Sanctions on North Korea have the potential to disrupt dry bulk trade flows
North Korea has long been regarded as one of the world’s most secretive and controversial states. Strict controls on the country, which is known for its severe restrictions on human rights and its concerning attitude towards nuclear weapons, mean that few in the outside world truly know what goes on inside the totalitarian state. However, though North Korea’s citizens cannot generally leave the country, its products can.
A crackdown on trade
Recent sanctions on North Korea have cast light on the country’s export and import of dry bulk commodities. Under new UN sanctions, which were passed unanimously by the organisation last week, imports of coal, seafood, iron and iron ore, lead and lead ore from Kim Jong-un’s state are prohibited, joint ventures with North Korean entities or individuals can no longer be established and new investment in existing joint ventures is forbidden. North Korea has promised to make “the US pay a price” for drafting the UN sanctions, an act which follows the US Congress’ passing of the Countering America’s Adversaries Through Sanctions Act (CAATSA) in late July and its signing into law by President Trump last week.
CAATSA, which calls for varied new sanction measures on Russia, Iran and North Korea contains the Korean Interdiction and Modernization of Sanctions Act (KIMSA), under which significant sanctions against North Korea are outlined. KIMSA allows for amendments to the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA) – amendments which, with some exceptions, ban US imports of goods, wares, articles, and merchandise mined, produced or manufactured by North Korean labour.
Under the new amendments, the President of the US must place sanctions on any individual knowingly acquiring significant amounts of gold, titanium, copper, silver, nickel, zinc or certain other minerals from North Korea. The US President also has at his disposal the ability, among others, to impose sanctions against people buying (or otherwise acquiring) from North Korea significant amounts of coal, iron or iron ore over UN-established limitations as well as significant amounts or types of textiles. They can also sanction, among other activities, people facilitating substantial transfers with North Korea of precious metals, gemstones or other stores of value; people buying (or otherwise acquiring) substantial types or amounts of food or agricultural products from the North Korean government; or people conducting a substantial transaction in North Korea’s transportation, mining, energy, or financial service industries.
Coal briquettes … make up 34% of all of the country’s exports and have an export value of $952m.
Dry bulk’s role
According to the Observatory of Economic Complexity (OEC) data for the year 2015, North Korea is the world’s 119th largest export economy. Figures based on data from the country’s Ministry of Unification and the National Intelligence Service show that North Korea’s economy grew by 3.9% in 2016 compared with 2015 – its quickest pace in 17 years.
But what are people buying from North Korea? Its top export lies in the dry bulk sector in the form of coal briquettes, which make up 34% of all of the country’s exports and have an export value of $952m. Though its next biggest exports concern the textiles industry, other dry bulk commodities are exported in significant amounts – these commodities will fall under the US or UN sanctions. Iron ore constitutes 2.2% of North Korea’s exports, with lead ore making up 1.7% and precious metal ore forming 1.4%. Silver has a 2% share of all of the country’s exports, while “other nuts”, as described by the OEC, make up 1.5%. Insulated wire constitutes 1.2% of exports, while pig iron is responsible for 1.1%.
China is both the country North Korea exports the most goods to (83% of its exports go there, according to the OEC data from 2015) and the country it imports the most from. According to the OEC data, North Korean exports to China are worth $2.34bn, while its imports from China are $2.95bn. After China, North Korea’s top export destinations are India ($97.8m), Pakistan ($43.1m), Burkina Faso ($32.8m) and Other Asia ($26.7m), while its largest import origins are China ($2.95bn), India ($108m), Russia ($78.2m), Thailand ($73.8m) and the Philippines ($53.2m). However, it is not only non-Western countries that buy from North Korea: importers of the country’s goods, according to the OEC’s 2015 data, include France, Mexico, Brazil and the UK, who make up 0.31%, 0.49%, 0.54% and 0.015% of the country’s exports respectively.
China: the gamechanger
Given that China takes 83% of North Korea’s exports, its participation in enforcing the new UN sanctions would have the biggest impact on North Korea’s economy. Within China’s imports from the one-party state, coal is the big product. Yet, it appears that the country will stand firm over the new regulations. According to CNN, in response to the new sanctions, Chinese Foreign Minister Wang Yi said in a statement from the ministry: “Given China’s traditional economic ties with North Korea, China more than anyone will pay a price for implementing the resolution.
“In order to maintain the international nuclear non-proliferation system and regional peace and stability, China will, as always, enforce the full content of relevant resolutions in a comprehensive and strict manner.”
These sanctions clearly have the potentially to disrupt bulk trade flows, but only time will tell as to what extent the sanctions will be enforced, and what impact they will have on the North Korean regime.