The U.S. may (finally) be serious about capping North Korea’s coal exports

For almost three months after North Korea’s fifth nuclear test, the U.N. Security Council remained deadlocked over how to respond, with the U.S. and its allies pressing to limit Kim Jong-un’s access to hard currency and China trying to shield its belligerent protectorate from the consequences of its behavior.

Among the most hotly debated questions was how to limit North Korea’s coal exports to China, one of His Porcine Majesty’s most important sources of hard currency. Although UNSCR 2270, passed in March after the fourth nuke test, banned most of Pyongyang’s mineral exports, there was a gaping loophole allowing exports of coal, iron, and iron ore for “livelihood” purposes. Unfortunately, it soon became clear that “livelihood” translated into Chinese means “whatever.” The exception soon swallowed the rule, and coal exports did not fall; they rose … by a lot. By September, China’s coal imports from North Korea had risen 12.8 percent over the same period last year, to a record high. The Obama administration clearly felt that China was cheating. (See also my posts from March, July, and October and Stef Haggard’s post from yesterday.)

The eventual compromise the U.S. and China reached in UNSCR 2321 was disappointing, to say the least. Rather than take any plausible steps to ensure that Pyongyang really used its coal money to provide for the livelihoods of its hungry people, the resolution simply capped coal exports at $400 million or 7.5 million metric tons a year, whichever is less. (In 2015, North Korea exported $1 billion worth of coal to China) On paper, Chinese power companies were also prohibited from buying any amount of coal from entities associated with North Korea’s WMD programs.

The flaws in this “solution” are obvious. How will we know how much coal North Korea exported, and at what price? By relying on Chinese customs statistics? How will we know which North Korean entities really sold the coal? And more fundamentally, given that cash is fungible and North Korean despots have consistently prioritized their arsenals and their own high lifestyles over the survival of their people, how can anyone verify how the world’s most financially opaque society spent the money? If China really gave a whit about the “livelihoods” of North Koreans — in fact, it holds the lives of North Korean men, women, and children in utter contempt — it would have agreed to pay for “livelihood” coal in the form of food, or to the World Food Program. An unverifiable cap is a license to cheat.

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But Treasury’s announcement last week of bilateral sanctions against certain North Korean coal exporters, who Treasury believes “may benefit the Government of North Korea or the Workers’ Part (sic) of Korea,” could go far to swallow the “livelihood” cap exception to the coal ban that swallows the rule.

OFAC designated Daewon Industries and the Kangbong Trading Corporation for having sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea, metal, graphite, coal, or software, where revenue or goods received may benefit the Government of North Korea or the Workers’ Part of Korea.  The Kangbong Trading Corporation’s parent is the Ministry of People’s Armed Forces.  Daewon Industries also operates in the energy industry in the North Korean economy, and may be subordinate to the Munitions Industry Department, which is sanctioned in UNSCR 2270, designated by the U.S. pursuant to E.O. 13382, and responsible for overseeing the development of North Korea’s ballistic missiles, including the Taepo Dong-2. [U.S. Treasury Dep’t Press Release]

With that action, Treasury’s clear message to Chinese buyers is that certain North Korean sources are off limits, cap or no cap. The recent example of the Dandong Hongxiang indictment and forfeiture complaint hovers over all of this, posing a credible threat that Chinese buyers could have their dollar assets frozen. And in case anyone thinks Dandong Hongxiang was a one-off, our diplomats have said it isn’t.

The United States has warned China it will blacklist Chinese companies and banks that do illicit business with North Korea if Beijing fails to enforce U.N. sanctions against Pyongyang, according to senior State Department officials. The tougher U.S. approach reflects growing impatience with China and a view that it has not strictly enforced existing sanctions to help curb Pyongyang’s nuclear program, which a U.S. policy of both sanctions and diplomacy has failed to dent.

U.S. Deputy Secretary of State Antony Blinken gave the message to Chinese officials in meetings in Beijing in October after North Korea conducted its fifth and largest nuclear test, the officials said. U.S. National Security Adviser Susan Rice and Secretary of State John Kerry stressed the importance of choking off financial flows to Pyongyang during a meeting with Chinese State Councilor Yang Jiechi in New York on Nov. 1. [Reuters]

There are some early signs that Chinese industry may have gotten that message, although it’s typical for Chinese companies to slow their trade with North Korea temporarily after the U.N. passes new sanctions. As I’ve pointed out here more than once, there is undeniable evidence that China has violated North Korea sanctions frequently and flagrantly for years. China will not wait long to resume its cheating and test our resolve. With demand for North Korean coking coal high, we’ll need a strong deterrent to enforce sanctions. If our President-Elect has done anything right, he has sent a clear (and apparently calculated) message that China’s sensitivities will not prevent him from acting decisively to protect U.S. interests. After all, it’s not as if our sensitivities have had much visible effect on China’s behavior.

This wasn’t the only energy sanction Treasury imposed last Friday:

OFAC designated the Korea Oil Exploration Corporation for operating in the energy industry in the North Korean economy.  The Korea Oil Exploration Corporation is a state-controlled enterprise of the North Korea Ministry of Oil.  The Korea Oil Exploration Corporation has reportedly worked to establish contracts with Iranian oil entities, in part to supply crude oil to two refineries in North Korea. [U.S. Treasury Dep’t Press Release]

Among others, that’s probably bad news for James Passin, a hedge fund manager who gambled his shareholders’ money on a refinery and oil exploration in North Korea. U.N. sanctions ban exports of aviation and rocket fuel to North Korea, but not crude. Until recently, China continued to export petroleum products to North Korea. (For the record, I oppose banning exports of gasoline, diesel, and heating oil to North Korea, for humanitarian reasons.)

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The Obama administration’s designation of the North Korean companies consolidates a U.S. shift to a harder line on sanctions enforcement, reflecting a bipartisan consensus for tougher action in Congress. It’s also satisfying to me personally, because the administration has adopted the strategy I advocated here in October.  Note that the language in the Treasury Department’s press release (“revenue [that] may benefit the Government of North Korea or the Workers’ Part of Korea”) does not match the language of UNSCR 2321 (“entities that are associated with the DPRK’s nuclear or ballistic missile programmes or other activities prohibited by [applicable U.N.] resolutions”), because the administration relied on the domestic legal authority of Executive Order 13722 instead:

Sec. 2. (a) All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

   (i) to operate in any industry in the North Korean economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be subject to this subsection, such as transportation, mining, energy, or financial services;

   (ii) to have sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea or any person acting for or on behalf of the Government of North Korea or the Workers’ Party of Korea, metal, graphite, coal, or software, where any revenue or goods received may benefit the Government of North Korea or the Workers’ Party of Korea, including North Korea’s nuclear or ballistic missile programs;  [EO 13722]

Those provisions, in turn, implement sections 104(a)(8) and 104(b)(1) of the North Korea Sanctions and Policy Enhancement Act. They may have also reflected Treasury’s interpretation of the coal export ban as passed in March, in UNSCR 2270. U.N. resolutions don’t enforce themselves. They require U.N. member states to implement their sanctions through legislation. Member states that want U.N. sanctions to work benefit from a U.N. imprimatur to globalize sanctions enforcement. Each level of authority needs and complements the other.

Tactically, it was wise of the administration to wait for the (undoubtedly difficult) negotiations with China to conclude before it acted. The clear message it sent at the conclusion of that negotiation is that, for the time it has left, it will hold China to its word. Let’s hope the next administration is equally serious.

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Why Seoul’s blacklisting of Air Koryo & Dandong Hongxiang matters

South Korea is the first of the Free Three (the U.S., South Korea, and Japan) to announce independent multilateral sanctions on North Korea following the approval of UNSCR 2321. Some of the measures, such as the blacklisting of Choe Ryong-hae and Hwang Pyong-so, will probably mean almost nothing until some future left-wing president tries to give one of them a ticker-tape parade along the Chongro.

An extension of South Korea’s ban on ships that have entered North Korean ports within the last 180 days will do more, by forcing shipping companies to choose between the modest trade with North Korea and the much more significant trade with Japan and South Korea. With North Korea’s own ships already under rising pressure even pre-2321, and now facing a loss of access to insurance, North Korea may soon find itself increasingly isolated from its export markets.

South Korea’s blacklisting of Air Koryo, while not directly significant by itself (Air Koryo doesn’t fly to South Korea) may foreshadow a corresponding action by the U.S. Treasury Department, which would freeze North Korea’s national airline out of the dollar system and seriously crimp its operations. (Update: That turns out to have been a pretty good guess. OFAC just released a new round of designations that includes North Korean banks, slave labor merchants, the Korea National Insurance Corporation, and Air Koryo. I’ll have more to say after work.) It could also clear the way for South Korean diplomats to lobby middle powers like Malaysia, Thailand, Kuwait, and Singapore to deny Air Koryo landing rights. That would be a severe blow to Pyongyang. South Korea’s diplomatic campaign against North Korea’s foreign clients has been highly effective this year.

The most important and courageous move, however, was this one:

In particular, Dandong Hongxiang Industrial Development and four of its executives were included on the list, marking the first time that a Chinese firm is facing South Korea’s unilateral sanctions.

The company is under investigation on suspicions that it exported aluminum oxide — a nuclear bomb ingredient — to the North at least twice in recent years. In September, the U.S. blacklisted it along with its owner and other company officials.

With the latest action by Seoul, a total of 79 individuals and 69 entities will be subject to sanctions in connection with the North’s nuclear programs. The government announced a blacklist in March as a follow-up move to the UNSC’s Resolution 2270 adopted in the wake of the North’s fourth nuclear test in January.

Any financial transactions with them will be prohibited, while their assets in South Korea will be frozen. The blacklisted people will also be banned from entering the country, which is seen as a symbolic action given that there are no exchanges between the two Koreas. [Yonhap]

This could be the first sign that the three allies, acting outside the U.N. and beyond the reach of a Chinese or Russian veto, are forming a coalition to combine their economic power behind secondary sanctions against Pyongyang. If Japan joins in this, it will mean that the Chinese trading companies that prop up His Corpulency’s misrule will now face not only the freezing of their dollar assets, but the loss of their trade relationships with the two most important non-Chinese markets in northeast Asia. If those Chinese trading companies think they can mitigate the risk of secondary sanctions by insulating themselves from the dollar, Seoul has just added an additional layer of risk for those that continue to trade with Pyongyang. If the Free Three have coordinated their sanctions well, Tokyo will soon add its heft to that risk. Trading companies’ shareholders, officers, and bankers may find that risk increasingly unacceptable.

