How to close the livelihood loophole in N. Korea sanctions, even without China’s help

It has now been more than a month since North Korea carried out its fifth nuclear test, and the U.N. Security Council has yet to respond by approving a new resolution to strengthen its sanctions. After North Korea’s previous nuclear tests, it took between four and six weeks to overcome Chinese and Russian objections, and the world is growing impatient.

As noted yesterday, the U.S. is correctly focused on cutting off North Korea’s sources of hard currency. Judging by the statements of U.S. officials, one key U.S. demand going into the negotiations is likely the curtailment of, or a ban on, North Korean labor exports, of which China and Russia are major consumers. Another measure under discussion is a ban on tourist travel, which would be useful to making any travel ban more than an inconvenience for Pyongyang, because most of North Korea’s tourists are Chinese, and presumably spend Renminbi during their travels.

A third measure frequently mentioned in the press over the last several weeks is closing the “livelihood” loophole in paragraph 29(b) of UNSCR 2270 — the provision that bans North Korea from selling coal, iron, and iron ore, but carves out an exception for sales exclusively for “livelihood” purposes. In practice, the exception has swallowed the rule. North Korea’s coal sales to China dipped shortly after the Security Council adopted UNSCR 2270, but have since risen to pre-sanctions levels. Typically enough, China is balking at closing this loophole.

“We cannot really affect the well-being and the humanitarian needs of the people and also we need to urge various parties to reduce tensions,” Chinese U.N. Ambassador Liu Jieyi told Reuters on Saturday of discussions with the United States on “a draft resolution with a wider scope of measures.” [….]

U.S. Ambassador to the United Nations, Samantha Power, said on Sunday that some of the exemptions included in the March resolution – out of concern for the welfare of North Koreans – appeared to have been exploited.

“In the negotiation that we are currently in the midst on in the new resolution, we are hoping to address some of the shortcomings that we have seen,” Power told reporters during a visit to Seoul. [Reuters]

China claims that it is resisting tougher sanctions because it’s worried about hurting the North Korean people, an uncharacteristically humanitarian argument coming from the same government that regularly sends North Korean refugees back to Kim Jong-un’s gulag by the dozen, that ignored the U.N. Commission of Inquiry report, and that has consistently opposed U.N. action on Kim Jong-un’s crimes against humanity.

But if the U.S. wants to close the livelihood loophole and China wants to avoid starving the people, the obvious compromise is to force Chinese buyers to pay for North Korean coal in food, medicine, and other strictly humanitarian supplies. Sanctions need humanitarian safety valves to allow U.N. member states to mitigate possible negative effects on the North Korean people. If that’s what China really wants, that’s how China can use “livelihood” coal as that humanitarian safety valve. To prevent cheating, the in-kind “payments” could be monitored by U.N. humanitarian agencies at Chinese ports and customs posts. Surely if North Korea imports enough food, much of this will flood into North Korea’s markets and drive down prices. To further amplify this effect, China should agree to ban North Korea from exporting food — mostly to China — for cash.

The more plausible explanation is that China is more interested in protecting Kim Jong-un and profiting from its access to his resources than it is in enforcing sanctions. China’s violations of the sanctions have been too blatant to be anything but willful. Although the conventional wisdom is that China is simply afraid of a potential regime collapse in Pyongyang, that view doesn’t explain China’s long history of selling proliferation-sensitive materials to North Korea, including a Chinese state-owned company’s sale of missile carriers to North Korea. This evidence suggests a more malicious explanation. It’s almost as if China wants North Korea to be a greater threat to the U.S. and South Korea.

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Of course, all of the aforementioned measures are effectively trade sanctions — the kind of sanctions that legions of peace studies grad students and other unschooled critics are really talking about when they hector us about how long sanctions take to work. We may simply be out of time for such gradualist strategies now. The South Koreans, the Council on Foreign Relations, and even some Chinese speak openly of preemptive military strikes today. South Koreans are justifiably worried about falling under the shadow of nuclear blackmail. The sense of urgency in Seoul, Tokyo, and Washington has never been greater. That sense of urgency has not yet arrived in Beijing.

