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Tightening the thumbscrews on Pyongyang without China

By Liang Nah - posted Friday, 11 November 2016


Thus far 2016 stands out as the year that the DPRK has been most active in perpetuating missile and nuclear aggrandizement. Specifically, under Kim Jong-un's orders, two nuclear devices have been detonated, the Hwasong-10 Intermediate Range Ballistic Missile (IRBM) was tested on eight occasions and the Bukgeukseong-1 Submarine Launched Ballistic Missile (SLBM) was tested three times. Apart from the fact that 1) North Korea's nuclear and missile programmes are subjected to direct financial sanctions under UNSC Resolution 1874 since 2009, and 2) the North's economy is directly impacted by various punitive measures included under UNSC Resolution 2270 implemented since March 2016 (such as the prohibition of coal, iron ore, gold, titanium ore and other valuable mineral resources from being exported from the DPRK), Pyongyang's nuclear and missile endeavours do not appear to be running out of steam.

Indeed, with the impoverished North Korean economy, the strict enforcement of all sanctions stipulated by all the UNSC Resolutions passed thus far should have crippled the Kim regime's nuclear weapons and missile programmes, forcing Jong-un and his advisors to negotiate their abnegation. However, this has not happened because mainland China, as the DPRK's sole treaty ally, has exploited a loophole in Resolution 2270 that allows the purchase of coal and iron ore from the North if the proceeds are "exclusively for livelihood purposes and unrelated to generating revenue for the DPRK's nuclear or ballistic missile programmes". Therefore, not only does the PRC continue to sustain the North Korean economy through aid, investment and trade, the former also enables the latter to circumvent UN mandated sanctions by buying prohibited exports under the cover of humanitarian grounds. Hence, due to Beijing's fear of triggering a North Korean economic crisis and resultant regime collapse through sanctions pressure, leading to Korean refugees streaming into China and the eventual presence of U.S. troops near its southern borders, the world has to brace itself for a nuclear arsenal under the command of one of the most mercurial and aggressive totalitarian dictatorships in existence.

Moving Forward Sans China: Banking and Financial Sanctions

Realising that China cannot be depended upon to conscientiously take serious punitive measures against its client state, it falls upon Washington, Seoul and Tokyo to "take up the slack" and compensate for Beijing's wilful leniency. Using Pyongyang's recent actions as a guide, and with common knowledge about the decrepit state of the North Korean economy, it is fair to surmise that Kim Jong-un is diverting the lion's share of the national budget towards nuclear warhead and missile funding. Accordingly, if action were taken against the DPRK economy, Jong-un would find it increasingly difficult to set off nuclear explosions, test missiles and eventually build a reliable but modest nuclear arsenal.

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One way of doing this, which Washington has already done, is to impose indirect sanctions where any companies or banks, whether American or foreign, found to have had banking transactions with North Korea, would be declared persona non grata and be denied access to the U.S. financial system. If Tokyo and Seoul also do the same, and bar those who transact with the North from their financial infrastructure, this would mean that those foolish (or desperate) enough to deal with the DPRK would be excluded from the banking and funding mechanisms of the world's largest, third largest and eleventh largest economies respectively. This would deter many from dealing with North Korea. Furthermore, Pyongyang's sole ally, the PRC, which deals extensively with the North's banks, will find its U.S., Japanese and South Korean centric business dealings under threat. This might coax Beijing into putting more counter nuclear and missile pressure on Pyongyang. Ultimately, this indirect financial isolation will weaken the DPRK's external trade and impose serious inefficiencies on its efforts to earn hard currency and procure imports, eventually leading to less money for nuclear warheads and their associated missiles.

