Deceptive Headline Watch: Yonhap

You don’t get self-fisking journalism very often, but here’s one that just falls off the bone like an overcooked roast (mmm, roooast).  Here’s the headline:

U.S. must choose between sanctioning N.K. and compromising for denuclearization: report

Well, what are we supposed to take from that, I wonder?  It could only be that inexplicable American obsession with people counterfeiting its currency that’s preventing us from denuclearizing North Korea.Until you read the actual quote, which says:

“Currently the (George W.) Bush administration and Congress face a dilemma,” said the report, authored by Raphael Perl and Dick Nanto.
….

“The trade-off seems to be between imposing a current real financial burden on the DPRK but making no progress in halting that country’s nuclear weapons program, or lifting the financial sanctions in exchange for a verifiable halt to North Korea’s alleged counterfeiting activities and a dim prospect that progress might be made in the six-party talks,” said the report dated Jan. 17 but yet to be posted on the CRS website for public view.

You’d suspect that something was lost in translation … except that there was no translation.  So once you get to the money quote, the odds of actually denuclearizing anything is somewhere between “dim” and “no.”  The choices that remain are (1) a freeze, which would never last through the New Hampshire primary, and (2) the “current real financial burden.”

Well, if they’re still not willing to denuclearize, the choice ought to be pretty damn obvious, unless you view the security interests of the United States as an inconvenience.  And believe me, there are plenty of things we could do to increase that pressure dramatically, and very quickly.

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Kim Jong Il Unplugged, Part 17

After North Korea showed up at last month’s disarmament talks just long enough to give the United States the finger, you wouldn’t expect us to go wobbly on our financial measures against North Korea’s financing of WMD’s, counterfeit currency, and other illegal proceeds.  With the passage of U.N. Security Council Resolutions 1695 and 1718, those measurements have become requirements.  The good news is that we’re not going wobbly.

Treasury, mainly in the physical form of Undersecretary Stuart Levey, has been the instrument in that new policy, which started here.  Since then, Levey  has traveled to various nations making polite requests of bankers to cease their suspicion transactions with North Korea (and that’s just about all of them).  Since last August, when Treasury made a vivid example of Banco Delta Asia, polite requests have worked remarkably well in such places as Japan, Singapore, and even some South Korean banks.  The latest bank to offer its cooperation was based in Vietnam   (much more here). 

It was inevitable, of course,  that a polite request would eventually be refused.  That regrettable choice was made by Iran’s Bank Sepah, so Stuart Levey politely unholstered his weapon, squeezed the trigger, and recaptured  everyone’s undivided  attention  with the pool of Sepah assets that’s spreading across the lobby floor.  Here’s a quote from  Levy’s official statement today:

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OFK Exclusive: N. Korea to Charge Crafty Yodok Inmates With Running International Counterfeiting Ring

The U.S. has said the question of North Korea’s frozen accounts in the Macau-based Banco Delta Asia could be resolved early if North Korea punishes counterfeiters of U.S. dollars and destroys their equipment.  [link]

Firing squads and bloody handshakes to follow, and my sources tell me there may  even be a ceremonial steamrolling of the HP Laserjet that was  the center of this dastardly plan.  I dare you to  figure out where the  satire ends and the “news” begins:

Ever since it froze the accounts, the U.S. was adamant that the North Korean regime must be held to account for the forgeries and rejected any face-saving solution whereby the North would punish nominal culprits as if they had acted independently — the very option it is proposing now.

Yes, they really are serious — as are your diplomatic representatives — in recommending the adoption of  a theory that in the world’s most controlled society, rogue elements carried out an elaborate international  racket over the course of 20 years, including all of the following:

*   Making a contract with the sole supplier of a patented color-shifting ink, in this case, black-to-magenta, from the ink’s only  manufacturer.  In Switzerland.

*   Meticulously designing and carving  printing plates in sharper detail than the originals.

*   Obtaining expensive intaglio printing presses (which few if any developing countries use).

*   Reverse-engineering and manufacturing tons of colon-linen paper to match that used for printing U.S. currency;

*   Building an entire printing plant –yes, an entire printing plant —  for applying that special ink to those special plates, using that special press, onto that special paper, not in a remote abandoned warehouse or an abandoned mine, but at Printing House 62, an extension of North Korea’s national mint complex at Pyongsong, near Pyongyang;

*   Exporting large quantities of that currency from North Korea, without the knowledge of North Korean authorities, despite the fact that it is illegal for North Koreans to possess U.S. currency.

I reckon that not a single reader believes that anyone in North Korea possesses that degree of extra-authoritarian sophistication (at least, that seems to be the general consensus here).  More, I suspect, will simply ask, “Why not permit us all to have our little fictions to remove a greater obstacle to peace?”  Leave aside the fact that this peace kills more people and causes more suffering  than most wars.  If I believed that entertaining such a fiction offered any more  realistic prospect of bringing us to peace than, say, the pretense  that North Korea isn’t in the uranium enrichment business, it might merit serious thought.   But of course,  it’s neither American instransigence nor even North Korean incorrigibility that bars  us from  the  face-saving exit that our great South Korean blood allies have so persistently demanded.  They could have simply  traded the North Koreans’ dollar plates for the necessary components to print a few tons of these:

 

 

Win, win.  Another chance for peace!

For decades, our North Korea policy has been built upon the creative pursuit of fictitous addresses for  each fleeting  meeting of the minds.  All have led back to where we’ve been stuck all along:  across variously shaped tables from an interlocutor who knows that no violation of basic standards of law or humanity will go unrewarded.  Just as you can’t denuclearize a country that won’t admit that it broke its last three  agreements* and created a uranium enrichment program  — and then shared  its  poison fruit with A.Q. Khan and Khaddafy —  we will not see the end of North Korea’s global crime wave without  some admission of guilt or acceptance of its conviction.  Convictions, sadly, are in short supply in this city.

Still, I have a few questions about how Peace in Our Time  will work in practice: 

–   Will we verify that the North Koreans have indeed destroyed the presses, ink, and plates, or were we planning on taking their word for it?

