In a Q&A, SK Center Fellow Yong Suk Lee discusses U.S. policy toward North Korea and the viability of 'secondary sanctions'

North Korea launched its first intercontinental ballistic missile (ICBM) on July 3, a first for the country that has increasingly advanced proliferation and testing over the last three years despite condemnation from the international community.

The United States, following the ICBM launch, called for additional efforts to cut-off flows of currency into North Korea. Officials have said, as part of the proposals, they are considering ‘secondary sanctions’ that would target companies and financial institutions that deal with North Korea even beyond those already banned by U.N. Security Council resolutions.

Just returned from Seoul, SK Center Fellow Yong Suk Lee spoke with Shorenstein APARC about the effectiveness of historical sanctions on North Korea, one of his research areas. He also shared thoughts on U.S. policy toward North Korea and the viability of new sanctions.

Could you describe how sanctions have historically been applied on North Korea? What do they generally look like in terms of scope and whom do they often target?

Sanctions generally fall into three different categories: trade, travel and financial transactions, and in the case of North Korea, all three kinds have been applied. Trade sanctions, for example, have focused on minerals, technology and energy sources, with the goal of hindering the purchase of products that could aid in weapons development. Financial sanctions, for example, have sought to control flows of money to and from certain individuals and entities associated with the government. Whether sanctions are applied multilaterally through the U.N. or unilaterally, it’s difficult to enforce them especially in a country as closed-off as North Korea. It’s also difficult to identify how to draw the line between sanctions that only punish the bad behaviors of a few versus those that affect the broader population: that’s a balance policymakers attempt to strike.

Your research has looked at the impact of sanctions in both rural and urban areas of North Korea from the 1990s through the 2000s. How did you analyze their implementation and performance? In a technical sense, have sanctions been effective?

In the 1990s, sanctions on North Korea relaxed in concert with the Sunshine Policy, an effort by the South Korean administration under Kim Dae-jung to engage North Korea. By the early to mid-2000s, the international community began to increase sanctions again as North Korea continued its nuclear and weapons development. The goal of my research in analyzing those two time periods was to compare and understand the impact of sanctions within North Korea, particularly the impact on its domestic economy. Since there’s not much subnational data available, I identified a proxy for economic activity – nighttime lights as seen from outer space – that acted as an indicator of consumption, production and energy allocation across North Korea.

I found that certain areas became relatively brighter than other areas when sanctions increased. The capital Pyongyang, cities that share a border with China, and pockets where manufacturing is clustered all became brighter. This result indicates that sanctions were effective in a technical sense, yet were ineffective in reaching their intended target. The North Korean regime has found ways to reallocate resources toward urban areas where government officials and elites reside.

How has North Korea evaded potential effects of sanctions in the past?

North Korea has avoided effects of sanctions through internal actions, such as redistribution of resources to government officials and elites, like those patterns identified in my research, and also though external actions, such as trade with other countries. Increasing financial activities and trade with neighbor countries fills in some of the gaps caused by sanctions. North Korea has also maintained ties with African, Southeast Asian and Middle Eastern countries, some of which receive migrant workers from North Korea. Those workers often send remittances back to acquaintances in North Korea, thereby supporting its economy.

In a recent report, you’ve written about China’s relationship with North Korea and how that relationship has aided in the development of markets. Can you describe how the two are tied?

The relationship between China and North Korea is close. By sheer numbers, around 80 percent of North Korea’s trade is with China. All sorts of goods are exchanged through China. For example, goods produced in Western countries that are barred from directly trading with North Korea are often funneled through China. Especially outside of urban areas, North Koreans seek goods from China because they can’t otherwise access them. They also make money by selling goods, mostly minerals, to China. The China-North Korea border is quite porous, so you have a situation where a large number of individuals are engaging in small transactions, and although they may be disparate, the transactions add up.

Is there a strategy that provides hope that China will step up pressure on North Korea?

A lot of the debate, especially in the United States, is about putting pressure on China to do something about North Korea. But if you take a step back and think about it from the Chinese perspective, I think a valid question to ask is: why would China be interested in pressuring their neighbor? For the United States, the main issue with respect to North Korea is the nuclear threat. For China, Japan and South Korea, however, the main issue is not necessarily the nuclear threat but instead the issue of regional stability. So, while China remains important, it is one of many actors that are involved in addressing challenges related to North Korea. I think that point is largely missing from the debate.

