What Happened in Hamburg II: Back To Sanctions

July 11, 2017 7:00 AM

Yesterday, I argued that there are three building blocks to coercive diplomacy: threats or use of force; threats or use of sanctions; and negotiations and related inducements. Everyone knows that negotiations are ultimately the route out of the North Korean conundrum, if one exists (which it may not). But Beijing has still not fleshed out the broad Wang Yi proposal and in any case Pyongyang is doing everything in its power to make negotiations difficult. Military options are always “on the table,” but everyone knows that they are not appealing. This brings us back to the default option of increasing sanctions in the hope that they will make North Korea reconsider, with the perennial coordination problems they entail (Hard Target with Marc Noland for details). 

According to the joint statement issued by Japan, Korea and the United States, the three countries are going to press for a new UNSC resolution with additional sanctions. Such sanctions could try to add new activities directly related to the weapons program, or go after very particular firms and individuals through the designation process. Given the political economy of North Korea, however, it is a complete illusion to think that there is a clean, clear line between commercial and weapons-related trade; it all goes into the same pot. Leverage is only going to come by biting into the “commercial” trade, as resolutions 2270 and 2231 finally did with respect to the coal trade. This nuance was acknowledged in the joint statement, which called on the international community not only to implement all UNSC resolutions but “to take measures to reduce economic relations with the DPRK.” Among the purported targets according to reporting by Joongang: returning North Korean workers abroad or—the mother lode—getting China to restrict the flow of oil to the country.  

I wouldn’t count on the ability to get a new resolution at this point, particularly given the recent Xi-Putin joint statement emphasizing the role of negotiations and the willingness of Russia to even block a UNSC statement on the launch. In any case, the issue is ultimately one of what China is willing to do. President Trump’s chiding tweet about China increasing trade with North Korea by almost 40% has sparked head scratching and drew a defensive reaction from the Global Times. The number appears to refer to the growth of trade in RMB from the first quarter of 2016 to the first quarter of 2017, reflecting some price adjustments Chinese customs made following the initial publication of the data according to the Financial Times. The figure below shows quarter on quarter growth through March 2017 to be just one percent. But either way, the overall trade picture does not show big changes in China’s trade relationship with North Korea given the seasonal variation.

And that is precisely the problem. Which leads to the inevitable discussion of secondary sanctions. At his joint press conference with Secretary Mnuchin, Rex Tillerson outlined very clearly the US view and it is worth quoting at length:

“…Our experience with China has been -- and I've said this to others -- it's been a bit uneven. China has taken significant action, and then I think for a lot of different reasons, they paused and didn't take additional action. They then have taken some steps, and then they paused…

I think the sanctions action that was taken here just in last week to 10 days certainly got their attention in terms of their understanding our resolve to bring more pressure to bear on North Korea by directly going after entities doing business with North Korea, regardless of where they may be located. We've continued to make that clear to China that we would prefer they take the action themselves. And we're still calling upon them to do that.”

The suggestion: that the US will continue to share financial intelligence it has on Chinese firms doing business with North Korea. And in an emerging case we will look at more closely in the future, the US is taking action against some large American and foreign banks who have been facilitating financial transfers from North Korean front companies. But China has pushed back against such measures, and seems to hold to what might be called the “commercial trade” illusion. It is also clear that China fears loss of influence or disruption if it pushes too hard, and particularly at US bidding. The US and China need to cooperate on framing up negotiations to give Kim Jong Un an offramp. But as long as he believes he is impervious to outside pressure because of the division is successfully sewing among the five parties, the Young General will keep doing exactly what he is doing.

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