Sanctions

The Trump administration issued a new Executive Order on September 21 expanding the U.S. Treasury’s authority to block North Koreans, and those who do business with or on behalf of North Koreans, from accessing the U.S. financial system. It represents the broadest effort to date to use economic pressure to reverse Kim Jong-un’s decision to pursue a capability to threaten the United States with nuclear weapons. The U.S. Treasury now has the capacity to target North Korean financial transactions and overseas labor networks, any entity that trades with North Korea, to bar vessels or aircraft that have visited or interacted with North Koreans within the prior six months from entry into U.S. ports, and to block North Korean assets that flow through the U.S. financial network. A measure of the power of the new authorities is that China’s central bank immediately issued an advisory to Chinese banks to stop providing financial services to new North Korean customers and to wind down loans with existing North Korean customers. Essentially, the Executive Order enables secondary sanctions on Chinese entities and puts Chinese entities that do substantial business with the U.S. at risk of facing significant financial losses, providing a powerful incentive for Chinese compliance with Treasury rules.   The breadth of the Executive Order should provide the United States with the capability to counter many of the sanction-evasion tactics North Korea has employed as part of a cat-and-mouse game. North Korean shell and front companies and dual ledgers kept with Chinese partners have enabled financial flows to and from the country that have enabled North Korea to safely embed its procurement activities in the global supply chain. Assistant Treasury Secretary Marshall Billingslea says his department engages “on a daily basis in ‘hand-to-hand’ financial combat with North Korea’s illicit networks.”     As the U.S. Treasury detects entities that violate the new Executive Order, those partners of North Korea will be at risk of having their U.S.-based assets frozen and/or blocked from the U.S. financial system.  If the U.S. Treasury applies its authorities aggressively and in concert with other financial authorities in Europe, Japan and South Korea, the isolating effect on flows to North Korea should be sufficient to impose serious economic hardship inside the country. The scope of the U.S. Treasury action is proportionate to the level and urgency of the threat from North Korea that the administration feels, in contrast to the UN Security Council resolutions, which are products of a consensus involving China and Russia as proponents of the lowest common denominator.   It is still not clear that North Korea will yield to economic pressure in its pursuit of nuclear weapons. After all, North Korea’s nuclear project is ultimately about Kim Jong-un’s survival, which he regards as a higher priority than economic hardship. Moreover, Kim himself will be the last North Korean to suffer from economic sanctions; rather severe restrictions on North Korea’s trade with the outside world may generate a renewed humanitarian crisis that would put at risk millions of North Korean people.   Thus, there is a risk that Kim Jong-un will see economic sanctions, in tandem with presidential threats of annihilation and continued shows-of-force along the demilitarized zone (DMZ) and on North Korea’s east coast, as a strategy for regime change. That is why it must be paired with efforts to strengthen channels of diplomatic communication to North Korea that gives credibility to Secretary of State Rex Tillerson’s rhetoric that the U.S. does not seek North Korea’s collapse, or, for that matter, to wipe North Korea off the face of the earth. While North Korea uses missile and nuclear tests as its main tools by which to convince the U.S. to acquiesce to the country’s nuclear capability, the new U.S. economic sanctions are designed to magnify the costs of North Korea’s nuclear acquisition and put the survival of the Kim Jong-un regime sufficiently at risk to convince him to reverse direction and denuclearize. Unless both sides can find space to reduce misunderstanding, both North Korea and the United States are on a trajectory through their respective actions toward not just hand-to-hand economic conflict, but also a much more costly military confrontation. This post originally appeared on Forbes.

North Korea’s sixth nuclear test on September 3, 2017, generated reports of tremors being felt as far away as Changchun, China, over 400 miles from the Punggye-ri test site. Although it stands to reason that the tremors also reached into the sparsely populated Russian Far East, both Russian media reports and the official reaction to the test were muted. Russia’s foreign ministry called for calm and for parties to “refrain from any actions that lead to a further escalation of tension.” The Chinese foreign ministry reaction was stronger, stating that “the Chinese government resolutely opposes and strongly condemns this.” Despite its geographic proximity and shared border with North Korea, Russia stands behind in coordination with China, with Beijing leading the response to North Korea’s nuclear development. After all, the brazenness of the North Korean test was unprecedented, and the humiliation for Xi Jinping was deeper, given that the test occurred on the eve of a BRICS summit in Xiamen, at which Putin was present, but that Xi had intended to use to further assert Chinese global leadership. China’s leading and Russia’s supporting roles on North Korea are a reversal from the international experience in the P-5 Plus One talks with Iran in which Russia played a leading role in negotiations with China in the background. China’s stake in North Korea is directly tied to Chinese interests in stability on the Korean peninsula, its historic role as convener of the Six Party Talks, and its central role as a supplier of food and fuel to North Korea. In contrast, Russia’s main contributions to Six Party Talks were accomplished through its inclusion in the talks; its ongoing mercantile interests in transit and energy links with North Korea shadow those of China but are distinctly marginal to China’s central role. Russia’s secondary role on Korean peninsular issues does not prevent Moscow from occasionally playing a spoiler role. In 2016, the United States engaged primarily with China to negotiate language for the UN Security Council Resolution in response to North Korea’s fourth nuclear test, only to have the text held up by Russian officials, who objected to language that would have restricted Russian sales of airplane fuel to North Korea. In negotiations on the just-passed UNSC Resolution 