It appears increasingly likely that, in spite of all the possible delays, working-level talks between the U.S. and North Korea are going to begin soon. These talks will be aimed at forging a compromise, usually referred to in Washington nowadays as a “small deal.”
Such a “small deal” will probably see the North Koreans dismantle or freeze some of their nuclear research and production facilities, while the U.S. agrees to ease some economic sanctions targeting North Korea – or, to be more precise, not object when the UN Security Council agrees to relax these sanctions.
It remains an open (and important) question, however, on whether the sanctions relief will be irreversible or not.
On the one hand, the five 2016-17 UNSC resolutions, which are ‘sectoral’ (that is, economic) sanctions, can be fully or partially abolished. But for all practical purposes, such measures are essentially irreversible.
Given the current state of relations between the U.S. and China, neither China nor Russia is likely to support a return to the unprecedentedly tough sanctions regime of 2017, no matter what happens in the future.
On the other hand, it is also possible that sanctions will just be “waived,” that is, put on hold for a limited period of time – maybe 12, or 18, or 24 months – and will then be automatically resumed if no further progress is made.
Such an option does not require a formal vote at the UN Security Council, meaning that sanctions waiving is, essentially, a reversible option.
At any rate, sanctions relief is certainly going to be seriously discussed in the near future. Thus, we face an important question: in which order should the 2016-17 ‘sectoral sanctions’ be lifted (or waived)?
This author, during a recent stay in Washington, DC, encountered this question a number of times, both in the corridors of power and in think tanks. So now is probably a good time to consider the issue.
It is sometimes suggested that sanctions could be lifted in the opposite order in which they were introduced in 2016-17. In other words, the latest of the five sectoral sanctions resolutions, the Resolution 2397, adopted on December 2017, should be canceled/waived first.
And then, eventually, when/if North Korea makes sufficient concessions, the remaining four ‘sectoral sanctions’ resolutions would be lifted one by one, with Resolution 2270, adopted on March 2016, being canceled/waved last.
This chronologically-based approach might have some advantages, but it appears more likely — and also more logical — that sanctions relief will be calibrated by areas of targeted economic activity.
At first glance, the ‘sectoral sanctions’ target four types of North Korean exports: labor, seafood, textiles/garments, and minerals. This short list includes pretty much all products in which North Korea has a competitive advantage on the international market.
If one sees sanctions, as well as their relief, as a tool to push North Korea’s development in a desirable direction, there is little doubt in which order the sanctions should be lifted.
It is sometimes suggested that sanctions could be lifted in the opposite order in which they were introduced
What is pushing North Korea towards a better future is its emerging market economy, as well as the spread of knowledge about the outside world.
Therefore, industries where private capital plays a major role should see relief first – frankly, this author believes that such sanctions should not have ever been introduced, but this is a belated lamentation. Therefore, it is the sanctions on labor exports which should be canceled/waived first.
Recently, we have seen a massive propaganda campaign which portrays North Korean overseas workers as modern-day slaves. While the working conditions are indeed very poor, this description is dead wrong.
Virtually every single overseas worker didn’t just volunteer for their job — they went to great lengths to be chosen as an alleged ‘slave laborer.’ Nearly all of them paid significant bribes to be allowed to work overseas. And, having finished their first tour of duty, most are very eager to go overseas again.
Their attitudes are understandable: while well over half of the workers’ wages end up in the state coffers, the remaining amount still makes overseas work highly attractive.
For example, in Russia, a North Korean worker can usually save around $1000 per year – even though the actual figures vary greatly from one worker to another.
This means that a standard three to five year trip to Russia brings the worker’s family around $5000, an amount of investment money enough to open a small kiosk in downtown Pyongyang, or alternatively, a shop in some countryside city.
Most of the money earned by workers overseas is usually given to the workers’ wives who, according to the now-established North Korean social practice, are likely to run small family businesses – food stalls, kiosks, garment repair shops and the like.
For the average North Korean, a work trip overseas is pretty much the only real chance to earn enough money to enter the world of small business, ensuring a relatively comfortable life for their family for years, perhaps decades, to come.
The second industry which should be relieved of pressure from sanctions is fishing, which is overwhelmingly privately-run in North Korea nowadays.
The large state-run fishing enterprises, once dominant in the 1970s and 1980s, all but disappeared during the Arduous March.
Nearly all fishing ships, which can be seen in such abundance near the Korean coast nowadays, are privately built and privately owned, even though most of them are technically registered with government agencies, state-owned enterprises, or military units.
Therefore, money which is earned from the catch goes to feed the growing private sector of the North Korean economy, improving its prospects, and probably encouraging more people to start their own businesses.
The third item on the list is textiles. Textile and garment production is largely owned by the state, even though private capital in the last 15-20 years has made some inroads in these businesses as well.
Private entrepreneurs typically have to disguise their investment through the same schemes used in fishing, as well as in many other industries: by officially registering a privately-owned enterprise as state property, most likely as a branch of some existing state-owned enterprise (SOE).
An additional advantage of canceling the textile export ban is that, if combined with a more lax attitude to investment in general, it will open an important avenue for cooperation with South Korea. In this regard, the textile industry is different from mining, where most overseas investment is likely to be done by Chinese companies.
Industries where private capital plays a major role should be relieved from sanctions first
Needless to say, closer interaction with the South will teach North Koreans about alternative ways to run their society and economy, and thus should be welcomed.
Last but not least, textile factories are widely dispersed across the country, so the money earned is likely to be distributed across North Korea.
This probably won’t do much to encourage social change, but it will definitely improve the lives of the people concerned.
Minerals should be at the end of the list. While private initiatives and private capital are present even in mining – especially in coal mining – nowadays, on balance, the industry is still dominated by the old socialist-style state-owned enterprises, some of which are under direct government/party/military control.
Minerals should be at the end of the list
Therefore, pretty much all money earned through minerals’ exports goes straight to the state coffers. While this is not necessarily a problem in and of itself, it will not help reformist trends.
Of course, the entire “sectoral sanctions” system is one of the factors hindering North Korea’s move towards a market economy. The significant slowing-down of North Korea’s market-oriented reforms after 2016, when the sectoral sanctions began to be introduced, is not incidental.
Many people believe that sectoral sanctions will push North Korea to the negotiating table.
This may indeed be the case. But the side effects of the sanctions regime are sizable, so one can only hope that the working-level talks will produce some agreement which, eventually, will significantly ease the pressure of the sanctions regime, and ideally will remove all, or nearly all, the sectoral sanctions.
Edited by James Fretwell and Oliver Hotham
Featured image: Kevin Lim/THE STRAITS TIMES
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