The right way to crank up the pressure on Pyongyang

With U.S. officials seeking to punish North Korea for its January 6 nuclear test, policymakers need to acknowledge the dirty secret of North Korea sanctions: the sanctions put in place over the past several years are not actually that tough. 

Proposals like the bill the House passed on January 12 are a useful first step, but largely just expand sanctions against North Korea’s arms industry, nuclear sector, and illicit activities. Instead, the U.S. and our allies should to shift from sanctions that target North Korea’s illicit activities to broader sanctions designed to cripple North Korea’s economy as a whole—much as the U.S. and our allies began targeting the Iranian economy in 2010.  

{mosads}Despite the widespread perception that North Korea is an economic basket case, North Korea has actually achieved modest economic growth in recent years. South Korea’s government, for example, officially estimates that North Korea’s economy grew by 1 percent in 2014, the most recent year available, and that North Korean imports grew by nearly 8% that year. Given that North Korea does not report reliable economic statistics and that outsiders have scant access to the country, North Korea’s actual economic growth could well be higher. Anecdotal reports by the handful of journalists who visit North Korea suggest that there is a construction boom underway in Pyongyang, the capital, and that there is rising economic activity across the country. Several international companies have launched joint ventures in North Korea in recent years, and the North Korean government has reportedly established more than 20 special economic zones a bid to promote growth and lure investment. As Congress’s research arm, the Congressional Research Service, wrote last July, “North Korea economic conditions appear to be improving.”

The existing sanctions are not effectively designed to challenge this dynamic. For example, the U.S. and our allies do not currently sanction international companies that establish joint business ventures in North Korea or that trade with North Korean mining, metals, textile and other companies that are mainstays of the North Korean economy. There are U.S. and United Nations sanctions against selling luxury goods like sports cars and high-end watches to North Korea—an effort launched several to curb the reportedly-lavish lifestyles of North Korea’s elite —but these sanctions have rarely been enforced. 

Fortunately, there is room to ratchet up the economic pressure on Pyongyang. 

First, the U.S. and our allies should begin imposing sanctions on international companies that do business with North Korea’s primary economic sectors, such as mining and textiles. These could be modeled after the sanctions imposed on Iran beginning in 2010 that drove most international companies to stop doing business with Tehran. 

The U.S. should also ramp up financial sanctions against the handful of banks that still do business with North Korea. Unlike current legislative proposals, however, financial sanctions should not be limited to banks that facilitate North Korea’s nuclear program or other illicit activities. Instead, the goal should be to entirely cut North Korea off from the global banking system, much as the U.S. did with Iran over the past five years.

Combined, escalated trade and financial sanctions have the potential to curb North Korea’s growth and to undercut the economic base that the North requires to keep advancing its nuclear program.  Stepped up enforcement of the existing sanctions targeting North Korea’s illicit activities would complement such a new broader sanctions campaign against North Korea’s economy.

China, which is responsible for more than half of North Korea’s trade, is a key player and needs to make a choice: either join in an international effort to increase pressure on North Korea, or see Chinese companies that continue to trade with the North risk their ability to participate in the broader global economy.  China’s own rising concern about its long-time client’s nuclear program and other destabilizing activities makes it likely that China would ultimately join in a campaign of escalated economic pressure, as long as the diplomacy is handled deftly.  

One of the lessons of the recent international economic campaign against Iran is that escalated sanctions should be paired with smart diplomacy. Diplomacy with North Korea is fraught, and we should not expect near-term progress. But as the U.S. and our partners ratchet up pressure, we should also make clear to the North Koreans that if—but only if—North Korea meets specified benchmarks towards dismantling its nuclear program, the pressure can be gradually reduced. 

The unfortunate reality is that there are no short-term solutions to the North Korean nuclear threat. But the U.S. and our allies do have tools to hit North Korea’s economy, and should use these tools to respond to North Korea’s increasingly provocative acts.

Harrell is an adjunct senior fellow at the Center for a New American Security (CNAS). He is the former deputy assistant secretary of State for Counter Threat Finance and Sanctions.