2375 following the sixth North Korean nuclear test, Russia and China combined to fight off a U.S. draft proposing a complete ban on oil sales and North Korea’s low-cost labor exports for foreign currency-earning purposes. In conjunction with the adoption of UNSC Resolution 2375, Russian and Chinese officials reinforced each other’s call for diplomacy as the essential missing ingredient necessary to solve the North Korean nuclear stand-off while expressing skepticism on the efficacy of sanctions. The Russian foreign ministry has expressed its support for China’s dual suspension proposal, which calls on the United States and South Korea to end their twice annual military exercises in return for a moratorium on North Korean nuclear and missile testing. But the United States objects to this starting point for talks since the tests are what the UNSC Resolutions and the sanctions are already punishing, whereas military readiness remains the key to effective deterrence. Another reason why Russia might feel unsatisfied with the call for additional economic sanctions against North Korea is that Russia is also the object of redoubled American sanctions toward Russia through Congressional legislation passed targeting both Russia and North Korea. The Russians resent being lumped together with North Korea while simultaneously being asked to cooperate on sanctions against North Korea. Given Russia’s desire to remain relevant as a player on Korean peninsula-related issues, Moscow’s primary objective will be to secure a continued presence in any future revival of multilateral diplomacy with North Korea. A more aggressive scenario might have Russia play a spoiler role in opposing U.S. interests, but this strategy is risky given the unpredictability and historically-evident costs of being dragged into renewed North Korean-made military conflict. This post is set to appear in the October edition of Formiche.

Following a public demonstration of a completely “homemade” nuclear device claimed to have “great destructive power,” North Korea conducted its sixth nuclear test, which the U.S. Geological Survey reported as generating a 6.3 magnitude explosion. The test, accompanied by a demand that the United States abandon its “hostile policy” toward North Korea, directly defies President Donald Trump’s warnings that North Korean threats would be met with “fire and fury, and frankly power that the world has never seen.” If the president follows through on his rhetoric, the United States will be involved in what Defense Secretary Mattis has characterized as a “catastrophic” military conflict to permanently end the North Korea threat. Such a conflict could consume Trump’s presidency and drastically transform the political landscape; it would probably not relieve Trump’s domestic political difficulties but compound them. Whatever doubts are openly circulating within Congress regarding Trump’s leadership could be magnified and underscored if Trump becomes a war president. But if the president does not follow through on his rhetoric, he will be seen as a paper tiger and his power to effectively use the bully pulpit of the presidency would be further reduced. The credibility of the president globally might take a hit, but in not following up on rhetorical threats toward North Korea, Trump would in reality be little different from Clinton or Bush. Trump will want to handle North Korea’s sixth nuclear test different from Obama, so a U.N. Security Council resolution will not be enough. On the other hand, the Trump administration must be careful to avoid escalating a crisis without adequate preparations to ensure that the administration is not entrapped by North Korea into an outcome unfavorable to U.S. interests. There has been growing Congressional interest in an expanded secondary sanctions regime against North Korea, especially against Chinese counterparts with business interests in North Korea. There is also support for utilizing unilateral financial measures more aggressively to cut off the money flow to North Korea, even though existing U.N. sanctions have virtually quarantined North Korea—on paper. China has less grounds to object to U.S. self-defensive measures following North Korea’s sixth nuclear test. But the task of applying those sanctions in practice requires cooperation from the Chinese, and to a lesser extent, the Russians, as well as other members of the international community.   In addition to sectoral bans on coal and seafood products, China and Russia will be under great pressure to agree to an oil embargo and a cut-off of support for North Korean laborers working abroad. While these measures may bring additional financial pain and isolation to North Korea’s leadership, they will take time, and they occur against the backdrop of rumors that Kim Jong Un has stockpiled significant petroleum reserves in order to ride out likely repercussions of an international oil embargo on North Korea. But time is increasingly not on Trump’s side.   Preparations for conventional military action against North Korea would run up against a variety of obstacles. Evacuation of expatriate civilians from and positioning of augmented U.S. forces in South Korea would take weeks if not months and could trigger North Korean preemptive measures. Plus, South Korean President Moon Jae In has insisted that no military action should take place on the peninsula without Seoul’s concurrence. North Korea is probably counting on South Korea to restrain the United States from unilateral military action against it given that up to one million South Korean casualties could result from a retaliation by Pyongyang. A preemptive decapitation strike would likely face the same risk of North Korean retaliation. Finally, Trump could talk to Kim, even at risk of acquiescing to the reality that North Korea is a nuclear state. Clearly, North Korea is using the tests to shape the strategic environment in its favor. But there is slim evidence that Kim is ready or willing to talk, given that he has to date had no interaction with any other international leader, and there are no indications that North Korea is willing to negotiate a compromise or make concessions. North Korea’s sixth test pushes the United States closer to a strategic choice between two unacceptable options : acquiescence to North Korea as a nuclear power, or “catastrophic” military conflict to permanently end the North Korea threat. Even if North Korea were to be recognized as a nuclear state, it is not clear that Kim’s sense of vulnerability would be reduced. Kim must not be allowed at all costs to export his vulnerability to the rest of the world: that should be Trump’s primary goal. This post originally appeared on Forbes.

