[Smart Q&A: John S. Park] The Limits of International Sanctions on North Korea Following the Third Nuclear Test

YouTube Link: video.eai.or.kr/130222_Sqa.flv

John S. Park is a Stanton Nuclear Security Fellow at the Massachusetts Institute of Technology (MIT). His primary research interest is the utility of financial sanctions as a nonproliferation tool, with a particular focus on the case of North Korea. From 2007 to 2012, he led the Northeast Asia Track 1.5 Project at the U.S. Institute of Peace (USIP). He advises on Northeast Asia policy for the U.S. Departments of Defense, State, Treasury, the National Security Council, and congressional committees. He led the North Korea Analysis Group project at Harvard Kennedy School and has worked in the privatization of U.S. military financing at Goldman Sachs, the M&A Advisory Group (Hong Kong) at Goldman Sachs, and The Boston Consulting Group’s Financial Services Practice (Seoul).

The Limits of UN Sanctions on North Korea Following the Third Nuclear Test

“Financial sanctions on North Korea are unlikely to be effective as long as North Korea conducts economic activities within China.”

It is necessary to pay attention to changes in North Korea's trade methods. North Korea's survival despite international sanctions under the previous four United Nations Security Council Resolutions (UNSCR) signifies that the North Korean regime has learned how to survive under sanctions. The majority of North Korea's current economic activities take place within China, which poses a significant obstacle to imposing stronger sanctions. While sanctions similar to the targeted financial sanctions on Banco Delta Asia (BDA) in 2005 are being discussed as realistic policy alternatives, they are unlikely to achieve the same effect as they did then, given North Korea's current direct activities within China.

The Limits of Unilateral Sanctions by South Korea, the U.S., and Japan

“South Korea, the U.S., and Japan have few means to further increase sanctions on North Korea.”

There are limitations to the sanctions that South Korea, the United States, and Japan can impose on North Korea. The problem arises from North Korea's method of conducting foreign trade through state-owned companies. These companies mostly operate within China, partnering with Chinese firms to conduct business in a manner where Chinese companies handle the procurement and sales on behalf of North Korean enterprises. Such transactions fall within the realm of private business, extending beyond intergovernmental activities.

North Korea can procure goods needed in the Chinese market. In line with globalization trends, foreign companies have established factories in China to produce goods targeting the Chinese market. Consequently, North Korean state-owned companies find it easier to procure 'dual-use equipment' through their Chinese partner firms. From the perspective of foreign companies, it is difficult to discern North Korea's involvement behind the scenes, as they are engaging in legitimate transactions with Chinese companies.

North Korea-Iran Cooperation and the Proliferation of Missile Technology

“The North Korea-Iran relationship is the key factor in the enhancement of both countries' missile capabilities, yet most overlook this fact”

The North Korea-Iran relationship is the key factor in the enhancement of both countries' missile capabilities. Most researchers and government officials tend to view the close relationship between the two as benefiting only one party. While it is true that historically there were times when only one side benefited—for instance, North Korea supplied missiles to Iran during the Iran-Iraq War—the close cooperative relationship between the two countries has evolved into a mutually beneficial one today.

A notable case is North Korea's acquisition of Russian rocket technology through Iran. In 2005, Iran faced difficulties in developing its own missile program and eventually succeeded in launching the Omid satellite into orbit in 2009 with the assistance of Russian firms. The successful launch of the Unha-3 in December 2012 was possible because North Korea was able to acquire the technology that Iran had obtained from Russia.

International Measures to Prevent the Proliferation of Nuclear and Missile Technology

“Above all, it is crucial to understand the nature of the Iran-North Korea trade network.”

“Most military, transportation, and procurement activities are conducted through commercial means.”

It is necessary to understand the nature of the Iran-North Korea trade network. The two countries' solidarity is built not through direct cooperation but through intermediaries such as Chinese companies. Furthermore, transactions within this cooperative process are handled through cash payments or via financial institutions in China, rather than traceable wire transfers. Only by understanding the flow, structure, and cash payment methods of these bilateral transactions can one grasp how North Korea and Iran are circumventing international sanctions.

To disrupt the Iran-North Korea trade network, it is essential to identify the role played by Chinese private companies in the transactions between the two countries and to carefully track how they act as agents for North Korean state-owned companies. Although trade between Iran and North Korea occurs within China, it often utilizes Southeast Asian ports. Concentrating measures on Southeast Asian ports, which are relatively easier for the international community to monitor, could be a viable strategy.

The North Korea Issue and China-U.S. Relations

“Both the U.S. and China recognize the resolution of the North Korea issue as a priority, but their approaches differ.”

While China-U.S. relations have been developing, a robust cooperative relationship has not been established. Issues of mutual distrust persist, and efforts for confidence-building are necessary. Both the U.S. and China recognize the resolution of the North Korea issue as a priority, but they exhibit clear differences in their threat perceptions.

China's national interests prioritize stability on the Korean Peninsula and the promotion of North Korea's reform, opening-up, and economic development. China tends to view the North Korean nuclear issue as something that can be naturally resolved once regional stability and North Korea's economic development are achieved. This conflicts with the U.S. position, which perceives nuclear terrorism as the most severe threat. As North Korea's nuclear weapons program advances, the threat of nuclear proliferation perceived by the U.S. inevitably grows.

Both the U.S. and China share a common interest in the goal of North Korea's denuclearization. However, they remain unable to bridge their differences on the methods to achieve this goal. The 'Iran, North Korea, and Syria Nonproliferation Accountability Act of 2013' being pursued by the U.S. House of Representatives is a prime example. This act includes Chinese companies among potential sanctions targets. However, due to the complex corporate structures maintained by Chinese companies based on their experience operating through past sanctions phases, it is difficult to implement sanctions that would be truly effective. While such legislation may hold political significance, devising practical measures to block North Korea's external trade via Chinese intermediaries is exceedingly challenging. ■

The East Asia Institute (EAI) is financially supported by the MacArthur Foundation. EAI conducts Smart Q&A interviews with domestic and international experts in video format, aiming to provide timely and in-depth analyses of current issues through question-and-answer sessions with experts in relevant fields. This manuscript was translated by intern Gyu-sang Sim (Konkuk University) and researcher Yang-gyu Kim (EAI Center for Asian Security Studies) from the interview content compiled by Stephen Ranger, a researcher at EAI's Center for Asian Security Studies. The opinions expressed herein are those of the individual expert and do not represent the official position of the East Asia Institute. Please cite the source when quoting from Smart Q&A.