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North Korea: Witness to Transformation

Executive Order 13570: What Does It Really Mean?

by and Marcus Noland | April 28th, 2011 | 07:49 am
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The two of us have been arguing over what EO 13570 means. Sitting out on the West Coast, Haggard had the temerity to simply read what it said:

“Except to the extent provided in statutes or in licenses, regulations, orders, or directives that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the date of this order, the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea is prohibited.”

If English is still English, “pursuant” means “following” or “in accordance with,” which would mean that unless and until the Executive, Treasury or the Office of Foreign Asset Control (OFAC) drafts such “statutes, licenses, regulations, orders, or directives,” then imports from North Korea are banned, period. Moreover, the plain English meaning of “notwithstanding” is also straightforward. “We don’t care what licenses you have been granted, contracts you have signed, or even if some container of ginseng and  Pyongyang beer is en route. As of the date of the order, imports are banned. Period.”

But Noland, sitting in Washington with his ear to the ground is hearing sustained noises that English is not English and the EO is not designed to alter the status quo. Per his earlier post, the objective was simply to signal strongly that the KORUS is not going to create a loophole for slave labor imports from Kaesong.

First, some background on our incredibly complex sanctions regime (the National Committee on North Korea has an excellent resource page on all of this).

Following the outbreak of the Korean War in 1950, the US imposed comprehensive economic sanctions under the 1917 Trading With the Enemy Act, legislation originally enacted in the context of World War I and subsequently updated in 1977 through the International Emergency Economic Powers Act.  A limited number of these restrictions were eased in February 1995 as part of the implementation of the October 1994 Agreed Framework, with the US government permitting an expansion of communications and financial linkages between the US and DPRK and the export of some raw materials from the DPRK to the US.  Other types of economic exchange were possible, but required obtaining waivers from the US Treasury’s Office of Foreign Assets Control (OFAC).

This regime changed significantly in June 2000 when, following a September 1999 long-range missile testing moratorium agreement, all but a few of the remaining trade restrictions were removed.  Restrictions under the multilateral Wassenaar Arrangement (of which both the US and South Korea are participants) on the sale of weapons and missile-related technology, unlicensed export of dual-use technology and items that could have military uses were retained.

In order to maintain commitments under the export control regimes, importers of goods from North Korea to the US are required to obtain prior approval from OFAC. They must certify that the products were not produced by North Korean entities designated as having engaged in missile proliferation, for example. Subject to this condition, approval is routine. US government officials indicate that they receive only a handful of such requests each year; we have repeatedly emphasized that the business conditions in North Korea and the overall risks posed by the country generate impediments to bilateral trade even if sanctions were relaxed.

The relaxation of sanctions in the wake of the missile moratorium was done through administrative fiat and was intentionally reversible:  if the North Koreans resume long-range missile testing, the US could re-impose sanctions.

Trade restrictions were subsequently broadened in the wake of UN Security Council resolutions 1718 and 1784 which blocked the export of weapons and luxury goods to North Korea.

In sum, with exception of military-related products and luxury goods, at present there are few legal restrictions on the ability of Americans to export to or invest in North Korea.  Imports are subject to a prior approval process, but this is based on a transparent and narrowly delineated certification requirement.

A final foonote. North Korea is obviously not a member of the WTO. Thus while the removal of sanctions would appear to put US-DPRK trade relations on a more normal footing, this is not exactly the case. Without Normal Trade Relations (NTR) (née most favored nation (MFN)), exports from North Korea to the US are subject to the so-called “column 2” tariff rates, in effect, the statutory rates established by the infamous Smoot-Hawley Tariff Act of 1930.

Got that?

To resolve our dispute, we sent some notes around to the invisible college and got great responses from a number of people who chose to remain nameless. The conclusions tilt slightly—but not wholly—to the Noland view.

  • The EO does not mention investment or exports to North Korea, so this cannot be considered a total embargo.
  • We still hold to our political theory of the issuing of the EO.
  • But the language has sown confusion, with others mistakenly reaching the Haggard, plain-English interpretation. It would certainly seem that new regulations would have to be drafted; it has been suggested to us that such efforts are in the works.

Whatever assurances we may want to send to the North Koreans now or in the future are now further complicated by having yet another layer of authorities in place, this time in the form of an executive order. Even if we did want to unwind sanctions—not now in the cards—the US sanctions regime looks a lot like Churchill’s description of Soviet Russia as “a riddle wrapped in a mystery inside an enigma.”