The Congress takes an important, positive step to reinforce Russian sanctions, but are we at risk of overusing the sanctions tool? Senate and House negotiators have reached agreement on a bill that would significantly constrain the president’s ability to ease Russian sanctions, and the legislation is expected to reach the president’s desk with veto-proof majorities this week.  While an important step in U.S.-Russia relations, and in some ways the most concrete policy change emerging from the Russia scandal to date, it is but one of a number of recent or prospective decisions by the Congress and Trump administration expanding the scope of sanctions, and perhaps not even the most consequential.  Sanctions have been a centerpiece of economic statecraft in both Democratic and Republican administrations, and especially after 9/11 with a new focus on financial sanctions in countries as diverse as Russia, Iran, and North Korea.  Yet now more than ever, sanctions policy appears to have become a policy of first resort.  The critical question is whether we are getting the balance right, and whether their extensive use presents long-term risk to the global economy. Consider the following recent sanctions news: North Korea.  In late June, the U.S. Treasury announced sanctions against the Chinese Bank of Dandong, a Chinese shipping company, and two related individuals for their involvement in providing illicit trade and finance to North Korea. The announcement by the Treasury’s Financial Crimes Enforcement Network (FinCEN) of sanctions against Bank of Dandong for acting as a conduit for illicit North Korean financial activity, and is a foreign bank of primary money laundering concern, was most notable. Such a “secondary sanction” aims to leverage the strength and role of the U.S. financial system to pressure a target (in this case, the North Korean government) by sanctioning a business or individual outside the United States (and the target country) that does business with the target. By imposing these sanctions, the administration aims to sever Bank of Dandong from the U.S. financial system, disrupting North Korean financial flows. This was a modest first step. The companies involved are small, and there is a reasonable expectation that new companies will spring up to replace the disrupted business.  Further, for U.S. firms that might be willing to do business with North Korea through intermediaries, the announcement is a clear sign that there could be material costs to supporting the North Korean government. The most significant effect of the measure may be in the signal to the Chinese government to do more. Secondary sanctions are not often used, in part because the perceived extraterritoriality of their use can cause problems for U.S. relations with the country whose institutions have been sanctioned. While the measures announced in June seem narrowly targeted and purposely limited in scope, and Treasury Secretary Mnuchin went to length to state that China was not the target, there are a number of ways that secondary sanctions could be extended, including larger Chinese financial institutions or expanding the sectors affected by the sanctions, with significant economic and political implications. The move comes at a time of significant uncertainty for U.S.-China relations. There is little doubt that U.S. policymakers are growing increasingly frustrated with the ineffectiveness of current North Korean policy. Recent presidential tweets complaining of lack of Chinese pressure on North Korea, a Taiwan arms package, the failure of U.S.-China talks last week to make progress on economic issues, and the possibility of substantial U.S. tariffs on steel imports all underscore that the economic détente following April’s Mar-a-Lago summit may be coming to an end. Venezuela.  The Trump administration is preparing to extend sanctions, promising “strong and swift economic actions,” if the Maduro government goes ahead with a controversial plan to establish a new “Constituent Assembly” that would rewrite the constitution, stripping powers from the democratically elected (and opposition controlled) National Assembly.  While sanctions are already in place against individuals associated with human rights abuses or drug trafficking (including the freezing of assets of eight members of Venezuela’s Supreme Court in May), the Trump administration may be readying a dramatic escalation in sanctions unless the Venezuelan government reverses course on the constituent assembly.  This could include broad sanctions aimed at limiting the development and exportation of oil (though there might be carve-outs in this case limiting the effect on U.S. refineries that currently import Venezuelan crude). My preference though, and perhaps even more effective, would be tough limits on Venezuela’ ability to issue new debt.  Such restrictions, which could prohibit both U.S. companies’ holding/purchasing new debt or the financing for such debt moving through the U.S. financial system, would severely constrain the government’s ability to continue to meet its debt payments.  At a time when the government is defaulting on nearly all its commitments to the Venezuelan people, it has reinforced its position by continuing to make payments on international bonds through increasingly expensive and ad hoc deals.  Now, however, the Venezuelan government appears to have exhausted its liquid and usable foreign exchange reserves, and faces substantial payments in October and November on debt owed by the state oil company PDVSA.  