North Korea: Witness to Transformation

Nuclear Roundup II: The Hard Part

Stephan Haggard (PIIE)

On Monday, I reviewed why this test felt different: the pace of testing and the more rapid convergence of the nuclear and missile programs. I argued that we should take the byungjin line seriously: that the regime does not see the program as something to be bargained away. Rather, it believes it can square the economic development-nuclear weapons circle as long as China is willing to foot the bill, which it is more likely to do when there is strategic drift between China and the US and Korea. Recent nuclear and missile developments appear to have precisely the strategic purpose of driving such wedges, most notably around THAAD and sanctions charges and counter-charges over sanctions enforcement.

So what is to be done, and particularly by the US, Japan and South Korea? First, a quick look at the two presidential contenders, then at the sanctions debate, and finally at a few other possibilities that are starting to resurface for getting back to negotiations; in a future post, I will take up the issue of more kinetic options. The bottom line: it is wrong to simply posit that “sanctions don’t work.” There are things the US can do absent Chinese cooperation, and some of them would probably help to get Chinese cooperation. That said, as I have argued repeatedly, the North Koreans are not going to disarm unilaterally. Serious thought needs to be given to the path to talks, even if as a way to show Beijing that the onus for correcting this mess does not fall solely on the US.

Clinton and Trump on North Korea

The candidates’ comments are interesting less for any breathtaking new insights than for what they say about their broader approaches to the regional security agenda. Secretary Clinton released a formal statement which—like so many others—makes the mistake of saying that North Korea’s test was “unacceptable.” A simple observation: credibility is inversely related to the number of times you claim that something ongoing is “unacceptable.”

Her solution centers not only on increasing sanctions (and siding with the Obama administration in this regard) but also suggests a more robust embrace of the harder edges of the pivot (perhaps subtly at odds with the president). This includes, first, increasing defense cooperation with Japan and Korea, including on BMD. But she also suggests cryptically that the US has leverage with China on the issue (“China plays a critical role, too, and must meaningfully increase pressure on North Korea – and we must make sure they do.”) I interpret this either as an argument for elevating the issue and making it more of a litmus test in bilateral relations or—more nuanced—a call for more aggressive use of secondary sanctions, on which more in a moment.

This finger-pointing benefits one party: the North Koreans.

Secretary of Defense Carter went farther than Ms. Clinton, not only calling on China to do more but openly pegging Beijing as the enabler. Form his press conference in Oslo:

"It's China's responsibility. It shares important responsibility for this development and has an important responsibility to reverse it. It's important that it use its location, its history and its influence to further the denuclearization of the Korean peninsula and not the direction things have been going."

However much we may share this sentiment, it is not exactly the right thing to say in such an undiluted form. It took virtually no time for China’s foreign ministry spokeswoman to provide the exact mirror image theory of the case:

“The cause and crux of the Korean nuclear issue rest with the US rather than China. The core of the issue is the conflict between the DPRK and the US. It is the US who should reflect upon how the situation has become what it is today, and search for an effective solution. It is better for the doer to undo what he has done. The US should shoulder its due responsibilities.” This finger-pointing benefits one party: the North Koreans.

Mr. Trump’s tack followed what would be expected of the party out of office: to blame Secretary Clinton for the test. But if this was an opportunity to actually offer something substantive, we couldn’t find it among the small sound bites by him and his campaign staff and surrogates. His proposals have been all over the map (see the links below), from alternatively advocating assassinating Kim Jong Un and talking to him directly, to allowing Japan and Korea to nuclearize, to the claim that whatever he does would somehow be more credible. But what, exactly, would that be?

Sanctions

In the short-run, all of the focus in on sanctions, in part because UNSC 2270 states clearly in its last operational paragraph (51) that the UNSC is “prepared to strengthen, modify, suspend or lift the measures as may be needed in light of the DPRK’s compliance.” China signed on to this resolution and is clearly most politically exposed. To be sure, Beijing can claim that it threw its lot in with a tougher sanctions resolution that has “not worked.” The foreign ministry spokeswoman reiterated the Chinese line that sanctions alone cannot produce a resolution; that negotiations are needed. But it is hard to say that sanctions failed when there is little evidence that China has been pursuing them vigorously; it’s not as if we can’t see what is going on.

A careful reading of Chinese statements suggest that the big concern is not only the pressure it will face at the UN, but that the US is fed up enough to up the ante with more unilateral sanctions; critical comments about unilateralism are sprinkled through Chinese statements.

A common refrain is that nothing more can be done. This is simply false; the question is rather the political one of how much the US is willing to escalate. We approached Joshua Stanton, the premier proponent of upping the pressure, and he obliged with a long list of options, some of which we have thought of, others which were new and clever. Some of these proposals go to the multilateral level, such as tightening loopholes like the livelihood exemption which has allowed China to continue to import coal and other minerals, North Korea’s largest export item. (His terrific idea: require that all livelihood exemptions require an offsetting food purchase by North Korea).