U.S. policy has maintained that sanctions will encourage the North Korean regime to change its behavior. Could additional sanctions help?

New sanctions might help. If the intended goal is to decrease flows of currency into North Korea, it would make sense to impose sanctions on Chinese entities or individuals since they remain North Korea’s most prolific trade partners. But the question remains: would it encourage the Chinese government to change its position, and in turn, the North Korean government to bow to additional pressure? From my perspective as an economist, I don’t think enough incentives are at play for either country to react significantly. North Korea is one of the poorest countries in the world, and as history has shown, poor countries can survive in that manner for a long time. They find ways to adapt. Additionally, North Korea has nuclear weapons and the government sees them as leverage for maintaining the status quo.

What should officials keep in mind when considering sanctions?

Sanctions by their very nature are meant to inflict some harm, and that aspect alone does not sit well with the North Korean government. This, however, is where U.S. policy currently stands. It is caught in a deadlock. On one hand, the United States feels an immediate need to discipline the regime for its repeated missile launches under grounds that it threatens national security, and on another hand, the United States does not recognize North Korea’s nuclear program. Given this context, there is little room to consider tools of engagement.

There’s clearly no easy solution to the challenges posed by North Korea, and whatever the solution may be, it will consist of many steps. Over the long-term, I think slowly relaxing sanctions and pursuing quiet engagement with North Korea has greater likelihood of success. Putting aside political leadership and ideology for a moment, if North Koreans had an opportunity to engage in limited economic activities, it could create incentives. Economic development is already changing North Korea and might be its greatest motivation to come to the table to talk about change.

The United States has placed unilateral sanctions on other countries such as Iran, for example, which negotiated the 2015 nuclear deal, and Cuba, which saw opening and reforms in 2016. Do those cases provide lessons that could be applied to the North Korea case?

Iran, compared to North Korea, has a much larger population and holds a prominent position on the world’s stage. Sanctions on Iran carry weight because of the country’s economic ties across the world. That’s one aspect to keep in mind. Another is that Iran isn’t a totalitarian society. The government has to respond to its people to some degree. So, in general, there are more incentives that exist in Iran that could have influenced the decision to negotiate the 2015 Nuclear Deal.

As for Cuba, the case is also unique. The U.S. trade embargo that existed following the end of the Missile Crisis of 1962 lasted for decades not because of a continued existence of nuclear weapons, as in the case of North Korea, but I believe because of ideological issues that remained between two countries. Cuba wasn’t as isolated either, so it was able to conduct business with many countries during that time period. Sanctions have recently been lifted by the United States due to the passage of time and diplomatic efforts.

Researchers urge Moon Jae-in to form a close working relationship with Donald Trump and to establish a new special envoy role for North Korea policy emulating the “Perry Process”

Researchers from the Shorenstein Asia-Pacific Research Center (APARC) said they are optimistic about the election of South Korean president Moon Jae-in who assumed office last week following waves of protest across the country.

Now that the vacancy left in the wake of former President Park Geun-hye’s impeachment has been filled, the South Korean government needs to work to strengthen bilateral relations with the United States amid escalating tensions in Northeast Asia, they said.

The Moon administration should immediately engage U.S. President Donald Trump and his senior staff at the White House and government agencies, said Kathleen Stephens, the William J. Perry Fellow at Shorenstein APARC.

“Moon would do well to establish a personal relationship with Trump,” said Stephens, who was U.S. ambassador to South Korea from 2008 to 2011. “The new administration must set up a meeting as early as possible and be ready to engage on a range of issues.”

“In a sense, Moon has to play catch-up,” said Shorenstein APARC Director Gi-Wook Shin, who noted that Trump already held in-person meetings with other Asian heads of state in the United States, including summits with Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe.

Shin added that a coherent U.S. strategy toward Asia and senior staff appointments in the State and Defense Departments would also aid in supporting the foundation upon which the South Korean and American governments work together on policy challenges, especially North Korea.

North Korea’s nuclear and missile capabilities have become more and more advanced over the past few months, and provocations have continued to ratchet up, including its firing of a ballistic missile that landed in the sea near Russia on Sunday and repeat threats to conduct a sixth nuclear test.

The Moon administration must focus on establishing trust and cooperation with the Trump administration because it is the only pathway to finding a resolution to North Korea’s program, said Siegfried Hecker, a senior fellow at the Center for International Security and Cooperation, an additional center in the Freeman Spogli Institute.