Beijing knows that while Dandong Hongxiang is itself a dead letter, this sort of Progressive Diplomacy represents a dangerous precedent for its interests. I expect it to react furiously. Even a year ago, I could not have imagined Park Geun-hye antagonizing South Korea’s greatest trading partner this way. Today, with all the noise about impeachment and the North Korean crisis, the Chinese reaction could be crowded out of the headlines. But with Park having conceded that she cannot hold onto power for long, she has nothing to lose.

Not only does Park have no reason not to burn bridges, she may have her own reasons to punish China. If she’s at least as paranoid as I am, she may suspect China, or its North Korean dependent, of directly or indirectly supporting the media frenzy that led to her downfall. It seems plausible in the age of Wikileaks that foreign governments give clandestine support to media hostile to leaders who oppose their interests. She may even suspect them of having planted the tablet that first broke the scandal. Personally, I see no direct evidence of it, nor do I think it’s more than 20 percent likely, but I’ve yet to see anyone explain (or even inquire into) the remarkable coincidence by which a discarded device just falls into the lap of a hostile press and topples a head of state. It seems easier to pull off than, say, throwing Wisconsin to Trump.

Either way, Park Geun-hye isn’t going quietly, and she’s gambling that the actions she takes on her way out the door will have the support of a future President Trump. No matter how much the Hankyoreh rages, that will make those actions even harder for her successor to undo than for her to do. What we may be seeing here is the first brick in a multinational sanctions coalition in which the members concentrate their collective power against Pyongyang’s enablers. For now, the Free Three are the core of that coalition, but with skillful diplomacy and time, that coalition may soon include other middle powers, other issuers of convertible currencies, and key members of an increasingly fractious European Union.

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China breaks N. Korea sanctions it says won’t work because it’s afraid they’ll work

In yesterday’s post, I linked to reports suggesting that China’s failure to agree on the terms of a new U.N. sanctions resolution responding to North Korea’s latest nuclear test may be motivated by a desire to wait out the end of President Obama’s administration. This theory would only make sense if China figures it can get better terms from President Trump next year, but my post pointed to evidence of the opposite of this — that what we know so far about the key people advising Trump is that some want to increase sanctions against His Supreme Corpulency and his Chinese backers, and others would prefer to terminate his command with extreme prejudice. 

First, I’ll offer an important caveat: it can be treacherous trying to divine President Elect Trump’s policy views by listening to his advisors.

With that caveat, then, if the present pattern of selections and nominations continues, differences between the U.S. and China over North Korea may have to get worse under a Trump administration before they can get better. Men like John Bolton, Mitt Romney, James Mattis, and Michael Flynn probably believe that President Obama’s deferential approach to China, rather than improving relations, likely contributed to China’s (correct) calculation that it could get away with grabbing vast areas of the South China Sea, bullying its neighbors, undermining North Korea sanctions, and doing other things to escalate regional tensions. They may see more pressure on China as a prerequisite to defanging North Korea. They may dismiss China’s explanations of its North Korea policy as mendacious and double-dealing, which is only natural, given that China actually has at least six of them — all of them risible, mutually inconsistent, or both.

First, there is China’s official diplomatic position, expressed in its vote for no less than six resolutions at the Security Council. Implicit in these votes are two ideas — that China wants a nuclear-free Korean peninsula, and that economic pressure is an important part of a policy for achieving that end.

Second, there is the reality of China’s material and financial support for the North Korean regime, often in violation of U.N. sanctions, including the sale of proliferation-sensitive technology (missile trucks, for example). China has spent the last decade violating the same sanctions it voted for because trade and engagement and all that. As I’ve pointed out more than once, those violations are much too extensive and long-standing to be anything less than willful state policy.

Third, there is the propaganda line advanced by China’s scholars and acolytes that sanctions — that is, the ones China has spent the last decade violating — never work. (Except, of course, when they do, but more on that in a moment.)

Fourth, when called on its years of flagrant violations, China says it’s afraid that sanctions will work so well they’ll destabilize the regime in Pyongyang. Here’s a typical example of something you’ve read at least a hundred times:

China fears that stricter measures against North Korea, such as cutting off provisions of oil and food, would lead to a humanitarian disaster with millions of refugees flocking across the border. The collapse of Kim’s government could also put soldiers from South Korea and its U.S. ally right on China’s border, a scenario Beijing’s leaders want to avoid. [Bloomberg]

A premise of that view is that China would rather have a nuclear-armed, genocidal North Korea along its border than a democratic one friendly to the United States, which it views with intense hostility. Usually, that premise goes unspoken, but not always.

“The United States cannot rely on China for North Korea,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing. “China is closer to North Korea than the United States.”

China sees living with a Communist-ruled nuclear-armed state on its border as preferable to the chaos of its collapse, Mr. Shi said. The Chinese leadership is confident that North Korea will not turn its weapons on China, and that China can control its neighbor by providing enough oil to keep its economy afloat.

The alternative is a strategic nightmare for Beijing: a collapsed North Korean regime, millions of refugees piling into China and a unified Korean Peninsula under an American defense treaty. [N.Y. Times]

A fifth argument is that Beijing has little real influence over Pyongyang, which is spurious nonsense: 

China provides North Korea with most of its food and energy supplies and accounts for more than 70 percent of North Korea’s total trade volume (PDF). “China is currently North Korea’s only economic backer of any importance,” writes Nicholas Eberstadt, senior fellow at the American Enterprise Institute. [Council on Foreign Relations]

That argument looks especially spurious this year, as China uses trade as a blunt instrument against South Korea over its deployment of the THAAD missile defense system, and against the United States itself. China has made more threats against the U.S. and South Korea over missile defense this year than it has against North Korea in a decade over the missiles and nukes that gave rise to the threat itself.

Finally, China has a last line of defense: We are, too, enforcing sanctions!  If it comes under sufficient diplomatic pressure, for a few weeks or months, Beijing will encourage a few banks and companies to freeze a few accounts, arrest a few North Korean money launderers, or inspect some cargo entering or leaving North Korea. This compliance typically lasts for a few weeks or months until the trade returns to business as usual.

In 2013, and again this year, Chinese banks seemed (for a few weeks) to have frozen North Korean accounts right after a sanctions resolution passed. But by September, the Justice Department’s indictment and forfeiture action against Dandong Hongxiang proved that Chinese banks had gone right back to servicing His Porcine Majesty’s slush funds. At first blush, a new Washington Post report by Anna Fifield, indicating that Sino-North Korean trade dropped off suddenly in recent weeks, looks like the latest Chinese head-fake in response to pressure from the outgoing Obama administration.

[T]rading has become significantly harder in recent weeks, a dozen people involved in doing business with North Korea said in interviews, the result of a double-pronged attempt by Beijing to communicate its anger with the regime in Pyongyang. 

“Everything’s become tougher since September,” a Korean Chinese factory owner who employs North Korean workers here told The Washington Post. “This crackdown is because of the missile and nuclear tests, and it doesn’t look like it’s going to blow over.” [Washington Post, Anna Fifield]

This could be a head-fake, but it could also mean something entirely different and much more significant — Chinese companies may be showing their fear of U.S. secondary sanctions. Specifically, Fifield sees some evidence that the Dandong Hongxiang action had an in-terrorem effect on other Chinese trading companies. Indeed, she speculates that this action had a greater impact than the passage of U.N. sanctions:

But an equal or even bigger influence is the surprise detention of a prominent Dandong business executive, a member of the Communist Party no less, who stands accused of helping North Korea dodge sanctions and obtain materials for its weapons program.

“When business people hear this kind of story, of course we feel very constrained and it makes us very cautious,” a South Korean businessman trading in this area said on condition of anonymity. The atmosphere is so tense that none of the businessmen interviewed were willing to be publicly identified, even as they insisted everything was aboveboard.

Business is down, but no one knows how long that will last. And even now there are plenty of ambiguous signs: The annual trade fair here was canceled- yet coal exports from North Korea are breaking records. China holds the lever, and its intentions can only be speculated upon. [Washington Post, Anna Fifield]

This highlights a point that sanctions skeptics tend to miss or gloss over — that the goal of secondary sanctions isn’t so much to change the attitude of the Chinese government (probably a fool’s errand) but to threaten the divergent interests of the Chinese banks and business that are the instruments of Beijing’s sanctions-busting. Chinese banks and businesses are content to break sanctions if it’s profitable to do so, but not at the cost of their assets or their access to international markets, trade, or finance. 

Fifield treats these reports with justifiable skepticism, noting that the Chinese government’s interest in maintaining North Korea’s status quo (however horrific for North Koreans) probably hasn’t changed. Indeed, I see little clear evidence in Fifield’s report that this drop-off is the result of Chinese government action. What’s interesting and noteworthy is the timing of this change (in September). On September 9th, North Korea conducted its fifth nuclear test, which brought more diplomatic pressure on the Chinese government to enforce sanctions. The Dandong Hongxiang actions were announced on September 26th. One could argue that either event was a greater influence than the other.

Fifield and Andrei Lankov, whom Fifield quotes, then proceed to say that years of sanctions have failed, even as Fifield sees evidence that the Dandong Hongxiang action might have worked. But this is a false distinction. It misses the key point that U.S. authorities acted against Dandong Hongxiang for laundering money for Korea Kwangsong Bank, which was designated by both the U.N. and the U.S. for proliferation financing in violation of U.N. sanctions. This was an example of a Member State using its national laws to enforce U.N. sanctions, which is the only way U.N. sanctions can be enforced. Dandong Hongxiang is precisely what it looks like when someone bothers to enforce U.N. sanctions for once.

It’s difficult to believe that a single enforcement action — particularly one that failed to act against the Chinese banks behind Dandong Hongxiang’s violations — will be enough to put significant and lasting pressure on Pyongyang. Chinese businesses may be waiting to see how the new Trump administration responds. Or, we may be seeing the Chinese government’s latest head-fake. But for now, the report bears watching, and may eventually validate the effectiveness of secondary sanctions. 

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If China is gambling on Trump to blunt N. Korea sanctions, it could lose bigly*

By all outward appearances, President Obama never really had a coherent North Korea policy. While pursuing a deal that Pyongyang either didn’t want or wouldn’t keep, it reacted to each nuclear test by building on John Bolton’s work and nominally tightening the sanctions the U.N. initially imposed a decade ago, in Resolution 1718. The idea, apparently, was to deter Pyongyang by threatening its plans to develop Hamhung and Chongjin, something it no more intends to do than the Confederacy intended to institute a slave literacy campaign. Under President Obama, sanctions were always incremental, were never well-enforced, and never seemed to be part of any plausible broader strategy.

Still, if only to make a display of doing something after each test, the U.S. would expend much diplomatic energy on haggling with China (and Russia — let’s not forget Russia) over the terms of a new resolution. In due course, the Security Council would approve it, and for three or four months, everyone would pretend that this time was different before returning to business as usual.

