중앙데일리

Changing North Korea now

In the battle between fear and the economy, the economy will eventually win.

Mar 11,2016

There are two main components in the sanctions imposed on North Korea by the United Nations Security Council and others.

First, the import and export of prohibited items are strictly banned. UN members are required to search all cargo entering and exiting North Korea. Second, trade with North Korea has been reduced. The export of minerals like gold is fundamentally banned, and export of coal and iron ore are allowed only for livelihood purposes. Sanctions on ships visiting North Korean ports are also intended to discourage trade.

This time, the restrictions are expected to be considerably more effective than the May 24 measures in 2010 and the UN sanctions after the North’s third nuclear test in 2013. The sanctions are comprehensive, and this time, China is likely to join the cause. North Korea’s economy has also declined since the 2010-14 period.

For several years, the North Korean economy improved, thanks to rising mineral prices and demand in China. But since last year, it has been declining. The prices of coal and iron ore, which make up about half of North Korea’s exports, plummeted and demand in China decreased. When additional pressure is applied on trade, the North Korean economy may face a serious crisis. Kim Jong-un may not have realized how vulnerable his country had become and chose a not-so-ideal time to act provocatively.

Some analysts believe the economic sanctions won’t be effective due to the regime’s tight grip on affairs. Sanctions are more effective in a country where public opinion is reflected in the policy-making process, but in a ruthless dictatorship like North Korea, such consequences cannot be expected.

However, North Korea became largely dependent on trade, and we shouldn’t rule out the possibility that an economic crisis could lead to a political one. The North Korean economy’s dependency on trade is 50 percent. The money made from trade is the regime’s main source of income and serves to increase spending power in the North Korean market. Seventy percent of the manufactured goods and half of agricultural products traded in the market are imported from China.

The elite class who profit from trade and the people who make their living via market activities would suffer. And the shock feels more severe when people lose what they already had. Kim Jong-un would try to oppress with fear, but in the battle between fear and the economy, the economy will eventually win.

All available doors should be shut to make sanctions effective. The only remaining back door are coal and iron ore exports, for minimum living.

According to recently published data, more than 70 percent of the companies exporting minerals are affiliated with the military or the Workers’ Party. If they are considered to serve purposes unrelated to the livelihoods of the North Korean people and China bans them, Pyongyang could change their affiliation to the local government or the cabinet to dodge sanctions.

The international community and Seoul should persuade Beijing to use standards other than corporate affiliation, such as limiting the volume.

But there are side doors, too. North Korea’s second-largest export is apparel. In 2015, apparel exports totaled more than 30 percent of all exports, though it is not included in the sanctions. North Korea may want to make up for the loss in foreign currency income by boosting apparel exports.

The North Korean workers who once worked at the Kaesong Industrial Complex may be reallocated to work on processing orders from foreign companies. They may also be sent to Chinese companies to work. South Korea and its allies may want to consider a secondary boycott on companies doing business with North Korea.

The effects of sanctions should be measured and controlled through objective indicators. Sanctions would be considered successful if North Korea’s trade shrinks by 50 percent and the market price fluctuates by 100 percent. That magnitude would result in a drastic reduction in the incomes of the North Korean regime and the elite class.

As a result, spending power in the market would dwindle, reducing local market transactions and lowering prices.

If food imports and consumer goods from China decrease, market prices will go up. The market price shows the transition of official trade to smuggling. If trade significantly decreases and price fluctuates, it would be clear proof that sanctions are working.

We are at an irreversible path when it comes to sanctions and pressure. If we travel down this path and change North Korea, we may see the better route we couldn’t take - the one we should have taken for the future of the Korean Peninsula and the North Korean people. The possibilities are open.

If we fail now, the future will be darker. We must sprint down the path using all our strength.

Translation by the Korea JoongAng daily staff JoongAng Ilbo, March 10, Page 31

The author is an economics professor at Seoul National University.

by Kim Byung-yeon



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