Talking North Korea Sanctions with PIIE’s Stephan Haggard

While North Korea has seemingly gone quiet again following several months during which tensions on the peninsula rose to dangerous levels, the Hermit Kingdom remains one of the United States’ most intractable foreign policy challenges. We posed some questions to Peterson Institute for International Economics fellow Stephan Haggard in order to explore the role sanctions play in U.S. efforts to address this issue.

CESAR: What effect, if any, have sanctions had on North Korean decision-making regarding its nuclear program?

Stephan Haggard: The short answer to this question is “not much.” Sanctions have been ratcheted up since the 2009 tests in particular, and we have seen little diminution in tension, which peaked during March and April of this year. If anything, North Korea appears more committed to its weapons than it was before. However, it is worth making two further observations. First, sanctions are not only about changing North Korea’s bargaining posture; they are also defensive and designed to reduce North Korea’s access to materiel and weapons exports. We suspect that the regime has in fact been restrained in that regard. And second, it is important to recall that the multilateral sanctions have not targeted North Korea’s commercial trade, and bilateral trade with China has grown steadily since the onset of the nuclear crisis. In that sense, sanctions have not really been tried.

CESAR: Do you believe that imposing additional economic sanctions, whether through the United Nations or U.S. legislation, have a chance to change North Korea’s thinking? Does North Korea have an economic breaking point?

Stephan Haggard: It is a cliché, but the key player in this regard is China. We calculate that China accounts for at least 50% of North Korea’s trade, maybe more; it is hard to put together a full reckoning because North Korea does not report its trade and some of the DPRK’s partners, such as Iran, don’t either. China now appears for the first time to be engaging in subtle signals, for example, by shutting down some accounts of the DPRK’s Foreign Trade Bank. There is evidence that these actions are having economic effects, including even the operation of NGOs. Trade for the first four months of the year was down from 2012, although not drastically; China could be slowing movement across the border. This is occurring in the context of a bilateral diplomacy that is clearly designed to move North Korea back to the talks.

CESAR: Do you see any specific reason(s) as to why North Korea reacted so belligerently to this round of U.N. sanctions compared to UNSCR 1718 in 2006?

Stephan Haggard: Several factors played into the North Korean response. Following 1718, the US and North Korea quickly resumed talks on frozen accounts in Banco Delta Asia that permitted an exit ramp to the nuclear agreements of 2007. This time around, the regime has committed more publicly to maintaining its weapons programs, making it more difficult to back down. Second, the sanctions came at the same time as the joint exercises, which made them appear part of a more concerted threat to the regime. The US was very more forward in these exercises than it had been in the past. And finally, the sanctions are more restrictive. Perhaps the North Koreans were protesting more loudly because they anticipated the possible effects of the financial measures in particular. It is worth noting that the sanctions also come on top of the closing of Kaesong, which has stripped away about $90 million of income to the regime.

CESAR: Bank of China recently shut down the account of North Korea’s Foreign Trade Bank. To what do you attribute this change? Some reports have mentioned that Treasury Secretary Jack Lew specifically mentioned the issue during his trip to Beijing in March, while others have suggested that the decision was made entirely by Bank of China. Do you believe the decision was influenced by a fear of U.S. secondary sanctions or a deliberate move by the Chinese government to squeeze North Korea?

Stephan Haggard: The Chinese were very forceful in stating their opposition to secondary sanctions, and I think this would be a very large step for the United States to take given other dimensions of the bilateral relationship. We don’t know North Korean thinking, but they could be simply implementing what they said they would do under the new sanctions resolution, which is to address financial channels. But I suspect they have their own reasons to take a tougher line, which are not limited to the nuclear issue. China has also had some very difficult disputes with North Korea over hostage-taking of Chinese fishermen. These episodes have not received the attention in the Western press, but they are a very hot political issue in China. North Korea is seen as ungrateful and abusive and in need of a lesson.

CESAR: You’ve written previously about the North Korea Sanctions Enforcement Act of 2013, which was introduced by House Foreign Affairs Committee Chairman Ed Royce (R-CA). Contained within the bill are a raft of secondary sanctions measures which would appear to primarily impact China. How would the passage of this bill affect U.S.-Chinese relations? Can it be implemented forcefully without resulting in severe blowback from China or do you believe that it will be the next Iran Sanctions Act (pre-2011) i.e. almost wholly unenforced? Are there any coercive measures not contained within the bill that you think would be effective at pressuring North Korea?

Stephan Haggard: The bill will do nothing but generate conflict in the US-China relationship just as we have an opportunity to pursue this issue through a more cooperative approach with China. We should be emphasizing common interests on the peninsula, and not taking a punitive approach.

CESAR: Do you see any danger that putting increased sanctions pressure on China over its relationship with North Korea could affect its compliance with U.S. sanctions on Iran?

Stephan Haggard: I am less concerned about linkage to the sanctions issue than the risks to the broader relationship. The North Korean issue should not be blown out of proportion; we should not let it drive the other important work we need to do to bring China back into a more cooperative foreign policy stance than it has pursued over the last three years.

Stephan Haggard is the Lawrence and Sallye Krause Professor at the University of California, San Diego Graduate School of International Relations and Pacific Studies and a Visiting Fellow at the Peterson Institute for International Economics. For more information on North Korea, visit his blog North Korea: Witness to Transformation.