–   Would we insist on interviewing these “rogue elements,” or would it suffice to see any scapegoat in striped pajamas tied to a post and splattered off the face of Hell on Earth?

–   What sort of compensation would we pay the North Koreans for yielding up their unique privilege of printing our money?  One is entitled to wonder what it would cost us to get them out of their other rackets:  growing and dealing dope, counterfeiting cigarettes, abducting other countries’ citizens, trading in rhino horn, and trafficking in WMD’s? 

Last August, after years of neo-Clintonite  dithering, this Administration had finally  found the testicular fortitude to weaken this regime by attacking its financial lifelines without firing a single metallic projectile, and probably without doing significant  further harm to the victims of Kim Jong Il’s famine.  The available evidence had suggested that the threads holding this entire Gordian Knot together were rotting and brittle.  Will we now  throw away all of the  leverage that we  might have used to  shed fundamental transparency  on North Korea’s crimes, both great and petty?  Or will we again have to pray that North Korea will  do us the favor of being  too stupid to take this deal and run like a thief?

 

*   I refer to the Inter-Korean Denuclearization Agreement, the Nuclear Non-Proliferation Treaty, and the Agreed Framework.

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Wobble Watch: Has China Unfrozen Blocked North Korean Accounts?

The State Department is saying it doesn’t know if the reports are true; it’s telling reporters to ask the Chinese:

A diplomatic source in Beijing said China has released some of the North Korean money at Macau’s Banco Delta Asia (BDA), frozen after the U.S. Treasury in September last year designated it a primary money laundering concern abetting Pyongyang’s illicit activities.  The unfrozen accounts, less than half of the US$24 million initially held up, are believed to be those not related to the North Korean financial crimes, the source said.

The source said the measures were presumably taken with the understanding of the United States.  An official in Seoul, meanwhile, downplayed the report, saying the BDA case is not a negotiating card the U.S. will use so easily.

Unless we can account for how those funds will be spent — that is, ensure that they won’t be spent for WMD programs — China is violating UNSCR 1718 by unblocking those funds.  Note that China’s past cooperation with Treasury had greatly pleased some in Washington.  Does China assume that with a new, more China-friendly  faction ascendant in Washington, that its withdrawal of that cooperation will have no adverse effects?  Consider this report in light of what Treasury calls “new evidence”  in its BDA investigation,  which it claimed just two weeks ago  was “making headway.”  One wonders if China’s actions could disrupt that investigation.  If so, one is entitled to wonder why.

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S. Korean Defense of Kaesong Raises More Questions Than Answers

Last spring, the U.S. Special Envoy on Human Rights in North Korea and some  NGO’s first raised concerns about the rights of workers at North Korea’s Kaesong Industrial Park, which  hosts just  over a dozen South  Korean factories.   The  Unification Ministry initially tried to allay those concerns by bringing journalists and some foreign dignitaries up to Kaesong for guided tours. 

This did not work  as planned.  The U.S. Ambassador wandered around and snapped pictures of all the U.S.-made machine tools that may well have been imported in violation of the Export Administration Act.  A visit by the Special Envoy, Jay Lefkowitz, was cancelled when North Korea spat missiles at all the neighbors in July.   The U.S. Trade Representative adamantly refused to consider including Kaesong-made goods in a Free Trade Agreement.  Journalists depicted Kaesong as bleak, Orwellian, and tightly sealed off from the rest of North Korea.  One reported that workers take home as little as a nickel an hour  for their labors.  In fact, if  pre-tax salaries are paid at  North Korea’s  inflated official exchange rate, they may take home even  less.

After the first strategy failed, both Koreas ignored the criticism and did what they wanted to do anyway.   

Then came North Korea’s nuclear test on October 9th, followed swiftly by  U.N. Security Council Resolution 1718.  Suddenly, the issue of Kaesong went beyond questions for human rights and business ethics.  A disagreement  between peace-loving Koreans  and  rabid Washington neocons had become a disagreement between the  Uri/DPRK  view  and  the sacrosanct voice of the International Community.   

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Wobble Watch: Treasury Won’t Lift Sanctions on Kim Jong Il’s Macau Accounts

New press reports link the bank accounts that mean so much to Kim Jong Il with  his nuclear and other  WMD programs. 

North Korea used its accounts at a Macau-based bank, suspected of having served as a base for the North’s alleged illicit activities, to pay for devices that could be used in manufacturing weapons of mass destruction and nuclear weapons, a Japanese daily reported Saturday.

Quoting unidentified sources, Yomiuri Shimbun said China froze North Korean accounts worth US$24 million in the Banco Delta Asia (BDA) in Macau last year in line with the U.S. investigation into the bank as a conduit for North Korea’s alleged illegal activities including U.S. currency counterfeiting and money laundering.

Lifting those restrictions would probably  violate U.N.S.C.R. 1718.  That’s why anyone who is expecting the United States to yield on those accounts, barring severe restrictions on how the funds are spent (ie., on food), is dreaming:

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Someone Please Staple Kim Geun-Tae’s Lips Together

This is an act that damages our national pride and is not appropriate for the South Korea-U.S. alliance.”

Kim Geun Tae, head of S. Korea’s ruling party and North Korea’s favorite
dancing piggy, on hearing that the United States actually intends
to implement U.N. Security Council Resolution 1718.

When I worried aloud that the United States would ease sanctions on North Korea during the pendency of the next round of endless, pointless six-party extortion denuclearization talks, I based my concern in part on Korean reports that turned out to be a case of wishful thinking. That thinking later turned to confusion, and finally, to the sort of bitter, infantile braying that has so effectively isolated South Korea in the latest round of diplomacy. It must have hurt that South Korea was the last to know that talks would resume. The United States, China, and North Korea met alone. Neither South Korea’s long-term benefactor nor the recipient of $7 billion of its taxpayers’ money spent the dime to call them.

What’s remarkable is that they wonder why.

