Economic Sanctions Have Limited Reach

09/10/17 12:17 PM EDT
By Ian Talley 

The Trump administration is turning to economic warfare -- an intensified sanctions program -- to deal with an increasingly belligerent North Korean regime.

But economic tools have a mixed record of success addressing geopolitical problems.

Sanctions helped end apartheid in South Africa. They pushed Iran to an agreement to curtail its nuclear program, though many critics say the deal is insufficient. Over 50 years they haven't budged the Castro family from its hold on power in Cuba and failed to turn Russia back from its Ukraine incursions.

Much depends on how forcefully Washington applies its economic weapons and how much cooperation it gets from other nations.

Alarmed by Pyongyang's latest nuclear test and preparations for another intercontinental ballistic missile test, the Trump administration is crafting harsher economic penalties against North Korea and its facilitators. Washington hopes tougher measures would avert a potentially catastrophic military conflict and forestall the evolution of Pyongyang's nuclear-weapons technology.

U.S. officials are pushing the United Nations Security Council to ban North Korea textile exports, embargo oil sales to the country and prohibit it from renting out its workers abroad. Treasury Secretary Steven Mnuchin is readying new sanctions likely targeting the largest importers of North Korean goods and some of the banks facilitating that trade.

Past U.S. sanctions efforts have a spotty record.

Among the successes: U.S. lawmakers championed sanctions in 1986 against South Africa's apartheid regime that eventually led to a global trade embargo against the nation. By 1991, with its economy in recession, the government repealed the apartheid laws.

A U.S. sanctions regime against Myanmar's antidemocratic government was a key factor in precipitating a collapse in that country's economic growth. By 2012, as democracy slowly returned to the country, the U.S. began easing those measures.

The Bush administration in 2007 was able to force North Korea to shut down a nuclear facility critical to the regime's weapons program by cutting off a small Macao-based bank from the U.S. financial system. That temporarily chilled international financing for Pyongyang as foreign banks feared losing access to the dollar, the currency used for most of the world's trade.

But the regime soon secretly restarted its nuclear-weapons program. China has since stepped in to become its biggest trade partner -- accounting for 90% of the total -- and Pyongyang has improved its sanction-evasion techniques.

"Targeted sanctions -- unintentionally and counterintuitively -- helped to create more efficient markets in China for North Korea Incorporated," said John Park, director of the Korea Working Group at the Harvard Kennedy School.

The Trump administration is hoping now to replicate with North Korea the sanctions approach that forced Iran to negotiate a nuclear deal under the Obama administration. In that case, the U.S. secured European allies' support to stem oil revenue to the Persian economy.

Former U.S. officials say the extent of the efforts against Iran dwarf the current North Korea sanctions regime. Countering Tehran required applying pressure through the U.N., conducting global shuttle diplomacy through the State and Treasury departments and the Justice Department's using the legal system to wrangle foreign banks into compliance.

In contrast, foreign government compliance with U.N. sanctions against North Korea is poor. China, in particular, is proving to be a reluctant partner.

U.S. sanction experts say a severe escalation in economic pressure that threatens North Korean leader Kim Jong Un's hold on power is needed to change his calculus.

"It would mean placing a stranglehold on the North Korean economy that makes it impossible for the leader to pay his military and security forces, to fuel his planes and trucks, or to provide bribes to his family and cronies," said Adam Szubin, the former head of Treasury's sanctions office who is now at Johns Hopkins University's School of Advanced International Studies in Washington.

Asia analysts say China often fails to crack down on the firms and individuals that help finance Mr. Kim's regime. Even when Beijing does act, those measures are often temporary, and cross-border sales are often soon resumed.

"One way the Trump administration can get the Chinese into the game here in a more effective fashion is by looking at more sanctions on Chinese entities, especially certain smaller banks and trading companies, that are critical to the North Korean economy," said David Cohen, a former top CIA and Treasury official now a partner at WilmerHale.

Studies by C4ADS, a nonprofit tracking global security threats, show Pyongyang's evasion networks are financed by a centralized and limited system. "A relatively small number of networks that bridge licit and illicit systems" means they are vulnerable to disruption, said David Lynch, chief of analysis.

Capitalizing on that premise, U.S. lawmakers including Sen. Cory Gardner (R., Colo.) are backing legislation that would target the 10 largest Chinese importers of North Korean goods.

Treasury is also setting its sights on Chinese banks. Banning them from U.S. markets could scare the broader Chinese financial system into better sanctions compliance. But applying hefty fines would likely require the administration to develop a more coordinated strategy through the Justice Department, some analysts say.

Write to Ian Talley at ian.talley@wsj.com

 

(END) Dow Jones Newswires

September 10, 2017 12:17 ET (16:17 GMT)

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