UN Security Council Resolution 2321: A Deeper Dive

Last week, Marc Noland offered an initial assessment of the new Security Council resolution. He emphasized, as we always have, that much will depend on implementation and that the measure—on its own—will not result in denuclearization. Indeed, things could move in a quite opposite direction if North Korea is actually squeezed and believes its only negotiating card is more tests.

As always, confusion reigns with respect to the question of whether these new sanctions will “work,” in part because of a failure to differentiate between two meanings of the term. The first is that regimes such as the North Korean one are so authoritarian and repressive that they are capable of resisting any sanction that is imposed. On reflection, this claim about the capacity of North Korea to withstand sanctions is almost certainly wrong. It is possible that a completely autarkic agrarian economy might be able to withstand an embargo of its external economic relations. But North Korea is a more open economy than it has ever been and is thus more, not less, vulnerable to sanctions. The second meaning of the claim that sanctions “don’t work” is because the coalition of countries required to impose them has weak links. Note, however, this is actually not a claim that sanctions “don’t work”; it is a claim that they can’t be orchestrated. As will be seen, I side much more with this second view. If implemented, these sanctions carry a punch. But will they be implemented?

I divide the resolution into four parts: the trade caps, most notably in coal; the cluster of measures surrounding embassy personnel and North Korean businesses abroad, including the capacity to use international financial services; transport, and particularly shipping; and hortatory measures which are not likely to have much independent effect. As always, the perennial questions are how China calibrates its effort—whether it is serious about using the leverage it so obviously has—and whether other jurisdictions will continue to enable sanctions evasion. If the sanctions do bite this time around, the incoming Trump administration will need to think hard about diplomatic options, because North Korea is likely to be an early challenge.

Coal, Non-Ferrous Metals—and Statues

The main innovation in the new resolution is a cap on coal exports and it no doubt was the centerpiece of the prolonged negotiations in New York, which lasted over 80 days after the test. If you didn’t know that UNSC 2270 was negotiated in March 2016, it would be pretty hard to pick up the coal ban by looking at the data. Indeed, as a set of State Department slides distributed at the time of the resolution make clear, the forbearance by China is worse than it looks and almost certainly political in origin. Chinese imports of coal have fallen as a result of a shakeout in the domestic industry and growing concerns about environmental effects (for an example of industry coverage, see mining.com from earlier in the year). But North Korea has clearly been spared.

South Korea has been openly upset about the fact that the coal ban had become so leaky and has been advancing a variety of ideas about a cap or measures that would make the China trade more transparent. The cap is written mainly as a quantity constraint, but puts a limit on revenues as well (not to exceed 400,870,018 US dollars or 7,500,000 metric tons per year, or whichever is lower). In contrast to 2270, 2321 is not written with a livelihood exemption. To the contrary, the resolution argues that this amount is not guaranteed—a ceiling not a floor—and that coal could be restricted still further if exports are found to emanate from designated entities or are funding WMD programs. Throughout, the resolution requires the sanctions committee to provide information, in this case reporting on North Korea’s aggregate exports in real time so it is clear when limits are being approached.

While iron and iron ore exports are nominally banned, the rules governing them are the 2270 rules that allow livelihood exemptions. Copper, nickel, silver and zinc as well as monuments are also under a complete ban, and without an exemption procedure making compliance easier to track.

If we think that the iron and non-ferrous metal bans will be leaky, how much will the coal ban affect North Korean trade in 2017? Chinese imports of NK coal were about $1.05 billion in 2015, down from $1.15 in 2014 and China accounted for the overwhelming share. Projected revenues for 2016 are in the $900 million range which would translate into a $500 million hit to the balance of payments. Given that total North Korean exports were an estimated $2.7 billion in 2015, it is hard to argue that such restrictions would be inconsequential. So we are back where we were with 2270: although it certainly seems harder for China to circumvent a clear quota or an outright ban in the case of iron ore and non-ferrous metals, will they front-load coal purchases to provide the regime some breathing room. Will they break the cap altogether, perhaps on the pretense that the US is not complying with political obligations under the resolution (paras. 47-48) or on humanitarian grounds (para. 46)?

Doing Business Abroad

The sanctions resolution contains a variety of measures that seek to curtail the ability of North Korea to make money abroad, including through its embassies. Before turning to these measures, it is important to underscore that they all depend on member states taking the required actions. And in some case, actions are not even required; in UN-speak, members are “called on” rather than obligated to (for example, “shall” undertake a given action).

To gauge the likelihood of enforcement, we simply list the countries in which North Korea has embassies ranked by their percentile score on the World Bank’s “rule of law” indicator. The rule of law indicator “captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.” As can be seen, the countries can be divided into the good, the so-so, and the ugly. While it is certain that the EU will act to bring community law into conformity with 2321, look at the portion of this list with scores that fall below the thirtieth percentile. These countries account for fully 38 percent of all countries hosting North Korean embassies. How much cooperation will the international community get from Cuba, Russia, Iran or even Pakistan, Bangladesh or Laos? The issue is not only intent, but capacity: whether governments will work hard not only to stop newly-illicit activities but to make sure they understand it in the first place. And the problem of non-compliance is not static but dynamic. As some jurisdictions tighten, North Korean economic activity will naturally gravitate to those that are more lax. 

