Now What? Part 2

Right after North Korea launched its round of missiles, I outlined a series of options, mostly financial, that the U.S. and other countries could take in response. Two weeks later, several aspects of that forecast are holding up well. What looked at first like another U.N. farce, then a modestly successful sanctions effort (by U.N. standards, anyway), now looks to be an important and hard-won component of a coordinated effort to tighten the squeeze on the regime-sustaining half of North Korea’s dual economy. No wonder the early signs are looking so good for a John Bolton confirmation.

Snipping the Lifelines

The most interesting story of the week attracted little media coverage — Treasury official Stuart Levy’s visit to a series of nations with which the North Korean regime has financial dealings. In each location, he has the rapt attention of senior officials keen to avoid the fate suffered by Banco Delta Asia. One expert believes that the Banco Delta crackdown has cost North Korea a devastating 40% of its foreign exchange.

In Vietnam:

On Tuesday, the under secretary reportedly met with Vietnamese government and financial officials. A diplomat in Seoul said, “A bank account that is used by Hyundai Asan and North Korea has been under investigation there.”

In Japan:

[M]r. Levey [sic] reportedly gave officials there a list of persons and companies suspected of being linked to North Korea’s missile programs. The U.S. official also discussed with his hosts possible measures to block the flow of cash from ethnic Koreans in Japan to their homeland, a move Tokyo has said publicly it was considering.

In Singapore:

[A]t least one bank account has been linked to money sent by the Hyundai Group to North Korea before the 2000 inter-Korean summit between Kim Dae-jung of South Korea and Kim Jong-il. Ironically, Don Kirk, a reporter for the International Herald Tribune in Seoul, mentioned that account in an article he wrote shortly after the summit; Seoul reacted with fury and the matter lay dormant for some time. Prosecutors eventually announced in 2003 that $450 million had been sent to North Korea to induce Kim Jong-il to host the summit meeting.

[Here’s a link to Don Kirk’s January 2001 IHT story that blew open the entire cash-for-summit/Nobel Prize scandal.]

Levy is also reported to have discussed the re-imposition of trade sanctions President Clinton eased in 1999. Bilateral trade betweeen the U.S. and North Korea remains inifinitessimal, mainly because North Korea has no credit and doesn’t make much that can compete on the international market, at least not legally.

Enforcing Resolution 1695

U.N. Security Council Resolution 1695 seems destined to play a significant role in the developing plans. The operative language of the resolution is this:

Requires all Member States, in accordance with their national legal authorities and legislation and consistent with international law, to exercise vigilance and prevent the procurement of missiles or missile related-items, materials, goods and technology from the DPRK, and the transfer of any financial resources in relation to DPRK’s missile or WMD programmes;

“Vigilance” being key, because of its implied burden-shifting to nations that provide funds to North Korea. On its face, that means that donors have a Global Test-certified responsibility to do more than halt cash they know to be flowing into the missile fund; it also requires them to account for the funds they provide to the regime. Look, for example, at how Japan is interpreting this provision:

Under the government’s plan, permission will be required to send money to bank accounts inside North Korea and accounts in third countries held by companies with ties to North Korea. The government will not give permission, in principle, unless the purposes of sending money are clearly proved to be unrelated to missiles and weapons of mass destruction.

South Korea, one the other hand, is taking a “don’t ask, don’t tell” approach, which undoubtedly made for a very interesting conversation between Levy and his South Korean counterparts. What I wouldn’t give for a transcript …. The stage is now set for a sharp divide between the United States and South Korea on Kumgang Mountain and the Kaesong Industrial Park. If the two countries can’t agree on financial safeguards for funds provided, look for companies such as Hyundai Asan to be designated under Section 311 of the USA PATRIOT Act. The Chosun Ilbo is also discussing South Korea’s vulnerability under the Export Administration Act, something I’ve previously mentioned here, in the context of Kaesong.

North Korea Nonproliferation Act of 2006

I’ve now had the opportunity to examine the Act, which James first blogged here. The good news is that its chances of passage seem good. The political climate is right, and the bill is short and simple. The House and Senate versions are identical, meaning protacted negotiations between the House and Senate probably won’t be necessary.

The bad news, however, is that it doesn’t do that much. Let’s break it down. First, understand that this bill adds North Korea to several provisions of the Iran and Syria Nonproliferation Act (ISNA), meaning most text quoted below is actually from the latter. (Warning: wonkish legal discussion follows). Here, then, are the three subsections of the ISNA that wield the sharp points:

“(1) Executive Order No. 12938 prohibitions.–The measures set forth in subsections (b) and (c) of section 4 of Executive Order No. 12938 ….