As of today, 74 days have passed since September 9th, when North Korea conducted its fifth nuclear test, yet there is still no agreed draft resolution. For those keeping score, that’s the longest delay yet between a test and a resolution (the previous record of 56 days was set earlier this year, after the fourth nuclear test).

Three weeks ago, The Wall Street Journal reported that the P-5 were close to a deal on “[a] new sanctions package … that more effectively blocks the regime’s overseas funding sources,” and might narrow a “livelihood purposes” loophole that effectively nullified a ban on North Korea’s coal exports (see also). The U.S. side was also pushing China to agree to “crack down” on North Korea’s slave labor exports.

Meanwhile, Bureau 39 continues to rake in millions of dollars from higher coal prices, at the expense of military-controlled trading companies (but see this contrary report that coal prices are actually falling).

Reports today say that talks between the U.S. and China are in “their final stages,” but we’ve heard that before, and we still have no word that the two sides have agreed on a draft resolution. A few days ago, Obama had his last meeting with Xi Jinping. The meeting produced little more than a pro-forma agreement that the Korean Peninsula should be nuclear-free, a statement that increasingly becomes moot for North Korea as it gains relevance for South Korea. One of Obama’s priorities for that meeting was to push China to crack down on North Korea. If the result isn’t a significantly tougher resolution within a week, we can probably conclude that President Obama failed to achieve that goal.

That would lend credence to reports that China is stalling talks on a new resolution, perhaps until Obama leaves office. According to those reports, China is still smarting over the U.S. indictment of flagrant sanctions cheat Dandong Hongxiang Industrial Development (while sparing the banks that facilitated the violations). It may be calculating that a President Trump will be more focused on economic issues and won’t want to start off by antagonizing China over a low-priority issue like North Korea. That would be a big gamble.

trump-casino

If so, China may be miscalculating. Although the President-Elect has yet to name several key members of his national security cabinet, what we know so far doesn’t suggest that he’s likely to adopt a soft line or make North Korea a back-burner issue. The most talked-about contenders for Secretary of State are Mitt Romney and … John Bolton (enough said?). James Mattis, who recently spoke to the President Elect about North Korea and other issues, didn’t earn the nickname “Mad Dog” by calling for agreed frameworks. (Update: My favorite Mattis quote: “I come in peace. I didn’t bring artillery. But I’m pleading with you, with tears in my eyes: If you fuck with me, I’ll kill you all.”)

There is also direct evidence of what those close to President Elect Trump have said about North Korea policy. In a meeting with South Korea’s deputy National Security Advisor Cho Tae-yong, Michael Flynn, the selectee to be the next National Security Advisor, called the U.S.-South Korea alliance “vital” and said the new administration would make North Korea a priority. At the time, Flynn did not specify how, but Cho later said that Trump would adopt “stern measures,” and that his aides see “no momentum” for dialogue with North Korea. Flynn was previously quoted as saying, “We should not let the current North Korea regime … exist for a long time.” 

Despite Trump’s loose talk of talks with His Porcine Majesty, one Trump advisor, former congressman Pete Hoekstra, has already ruled them out for “the near future.” Heritage Foundation ex-President and Trump advisor Edward Fuelner has specifically said that the U.S. would impose a secondary boycott on Chinese firms that are propping up Pyongyang financially.

Even before Election Day, we knew that the next president could clash with China over North Korea. The result of the election doesn’t seem to have diminished the likelihood of that. I increasingly incline to the view that either the current President or the next one should signal to the Chinese that if they don’t agree to and enforce tough new sanctions, we’ll walk away from talks over a new resolution and act on our own. That strategy would use a combination of progressive diplomacy and the thinly veiled threat of Executive Order 13722 sanctions to get foreign governments to enforce UNSCR 2270. President Obama knows what he needs to do, but lacks the will. China would be ill-advised to assume the same of President Trump.

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* Update: I couldn’t resist changing the title.

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While Obama sleeps, China cheats, and Korea’s doomsday clock ticks

“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays is coming to its close. In its place we are entering a period of consequences.” – Winston Churchill

It has now been six weeks since North Korea’s fifth nuclear test, and the U.S. and China remain deadlocked in their talks about a new resolution to close the loopholes in existing U.N. sanctions. Pyongyang is racing to make its nuclear armament a fait accompli before the next U.S. administration warms the chairs in the White House and Foggy Bottom. Kim Jong-un also has reason to hope that after 2017, it might be dealing with the sort of alt-left South Korean leader who would ask his permission before enforcing U.N. sanctions, and who would pressure a Clinton administration to start “peace” talks, Pyongyang’s preconditions for which would amount to de facto recognition of North Korea as a nuclear state. That would put His Corpulency within sight of achieving hegemony over the entire Korean peninsula. At the current rate, he is winning that race.

Would President Park choose to let that happen and go quietly into the night, or would she prefer to take her chances with preemptive strikes, with or without U.S. support? President Park’s Plan B may well look very much like Israel’s Operation Opera in 1982. The risks of miscalculation and escalation should require no elaboration. So when sanctions skeptics warn us of the risk that effective sanctions enforcement triggers a financial crisis in Pyongyang, just consider the alternatives.

Over the last few days, I’ve read a smattering of self-congratulatory reports that China is finally enforcing sanctions against North Korea by cutting back on coal imports. This is flawed and dangerously wishful thinking. First, China has historically reacted to U.S. diplomatic pressure by dialing down commerce with Pyongyang for a few weeks or months until the heat is off. Then, it goes right back to propping up Pyongyang and breaking sanctions like it always has. Second, the skyrocketing price of coal could yield a massive financial windfall for Pyongyang:

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At these prices, His Porcine Majesty can sustain his regime and keep nuking up by exporting a fraction of the volume of coal he exported last year.

China is helping North Korea break sanctions in other ways, too. It’s exporting kerosene to North Korea, in direct violation of UNSCR 2270. Work at the Musan mine near the Chinese border doesn’t appear to have slowed at all. North Korea’s main port at Nampo is crowded with ships loaded with coal, seafood, and other wares for the Chinese market. Some of the North Korean vessels approach the Chinese coast, hover offshore, meet up with smaller vessels coming from Chinese ports, and return to North Korea. Such “hovering vessels” have historically been used for smuggling, by evading customs inspections. This report is consistent with what trusted friends have observed in shipping trackers for months. If I had to venture a guess, I’d say this is probably indicative of the smuggling of bulk cash or gold, either of which would also violate UNSCR 2270.

The idea that China is willfully undermining U.N. sanctions by permitting such brazen sanctions violations shouldn’t shock anyone. It would be absolutely consistent with how China has behaved for the last 20 years. What are a few sanctions violations to a government that routinely aids and abets Kim Jong-un’s crimes against humanity? What will it take for us to realize that a government that talks like our enemy and acts like our enemy is, for purposes of North Korea policy, our enemy?

The administration knows what it needs to do. Regardless of the price of coal, and regardless of the volume of coal — or anything else — that North Korea exports, all of that revenue goes into bank accounts in China. In recent months, I’ve become convinced we know where most of those bank accounts are. What is the answer to China’s years of duplicity, bad faith, double-dealing, and stalling? The answer is to walk away from the negotiations with China, build a diplomatic coalition to enforce sanctions with the authorities we already have, and freeze Kim Jong-un’s offshore accounts.

President Obama’s North Korea legacy will be to leave his successor and our allies with an escalating nuclear crisis, a deteriorating humanitarian situation, and possibly a nuclear arms race in Asia. History will eventually rank it alongside the failure of the Green Revolution in Iran, the near-collapse in Iraq, and the Syria fiasco as one of his greatest foreign policy failures. The question now is whether he will leave his successor with the makings of a strategy to stop Kim Jong-un while there’s still time … if there’s still time.

Enough procrastination. Enough half-measures. We can close the livelihood exception ourselves by using the NKSPEA, Executive Order 13687, and Executive Order 13722 to penalize the banks that hold Kim Jong-un’s revenue and launder his money. Freeze and forfeit the bank accounts, already! It’s the law, the President signed it, Congress wants him to enforce it, our allies want him to enforce it, and a global financial coalition is ready to help us execute it. Once we’ve got them by the banks, their hearts and minds will follow. Until we have, Korea’s doomsday clock will keep ticking toward midnight.

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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.

missile-trucks

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.

~   ~   ~

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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China suppresses “viral” images of anti-Kim Jong-un protest in Yangzhou

A favorite long-time reader and volunteer copy-editor forwards this fascinating story, via the UPI’s Elizabeth Shim.

An anti-Kim Jong Un rally was held in a Chinese city but photographs of the protest were promptly deleted by Chinese government censors, according to the Chinese-language press.

Protesters in the eastern Chinese city of Yangzhou gathered to express their opposition to North Korea’s nuclear tests and to condemn the North Korean leader.

The photos then went viral on Chinese social media, Hong Kong’s Apple Daily and New York-based Duowei News reported.

Yangzhou is the hometown of Jiang Zemin, who served as president from 1993 to 2003.

In images that were captured prior to their removal from the Internet, protesters were seen holding red banners that read, “Let’s overthrow the Kim dynasty, and hang Kim Jong Un by the neck in an execution.” [UPI]

What’s both frustrating and somewhat understandable is that the report tells us nothing about the sentiments behind the protest. Is His Corpulency perceived as endangering China’s security or the health of its people? As bringing the risk of war to China’s doorstep? As hurting China’s reputation? Or is it that Kim is simply perceived as an ungrateful vassal?

When images of the signs (see UPI’s report) “circulated rapidly across” Weibo and Weixin, Jing-Jing and Cha-Cha sprang into action to delete them.

But while the images were still available online, “Chinese mainland netizens showed strong interest in the anti-North Korea rallies that were taking place in Jiang Zemin’s hometown of Yangzhou,” according to Apple Daily.

U.S.-based Chinese-language newspaper Duowei News stated that the removal of the pictures indicates there is a “large gap in perspective on the demonstrations between the Chinese government and the people.”

There may be an angle for us to exploit here, if we knew more about the protestors’ sentiments. At some point, intense public antipathy might be enough to effect modest shifts in China’s policies, although I emphasize “modest.”

Chinese commenters have previously disparaged the North Korean ruler, calling him a derogatory word that translates into “the third fat member of the Kim family,” while condemning North Korea provocations.

That’s consistent with reports I’ve heard more than once from a well-respected Korea analyst, who would probably prefer not to be named. I’ve found nothing else online to confirm or further explain this report. Any Chinese-speakers who can help with that will earn my gratitude.

