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North Korea: Witness to Transformation

Welcome to the minefield: life beyond sanctions

by | May 9th, 2011 | 07:51 am
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The recent controversies over Executive Order 13570 have refocused attention on the web of regulations that constrain economic exchange between the United States and North Korea. Beyond the issues associated with direct bilateral trade, US economic diplomacy toward North Korea is conditioned on a variety of laws which use restrictions on economic relations as an enforcement mechanism for international agreements on non-economic policy concerns, or for encouraging desired action or behavior in other policy areas.

The bilateral economic relations are affected by North Korea’s exclusion from US government programs that, in effect, subsidize trade and investment. The US government unilaterally subsidizes international trade through Export-Import Bank financing and outbound foreign investment through Overseas Private Investment Corporation (OPIC) guarantees.  As in the case of Normal Trade Relations tariff status, North Korea is among a handful of countries ineligible for these programs because of their status as Marxist-Leninist states.  (There is a certain degree of arbitrariness in US policy in this regard – China is eligible for Ex-Im loans but not OPIC guarantees; for Laos it is the other way around.) Even if North Korea were able to convince US authorities that it was no longer communist, under current conditions it still would not qualify for these programs due to its repression of workers’ rights, and in the case of the Ex-Im Bank, the country’s withdrawal from the Nuclear Non-Proliferation Treaty. The US is under no affirmative obligation to include North Korea in such programs however, and many American economists regard these programs as undesirable examples of corporate welfare.

Lending activity at International Financial Institutions (IFIs) such as the International Monetary Fund, World Bank, and Asian Development Bank is another area in which US economic diplomacy impinges on the DPRK.  Although the degree of discretionary authority differs across issue areas, the US Executive Directors at the IFIs are instructed to vote against lending and technical assistance to countries that are designated by US authorities as being state sponsors of international terrorism, drug trafficking, the proliferation of chemical and biological weapons, and the egregious abuse of human rights, including religious rights. The US  Commission on International Religious Freedom, an independent federal government commission, recently listed North Korea, along with 13 others, as a country of particular concern (CPC).
 

Although the government of North Korea has been removed from the US government list of state sponsors of terror, legislation introduced by Rep. Ros-Lehtinen and others would effectively mandate it’s relisting. The DPRK continues to harbor a few aging Japanese Red Army airline hijackers however, and providing sanctuary to airline hijackers by recipient governments is one of the specific triggers for US opposition to lending by the IFIs.  With respect to narcotics, despite apparent involvement in the production and trafficking of drugs by the North Korean state, in its annual reports, the US declined to list the DPRK as a major producer or trafficker of illicit drugs. However, even if North Korea’s terrorism delisting opened up access to the IFIs in principle (as well as to other benefits such as eligibility for the trade privileges under the generalized system of preferences (GSP)) the narcotics issue looms as another potential impediment. Whether North Korea would be willing to accept the articles of membership of these institutions is another issue, and past DPRK behavior leaves some room for doubt on this point.

The government of the DPRK is probably worst state abuser of human rights extant, and it would be hard to certify North Korean human rights practices under any meaningful criteria.  That said, under existing US laws the executive probably can act with more discretion with respect to the human rights requirements than those relating to workers’ rights, the proliferation of missiles and weapons of mass destruction, terrorism, or drug trafficking.  The implication is that while the North Korean human rights situation is utterly abysmal, it probably places less of a constraint on US-DPRK economic interaction than the other issue areas.

Lastly, North Korean state involvement in the smuggling of endangered species parts also runs afoul of US policy.  Due to repeated instances of North Korean diplomats using diplomatic pouches to smuggle endangered species parts, the DPRK was issued a formal diplomatic demarche by the secretariat of the multilateral Convention on the International Trade in Endangered Species – the only government to have achieved this dubious distinction.  Some might question the importance of protecting endangered species in the overall scheme of things, but regardless of one’s values, the issue is of prospective political importance, precisely because it puts the DPRK in the cross-hairs of yet another US political constituency – one that has shown a tendency in the past to regard economic sanctions as a perfectly reasonable tool to encourage compliance with international agreements – even with respect to non-signatories.  At this time, the ability to bring sanctions to bear against foreign sponsors of this kind of activity is limited.  But it would not be surprising if environmental provisions were added during the periodic legislative reauthorizations of GSP, Ex-Im, OPIC, and US support for the IFIs. North Korean fishing practices could become another source of irritation.  

In sum, the US conditions economic interaction on a variety of policy concerns such as workers’ rights and nuclear proliferation that are often promoted by American political progressives.  Unlike trade sanctions, they are not directed at North Korea per se, but nevertheless impact the DPRK.  The President has a fair amount of discretion in implementing these rules, and so there is room for diplomatic maneuvering.  That said, the trend is to add more such conditions on US policy, and they provide considerable scope for the Congress to exert “oversight.” Absent significant changes in North Korean behavior, these considerations will remain relevant for the foreseeable future.