But he points out that there are a host of things the US could do with allies and by itself, but among those with more substantial effect: more robust secondary sanctions on Chinese entities doing business with North Korea, with some significant test cases to show seriousness of intent; convincing countries to end altogether the reflagging that permits North Korean shipping to continue; and pressing for an end to labor exports, which Marcus Noland and I argue is justified on human rights grounds quite apart from its utility as a sanctions measure.

One crucial issue: will these measures in fact get to the regime? Our answer is yes, but we want to flag for more extended discussion the important new working paper by John Park and Jim Walsh, based on what serious researchers should be doing: actually interviewing defectors involved in the regime’s procurement networks. They find that sanctions have driven North Korea to a new round of adjustments: 

“1) hiring more capable Chinese middlemen who can more effectively handle financing, logistics, and doing business with private Chinese firms and foreign firms operating in China, 2) taking up residence and embedding themselves on the mainland, which increases their effectiveness, 3) expanding the use of Hong Kong and Southeast Asian regional commercial hubs, and 4) increasing the use of embassies as a vehicle for procurement.”

Note that the first two of these developments make secondary sanctions much more difficult in the absence of strong intelligence; the second two, by contrast, are amenable to sanctions diplomacy with allies. We will review this important paper in a separate post next week.

Getting Back to Talks

The soft end of the options is to get back to negotiations through a US willingness to entertain discussions which would abandon even the low bar of demanding that denuclearization be the ultimate goal; as we noted earlier in the week, Kerry has already made that offer to the North Koreans. Most prominent among these proposals is the suggestion that we should negotiate a freeze; for a pre-test version, see Litwak and Daly at the LA Times.

The most esteemed proponents of this idea who are on the record after the test are Sig Hecker, who closes his read-out of the fifth test by a plea for diplomacy, and Joel Wit at the New York Times. Hecker’s is not really a worked out proposal, but just a plea that it is better to do something rather than watch North Korean capabilities grow. His approach would presumably rest on his “three nos” proposal: no new fissile material, no new weapons, and no new tests. But that is an outcome, not a strategy: in return for what exactly?

Wit’s proposal is closer to what we have proposed at this blog, namely a more robust diplomatic effort but coupled with continuing and even increased sanctions and military cooperation. It is thus more realistic. Nonetheless, I have a hard time imagining a diplomatic sequence that negotiates a freeze in the absence of some longer-run commitment to denuclearization, however vague. I don’t have a problem in negotiating with US exercises, in part because the conventional deterrent is fully credible already. But pass on exercises in order to secure nothing more than a pause—and no doubt an unverifiable pause—on the part of North Korea? The assumptions here are titanic: that this confidence-building measure will lead to some next step. But how do we get from a pause to anything more substantial without a return to the Six Party Talks, which is based on a joint statement saying that denuclearization is at least our ask for the end game? Even the Chinese must recognize the emptiness of continuingly proposing a return to talks in which North Korea currently shows absolutely no interest. It is simply not true that “diplomacy can’t hurt.” It could put us on a path where an existing capability is frozen while the North Koreans demand more payments, only to walk away when they aren’t forthcoming—as they wouldn’t be for quite obvious political reasons.

But on one point, Wit is correct. Whatever ammunition Washington decides to take into the negotiations in New York in the form of unilateral measures, there simply has to be a robust statement of the terms under which the US will sit down with the North Koreans; that was part of the 2270 deal and China is going to raise it again. I still believe the onus is on China to make a proposal, because only they can carry the message to Pyongyang to actually come to the talks. But if the US thinks it will get out of this without negotiations, it is a delusion. Even were the attached list implemented in full, it would not lead North Korea to simply cry “uncle”; if the regime were to start going down, China would do exactly what it has done to date: prop it up.  Without a change of heart in Beijing, there is only so much the US can do on its own; this is increasingly a diplomatic problem requiring trilateral—US, ROK, China—or Five Party coordination.

Joshua Stanton: Unilateral and Coordinated Sanctions Proposals

Enforcing existing sanctions:

  • Work closely with the South Korean National Intelligence Service to exploit the financial intelligence delivered by recent high-level defections. Recent reports suggest that managers of North Korean slush funds in Russia, China, and Southeast Asia have defected, which could expose large portions of North Korean finance to blocking actions by U.N. member states, particularly the issuers of reserve or convertible currencies. Demonstrate a willingness to impose secondary sanctions on banks and finance ministries that refuse to cooperate. The objective here should not be a complete blockade, but to put North Korea into the equivalent of receivership, in which the UNSC would authorize only those purchases, such as food and medicine imports, that provide for the needs of the North Korean people, until North Korea is disarmed. 
  • Use secondary sanctions under the North Korea Sanctions and Policy Enhancement Act, Executive Order 13687, or Executive Order 13722 to make examples of the dozens of persons and entities implicated for knowing violations of North Korea sanctions in the February 2016 Panel of Experts report. As long as there are no costs associated with violating sanctions, there will be people who will be willing to violate them. One of the targets of sanctions should be the Bank of China, which willfully misled its U.S. correspondents to facilitate arms smuggling for North Korea, and should face a substantial civil penalty (at the very least) for doing so. A credible threat of sanctions will make our diplomacy more effective.
  • Step up our diplomacy to enforce UNSC sanctions requiring the expulsion of North Korean arms dealers. Angola and other states continue to host North Korean officials, including agents of arms dealer KOMID, who have been named in Panel of Experts reports. 
  • Persuade Tanzania, Cambodia, Mongolia, Vanuatu, Panama, Liberia, Sierra Leone, and other states to de-register North Korean ships and end reflagging, as UNSC 2270 requires (Mongolia has reportedly done this, Cambodia may be considering it). Shipping registries that continue to violate the sanctions must face secondary sanctions.
  • Designate and block North Korea's shipping, banking, and insurance industries, and its national airline, Air Koryo. Force North Korea to rely on third-country shippers, air carriers, banks, and insurance companies, which will be more averse to the risk of violating sanctions. (On insurers in particular, the EU is way ahead of us, and we should follow its lead.)