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North Korea Wants Its Drug Money Back

[Update:  A senior Korean official suggests that the U.S. will do just that right after the talks resume.  Scroll down.]

[Update 2:  The Washington Post post also suspects that North Korea’s announcement is merely an effort to foil the American economic pressure:

We hope Assistant Secretary of State Christopher R. Hill, who conducted lengthy talks with his North Korean counterpart in recent days, is justified in expecting “substantial progress” from the new round. But history suggests that both North Korea and China may have achieved their objectives simply by making yesterday’s announcement. Pyongyang no doubt expects that its attendance will result in the relaxation of whatever pressure China has applied and that South Korea will now hesitate to cut back on its own substantial subsidies.  (ht China-e-Lobby)]

[Update 3:   In related news, OJ has asked for his hat and gloves back.]

Original Post:  You can’t fault their chutzpah:

Confirming U.S. and Chinese reports of the agreement Tuesday, the North’s Foreign Ministry said Pyongyang decided to return to the arms talks “on the premise that the issue of lifting financial sanctions will be discussed and settled between the (North) and the U.S. within the framework of the six-party talks.”
….

U.S. officials also sought to rally other countries to prevent the North from doing business abroad, saying all transactions involving Pyongyang were suspected of being involved in counterfeiting and money laundering.

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N. Korea Agrees to Return to Six-Party Talks

[Update:   According to this Korean language link, the South Koreans were the last of the six parties to know that the talks would begin again.  You’d think that after getting seven billion dollars from South Korean taxpayers, they’d have enough left over to afford a phone call.  I guess they spent it somewhere else.]
News coming off the wires claims that the North Koreans have agreed to return to six-party talks.

Chinese, U.S. and North Korean envoys to the negotiations held a day of unpublicized talks in Beijing during which North Korea agreed to return to the larger six-nation talks on its nuclear programs, the Chinese Foreign Ministry said.

“The three parties agreed to resume the six-party talks at the earliest convenient time,” the Chinese statement said.

President Bush welcomed the agreement. “I am pleased and I want to thank the Chinese,” the president told reporters in the Oval Office.

Although it should be obvious by now that the North Koreans will never agree to complete and verifiable disarmament, you can already detect a hint of triumphalism from the State Department.

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Where Is That Other Shoe?

[Update:  

A State Department official who asked not to be identified said the sanctions authority, bearing the name of Senator John Glenn, who sponsored it in the Congress, is open-ended in the range of sanctions available. That official predicted that all financial and economic transactions with North Korea would be ended, except for humanitarian aid. ]

rice-heritage.bmpWe’ve all been waiting for othe other shoe to drop — for the U.S. to announce what sanctions it will impose — since North Korea’s July missile test. Yonhap reports on Secretary of State Rice’s remarks at Heritage, and reports:

The United States will impose the kind of sanctions against North Korea that were taken on India and Pakistan after their nuclear tests in 1998, Secretary of State Condoleezza Rice said Wednesday….

“As for our part, the United States is now obligated to adopt additional sanctions on North Korea under national legislation, including the Glenn Amendment,” Rice said.

Which means?

Sanctions against India, which conducted the test in May 1998, included prohibition of activities funded under the foreign assistance act, U.S. government credit and other financial assistance by U.S. agencies.

Foreign military sales and financing were also prohibited, along with export licenses for certain munitions and dual-use goods.

The U.S. also opposed loans and other assistance to India by international institutions.

That’s pretty much the same deal as the North Korea Nonproliferation Act, which just passed both houses of Congress and which, as I noted here, means approximately squat. Still, if you read the full text of the address here (video here), and from the word “including,” Rice isn’t saying that this will be full extent of it. If so, we’d hardly be in a position to do what Rice did — prod the South Koreans into stronger action.
A few random points I noted:

* It’s always interesting to note who makes the various lists of nations to which Sec. Rice referred. Russia was notably absent from the list of regional democracies, so I guess we’ve stopped pretending;

* There are minor but interesting contrasts between how she discusses Japan and how she discusses South Korea;

* She makes implicit threats against the North if it proliferates, but they rang hollow;

* A patient explanation of why the Clinton policy was a failure, including the fact that the North had extracted enough plutonium to make a bomb before the Agreed Framework, and then, on to the uranium ….

Finally, Rice makes the most convincing argument I’ve yet heard for Bush’s multilateral negotiating policy. She notes that it set us up for two wins at the U.N., which it probably did. I also think those wins are much more meaningful than most U.N. resolutions, because (a) there’s a realistic way for someone other than the U.N. to enforce them, and (b) they attack a legitimate regime vulnerability, its palace economy.

There’s also a big problem with that strategy: its success depends on failure. You’re only set up to gain multilateral cooperation if Kim Jong Il does something as remarkably stupid as actually testing a bomb, despite your best efforts to the contrary. Iran would not have been so stupid.

Here’s a better argument that she couldn’t make it publicly: multilateral talks have cosmetic value. Again, however, you can’t call multilateral talks a recipe for success by this measure unless you have an alternative strategy that’s actually getting you somewhere. Now, for about a year, I think the administration has been able to make that argument. The financial pressure they’ve put on the regime shows clear potential to weaken it. The policy of isolating the regime does seem to be moving forward and gaining the cooperation of more countries. But that policy’s propulsion system is Kim Jong Il’s own behavior.

I guess it’s better than sending Maddie Albright to drink toasts in Pyongyang, but it’s too bad that our plans are so dependent on the mistakes of our enemies.

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Annual Treasury Report on Counterfeiting of U.S. Currency Abroad

The full report is here, but it’s a big, fat, nasty pdf. Here’s the section on North Korea:

6.5.7 North Korea and the Supernote Since 1989, the U.S. Secret Service has led a counterfeit investigation involving the trafficking and production of highly deceptive counterfeit notes known as supernotes. The supernote investigation has been an ongoing strategic case with national security implications for the U.S. Secret Service since the note’s first detection in 1989. The U.S. Secret Service has determined through investigative and forensic analysis that these highly deceptive counterfeit notes are linked to the Democratic People’s Republic of Korea (DPRK) and are produced and distributed with the full consent and control of the North Korean government.

