The Command Post - Global Recon - U.S. Plans Financial Squeeze of North Korea

February 14, 2005

U.S. Plans Financial Squeeze of North Korea

The New York Times <a href="http://www.nytimes.com/2005/02/14/politics/14korea.html?">reports that the Bush Administration is working with North Korea’s neighbors to squeeze the financially pressed regime’s sources of hard currency from foreign aid and trade. Although the announcement of the plan comes shortly after North Korea’s declaration that it possesses nuclear weapons and will end its participation in six-nation talks aimed at dismantling its nuclear program, the policy has been a subject of debate for years, and in the planning stage for months:

In the months before North Korea announced that it possessed nuclear weapons, the Bush administration began developing new strategies to choke off its few remaining sources of income, based on techniques in use against Al Qaeda, intelligence officials and policy makers involved in the planning say. The initial steps are contained in a classified "tool kit" of techniques to pressure North Korea that has been refined in recent weeks by the National Security Council. The new strategies would intensify and coordinate efforts to track and freeze financial transactions that officials say enable the government of Kim Jong Il to profit from counterfeiting, drug trafficking and the sale of missile and other weapons technology.

Military’s Role Still Uncertain

The extent to which the new “tool kit” would include the use of the military remained unclear, although the use of ground forces is widely considered unlikely. President Bush has repeatedly stated that the United States has no intention of invading North Korea. The strategy is more likely to involve increased reliance on the Proliferation Security Initiative (PSI), an ad-hoc coalition of nations formed to halt the transfer of dangerous or sensitive technologies.

In an interview with Fox News Sunday, James Lilley, the former U.S. Ambassador to China and South Korea, referred to North Korea’s economy as its “Achilles heel” and suggested that the administration would seek a low-key, coordinated approach with Japan, China, and South Korea. Former Secretary of State James A. Baker, who served under President Bush’s father, went further in a Sunday talk show, suggesting that U.S. forces might blockade North Korea, according to the Times report:

On Sunday, former Secretary of State James A. Baker III, who served under Mr. Bush's father when North Korea was making what the C.I.A. later concluded were its first two nuclear bombs, raised the possibility of a broad economic crackdown.

Appearing on ABC News program "This Week," Mr. Baker told the host, George Stephanopoulos, that "there's a big gap" between abandoning the six-nation negotiations that had been sporadically under way for the past 18 months "and going to military force." "There are many things we can do," Mr. Baker added.
"Quarantine?" Mr. Stephanopoulos asked.
"Quarantine is one," Mr. Baker said. "And perhaps the best one, of course, is sanctions by the United Nations Security Council for North Korea's violation of her promises to the International Atomic Energy Agency and the global community."

North Korea’s Cash Lifelines

A 2003 MSNBC report first discussed growing sentiment within the Bush administration for constricting North Korea’s economic lifelines, rather than confronting its large military directly. Also in 2003, MSNBC estimated that North Korea’s main sources of foreign currency consisted of the following:

Legal Non-Military Trade, $600 Million per year Weapons, $560 Million
Illegal Drug Trafficking, $100 Million
Counterfeiting, $100 Million
Overseas Remittances, $100 Million

North Korean ships have been a primary object of scrutiny by PSI member nations, which briefly stopped the North Korean freighter So San on its way to Yemen with a cargo of missiles. More recently, the Australian Navy seized the North Korean ship Pong Su after observing the vessel deliver a load of nearly-pure heroin to Australia’s remote southern coast. North Korea is suspected of earning $100 million from the sale of illicit drugs annually. The North is even reported to have brought heroin cultivation experts from Thailand to teach the regime’s farmers how to grow poppies.

Although North Korean drugs have turned up in numerous countries, the main market is believed to be Japan. Last year, South Korean police reported seizing a large shipment of North Korean methamphetamine. In December, Turkish officials arrested two North Korean diplomats for possession of large amounts of Captagon, a synthetic amphetamine-type stimulant. North Korean diplomats have also been caught smuggling drugs in Russia, Germany, Egypt and Japan.

Secret Service agents have spoken with grudging admiration of the quality of counterfeit $100 bills produced in North Korea, referring to them as “supernotes.” North Korea is also suspected of counterfeiting Japanese yen, and even of a $588 million dollar counterfeit Pachinko card scam that helped fund the North’s nuclear program.

Cash remittances by pro-Pyongyang ethnic Koreans in Japan have also been an important source of funds, although they have decreased significantly in recent years. North Korea also receives millions per year in international aid, including approximately $200 million per year through the World Food Program, although amounts have decreased in recent years over donor fatigue and persistent questions about whether North Korea allows food aid to go to those in the greatest need.