“Any solution must be compatible with the interests of Seoul, but it has to be done in concert with Washington to get Pyongyang’s attention,” said Hecker, who served as director of the Los Alamos National Laboratory and has traveled to North Korea seven times since 2004 to survey its nuclear facilities.

During the campaign, Moon repeatedly spoke of his proposals to reengage the North Korean regime, such as holding talks with its leader Kim Jong-un and re-opening Kaesong Industrial Complex, a joint economic zone on the North Korean side of the border.

Stephens and Shin said Moon’s proposals for North Korean engagement would be a step in the right direction if pursued in due time and led under the direction of a special envoy from South Korea emulating the American “Perry Process.”

The Perry Process, proposed by former U.S. Secretary of Defense William Perry and implemented in the late 1990s under the Clinton administration, entails the appointment of a senior-level, bipartisan representative to pursue a two-track approach of engagement through joint projects and of continued dialogue on denuclearization with North Korea.

Appointing one person in South Korea to lead North Korea policy would help centralize and streamline its organization, which currently requires coordination of activities across dozens of government agencies, the two researchers noted.

“We recognize that establishing such a position and filling the position would be far from easy,” said Shin, co-author of the study Tailored Engagement. “But the magnitude of the nuclear crisis requires restructuring the way in which the South Korean government deals with North Korea, achieving domestic consensus, and shoring up international support for its efforts.”

The United States, China, Japan and Russia are the key international countries concerned with the peace and stability of Northeast Asia, yet South Korea has both an acute need and the potential to assume greater leadership of North Korea policy, said Shorenstein APARC Fellow Thomas Fingar.

China, as North Korea’s largest trade partner, exercises influence over North Korea by maintaining a commercial relationship in the hope of avoiding a collapse of the regime. Yet, its leverage only goes so far, he added.

The Moon administration should consider the limits of Chinese influence before making policy decisions regarding North Korea, Fingar said, for example, whether to freeze or remove the U.S. anti-ballistic missile system, Thermal High Altitude Area Defense (THAAD), deployed last April in South Korea, which the Chinese government strongly opposed.

“There is little that Beijing can or will do that would persuade Pyongyang to be more receptive to initiatives from Seoul than it would otherwise be,” said Fingar, a China specialist who served as chairman of the U.S. National Intelligence Council. “Seoul should not ‘pay’ much to obtain Chinese assistance because China already supports reengagement and would not do more no matter what Seoul offered as an inducement.”

It is of vital importance the Moon administration seeks to strengthen trilateral cooperation between South Korea, Japan and the United States, and to consider holding a summit to address areas of collaboration, all of which would function alongside the China-Japan-South Korea trilateral structure toward creating stability in the region, according to Daniel Sneider, associate director for research at Shorenstein APARC.

“Such cooperation is essential to the security of the region – without it, the United States cannot fulfill its obligation to defend South Korea against the threat posed by North Korea,” said Sneider, who leads the Divided Memories and Reconciliation research project. “Moreover, it’s in the interest of all three countries to tighten such cooperation to balance the rise of China.”

The Moon administration should, above all else, take time to consider its first steps despite pressures to perform early, said Michael Armacost, a fellow at Shorenstein APARC who held a 24-year career in the U.S. government.

“Getting things right is more important than making a quick splash,” said Armacost, a former U.S. undersecretary of state for political affairs. “I would advise any new president to proceed at a deliberate pace, focusing particularly on the key personal issues first, and consulting widely before enunciating major policy departures.”

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Stanford scholars are encouraging the new administration to consider steps to alleviate the uncertainty and anxiety felt by countries in East Asia about U.S. intentions toward the region.

President Donald Trump’s anti-China rhetoric during his campaign and his recent withdrawal of the U.S. from the Trans-Pacific Partnership have contributed to the unease in the region, which is drifting in ways that are unfavorable for American interests, they said.

Stanford’s Walter H. Shorenstein Asia-Pacific Research Center (APARC) recently published a 27-page report with recommendations on topics of trade and defense that would improve relations between the U.S. and Asian countries. The report, co-authored by eight Stanford scholars, is aimed to help shape U.S. policies in the region.

“The advent of any new administration provides an opportunity to reassess policy approaches,” wrote Gi-Wook Shin, director of the Shorenstein center. “A new mandate exists, and it is our hope that that mandate will be used wisely by the new administration.”

