 The experts from left to right at The Korea Economic Institute of America (KEI) – Stephen Haggard, Troy Stangarone, Li Tingting, Liudmila Zakharova, William Brown. Image: Byeonghun Yu. |
Scholars and experts discussed tactics for
dealing with Kim Jong Un at a symposium called “International Sanctions and
Economic Relations with North Korea.” The event took place at the Korea
Economic Institute of America (KEI) on Thursday, March 24. As might be
expected, there are simply too many moving pieces for the experts to generate
consensus on what the long term effects of UN Security Council Resolution 2270
will be or whether China will fully implement the strict measures going
forward. However, the experts were able to illuminate a number of potential
alternative futures by analyzing the history and motivations of key regional
players. In this context, it is apparent that sanctions will not work as a
solitary measure imposed in isolation, but should be utilized as part and
parcel of a holistic strategy aimed at denuclearization and reform.
Inter-Korean trade was approximately U.S.
$2.5 billion in 2015. In 2016, the figure will likely drop to $0. With the
closure of the Kaesong Industrial Complex, the South Korean government closed
the door on the last remaining cooperative measure bridging the divided Koreas.
Troy Stangarone is KEI’s Senior Director of Congressional Affairs and Trade. He
forecasts five potential futures: a negotiated solution, long term sanctions,
sanctions leakage (less enforcement over time), policy shift, or the end of the
regime.
Mr. Stangarone believes that economic
engagement is inappropriate at the moment, but asked us to consider what kinds
of engagement might make sense in the future. He advocates for small scale
projects in rural areas that have a developmental and humanitarian flavor and
disapproves of projects such as the Mount Kumgang tourism area, which produce
cash for the regime but do little to modernize the North’s economy. He argued
that projects should ideally be implemented in stages, demanding more
cooperation and reform from the regime in return for more lucrative joint
projects and assistance. Thus, the possibility of economic revival should
function as an incentive and accelerator, driving reforms in the following
areas: Governance (national tax system, national budgeting and accounts
transparency) Labor (direct payment of workers by foreign firms, salaries set
by market, direct hiring/firing) and Logistics (internet and cell phone usage,
streamlined customs procedures, commitment to financing infrastructure).
To get a favorable outcome, Mr. Stangarone
argued that we need to understand why former South Korean President Kim Dae
Jung’s engagement strategy called “The Sunshine Policy” failed to produce major
structural changes in the North. Though entire books can and have been written
on the topic, Mr. Stangarone asserted that the core reasons are:
1. The engagement policy wildly diverged with
the more hardline U.S. approach at the time.
2. Since many of the ventures were guaranteed
by the South Korean government, North Korean firms were not motivated to
operate by market principles.
3. The difficulty of continuing a long term
policy with few short term benefits in a democracy that disallows a second
presidential term.
4. There were limited intercultural exchanges
to complement the economic interactions.
When it comes to the efficacy of the
sanctions, all eyes are on China. But Peking University Professor Li Tingting
cautioned against overestimating Beijing’s leverage over Pyongyang. Dr. Li
argued that since China’s trade surplus with North Korea decreased from U.S
$961 million in 2012 to $380 million in 2015, China now supplies relatively
less cash to the regime, and thus has proportionally less influence. In terms
of general trends, the volume of trade and mineral exports to China have
decreased since 2013. In a bid to increase independence and reduce the trade
deficit, North Korea has decreased overall Chinese imports and increased
exports in the textiles sector.
Much of this reposturing is a response to
the fraying ties that resulted from the execution of Kim Jong Un’s uncle, Jang
Song Thaek. A number of Jang’s pet projects – such as the N.K. investment
office in Beijing and the Huangjinping economic region – went kaput with his
demise. Professor Li underscored the regime’s ability to adapt to sanctions by
restructuring, and suggested Pyongyang is sensitive but not overly vulnerable
to China’s willingness to enforce the sanctions. While many in Beijing echo
this position, a good amount of North Korea watchers in Washington and Seoul
might take issue with this characterization. After all, North Korea’s trade
with China was 50% of its total trade volume in 2005, but skyrocketed to
approximately 90% in 2011 and has remained at that level ever since, according
to data from the South Korean Trade-Investment Promotion Agency (KOTRA). No
matter how convincing we find Professor Li’s argument, it’s important to
recognize what motivates Beijing’s reservations and assess just how much
leverage China has over the Kim regime.
University of California San Diego
Professor Stephen Haggard argued that we need to be careful what we wish for.
If China actually goes through with full enforcement of UNSC 2270, the North
Korean economy will likely suffer tremendous instability, currency depreciation,
and a spike in food prices, he argues. Even though the sanctions aim to cripple
the regime, they might end up causing widely distributed pain to the lower
rungs of the social ladder. In addition, China is expecting that the U.S. will
return to the negotiation table with North Korea in return for enforcing UNSC
2270. This invites some sequence problems for Washington.
The U.S. has demanded denuclearization as a
precondition for continued talks. So how can Washington return to the
bargaining table without losing face? The U.S. might be saved from having to
make this embarrassing decision by the fact that North Korea has shown no
interest in revamping the stalled Six Party Talks. But the question of how to
move forward still lingers. Another thing the U.S. will need to seriously
consider – secondary sanctions. Imposing sanctions on Chinese firms that
violate 2270 could invite hostility from Beijing and further complicate
cooperation when dealing with the “North Korea problem.” The Kim regime will
undoubtedly seize the opportunity to play two sides against the middle if given
the chance.
Georgetown Professor William Brown brought
up another puzzling aspect of East Asian economic relations: Why doesn’t
North Korea work with Japan to resolve the abductions issue so that they can
seek reparations and revive trade? North Korea’s trade with Japan nosedived
from over U.S. $200 million annually in the mid-1990s to $0 in 2006. Despite
this rift, Professor Brown asserted that North Korea and Japan’s economies are quite
complementary in nature. North Korea’s low wages, youthful population, and
abundant natural resources (including non-ferrous metals such as lead and zinc)
make for a good recipe. The countries’ economic incongruity means that the
North didn’t run up a trade deficit with Japan like it does with China.
Professor Brown contended that Kim Jong Un retains this “Trump Card” in his
back pocket and is simply waiting for the right time to strike. It might,
however, be difficult to reconcile reparations with the regime’s rigid juche
ideology, especially as the young leader looks to solidify his power base with
the upcoming Party Congress in May.
In concluding, Professor Stephen Haggard
argued, “Although the North Korean regime has been looked upon as clever for
surviving this long, we need to entertain the possibility that the leadership
has erred significantly.” By continuing to provoke its neighbors, North Korea
has driven them to unite in opposition, presenting the isolated country with
few pathways to diplomatic normalcy or economic revitalization. This difficult
situation demands a dynamic and nuanced approach from the neighboring states,
who will need to deploy a strategic mix of carrots and sticks to steer the
region away from disaster and towards mutual success.