Personal Interest from President Bush

Today's New York Times article suggests that President Bush has taken a personal interest in the case of North Korea, primarily motivated by massive human rights violations in that country:

White House officials have declined to say what role President Bush has played in the new strategy. But his dislike for Mr. Kim is well known, and his involvement in strategies to deal with him was described by one former official as "a lot more intense than you might think."
Advisers, military officials and American and foreign diplomats who deal with Mr. Bush on North Korean issues say he frequently criticizes Mr. Kim's human rights abuses, referring to him as "immoral" and "a tyrant," according to one official who sat in on a recent meeting. In a meeting in December with President Roh Moo Hyun of South Korea, Mr. Bush spoke about how Mr. Kim lets his people starve.

In the recent Bob Woodward book "Bush at War," President Bush was quoted as saying, "I loathe Kim Jong Il."

South Korea’s Foreign Minister in Washington

South Korean Foreign Minister Ban Ki-Moon is in Washington on a previously scheduled five-day visit, meeting with Secretary of State Condoleeza Rice and other administration officials. News reports conflict over whether Vice President Dick Cheney asked Mr. Ban to deny a North Korean request for 500 tons of South Korean fertilizer (a request which followed a report from the South Korean Defense Ministry that North Korea had added 1,000 artillery pieces to its arsenal last year). The New York Times reports that Vice President Dick Cheney made the request to Mr. Ban, but in an interview with the Korea Times, the South Korean Foreign Minister denied that Mr. Cheney made such a request.

The Chosun Ilbo noted South Korean “fears" that the new American policy would damage the planned Kaesong Industrial Park, in which South Korean corporations would build factories employing North Korean labor at just 3% of the cost of unionized South Korean workers. Separately, the paper speculated that the new North Korean announcement would favor "hard-liners" in the United States. On its editorial page, however, the paper all but declared the ruling party’s North Korea policy dead.

The South Korean opposition, which had previously endorsed a watered-down version of the ruling Uri Party’s policy of appeasing and engaging with the North, has also moved toward endorsing a harder line. The opposition Grand National Party’s parliamentary floor leader recently called the Uri Party’s North Korea policy "useless" and blamed the ruling party for alienating the United States.

Last week, the United States rejected a new North Korean demand for additional concessions from Washington, including direct bilateral talks. The Washington Post reports:

North Korea demanded a bilateral dialogue with the United States Friday, a day after it declared itself a nuclear power, but the Bush administration quickly rejected the demand and insisted that Pyongyang return to six-party talks on its nuclear program.

Japanese Reaction

Although Japan has publicly stated that it will hold off on imposing economic sanctions on North Korea, the New York Times's James Brooke reports that Japan has imposed another facially apolitical rule that essentially amounts to a ban on almost all North Korean ships from Japanese ports:

Japan, meanwhile, performed a deft political kabuki today, urging his bellicose neighbor to join disarmament talks, while letting the clock run on a new law that will bar most North Korean ships from Japanese ports starting March 1.

The report goes on to describe the specific impact that the ban would have on North Korea’s lawful trade with Japan—some of its critical to North Korea--such as highly profitable seafood exports and the used Japanese consumer goods North Korean officials hand out to reward their subordinates. The move is also expected to squeeze North Korea’s other sources of income, such as the export of illegal drugs and counterfeit currency, and remittances sent by ethnic Koreans in Japan. Even the Chosen Soren, an organization of pro-North Korean residents in Japan, has recently suffered from losses of membership and revenue, and from Japanese decisions to pull the organization’s tax-exempt status. Japanese were enraged at recent revelations about North Korean kidnappings of their citizens in the 1970s and 80s, and more recently, when North Korea turned over the cremated bones of “abductees” that DNA tests proved were not in fact the abductees’ remains.

All Eyes on China

It is China, however, on which most of the attention has focused, because China supplies most of North Korea’s energy and is its largest trading partner. China recently forced North Korea to shut down a casino just inside North Korea’s border with China, after a local government official gambled and lost a large sum of public funds there. This week, both the Chinese government and its media, quoting prominent academics, have criticized North Korea’s decision to pull out of the talks. Few doubt that China’s influence over North Korea is considerable; however, few observers believe that China wants to take any measure that would cause the North Korean regime to collapse. Among China’s likely fears are an increased mass migration of refugees onto its territory (beyond the 300,000 believed to be in China already), the rise of a united Korea as a strategic competitor, and the presence of a formerly Communist democracy on China’s border.

Posted by OneFreeKorea at February 14, 2005 12:28 PM | TrackBack

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