Tag Archive | "hr1771"

The North Korea Sanctions Enforcement Act: Pros and Cons

This is the second in a 2 part series looking at the North Korea Sanctions Enforcement Act of 2014 (H.R. 1771). The first piece is available here.

By Stephan Haggard

To date, U.S. sanctions on North Korea have had both a strategic and defensive purpose. The strategic aim is to sharpen the choices Pyongyang faces by raising the costs of pursuing its nuclear and missile programs and providing incentives to return to the Six Party Talks. The defensive motivation of sanctions is to limit North Korea’s capabilities and proliferation activities by curtailing its trade—and in both directions–in proscribed systems and dual-use technologies. This defensive motivation has undergirded the support the U.S. has secured for a succession of steadily-tightening UN Security Council resolutions. Those resolutions have secured support in large part because they have maintained a sharp line between limitations on WMD-related trade—which is thoroughly proscribed—and commercial trade, which is not.

Proponents of sanctions typically come at the task with a variety of aims, and the North Korea Sanctions Enforcement Act of 2014 is no exception. The bill constitutes a shift in both the aims of U.S. sanctions policy and the means of implementing it. The effort to target foreign entities that are either supplying or purchasing from North Korea’s WMD complex is completely justified, and fully in line with the spirit of existing UN Security Council resolutions as well. The U.S. should also engage on the human rights issue, and should name, shame and designate those who are responsible for the country’s gross human rights violations. A valuable aspect of the Commission of Inquiry process—which HR 1771 supports–will be to identify the units and individuals responsible for the most gross violations, such as the maintenance of the country’s sprawling system of political prison camps.

Yet the bill also raises long-standing questions about whether sanctions are likely to work and whether they may even have perverse consequences. With respect to means, the legislation marks what Josh Stanton has called a financial constriction strategy against the regime. A key barrier to U.S. sanctions policy is to exercise leverage in the absence of any significant trade and investment. A core component of the HR 1771 strategy—borrowed from earlier experience with Banco Delta Asia—is to not only target North Korean entities, but to use U.S. market power to induce desired behavior by foreign commercial entities as well. The pursuit of secondary sanctions offers market players a choice: do they want to do business with the giant U.S. market or throw their lot with North Korea? The strategy appears to sidestep the need to rely on foreign governments for enforcement, including China, by encouraging foreign entities to choose the commercially prudent course.

One concern, however, is whether the legislation has intentionally or unintentionally blurred the line between WMD-related and commercial trade. The justification for doing so is arguably legitimate. In such a highly centralized regime, it is difficult if not impossible to draw the line between illicit and commercial activities. Nonetheless, to date the international community has sought to draw such a line, and for several reasons. The outside world has a strong interest in encouraging reform and opening of the North Korean economy, to shift its strategic orientation away from the byungjin line of trying to pursue economic development and nuclear weapons simultaneously. If this legislation were to have the effect of encouraging deeper economic integration, it would be through an initial phase of even greater isolation, autarchy and external controls.

The extent of that isolation will depend on how North Korea and China respond to the threat of secondary sanctions. One of the perverse effects of the post-2003 sanctions efforts is that North Korea has become increasingly dependent on China; my estimates with Marc Noland suggest that China may account for as much as 70 percent of the DPRK’s total trade. This growing dependence has had the odd consequence of reducing the influence of sanctions as trade has shifted toward the weakest links in the sanctions chain. China probably provides fewer direct supports than is commonly thought, but it remains strongly committed to a strategy of deep economic engagement with the country. It is possible that firms and particularly banks conducting business with North Korea will reconsider, and that is a good thing. But we should not have exaggerated expectations; there are plenty of firms and financial institutions that will continue to ply this trade, and we are unlikely to get much sympathy from Beijing in tracking them down. To the contrary, the Chinese government has already signaled its concern about the use of secondary sanctions and has shown little inclination to use the economic leverage over North Korea that it quite obviously has. Will this legislation make cooperation with China on North Korea easier or harder?

Post-BDA, and since the ascent of Kim Jong-un in particular, North Korea has also sought to diversify its trade, investment and financial links. The KPA and its associates have developed relationships with financial entities that are not concerned with access to the U.S. market, both in China and outside it; Russia will be particularly interesting to watch in this regard but there is also the open field of the Middle East. Throughout, the legislation recognizes that the administration will need to conduct a vigorous diplomacy to close the loopholes created by the fact that some firms and financial institutions will not be deterred by secondary sanctions. The legislation gives the government some interesting tools to do so; for example, it allows the U.S. to impose sanctions on jurisdictions—down to the level of individual ports—that are not exercising due diligence. But while this legislation might raise the costs of proliferation activities if implemented, it is unlikely to staunch them completely and could simply forge new networks beyond the law’s reach.