In March 2005 and again in June 2006, Interpol issued an “Orange Alert” regarding the DPRK and its continued quest to obtain or purchase printing supplies that would facilitate the counterfeiting of U.S. currency. The U.S. Secret Service is working very closely with the intelligence community in analyzing supernote distribution activity and monitoring the broader illicit affairs of the DPRK. Over the course of this sixteen-year investigation, approximately $22 million in supernotes has been passed to the public (table 6.5), and approximately $50 million in supernotes has been seized by the U.S. Secret Service.

Emphasis mine.

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Proliferation Security Watch

*   Hong Kong authorities have detained a North Korean ship “Kang Nam I, a 2,035-ton general cargo ship,” which had arrived from Shanghai.  North Korean crew members and Hong Kong customs officials suggest that the inspection is related to a couple dozen safety violations, that the ship is empty, and that the inspections are not related to U.N.S.C.R. 1718.  Crew members claim that the ship will sail again in two days.  The Chosun Ilbo reports that the search didn’t turn up any prohibited cargo.  [Update:   the Daily NK says this is related to 1718 and is based on recent U.S. intel.]

*   South Korea is denying reports that it allowed North Korean ships to pass through its waters without being searched.  Far be it for me to defend the South Korean government, but it’s not clear that the alleged  South Korean inaction came before or after  1718.  It’s also not clear from the text  why the headline suggested that the ships might have carried weapons.  I’ve disagreed with many of the South’s permissive and gullible policies toward the North, but I’m less interested in  past differences than in the question of whether the South knows that the rules have changed.

*   Opposition lawmakers are asking for more details on $13M in South Korean funds that ended up in blacklisted Banco Delta Asia.  The Chosun Ilbo report implies, but  does not state,  that the funds may have gone to North  Korea.  Not surprisingly, the Bank of Korea is denying the lawmakers access to the transaction records.

*   Clear the China shop!   John Bolton is on his way to Seoul!   “‘Ambassador Bolton’s trip here will not directly sway the government’s decision to implement the U.N. resolution,’ the official said. ‘It will just provide a chance for the government to confirm the U.N.’s stance on the North Korean nuclear issue.'”  Rrrrright.  Still you can’t argue with results like these.  Incidentally, John Bolton happens to be the architect of the Proliferation Security Initiative, which the United States is pressing the South Koreans to join.  Coincidence?  [Update:   cancelled.]  

*   South Korea is making one concession — it’s cracking down on strategic exports.  Readers may recall some very interesting remarks by U.S. Ambassador Alexander Vershbow when he visited the Kaesong Industrial Park recently, which led to this very long post on how U.S. export control laws could affect Kaesong.

*   Here’s your official stud book on the U.N. sanctions committee that will oversee 1718 compliance.

*   Missed any good late-night TV recently?  This should take care of that:

Chinese police last month arrested two men on charges of trying to sell 1 kg of enriched uranium, an essential raw material for nuclear weapons, press reports said Monday. The two were ethnic Koreans living in China, police in Beijing confirmed. Press reports said Beijing police arrested the two men, identified as Chang and Chung, on charges of attempting to sell 969.03 grams of enriched uranium at a hotel there on Sept. 11.

Whether this is a case of loose nukes or the regime trying to disguise a transfer isn’t clear, although it would seem that the regime would have easier means than this to sell nuclear materials.  DPRK Studies has more.

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U.N.S.C.R. 1718: Who Won, Who Lost (Kim Jong Il Unplugged, Part 13)

John Bolton: Winner. I’d like to hear John Bolton’s critics deny that, as with Resolution 1695, he has wrung far more effectiveness from the U.N. than we had come to expect. Not only should we confirm this man, pronto, we should clone him. Madeleine Albright never got results like these.

The United States: Winner. We got everything we really wanted here:

  • help constricting Kim Jong Il’s financial arteries
  • the right to search his ships and planes.
  • an embargo on the purchase and sale of heavy weapons and WMD components.
  • something to hurt Kim Jong Il and his loyalists — the ban on luxury goods.
  • the real capacity to investigate, monitor, and enforce all of the above, including pursing them to Iran.

You don’t have to take it from me, either.

The United Nations: Winner (With a Caveat). Every time we go back to the U.N., we reenforce the expectation that we’ll go back next time. Bush made that decision, and by passing something fairly tough, the U.N. preserves this as a plausible policy option.

On closer examination, however, the U.N.’s role as executor of its own resolution is limited to a compliance monitoring committee. It is not acting as peacekeeper, enforcer, or (thank God) accountant. Execution is left to the navies and air forces of a more limited group of nations that are members of the Proliferation Security Initiative. The U.N.’s own role was merely one of delegating authority to more effective institutions. In a sense, you could describe it as a consensual devolution of the U.N.’s role, or, as John Bolton described it, “In a way, it is a kind of codification of the PSI, specifically with respect to North Korea.”

Still, this gives the U.N. a more important role than it seemed to be headed for, and by passing a tough resolution, it has preserved its relevance.

Japan: Big Winner. Japan seems to have had almost as much pull as one of the P-5. Key provisions, such as the compliance monitoring committee, appear to have been put in pursuant to its demand. Its navy will play a major role here, and under a cloak of U.N. legitimacy, which will make South Korea’s predictably silly comparisons to the Rape of Nanking seem even sillier. In fact, the South Koreans have only North Korea to blame for Japan’s reemergence as a world power.

South Korea: Loser. It will now be required to “ensure” that its Kaesong and Kumgang funds aren’t being spent on WMD’s, which it can’t do unless Kim Jong Il opens Bureau 39’s books to South Korean auditors. Not a chance. And already, South Korea is trying to lie its way out of complying:

South Korea’s Unification Ministry, which handles inter-Korean affairs, indicated the sanctions would not affect a tourism venture and a joint industrial complex in the North, saying the “projects have nothing to do with the weapons of mass destruction program.”

