What are Secondary Sanctions? The Royce Bill Primer
The weekend was packed with a flurry of signals from the US, China and North Korea that we will sort out tomorrow. But the prediction last week that the administration is waiting on China to act and that sanctions are the likely first step was largely confirmed. Today I look at what more sanctions might look like.
Given that US-North Korea trade is approximately zero, the leverage resides largely in an array of secondary sanctions. But what are they exactly and how much impact are they likely to have? We now have a reasonable catalogue of possibilities in the form of a new bill introduced several weeks ago by House Foreign Affairs Committee Chairman Ed Royce (R-CA), the Korean Interdiction and Modernization of Sanctions Act (Kims Act), which would expand upon the North Korea Sanctions and Policy Enhancement Act (NKSPEA) of February 2016. Particularly useful is the National Committee on North Korea's summary of the bill, which constitute a virtual primer on secondary sanctions and on which I draw liberally here.
As the NCNK summary outlines, the bill contains several innovations; each deserves some comment.
The first is to tie the president’s hands by listing a series of activities that would trigger mandatory sanctions on firms conducting particular business with North Korea, as well as the authority to exercise discretion on a wider range of transactions. A look at the list of activities suggests a distinction between the mandatory sanctions that would be invoked against activities that directly go against UNSC resolutions, and the discretionary list which allows secondary sanctions on other activities that are currently not proscribed. Such currently not proscribed activities include textiles, online gaming proceeds, purchase of fishing rights from North Korea, food exports and some permissive categories such as “significant transactions” with North Korea’s transportation, mining, energy, or financial services industries.
A second innovation is to go after countries and particular ports that do not adequately enforce UN sanctions against North Korea. This includes a complete ban on vessels from these countries from entering U.S. waters or ports. This measure could help put an end to the reflagging charade that allows North Korean ships to continue to operate despite the ban.
Particularly welcome to Marc and me are strengthened sanctions with respect to overseas labor by North Korean workers. The bill would require the administration to report on firms employing such labor, a perfectly appropriate form of naming and shaming. As we said repeatedly, remittances are a legitimate tool for developing countries to pursue. But not when the workers in question are effectively slaves of the state, no matter how they might personally benefit. No country has any obligation to admit such workers and should do all we can to discourage their exploitation.
As the NCNK report notes, Rep. Ted Poe (R-TX) and Sen. Ted Cruz (R-TX) introduced bills that were reconciled and passed the House in early April that would require the State Department to submit a report on whether North Korea meets the criteria for being designated a State Sponsor of Terrorism. That is fine, but in the end it is in the weeds of the Royce bill that the most significant range of possibilities is to be found. What we don’t know: does Treasury and the emerging community of open-source researchers have adequate information to identify the perpetrators? That is the cat and mouse game coming down the pike if the President moves aggressively in this direction.