Some examples make the point. The resolution limits all DPRK diplomatic missions and consular posts, as well as all accredited DPRK diplomats and consular officers, to one bank account each (para. 16). The resolution prohibits any property that the DPRK owns or leases from being used for any but consular business (para. 18). While it only “calls on” member states to reduce embassy personnel, it decides that if member states determine that a North Korean is working on or on behalf of a North Korean banking institution they shall be expelled (para. 33; the resolution also requires all banking offices, subsidiaries and accounts in the DPRK to be closed as well). The resolution bans travel by all personnel associated with the country’s WMD program, scientific exchanges that might further the program and specifically designates 11 individuals for travel bans/asset freezes—almost all associated with KOMID (Korea Mining Development Trading Corporation)—as well as ten entities for asset freezes. But member governments have to establish the facts: exactly what banking accounts embassy personnel have; what property is being used for commercial business; which individuals are working for North Korean banks and so on.

Similar factors will limit the apparently sweeping measures on trade finance, insurance and services, which appears close to a complete ban (para. 32). But these aspects of the resolution are not self-enforcing either.

Transport

Some of the most binding features of the resolution appear to pertain to transport. One particular measure has not gotten the attention it deserves because it could operate like a secondary sanction. Para. 22 of the resolution prohibits member states from providing insurance or re-insurance services to “vessels owned, controlled, or operated, including through illicit means, by the DPRK.” This is serious, because it puts private insurers on notice that they would be in violation of UN resolutions and it could deter trade since those owning cargo would be unable to insure it. Such a measure can easily be buttressed by direct action and secondary sanctions against rogue insurers. As recently as 2015, for example, The Navigators Group, Inc., an American entity—was found to be providing insurance to North Korean vessels and was fined. If American firms are doing this business as recently as last year, imagine what else is transpiring.

But for the most part, the more sweeping measures on transport—and particularly on shipping—once again come up against questions about enforcement, lax jurisdictions and Chinese intervention on North Korea’s behalf. Resolution 2270 already requires member states to de-register ships that are “owned, operated or crewed by” North Korea, a measure that appeared to get additional force by sectoral sanctions on shipping contained in US Executive Order 13722. But China intervened to have two particular vessels that had been formally designated (the Jin Teng and Jin Tai) de-designated, after which they came under a China-based entity called Blue Ocean Ship Management. As the Panel of Experts report from February showed clearly, North Korea’s Ocean Maritime Management Company was able to effectively operate such foreign flagged vessels, down to the detail of having embedded party staff and even pictures of Kim Il Sung and Kim Jong Il on board. Such vessels have docked in the Philippines, Vietnam, China, Indonesia and even Japan. It sure seems like an outright ban on landing rights would be simpler.

The porousness of shipping sanctions to the cat-and-mouse game of registration, deregistration and re-registration is now a leitmotif on the reporting on North Korean shipping by Claudia Rosett, Leo Byrne, Josh Stanton and the Panel of Experts on North Korea. 2231 appears to go farther that 2270, deciding that “all Member States shall de-register any vessel that is owned, controlled, or operated by the DPRK, and further decides that Member States shall not register any such vessel that has been de-registered by another Member State.” Unless buttressed by secondary sanctions against jurisdictions that re-register these ships, it is not clear how weak jurisdictions will be held to account. Indeed, even an outright ban on North Korean ships docking can be circumvented if port officials look the other way.

The same can be said for measures in the resolution that deal with land transport and the baggage of North Koreans traveling abroad, which is now officially designated as “cargo” that is subject to inspection including of individuals who are simply transiting a given country. And all cargo coming from North Korea or handled by North Korean entities was already subject to inspection under 2270. Do we think that is happening?

Conclusion: the Politics

Sanctions against North Korea should not be seen as a matter of finding a single silver-bullet. Nor does the failure of sanctions to have political effect mean that they are not having economic effect. The country’s trade is increasingly concentrated on China and it is showing steady contraction since 2014, a contraction that is likely to continue. 2321 is more appropriately seen as one move in a war of attrition against a target that is doing everything in its power to adjust, and is clearly deft at it. Nonetheless, it is wrong to stay stuck on the one-note samba that sanctions don’t work when they continue to be refined. I still do not rule out a prediction I made earlier in the year that North Korea is vulnerable to an old-fashioned balance-of-payments crisis as another round of restrictions bite. But much will depend not on the resilience of North Korea, but on whether China and other jurisdictions are willing to pursue this game to its conclusion, and whether secondary sanctions will be used more aggressively by the US and others to enforce what is on the books in the multiple sanctions resolutions we now have.