WILL ECONOMIC SANCTIONS WORK AGAINST NORTH KOREA?

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Recommended Citation

Kimberly Ann Elliott, "WILL ECONOMIC SANCTIONS WORK AGAINST NORTH KOREA?", Global Problem Solving, June 22, 1994, https://nautilus.org/global-problem-solving/will-economic-sanctions-work-against-north-korea/

WILL ECONOMIC SANCTIONS WORK AGAINST NORTH KOREA?

Kimberly Ann Elliott* June 22, 1994




INTRODUCTION 
The debate over US policy toward North Korea boils 
down to one deceptively simple question: what does Kim Il-sung 
want?  No one can be sure of the answer and different 
interpretations can have quite different policy implications.  If 
the Great Leader views a nuclear weapons option as important to 
the survival of his regime, economic sanctions are unlikely to 
force him to give it up. But if he views the threat of developing 
nuclear weapons as a bargaining chip, some combination of carrots 
and sticks may induce him to trade it away.  In fact, if the 
bsrgaining chip theory is correct, the threat of economic 
sanctions has been useful at various stages in signalling to the 
regime that it is getting too close to the edge of the cliff. For 
purposes of this analysis, I assume that the North Korean regime 
is susceptible to external pressure that is short of military 
compulsion.  Given that assumption, I analyze the prospects for 
the effective use of economic sanctions in the current dispute 
with North Korea over its compliance with inspection obligations 
under the International Atomic Energy Agency (IAEA).  Based on 
available data, I will identify potential vulnerabilities in 
North Korea's economic structure, as well as key trading partners 
that would have to cooperate for a sanctions effort to have a 
reasonable chance of success.  I then present a framework 
developed in Hufbauer, Schott, and Elliott (1) for evaluating the 
circumstances under which economic sanctions are most likely to 
achieve foreign policy goals.  I conclude with an evaluation of 
the specific options facing the international community in 
deciding whether to impose sanctions, including what products or 
services might be the target of effective sanctions against North 
Korea, and whether sanctions would be more or less likely to 
achieve the desired outcome as a function of how they might be 
applied (for example, gradually or all at once).

THE NORTH KOREAN ECONOMY North Korea presents unusually difficult 
challenges for countries contemplating the use of economic 
sanctions.  The Kim Il-sung regime has chosen to follow an 
economic development strategy that emphasizes self-reliance, and, 
with the recent opening of Albania, it is the most closed economy 
in the world.   This choice derives in part from ideology and the 
political need to control information about the outside world.  
It is also a consequence of the US decision during the Korean war 
to try and isolate the North, reflected today in an embargo on 
virtually all trade and financial relations between the United 
States and North Korea, and multilateral controls on exports of 
dual-use and military-related technology.  North Korea's external 
trade is also limited for commercial reasons relating to its 
inability to service its external debt. Whatever the reasons for 
North Korea's economic isolation, its effects are becoming 
increasingly serious, compounding the problems caused by an 
inefficient command and control economy and high military 
spending (perhaps as much as 25 percent of gross national 
product). The Bank of South Korea estimates that the economy 
contracted by an average of 5.5 percent annually in the period 
1990-92.  Sources also report that capacity utilization in 
manufacturing is probably no higher than 50 percent to 60 
percent, and may be as low as 30 percent because of petroleum 
shortages and general inefficiency in the energy sector. (2)  
Even the government in Pyongyang has begun to admit that the 
economy is in serious trouble, calling the situation "grave" in a 
radio broadcast monitored in Tokyo in late 1993.(3) Kim Il-sung's 
philosophy of "juche" creates several dilemmas for the 
international community.  Because North Korea's trade and 
financial relations with the rest of the world are already 
limited, the scope and volume of potential leverage is less than 
in many other cases. This limits the range of sanctions options 
available.  Juche also means that North Korea imports only 
products that it must have to keep the economy functioning and 
that it cannot produce domestically; it must then export to earn 
hard currency to pay for the imports or to provide products for 
barter.  This deepens the dilemma for the international community 
since sanctions would almost inevitably affect key sectors, 
including the military, and might then reverberate quickly 
throughout the economy.  Substantial economic disruption could 
increase the risk of either a military response by North Korea or 
economic collapse, both of which the international community 
wants to avoid. Table 1 shows the distribution of North Korea's 
trade by partner country.  Partial data for 1992 suggest that 
trade with Russia declined sharply again and that Russia is now 
North Korea's third largest trading partner, behind China and 
Japan. (4)  Other data indicate that inter-Korean trade has grown 
so rapidly since it was first legally permitted in 1988 that 
South Korea may now be the North's fourth largest trading 
partner.  South Korean government approvals for trade with the 
North through the first seven months of 1992 reportedly totalled 
$387 million, with perhaps $350 million being imports from the 
North.  This would make South Korea another important source of 
foreign exchange for North Korea. 
 Table 1.  North Korea's Foreign Trade by Source (million 
dollars)

