presently the most heavily sanctioned country in the world. Officially documented foreign trade reported by its mostly former trade partners is close to zero, the lowest level in the country’s entire existence, bringing to fruition the idea that it has become nearly self-reliant. The only real exception is China’s free provision of crude oil, likely a last card Beijing can use should Pyongyang expload another nuclear device. While the current UNSC sanctions against development of nuclear weapons are the strongest and most widespread, other actions over the years, many of which are the result of self-inflicted wounds by Pyongyang, have progressively strangled its foreign trade.
  This has not always been the case. Despite Kim Il Song’s penchant for talking about juche, or self- reliance, he recognized that the small country would always depend on foreign trade, using in a speech in 1956 a sensible figure of 60-70 percent as the share of industrial products that should be produced domestically. He frustrated the Soviets by not joining in the communist bloc’s COMECON, the joint program for administrating trade between the centrally planned economies, but even so trade with the bloc was crucial during the early years of North Korean development. When the Soviet bloc system of planned economies and administered prices collapsed in the late 1980s and early 1990s, North Korea was unwilling or unable to adjust, and its economy was hit hard leading to a major famine. Trade with the Soviet Union, later Russia, its biggest trade partner, fell to near zero. But it wasn’t just the Soviets. Trade with Japan also had been strong until political issues surrounding the abduction of Japanese citizens, debt repayment issues, and concerns about nuclear weapons development in the mid-1990s, led to a complete Japanese shutdown of trade and a big reduction in important Korean-Japanese remittances. At various times West Europeans were large trading partners, especially in the mid-1970s, but North Korea defaulted on sovereign debts beginning in 1975 and, without a debt workout, trade has never recovered. South Korea has large barriers to trade with North Korea, but these have occasionally been relaxed and trade even promoted, especially with the Kaesong Industrial Zone in the 2000s. But these efforts to engage North Korea also faltered and were halted after the PY Do shelling and Cheonan sinking in 2010. Despite much talk of unity, no trade is currently conducted across the DMZ.

One constant in the country’s external trade had been the rising role of China, at least until 2017, which grew rapidly as China’s economy expanded and turned toward market pricing. By the early 2010s, China accounted for about 90 percent of North Korea’s global exports and imports and by now, no other country in the world has a significant commercial relationship with Pyongyang. This made for an easy but not very meaningful onslaught of UN sanctions against Pyongyang’s globally despised nuclear weapon developments.

Another, though less discussed constant has been North Korea’s perpetual trade deficit. Its annual imports from the world have always exceeded exports, at least on the merchandise accounts, funded by foreign aid provided over time by each of its major partners, including massive Soviet bloc and Chinese aid following the Korean War, and large Western, Japanese, South Korean, and even US commodity aid during the 1990s famine, continuing until its nuclear breakout. Persistent aid, often political and not developmental in nature, arguably preserved for too long the command economy system and inhibited the development of an export-oriented economy, this despite a natural endowment and geography that should have promoted vigorous exports. The contrast with its neighboring export superpowers, South Korea, China, Japan, and Taiwan is stark. As if to make the point, the withdrawal of foreign aid that accompanied the nuclear sanctions, from 2006 onward, seemed to spur North Korean export and private sector development, as theory would suggest, and enlivened the economy. But this also faltered in 2017 after China jumped on board with severe sanctions on imports from North Korea. More debilitating has been the border closures since January 2020 due to the coronavirus scare and trouble in North Korea’s now dollarized marketplaces.

 

An invisible player in this enervating trade and aid history has been the United States, which, lying behind a high pre-Korean war tariff schedule aimed at compensating for irrational, socialist economy administered prices; a Korean War era “Trading with the Enemy Act” that required licenses and prohibited most transactions; and a “Terrorists List” after the North Korean bombing of a South Korean commercial airliner, has kept economic and commercial relations at near zero. Added to this are a complex set of financial sanctions following the Patriot Act of 2011 that linked Pyongyang not only to nuclear and missile provocations but to money laundering, human rights violations, and cybercrime activities, trying to prevent North Korean actors from using the US dollar dominated international payments and investment system.

These US rules against North Korean commerce are much more important than they might seem since without access to the world’s largest import market, or to dollar-based accounts, third party foreign investors have found an unreformed North Korea to be unattractive in comparison to other developing countries or even to China. In recent years this has been especially true in comparison to Pyongyang’s former ally, Vietnam, now a booming US trade partner and the site of the second and most disappointing Trump-Kim summit in 2018 that had held out some hope for resolution.