How Sanctions Stop Legitimate North Korean Trade

Will the third nuclear test lead to new sanctions that make legitimate business even trickier?
February 18th, 2013
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With North Korea’s third nuclear test likely paving the way for another round of sanctions at the United Nations in the coming weeks, it looks like business and enterprise in the DPRK is about to get even more difficult. Having endured tightening UN sanctions for years, it’s not clear yet what sanctions architects have in mind to punish Pyongyang for the latest test. But while it is often claimed that sanctions are only designed to interfere with the activities of the leadership and military, their often blunt characteristics mean there is always a risk that normal trade will be put at risk. With this in mind, what must it actually be like for North Koreans and foreigners trying to conduct legitimate business on the ground in North Korea?

Having lived and worked in North Korea for seven years as a foreign businessman, Felix Abt’s experiences showed him first hand how sanctions make it difficult, if impossible, to conduct legitimate business in areas that would otherwise be regarded as sacrosanct in other countries.  In the third of several excerpts to be published from his new book, NK NEWS brings you Abt’s account of how sanctions affect ordinary North Koreans.


Given the country’s troubled history and estranged political position, it would be fair to look at the isolationism and socialist red tape from the view of North Koreans. Few other countries have had to deal with the massive quarantines that Western and Asian powers have enclosed around the North Korean economy. Unfortunately, these often unjust penalties were upsetting for doing business and only worsened the prospects for North Korean development.

Any capital in the world, regardless of its political system, should have a sewage system that protects its residents from water-borne diseases like cholera, a scourge of the developing world. But when Pyongyang’s Russian-built water supply and drainage system needed to be overhauled due to leakage and water losses reported as high as 50 per cent, the state made an international tender call for a project that would turn out ill-fated due to bilateral U.S. sanctions on North Korea.

The Kuwait Fund for Arab Economic Development, a financing body for development projects run by the Kuwaiti government, offered $20 million to fund the undertaking—an ironic donor, considering the country was (as it is today) a close ally of the U.S.  My then employer, ABB, was familiar with the Australian consulting firm that managed the project on behalf of the Kuwaiti fund and had good connections with the Pyongyang People’s Committee. In an attempt to get that contract, my Korean staff tapped into their contacts that would lead us to the government decision makers. We fed the People’s Committee with technical information on the project’s center piece, our SCADA control system for the water purification system, which I was hoping they would agree to using. My staff and I were sure that we would win this tender.

But once again, trade embargoes got in the way. The SCADA-system runs on PCs with Microsoft software, causing our company’s head of this division (who was an Indian man living in the U.S.), to get nervous about participating in the tender competition with an offer. The consequences could be disastrous for his portfolio in the U.S. if the government chose to enforce sanctions.

I argued that the American software constituted only a minuscule portion of the whole scope of supply, and that they should ask for a formal permit to get the U.S. approval. This move would have likely been no problem, as Microsoft software didn’t constitute technology that could be used for military purposes. They replied that it would take a long time for the request to move through the cumbersome bureaucracies in Washington. It was a loss for us and for North Korea, and one that made my staff furious after all their long hours that went into marketing our idea.

On another occasion in 2008, I had to fear for the survival of my pharmaceutical factory, PyongSu, a company into which I put my heart and soul. I was its managing director around the same time the United Nations slapped even more sanctions on North Korea in the mid-2000s in protest of its nuclear test. In a very poorly timed move by international groups, I was no longer allowed to import certain chemicals for laboratory tests even though they were designed to bring better health-care to the bucolic countryside. We were left without the chemicals we needed to analyze our product samples and ingredients to ensure they were free of contamination.

Later the Chinese authorities confiscated a parcel of reagents at the Air Koryo storage room in Beijing that we had ordered before the international community put sanctions on Pyongyang. I called the Chinese embassy in Pyongyang to protest who said that they, or government contractors acting on their behalf, would inspect the use of imported chemicals at our factory.  The proposal was embarrassing to the Chinese, who didn’t want to get involved in any brewing disputes with the Western countries. But they equally didn’t want to be accused of taking a lax stance on North Korea. Luckily, we found suppliers within North Korea, so we could avoid the headache and legal risks of importing the supposedly “illegal” products ourselves.

These are just two examples of how sanctions, applied in a short-sighted way, can hurt regular people who need health-care instead of the government they’re targeting.

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To find out more about Felix Abt’s new book, “A Capitalist in North Korea“, visit his website or make a purchase directly from Amazon here. Find Felix on Twitter @felixabt

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About the Author

Chad O'Carroll

Chad O'Carroll founded NK News in 2010. He is based in Washington, D.C.

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