This Executive Order empowers the Secretary of State to deny government contracts to, and to ban imports from, countries or entities dealing in chem or bio precursors with these three nations. It also permits State and Treasury to concur on imposing a series of measures that we’ve already imposed for the most part: denial of credit, opposition to international credit, restrictions on sales of weapons or dual-use items, restrictions on imports, and my personal favorite symbolic gesture, the denial of landing rights to the blacklisted nation’s air carriers. One worth further discussion is this:

(1) Foreign Assistance. No assistance shall be provided to that country under the Foreign Assistance Act of 1961, or any successor act, or the Arms Export Control Act, other than assistance that is intended to benefit the people of that country directly and that is not channeled through governmental agencies or entities of that country.

The World Food Program (WFP) now channels its food aid through the North Korean government’s Public Distribution System (PDS), so this measure would effectively halt U.S. food aid to North Korea unless the WFP sets up an independent distribution system. Given the amount of diversion and manipulation that’s believed to have taken place, I’m OK with that. It probably won’t happen, however. The North Koreans are doing just fine at cutting off international food aid without U.S. help. Onward with the new House/Senate bill:

“(2) Arms export prohibition.–Prohibition on United States Government sales to that foreign person of any item on the United States Munitions List as in effect on August 8, 1995, and termination of sales to that person of any defense articles, defense services, or design and construction services under the Arms Export Control Act ….

Meaning, any foreign “person,” which would include business entities, that deals in WMD components with North Korea can’t buy stuff from the U.S. Munitions List. This might have some limited effect, although buyers of goods on the USML are already supposed to obtain USG permission before reselling those items to another end-user. And it’s very doubtful that the USG would grant permission to resell to the North Koreans anyway.

“(3) Dual use export prohibition.–Denial of licenses and suspension of existing licenses for the transfer to that person of items the export of which is controlled under the Export Administration Act of 1979 … or the Export Administration Regulations.

Ditto. Been there, done that.

Japanese Sanctions Expected in Early August

There are also new signs that Japan will soon ban cash remittances to North Korea, and may also freeze North Korean assets there, a move that would severely restrict bilateral trade (more).

Chief Cabinet Secretary Shinzo Abe said he has instructed officials to prepare measures to ban cash remittances to North Korea and implement sanctions already called for in the U.N. resolution.
….

“We have started preparations to properly achieve necessary steps involving financial restrictions” on North Korea, Abe told a news conference, adding that Japan will make a final decision on the steps after consulting with other countries to make the sanctions effective.

“International coordination with the United States and other countries is extremely important,” Abe said.

The Korea Herald manages to put a completely different spin on the same story:

Japanese officials said on Tuesday that Tokyo had begun work on possible financial sanctions against North Korea, but they said a decision on implementing them would be taken in concert with other countries and depend on Pyongyang’s behavior.

“We should wait and see for a while whether North Korea will seriously respond to the (U.N.) resolution,” Koizumi told reporters.

The Herald and one Japanese report suggest that the sanctions would hit in early August.

There’s No Pleasing Some People

I’m not at all surprised that China and South Korea are doing everything they can to sustain the regime. South Korea’s promised NKPA ration food aid cutoff, if true, is being offset by a corresponding increase in food aid from China (that is consistent with this report, but conflicts with this one). South Korea has also just granted permission to several hundred South Korean Juche enthusiasts to attend this year’s Arirang Festival in Pyongyang.

Still, South Korea couldn’t help being dragged into the mess North Korea made, and inter-Korean relations have tangibly suffered. Temperamental UniFiction Minister Lee Jong-Seok engaged in a public brawl over North Korean demands made at the end of the Barrel of a Gun. North Korea is now punishing the South by cutting off some of its own sources of South Korean support at Kumgang and tours at Kaesong. It even cut off the last existing venue for direct communication between the two governments. Go figure. It’s another point for Richardson’s theory of Strategic Disengagement. Perhaps North Korea is finding that its handpicked model workers are starting to draw unfavorable comparisons between life inside the Corporate Gulag of Tomorrow with the old, gray gulag that surrounds it. A simple contract dispute issue also seems to have played a role.

This week, the North also turned back a group of international bankers who had been scheduled to tour Kaesong.

In Closing: Now that you’ve slashed your way though this entire dry post on economic sanctions and executive orders, you have earned your moment of levity for today: how to spot North Korean counterfeit currency!
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