Critics have urged the South Korean government to halt the two projects, saying that funds may be diverted for the North’s nuclear weapons program.

Once again, however, it looks like UniFiction got ahead of facts. At the same time, the Foreign Ministry “welcomed” the resolution and promised to implement it “in good faith,” and the cabinet as a whole still hadn’t decided what its policy or its interpretation of 1718 would actually be:

It is still unclear how the resolution will affect South Korea’s initiative for joint ventures with its communist neighbor.

“Seoul will take appropriate measures in line with the resolution,” Foreign Ministry spokesman Choo Kyu-ho told Yonhap News Agency by phone.

Suh Choo-suk, senior presidential secretary for security affairs, and other senior officials held a meeting earlier in the day to evaluate the ramifications of the resolution on inter-Korean relations and economic projects and come up with the measures.

South Korea is considering holding a higher-level meeting to be presided over by the office of Prime Minister Han Myeong-sook or the presidential office Cheong Wa Dae, according to officials.

Han, for her part, called North Korea’s test “an unpardonable provocative act which threatens stability in Northeast Asia and global order.” That’s pretty stong language for this government. Uri Party leader Kim Geun-Tae, trying to position himself to the left of everyone including the preserved corpse of Kim Il Sung, insisted that Kaesong and Kumgang would continue unaffected. On top of this South Korea will have to reconsider its refusal to join the Proliferation Security Initiative. So the only conclusion you can really draw from all of this is that the ruling party is in a state of mass confusion. Think: chicken farm under mortar fire.

This, despite having its man confirmed as U.N. General Secretary. Although he had just been confirmed, Ban Ki-Moon should have had some pull with his fellow ambassadors vis-a-vis positions he might take over the next five years, but it didn’t work that way. Ban’s utter pliability and spinal deficiencies served Uri well on its infamous North Korea human rights absentions, but it denied Ban the ability to protect Kaesong, Kumgang, and other unifiction projects. And while it might have been willing to stand up to the United States on those issues, it will have much more trouble standing up to the U.N.

China: Big Loser. China has historically seen itself as the motherland of all surrounding states in Asia, and that’s particularly so for North Korea, which depends on China for its survival. Many analysts have already noted how North Korea’s missile and nuke tests have humiliated China, and the fact that so many of them have said it makes it all the more true. This was obviously a bitter pill for the Chinese to swallow.

China is uncomfortable with the possibility of the U.S. interdicting ships near its coasts, though Bolton has said he expects most inspections would be performed at ports.

The U.S. ambassador said North Korea’s apparent nuclear test “had to have been humiliating to China. After all of the efforts they’ve made over the years to protect North Korea from international approbation, for the North Koreans in the face of all that to test had to get quite a reaction in Beijing. And I think we’re still seeing that play out.”

China reiterated it would not conduct any inspections and called for caution.

“China strongly urges the countries concerned to adopt a prudent and responsible attitude in this regard and refrain from taking any provocative steps that may intensify the tensions,” China’s U.N. Ambassador Wang Guangya said.

North Korea: Big Loser. Even if you think North Korea’s disengagement is studied, you can’t believe they can be happy with the domestic or financial consequences this could have. I increasingly lean toward there being a less rational explanation for why North Korea does what it does, and in that regard, the Marmot has put up one of his best posts ever, drawing a comparison I’ve wanted to write about but never did — the Shinto genes of North Korean ideology (I have written about the Shinto / fascist genes in South Korean ideology). If the North Koreans really think that they can accomplish their objectives by “using the force,” the implications are incredibly scary. On one hand, you might not want to rile them, except that if you don’t get in their way, they’re determined to gather strength for the Great Gotterdammerung.

So what will this cost the North Koreans?  According to the CIA World Fact Book, North Korea exported $1.275 billion in 2004, and imported $2.819 billion worth, in the same year. In South Dakota, this is known as “eating like a sparrow and shitting like a goose.” It’s either unsustainable or inaccurate. I vote for the latter both, after having read the thoughts of former State Department official and Illicit Activities Initiative head David Asher. Asher broke it down this way:

In 2003 the DPRK ran a trade deficit of at least $835 million and that if more broadly measured to exclude concessionary trade with the ROK was more like $1.2 billion. Even making a very bold estimate for informal remittances and under the table payments for that year, the DPRK probably ran a current account deficit of at least $500 million. Moreover, North Korea’s accumulated trade deficit with the ROK and China alone since 1990 is over $10 billion. North Korea has not been able to borrow on international markets since the late 1970s and has at least $12 billion in unrepaid debt principal outstanding. Yet, until recently – at least – it has managed to avoid self-induced hyper-inflation (which should have occurred given the need to reconcile internal and external monetary accounts, even in a communist country). Instead, the street stalls in Pyongyang and other North Korean cities seem to be awash in foreign made cloths, food, and TVs and the quality of life of the elite seems to have improved. What’s apparently filling the gap and accounting for the apparent improvements to the standard of living for the elite? The short answer as I see it: Crime. And if I am right, then the criminal sector may account for as much as 35-40% of DPRK exports and a much larger percentage of its total cash earnings (conventional trade profit margins are low but the margin on illegal businesses is extremely high, frequently over 500%).

Breaking this down further, citing both Asher and Balbina Hwang (from 2003, using figures for 2001), who put North Korea’s total GNP at $15.7 billion in 2001. Remember, these are just estimates:

  • Missile sales — approximately $560 million. Gone. Missiles are not easy things to hide.
  • Legit exports — $650 milion. Scratch the substantial percentage of this that was with Japan ($200M?), and remember that the North Koreans won’t have legitimate trade to cover for the $300 million worth of dope they sell in Japan each year.
  • Dope — probably $500 million. Asher’s figures are more current than Hwang’s. Asher doesn’t give a precise estimate for North Korea’s dope income, but if you add the estimate of $300 million it makes that way in Japan alone to the Pong Su seizure in Australia ($150M), you can conservatively estimate $400-$500 million per year. That’s not far off from Hwang’s estimate of $500 million to $1 billion. Expect that to be curtailed sharply.
  • Cigarette smuggling — $500 to $700 million.
  • No estimate is available for what North Korea earns through conflict diamond and ivory smuggling, but that will probably also fall.
  • Remittances, mainly from Japan — $100 million. Gone.
  • Counterfeiting — $15 million or so. This will be somewhat harder to stop, although most customs services have dogs that can smell currency. Usually, the movement of bulk cash is an indicator of money laundering, tax evasion, or the evasion of transaction reporting requirements.