Another question is whether the sanctions will have the broader strategic effect of moving the North Koreans toward serious negotiation of its nuclear program. I am extremely dubious. Proponents of such sanctions point to BDA as a success in gradually bringing North Korea back to the table after its nuclear test in October 2006. But this assessment confuses a tactical move with the failure of the broader get-tough policy of the first Bush administration, which probably contributed to North Korea’s determination to go nuclear in 2006 in the first place. The incremental progress made during 2007-8 rested on the lifting of the BDA sanctions and extending offers of assistance as well.

The point is a general one. The paradoxical feature of sanctions is that they rarely have the direct effect of forcing the target country to capitulate. The HR 1771 sanctions will have effect only when coupled with strong statements of a willingness to engage if North Korea showed signs of interest in doing so. The legislation provides plenty of sticks; the administration will have to continue to articulate the prospective carrots in a way that is credible. Strong sanctions legislation makes that difficult to do if the legislation places a series of binding constraints on the president’s discretion. Why negotiate with the U.S. if there is no return from doing so?

Given the magnitude of the humanitarian challenges posed by North Korea, there has been concern with the possibility that the legislation could affect the ability of NGOs to operate in the country; the National Committee on North Korea provides a reasoned analysis of the issue here. The worries about the ability of NGOs to pay local salaries and import needed goods are legitimate, but the legislation does not disallow such activities and I see no reason to oppose the legislation on those grounds.

Current U.S. policy is straightforward. The U.S. stands ready to return to the Six Party Talks if North Korea sends a credible signal of its willingness to resume serious negotiations. We have set a high but reasonable bar for beginning negotiations with Pyongyang, namely that it makes no sense to talk about the country’s nuclear program in the absence of a verifiable freeze. The proposed legislation sets the bar to negotiations even higher, although we have little evidence that North Korea has responded positively to threats in the past; to the contrary. The sanctions rightly target WMD-related trade, but blur the line with commercial trade that we ultimately want to encourage as part of a strategy of reform and opening.

In the end, however, the North Korean and Chinese governments have invited these sanctions because of their unwillingness to engage on the issue seriously. North Korea is unwilling to re-commit to the principles outlined in the joint statement of September 2005, and has repeatedly stated its intention to continue its nuclear and missile programs. China has stated its interest in a denuclearized peninsula and a restart of the Six Party Talks, but has proven either unwilling or unable to bring North Korea to the bargaining table. China’s emphasis on “stability” on the peninsula has had the effect of extending support for the status quo. Although I am skeptical that this legislation will have its intended effects, strategic patience is not working either and we seem to have few instruments for getting Pyongyang’s attention. If coupled with a restatement of our willingness to engage seriously on the nuclear issue, targeted secondary sanctions could provide a useful signal that we cannot continue to pursue strategic patience forever if North Korea continues to deepen its nuclear and missile capabilities.

Stephan Haggard is the Krause Distinguished Professor at the Graduate School of International Relations and Pacific Studies, University of California San Diego. He is the author, with Marcus Noland, of Famine in North Korea: Markets, Aid and Reform (2007), Witness to Transformation: Refugee Insights into North Korea (2011) and the Witness to Transformation blog at http://www.piie.com/blogs/nk/. The views expressed here are the author’s alone.

Photo from The White House’s photostream on flickr Creative Commons.

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Why Does the U.S. Hesitate to Enforce Its Laws?

This is the first in a 2 part series looking at the North Korea Sanctions Enforcement Act of 2014 (H.R. 1771). Second piece in the series is available here.

By Bruce Klingner

Former Assistant Secretary of State Kurt Campbell recently observed that North Korea was not the most heavily sanctioned country in the world as so often depicted by pundits. While still at the State Department, Campbell realized that “Burma had much more in the way of sanctions” than North Korea and correctly, if belatedly, concluded that “Clearly we have not been successful at putting substantial pressure on North Korea [and] it would be possible for us to put more financial pressure on North Korea.”

He is absolutely right about this.  And he’s not alone among Obama Administration officials acknowledging that there is far more it could do.   In 2009, the State Department’s sanctions czar commented that the administration was considering additional measures against North Korea. U.S. Six Party Talks negotiator Glynn Davies said in 2013, “I think that there are always more sanctions we could put in place if needed.”  President Barack Obama promised in 2013 a “significant, serious enforcement of sanctions” and a year later that the U.S. would consider “further sanctions that have even more bite.” A U.S. official said recently that Washington was considering a “list of blood curdling sanctions.”

The obvious question is why the Administration has not followed through.

Washington has targeted a mere 62 North Korean entities, primarily for illicit activities and weapons of mass destruction. By comparison, the United States has imposed more comprehensive sanctions against the Balkans (231 entities), Burma (164), Cuba (397), Iran (several hundred), and Zimbabwe (161).

