2003 March 14 Friday
Japan, United States Plan Sanctions Against North Korea

Japan is threatening economic sanctions against North Korea in response to any additional North Korean missile tests.

TOKYO — Japan will impose economic sanctions on North Korea jointly with the United States and other willing nations if it test-launches a ballistic missile, Japanese government sources said Thursday.

There are a number of ways in which North Korea gets money from Japan. One source is legal trade. Also, the North Korean regime is heavily involved in production and smuggling of black market amphetamines into Japan. Ethnic Koreans living in Japan (who came there basically as slave laborers during WWII) send money to relatives in North Korea. The ethnic Koreans dominate the Pachinko game industry and a portion of that money flows to Japan as well. At least a portion of the legal trade would be easiest to cut off. Also, a cut-off of the legal trade would make the illegal trade more difficult. Plus, restrictions could be placed on money carried by ethnic Koreans in Japan when they make trips to North Korea to visit relatives.

Japan previously threatened to ban fund transfers in 1999. Japan has a lot of ways to reduce cash flows to North Korea. For instance, simply banning charter flights to North Korea (as Japan has done previously) would eliminate one method by which ethnic Koreans living in Japan can take money to North Korea. These sorts of threats certainly get the attention of the rulers in Pyongyang and may well cause the North Koreans to put off further missile tests. However, it is unlikely that North Korea will stop developing nuclear weapons as a result of Japanese economic sanctions alone.

The North Korean economy has a GDP of about $20 billion dollars (estimates vary). Therefore North Korean sales of legal goods to Japan amount to about one percent of North Korean GDP.

North Korea shipped $225.62 million worth of goods to Japan in 2001, according to figures compiled by the Korea Trade Investment Promotion Agency in South Korea. Its next biggest markets were South Korea itself, which imported $176.17 million, and China, $166.73 million.

Japan's sales to North Korea are smaller than North Korea's sales to Japan.

Japan's exports to North Korea totalled about $135m in 1999, while cash transfers from Japan's sizeable Korean community are also thought to be significant.

Ethnic Korean domination of the Pachinko game industry in Japan is probably a bigger source of funds for North Korea than is legal trade.

Lawmakers in Japan, which is second only to China as Pyongyang’s biggest trading partner, say that much of the half-billion dollars that they estimate crosses the Sea of Japan annually is pachinko-related. But others say the sum is far greater, exceeding $1 billion a year, and contributes mightily to Pyongyang’s otherwise buckling economy.

These estimates cited by MSNBC run to the high side of current estimates of Pachinko-related revenue currently flowing to North Korea.

Pachinko revenue used to run into the high hundreds of millions of dollars per year.

Much of this money, reportedly around £375m, made its way to North Korea due to the fact that many of these arcades are owned by Japanese Koreans originally from the North.

But many analysts believe the amount flowing from ethnic Korean pachinko operators to North Korea has dropped dramatically.

It is also believed that the amount of money now going to North Korea, which has been made by the Pachinko machines, has decreased substantially to around a level £60m per year. The reasons reported for this drastically smaller number are that the Japanese economy itself has suffered over recent years and that Japanese Koreans may not have the same loyalty as once existed.

The decline in pachinko income from its peak may be by a whole order of magnitude.

No one knows exactly how much profit there is in the shady, mob-connected world of pachinko, or how much of the game's proceeds wind up in North Korea. In 1994, Japanese police testified in parliament that $600 million or more was being sent to the world's last Stalinist state, much of it derived from pachinko. Japanese media and economists also have placed the number in that range, though some say it may have fallen by more than 80 percent.

A claim from 1999 of a huge decline in North Korean income from pachinko:

By the early 1990s, as much as $2 billion a year in remittances, cash gifts and investment was flowing from Japan to North Korea, says then-Foreign Minister Tsutomu Hata. The flow has fallen off sharply amid Japan's economic slump and growing disenchantment with Pyongyang.

Nicholas Eberstadt traces the decline of transfers of money from ethnic Koreans in Japan to North Korea as far back as 1989.