On its face, intensified financial sanctions at this time could be a powerful catalyst for change, and perhaps with a lower humanitarian toll than would be the case with a complete cutoff in oil revenue and a collapse in imports. Russia. The legislation now in the Congress toughens U.S. sanctions policy on Iran, North Korea, and Russia, but the focus of attention has been on the measures that would allow Congress to block efforts by the Trump administration to ease sanctions on Russia. Notably, the president would be required to send Congress a report explaining why he wants to suspend or terminate a particular set of sanctions, and lawmakers would then have 30 days to decide whether to allow the move or reject it. Given the broad set of existing sanctions in place (earlier Russia sanctions did not employ secondary sanctions but did enact broad sectoral sanctions on energy and finance), such a decision would seem to protect one of the most comprehensive sanctions programs on the books.  The bill has veto-proof majorities in both houses, even as some have raised constitutional concerns that the requirements in this proposed sanctions legislation (that Congress sign off on significant Russia policy alterations) could unduly constrain future presidents’ foreign policy authorities. Regarding other countries, the bill reportedly prevents those out of compliance with North Korean sanctions from operating in American waters or docking at U.S. ports, and adds restrictions against products produced by North Korean forced labor. For Iran, the sanctions package imposes penalties on those involved in Iran’s ballistic missile program and anyone who does business with them.  This seems in line with administration policy. While adhering to the July 2015 Joint Comprehensive Plan of Action (JCPOA), the administration appears ready to institute an economic pressure campaign to confront Iran over its conventional weapons program and support for militants. To be sure, I see a reasonably strong case for the more expansive use of sanctions in each of these cases.  Particularly in the case of Venezuela, strong financial sanctions limiting the capacity of the government to continue to finance debt payments, particularly when those deals make the future recovery of the county more difficult, should be a top priority. But has the pendulum swung too far? Facing a growing array of foreign policy challenges, one consistent feature of the new administration’s stated approach has been its willingness to move quickly to impose bilateral economic impediments to trade and finance, including sanctions. While a compelling case can be made in each instance for the use of sanctions, it’s hard not to conclude that sanctions have become the go-to weapon of choice, a Swiss army knife with a ready attachment just right for any foreign policy challenge. No doubt, sanctions have been a growing force in diplomacy for some time. The 9/11 attacks quickly renewed interest in sanctions among policymakers and, backed by a series of executive orders, as well as legislation (Section 311 of the Patriot Act), brought about a new focus on financial sanctions and an effort to harness the power of sanctions to disrupt financial flows across borders.  In cases as diverse as North Korea, Iran, and Russia, financial sanctions found a new rationale and value as a driver of American foreign policy. So it would be wrong to suggest that the aggressive use of financial sanctions is in any sense new. The question though is whether the pendulum has now swung strongly in favor of the greater use of sanctions. In Russia in particular, the use of “smart” and “asymmetric” financial sanctions by the Obama administration sought to impose substantial costs on the Russian government while limiting the damage to U.S. firms and the global financial system more generally. That meant that, when assessing a tightening of sanctions, the potential longer-term costs to global markets—such as derisking by firms, retaliation, and longer-term costs of disrupted trade and finance, were carefully weighed. Reports at the time suggest that the Obama administration took serious their responsibility to preserve and open, robust global trade and financial system. If, as many have argued, we are in midst of a consequential shift in our politics, from left-right to one where the debates revolve between advocates of more open and closed economic policies, I wonder whether this administration, or those that follow, will find it easy to get the balance right.  Reports on recent trade deliberations within the Trump administration suggest that, while there are many advocates for open markets, it is clearly understood that the most critical decision makers on trade have a more protectionist leaning, and a willingness to use unilateral action to address grievances. Could the same be true on sanctions? Without a strong advocate of open markets at the table when the decisions are made, the risk is that sanctions become seen as an easy option without significant economic costs. Without these checks and balances, the risk of their overuse is profound. There is a certain irony here.  On the Russia sanctions, the Trump administration does not want to lock in sanctions, but Congress rightly insists on its review. Beyond Russia, there seems to be a greater willingness by the administration to sanction trade and investment to achieve economic and foreign policy objectives, causing concern for those of us who see great value in U.S. leadership and support for an open, integrated global marketplace. There are economic costs, if confidence in the reliability of markets is lost, which can add up over time as sanctions are repeatedly employed. As argued earlier, in each of these current cases, an expansion of sanctions looks to be the best of a difficult set of choices.  But looking forward, we should be concerned that the pendulum will swing too far, that sanctions become too easy an option. There are some things for which a Swiss army knife is the perfect tool, but for appendicitis I’d rather see a doctor.  

The European Union asserts its right to sanction entities in response to cyberattacks against its members in the hope that it creates a deterrent effect.

