Extending Sanctions

January 27, 2016 5:30 AM

In the wake of North Korea’s fourth nuclear test, debate has resumed in the UN, the US, and elsewhere about how to exercise leverage over the country’s evolving nuclear and missile programs. Given the low level of trade between North Korea and the rest of the world, attention has focused on secondary sanctions: imposing restrictions on the Chinese firms and banks that do business with the country and harbor the regime’s assets. The Chinese mining sector, for example, is a particular focus of legislation by Sen. Corey Gardner (R-CO) currently before the US Senate. One would expect the Obama Administration (indeed any Administration) to seek discretion in the implementation of such rules which could cause both diplomatic problems with China (especially insofar as many of the targeted firms would be politically connected, or state-owned, enterprises) and potentially violate US obligations in the World Trade Organization and raise the specter of WTO-sanctioned retaliation by China.

In its deliberations, the UN Security Council and various national governments (most obviously South Korea) should consider two additional points of leverage. The first is the organized export of labor about which I have blogged incessantly. Like much about North Korea, the facts are obscure. A number of studies estimate that 50,000-80,000 North Koreans are sent abroad to labor to earn hard currency for the regime. Due to uncertainty about the number of visas issued by China and the rate at which these are filled, the actual number could be closer to 150,000. In addition to China, major hosts include Russia, Kuwait, the UAE, Mongolia, and Qatar.

Working conditions are abysmal. The work, mainly in construction, mining, and logging is harsh and unsafe. The workers are subject to intense surveillance by minders, routinely have their passports confiscated, and retain little of their earnings. Some have made the argument that this form of “engagement” may have some subversive potential, but the degree of regimentation is such that these contract laborers have little contact with the outside world and one has to expect little learning about market economies, new ways of doing things, etc.—the positive spillovers of engagement—are minimal.

Estimates of hard currency earnings are all over the map, and upper end estimates strain credulity. My best guess, based on the type of work that they do and the countries in which they do it, is that the organized exportation of labor earns the regime something on the order of hundreds of millions of dollars a year, probably less than one-half billion.

Because the North Korean work teams require visas and other documentation in their host countries, it ought to be relatively easy to verify that host governments have ended the practice of issuing visas for North Korean work teams and terminate this source of revenue. Its loss would not be enough to choke off the missile or nuclear programs or topple the regime, but it would be felt and make life more difficult for the North Korean military-industrial complex.

Revenues derived from the Kaesong industrial complex are another potential target. In the fractured world of South Korean politics, KIC stands out as one thing that generates a domestic political consensus, so any proposal to shut down the operation is likely to elicit howls of protest from Seoul. But it is hard to see going through difficult and indirect measures to sanction the North Korean regime, when an obvious channel, which generates more than $100 million a year in US dollar earnings for the North Korean government, is just sitting there under the complete control of the government of South Korea.

As in the case of the organized exports of labor, some will argue that this particular form of engagement confers some positive benefit by prodding the development of a more market-oriented economy in the North. But an actual examination of business practices at KIC undercuts this notion, revealing that the North Korean authorities act assiduously to make sure that there is little contact between South Korean managers and North Korean workers, and as in the case of the organized export of labor, the evidence of positive spillovers is elusive at best.

Together these two channels probably account for something on the order of one-half billion dollars in annual hard currency revenues and both are subject to direct control by central governments. Action on these new fronts is likely to generate a more direct impact on North Korean government finances than what seems to be under discussion which amounts to doing more of the same.

Comments

Michael Bassett

With all due respect, unless you quantitatively support your assertion that North Koreans working abroad does not constitute any Idealogical change, you cannot make such as statement for or against it. I would be more than happy to intern for you to help prove or disprove your theory. Because I disagree with you, but lack empiracle evidence, it would be a good project that could end this debate once and for all.

Dennis

Hey Mike I'd like to know what empirical information you have that makes you support the ideological fascists of North Korea.

David

If foreign earnings are slashed, then the DPRK state will have less money to spend. That seems logical. However, if the DPRK state has less money to spend, will it really reduce spending on its nuclear weapons and ballistic missile programme? Because these military programmes are the state's top priority policy areas (for various reasons which needn't be examined here), it seems more likely that it would instead pull resources from other areas of state funding, or seek to make up the shortfall some other way, perhaps illictly. I wonder: if sanctions aimed at slashing DPRK foreign currency earning led to DPRK cutting spending in other areas, but maintaining spending on its nuclear and BM programmes, would those sanctions be regarded as a policy success?

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