Sanctions? Yes We Can! (But Without the U.N.)

The power to tax is the power to destroy — Daniel Webster

As the Obama Administration inherits an intractable, non-compliant, bellicose, and terroristic North Korea, the administration’s great challenge is to see beyond a strategy based on concessions alone. Via GI Korea, the new administration appears to be polarizing into factions, just as the Bush Administration did eight years ago. One of the factions advocates “normalization of relations with North Korea as soon as possible,” in other words, giving even more concessions up front in the hope that maybe this time, the North Korea will feel appeased enough to threaten, kidnap, and proliferate a bit less.

This would be the triumph of hope over experience. As the last 20 years should have taught us by now, North Korea is very practiced at extracting concessions in exchange for promises that are always just over the next horizon. But the next missile crisis is never further away than the next bad harvest.

Often, the shortest path to an better strategy is understanding what worked before. As Marcus Noland reminds the new administration in a new Newsweek op-ed, unilateral economic sanctions have proven to be highly effective:

Fortunately, should Pyongyang test its new toy today, Obama may have an easier time getting other key states to cooperate. The current South Korean government, for example, favors a tougher line on the North, and even China may be losing patience, showing a greater readiness to punish bad behavior. Both countries will be more likely to support restrictions that could really hurt Pyongyang. North Korea is critically dependent on outsiders for oil, food, and essential medicines. While no one is talking about cutting off the last two, China has stopped oil deliveries before, and when it did so in 2003, Pyongyang quickly returned to the bargaining table.

Other measures have also worked in the past. In 2005, for example, the US Treasury Department acted against a small Macau bank holding North Korean assets, including profits from missile and gold sales and possibly even including Kim’s personal political slush fund. This one measure tanked the black-market value of North Korea’s currency, disrupted legitimate commerce, and reportedly necessitated a scaling back of festivities associated with the Dear Leader’s birthday. And Pyongyang got the message: It soon made concessions, such as shutting down the Yongbyon nuclear facilities and permitting the return of international inspectors.

As all this suggests, if North Korea starts acting up, more toothless trade sanctions will not stop it. But there are other options. If the key players make it clear in advance that another missile launch will be met with comprehensive and strictly enforced trade and financial restrictions, as well as energy cuts, a reduction in aid, and a willingness to disrupt the North’s military cooperation, such pressure could well succeed where other, more feeble efforts have failed in the past. [Marcus Noland in Newsweek]

Most of the conventional wisdom has missed this point, often willfully so. Throughout the Bush Administration, conventional wisdom held that (a) economic pressure didn’t work, or (b) that as a general matter, sanctions don’t work. What most of this conventional wisdom had in common is that it wasn’t coming from careful observers of the North Korean economy. Instead, most of it came from policy wonks whose biases happened to be the opposite of my own.

The conventional wisdom was correct to a limited extent: long-term trade sanctions on the broader North Korean economy were not an effective tool of nuclear diplomacy, because the regime doesn’t feel most of the pain they cause; the people do, and the regime doesn’t care about them (indeed, isolates them from the economic lure of the greater world). Not that the goal of the sanctions, at least initially, was to disarm the North — most were imposed for other purposes, chiefly technology control and human rights. If the sanctions were lifted, the regime would undoubtedly find a way to monopolize the profits and minimize any contact between North Koreans and earthlings, much as it did at Kumgang or Kaesong.

Multilateral U.N. sanctions, however, were designed to be a tool of nuclear diplomacy. Resolutions 1695 and 1718, which John Bolton pushed through the U.N. Security Council after North Korea’s 2006 missile and nuclear tests, did contain some potentially effective limits on the regime’s finances. But in a much longer, in-depth review of the economic data, Noland finds that those resolutions had no measurable effect on the North Korean economy. Why did multilateral sanctions fail when unilateral U.S. sanctions worked? Because multilateralism puts the effectiveness of sanctions at the mercy of states that don’t share a sincere interest in disarming the North:

As can be seen in Figure 1, Chinese exports of luxury goods to North Korea did not fall to zero in 2007 under any variant; indeed, luxury goods exports increased between 2006 and 2007 under all three definitions. Resolution 1718 appears to have had no impact on Chinese behavior. [Marcus Noland, Asia Policy, Page 67]

Indeed, North Korean trade with China and South Korea increased after the imposition of resolution 1718. Part of this is attributable to the declining value of the North Korean won, the breakdown of North Korean border controls, and the increased availability (and attractiveness) of imported goods to North Korean consumers. It’s also clear, however, that neither the South Korean government nor the Chinese government took Resolution 1718 seriously. China never implemented either resolution and blocked the enforcement of both — indeed, had North Korea looked to China just before its nuclear test, it would have seen that the light was green. South Korea continued its massive, unconditional aid, and who can forgot the image of South Korea’s Unification Minister dancing in front of the North Koreans shortly after their nuclear test? The policies pursued by Christopher Hill later undermined the resolution’s financial and arms control provisions. In short, no major power but Japan, which had already imposed unilateral sanctions anyway, took Resolution 1718 seriously, which means that non-military, multilateral options failed as a deterrent. As usual, the United Nations failed because the nations were not united. North Korea called the U.N.’s bluff, and it was proven right because China and South Korea effectively undermined international deterrence:

If such warnings are to be heeded in the future, they must embody credible threats of penalty. In the present case a major problem, of course, appears to be that some of the permanent members of the Security Council, particularly China, displayed reluctance to fully embrace and implement sanctions. [….]

North Korea may have calculated quite correctly that the direct penalties for establishing itself as a nuclear power would be modest indeed. Presumably this experience will condition reactions of North Korean policymakers in the future–making deterrence on this issue and other sources of conflict more difficult. Sanctions that are fecklessly applied may be worse than useless: they could actually encourage other states to pursue undesirable behavior. If trade sanctions are to deter behavior in the future, they must be much more broadly targeted and enthusiastically implemented. [Page 76]

The lesson, then, is that unilateralism works and multilateral doesn’t, for the precise reason that the U.N.’s collective mind is neither serious about, nor dedicated to, a serious approach to the prevention of proliferation. This is not to say that Resolutions 1695 and 1718 were of no value. They could form the basis for highly effective implementing legislation right here in the United States, which Treasury could use to unleash hell if President Obama directs it.

Noland ends his piece befuddled by why the Bush Administration pursued U.N. sanctions that were so predictably doomed to be undermined by the machinations of friends, foes, and “strategic partners.” A far better question would be why it half-heartedly pursued, then prematurely abandoned, a strategy that really was working.