North Korea is not abandoning its nuclear ambitions, as proven by Saturday’s failed ballistic missile test. However, neither is the United States abandoning its plan to pressure North Korea into submission.  The key to the success of U.S. President Donald Trump’s strategy? China. Trump’s efforts to win China over to his “maximum pressure and engagement” approach to North Korea started at the Mar-a-Lago summit with Chinese President Xi Jinping in early April. Days later, Trump expressed his “absolute confidence that [Xi] will be trying very, very hard” to resolve the North Korea issue and mentioned that “some very unusual moves have been made over the last two or three hours.” Shortly thereafter, there were rumors in media reports that China might have reduced the flow of petroleum to Pyongyang, causing gas rationing in the capital. Concerns over U.S. pressure Despite China’s uneasiness with a nuclear North Korea, however, China continues to see ramped up U.S. military pressure on North Korea as an even bigger concern. An editorial in the state-run Global Times shows Beijing’s frustration with a possible U.S. military response to Pyongyang’s threats. And in a call between Trump and Xi on April 24, the Chinese president switched back to urging Trump to exercise restraint. At the United Nations, Chinese Foreign Minister Wang Yi counseled enforcement of sanctions along with his usual urging all parties to manage the issue peacefully through dialogue. The Chinese position elicited a statement by U.S. Secretary of State Rex Tillerson that the U.S. does not seek regime change. The commander-in-chief of the U.S. Pacific command, Admiral Harry Harris, also said that U.S. pressure is designed to “bring the North Korean leader to his senses, not to his knees.” Yet U.S. military maneuvers and warnings about future North Korean intercontinental ballistic missile development from U.S. Ambassador to the United Nations Nikki Haley overshadow these statements and have drawn ever more shrill responses from Pyongyang. A litmus test for China-U.S. relations The Trump administration is clearly eager to change North Korea’s trajectory—in any way possible. And Beijing’s role in helping do so seems to be a litmus test that will influence the future of the U.S.-China relationship. I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem! — Donald J. Trump (@realDonaldTrump) April 11, 2017 Yet Chinese and American analysts alike point out the likely limits of China’s willingness to pressure North Korea to the extent the Trump administration desires. While Chinese analysts recognize the dangers posed by North Korea, they have long seen Chinese influence as limited and believe that U.S. hostility toward North Korea is the root cause of peninsular tensions. But American analysts and political leaders are increasingly frustrated that China has not cut the umbilical cord of food and energy supplies that the North depends on for its economic survival despite its political isolation. Frustration in Washington  Secretary Tillerson has identified gaps in Chinese enforcement of UN sanctions as the missing ingredient in successfully curbing North Korea. The Trump administration ultimately expects Beijing to put enough pressure on Pyongyang to make Kim realize that the nuclear program endangers rather than assures the survival of his regime. However, this course of action imposes on China higher risks than the country has been willing to take so far. It prefers the status quo to the dangers of political instability and refugee flows across China’s border.  Another area in which frustration in Washington has boiled over is related to China’s cautious and permissive approach that enables North Korean front companies and elites to skirt sanctions by embedding North Korean procurement in China’s supply chain so that North Korean entities can secure necessary financing from Chinese banks despite UN Security Council (UNSC) sanctions on such activities. The UN sanctions reports are intended to strengthen enforcement of the UN resolutions, but instead they show how North Korean sanctions evasion methods have neutralized the economic impact of the resolutions.  There are moves in Congress afoot to force the Trump administration to take a more aggressive unilateral approach to punishing Chinese business partners and financial enablers of North Korea through the unilateral application of secondary sanctions, but the question is how to do so without sparking global financial stability, given that North Korean operations seem to be deeply embedded in China’s financing system. Will China pay up?  Ever since North Korea’s first nuclear test in 2006, China has struggled with a menu of policy options toward North Korea that are even more unsatisfactory compared to those faced by the United States. Placing the level of pressure needed to force Kim Jong-un to give up his nuclear weapons program risks the North Korean regime collapsing, leading to refugee flows and potentially a unified Korea allied with the United States; refusing to crack down on North leads to a North Korea racing toward its nuclear finish-line, U.S. military build-up in Northeast Asia, and even a direct military conflict with the United States. The price that Beijing pays for its longstanding support for a North Korean regime that exports instability as its only sure means of regime survival is a bill that has finally come due. The Trump administration seems intent on securing outstanding payments as a principal means by which to pressure Pyongyang. Can Trump convince China to pay up? This posted originally appeared on Forbes.com.

I wrote on Monday that Donald Trump’s critics on Capitol Hill will have a hard time challenging his foreign policy choices. An early test of that claim could come in the form of a new bill that would require congressional approval before Trump could relax existing sanctions on Russia. The legislation, which has yet to be introduced, is set to be sponsored by Sen. Chuck Schumer (D-NY), the Senate minority leader, and Sen. Ben Cardin (D-MD), the ranking member on the Senate Foreign Relations Committee. Schumer said on ABC’s This Week with George Stephanopoulos that two other Senate heavyweights, Sen. John McCain (R-AZ), the chair of the Senate Armed Services Committee, and Sen. Lindsey Graham (R-SC), will cosponsor the bill. Trump has said he would consider lifting existing sanctions on Russia if the Kremlin agreed to cut its nuclear weapons. The wisdom of trading sanctions relief for arms cuts is debatable, and it’s an idea Trump may never pursue. But as things stand now, if he did he wouldn’t need Congress’s permission. The bill Schumer described would change that. Without seeing the bill’s details it’s impossible to say precisely how it would constrain Trump or how hard those constraints might be to evade or break. But he isn’t likely to sign on to the idea in any event. No president wants to see Congress clip his wings on foreign policy, especially as his administration is just starting. And GOP lawmakers contemplating whether to support the bill will be reminded of one sobering fact: three out of four Republican voters think Trump has taken the right approach toward Russia. So stay tuned.

