Trade zone bustle exposes limits of North Korea sanctions

[Disir]

RASON, NORTH KOREA – Despite North Korea’s deepening isolation, along its border with China and Russia construction of tourist hotels is brisk and mountains of Siberian coal await shipment to Shanghai. A bustling bazaar-style market is overflowing with goods from Mickey Mouse baby shoes to bags of dried kiwi fruit.

The Rason Special Economic Zone, a North Korean experiment in limited capitalism, isn’t likely the next-big-thing-in-Asia that officials here paint it to be. But even as the country is hunkering down under the toughest U.N.-backed sanctions in decades for its nuclear and long-range missile programs, it is, by North Korean standards, thriving.

For the U.S., South Korea and Japan, Rason is an irritating reminder that not everyone is on board with shutting off trade to Pyongyang, especially when there is money to be made. The three countries are spearheading efforts to impose even more punitive measures on North Korea for its fifth nuclear test, which was conducted last week and was the North’s most powerful to date.


.....Officials claim total foreign investment in the zone is more than $500 million. About 250 enterprises — local and foreign — are now operating here. Two of the biggest are the Suchaebong Fishery Enterprise, which processes seafood for domestic consumption and export to China, and the Sonbong Garment Factory, where clothing is stitched together and given a “Made in China” tag before being sent back across the border for sale abroad.

The rationale behind that — aside from China being a more palatable country of origin than the North in most markets — is that the materials and designs are provided by China, though the stitching is done in North Korea.

Roughly 80 percent of the 100 foreign trade enterprises, 21 joint ventures and six foreign representative offices in Rason are Chinese. Thailand, Japan, Dominica, Hong Kong, Italy and Russia are also doing business in Rason. Choe said there are even some U.S. entrepreneurs — though he refused to name them and they could not be quickly confirmed.

“We welcome anyone,” he said after playing a promotional video that featured the song “Roll out the Barrel.”

Trade zone bustle exposes limits of North Korea sanctions | The Japan Times

Sanctions have a way of not working.

 

[waltky]

Sanction where the money leads to...

To Curb North Korea's Nuclear Program, Follow the Money
9/22/16 - North Korea’s fifth nuclear test on September 9 sparked a new round of questions about how to contain this rapidly growing threat. Like clockwork, the United States and its northeast Asian allies are already preparing another dose of sanctions.

Most U.S. defense experts believe that a military response against North Korea would quickly escalate to open conflict with massive casualties. Instead, the world community has responded to North Korea’s nuclear and missile tests in recent years by constantly tightening economic and political sanctions on Pyongyang. Since North Korea’s first nuclear test in October 2006, the United Nations Security Council has adopted five resolutions designed to deny North Korea access to components for its nuclear and missile programs.

Researchers check the seismic waves that were measured in South Korea at the Earthquake and Volcano Monitoring Division on September 9, 2016 in Seoul, South Korea. North Korea is suspected of carrying out its fifth nuclear test, after a magnitude 5.3 earthquake was detected close to its Punggye-ri test site.​

But many security experts question whether these sanctions have been effective. In a new study, my MIT colleague Jim Walsh and I examined how what we call North Korea Inc.—the regime’s network of companies tasked with procurement—has learned to evade sanctions. We interviewed former North Korean business managers now residing in Seoul, South Korea, who bought components for the regime’s nuclear and missile programs. Our findings highlight how increasing the dosage of sanctions has, in practice, triggered the development of alternative, more effective procurement channels. This doesn’t mean we should drop all sanctions. Rather, we need to target them more effectively, based on an improved understanding of how North Korea Inc. has learned how to evade them.

The key role of Chinese middlemen

To evade international sanctions, North Korean business managers embed themselves in commercial hubs in China, their country’s largest trading partner, and work with local business middlemen. These middlemen charge their North Korean clients a fee to purchase dual-use technologies—items that can be used for either civilian or military purposes, such as industrial equipment and components. Interviewing former North Korean managers was striking because they made these purchases sound like normal business transactions. They largely spoke about the challenges and opportunities of operating in a particular local market in Asia, much as expatriate businessmen would describe dealing with a regional chamber of commerce. It became clear that the tacit knowledge that resides in these networks was critical to North Korean managers’ effectiveness.

Unha-9 rocket model on display at floral exhibition, Pyongyang​

As sanctions have become tougher, these local Chinese middlemen have charged higher fees to reflect the elevated risk of doing business with North Korean clients. Instead of hindering procurement activities, we found that sanctions have actually helped to attract more capable middlemen, who are drawn by the larger payday. The North Korean regime has financed the higher fees by drawing on substantial cash reserves that it amassed in accounts on the mainland during a boom in coal trade between North Korea and China in the late 2000s. Despite the expense, North Korean business managers use Chinese middlemen because they have two unique capabilities. First, these brokers have access to a wide array of foreign companies that produce dual-use equipment and industrial goods in China for the growing Chinese market. We found that it is straightforward for a North Korean manager to procure these items by using local Chinese companies. The headquarters of these European companies receive copies of records and certificates which show that their China branches are selling their products to Chinese entities, when in reality, these goods end up in North Korea.

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