Cash flows out of Japan began drying up in 1989, Eberstadt said. He attributed the decline to a number of factors including the collapse of Japan's "bubble" economy, negative revelations about life under Communist regimes elsewhere in the world, and a reduction in younger ethnic Koreans' loyalty to the Pyongyang regime.

The collapse of the Japanese bubble economy had at least one beneficial effect.

Here is yet another claim of reduced remittances to North Korea of ethnic Koreans living in Japan.

$600 million per annum during the eighties. Present amount of Chochongryun remittance unknown, but a substantial decrease appears likely due to decrease in money from pachinko gambling and real estate.

The decline in other sources of revenue increase the incentive for the North Korean regime to sell all manner of weapons.

The North Koreans certainly don't have a record of self-restraint. Ballistic missiles are its top foreign-exchange earner; according to U.S. government estimates, that trade pulls in between $150 million and $300 million a year—a tidy sum, given that the country's legitimate exports amount to about $600 million.

In a New York Times article about US plans for sanctions against North Korea former ambassador to China and South Korea James R. Lilley says it may be possible to convince China to apply economic pressure to North Korea.

"The Chinese are coming on board," Mr. Lilley said. "But you've got to get high-level summitry to kick start it."

Such high-level diplomacy could begin in April, when Vice President Dick Cheney is scheduled to visit Beijing to discuss North Korea, administration officials said.

Will the Chinese come on board? Don't count on it.

He also reveals that China has twice in the last decade cut economic aid to North Korea in order to pressure it to stop doing weapons development (if anyone finds confirming reports on this I'd love to hear from you - my own Googling on this has not turned up anything yet). That is not as encouraging as it sounds. China did not intend to bring down the North Korean regime and surely will not want to add to the economic pressures on North Korea if Japan and the United States decide to cooperate to impose tough economic sanctions on North Korea.

It would be hard to cut off trade between North Korea and other countries without Chinese cooperation.Shipping North Korean goods thru China already serves as a way to hide their origins:

Much of the trade would be difficult to stop anyway, because South Korean entrepreneurs — anticipating such a move — have routed much of their business through ports in other countries, principally in China.

...

North Korean textiles are trucked into China, then shipped to Japan and sold with ‘Made in China’ labels, Western diplomats said.

This suggests that part of what the United States buys from China is really coming from North Korea. Imagine a high level delegation from the United States telling Chinese leaders that the US is going to have to put up tariffs or entirely ban some Chinese imports in order to end US trade with North Korea.

Suppose trade sanctions could bring North Korea to agree to an end to its nuclear weapons development efforts. Even a successful sanctions regime that caused North Korea to agree to stop its nuclear weapons development work would not work unless the North Korean regime was to allow total freedom of movement of inspectors around North Korea. Even under those circumstances the inspectors might not be able to find all of North Korea's weapons development labs.

The John Diamond has written a fairly extensive summary of limits of US intelligence knowledge about North Korea.

Where is the enrichment plant that could soon be capable of producing weapons-grade uranium? North Korea's admission last fall that it had a uranium-enrichment program is what touched off the current crisis. Expert tunnelers, the North Koreans have likely built the plant underground. Spy satellite imagery specialists are looking for a large — and unexplained — electricity supply, essential for the uranium-enrichment process.

Uranium enrichment facilities can not be inspected if their locations remain secret. The United States also can not conduct a preemptive strike against the uranium enrichment facilities as long as their location remains secret. Therefore, as long as their location remains secret a preemptive strike limited to only North Korean nuclear facilities can not knock out all of the North Korean nuclear program.

George W. Bush is inclined to go with the sticks of sanctions rather than the carrots of aid as bribery.

Mr. Bush has warmed to this option because, in his words, it avoids "rewarding bad behavior." The North has said sanctions would mean war, but it could be bluffing. The administration's problem is that tightening the noose requires the help of North Korea's neighbors — as Mr. Bush said at his news conference Thursday. None of them wants to see a nuclear North Korea, he said. That is right, but those nations' interests are not America's.

