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North Korea: Witness to Transformation

The Test: Reviewing the Options

by | February 12th, 2013 | 07:00 am

We don’t have the stomach for the ritualized expressions of outrage at the North Korean test, so let’s review the options as dispassionately as we can. Strategic patience is hardly exciting or likely to change the game. But unless we want to escalate much more seriously than we have, it emerges from the process of elimination.

The first option, pursued in the wake of the last test and satellite launch, is to go to the UN Security Council and try to ratchet up multilateral sanctions. This approach is clearly suffering from diminishing marginal returns. To date, the Chinese have been unwilling to cross the Rubicon of going after North Korea’s commercial trade, roughly 70% of which is with China. Getting unanimous Security Council consensus on another resolution doesn’t even send a signal any more if we are designating North Korean entities or individuals that cannot effectively be sanctioned. Indeed, it is worse: ritualized UN action is corrosive of our credibility because it continually paints red lines that we are forced to repaint.

The second option is to get much more serious–and I emphasize “much”–by taking actions that impose significant pain. On the economic front, the key is to revert to variants of the Banco Delta Asia strategy that exploit the US capacity to exert influence on third parties. Macao-based Banco Delta Asia held significant North Korean accounts, but was driven into receivership when targeted by the US as an entity of money-laundering concern. Depositors and clients fled fearing the bank would lose crucial correspondent relations with the US financial markets.

An across-the-board secondary boycott—sanctioning any firm doing business with North Korea–would be a hard sell. Too many American firms have stakes in the Chinese economy and big Chinese players like CNPC and CNOOC would be immediately implicated. A secondary boycott would also violate the WTO rules. But as Josh Stanton points out in a useful list of financial options, the President has the authority to dramatically expand the range of banks and companies we deem of “special concern” for money laundering purposes; this in turn would generate uncertainty for all companies dealing with those entities and banks in particular.

Nor are financial sanctions the only option. What about covert operations, offensive cyber actions, much more aggressive use of the Proliferation Security Initiative, or longer-term strategies like a dramatic increase in broadcasting?

The problems with the escalatory approach are two: the Chinese tend to balance against these measures; and they won’t necessarily get us any closer to our political objectives on the peninsula. As is well-known in the sanctions literature, “increasing costs” is not equivalent to “having political effect.” We could do all of these things, and likely would still face a nuclear North Korea.

The third option would be to go long and engage; we just reviewed one such strategy from Mort Halperin and Peter Hayes over the last couple of days (here and here). Of course, a straight engagement play is foreclosed by the missile and nuclear test, so it would have to take the form of what might be called Perry Plus: a grand bargain on all outstanding issues of North Korean interest—sanctions, recognition, energy aid, negative security assurances, development assistance—in return for real denuclearization. But there would have to be a downside for failure to take up the offer; engagement would have to be coupled with some mix of strategems included under our “escalation” scenario.

To say that engaging North Korea runs domestic political risks goes without saying. But as we argued in our review of Halperin, we would be more inclined to take those risks if we had even a hint that the North Koreans were actually interested in it. But the test only confirms what we have long been saying: that Pyonyang has shown a declining interest in the niceties of formal security assurances and appears quite happy with its deterrent.

There is a fourth strategy, but it entails more risk than even the second: forget about North Korea and simply focus our attention on China. This would involve taking actions, including military ones in the West/Yellow Sea, that make the PLA/N genuinely nervous. Going this route would be, in our view, an exercise in disproportionality. In the end, North Korea is a small spoiler state and we have lived with their nuclear capability for six years. Do we want to hold a complex and stressed relationship with China hostage to Pyongyang?

The best strategy emerges from this process of elimination and looks a lot like strategic patience. Limit the damage by making sure proliferation risks are reduced and the deterrent is robust, including through whatever arms sales and new forms of military cooperation we deem appropriate with our allies in the region. Actively, but quietly, pursue a diplomacy toward China that points out the embarrassment to which they are being subjected. But in the end, we are not going to remake North Korea. North Korea—from above or from below–has to remake North Korea. That fact is the deep truth of the strategic patience approach.