What to Know About North Korea and Sanctions: QuickTake

(Bloomberg) -- Economic sanctions can take the form of embargoes, travel bans, asset freezes, capital restraints and trade restrictions. They have been a core part of the “maximum pressure” the U.S. and its allies have been applying to force concessions on North Korea’s nuclear-weapons program. North Korea is expected to require sanctions relief in return for the surrender of its nuclear arsenal. At his historic June 12 summit with North Korea leader Kim Jong Un in Singapore, U.S. President Donald Trump said sanctions will be maintained until North Korea’s nuclear program is “no longer a problem.”

1. What sanctions are on North Korea?

United Nations sanctions started more than a decade ago with a focus on exports of military supplies and luxury goods and grew to include bans on exports of coal, iron ore, seafood and textiles. The UN also has asset freezes and travel bans on designated individuals and entities and mandated that all North Koreans working abroad must return home by late 2019. After President George W. Bush declared North Korea a threat in 2008, the U.S. imposed sanctions of its own. Trump, in 2017, imposed a full trade and financial embargo that includes penalties for non-U.S. banks, companies and people that do business with North Korea. South Korea’s initial sanctions in 2010 banned most trade, most cultural exchanges and North Korean ships from South Korean waters. Japan and Australia also have sanctions on North Korea.

2. Why is China’s role so important?

It accounts for 90 percent of North Korea’s trade. In 2017, Trump pressured China’s leaders to agree on sanctions on North Korea’s exporting of commodities such as iron ore, seafood and textiles. North Korea’s trade with China went down by more than 60 percent in the first quarter of 2018. China hailed the outcome of the June 12 Trump-Kim summit, saying the talks should spur the UN Security Council to revisit sanctions.

3. What’s been the effect of sanctions on North Korea?

That’s not easy to answer, as the Kim regime doesn’t publish economic statistics. Last year, North Korea declared that sanctions were causing a "colossal amount of damage" to its people and its development. A rising current account deficit caused by sanctions, and particularly from China’s participation in them, is known to be burning through the nation’s foreign currency reserves. The New York Times, in April, reported that because of the sanctions, some North Korean factories have closed for lack of raw materials, fishermen have deserted their boats and military units turned to to charcoal-engine vehicles or ox-driven carts for transport. On the other hand, recent visitors to the North say they saw few outward signs of economic distress. Prices for staples such as rice have remained relatively stable, according to Daily NK, a website that tracks prices based on sources inside the country. Still, Trump claims the "maximum pressure" campaign is what’s bringing Kim to the table.

4. What would it take to lift sanctions?

U.S. National Security Adviser John Bolton advanced the hardline view that there would be no easing of pressure until North Korea achieves complete, verifiable, irreversible denuclearization, a high bar that’s sometimes shorthanded as CVID. That’s the standard that the U.S. enforced on Libya to pressure it to dismantle its nuclear-weapons program. U.S. Secretary of State Mike Pompeo underscored that policy on the eve of the June 12 summit, saying sanctions would remain in place until North Korea eliminates its nuclear weapons capability. Addressing reporters after the summit, Trump reiterated that position.

5. How exactly are sanctions lifted?

The UN Security Council would have to vote to lift specific UN resolutions. Five countries -- the U.S., China, Russia, Britain and France -- can veto such a measure, though that’s an unlikely scenario in the case of North Korea. As for U.S. sanctions imposed by presidential executive order, such as Trump’s September financial embargo, these can also be lifted by presidential order.

6. How tightly are sanctions enforced?

Enforcement is a constant battle, and North Korea is known to have many tricks to get around the sanctions it faces. Trump, via Twitter and at the Singapore summit, suggested that China’s enforcement might be lapsing. The news website Daily NK published photos it claims show trucks carrying dried fish into China and female workers entering China, both of which would be violations of the sanctions. In other indications of China-North Korea business, China resumed regular flights between Beijing and Pyongyang on June 6 after a six-month hiatus, and new-home prices in the Chinese border city of Dandong, which are considered a barometer on how well sanctions are working, gained a record 2 percent in April from March. On a trip to Dandong late last month, Bloomberg reporters found that China was fully implementing sanctions even though optimism was growing that a detente could soon boost business.

The Reference Shelf

• QuickTake explainers on North Korea’s nuclear program, the meaning(s) of denuclearization and closing North Korea’s test site.
• What little is known about North Korea’s economy.
• Will Kim give up his weapons? History says no.
• A Bloomberg infographic on North Korea’s military buildup.
• What an end to the Korean War (after 65 years) would mean.
• Bloomberg explained why the nuclear club is a North Korean obsession.

To contact the reporter on this story: David Tweed in Hong Kong at dtweed@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Laurence Arnold, Grant Clark

©2018 Bloomberg L.P.