Here's why Kim Jong Un put sanctions first—and why North Korea is not Vietnam

Stephan Haggard (PIIE) and Marcus Noland (PIIE)

February 28, 2019
Photo Credit: 
REUTERS/Leah Millis

The February 2019 summit between President Trump and Kim Jong Un ended without a deal. Kim apparently insisted on sanctions being lifted before committing to significant progress on denuclearization. This sequencing issue comes as no surprise to most experts, who pointed to North Korea’s desire to get something from the United States first.

Nonetheless, the outcome stands in contrast to Trump’s statements and tweet during the summit that “Vietnam is thriving like few places on earth. North Korea would be the same, and very quickly, if it would denuclearize.”

The choice to meet in Vietnam was no accident: Some analysts see Vietnam’s path to economic development and reconciliation with the United States as a potential model for North Korea to follow. The Trump administration, in turn, has encouraged this idea.

But it’s not that simple. Here's how economic reform played into this summit—and why it might be difficult for North Korea to follow Vietnam’s path.

North Korea wants to develop economically—but it needs to get sanctions lifted.

To understand the current state of diplomatic play, it pays to follow the money. Since the nuclear crisis first broke in 2002, North Korea’s trade with China has steadily increased as the rest of the world—including South Korea and Japan—gradually peeled away. By 2017, China accounted for upward of 90 percent of North Korea’s trade.

As Stephan Haggard wrote here at the Monkey Cage last year, that dependence made Kim vulnerable to the sanctions that China imposed as Beijing tired of recurrent nuclear and missile crises on the peninsula. Cooperating with Trump at Mar-a-Lago in April 2017, China’s President Xi Jinping appeared to offer support on managing the North Korean nuclear issue—including through cooperation on sanctions—in return for a temporary reprieve from the brewing US-China trade war.

To be sure, the “maximum pressure campaign” to apply full US economic, political and military clout on North Korea did not have the anticipated effects. The belief that this pressure could bring North Korea to its knees was particularly fanciful. Typical indicators of an economy in distress, such as the black-market exchange rate and the price of rice, proved surprisingly stable in North Korea.

As Trump and Kim sparred over the size of their nuclear buttons, Pyongyang appeared to be experiencing a real estate boom. There are various theories why—including a vibrant smuggling and sanctions evasion industry, stockpiling of key commodities, drawing down of financial reserves or invisible financing from China. But North Korea was doing more than muddling through.

Still, Kim was not altogether immune from external pressure. In his first speech, in April 2012, Kim promised his citizens an end to belt-tightening. Six years later, the prospect of indefinite international ostracism and continued economic pressure from China was hardly appealing. Two decades of sporadic efforts to lure trade and investment from the rest of the world had proved fruitless, as economic processing zones failed to bring in multinationals. It’s likely that a settlement with the United States looked increasingly attractive to Kim.

That’s what brought us to the Singapore summit last June. North Korea was willing to talk, but it was unlikely to take significant steps toward denuclearization before getting sanctions relief.

It took the Trump administration the rest of 2018 to recognize this fact, but it was right there in the summit document, which put “denuclearization” third on the agenda after normalization of relations and movement toward a wider political settlement. If the United States wanted progress on the nuclear front, it would need to think about “corresponding measures,” namely, sanctions relief.

North Korea faces very different obstacles to reform than Vietnam did.

How much does Kim need a deal with the United States to achieve his ultimate objective of regime survival? The answer depends on whether he sees a plausible reform path that keeps him in power.

But Kim faces a much tougher challenge than the scenario that played out in Vietnam. On a divided Korean Peninsula, economic reform might bring the North closer to the successful South Korean model, raising fundamental issues of political legitimacy. Why would North Korean citizens accept being a third-rate South Korea when you can just be the real thing through unification?

And North Korea’s economic path starts from a different point than Vietnam in the 1980s, when Hanoi began its reform program. Relatively simple agriculture reforms in Vietnam generated rapid growth in productivity. Food production soared, releasing labor into the nascent—then booming—light manufacturing sector. Reform was “win-win,” in that Vietnam’s farmers, as well as employees in new light manufacturing and old industrial facilities, were all better off.

But North Korea is much more industrialized, and its agricultural system much more dependent on inputs like fertilizer. Agricultural reforms won’t be able to give the North Korean economy the same bump. It would take a boost in trade, investment and aid to jump-start North Korea’s integration into regional production networks.

For such integration to work, North Korea would need liberalizing reforms such as clarifying property rights, permitting greenfield investments by foreigners, publishing a tariff schedule and establishing credible mechanisms for adjudicating commercial disputes. But North Korea already lags well behind Vietnam—for example, the World Bank had a presence in Vietnam for a number of years before it started lending.

For North Korea, a nuclear deal is also a necessary step. Only the most intrepid investors will put serious money in a country facing sanctions and recurrent military crises.

The US-North Korea reconciliation process will be different from Vietnam’s.

What about Vietnam’s remarkable reconciliation with the United States—could that be a model for North Korea? The Vietnam War ended in 1975 with one side winning and unifying the country. The Korean Peninsula will continue to be divided for the foreseeable future. The 2019 Hanoi summit ended without an end-of-war declaration, which was rumored to be in play. Even so, a declaration to formally end the Korean War would have been mostly symbolic: An actual armistice would involve the United Nations and would require normalizing relations—all of which remains a long way off.

For Kim, nuclear weapons are regime insurance. Prying them loose is going to be a long, gradual process at best. Still, the summit apparently ended without rancor. If North Korea can show serious intent to restrain its nuclear program, the United States and South Korea could dangle the benefits that are on offer as some version of “denuclearization” gains momentum.

These benefits could include not only political statements but also partial sanctions relief that would abet a reform process as well: humanitarian assistance, people-to-people exchanges and first steps toward a revival of North-South trade.

Stephan Haggard is the Krause Distinguished Professor and Director of the Korea-Pacific Program at the School of Global Policy and Strategy, University of California at San Diego.

Marcus Noland is executive vice president and director of studies at the Peterson Institute for International Economics.

They are authors of “Famine in North Korea: Markets, Aid and Reform” (2008); “Witness to Transformation: Refugee Insights into North Korea” (2011) and “Hard Target: Sanctions, Inducements and the Case of North Korea” (2017).