By Troy Stangarone
The United Nations (UN) sanctions on North Korea’s fourth nuclear test were flawed. The March sanctions were intended to limit North Korea’s ability to export coal, the most significant licit source of the hard currency that the regime has to fund its nuclear weapons and missile programs, while also not precipitating a humanitarian crisis that could cause instability on the peninsula and worsen the lives of an already deprived North Korean population. However, the livelihood exception proved too loose an exception to limit North Korean coal exports and an unexpected flaw also allowed North Korea to benefit from its coal trade. The new UN sanctions are designed to correct the flaws in the earlier sanctions this year and address other questionable money earning activities by North Korea. Do they succeed?
A shortage of coal for power and steel production in China has led to an unforeseen flaw in the sanctions from March. The failure to account for the influence of market forces that have increased the revenue North Korea generates from exporting coal. With Chinese coal inventories below 20 days’ supply as a result of Chinese efforts to close unsafe mines, there has been a surge of coal imports into China that have also driven up prices. As a result, imports of North Korean coal are up 13 percent by volume over last year’s high and prices in recent months for North Korean coal may be up 68 percent to $90 per ton.
In 2015, North Korea earned a little over $1 billion on exports of 19.6 million metric tons for an average price of $53.47 per metric ton. At those prices over a full year, North Korea could have seen its earnings in coal trade from China remain the same as in 2015 even if the volume of trade fell by close to 40 percent. To preclude this possibility in the future, the new resolution caps both the volume and value of North Korean coal exports at 7.5 million metric tons and $400.1 million per year, respectively, based on whichever cap is reached first.
What is unique about the decision to place a hard cap on North Korean coal exports is that since, in essence, China imports all of North Korea’s coal, China has agreed to restrain its own imports of coal from North Korea. While China has not gone as far towards sanctioning North Korea as many would have hoped in the past, they do share a concern about North Korea’s nuclear weapons. Clearly Beijing has made a calculation that the cap is stringent enough to send a strong message to North Korea about its nuclear program, but not so stringent as to precipitate a collapse of the regime and undermine China’s own strategic interests on the Korean peninsula.
As with any resolution, enforcement is the key. Under the new resolution states will be required to send details of their purchases of North Korean coal to the United Nations for monitoring. Once global imports reach 95 percent of the cap, states are required to cease their purchases of North Korean coal. While there will be incentives for smuggling from the cap, it should be effective in limiting the licit trade in North Korean coal.
The sanctions also address North Korea’s other mineral resources. While UN Security Council Resolution 2270 had already placed prohibitions on exports of iron and iron ore, the new resolution expands those prohibitions to include copper, nickel, silver, and zinc. Exports of minerals such as lead and zinc had returned to normal levels in 2016 after a downturn in 2015 and represented perhaps a way for North Korea to mitigate some of its losses from the trade in coal. That avenue should now be closing as well.
Beyond its efforts to limit North Korea’s trade in coal, the resolution is interesting in its level of specificity on some of North Korea’s money making activities and it begins to lay markers for future areas to sanction. North Korea has been known to use its Embassy’s for money making ventures and use diplomatic privileges to move goods and cash. The resolution makes clear that Embassy purposes should not be used for commercial ventures and that the luggage of diplomats should be considered cargo – specifically pointing out the tendency to transmit money in large bags – and cracks down on the number of bank accounts Embassy and Embassy officials can hold by limiting them to one each.
Two areas where markers are put down for future actions by the Security Council include North Korea’s overseas laborers and technical cooperation with other states. In regards to North Korea’s use of overseas laborers to earn hard currency, the sanctions resolution expresses concern over this practice and calls on “States to exercise vigilance over this practice.” Despite early expectations that North Korea’s use of labors overseas would be banned in the current resolution, its inclusion in the current resolution signals that this is one future area of action for the Security Council should North Korea engage in additional provocations.
The new sanctions also take an important step towards ending North Korea’s weapons development cooperation with states such as Syria and Iran. North Korea is known to have worked with Iran on missile development and is suspected to have cooperated on the development of its nuclear weapons program as well. The new resolution calls for the suspension of all scientific and technical cooperation, other than medical, and for states notify the UN in advance of any technical cooperation that is deemed not related to the nuclear program. It will be interesting to see if future resolutions take more direct aim at these practices.
No sanctions resolution is perfect, but the current resolution takes significant steps towards limiting North Korea’s ability to earn hard currency to finance its weapons programs and reiterates the obligations of states to ensure that all North Korean cargo is inspected so that sanctions are properly enforced. At the same time, we should also keep in mind that sanctions are not a short-term solution to the North Korea problem, but rather a tool to slow North Korea’s progress and provide the pressure needed to convince Pyongyang to return to talks over its weapons programs. If North Korea has not returned to talk in six months, that does not necessarily mean that the sanctions have failed. However, at the same time, the international community needs to also consider being more pro-active when unintended loopholes are discovered.
Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.
Photo from United Nations Photo photostream on flickr Creative Commons.