The problem of course is that the US by itself can not cut off North Korea and force it to the wall economically. The United States clearly needs a lot of leverage in East Asia and especially with China if it is to bring enough economic weight to bear on North Korea. Fortunately, it has that leverage if it is willing to use it. Even the parties that resent US presence rely upon it for both security and financial reasons. Take South Korea for example. Many South Koreans resent the US troop presence and the important role the United States plays in maintaining South Korean security. However, talk by US Secretary of Defense Donald Rumsfeld about US troop withdrawals from South Korea brought this response from newly appointed South Korean defense minister Cho Young Kil:

Indeed, said Mr. Cho, talking to members of South Korea's fractious National Assembly, American and South Korean officials "will not discuss any possibility of movement of U.S. troops before the nuclear issue is resolved."

The South Koreans are afraid the US will withdraw its troops in order to get its troops out of range of North Korean artillery. A US withdrawal would prevent North Korean retaliation against US troops if the US launches a preemptive attack on North Korean nuclear weapons development facilities. South Korea wants US protection and US restraint. South Korea does not want the US to make moves to protect US cities from nuclear terrorism if those moves will put South Korea at risk. This desire on the part of the South Koreans actually strengthens US ability to apply pressure to South Korea to in turn apply economic sanctions to North Korea. The US can essentially argue to South Korea that if it can't organize sanctions against North Korean then the US will be left with no other option than to launch a preemptive strike.

Understand what this says about the South Koreans. They want us to defend them. They do not want us to defend ourselves if that puts them at risk. This illustrates a larger problem that the spread of weapons of mass destruction is causing: Other countries do not want to support American efforts to defend itself if doing so makes them targets. This affects everything from UN votes to participation in military operations. The US is the number one target and everyone else wants to keep their country either off the target list or at least far down the list.

In the Asian Times Francesco Sisci and Lu Xiang argue that many countries in East Asia are reliant on US presence to prevent developments that each country fears.

Without US protection, would Taiwan resist the temptation to declare independence and thus provoke Beijing into a war? Would China resist the temptation to pressure Taiwan more? In both cases, whatever the outcome, Japan would feel threatened, and Japan is the single largest economy of Asia, making up alone most of the dollar value of the regional production and trade. Japan therefore is not like Britain, which is a large economy but does not make up the largest part of the welfare of Europe. Differences of political regimes in different countries hamper further trust and political integration. The resolution of political systems and the soothing of wariness could take at least 20 years. In the meantime the US is the only huge buffer among the many potential conflicts of the continent.

In other words, differently from Europe, there is an economic and strategic integration across the Pacific far larger than across the Atlantic. Moreover, whereas in Europe there are objective interests to decrease the US presence, none of these interests are present in Asia, nor will be for the next two decades.

There is another way that US leverage is about to increase. There is a connection between the coming war in Iraq and the North Korean crisis that goes unappreciated in most writing: a dramatic US demonstration of a wllingness to use force to take out the regime in Baghdad increases US bargaining power with other regimes. If the US was to allow itself to be restrained by the United Nations then effectively the US would be seen as a far less powerful country, and accurately so. If the US goes ahead in the face of UN opposition then the Iraq war will strengthen the credibility of any US claims of willingness to use force. A United States willing to deploy a couple of hundred thousand troops and its massive air power to bring down the Iraqi regime is a country that will have a stronger position from which to deal with the crisis over North Korea. As an added bonus elimination of Saddam's regime effectively frees up bombers and carrier task forces for other jobs.

Another underappreciated factor is China's economic vulnerability. China needs trade with South Korea, Japan, and the United States. The Beijing regime would face the very real possibility of overthrow if its foreign trade was dramatically cut back at this point. This is the biggest lever the US has over China with regard to North Korea.

After the US, Japan is going to be most willing to pursue the sanctions route. Japan feels threatened by North Korean missiles and does not want to face the prospect of nuclear warheads on those missiles. South Korea and China are going to be harder to convince. But the Bush Administration, by threatening to pull US troops out of South Korea, has already sent a big shocker into South Korean politics. The South Koreans are starting to realize that their "Sunshine" policy with North Korea is going to lead to an outcome that the Bush Administration considers to be an unacceptable threat to US security. South Korea is going to have to decide whether it prefers economic sanctions or a US preemptive attack on North Korean facilities.