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Congress to Obama: Enforce N. Korea sanctions against Chinese banks

Three weeks before North Korea’s fifth nuclear test, I wrote, “The Obama administration isn’t following Kim Jong-un’s money. Congress should ask why.” Unfortunately, subsequent events soon affirmed that criticism; fortunately, Congress is asking, and it’s asking the right questions. The failure of the administration’s North Korea policy has even become an election-year liability for Hillary Clinton, forcing her to distance herself from the President and his policy (or more accurately, the lack of one).

The Obama administration’s single greatest North Korea policy failure in eight years has been its failure to apply the kind of secondary sanctions that proved so effective against North Korea a decade ago. Some of that blame lies with the bad advice the President has received from certain think tanks, which has made its way into the State Department and the National Security Staff. After every North Korean nuke test, attack, or other outrage, a nothing-we-can-do chorus of China-friendly scholars and State Department retirees steps up to misinform gullible, ill-informed reporters that we have no options but appeasement, because the Chinese government will never push North Korea to the brink of collapse.

Yet for years, a Panel of Experts appointed by the U.N. Security Council has published extensive evidence implicating Chinese banks, businesses, nationals, and state-owned companies for a pattern and practice of violations that can only be willful, as I’ve argued here and here (see the U.N. POE’s reports from 2010, 2012, 2013, 2014, 2015, 2016). We have a North Korea problem because China, which has recently emerged as an accomplished bully when it comes to our allies, denies that it has the means to influence Kim Jong-un. 

And in fact, we have pushed North Korea to the brink of collapse before, without the cooperation of the Chinese government, by threatening the Chinese banks that hold North Korea’s slush funds with fines, penalties, and even the denial of access to the dollar-based financial system. U.N. Panel of Experts reports prove that most of those funds are denominated in dollars and wired through the U.S. financial industry. No bank can afford to defy such a threat, and Kim Jong-un couldn’t last long without that cash. 

This year, Congress finally lost its patience with the Obama administration’s passivity and drift and passed the North Korea Sanctions and Policy Enhancement Act, which mandates sanctions against third-country (read: Chinese) enablers of North Korea’s proliferation, arms trafficking, and money laundering. The bipartisanship of the vote (418-2 in the House, 96-0 in the Senate) was a minor political miracle in a polarized Congress in an election year, regarding an issue that had itself polarized Washington in previous years. Congress’s clear mandate to the administration was that it must break the link between Kim Jong-un’s regime and the hard currency that sustains his regime and legitimizes his rule.

Even before North Korea’s fifth nuclear test, Congress had begun to express its frustration at the Obama administration for failing to enforce the new law. It’s not that we don’t know who Kim Jong-un’s bankers are, either. In 2013, the Chosun Ilbo reported that the Treasury Department had identified hundreds of millions of dollars in North Koreans slush funds in banks in Shanghai. In January, Bonnie Glaser testified as follows before the House Foreign Affairs Asia Subcommittee:

In 2013, US and South Korean authorities uncovered dozens of overseas bank accounts worth hundreds of millions of dollars that were linked to top North Korean leaders, which they proposed including in UN sanctions lists, but Beijing refused. China has also strongly opposed levying sanctions on high-level North Korean officials such as the head of the North Korea’s agency responsible for conducting its nuclear tests. [link]

That same month, the New York Times reported, “The Treasury Department has identified similar institutions used by Mr. Kim’s son, the current leader, Kim Jong-un.” In February, the U.N. Panel of Experts implicated dozens of North Korean and third-country entities in China, Africa, the Middle East, and elsewhere in Asia. The Center for Advanced Defense Studies will soon publish a report implicating a large Chinese conglomerate in violating U.N. sanctions against North Korea; that report will also cast suspicion on the Bank of Dandong for handling some of its transactions. 

There’s plenty more where that came from in The Panama Papers. No doubt, there’s plenty more stored away in the laptops, cell phones, and human intelligence being collected from the North Korean diplomats and slush fund managers who’ve defected in Southeast Asia, Russia, China, and Europe recently. Which is to say, it’s not for lack of intelligence or lack of means that the Obama administration refuses to shut down Kim Jong-un’s access to the financial system. It’s solely due to a lack of political will.

In the wake of the test, China’s latest failures to enforce U.N. sanctions — and the Obama administration’s failure to enforce the law against Chinese banks and companies — has drawn a sharp reaction from Congress.

The House Asia Subcommittee has already held one hearing since the latest test, in which four separate witnesses recommended that the Obama administration apply secondary sanctions. Ed Royce, Chairman of the Foreign Affairs Committee, has been sharply critical of the administration’s failure to enforce the law.

But much of the discussion in Washington focused on the North Korea Sanctions and Policy Enhancement Act. Passed by Congress and signed by Obama earlier this year, it gives the Obama administration, among other things, new authority to sanction any individual who “imports, exports, or re-exports luxury goods to or into North Korea” or “engages in money laundering, counterfeiting of goods or currency, bulk cash smuggling, or narcotics trafficking that supports the government of North Korea or its senior officials.”

Rep. Ed Royce (R-Calif.), who chairs the House Foreign Affairs Committee and led the push for more sanctions authority, said Obama’s policies are “falling short” by not imposing sanctions on Chinese companies and banks.

Royce referenced a leaked U.N. report that accused China of lax enforcement and “cites evidence that Pyongyang moved tens of millions of dollars through a Singaporean branch of China’s biggest bank to evade sanctions,” according to a report in Foreign Policy magazine.  [Politico]

Small correction to Politico — the U.N. report is publicly available.

The report found that North Korea “has been effective in evading sanctions and continues to use the international financial system, airlines and container shipping routes to trade in prohibited items.” [Politico]

The Senate Foreign Relations Committee will hold a top secret briefing on the administration’s enforcement efforts today, and a letter signed by 19 Republican senators is a strong indication that the staffers will ask the right questions in that briefing. Last week, Senator Cory Gardner (R, Colo.), the Senate’s leading advocate of a tougher North Korea policy, assembled the group of senators, who signed this letter to President Obama. It’s a long quote, but worth reading.

On February 18, 2016, you signed into law the North Korea Sanctions and Policy Enhancement Act of 2016 (P.L. 114-122), but your Administration’s implementation of this legislation has been disappointing. While we commend the designation of North Korea as a jurisdiction of “primary money laundering concern” and the designation of top North Korean officials, including Kim Jong Un, as human rights violators, these actions only scratch the surface of the sanctions authorities provided to you under the new law.

First and foremost, you must begin to designate entities that are assisting the North Korean regime, especially those based in China — the country with which North Korea currently conducts an estimated 90% of its trade and that has historically served as Pyongyang’s largest military and diplomatic protector. 

As you know, Section 102 of P.L. 114-122 mandates, not simply authorizes, investigations against all entities, no matter where they are based, “upon receipt by the President of credible information indicating that such person has engaged” in illicit conduct outlined in the legislation.

As the Wall Street Journal wrote in an editorial on August 18, 2016: “The promise of secondary sanctions is that they can force foreign banks, trading companies and ports to choose between doing business with North Korea and doing business in dollars, which usually is an easy call…  But this only works if the U.S. exercises its power and blacklists offending institutions, as Congress required in February’s North Korea Sanctions and Policy Enhancement Act. The Obama Administration hasn’t done so even once.”

As the Wall Street Journal further noted, for instance, the Administration has not acted on information from the United Nations Panel of Experts report in March 2016 that the Bank of China “allegedly helped a North Korea-linked client get $40 million in deceptive wire transfers through U.S. banks.”  Moreover, there is ample evidence of increased North Korean efforts to evade sanctions with help from China-based entities.  According to the New York Times report on September 9, 2016, “To evade sanctions, the North’s state-run trading companies opened offices in China, hired more capable Chinese middlemen, and paid higher fees to employ more sophisticated brokers, according to Jim Walsh and John Park, scholars at MIT and Harvard.”

We respectfully ask you to immediately provide written answers to the following questions:

1) Has the Administration received credible evidence that entities based in China are engaging in illicit activities outlined in P.L. 114-122?   If so, what is the status of these investigations?  Why have no Chinese-based entities been designated to date?

2) Do you believe that China is in full compliance of UN Security Council Resolution 2270 and all preceding U.N. Security Council resolutions regarding North Korea?  Please provide a detailed account of China’s compliance or non-compliance and what actions, if any, have been pursued at the U.N. for China’s non-compliance. 

3) Why has the Administration not designated any entities for malicious cyber-enabled activities, as required by Section 209 of P.L. 114-122?

4) Does the Administration believe that the multilateral enforcement of UNSCR 2270 and its own enforcement of P.L. 114-122 has had a credible and measurable impact on North Korea’s regime ability to obtain luxury goods? 

5) Is North Korea’s state-owned Air Koryo airline involved in any activities outlined in Section 104 of P.L. 114-122 and if so, has the Administration initiated an investigation for the designation of Air Koryo under the law?  If not, why not?

6) What actions has the Administration taken to discourage the North Korean forced labor camps and trafficking of North Korean workers?  Is the Administration pursuing any designations for entities that are assisting in “the operation and maintenance of political prison camps or forced labor camps, including outside of North Korea”, as required by Section 104(a)(8) of P.L. 114-122? If not, why not?

Mr. President, we must send a strong message to Beijing that our patience has run out and exert any and all effort with Beijing to use its critical leverage to stop Pyongyang.  As Secretary Ash Carter stated on September 9, following the latest nuclear test:  “China shares important responsibility for this development and has an important responsibility to reverse it. It’s important that it use its location, its history and its influence to further the denuclearization of the Korean Peninsula and not the direction things have been going.” [full text here; link added by me]

The Hill, which also covered the letter, lists the names of the signatories.

The letter was signed by Republican Sens. Cory Gardner (Colo.); John Boozman (Ark.); Shelley Moore Capito (W.Va.); Tom Cotton (Ark.); Ted Cruz (Texas); Steve Daines (Mont.); Deb Fischer (Neb.); Johnny Isakson (Ga.); Jerry Moran (Kan.); David Perdue (Ga.); Jim Risch (Idaho); Jeff Sessions (Ala.); Pat Roberts (Kan.); Mike Rounds (S.D.); Marco Rubio (Fla.); Ben Sasse (Neb.); Richard Shelby (Ala.); Dan Sullivan (Ark.); and Roger Wicker (Miss.). [The Hill]

Separately, Senator Ted Cruz (R, Tex.) and Kelly Ayotte (R, N.H.) also called on the administration to hit Kim Jong-un’s Chinese enablers with secondary sanctions.   