If we find any of that on the ships we search, we certainly aren’t going to just let it go. In a matter of days, the regime has lost several major sources of income. It’s hard to say exactly how much, but it could easily be half, and it could be more. Then, consider that North Korea also will have much more trouble recouping its earnings, because of growing financial restrictions on its bank accounts, which tend to be dual-use (legal and otherwise).

How will we enforce this in practice? Bolton is probably right that we would prefer to do most of the interdiction of North Korea’s traffic in port. Incidents like this seizure in a Taiwanese port will become more common. What if the North Koreans decide to go non-stop from Nampo to Bandar-e-Abbas? Then we can expect to see a series of naval skirmishes on the high seas.

The big crisis will come when the North Koreans try to fly non-stop from Pyongyang to Tehran. Would we really shoot down the airplane that might be carrying fissile plutonium, and might have had its cargo switched to schoolkids under cover of darkness or weather?

The ban on luxury items will certainly not mean a coup in the short term. The regime can weather this for a while. The gifts are probably a way of buying the loyalty of party members over the longer term, as they rise through the ranks. It’s unlikely that we’ll see much tangible effect from it for a few years. Over the long haul, Kim Jong Il, like any other Machiavellian prince, would rather be loved than feared. This will make it much harder for him to be loved.

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MUST-READ: Key U.S. Policy-Maker Calls China Out for Double-Dealing

David Asher, who recently led the Illicit Activities Initiative, is probably the architect of our tough new financial strategy against North Korea’s counterfeiting, smuggling, and money laundering.  He is also one of Washington’s clearest thinkers on North Korea.  Asher didn’t know that North Korea would actually  test a nuke when he delivered this address to the Heritage Foundation in September, and really, it deserved more media and blog attention than it got.  Asher, to say the least, doesn’t think China is playing an entirely positive role in disarming North Korea.

I am convinced that the Six-Party Talks mean something very different for Chi ­na than they do for the U.S. or Japan. In fact, I sense that for many in the Chinese leadership the Six-Party Talks have always been more about managing the U.S. and Japan in order to temper the possibil ­ity of our taking actions that could disrupt North Korean stability than they have been about serious ­ly promoting the denuclearization of North Korea. Despite its leading status in the talks, China has only on rare occasions been willing to put pressure on North Korea to denuclearize. Instead, the spo ­radic pressure it has applied has been more geared to trying to get the DPRK to act somewhat more civ ­ilized and less menacing, aiming to control, rather than trying to eliminate, the DPRK nuclear menace.

That  sounds right to me.  China wants North Korea to be a distraction for U.S. power in the region; it doesn’t want to crack the iron first that holds it together, because that could mean a messy democratic revolution, starving refugees, and ultimately, a much stronger unified Korea on its border.  On the other hand, China doesn’t want North Korea to scare the neighbors in the arms of a U.S.-led alliance or missile shield, which could eventually extend to Taiwan.  Its vote for U.N.S.C.R. 1695 was intended  bring Kim Jong Il back to heel, not bring him down. 

There is only a limited  unity of interests between China and the United States.  The United States wants to stop North Korea from becoming the Arsenal of Terror.  China would be giggling into its palm at such a development.  Asher’s polite description of that is “be[ing] realistic about our differences.”  He doesn’t think China is terribly worried about a nuclear North Korea, and I think he’s right.  But then he ups the ante:

China has long served as a safe harbor for North Korean proliferation and illicit trading networks and a transport hub for these networks via its airports and airspace, harbors and sea space. Moreover, in the past decade there have been way too many incidents of Chinese companies actively fronting for North Korea in the procurement of key technologies for the DPRK’s nuclear program. Some of these incidents suggest lax enforcement of export controls, poor border controls, and a head-in-the-sand attitude of senior authorities. Others suggest active collusion and/or deliberately weak enforcement of international laws and agreements against WMD and missile proliferation. There is a great body of information about this and the Chi ­nese are well aware of our grave concerns.

There is ample evidence for that charge, too, and Asher undoubtedly knows more than the publicly available information I’ve compiled.  That information implicates China in helping both North Korea and Iran.  So where is Asher going here?  I’ll give you a taste and advise you to read the rest on your own.

If we want Chinese government officials to act, we need to either present the specifics in a way that is beyond dispute or suggest that if they do not get a grip on the facts and do something themselves there will be significant economic consequences. Appealing to their self-interest is more persuasive than appealing to their purported sense of global responsibility.

Asher’s views may gain more currency as some of China’s cynical positions at the U.N. are revealed:

The latest U.S. proposal, obtained by The Associated Press Wednesday night, dropped Japanese demands to prohibit North Koreans ships from entering any port, and North Korean aircraft from taking off or landing in any country. These sanctions would likely face strong Russian and Chinese opposition.

The resolution would still require countries to freeze all assets related to North Korea’s weapons and missile programs. But a call to freeze assets from other illicit activities such as “counterfeiting, money-laundering or narcotics” was dropped. So was a call to prevent “any abuses of the international financial system” that could contribute to the transfer or development of banned weapons.

It looks like we’re headed to something between “a very angry letter” and sanctions that will really cause Kim Jong Il to disarm, or failing that, stop his proliferation.  Asher puts China’s position in a new light.