Next, the U.S. could cast its punitive net wider by excluding or expelling North Korean from the entire formal international banking system. As was done with Iran, the DPRK's banks could be prohibited from using the services of the Brussels based Society for Worldwide Interbank Financial Telecommunication (SWIFT). In essence, SWIFT provides specialised financial messaging services for banks and other financial entities which want to transact globally. Without such services, international wired fund transfers are impossible and SWIFT is the preeminent service provider. At this time, a bill is being submitted to the U.S. congress which if passed, would sanction any entity providing such services to the DPRK's central bank or any financial institution assisting or having links to the North nuclear programme. As the latter's missile programme is designed to deliver the warheads of the nuclear programme, it can be seen as linked and sanctioned as one. Crucially, if SWIFT chooses to keep the DPRK's banks as clients (and it would most certainly not), SWIFT could find itself sanctioned by the U.S. government. Moreover, any enterprising financial messaging service looking to replace SWIFT as Pyongyang's banking middleman, would find itself harshly punished. Lastly, even if the bill isn't passed, the U.S. could request that the European Union, which does not support North Korean nuclearisation, and under who's jurisdiction SWIFT falls, compel the latter to sever all North Korean links.

What this indirect sanction means for Pyongyang is that even if anti-Western entities were willing to be excluded from the U.S., Japanese and South Korean financial systems and continue to trade with the North, the latter will have to pay for any imports and be paid for exports via large quantities of cash, or resort to barter trade. This places North Korea at a distinct disadvantage not only because of the inherent inefficiencies of cash or barter payment, but also because its trading partners know that Pyongyang has nowhere else to turn to, consequently changing high prices for DPRK bound exports, while demanding discounts for the latter's products. This will further stymie the North Korean national income, shrink the state budget and force austerity upon Kim's nuclear and missile programmes.

As for concerns that these punitive approaches would end up hurting normal North Koreans, since the objective is the general degradation of the official economy, such concerns do not carry much weight because typical citizens participate in an unofficial cash based economy divorced from the DPRK's banking system, and are hence shielded from the effects of these sanctions.

Cutting off African Support

Finally, in addition to unilateral exclusion from national banking infrastructure and deprivation of global financial messaging services, another policy lever to persuade Pyongyang to reconsider its nuclear and missile policies involves using diplomacy to convince the North's African friends that it is in their best interest not to purchase arms from the DPRK. Inasmuch as such business provides foreign currency earnings, its elimination might be the proverbial "straw that breaks the camel's back" for North Korean nuclear and missile ambitions.

Despite the fact that Pyongyang established close political ties during the Cold War with African socialist countries like Angola, Burundi, the Democratic Republic of the Congo, and Namibia among other states, the practical end of world communism in 1991 with the collapse of the Soviet Union, removes any ideological requirement that these states continue to be North Korean military clients in defiance of UNSC Resolution 2270, which bars all form of DPRK military exports. With this in mind, U.S., South Korean and even Japanese leaders or diplomats should visit Luanda, Bujumbura, Kinshasa and Windhoek amongst other capitals to convince them to sever all commercial military relations with North Korea, offering them the carrot of qualitatively better military products from Washington, Seoul or Tokyo. Alternatively, these nations could also be reminded that violating Resolution 2270 by continuing to consort with the North, makes them vulnerable to painful sanctions from the aforementioned trio of DPRK adversaries who wield much influence on the world stage. Indeed, this has already begun since President Park Geun-hye of South Korea visited Uganda in late May, and obtained President Museveni's assurance that military cooperation with North Korea would be discontinued. In return Park pledged greater military, infrastructural and energy cooperation between their two nations.

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Conclusion: A Longer but Potentially Successful Punitive Strategy

As elucidated through the three aforementioned isolating measures designed to starve the official North Korean economy, thereby indirectly depriving Pyongyang's nuclear and missile programme of the resources needed for sustenance and development, it is possible to take effective action against the latter without Beijing's approval or cooperation.

However, without the PRC tightening the economic thumbscrews on the DPRK via such means as cut-backs on imported coal from the North or even a temporary halt to oil supplied from China, any co-ordinated economic sanctions from the American-Japanese-South Korean Troika will require time to make its impact felt on Pyongyang. As such, it is important that there be political will behind this policy, even though Kim Jong-un might still have the resources to test a sixth nuclear device and/or fire off a few more IRBMs or SLBMs. The difference between losing heart and staying the course could mean a North Korea armed with a Pakistan style nuclear arsenal versus an economically desperate DPRK with a stagnating, miniscule atomic arms stash that is seriously considering negotiated disarmament.

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About the Author

Liang Tuang Nah is an Associate Research Fellow at the Institute of Defense and Strategic Studies, a constituent unit of the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.

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