So far, sanctions are cutting off Pyongyang’s cash while sparing North Korea’s poor.
A month after the President signed the North Korea Sanctions and Policy Enhancement Act and two weeks after the U.N. Security Council approved Resolution 2270, enough information has emerged from North Korea to allow for a preliminary assessment of how the sanctions are affecting those they are meant to target, and those they are meant to spare.
Sanctions have begun to hit their intended targets. The Daily NK reports that the donju, the well-connected traders who help finance Pyongyang’s priorities through trade with China, initially refused to believe (or plan for) the possibility that China would cooperate with sanctions or cut off the coal trade.
Donju are the fulcrum of North Korea’s coal industry, their massive dollar investments propping up foreign-currency earning enterprises tasked with production and export of a product providing North Korea with much-needed cash from a resource-strapped China.
Now, they’re panicking. Those who are “connected to the export of minerals are reeling after hearing that trucks bound for export have been stopped at the customs office in Sinuiju, North Pyongan Province.”
“On news that coal exports have come to a halt, donju, the chief actors in the country’s coal distribution industry, have stopped investing,” a source from South Pyongan Province told Daily NK on Tuesday. “Some had been thinking of completely giving up their coal handling and storage facilities, but with the new rumors surfacing about exports resuming in a few months, they’re now mulling over whether to reinvest. [Daily NK]
The regime is worried that “a prolonged strangle on donju investment could eventually challenge the operation of the mines themselves, and by extension stymie a robust source of funds buttressing the leadership.” This could have long-term consequences for the regime’s financial stability. To maintain the confidence of the donju and keep their money flowing, the regime is spreading rumors that the mineral export ban won’t last for long.
At first, market traders also panicked about the sanctions, fearing that they could lose access to their Chinese sources of merchandise. Some citizens also reacted angrily, according to the Daily NK, saying, ‘‘Those cadres don’t care if us normal people starve,” and, “This is what happens when the authorities pursue useless things [nuclear weapons, missiles] and go around bragging about it.”
All true, and actions by the regime may have been greater immediate causes of hardship. In the build-up to the party congress I prefer to call the Ides of May, the state has cracked down on street stalls, restricted the opening hours for markets, and mobilized people for forced labor (as always, exemptions can be had for a price). At first, some traders hoarded food, but the markets have been resilient, and food prices have stabilized:
“There had been concern we would see fewer goods in the market because of UN sanctions, but in reality, there hasn’t been much difference,” a source from North Pyongan Province told Daily NK in a telephone conversation on Sunday. [….]
Further confirming trends previously reported by Daily NK last week, an additional source in North Hamgyong Province reported yesterday that some people had stocked up food worried about sanctions from the UN, but that this hasn’t led to a violent gyration in prices. “Actually, in some regions, we’re seeing prices of certain products drop,” he noted. [Daily NK]
One of the more interesting effects of the sanctions is that in some ways, they’ve actually increased the supply of fuel and food. Prohibitions on coal exports have diverted more coal into the markets, so despite the cold weather in Korea, coal and firewood are cheap. Incredibly for a country that depends on international food aid and has a massive malnutrition problem, North Korea earns hard currency by exporting food, such as seafood and pine mushrooms. Recently, however, China has halted or sharply curtailed maritime traffic from North Korea, so state-controlled trading companies have dumped their wares on the markets, where ordinary North Koreans can buy them.
“These days items that were previously hard to find because they were earmarked for export are suddenly emerging at the markets,” a source from North Hamgyong Province told Daily NK on Thursday. “The price haven’t gone down enough yet, so you don’t see too many people actually buying them. But you do see flocks of curious people coming out to the markets to see all the delicacies for sale.”
She added, “High-end marine goods like roe, sea urchin eggs, hairy crab, and jumbo shrimp and produce like pine nuts, bracken, and salted pine mushrooms were once considered to be strictly for export, but now they’re easy to find. The number of such products, referred to as ‘sent back goods,’ at Sunam Market and other markets around Chongjin is growing by the day.”