While many Democrats are insisting that the Bush Administration is ignoring North Korea to concentrate on Iraq it would be more accurate to say that the Bush Administration is ignoring their advice on what to do about North Korea. It is hard to take seriously the carping of the Democrats. Their policy was failing badly while Clinton was in office as the North Korean regime secretly pursued uranium enrichment as the path to the manufacture of nuclear weapons.

The planned trip of Dick Cheney to China, leaks to the press about sanctions plans, reports in the press about possible troop withdrawals from South Korea, build-ups of air power in Guam and other military build-ups in the region, Colin Powell's mention of secret diplomatic initiatives, and assorted other signs all point to an active and increasing effort to deal with the threat from North Korea. Whether these efforts will be sufficient to end the threat without a resort to military action remains to be seen. But at least the Bush Administration approach is realistic.

As the events unfold in East Asia keep in mind several possible outcomes to the current crisis:

  • North Korea manages to become a nuclear power with many nuclear weapons. The weapons will be a deterrence against attack and a tool for extortion of aid. But the worst possibility is that the North Korean regime will sell nuclear weapons or highly radioactive materials for the purpose of making radiation bombs. Some US cities end up getting nuked by terrorists.
  • The US and other countries cut off North Korea's economy so thoroughly that it collapses and the regime falls in an internal revolt. There is a danger that plutonium or uranium might be sold right before its collapse but its possible this outcome would result in no deaths or dangers outside of North Korea. Then again, it might lash out as it collapses and South Korea especially could suffer a lot of casualties.
  • The US and other countries cut off North Korea's economy and the North Korean regime gets so desperate that it becomes willing to allow in weapons inspectors and it claims it will abandon WMD development (this seems extremely unlikely). The danger with this outcome is that the North Korean regime might manage to hide a facility and continue manufacture of nukes albeit at a slower rate. Eventually some of the nukes end up in the hands of terrorists and some US cities get nuked.
  • The US can't get enough cooperation from China and South Korea on applying economic sanctions to North Korea. The US opts to pull its troops back from the DMZ in Korea and then launches air strikes at North Korean nuclear facilities. The problem with this option is that the US may not know where all the facilities are located. It might fail to knock them all out. Plus, North Korea's engineers would still have the knowledge needed to rebuild. Also, the North Koreans could have transported some plutonium to hidden locations in advance of the air strike and they sell some of it to terrorists who then attack some American cities with radiological bombs. Plus, the North Korean regime may respond with a massive artillery barrage on populated areas of South Korea.
  • North Korea starts a war. It might be in response to a preemptive US air strike against North Korean nuclear facilities. Or it could be in response to economic sanctions. Or it could be just a miscalculation by its paranoid regime. Lots of South Koreans (hundreds of thousand and perhaps even millions) die. But the North Korean regime is defeated and the threat it poses is ended.

The North Korean crisis is notable for the fact that most of the plausible outcomes are very unattractive. I would like to repeat my favorite option for dealing with North Korea: Break the North Korean regime information monopoly over its own people. Doing this it not guaranteed to cause an internal revolt. It may turn out to be extremely difficult to do and even if we could convince the majority of North Koreans that they are unnecessarily living in extreme poverty caused by their government's policies they still may be unwilling or unable to overthrow their government. But a huge attempt to break the information monopoly seems worth a try. Books could be sealed in plastic with enough air to make them bouyant and then the books could be released by ships and even by submarines that could get much closer to the North Korean shoreline. Also. radios could be delivered by similar means and by means of smugglers. A massive covert operation using many methods of reaching into North Korean might succeed. It is certainly worth a try.

Share |      By Randall Parker at 2003 March 14 03:14 PM  Politics Grand Strategy


Comments
vandel said at January 21, 2004 4:24 PM:

the united states at this point in time does no have the intronational support to get other countries to impose sanctions on north korea. but if the united states passes the law of the sea treaty it will make other nations such as south korea china and japan see the united states in a new trusting light this will give bush a chance to convince them to put sanctions on north korea. this has a really bad outcome nuclear war

chester bennington said at June 22, 2004 7:32 PM:

i don't get this...

Whats GDP?!

Randall Parker said at June 22, 2004 7:39 PM:

GDP: Gross Domestic Product. The sum total of the value of all goods and services produced.


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