New sanctions provisions:

  • Expel North Korea from the SWIFT network, which it recently robbed of $90 million. SWIFT sanctions were highly effective against Iran. (I am not convinced, for reasons I'll decline to get into here, that North Korea is no longer using SWIFT.) It would be preferable that this sanction begin with UNSC action banning all "specialized financial messaging services" to North Korean financial institutions so that SWIFT is not put at a competitive disadvantage against less-reputable services. 
  • Require the disclosure of North Korean beneficial ownership in assets or property, as Bill Newcomb and I recommended in our comment on Treasury's recent notice of proposed rulemaking for its Patriot 311 designation of North Korea. This should be done in tandem by both the UNSC and by Treasury.
  • Require SEC filings to disclose when issuers of securities have investments in North Korea on the grounds that those investments are a material risk for divestment, boycotts, and sanctions. No doubt, plenty of Orascom shareholders would agree today.
  • Ban transactions incident to tourist travel to, from, and within North Korea. While tourist income seems trivial by our standards, it's probably a significant source by North Korea's. Another reason to reduce tourist travel to the North is safety; it creates hostage situations for the tourists themselves. In the U.S., this cannot be done by unilateral administrative action; it would require legislation. 
  • Push for a UNSC ban on food exports by North Korea. This is not a case of North Korea leveraging the principle of comparative advantage to feed its people; North Korea is selling food that its people need desperately to raise cash for other priorities.
  • Push for a UNSC ban on North Korean labor exports. Not only would this end highly exploitative practices, it would close a money laundering loophole. Money laundering requires legally derived funds to co-mingle with illicit funds. By expelling North Korean labor, which is legal under the domestic laws of those countries that host it, we deprive North Korea of "legal" funds to help conceal and launder illicit funds. (The Obama administration has signaled a willingness to impose unilateral sanctions on North Korean labor exports in EO 13722). Of course, engagers will say this closes off an opportunity to reform North Korea and expose the workers to the outside world. I wonder how many of them would meet me halfway and agree with a ban, subject to using the revenue to fund World Food Program aid appeals, and an exception if the ILO certifies through regular inspections that working conditions meet internationally accepted standards.
  • Amend the coal/iron ore "livelihood" loophole to allowing exports only when exchanged for in-kind aid or food. Don't close it completely; sanctions need safety valves in case of unintended humanitarian impacts.
  • Ban exports of crude oil (which can be refined into jet or rocket fuel) to North Korea, but do not ban exports of gasoline or diesel (which are used to transport food and consumer goods).

Humanitarian Policies:

  • If 21 years of humanitarian aid haven't solved North Korea's chronic food crisis, we are overdue for a top-to-bottom review of humanitarian aid policy. Current aid policies aren't working. Aid agencies must stop misleading donors about the true causes of hunger in North Korea and call out the wasteful, discriminatory, and inefficient government policies that are the true root causes. They need to read the work of Angus Deaton. Their review should consider abandoning the North Korean government's corrupt and increasingly irrelevant food distribution system to distribute aid, and look to market-based solutions to grow and distribute food.
  • Re-focus engagement on the North Korean people instead of the government. South Korea should encourage (rather the prohibit) remittances by refugees to their families in North Korea. Let these family connections become the nuclei of informal, church-based humanitarian networks to feed the hungry, heal the sick, gather and report news, and rebuild the foundations of civil society. 
  • Spare no expense to open the internet to the people of North Korea, so that they can communicate freely with their South Korean kindred and organize with each other to resist the state's repressive power. Ask Google and Facebook to pilot their global internet initiatives in North Korea. South Korea, in particular, should increase the range and power of TV and AM broadcasting to North Korean audiences.
  • Continue to demand the strict enforcement of cargo inspections, but do not impose a full trade embargo, especially at the land borders. That will hurt the wrong people. We will not change North Korea for the better by starving the poor. Our objective should be to shift the balance of power away from the elites and toward the jangmadang classes. That will force underpaid soldiers and security forces to turn to merchants for sustenance, encourage more smuggling, and prize open the borders Kim Jong-un has done so much to seal. In time, the ruling class will see that time is not on its side.

Election Watch: Witness to Transformation Post on the Candidates’ Views on North Korea:

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