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Friday 18 Aug 2017 | 07:28 | SYDNEY
Friday 18 Aug 2017 | 07:28 | SYDNEY

New sanctions spark a China-North Korea diplomatic row

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COMMENTS

11 August 2017 17:10

The UN Security Council sanctions resolution (UNSCR 2371) on North Korea, passed last week, is the toughest yet. It fully bans the export from North Korea of iron, lead, coal and seafood, expands the number of sanctioned entities and individuals, prevents new joint ventures or additional investment in current joint ventures, and prevents additional numbers of North Korean labourers from working outside of North Korea. As with all previous North Korea sanctions resolutions, there are potential loopholes. For example, since there is no reliable count of expatriate North Korean labourers right now, it is unclear how much a ban on additional workers actually changes.

This is the point in most commentaries about North Korea sanctions where we have to recite China’s sins of enforcement. Chinese actors are undoubtedly the largest sanctions busters for North Korea, with Chinese firms aiding North Korea in making money from arms sales and mineral exports, and in shipping sanctioned goods into the country. Without defending China’s actions, it is important to point out that the US and China may be at cross-purposes in their understandings of what the sanctions regime is supposed to accomplish.

From the US perspective, the sanctions are supposed to inhibit North Korea’s ability to develop weapons by cutting off the funding and technology used to build them. The US State Department estimates sanctions will cut off about a third of North Korea's export income, if implemented. Yet it is not clear how much money North Korea actually needs for its weapons program (will $2 billion rather than $3 billion in yearly income really be the straw that breaks the camel’s back?). This is particularly true given that the state has been partially relieved of the need to provide for its population by a transitioning economy in which average North Koreans can go into business for themselves to survive. The North Korean state then extracts rents from the population for the privilege of doing business.

From China’s perspective, the sanctions are intended to send a strong signal to North Korea and bring it back to the negotiating table, rather than to crush North Korea financially. But as a way of signaling displeasure with North Korea’s behaviour, the marginal value of every additional sanctions resolution has surely decreased substantially since North Korea’s first nuclear test in 2006. North Korea has accelerated its weapons programs, and is seemingly further than ever from the negotiating table. Beijing does seem to enforce sanctions for some time after they are passed before letting up. And North Korea does feel some pain from sanctions, even if the message does not result in better behaviour. From our research, the 2013 sanctions, for instance, were followed by elevated imported food prices in Pyongyang, and the 2016 sanctions were followed by at least brief hold-ups of trucks at the border due to particularly thorough Chinese customs inspections.

Even if China has not yet decided to cut off North Korea completely, this round of sanctions is having an impact.

According to sources on the ground in northeastern China, the new sanctions appear to have set off a diplomatic row between Beijing and Pyongyang. After the resolution was passed, China reportedly informed North Korea that it would enforce the sanctions, particularly with regard to export goods and smuggling, within thirty days. The North Koreans replied that they would not be threatened by China, and did not need a thirty-day grace period. As a consequence, they shut down their customs offices on the border immediately, in a move reminiscent of the shuttering of Kaesong during the 2013 crisis. The Chinese government in turn informed North Korean businesses and trading companies doing business in China that they would be required to leave at the end of their contracts, and ordered Chinese state-owned enterprises to withdraw from North Korea.

All of these actions can and probably will be reversed, but if China and North Korea actually follow through on their threats, they would amount to a shutdown of a large portion of legal China-North Korea trade.

Of course, not all trade between North Korea and China is legal. A not insignificant portion of North Korea’s exports, including the goods newly sanctioned, are already smuggled across the border, spurred on by sanctions and the frustrations of legal trade, and supported by networks of customs and security officials on both sides, Chinese businesses, and North Korean officials and private individuals.

Seafood, for example, which was legal to export until this most recent UN Resolution, is already often smuggled into China, where it is sold as domestic produce. This is in large part because the terrible infrastructure and hold-ups at the border for legal trade make circumventing legal niceties an enticing option for businesses concerned about spoilage. In fact, one Chinese trader in 2016 estimated that most of the seafood exported from North Korea was smuggled.

Smuggling is widespread across all sectors, not just small, easily concealable goods. According to Chinese traders, even iron ore and other mineral products are smuggled tons at a time in boats or trucks across the river from North Korea to China, with the collusion of both Chinese and North Korean officials and businessmen.

That said, smuggling is not an efficient way to run an entire country's international trade, so it is unlikely that unofficial trade could actually replace the bulk of North Korea’s revenue without huge buy-in from the Chinese government and Chinese companies. Moreover, by closing off entire sectors to legal trade, both the North Korean and the Chinese government are also shutting down opportunities for smuggling, since many smuggled goods are actually hidden among legal goods passing through regular customs checkpoints.

The upshot is that China is capable of making North Korea feel a great deal of pain, but it would require a wholesale reorientation of its business stance with the DPRK, including not only a removal of North Koreans from China and Chinese businesses from North Korea over the long term, but also a crackdown on a well-developed smuggling ecosystem. It remains to be seen whether China wants to send a signal that strong.

Photo courtesy of Flickr user Shinsuke Ikegama.

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