Not to be outdone, Senate Democrats introduced a resolution condemning the test and calling for the U.N. to approve more sanctions against North Korea. Although the resolution highlights the passage of the NKSPEA in its findings, it stops short of criticizing President Obama for failing to enforce it. Hillary Clinton, on the other hand, offered some veiled-but-cryptic criticism of the President’s policy:

In a further effort to distance herself from current policy, Clinton also called for a “rethinking” of America’s strategy toward North Korea during a news conference in New York. Sanctions are “not enough,” she said, proposing an “urgent effort” to pressure Beijing into cracking down on Pyongyang. [Politico]

Will the administration finally act? I suspect not. Instead, it is running out the clock. Instead, it is negotiating yet another resolution with China, which China will also fail to enforce. As long as those negotiations continue, the administration probably won’t want to provoke China with secondary sanctions. And to be sure, there are loopholes in the current resolutions that should be closed, new sanctions that should be imposed, and new designations that should be made.

But in the end, all of North Korea’s profits from exporting coal, gold, weapons, and slaves ultimately end up in banks, mostly in China. If we freeze the accounts where those earnings are deposited, and from where the proceeds are spent, it won’t matter how much earnings potential those revenue sources have in the next two years. We could nullify North Korea’s profits from any gaps in the sanctions, and effectively enforce the sanctions that already exist, by beginning an earnest effort to penalize Kim Jong-un’s accomplices in the banking industry. Which is why, when China balks at passing a tough new resolution, our diplomats should not be afraid to walk away and act in concert with their allies in Japan, South Korea, Europe, Canada, and Australia. It would be far better to enforce the sanctions we have now than to enforce nominally tougher sanctions poorly.

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Clinton’s North Korea epiphany: We have always been at (cold) war with China

So desperate are we to avoid a Cold War (or worse) in the Pacific that throughout the Obama years, we’ve pretended that China hasn’t been waging one unilaterally the whole time. Meanwhile, China has seized the South China Sea, bullied our allies with spurious territorial claims, whipped up anti-American rhetoric to persecute human rights activists, and effectively quit enforcing sanctions against North Korea despite signing on for a nominally tough new resolution in March.

Evidence, you ask? Start with this new Australian report showing that China isn’t enforcing the U.N.’s new cargo inspection requirements at all. China still hasn’t stopped buying minerals like gold and titanium, which is isn’t supposed to buy in any quantity. Coal and iron imports, which are supposed to be limited to “livelihood” purposes, fell sharply in the first quarter of this year, only to rise again in the second. Chinese online vendors have even been selling North Korean coal. China continues to sell kerosene (read: jet fuel) in violation of a U.N. ban. Sanctioned North Korean ships have been seen leaving port. One, the Victory 2, has made regular calls in Chinese ports. Others have been seen hovering just off the Chinese coast. A China-based company, Blue Ship Management, continues to operate two sanctioned North Korean ships. More than 800 agents of North Korea’s Reconnaissance General Bureau, which was designated in UNSCR 2270, continue to operate on Chinese soil, mostly hunting for defectors and policing overseas workers. Et cetera, et cetera, et cetera, and so forth.

These are the wages of our weakness toward North Korea and China. The new realization that North Korea could be just two years away from having a second-strike capability to hit our West Coast with nuclear weapons has raised the danger of nuclear war to their highest level since 1962, as I predicted it would a year ago. Unfortunately, the President has been poorly served by his National Security Staff and State Department, which have counseled him to hold back on holding China accountable for enabling the steady rise of this threat. China’s friends in Washington, and others who should know better but don’t, are fond of saying there’s nothing we can do about this. But we know what scares and moves China — secondary sanctions. Congress gave the President the authority (and a mandate) to impose them because China’s violations of sanctions against North Korea are nothing new. They have been so longstanding and so flagrant as to eliminate any other possibility but a deliberate, willful policy.

Even before the last nuclear test, there was a growing sense that President Obama had failed to hold North Korea’s Chinese enablers to account for those violations, despite having so recently signed a new legal mandate to do so. Even before that test, President Obama had said he would seek to toughen sanctions in response to North Korean missile test, and revealed his irritation with China after its rude treatment of him, and after getting an earful of its unreasonable objections to THAAD:

“China continues to object to the THAAD deployment in the Republic of Korea, one of our treaty allies. And what I’ve said to President Xi directly is that we cannot have a situation where we’re unable to defend either ourselves or our treaty allies against increasingly provocative behavior and escalating capabilities by the North Koreans,” Obama said at a news conference in Laos after the East Asia Summit.

“And I indicated to him that if the THAAD bothered him, particularly since it has no purpose other than defensive and does not change the strategic balance between the United States and China, that they need to work with us more effectively to change Pyongyang’s behavior,” he said, according to a White House transcript. [Yonhap]

And even before that test, the Chairman of the Foreign Relations Committee had called on the President to enforce the North Korea sanctions law he has signed just seven months ago, including by imposing secondary sanctions on Chinese entities. Similar reactions came from Paul Ryan and Ed Royce, the Chairman of the House Foreign Affairs Committee (HFAC).

China has to understand that we will sanction those banks again, those Chinese banks that are transferring the hard currency…We need to use these powers that now the administration has under the bill that I authored – that’s been signed into law by the President – to tell China, ‘No, there will be secondary sanctions on any economic activity you are engaged in with North Korea.’ Because our goal right now is to shut [North Korea’s] economy down so they cannot continue to expand this nuclear weapons program.” [CNN]

HFAC’s Asia Subcommittee has already scheduled a hearing for Wednesday afternoon. Even before the hearing was announced, I predicted that it would be contentious — this is an election-year embarrassment the administration and Hillary Clinton don’t need. Now, freshly humiliated by North Korea’s latest nuclear test, the administration is suggesting that it’s finally ready to seek new U.N. sanctions, possibly to close existing loopholes (probably the “livelihood” exception to the coal and iron ore import ban) and ban fuel exports to North Korea. The Washington Post reports that the U.S. and South Korea may also push to ban North Korean labor exports, which will hurt North Korea’s ability to launder money by giving it less “legitimate” income for co-mingling and hiding illicit income. More importantly, the administration is saying that it’s finally ready to follow the law and enforce the sanctions that already exist.

“We will be working very closely in the Security Council and beyond to come up with the strongest possible measure against North Korea’s latest actions,” said U.S. envoy Sung Kim on Sunday.

“In addition to action in the Security Council, both the U.S. and Japan, together with the Republic of Korea, will be looking at unilateral measures, as well as bilateral measures, as well as possible trilateral cooperation,” he said, referring to South Korea by its official name. [Reuters]

So much for the idea that this time is different — that China had finally lost patience with North Korea. In an epiphany that I thought would never come to Washington, Hillary Clinton (of all people) has articulated why — China has been using North Korea as a “useful card” to divide U.S. forces in Asia and the Pacific (left unsaid: while China seizes the South China Sea and surrounds Taiwan).

“Up until relatively recently, I think (China was) under the impression that they could control their neighbor and they didn’t want to crack down because they saw it as a useful card to play,” Clinton said.

“If (North Korean leader Kim Jong-un) gets a little crazy, maybe the South Koreans will move toward (China) a little bit; he gets a little crazier, maybe they can make some deals with the Japanese about things they want. It was a strategic calculation,” she said. [Yonhap]

Separately, Clinton called the North Korean nuclear and missile programs “a direct threat to the United States” that we “cannot and will never accept,” which is welcome news at a time when some people are seriously suggesting that we can and must.

Clinton, a former secretary of state, also said that she supports President Barack Obama’s calls for strengthening the existing sanctions and impose additional measures.

“At the same time, we must strengthen defense cooperation with our allies in the region; South Korea and Japan are critical to our missile defense system, which will protect us against a North Korean missile,” she said.

“China plays a critical role, too, and must meaningfully increase pressure on North Korea — and we must make sure they do,” she said.  [Yonhap]

Clinton is right, of course, as is her rival in this election.

“North Korea’s fifth nuclear test, the fourth since Hillary Clinton became Secretary of State, is yet one more example of Hillary Clinton’s catastrophic failures as secretary of state,” Trump communications aide Jason Miller said in a statement.

“Clinton promised to work to end North Korea’s nuclear program as secretary of state, yet the program has only grown in strength and sophistication,” he said. [Yonhap]

Park Geun-hye has called on China to enforce sanctions as it had agreed, a brave thing considering that China has increasingly tried to bully South Korea with its considerable economic leverage. No doubt, Park knows what’s at stake. There is already speculation about a sixth nuclear test. If the U.S. and South Korea uncover and freeze the money that keeps Kim Jong-un in power, victory and reunification could be within sight. A slow defeat of extortion and enslavement is in sight, too. If these are our choices, better a banking crisis in China than a war in Korea.

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Wall Street Journal calls on Obama administration to hit N. Korea with secondary sanctions

It’s always rewarding to know that someone is reading my screeds:

The promise of secondary sanctions is that they can force foreign banks, trading companies and ports to choose between doing business with North Korea and doing business in dollars, which usually is an easy call. That’s what happened a decade ago when the U.S. blacklisted Macao-based Banco Delta Asia and spurred a cascade of other Chinese banks to drop their North Korean clients lest they lose access to the U.S. financial system.

But this only works if the U.S. exercises its power and blacklists offending institutions, as Congress required in February’s North Korea Sanctions and Policy Enhancement Act. The Obama Administration hasn’t done so even once.

As sanctions expert Joshua Stanton has noted on his One Free Korea blog, this isn’t for lack of targets. U.S. and South Korean intelligence have long tracked Pyongyang’s overseas slush funds, an effort surely boosted by high-level defections from Kim’s court. [Wall Street Journal, Review & Outlook]

(ahem)

A U.N. report in February named dozens of Chinese firms as fronts or partners of blacklisted North Korean entities. It also detailed how the Bank of China allegedly helped a North Korea-linked client get $40 million in deceptive wire transfers through U.S. banks.

This is going to help put some steel behind Congress’s oversight of the administration’s enforcement of North Korea sanctions at a very important time — just as China concludes that it can get away with business and usual, and just as everyone’s attention is distracted by our ridiculous dumpster fire election. Better yet, it puts political pressure on President Obama just as he leaves for his final meeting with Xi Jinping.

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China’s next maritime conflict could be with North Korea

This week, the eyes of the world are on arbitrators’ rejection of China’s made-up claims to the South China Sea. Further north, however, Pyongyang’s lease of fishing rights to Beijing threatens to instigate violent brawls between North Korean and Chinese fishermen.

Earlier this year, China stopped accepting imports of North Korean seafood. The reasons for this still aren’t clear, but one possibility arises from a report that much of North Korea’s fishing fleet is controlled by the Reconnaissance General Bureau, which is designated under U.N. Security Council Resolution 2270. That designation requires China to prohibit all transactions with any person or entity “owned or controlled” by the RGB. (China continues to allow RGB agents to operate on its territory, catching defectors and keeping overseas workers in line, so its enforcement of this provision isn’t wholly rigorous.)