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The Sunshine Policy Is Dead, Part 3

Like the captain of a sinking ship herding rats back into the hold, Kim Dae Jung is desperately trying to preserve a policy that was his dubious legacy.  Without Sunshine, there is only bribery and a tarnished hunk of metal.  Kim, predictably, apportions blame equally between North Korea and the United States.  Honestly, there is just no pleasing some people.  We’ve offered the North Koreans far too much for far too long.  If DJ really thinks the North Koreans have a God-given right to counterfeit — our response to that is their latest excuse for refusing to talk — nothing is stopping South Korea from broking the perfect compromise.  It can let the North Koreans print these:

Will South Korea finally find  concentrated sobriety of the condemned?  Michael Breen strikes true brilliance in diagnosing the syndrome that has removed all friction from its grasp of reality:

[I]n other areas of public life, in defense, in politics and in managing relations with allies and with North Korea, there seems to be a peculiar weirdness at work. It ‘s as if leaders align themselves with certain people and nations for emotional reasons like, we went to the same high school and then work backwards to develop strategy to justify it and tactics to fit.

The result is frequently stupid.

Take the nonsense over Dokdo, for example. What ‘s that all about? Do Koreans really care more about Dokdo than about the human rights of 23 millions in the rebel-held territory of North Korea, who according to the Constitution, are legally citizens of South Korea?

That could be a yes.  (ht: Asia Watch)

And yet there is hope.  U.S. Ambassador Alexander Vershbow, seeing that the iron is hot, is raising the point that I’d predicted the USG would eventually raise:  Seoul’s direct aid to the North Korean regime.

Mr. Vershbow declined to comment specifically on what Seoul should do. But, he continued, “I would just say that this is probably a time when all countries need to review their programs of assistance that may provide financial benefits to a regime that, as we have seen, enable it to devote a disproportionately large share of its resources to nuclear programs and other military programs.”

The ambassador continued, “I think that applies as well to China, which provides considerable assistance to North Korea.” He urged more cooperation from Seoul in Washington’s Proliferation Security Initiative, a multinational program to suppress international trade in mass weapons and missile components. 

The  South Korean government has rediscovered the benefits of allying itself with the United States.  It’s taking the PSI  request seriously.  I suppose it’s a little early for  the “Rebirth of an Alliance, Part 1.”  That will depend on whether Seoul attaches some meaningful conditions — on disarmament, abductees, and human rights — to its aid.

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U.S. to Propose Arms Embargo on North Korea

I’d proposed it two days before July’s missile tests, because of the rising danger of another preventable famine, but  it now looks as if John Bolton is circulating  this concept  as part of what he’d tried to get from the U.N. after the July missile tests:

The United States circulated a draft U.N. resolution late Monday that would condemn North Korea’s nuclear test and impose tough sanctions on the reclusive communist nation for Pyongyang’s “flagrant disregard” of the Security Council’s appeal not to detonate a device.

The draft, obtained by The Associated Press, incorporates proposals circulated by the U.S. earlier in the day to prohibit all trade in military and luxury goods and crack down on illegal financial dealings.

An arms embargo on a dangerous, belligerent nation that starves its people by the millions to pay for more arms?  Seems like a hard idea to resist.  But then, we’re dealing with the United Nations here.

Although I was surprised to see China vote in favor of the last resolution, it’s clear that North Korea’s behavior has only served to drive Japan into a closer alliance with the United States and undermine South Korea’s neutralist leadership, which is about to lose the benefit of its adult supervision, such as it is.  It’s also clear that the United States has financial levers on China, and  I’m guessing that those played some role in the Bank of  China’s recent blocking of North Korean accounts. 

What is still missing from our policy?  Meaningful outreach to the people of North Korea  and the willingness to be subversive about it.  Ideally, that outreach would begin with feeding them, but the North Korean government would clearly prefer to let them starve.  If North Korea won’t allow us to monitor our food aid and insure that it goes to those who need it as much as at any time since the 1990’s, then it’s time to bring North Korean refugees to secure places where we can train them to go back to their homeland and plant the seeds of dissent and resistance.

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Greeks Intercept Counterfeit N.K. Cigarettes

Officials in Greece nabbed a North Korean freight vessel that was carrying 1.5 million cartons of contraband cigarettes and arrested the seven seamen aboard, it was announced Monday. [link]

Let’s hope there’s a trial, and that this one won’t be  a goose egg  like the Pong Su case was.  Whether the Aegean could use another artificial reef, I leave to the Greeks, but  Greece is  always happy to do the exact opposite of what America asks.

The Greek Merchant Marine Ministry said the vessel was discovered about 11 km southwest of the Katakolo port on the Peloponnesus Peninsula in southern Greece, and all of the cargo looked bound for that country. The Evva is currently anchored at the Katakolo port. Greece has uncovered 4 million cartons of contraband cigarettes at sea so far this year, of which 3 million were aboard North Korean vessels.

Stuart Levey recently stated that counterfeit cigarettes are the North’s largest source of income.

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Kim Jong Il Unplugged, Part 11: Eyes on Seoul

Green eyeshades are turning toward Seoul, Kaesong, and Kumgang.  If you think things were bad before, this is where U.S.-Korea relations will be severely tested.  The U.S. Treasury Department isn’t going to put up with Seoul acting as Kim Jong Il’s financier for long, and  with the  likely exceptions of some shady  Russian banks  and whatever China is secretly providing at the state-to-state level, South Korea is Kim Jong Il’s last cash cow.

Kumgang

That poll yesterday — the one that showed the ruling Uri Party’s approval rating at nine percent — also showed that only 15% support continued government support for Kumgang.   That’s bad news for the project, which is a congenital money-loser due to Kim Jong Il’s demands  for a bigger part of the take, even as the number of visitors declines.  Kumgang needs government support, and after the  2007 elections, it may not be able to count on it.

Hyundai Asan, which organizes package tours to North Korea’s Mt. Kumgang, has seen the fee it pays Pyongyang per visitor grow a whopping 78.3 percent over the last two years. It paid US$33.75 a head in 2004 but $59.50 now.