The UN Security Council (UNSC) unanimously passed Resolution 2321 condemning North Korea’s fifth nuclear test, conducted on September 9, 2016. The resolution builds on Resolution 2270 passed by the UNSC only nine months earlier in response to North Korea’s fourth nuclear test by imposing even tougher restrictions on North Korean maritime and financial activities, misuse of diplomatic channels for commercial purposes, and restrictions on North Korean trade. On paper, UNSC 2321 essentially calls upon member states to place North Korea under economic quarantine unless it reverses course on nuclear development. Most notably, the resolution imposes a numerical and volume cap of $400 million or 7.5 million tons/year of coal exports to China from 2017. According to Marcus Noland, this represents a $650 million reduction in coal exports compared to 2016 or an over 20 percent reduction in the value of North Korean merchandise goods exports of approximately $2.7 billion. An additional ban on North Korean exports of copper, nickel, silver, and zinc should cost the North Koreans an additional $100 million. Following the passage of each UNSC resolution imposing even tougher sanctions on North Korea, a pattern has emerged. First, there is the feeling with the release of each UNSC resolution that China has outperformed expectations by agreeing to tougher sanctions than expected. Then, there is the realization that China has left sufficient loopholes and wiggle room to ensure that North Korea pays a price for its nuclear weapons development, but not so large a price that North Korea’s stability is endangered. Finally, just when it becomes clear that China is easing off on the pressure, the cycle repeats itself, and North Korea conducts yet another nuclear or missile test. North Korea’s provocation cycle depends on China’s fundamental interest in peninsular stability to ensure that the umbilical cord from China through which Pyongyang receives essential “livelihood” support is never irreparably cut. Moreover, if early signs of distress were to develop in Pyongyang, China’s choke points to North Korea would quickly become lifelines once again. A similar repeating cycle of debate goes on in U.S. debates regarding the role of cooperation with China in policy toward North Korea. President-elect Donald Trump suggests he may repeat this cycle by suggesting that the United States should leave the North Korea problem to China. But to move toward a solution on North Korea, the Trump administration will have to find a way to break the cycle of dependency on China. Cooperation with China is necessary to exert maximum pressure on North Korea, but cooperation with China by itself may never be sufficient to present Kim Jong Un with an existential choice between survival and denuclearization. Indeed, Kim Jong Un has already rejected the premise that there could be such a choice by adopting byungjin (simultaneous nuclear and economic development), as the fundamental strategic line of the regime and as a source of legitimation for his rule. This leaves U.S. policymakers straining to maximize cooperation with China while simultaneously seeking the missing ingredient independent of cooperation with China that can finally fill the gap.

A decade has passed since North Korea first tested a nuclear weapon, on October 9, 2006. It conducted its fifth nuclear test last September, and there are rumors that a sixth will come within weeks or months. The United States has tried to both negotiate with and sanction North Korea while strengthening deterrence with South Korea and conducting shows of force to underscore the U.S. commitment to South Korean defense, but these measures have not halted, much less reversed, North Korea’s nuclear program. Instead, following the leadership transition from Kim Jong-il to Kim Jong-un, North Korea has elevated its nuclear program to a primary strategic commitment, reigniting debates among U.S. experts over whether the U.S. goal of “complete, verifiable, and irreversible denuclearization” is feasible. North Korea has conducted four tests during the Obama administration, and the president reiterated after the latest one that the United States “does not, and never will, accept North Korea as a nuclear state.” Yet the longer that North Korea is able to expand its nuclear delivery capability, the more empty U.S. condemnations may become and the closer North Korea will edge toward winning de facto acceptance of its nuclear status. North Korea is believed to have twelve to twenty nuclear bombs and recently successfully tested intermediate-range ballistic missiles and submarine-launched ballistic missiles. Its latest nuclear test was estimated to yield ten to fifteen kilotons, and U.S. and South Korean intelligence officials believe that the country now has the capability to miniaturize warheads to fit them on Nodong class medium-range missiles. Amid these developments, a review of North Korean and U.S. official statements surrounding each of North Korea’s nuclear tests over the past decade is useful for understanding the evolution of North Korea’s threat. North Korea’s Initial Intentions “The longer that North Korea is able to expand its nuclear delivery capability, the more empty U.S. condemnations may become and the closer North Korea will edge toward winning de facto acceptance of its nuclear status.” At least eighteen months prior to the Democratic People’s Republic of Korea’s (DPRK) first nuclear test, in October 2006, its foreign ministry signaled Pyongyang’s intentions to carry one out. On February 10, 2005, the ministry announced that North Korea was compelled to “bolster its nuclear weapons arsenal in order to protect the ideology, system, freedom, and democracy chosen by the people.” The following month, the DPRK declared that the Six Party Talks on its denuclearization (negotiations between the United States, China, Japan, Russia, North and South Korea)should be transformed into mutual disarmament talks. It had interpreted the Bush administration’s nuclear posture review as implying that Pyongyang could become a target of U.S. nuclear weapons. It said that the United States should rescind what it called a policy aimed at toppling the DPRK through nuclear war as a prerequisite of its own denuclearization. Although a Six Party Talks joint statement from September 2005 envisioned the DPRK denuclearizing in return for steps toward U.S.