Trade and defense

The biggest trade concern for experts in the region is President Trump’s decision to withdraw the U.S. from the Trans-Pacific Partnership (TPP) and his intention to focus on bilateral agreements instead of multinational pacts.

The agreement, which bound 12 countries in the region by a set of international trade and investment rules, had problems, Stanford scholars said. For example, some have criticized the treaty for not requiring full compliance with international labor standards for all the participating countries. Also, the rules of origin, which were supposed to give preferential treatment to countries in the TPP, were deemed to be weak by many, allowing goods produced outside the TPP to receive benefits.

But it would not be wise or efficient for the U.S. to start negotiations from scratch in the region because the U.S. withdrawal from the agreement, which was touted as a model for the 21st century, already has hurt its credibility with other Asian countries, said Takeo Hoshi, director of the Japan Program at the Shorenstein Center. In addition, Asian countries view the idea of bilateral agreements as an attempt to force trade deals on them that disproportionately benefit the U.S., he said.

“The TPP was not perfect and many problems remain, but they are not removed by abandoning the TPP,” Hoshi wrote in the report. “Completely abandoning the TPP could hurt not only the U.S. economy but also erode U.S. leadership in Asia.”

Hoshi said the U.S. should rely on aspects of TPP that are consistent with the current U.S. trade policy when creating new bilateral agreements, while maintaining and improving existing free trade agreements with other Asian countries.

Another immediate concern for scholars is the maintenance of security and stability in the region.

“The region is unsettled because of uncertainty about us,” said Thomas Fingar, a Shorenstein APARC fellow. “The U.S. has long served as the guarantor of prosperity and security in the region but Asians are no longer convinced that we have the will or ability to do so. This has real consequences … It’s not simply because they are already beginning to act as if we intend to play a less active or positive role.”

If China’s national power and economy continue to expand, it will become increasingly difficult to maintain stability in the region if the U.S. does not continue to play a constructive role. Possible dangers include escalation of tensions between China and the U.S. or its allies following accidents or tactical encounters near areas over which China claims sovereignty.

In the report, scholars recommend a comprehensive review of security in the region to make sure military plans are in place that prioritize management of a possible collapse of North Korea or a sudden military strike coming from the country. Other priorities should include peaceful resolution of China-Taiwan differences and ensuring military access in the South China Sea and East China Sea, wrote Karl Eikenberry, director of the U.S.-Asia Security Initiative at the Shorenstein Center.

“The United States also should engage in a more long-range, exploratory strategic dialogue, first with allies and partners, and then with Beijing, to identify potential areas of mutual interest that can help prevent the unintended escalation of conflicts and reduce already dangerous levels of misperception and mistrust on both sides,” Eikenberry wrote.

China is key

Maintaining a peaceful, productive relationship with China should be of the utmost importance for the U.S., according to the Stanford scholars.

“Managing America’s multifaceted relationship with China is arguably the most consequential foreign policy challenge facing the new administration,” Fingar said.

Although President Trump’s anti-China rhetoric during his campaign made Asian countries anxious about the future, China has been criticized by many American leaders before. Ten previous U.S. presidents were critical of China during their campaigns, but once they assumed office, their tone changed and they adopted a more pragmatic view of U.S. interests in the area, Fingar wrote.

However, while in the past China’s political moves have been predictable for the most part, now that its economy is slowing, the country is increasingly relying on social control and nationalism to reinforce regime legitimacy. This makes China less predictable, according to Fingar.

But the scholars say that there are several opportunities to approach the relationship with China in a way that is beneficial for the U.S. and the rest of the region.

One such opportunity would be for the U.S. to declare its willingness to join China’s newly created Asian Infrastructure Investment Bank, which was formed in early 2016 to support construction projects in the Asia-Pacific region. This would be an “any outcome we win” opportunity that would showcase the U.S. desire to cooperate with China and help establish the region’s confidence in the U.S., Fingar said.

The new administration should also consider pushing for a quick completion of a Bilateral Investment Treaty with China – something that two previous U.S. administrations were not able to achieve. Creating this agreement would help protect things that are important to the U.S. businesses and reassure the willingness of the U.S. to deepen its relationship with China, according to Fingar.

“In my view, how we’re going to establish or reestablish relations with China is key,” Shin said. “Will there be more tension? That’s really important. This affects not only the U.S., but also our allies in the region.”

Alex Shashkevich is a writer for the Stanford News Service.