For a while, this meant that North Koreans found previously scarce seafood dumped in the markets at a steep discount. Later, however, Pyongyang began keeping its smaller fishing boats in port. This was a jarring change from the recent stories of North Korean “ghost ships” washing up on the Japanese coast with dead bodies aboard.

As with so much of what goes on in North Korea, we can only speculate about why this happened. It’s possible that the fishermen had attempted to defect, but because there were no women or children among the dead, it seems more likely that the regime had set unreasonable quotas for the fishermen, who then sailed beyond the range of their fuel supply (historically limited as an anti-defection precaution) in a vain attempt to meet those quotas.

Radio Free Asia reported that the subsequent decision to keep the boats in port was another precaution against defections. Maybe, but maybe Pyongyang simply saw no reason to send the boats out if it couldn’t earn hard currency by doing so. Feeding hungry North Koreans is an insufficient motive, apparently.

Clearly, the last few years have been desperately difficult ones for North Korean fishermen. In their latest turn of misfortune, their government leased the rights to fish off North Korea’s coasts to Chinese fishermen. The big winners appear to be the Chinese. The larger ships of Pyongyang’s state-controlled fleet still operate, while small North Korean fishing boats have lost the most.

On the heels of a new bilateral fishing rights deal, state-run companies in the North are bringing in scores of cutting-edge fishing vessels from China, undermining the livelihoods of ordinary fisherman in the North.

“A fleet of new fishing vessels have emerged in the East Sea waters off of Sinpo, South Hamgyong Province,” a source from the province told Daily NK on July 6. These Chinese ships, outfitted with small refrigerating facilities, state-of-the-art fish-finding equipment, and high-performance GPS and radar systems, are under three-year contracts, which stipulate the entirely of any catch be handed directly over to China in exchange for cash– save the costs of the ship lease.

Such an agreement seemingly bears out claims by South Korea’s National Intelligence Service via a parliamentary committee on June 30 that North Korea sold its fishing rights to China this year to the tune of 30 million USD. [Daily NK]

See also The Joongang Ilbo. In other words, Pyongyang found another way to get Beijing’s money, and Beijing found another way to get Pyongyang’s fish, that Beijing thinks it can defend from U.N. scrutiny. But this has put North Korea’s fishermen in desperate straits. Most of their catch as been sold to China, denying them their livelihoods, yet they’re still expected to meet their steep “loyalty” payment quotas to the state.

The pact has spurred frenetic fishing expeditions by North Korean state companies to amass the highest possible amount of funds. China, on the other hand, “is simply sitting back and collecting on this deal,” the source said.

Therefore, the livelihoods of people living in adjacent fishing villages are on the line, which is of “entirely no concern to the [North Korean] leadership,” the source asserted, adding that while many see the season’s squid catch as their “year’s harvest,” but with their backs against the wall to pay loyalty funds, “state companies couldn’t care less about their troubles.”

These hulking vessels are north of 100 tons, highly mobile, and their operators unsatisfied to confine their expeditions to the deep sea, instead pillaging the shallow, coastal waters as well. Bottom trawling, an environmentally destructive fishing method that drags vast nets across the seabed, is also common.

The fishermen may not dare to challenge the North Korean security forces, but they’re ready to brawl with the Chinese fishermen.

Coupled with the fact that China supplies them with diesel and other fishing instruments, these smaller boats “don’t stand a chance,” the source noted, and “with little in the way of recourse, many [fisherman] are staging armed dissent.”

“Denouncing the vessels as ‘pirate ships,’ people hurl stones at them as soon as they spot them. The anger is so intense, in fact, that many of the [North Korean] fishermen stand guard at the ports armed with clubs to prevent them from docking,” he concluded.

In 2014, Pyongyang also leased China the rights to fish in its waters (including waters that both North and South Korea claimed). That same year, however, the North Korean coast guard seized a Chinese fishing boat, roughed up the members of its crew, and confined it on starvation rations until the captain signed a confession. With North Korea, the fact that you have a deal never quite guarantees peace.

Illegal Chinese fishing has also caused clashes with South Korea, some of them fatal. This has recently become a major diplomatic issue between the two countries.

But aren’t the North Koreans too docile and submissive to engage in violent protests against invited guests of the regime? Not really. North Koreans argue with their own country’s police over economic issues (as opposed to explicitly political ones) more than we tend to assume. Brian Myers has described the North Korean tendency toward childlike, spontaneous rage and offers evidence that the state encourages it (within limits, obviously). In this case, the anger of the fishermen derives from a combination of material desperation and xenophobia — both sentiments we can reasonably believe to be stronger in North Korea than in South Korea.

There are several ways this could end badly for Pyongyang — with violent clashes between North Korean and Chinese fishermen, with violent clashes between North Korean fishermen and North Korean police, or in the long term, by giving China a basis to make expansionist claims to a right to fish in Korean waters.

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The evidence of China’s compliance with North Korea sanctions is still mixed.

This week, there has been much talk and excitement about a new study, by the new blog Beyond Parallel, analyzing satellite imagery of six select sites along the Chinese-North Korean border, and finding evidence of a recent decline in bilateral trade. From this, the study concludes that China may be (as Josh Rogin paraphrases it for The Washington Post) “Beijing has been quietly punishing Kim by cutting off the flow of funds to his regime.” Here are the study’s two main findings:

First, the satellite images indicate a substantive reduction of economic activity on the Sino-North Korean border measured by the fewer trucks, trains, and boats in the February 2016 image compared to a similar timeframe in 2015. [….] In the aftermath of North Korea’s January 2016 nuclear test, this observed downturn in activity was comprehensive across customs areas, railway, and road traffic.

Second, the images also suggest that independent Chinese actions were taken to reduce trade in this region after the nuclear test and prior to China’s signing on to UN Security Council Resolution 2270. These findings run contrary to some estimates that Sino-North Korean trade (particularly Chinese exports) increased in the first quarter of 2016, and might confirm large anomalies in trade data as reported by China’s customs statistics, KOTRA (Korea Trade-Investment Promotion Agency), and other organizations.

The study is interesting and data-driven, and every North Korea-watcher should celebrate the launch of any new information source that promises this kind and quality of analysis. What’s more, by analyzing the volume of traffic at multiple sites over several months, the study is less vulnerable to the regime’s manipulations than the satellite theater that is almost the only good reason to read 38north (the contributions of J.R. Mailey and Andrea Berger being two other notable exceptions).

It’s especially tempting to feel triumphal about Victor Cha’s conclusions that China has taken “unilateral measures to drastically curtail trade interaction along their border,” and that China is “squeezing [North Korea] more than we were led to expect.” Still, the evidence and my objectivity restrain me to say, “Not so fast.”

First, there is also substantial evidence that China is still violating key provisions of the sanctions to prop North Korea up. North Korea’s most important export by reported volume is coal, followed by other minerals, and as NK News’s invaluable Leo Byrne has noted, the trade in sanctioned minerals continues. To some extent, North Korea has shifted its coal exports to other avenues, including Alibaba.com. At the land border, trucks loaded with titanium are still crossing into China. Worse, North Korean ships that have been specifically designated by the U.N. are still operating, and in some cases, are coming very close to Chinese ports they aren’t even supposed to approach. Then, their transponders go dark. This suggests that those ships are either landing in Chinese ports or off-loading their cargo onto smaller vessels without landing. Both alternatives violate UNSCR 2270.

Second, the kinds of commerce that benefit the regime most (as opposed to market trade that benefits the North Korean people) aren’t easy to measure with satellites. North Korea’s other lucrative exports include gold, weapons and weapons and technology, and labor. Its most essential imports include bulk cash, wire transfers, gold (again), and luxury goods that come in on Air Koryo. It probably also earns significant revenue through tourism. These are not things that can be measured by counting railcars.

Third, the study focuses on overland trade but tells us little about maritime trade. If the authors of the study want to improve the utility of this project — and I emphasize that it’s potentially a very valuable one — it should also examine maritime traffic to and from the key North Korean ports of Nampo and Sinuiju. Maritime trade is more likely to be under the control of, and to the immediate benefit of, the regime. It should specifically look for trade in bulk cargo like coal, imports and exports of fuel, and the movement of designated ships (it’s possible to match IMO numbers from transponders with satellite images).

Fourth, there may be other explanations for Beyond Parallel’s observations. I’ve long felt that Korea-watchers were far too trusting of officially reported statistics on China’s trade with North Korea, and the case of China’s fuel exports to North Korea illustrates just how easily China can manipulate those statistics. But to the extent we believe those stats, they do show a significant decline in North Korea’s exports over the last six months. The problem with attributing this to sanctions is that this decline extends a trend that we began to observe earlier, particularly in the mining industry. In fact, at Benjamin Katzleff Silberstein has pointed out on several occasions, this decline in trade volume has a closer correlation to the decline China’s economy than it has to sanctions. An interesting question is whether China’s own internal market controls, including its restrictions to prevent capital flight, may be playing a role, but that question is beyond the depth of my knowledge of economics (anyone? Bueller?).

Other potential causes of a decline in bilateral trade include regime-driven trade and travel restrictions leading up to the party congress in May, and problems with North Korea’s infrastructure, such as the partial collapse and subsequent repair of the Sino-Korean Friendship Bridge last October. (The effects of this may or may not have ended before Beyond Parallel’s study began.) That would also help explain why the study found that trade began to decline before U.N. sanctions were increased in March.

Finally, we should not hope for China to enforce sanctions in unilateral ways that depart from the strict letter of the U.N. Security Council resolutions, whether by under-enforcing or over-enforcing sanctions. The main reason sanctions haven’t worked thus far has been — and continues to be — China’s under-enforcement of sanctions. That is why Congress decided that secondary sanctions were necessary to force China to comply, by dividing the interests of China’s fundamentally hostile government from those of its more pliable banks and industries, which need access to American markets. But what we don’t always realize is that sanctions over-enforcement is an equal danger. This veers off onto a long tangent, so I’ll save it for tomorrow’s post.

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Stop saying N. Korean overseas laborers aren’t slaves. They are, and here’s proof.

You absolutely must watch this extraordinary work of investigative journalism by Vice, exposing the North Korean slave labor racket in Poland. There are English subtitles available.

What is so exceptional about this reporting is that its detailed and careful investigation makes it immediately actionable. With a little googling, it’s possible to identify the names, position titles, and e-mail addresses of the Polish and North Korean companies involved.