-DPRK and DPRK-Japan diplomatic normalization, economic assistance, and the establishment of a permanent peace regime, subsequent talks were stalemated after the U.S. Treasury designated Banco Delta Asia (BDA) a “primary money laundering concern” and froze more than $25 million in North Korean funds. North Korea presented its decision to conduct the test in 2006 as a response to U.S. efforts to “isolate and stifle” the regime. At the time it stated a no-first-use nuclear posture, asserted that it would prevent the transfer nuclear weapons and technology, and pledged to “do its utmost to realize the denuclearization of the peninsula and give impetus to the worldwide nuclear disarmament and the ultimate elimination of nuclear weapons.” The foreign ministry reaffirmed its willingness to return to negotiations. The Evolution of North Korea’s Nuclear Statements North Korea’s statements following subsequent nuclear tests, in 2009, 2013, and 2016, have portrayed them as enhancing its self-defense capabilities and improving peninsular peace and stability. They have also included assurances of safety regarding potential nuclear fallout. After each test, North Korea has claimed dramatic increases in its capability of one or another facet of its nuclear program: ability to independently develop its own technology (2006), explosive power and technology (2009), miniaturization (2013), hydrogen bomb (2016), and standardization of a warhead, which essential to building a strategic nuclear force (2016). At the DPRK’s seventh Workers’ Party Congress, in May 2016, Kim Jong-un put forward the idea that North Korea’s policy emphasizing the country’s nuclear development would be a “permanent strategic line,” but also presented the country as a “responsible nuclear power” that would only use nuclear weapons as a retaliatory measure against a nuclear attack. The DPRK statement accompanying its September 2016 test shows that North Korean strategic objectives had evolved from defensive deterrence to the capability to pursue nuclear retaliation. How the United States Has Responded President George W. Bush responded to North Korea’s 2006 nuclear test by vowing to coordinate a UN condemnation of North Korea, warning of the dangers of North Korean nuclear proliferation, and reassuring U.S. allies in Asia that the United States would continue to meet its security commitments in the face of a growing nuclear threat. Bush also reiterated his administration’s commitment to diplomacy, signaling a desire to return to the Six Party Talks. The talks reconvened in Beijing in December of that year, and, in February 2007, its members reached an agreement on initial actions toward denuclearization. North Korea would declare its nuclear facilities in exchange for the United States easing sanctions and removing it from the U.S. list of state sponsors of terrorism.     “Absent China’s willingness to cut off its economic lifeline to North Korea, North Korea will continue to survive as a parasite, living off of Chinese fears of its collapse or disappearance.”     Obama too has consistently said that North Korea’s nuclear testing is unacceptable, repeated the U.S. commitment to defend South Korea, and characterized the nuclear testing as a self-prescription for isolation and, eventually, regime failure. U.S. allies, including Japan and South Korea, have consistently sought assurances that the United States will honor its commitments to defend against North Korean nuclear weapons. Meanwhile, China has promoted a return to diplomatic negotiations. In response to North Korea’s first nuclear test, Chinese State Councilor Tang Jiaxuan traveled to Pyongyang to facilitate North Korea’s return to the negotiating table. These mediation efforts have foundered, however, since North Korea abandoned the Six Party Talks in 2008. In the process, the DPRK also discarded the “action-for-action” approach that had been embraced by the Six Party Talks, in which it would denuclearize in exchange for normalized diplomatic relations with the United States. Instead, North Korea insisted that the United States abandon its hostility toward its regime as a prerequisite for arms-control discussions. This has shut down prospects for renewed negotiations. North Korea’s Efforts to Shape U.S. Choices North Korea’s nuclear sprint in 2016 appears designed to gain survivability of its nuclear deterrent. It also seems to reinforce the country’s intention to develop a direct-strike capability on the United States to overcome Pyongyang’s vulnerabilities and reframe the U.S.-DPRK relationship as one between two nuclear powers. North Korea believes this sprint will enable it to: 1)      reduce its remaining vulnerabilities from its currently limited nuclear deterrent vis-à-vis the United States by enhancing the credibility of its threats and the range of a potential strike; 2)      exploit potential South Korean concerns that the United States might abandon its commitment to defend South Korea if it fears that North Korea could conduct a retaliatory nuclear strike on the United States; and 3)      claim to domestic audiences that North Korea has achieved at least one part of its goal of being a “strong and prosperous state” by 2020. North Korea has long seen U.S. and South Korean political transitions as opportunities to test the mettle of new leaderships as it pursues its strategic objective of winning acquiescence to its status as a nuclear state. Kim Jong-un likely believes that he can survive as leader and North Korea will prosper if he can win U.S. acquiescence to a nuclear North Korea, and it is not surprising that he might see this course as a viable pathway forward. After all, North Korea has successfully exploited divisions among the China, South Korea, and the United States for a decade now while steadily improving its nuclear capabilities. Still, the United States has kept North Korea in the penalty box as an outlier state due to its pursuit of nuclear weapons. But if its goal of North Korea’s denuclearization is indefinitely suspended, the nonproliferation norm embodied by the Nuclear Nonproliferation Treaty will undoubtedly be weakened. Absent China’s willingness to cut off its economic lifeline to North Korea, North Korea will continue to survive as a parasite, living off of Chinese fears of its collapse or disappearance. This piece originally appeared as a CFR expert brief here.