Additional sources in both North and South Hwanghae Provinces reported the same developments in those regions. [….]
Unlike in the past, when they had to pick out the high-end fisheries goods only to hand over to state foreign-currency earning enterprises, now they can sell the entire load to wholesale merchants.
“People are getting their hopes up, saying they might be able to eat some of the highest quality fish for a cheap price, if the UN sanctions continue to carry weight until the summer,” she explained. “They’re actually welcoming the sanctions now saying that for average people they’re bringing good fortune since the number of goods they can get their hands on are continually on the rise.” [Daily NK]
Why would Chinese ports reject these shipments? As immoral as it may be for a hungry nation to export food, neither the U.S. nor U.N. sanctions prohibit food exports (although perhaps they should). One possible explanation is the fact that North Korea’s seafood trade is controlled by none other than the Reconnaissance General Bureau, or RGB, which was just designated by the U.N. under UNSCR 2270.
The bureau owns dozens of ‘trade vessels’ that it uses for missions and also to secure capital. Along main ports near the West and East Sea, the bureau employs cargo ships like Chong Chon Gang that are tens of thousands of tons in size, or ‘trade vessels’ and ‘reefer ships’ such as Nam San 1, 2, Kum Gang San, Mu Bong 1, 2, Po Thong Gang 11, 12, Seung Ri, and Myong Song, which are 800 to 1,000 tons.
North Korea has given vessels like Po Thong Gang and Mu Bong a monopoly on king crabs, shrimp, and conch fishing. Therefore, they’re able to secure some 1,000 tons annually in marine goods and sell them to individual companies in Japan to buy the necessary reconnaissance equipment.
These bureau vessels also conceal their true origins and engage in trade as regular ships. Especially when they are subject to international sanctions and unable to make port entry, they use tactful tricks such as remaining in international waters, where Chongryon (General Association of Korean Residents in Japan, an entity holding strong ties with Pyongyang) companies will come to their aid in trade.
The reconnaissance bureau operates the ‘Birobong Trading Company’ to earn foreign currency, and under this are needlework and garment factories, as well as marine stations for fishing. Also, it uses the Unit 96 equipment supply station in Pyongyang’s Sonkyo District to buy reconnaissance supplies from overseas and then transfer them to subordinate military installations who will then distribute the equipment to each associated military corps. [Daily NK]
In related news, the Donga Ilbo reports that China has also begun to inspect air cargo to and from North Korea. We’ll see how that affects the flow of jewelry and flat-screen TVs into Pyongyang.
Meanwhile, along the border with China, the source of most of the goods sold in the markets, the Daily NK reports that “[d]espite the sanctions that have already kicked in, products from China are still flowing into North Korea.” The Economist also reports that non-sanctioned trade continues to flow freely in both directions — and spins this as a failure of the sanctions. But neither U.S. nor U.N. sanctions attempt to impose a blanket trade embargo. Their objective is to target the currency reserves and income that sustain the regime — to starve it of cash without starving the ordinary people. That is an important distinction that some reporters don’t seem to understand.
The news bears careful watching, but so far, the sanctions show signs of constricting the cash flows that fund the regime, without starving the poor and underprivileged. As Yonhap quotes me today, much could still go wrong, and it’s much too early to declare victory.* The U.S. and U.N. member states have only begun to implement the sanctions. Effective enforcement will require more investigative resources, long months of rat-catching, and sustained political will. The U.S. and its allies must avoid unforced errors that cause adverse humanitarian impacts and deny the effort the political support it will need. There will be more provocations, tests, and war scares. Those things are the inevitable costs of belatedly confronting a problem, rather than applying palliatives to its symptoms. But the signs we’ve seen since January are the signs I’d expect to see at this stage if my theory was right.
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* Errata: My reference to section 302 was incorrect. It’s actually section 304. Thanks to the encyclopedic mind of Professor Lee for catching this. Also, “His Corpulency” and “His Porcine Majesty” are registered trademarks of OneFreeKorea.