                Exports(a)                                  
Imports (a)
              1989   1990   1991   1992   1993  1989   1990   
1991   1992   1993
USSR/
FSU(b)   891    1047   563      n.a.      n.a.   1641   1668   
858      n.a.    n.a.
China     167    142      85       154     297    399     403     
524     541    600
Japan      268    271     284      n.a.     n.a.    216     194     
223     n.a.    n.a.
A.Sub-
total       1326   1460   932      n.a.     n.a.    2256   2265   
1605    n.a.   n.a.

B.All     1686   1857   1240   916    1020    2905   2930   2280   
1500   1620
sources
A/B         78.6   78.6   75.2      n.a.   n.a.       77.7   77.4   
0.4       n.a.     n.a.

a.  The data for 1992 and 1993 are from a different source and 
thus may not be completely consistent with earlier years.

b.  The collapse of the Soviet Union further complicates the 
problems in compiling consistent, reliable data on the North 
Korean economy.  Among other things, the exchange rate of the 
ruble has depreciated significantly and some sources suggest that 
the drop-off in trade with Russia when valued in dollars was even 
greater than indicated in the table.  An article by JETRO 
researcher Dr. Murooka Tetsuo presents data showing two-way trade 
between North Korea and Russia of only $1,142 million in 1990 and 
$365 million in 1991 ("The Future of North Korea Trade in 
Agricultural Products," Vantage Point, vol. XVI, no. 3 (March): 
1-20).

Sources:  For 1989-91, JETRO and South Korean Ministry of Foreign 
Affairs, as reported in Economist Intelligence Unit, op. cit., p. 
88; for 1992-93,the Central Bank of the Republic of Korea, as 
reported in The Journal of Commerce, June 20, 1994, 1A, 7A.

Oil, China, and Iran.  Petroleum products supply only around 15 
percent or so of energy consumption, but shortages would affect 
three key sectors in particular:  the military, transportation, 
and food production (petroleum is used in fertilizer production 
and to run food processing machinery).  Transportation 
bottlenecks also affect other sectors, including the ability to 
get food from the countryside to urban areas.  Reuters reported 
in the Fall of 1993 that urban workers were going into the 
countryside to barter "toothpaste, soap" and other items for 
food, with Hamhung reportedly not having received rice rations 
for two or three months because of transportation difficulties. 
(5)

Until the collapse of the Soviet Union, that country was a major 
source of concessional oil supplies for North Korea; since then, 
Russia has put trade on a hard currency or barter basis and oil 
exports to North Korea reportedly have slowed to a trickle.  
China has surpassed the former Soviet Union (FSU) as North 
Korea's largest trading partner and emerged in 1991 and 1992 as a 
major supplier of oil, by one estimate accounting for 40 percent 
of total North Korean oil imports in 1992, possibly rising to 75 
percent in 1993. (6)  Although no data is available, Iran 
reportedly concluded a deal to barter oil for SCUD missiles and 
related technology that may have been worth several hundred 
million dollars. (7)  North Korea also apparently has some 
capacity to produce oil from coal, but it is not clear how much 
room there is for expansion, over what period of time, and at 
what cost in terms of diverting coal from other uses.

Food.  In recent years North Korea's grain output reportedly has 
been declining and has not been sufficient to meet basic needs, 
even without the difficulties in transporting food from rural to 
urban areas described above.  Although the data, as usual, is 
sketchy and of unknown reliability, some sources put grain output 
in recent years at less than 5 million tons per year versus 
estimated demand of 6.6 million tons. (8)  In 1991, North Korea 
reportedly concluded a barter deal with Thailand for 1 million 
tons of rice over two to three years in exchange for coal, 
cement, and marine products.  Also in 1991, China reportedly 
agreed to provide some $150 million in food aid over five years, 
while South Korea may also be providing covert financing for food 
(for example, paying for a shipment of rice from Vietnam), as 
well as providing small amounts of rice directly. (9)

Coking coal.  North Korea has large deposits of anthracite coal, 
which supply about 70 percent of its total energy consumption.  
But it has almost no deposits of coking-grade coal, which is 
essential in steelmaking, and must import it.   As with oil, 
China reportedly has replaced Russia as North Korea's primary 
source for coking coal, accounting for nearly 90 percent of 
imports in 1993.(10)  Output of steel reportedly dropped by half 
in 1992. Shortages of coking coal could further squeeze steel 
supplies and have serious follow-on effects for the rest of 
economy, including in areas such as transportation that would 
also be hit by an oil embargo. Construction, which accounts for a 
significant portion of economic activity in North Korea, would 
also be hard-hit.