Documents the Unification Ministry submitted to Grand National Party lawmaker Chin Young on Friday say Hyundai Asan agreed to pay an entrance fee to Mt.Kumgang according to the number of tour days as of July 1, 2004 and set the fee at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1 last year, it agreed to raise it to $15 for a day trip, $35 for the two-day trip, and $70 for a three-day trip. On July 1 this year, after a fractious period in relations between Pyongyang and the firm, it agreed to another hike to $30 for the day trip, $48 for the two-day trip and $80 for the three-day trip.

[….]   It was the first time the breakdown has become public.

Even without Treasury in the picture, the trends were not working in Kumgang’s favor.  Besides the aforementioned, there’s  also the public rift between the North Koreans and Hyundai Asan and  a public strong-arm of Hyundai Asan by the UniFiction Ministry.  This endeavor isn’t going to turn a profit anytime soon.  Enter the Treasury Department, which will soon ask  what no one in South Korea really wants to say: “How  does Kim Jong Il  spend that money?”  Some think they know the answer, and that answer puts Kumgang on a collision course with U.N. Security Council Resolution 1695.

Kaesong

Kaesong’s new troubles  were reflected in a decision to delay a planned expansion of the industrial park.   First,  its  inclusion in a proposed Free Trade Agreement with the United States is a dead letter. That means that  Kaesong’s main  advantage, cheap labor, may  be offset  by a competitive disadvantage against other Korean manufacturers, whose products  would receive lower import duties at U.S. ports, thus setting them up for other advantages that go with the economics of scale.  Without FTA treatment, it’s hard to see what  manufacturer wouldn’t prefer China, where the authorities at least understand the value of keeping their commitments.

The U.S. government is also  reiterating its seriousness about the enforcement of U.N.S.C.R. 1695, and I predict that Kaesong  will  soon start  getting more of the wrong kind of attention from the  U.S. Treasury Department.  The Finance Ministry,  which seems to be the one part of the Korean government that’s still on good terms with America, has sometimes seemed to reflect Treasury’s concerns, even when that required it to contradict the UniFiction Ministry. Recently, it  sent a warning letter to businesses  operating in North Korea, reflecting  a stricter  reading of  U.N.S.C.R. 1695,  which requires states to exercise “vigilance” in avoiding funding for North Korean weapons programs.  This contradicted  Lee Jong-Seok’s  “don’t ask, don’t tell” interpretation.  This sets us up for the widening of that rift to Kaesong. 

The dispute involves the Kaesong Industrial District Management Committee, which is legally a North Korean entity, but whose membership is either composed of South Korean investors in Kaesong and North Korean officials.  The investors use the Committee’s accounts at the Woori Bank to pay the North Korean regime for the workers’ wages.   This is interesting to me  in two ways:  first, Kim Jong Il presumably doesn’t pay them in dollars, so the mystery about what the workers are really paid deepens; second, you have to wonder where the money really does go.

The South Korean papers  seem more interested in finding a scandal that will hurt Roh in the sunset of his deeply unpopular presidency.  Their angle was the compliance of those transfers with South Korean law.  The papers implied, but never really explained, that South Korean law prohibits North Korean entities from controlling South Korean bank accounts (I looked for the law myself, with no luck.  Anyone?).   This week, the Joongang Ilbo  claimed to have  “government documents” proving that UniFiction Minister Lee Jong Seok and his underlings  “pressured Woori Bank to consider allowing North Korea to open a bank account.”  The JI also had confirmation from an unnamed  Unification Ministry official, who tied to characterize this as “just a discussion and not formal pressure against the bank,” and claimed that “the bank made its own decision, without being pressured by the ministry.”  If the law actually says what the JI implies it says, this alleged  letter from the UniFiction Ministry  does seem like (1) subtle pressure, and (2) a slippery, obfuscating interpretation of the law.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there. Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

Minister Lee  denies  pressuring Woori or violating the law, saying that “[n]o South Korean bank has opened accounts for exclusive use by North Korea or its officials.”   Ordinarily, Lee’s word would not move my meter very far, particularly with all of the qualifications in that denial.  Later, Lee admits that  the holder of the account  is legally a North Korean entity, but says  that we should  ignore that and listen to  him instead.

The organization, the Kaesong Industrial District Management Committee, is a North Korean entity by legal definition, according to the minister. But, he said, it is a South Korean body, established and managed “by our people and for our convenience.”

“Naturally, (the bank) opened accounts for the management committee, headed by (South Korean) Chairman Kim Dong-keun,” Lee said in a regular press briefing.

“It is a very fanciful story to say (the bank) opened the accounts for North Korea and that this may be linked to North Korea’s efforts to evade U.S. financial sanctions, but one that helps no one,” the minister said.

The Joongang Ilbo is now backing off the story of UniFiction Ministry pressure on the Kaesong Committee account, but asserting that the Ministry applied pressure elsewhere:

But the ministry apparently did try to use its influence in a related but separate matter; other documents provided by Representative Kwon showed that it pressed the bank to allow the North Korean General Bureau of Special Zone Development, which oversees Pyongyang’s capitalist experiments in operating special economic zones, to open other accounts. Woori Bank, supported by the finance and foreign ministries and the National Intelligence Service, objected strongly and prevailed at a meeting in Seoul on March 7.

Meanwhile, the Finance Ministry was voicing its  disapproval of the financial  arrangements surrounding Kaesong  in documents leaked to the Chosun Ilbo:

In the documents, the ministry points out that anonymous dollar transactions could lead to trouble in tax collection, and be used as means for money laundering, customs evasion and payments for smuggling. They could also distort the international account balance, since they are not included in foreign exchange statistics, the ministry said. “To speak extremely, with the transaction method, the North can make a camouflage purchase of a South Korean company and use it as a channel for surreptitious remittances of illegal money from foreign countries,” Lee said.

Can you say, “money laundering concern?”  In other words, this probably is  bad policy,  very risky business for Woori,  and  contrary to  an honest reading of  U.N.S.C.R. 1695, but it’s not at all clear that we have the makings of Kaesong-gate here. 

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