It has been almost three weeks since North Korea conducted its fifth nuclear test, but China and the United States have not yet reached agreement on the text of a new UN Security Council resolution condemning the country. In the aftermath of the fourth nuclear test, the Security Council took almost two months to come up with a resolution; the average number of days between a North Korean provocation and a Security Council resolution was 27 during the Obama administration’s tenure. Based on the growing length of time following UN condemnation of North Korea’s successive tests since 2006, North Korea’s leadership probably feels affirmed in its judgement that it can effectively exploit geostrategic distrust between the U.S. and China. U.S.-China differences  Moreover, North Korea seeks to use impending transitions in the U.S., South Korea and even at the United Nations to flout UN Security Council resolutions with impunity. Immediately following North Korea’s fifth nuclear test, U.S. Secretary of Defense Ashton Carter publically noted that China “shares important responsibility for this development and has an important responsibility to reverse it.” In response, China’s foreign ministry spokesperson. Hua Chunying, said that “[w]hoever started the trouble should end it” and that the U.S. should “take on its due responsibility.” Sino-U.S. differences over the implementation of the Terminal High Altitude Area Defense (THAAD) system persist, and the task of hashing out agreement on a new UN Security Council resolution condemning North Korea appears to have taken a back seat to the crisis in Syria. A new UNSC resolution On the positive side of the ledger, China cooperated with the U.S. to crack down on the Hongxiang company, which has been revealed to have engaged in and facilitated illicit transactions and dual use shipments of sensitive chemicals for North Korea’s missile and nuclear development as part of the $500 million in trade over five years that the company has conducted with North Korea. These developments have been facilitated in part by two new sanctions reports, evaluated by Steph Haggard, here and here. Negotiations on a new UNSC resolution are reportedly focused on closing “livelihood” loopholes on shipments of North Korean coal products to China and tightening restrictions on North Korean overseas labor to other countries, Sino-DPRK tourism, or exports of North Korean textiles to China. However, it will be necessary to reach out and touch leadership assets and interests to get the attention of Kim Jong Un. What we should do to strengthen sanctions If such sanctions do not prove to be effective due to China’s inability or unwillingness to enforce them properly, the U.S. should be prepared to take the following measures unilaterally: 1. Impose secondary sanctions on Chinese steel companies that use North Korean coal products. Chinese companies should not be allowed to take advantage of cut-rate North Korean coal to unfairly enhance their competitive advantage in the international market while facilitating North Korea’s nuclear weapons development. Chinese consumers of North Korean coal are therefore legitimate targets of U.S. secondary sanctions. 2. Target Chinese small and medium enterprises that continue to do business as usual with North Korea. There are companies similar to the Hongxiang group that play a gateway role for both legitimate trade and embedded North Korean procurement of dual use items. A recent study by John Park and Jim Walsh on North Korean sanctions evasion techniques highlights North Korean efforts to embed cut-out companies as customers in Chinese procurement networks as a primary means of sidestepping sanctions. 3. Push Chinese authorities to crack down Chinese banks that deal with North Korean citizens since they use multiple personal accounts containing millions of dollars for state purposes. Since opening an account requires identification, Chinese authorities should be able to identify and cut off all North Korean account holders. If necessary, impose secondary sanctions on these banks. 4. Strengthen implementation of shipping sanctions to impose a de facto quarantine on North Korea. A report by Asan Institute for Policy Studies and Center for Advanced Defense Studies (C4ADS) highlighting the role of China’s Hongxiang company in sanctions evasion recommends proactive monitoring of North Korea’s foreign flagged fleet to ensure enforcement of the existing UNSC resolution, drawing particular attention to data showing that Cambodia and Sierra Leone are flags of choice for the North Korean shipping fleet. The debate we must make North Korea have Despite external efforts to strengthen the international sanctions regime, there is precious little evidence to suggest that Kim Jong Un hears or cares more about efforts by external actors to convince him to reverse course than he cares about the internal factors that have led him to embrace nuclear development. In this respect, sanctions remain a blunt instrument to the extent that they have thus far failed, in combination with other measures, to induce a more active internal debate within Pyongyang over the question of whether North Korea’s survival without nuclear weapons is a viable option. This post originally appeared on Forbes Asia. See the original post here.

U.S. and international sanctions have battered the Iranian economy and brought Tehran to negotiate over its nuclear program. Lifting them is central to a deal but will be a complex process.