The U.S. has targeted Zimbabwe, Congo, and Burma for human rights violations yet has not taken action against North Korea seven months after the UN Commission of Inquiry accused Pyongyang of human rights violations so egregious as to qualify as crimes against humanity. Nor has Washington designated North Korea as a primary money-laundering concern as it did Iran and Burma.

By contrast, the U.S., EU, and UN have imposed far more pervasive and compelling measures against Iran, yet it is Pyongyang, not Tehran, that has withdrawn from the Non-Proliferation Treaty, tested nuclear weapons, and repeatedly threatened nuclear attacks on the United States and its allies.

Unilateral US actions against Iran, combined with diplomatic pressure, led other nations to impose their own financial and regulatory measures against Tehran. Collectively, the international sanctions have isolated Iran from the international banking system, targeted critical Iranian economic sectors, and forced countries to restrict purchases of Iranian oil and gas, Tehran’s largest export.

Just as strong measures induced Iran back to the negotiating table, more robust measures are needed to leverage North Korea. The United States should use its action against Iran as a model for imposing the same severity of targeted financial measures against North Korea.

Targeted financial measures are directed against entities that violate U.S. laws by exploiting their need to access the global financial network. Even the most isolated regime is vulnerable given the centrality of the U.S. financial system. The U.S. dollar is the global currency of choice for international trade, and the requirement that any dollar-denominated transaction anywhere in the world must go through a U.S. Treasury Department-regulated bank give Treasury the power to exclude North Korea and its third country enablers from the U.S. financial system.

Compared with trade sanctions, targeted financial measures are precision guided munitions against violators, rather than economic carpet bombing against a population. For banks, wire services, and insurance companies, there are catastrophic risks to facilitating – even unknowingly — illicit transactions. The British bank HSBC was fined $1.9 billion for money-laundering and sanctions violations, including financial dealings with Iran. French bank BNP Paribas agreed to pay an $8.97 billion fine for processing banned transactions with Sudan, Iran and Cuba.

Tougher measures against North Korea were effective when applied in the past, such as the Treasury Department 2005 designation of the Macau-based Banco Delta Asia (BDA) as a money laundering concern. In conjunction with other sub rosa U.S. actions, “two dozen financial institutions voluntarily cut back or terminated their business with North Korea, including institutions in China, Japan, Vietnam, Mongolia, and Singapore.”

A North Korean negotiator admitted to a senior White House official, “you finally found a way to hurt us.” Obama Administration officials retroactively commented that the BDA initiative was “very effective” and it was “a mistake” for the Bush Administration to have rescinded it. The Obama administration now “hopes to recreate the financial pressure that North Korea endured back in 2005.”

Yet by subsequently pursuing a policy of timid incrementalism of pulling our legal punches but always promising to be tougher “the next time,” Washington squandered the opportunity to more effectively impede progress on North Korea’s nuclear and missile programs and coerce compliance with U.N. resolutions.

The U.S. Congress lost confidence in the Obama Administration’s half-hearted enforcement of U.S. laws and regulations against Pyongyang and the House of Representatives passed the North Korea Sanctions Enforcement Act in part to spur the Obama Administration out of its torpor. Rather than waiting for another North Korean provocation or violation to incrementally enforce U.S. law, the proposed legislation would apply the power of the U.S. financial system against North Korean proliferation, arms trafficking, money laundering, censorship, and human rights violations.

The Act allows the administration to find and block the offshore proceeds of Kim Jong-un’s kleptocracy and applies U.S. law to third-party enablers which help North Korea finance and facilitate these illegal acts. It would demand a fundamental change in North Korea’s resistance to transparency, and progress on issues important to our regional partners, before the sanctions could be relaxed or lifted.

Similarly, the Senate also showed its impatience with President Obama’s strategic patience policy through its Intelligence Authorization Act which would require the administration to “describe the actions the United States is taking to support implementation of the recommendations of the United Nations Commission of Inquiry on Human Rights” in North Korea.

Neither sanctions nor diplomacy alone is a panacea, both are essential and mutually supporting elements of a comprehensive integrated strategy utilizing all the instruments of national power. The U.S. has strong tools,  it has just lacked the resolve to use them. Why, then, should the United States hesitate to impose the same legal measures against North Korea that it has already used with success against other countries for far less egregious violations of U.S. and international law?

Bruce Klingner is a senior research fellow for Northeast Asia at The Heritage Foundation. He previously served 20 years in the U.S. Intelligence Community, including as CIA’s Deputy Division Chief for Korea. The views expressed here are the author’s alone.

Photo from Stefan Krasowski’s photostream on flickr Creative Commons.

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