That’s enough for the Treasury Department to add all of them to the list of Specially Designated Nationals for violating Executive Order 13722, which prohibits “engag[ing] in, facilitat[ing], or [being] responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea or the Workers’ Party of Korea.”

The prime target of designation should be the Korea Rungrado General Trading Corporation, Segori-dong, Pothonggang District, Pyongyang, and the DPR Korea Chamber of Commerce, P.O.Box 89, Jungsong-dong, Central District, Pyongyang, for supplying the laborers. As Vice notes, Rungrado was also implicated in the U.N. Panel of Experts’ most recent report for selling missile parts to Egypt. The Polish nationals and companies that knowingly employ this labor under such exploitative conditions — and who lie about it so blatantly — should also be designated, to make an example for other users of North Korean labor.

Although North Korean laborers in Europe (chiefly, Poland and Malta) are smaller in number than those in Asia and Africa, they also earn the regime more funds per capita than their counterparts in poorer countries. And do you suppose the working conditions for North Korean workers are better in Africa, Asia, or the Middle East? If the Obama Administration is serious about enforcing its new authorities, it should start by watching this report and taking careful notes.

~   ~   ~

Update: On a related note:

North Korean workers are toiling for Chinese factories that make clothes for global labels like Ralph Lauren and Burberry, Radio Free Asia reported Wednesday.

One of their employers is Mei Dao Garment in Hebei Province, a source told the radio station.

Mei Dao first employed 54 North Korean workers via a North Korean trading company from January to July 2012. In April last year it also established another firm in Dandong, Miryong Garment, as a joint venture with another North Korean company.

Mei Dao now employs hundreds of North Koreans, according to the source.

Garment maker Phoenix Gold in Dandong also employs about 1,200 workers, and 800 of them are from North Korea, the source added. [Chosun Ilbo]

That’s specific enough to investigate, either by an outside NGO, or by the retailers themselves.

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Daily NK: China not taking North Korean coal shipments

Last week, I posted about the conflicting reports about China’s compliance with the new sanctions on North Korea. Just after I posted that, I noticed that the Daily NK had also added a report of its own, suggesting that amid a regime mobilization to expand coal production, coal exports were being refused by Chinese ports.

“Recently, we’ve seen a full ban on our [North Korean] ships at the Port of Yingkou in Liaoning Province, where coal trade had been most active with China,” a source from Pyongyang told Daily NK in a telephone conversation on Tuesday. “We’ve also received notice that the Port of Rizhao in Shandong Province will also gradually restrict entry.”

An additional source in the capital corroborated this news.

“The news suddenly arrived as a unilateral announcement from China two days ago, leading to chaos at the commerce ministry,” the source explained. “Cadres have been unable to decide whether to turn around all of the other ships at sea, on top of the coal and iron ore vessels that are still awaiting orders after being refused port entry at Yingkou.” [Daily NK]

Contrary to the predictions of sanctions skeptics, the bad economic news is not causing people to rally to the regime.

This setback was reported to the Central Party, but trade officials have instead chosen to admonish others for not taking action in advance to mitigate the problem rather than consider potential solutions. There has also been indirect criticism of the nuclear test and long-range rocket launch, with questions as to why they need to “clean up a mess made by others,” he reported.

Some cadres are reportedly expressing their concerns over the financial implications of these events, exclaiming, “If we can’t export coal any more, we’re done for.” The question of who will be held responsible for the export blockage also has people on edge, with some reminded of Jang Song Thaek shouldering the blame for the country’s failed currency reform and the stalling of construction for the 100,000 homes project in Pyongyang.

The source added that coal workers are also troubled by the export block after having been excited about the prospect of receiving increased rations as a reward for the “70-day battle” production surge. “Cutting off ration supplies [received from China with remuneration for coal] will negatively affect workers and result in diminished output, and by extension impact power plants, the industrial sector, and other aspects of people’s lives. This may in turn ignite a good deal of anger within the public,” he speculated. [Daily NK]

The export ban will affect the operation of the mines in due course. Last year, mine workers weathered another slowdown in Chinese imports because most of the miners’ wives trade in the markets.There will also be many, varied, and complex effects on North Korea’s industrial capacity, some of them completely desirable, and others that may cause the U.S. and China to agree that a use of the “livelihood” loophole in UNSCR 2270 is appropriate.

There will be impacts on the power supply, which has long been spotty, even in Pyongyang where it is disproportionately allocated. No doubt, this will be a good year for the solar panel trade. One positive impact of the last decades of unreliable government services is that North Korea’s poor have learned to be resilient, resourceful, and independent of the state. That’s why, despite last year’s drought and dire predictions of a new famine, North Koreans managed to avert the worst, probably through private agriculture.

It won’t be possible to completely shield the North Korean people from the impact of sanctions, but it is our obligation to mitigate it as much as we can, while telling the North Korean people the real reason why they suffer. Sadly, some short-term hardship may be North Koreans’ only way to escape a future filled with starvation, oppression, and war. The only escape from that future is to break either the regime, or its will to resist change, peace, and openness.

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China’s reaction to North Korea shipping sanctions shows strain, confusion

Two weeks ago, I surveyed the evidence of China’s compliance with new U.N. sanctions and found  mixed, yet hopeful signs.” One area in which the signs has seemed especially hopeful was the enforcement of shipping sanctions. The Philippines had already seized one designated ship, the Sierra Leone-flagged M/V Jin Teng, and detained another, the non-designated, North Korean-crewed, Tuvalu-flagged tanker M/V Theresa Begonia. There was also some evidence that Chinese ports were complying, but we’ll get to that later. 

Under the resolutions, all member states are required to seize designated ships, like the Jin Teng, but the reasons for the detention of the Theresa Begonia aren’t clear. A report that an unnamed U.N. member state had cancelled its registrations of North Korean ships could be a clue. If the state in question is Tuvalu, the ship might have arrived in port without a valid registration. North Korea’s reflaggers of choice have been Mongolia, Cambodia, Liberia, Sierra Leone, Tuvalu, and Kiribati. 

Since then, however, China has pushed the U.S. into supporting the removal by the U.N. of four ships’ designations — the Jin Teng and three other North Korean ships — on the basis that China “discovered” that they were not owned or controlled by U.N.-designated Ocean Maritime Management Company at all. It’s worrying that this decision doesn’t appear to be based on any finding of the Panel of Experts, but on a unilateral conclusion by the Chinese, who pressured the U.S. to accede.

The U.S. did not accede easily. Reuters obtained several diplomatic messages between U.S. and Chinese diplomats, revealing that China threatened to hold up reauthorization of the U.N. Panel of Experts unless the U.S. agreed to removing the designations. This led to what Reuters called a “frustrated back and forth between Washington and Beijing,” in which Samantha Power accused the Chinese of “blackmail.”

The removal of the Jin Teng‘s designation presumably means that Filipino authorities will allow the ship to depart with its crew after the mandatory inspections are completed. Reuters had previously reported that a U.N. inspection team was on the way to the Philippines to inspect the Jin Teng.

It bears careful watching just how often the U.S. will be willing to cave to Chinese demands like these. On balance, it’s probably better to recognize and adjudicate exemptions, designations, and removals of designations than to just go back to what we all used to do — ignore China’s cheating. But there is also a great deal of confusion over how Chinese ports are enforcing shipping sanctions. According to a detailed report in the Asahi Shimbun, the ports of Tainjin, Yingkou, Rizhao, Penglai, Weifang, and Nantong have all barred North Korean ships from entering.

Sources close to Chinese port authorities and trading firms said the port authority in Yingkou, Liaoning province, initially prohibited the entry of all North Korean vessels to Yingkou port based on verbal instructions from the nation’s maritime affairs authority on March 16.

In addition, local port authorities had imposed a ban on entry by North Korean ships at the ports of Rizhao, Penglai and Weifang in Shandong province as well as Nantong port in Jiangsu province and Tianjin port as of March 21.

The five newly-added ports are all major gateways for China’s imports of natural resources from North Korea, while Yingkou port serves as a major hub for coal imports from the belligerent neighbor.

Port authority sources at Penglai and Weifang ports acknowledged that entry by North Korean vessels is prohibited.

“We received a verbal order out of the blue from the customs authority on March 19, and all North Korean vessels are anchored outside the port awaiting permission to enter,” said an official of the Penglai port authority on March 21. [Asahi Shimbun]

Note well that the sources quoted are all local port authorities and traders, rather than national authorities.

According to officials at trading firms involved in China-North Korea commerce, China’s maritime affairs authority has demanded that the operators of North Korean freighters stranded outside the six ports resubmit documents that are required for a port entry application. [Asahi Shimbun]

As a result, North Korean freighters are reportedly hovering offshore, waiting for the Chinese port authorities to review their documents. If the documents check out, they may be allowed to dock. The delays alone will be disruptive to Pyongyang’s finances. Increased inspections could also have a strong impact on North Korea’s lucrative counterfeit cigarette smuggling industry. NK News adds:

While NK News was unable to get confirmation from port authorities at the time of writing, live shipping data shows irregular groupings of North Korean vessels in anchorage off and in close proximity to the listed ports, a possible indicator that the measures are being implemented.

A group of 10 North Korean flagged ships is clustered around Longkou harbour, which is only 40km from Penglai, with a further five North Korean affiliated ships among them. The North Korean flagged Tong Chon is also in close proximity and is around 9km from the port of Penglai.

Four North Korean flagged vessels are also near Bayuqaun, which is within 50km of Yingkou, and are joined by a further eight North Korean affiliated vessels sailing under foreign flags of convenience.

According to the website of China’s Maritime Safety Administration, Yingkou’s port authority also has jurisdiction over Bayuquan port.

“There are an unusually large number of North Korea linked ships near Bayuquan and Longkou, which indicates they could have been rerouted from other ports,” Leo Byrne, Director of Data and Analytics at NK News said.

Another grouping of five DPRK flagged vessels has been seen near the port of Lanshan within the last 24 hours. Lanshan is 35km from the port of Rizaho, which is also on the alleged list of ports banning North Korean vessels from entering. Several of the North Korean flagged ships have since headed away from the anchorages of Lanshan and Rizaho.

“It’s worth noting that if accurate, the Chinese embargo would go well beyond what’s required in Resolution 2270,” Byrne said.

“But questions remain, it’s unclear why North Korean ships would be barred from those ports, yet not Dalian – the most visited port of call for North Korean ships in the area.” [NK News, Hamish Macdonald]

So what do the national authorities say? Beijing has denied implementing “a blanket ban” on North Korean ships, saying, “The reports have no truth,” and that the media should “not invent stories.”

