Appeasement NK Economics U.S. & Korea WMD

Now What? Part 4: Someone Didn’t Get the Memo

[Several very interesting updates here; scroll down.]

Recently, it has often seemed that different parts of South Korea have been applying different policies to the same issue. Take South Korea’s response to the new U.N. Security Council Resolution 1695, which requires countries and companies to exercise “vigilance” in making sure they don’t supply North Korea with the components or funds to build more missiles. UniFiction Minister Lee Jong-Seok has opted for a “don’t ask, don’t tell” interpretation of that resolution, but yesterday, Korea’s Ministry of Commerce seemed to be interpreting the resolution much more strictly:

The Ministry of Commerce, Industry and Energy has written to some 80,000 export-import companies here asking them to heed the UN Security Council resolution on North Korea. It warns Resolution 1695 may hurt firms that export “dual use” goods that can be used both for military and civil purposes.

That’s because South Korean firms that violate the resolution face a panoply of potential secondary sanctions by the United States, Japan, and other nations. The most likely would be asset-freezing under Executive Order 13,382. One wonders how this relates to Stuart Levy’s recent visit.

“The resolution will strengthen sanctions imposed by the international community against exports to North Korea,” the statement says. “When it comes to goods coming out of the joint-Korea Kaesong Industrial Complex in the North, a thorough review is needed to determine whether they violate the resolution,” it adds, suggesting that the government is hard at work on the matter. “We urge companies here to take special precautions so they do not engage in illegal exports of strategic materials to North Korea either directly or via a third country,” the e-mail says.

So we have a difference of interpretation within the South Korean government.

Clearly, this is going to have a disparate impact on Kaesong, and it leads to why all those who oppose Kaesong ought to support a Free Trade Agreement that excludes it (today, the Korean government is again hinting that it may drop Kaesong from its FTA demands). If every non-Kaesong product made in South Korea enjoys a heavy U.S. tariff preference over its Kaesong-made competitor, Kaesong instantly loses any advantage that its lower wages might offer. If there’s the additional risk that firms bringing dual-use technology into Kaesong could face sanctions under U.N. 1695, Kaesong suddenly becomes a very risky proposition. Finally, firms whose “wage” payments are suspected of funding North Korean missile development could face U.S. or international economic sanctions, even asset freezes. It all brings to mind Ross Perot’s infamous evocation of that “giant sucking sound.”

The prognosis for Kaesong has never been this bleak. The world should celebrate that.

Update: Kim Jong Il, Unplugged

The Joongang Ilbo is reporting that the United States Treasury Department is making swift (maybe even stunningly swift) progress toward disconnecting Kim Jong Il from his financial lifelines (background here). Treasury Undersecretary for Terrorism and Financial Intel Stuary Levy has apparently secured promises from Singapore and Vietnam to “cooperate in isolating North Korea from international financial channels.” More importantly, White House Spokesman Tony Snow is now confirming that the Bank of China’s Macau branch has frozen North Korean assets, a move of gargantuan significance.

Despite reports, citing a Yonhap interview, that Levy had “warned” South Korea about cash flow from Kaesong, Levy didn’t really do that here:

He said his talks with South Korean officials focused on “general concerns” to ensure that money wasn’t going to North Korea’s weapons buildup. Contrary to some press reports, he said he did not personally raise issues about inter-Korean economic cooperation projects.

Treasury’s spokeswoman Molly Millerwise said during the interview that there was “overreporting” in the press about the U.S. taking issue with inter-Korean business.

Levy went into more detail on his interpretation of Resolution 1695, however, and the effect may be the same in the end:

The undersecretary said the U.S. was discussing with its allies how to properly interpret the Security Council resolution. Some argue that any and all money flowing into North Korea can be misused to bolster its missiles and WMD and therefore even routine business transactions should be severed with North Korea.

Levey said in theory the argument is right.

“Money is fungible so one would have to be careful to make sure that even the best proceeds of routine trade transactions could benefit the WMD or missile programs,” he said. But he added there was “a long way to go” to reach that conclusion.

The Senate has also passed the new North Korea Nonproliferation Act, which I humbly opined here would have little practical effect on the current state of North Korea-related sanctions and law enforcement operations. It’s mainly enabling legislation for Resolution 1695 (the one thing I called wrong here, because I assumed that anything coming out of the U.N. would be meaningless).

If you want to follow the action that matters, keep an eye on Treasury.