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The common theme of this “slave to the blog” post are some new things on North Korea’s foreign economic relations.
We start with a new report on sanctions from the Federation of American Scientists (in pdf) by Daniel Wertz—on staff with with the National Committee on North Korea (their useful website is here)—and Ali Vaez, former director of the Iran Project at the Federation of American Scientists. The piece offers up both a readable review of sanctions policy and some punchy policy conclusions, of which we are frankly jealous. The core messages is summarized in bullet point #1:
“The success of a sanctions policy ultimately should not be measured by its breadth or its efficacy in crippling the economy of the target state, but instead by its effectiveness in impeding proliferation and changing the target state’s behavior – without incurring unacceptable humanitarian costs.”
The authors also note the potentially perverse effects of sanctions in the domestic political arena of the target country—the “strengthening hardliners” argument—as well the important point that sanctions without diplomacy are “an exercise in futility.” We could not agree more; our more prosaic and long-winded take these issues can be found in our recent East-West Center monograph on the issue. (Our blog tags on sanctions, which include a number on Iran, can be found here). Our only friendly amendments are two. First, we note how sanctions may actually change international trade patterns, as target countries re-orient toward less hostile trading partners such as Russia and China. But a second issue is whether the two countries are equally vulnerable. Counterintuitively, Iran’s tremendous dependence on oil revenues may make sanctions more effective than with respect to the more autarkic North Korean economy.
Over at Nautilus, we missed two earlier posts this year from Colin McAskill, one of the Westerners most deeply involved in attempting to do business with North Korea (here and here). He makes an even stronger case for engagement, arguing that “the DPRK can and should be coaxed into the global economic community by immediately opening up the international banking system and to gradually lift all sanctions that are unrelated to the ‘nuclear issue’. This will allow and encourage western companies to invest directly in the DPRK to develop its economy and export the vast mineral resources it is known to possess.” This is a variant of the regime’s own argument that its economic potential is stifled by sanctions.
Our belief is that this line of argument puts the cart before the horse. North Korea’s security and economic well-being would be improved by making the strategic decision to negotiate seriously over its weapons programs and start thinking about reforms that would move the economy forward. If it did that, the US, South Korea and Japan as well as investors would have a very different view of the country. Nor do we see any concrete reason to believe that a lifting of sanctions would fundamentally change the way the North Korean regime conducts its foreign economic relations, which are clearly a patchwork of rent-seeking.
But what makes McAskill’s posts interesting is not the engagement arguments but little notes he offers on the BDA case, the DPRK’s involvement with London Bullion Market and the London Club debt negotiations of the late-1980s. The theme of these notes is that despite its earlier default on sovereign debt, there is a history of North Korea being able to maintain commitments (its London gold sales; good-faith positions McAskill believes Pyongyang took in its London Club rescheduling talks). For any serious student of North Korea’s economic history, these little vignettes are an important source.
Unfortunately, it does not take much to reverse such positive signals, if they ever were really sent. Recent history with respect to Mt. Kumgang is one obvious example. But we do not need to look to politically-charged North-South relations for examples: ongoing controversies with China over export-processing zones cannot be discounted either. In the highly-useful East Asia Forum out of Australian National University, Leonid Petrov offers a downbeat assessment of the Hwanggumphyong and Wihwado project, arguing that the new SEZ law should by no means be read as a change in overall economic orientation.
Moreover, in the evidence-based world (of which North Korea does not seem to be a part) we actually know something about what it takes for SEZ’s to work. A recent example is a useful report from South Africa's Center for Development and Enterprise. Of particularly interest was a piece by Jean-Paul Gauthier, deputy secretary general, World Economic Processing Zones Association. According to Gauthier, some key good practices learnt from international experience include:
- “Letting the private sector take the initiative, rather than giving government the leeway to designate unattractive and unprofitable zones;
- making sure that the designation application process is not unduly cumbersome, unclear, or open to abusive administrative discretion; and
- requiring that all SEZs demonstrate a return on investment derived from their rental income stream, taking into account market-based (or at least ‘equal footing’) costing of land, infrastructure and capital.
This may be a bridge too far for North Korea, and we can at least imagine state-run models that take a more hands-off approach. But it is worthwhile reminding everyone of how far we have to go to approach best practice.
Finally, we would like to bring attention to an incredibly useful compendium on North Korea’s legal system by Darren Zook that recently appeared in the Stanford Journal of International Law and is posted (as a large file) on Zook's website. Zook’s argument is virtually the anti-McAskill: “No amount of incremental incremental reform or intenational assistance is likely to bring about meaningful political and economic reform unless it is accompanied by a serious and comprehensive reconstruction of the North Korean legal system.” This piece is a goldmine that should be read closely by anyone with a serious interest in North Korea. On the one hand, it offers an extremely valuable overview of the legal terrain--taking seriously what the law says—and yet at the same time pinpoints the fundamental problems. Among the wisdom that appealed to us are the following:
- “The North Korean legal system does not clarify or resolve issues relating to the evolution of constitutional law and the successive changes in govemance and policy. If anything, the application and enforcement of North Korean law through the courts only complicates those issues because the courts do not serve as institutions of legal arbitration or interpretation. Rather, their sole function seems to be to facilitate the exercise of power in the interest of the state.”
- “There has never been any comprehensive program of meaningful legal reform in North Korea; if the law proves inadequate or inefficient in delivering the type of justice required by the state, the KWP simply rewrites the law to assimilate the new demands and prerogatives of state power and party leadership.”
- The result, according to Zook, is the expansion of what he calls “exceptional law.” This law does not actually reform existing pieces of state legislation or constitutional law, but rather is pasted on top of them in order to attract FDI or trade on an almost ad hoc basis. The second half of the paper further parses this concept by distinguishing between general and specific exceptional law, and walking through relevant cases such as reforms of the investment law and the rules governing exercises like Rason.
- In an important point we have missed, Zook notes that none of these exceptional law provisions are embedded in any international commitments—multilateral or bilateral—that would help give them force.
Again, Zook’s piece is a goldmine that we plan to exploit in future work.