The accusation is preposterous, typical of China’s hostility toward foreign media, and revealing of the pressure China is feeling. The Asahi and NK News reports are well supported and credible. They aren’t inventions, but they are inconsistent with other reports. Last week, for example, Reuters reported that China had banned only U.N. designated ships, and Yonhap reported that the port of Dandong had turned away a North Korean ship “as part of a broader ban on North Korean ships.” Adding to the confusion is the fact that North Korean ships have been turning off their transponders while at sea to avoid tracking.

As I’ve noted before, a complete embargo is more than either U.N. or U.S. sanctions require. U.N. sanctions bar coal imports except for “livelihood” reasons (whatever that means in practice) and require member states to seize ships owned or controlled by designated entities, such as Ocean Maritime Management and the Reconnaissance General Bureau.

U.S. sanctions authorize U.S. Customs and Border Protection to raise inspection requirements for cargo coming from ports and airports where “inspections of ships, aircraft, and conveyances originating in North Korea, carrying North Korean property, or operated by the Government of North Korea are not sufficient to effectively prevent the facilitation of any of the activities described in section 104(a).” Those activities include arms smuggling and WMD proliferation. They also mandate secondary sanctions against Chinese buyers of North Korean coal and other minerals.

In other words, U.N. and (especially) U.S. sanctions directly threaten the interests of local Chinese ports and traders, which is to maintain unfettered access to U.S. markets and the dollar system. Given the choice of trading with North Korea and trading with the U.S., some ports and shippers may — I stress, may — be choosing the latter. That represents a sharp divergence of the ports’ interests from those of Beijing, which is expending diplomatic capital to limit the harm sanctions do to Pyongyang.

This isn’t the only possibility here. The simplest is that Chinese ports and shippers are themselves getting conflicting and confusing instructions from Beijing. There is also some evidence that undercuts this theory. As recently as last week, some Chinese buyers were still accepting North Korean coal, perhaps believing that the “livelihood” loophole applied to their purchases (but see this). And the reported enforcement of cargo inspections at land border crossing almost certainly was based on instructions from Beijing.

If Beijing is now in a contest with Washington to influence the conduct of ports in northeastern China, then Kim Jong-un has indeed become a serious “strategic liability” for Beijing, just as its economy is slowing. It shows. For example, I’ve never seen the nationalist, anti-American Global Times show so much irritation and pessimism about North Korea. Read that last link. It’s precisely the kind of sentiment the U.S. should be encouraging in China. When North Korea becomes enough of a liability for China, China will rethink its interests, and maybe diplomacy will stand a chance.

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China & Russia alarmed about secondary sanctions, because sanctions never work.

After years of extensive, flagrant, and well-documented violations of U.N. sanctions against North Korea, China is finally reaping the consequences. Americans don’t agree on much anymore, but Beijing’s cheating has achieved a political impossibility — it has united 418 representatives, 96 senators, The New York Times, The Washington Post, and the mainstream of North Korea watchers in support of secondary sanctions on the (mostly Chinese) banks and businesses that are propping up Kim Jong-un financially. That policy is now expressed in law, and the U.S. Treasury Department has taken its first steps toward aggressive implementation.

Not surprisingly, China isn’t happy about this.

The so-called secondary sanctions will compel banks to freeze the assets of anyone who breaks the blockade, potentially squeezing out North Korea’s business ties, including those with China.

Asked whether China was worried the sanctions could affect “normal” business links between Chinese banks and North Korea, Foreign Ministry spokesman Lu Kang said this was something China was “paying attention to”.

“First, as I’ve said many times before, China always opposes any country imposing unilateral sanctions,” Lu told a daily news briefing in Beijing.

“Second, under the present situation where the situation on the Korean Peninsula is complex and sensitive, we oppose any moves that may further worsen tensions there.”

“Third, we have clearly stressed many times in meetings with the relevant county, any so-called unilateral sanctions imposed by any country should neither affect nor harm China’s reasonable interests.” [Reuters]

So far, Treasury hasn’t frozen any Chinese and Russian assets, but it’s delivering a message to Chinese banks to stay away from North Korea, and the banks are listening. Even before the U.N. Security Council approved UNSCR 2270, some Chinese banks and businesses began freezing North Korean assets.

“Any so-called unilateral sanctions imposed by any country should neither affect nor harm China’s reasonable interests,” Lu warned. He said Beijing has stressed this point many times.

The new sanctions “up the ante quite significantly,” said Elizabeth Rosenberg, a sanctions expert at the Center for a New American Security, the new sanctions “up the ante quite significantly.”

“It does impose something akin to a full embargo on persons who do business with North Korea,” she said.

Victor Cha, senior fellow to the Bush Institute on North Korea and director of Asian studies at Georgetown University, said these comments show Beijing is concerned about getting caught in the sanction net. In an interview with Foreign Policy, he said China was especially worried about the slave-labor provisions.

“China imports North Korean slave labor,” he said. “That’s the piece the Chinese don’t like the most, the secondary sanctioning.”

“This is a grade up from the level of sanctions that had been in place before,” Cha added. [Foreign Policy, David Francis]

Russia, too, has actively aided North Korea’s violations of U.N. sanctions, and it’s also upset about “unilateral” U.S. sanctions. Its propaganda machine is churning out tired arguments that sanctions will only hurt the North Korean people, although I don’t recall Russian propaganda outlets complaining that North Korea’s last long-range missile test cost enough to fund World Food Program operations in North Korea for 15 years.

Despite Moscow’s ambivalence about sanctioning Pyongyang, Gazprom just cut its ties to North Korea. Oddly enough, the U.N. sanctions don’t even require this. Sure, it’s possible that Vladimir Putin has had a change of heart and decided to pressure Kim Jong-un, but it seems more likely that Gazprom is concerned about the legal risks from Treasury’s sectoral sanctions on North Korea’s energy industry.

The reports on China’s compliance with the sanctions continue to be mixed. Defense Secretary Ashton Carter says, “China could do much more than it has to get North Korea to ‘stop provocations,’” while a senior State Department official recently told the Senate Foreign Relations Committee that China was “ready to work with us on detailed implementation and consultation on a range of issues.” Both of those things could be true, I suppose, but they yield different headlines.

Until recently, cargo had transited the land border between China and North Korea more-or-less unimpeded, but now, according to both Yonhap and the Chosun Ilbo, China has stepped up inspections at its border crossings, too. With respect to maritime cargo, Yonhap cites South Korean government sources who claim that Beijing has directed local governments to bar the 31 U.N.-designated North Korean ships from its ports. The Asahi Shimbun reports that “China has banned the entry of North Korean vessels to Yingkou port in Liaoning province, a major gateway for China’s coal imports” from the North.

As of March 18, two North Korean ships were stranded outside the port, located about 200 kilometers northwest from the border between the two countries. The vessels have reportedly decided to return to North Korea. “China will likely impose a similar embargo at other ports from now on,” a source familiar with the matter told The Asahi Shimbun. [Asahi Shimbun]

Two press reports dated the same day contradict each other about whether China is enforcing the ban on importing North Korean coal. Reuters says that the Chinese government hasn’t told Chinese coal buyers to stop importing North Korean coal; the Joongang Ilbo says it has. To further complicate matters, the U.N. sanctions have a “livelihood” loophole, while U.S. sanctions have much narrower humanitarian exceptions. A reasonable, middle-ground approach that’s completely consistent with both authorities would be to interpret “livelihood” to require payment in food, humanitarian supplies, or donations to the World Food Program or other humanitarian aid programs. It should prohibit payment in gold, dollars, or other convertible currencies.

U.N. sanctions ban mineral imports from North Korea and require member states to seize property of designated entities, including Ocean Maritime Management and the Reconnaissance General Bureau, which also reportedly operates a small fleet of ships . They do not impose a blanket embargo on North Korean trade. U.S. sanctions do not impose a trade embargo, either, but do authorize U.S. Customs to step up inspections of cargo coming from ports that fail to inspect cargo coming from or going to North Korea. This amounts to a secondary sanction.

On the financial front, the Chosun Ilbo quotes “sources” as claiming that the Dandong branch of the U.N.- and U.S.-designated Korea Kwangson Banking Corporation has closed. In 2013, it simply went underground for a while, but this time, it actually appears to have closed. The Chosun also reports that “[a] growing number of North Korean restaurants in northeastern China are closing down.”

Meanwhile, the U.S. and South Korea are meeting this week to “review and discuss ways to maximize pressure on North Korea by effectively applying the three axes of the Security Council resolution, unilateral sanctions imposed by South Korea and the U.S., and pressure by the international community.” In Seoul, Sung Kim, the U.S. representative to the six-party talks, says our government intends to enforce U.N. sanctions with “vigor and energy,” but undercuts that conclusion with this:

Asked if Russian and Chinese companies employing North Korean workers would be subject to the sanctions, Fried said the new executive order provides “very broad authorities” to deal with the issue. “It doesn’t mandate anything in particular, but the authorities are there if needed,” he told reporters, standing next to Sung Kim. [Yonhap]

Ambassador Kim is mistaken. The executive order implements a statute whose sanctions are mandatory. Recently, China has expressed interest in three-way consultations with the U.S. and South Korea about enforcement of the sanctions. Expect those consultations to be tense. The left-leaning Hankyoreh Sinmun reports that the South Korean and Chinese foreign ministers “clashed” over the enforcement of sanctions against the North in a recent phone call. Securing our interests will require firmness and resolve, but it would still be preferable for all involved if China implements the sanctions “voluntarily.”

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HSBC freezes “at least” $87M in assets of North Korea-linked Chinese tycoon

You all remember Sam Pa, right? He’s the Chinese ex-spy with a history of dubious business dealings in Africa, for which he was eventually sanctioned by the Treasury Department. Pa’s 88 Queensway group also had dealings with Korea Daesong General Trading Corporation, a financial arm of North Korea’s Bureau 39, for which he was not designated. Today, this happened:

HSBC has frozen more than $87m in accounts linked to a Chinese tycoon behind several multibillion-dollar deals in Africa, while it investigates allegations of “serious financial crimes”.

Accounts controlled by Sam Pa and his business associate Veronica Fung were blocked by the bank a year ago, but its internal investigation is still going, court documents have revealed. Last week, a Hong Kong judge declined Mr Pa and Ms Fung’s request that he order HSBC to release the funds, which are “extremely substantial”, according to the ruling. One account alone contains $87m, the documents show.

Mr Pa has built a network of interests in oil, minerals and infrastructure by cultivating regimes regarded as among the world’s most repressive and corrupt, from Angola to North Korea — often blazing a trail for Chinese state-owned groups. [Financial Times]
The story included no suggestion that the action was related to Pa’s links to North Korea. Oh, and you all remember who’s in charge of compliance at HSBC, right? Good for HSBC.

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