Without question, trade between China and North Korea has risen recently, diluting the effect of U.N. sanctions, and that is a problem. But those who are legitimately concerned about this rising trade — including coal and iron ore trade — between China and North Korea would do well to remember that all of the money North Korea earns from its sales of everything from coal to seafood to missile parts goes into bank accounts, mostly in China, and we probably know where many of those accounts are. If the U.S. and its allies want to adopt a strategy that will work quickly enough to create a sense of urgency in both Beijing and Pyongyang, the Obama administration should do what Congress has demanded and what the law requires — freeze North Korea’s slush funds and penalize the Chinese banks that keep them on deposit.

(My other suggestions for possible new measures can be found at the bottom of this post by Stephan Haggard; chief among the enforcement gaps is a need to make member states, banks, and businesses report North Korean beneficial ownership interests, to help identify North Korean property and bank accounts.)

Yes, it would be lovely if China suddenly became convinced that all of this represents a threat to its interests and its very security. Certainly, some ordinary Chinese citizens can see that (see, for example, this Chinese-language Google search result for “third fatty,” forwarded by a journalist reader). I’m skeptical that the Chinese government will ever really crack down on North Korea for more than a few months, especially as America is about to descend into the periodic chaos of a political transition.

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Until reporters and op-ed writers stop misleading their readers with the myth that our sanctions against North Korea have been strong, I’m going to keep linking to my legal arguments that in fact, our North Korea sanctions were comparatively weak until February and March of this year, and that even these authorities have yet to be fully implemented. On paper, however, we finally have enough authorities to threaten the survival of the regime in Pyongyang and force it to choose between its nukes and its survival, if we apply our diplomatic and legal power to forcing other U.N. member states to comply.

Perhaps, then, we’ve reached the point where we’d be better off walking away from deadlocked negotiations with China and Russia and channeling our diplomatic power toward progressive diplomacy. Rather than continue to pound our heads against the Great Wall, perhaps the U.S. and South Korea should start building an ad hoc coalition aimed at the strict enforcement of existing resolutions. Existing U.S. law and U.N. resolutions may provide enough of a legal foundation that we’re better off aggressively enforcing the sanctions we already have than bargain away enforcement to get new ones. After all, the EU didn’t need the U.N.’s approval to designate the Korea National Insurance Corporation, and the U.S. didn’t need the U.N.’s approval to designate the Foreign Trade Bank. By coordinating their designations and secondary trade boycotts in concert with a collection of like-minded states with strong buying power and convertible currencies, a new coalition could put strong pressure on North Korea and its Chinese enablers. Potential partners for that coalition include (of course) South Korean and Japan, the EU, the U.K., Switzerland, Canada, Australia, and Singapore.

If, on the other hand, we just want to close the “livelihood loophole,” why not designate the abusers of that provision under section 104(a) of the NKSPEA? Recently, anonymously sourced news stories have identified the Wanxiang Group as the “largest importer of a wide variety of North Korean minerals,” including “coal, iron ore, gold and rare earths.” Interestingly, a Wanxiang Group affiliate holds “more than 60 properties” in the United States. If further investigation confirms these reports, the Wanxiang Group’s assets in the United States, and its heavy investment in a North Korean industry subject to Treasury Department sectoral sanctions, could make it the perfect target.

Of course, our relations with China would suffer in the short term, but it’s not as if our sotto voce China policy has contained China’s hegemony, protected the security of our allies, or paid obvious dividends in bilateral relations. Our relations with China will probably have to get worse before they can get better. For our relations to get better, China will need a hard shove for its policies to reflect a fair acknowledgment of U.S., South Korean, Japanese, and global security interests.

None of which means we can’t go back to the U.N. Security Council at some point to get a stronger resolution; it just means that we shouldn’t let China prevent us from designating targets that are violating the existing resolutions. If the Chinese government isn’t responsive to our pleas, we already know that the Chinese banking industry is responsive to our threats. If North Korea lost its access to the banking system, its insurance, banking, and shipping industries, and its national airline, it would be reduced to operating a country of 23 million people by trying to smuggle briefcases full of bulk cash around the world on other peoples’ airlines and ships. It’s hard for me to believe North Korea could last long that way. That’s why, as nice as it would be to have Beijing’s cooperation, it would be far better to focus our diplomatic energies elsewhere. In the meantime, the Obama administration should enforce the law the President signed.

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