Technology.  North Korea turned to Western technology in the 
early 1970s when it attempted to build a light industry, export 
sector with machinery imports from the West.  Its timing was 
poor, however, and it was hammered by the 1973-74 oil crisis and 
global economic recession.  It eventually defaulted on the loans 
used to make the purchases and has been largely shut off from 
Western credit and technology since. (11)

Hard currency.  North Korea exports mainly minerals and metals, 
such as iron and steel, and cement; agricultural products, 
including fish and other marine products; and a small amount of 
precious metals, such as gold and silver.  Exports have not been 
sufficient to pay for needed imports, however, and North Korea 
runs persistent trade deficits.  Russia, responding to its own 
problems and to North Korea's rising debts, put most trade on a 
hard currency basis in 1991.

China has repeatedly threatened to put trade on a hard currency 
basis, but apparently has allowed trade to continue, in part 
through barter.  

South Korea may now be the North's fourth largest trading partner 
and will be an important source of foreign exchange as long as it 
allows the North to run large surpluses.  It is also an important 
potential source of trade and investment if the nuclear and other 
bilateral issues are resolved.  The largest single source of hard 
currency apparently is the pro-North Korean community in Japan, 
which sends anywhere from $600 million to $2 billion per year in 
cash to Pyongyang.  Much of the cash reportedly is carried in 
suitcases and plastic bags on the twice-a-month ferry from 
Niigata by Japanese North Koreans going to visit family members 
in North Korea. (12)

A FRAMEWORK FOR ANALYZING ECONOMIC SANCTIONS In Hufbauer, Schott, 
and Elliott, we examined 115 cases of economic sanctions 
beginning with World War I.  Most of the episodes studied 
occurred after the Second World War, and most were unilaterally 
imposed by the United States (77 of the 115) with only minor or 
no cooperation from its allies.  The United Nations was 
constrained for much of the post-war period by Cold War politics 
and, prior to the 1990 embargo of Iraq (in response to its 
invasion of Kuwait), had imposed mandatory sanctions only twice:  
comprehensive sanctions against Rhodesia from 1966 to 1979, and 
an arms embargo of South Africa from 1977 to 1994. Since 1990, 
the United Nations has imposed comprehensive sanctions against 
Iraq, Serbia, and Haiti, and arms embargoes against a number of 
countries suffering from civil unrest, including Somalia, Sudan, 
Liberia, and Rwanda, and the UNITA rebels in Angola.  The goals 
of economic sanctions have ranged from the relatively modest, 
such as the United States seeking to settle expropriation 
disputes with developing countries, to the highly ambitious, such 
as ending apartheid in South Africa.

My colleagues and I made judgments about the outcome in each 
case--the extent to which stated foreign policy goals were 
achieved--and the contribution made to that outcome by sanctions.  
We then developed a set of six political and five economic 
variables that might be expected to affect the effectiveness of 
sanctions.  These eleven variables are summarized in table 2.  By 
comparing outcomes across cases with the values for the economic 
and politcal variables, we were able to draw conclusions about 
some of the factors that appear to influence the effectiveness of 
economic sanctions in achieving foreign policy goals.

Table 2.  Summary of Variables Analyzed
Variables having a                Variables having a               
Variables with no
positive relationship             negative relationship            
clear relationship
with success                      with success                     
with effectiveness       


Percentage of the                 Difficulty of the                
Type of sanction imposed
target's total trade              objective sought                 
conducted with the
sanctioner

Warmth of prior                   Extent of inter'l                
The ratio of the sanctioner's
relations between                 cooperation sought               
GNP to that of the target
the sanctioner                    (correlated with                 
(most sanctioners in the
and target                        difficulty of goal)              
sample are much larger than
                                                                   
their targets)

Cost to the target                Cost the sanc-                   
Use by the sanctioner of
as a percentage of                tioner imposes on                
accompanying policies
its GNP                           itself                           
(covert, quasi-military,
                                                                   
or regular military)

                                  Offsetting assis-
                                  tance received by
                                  the target from a
                                  third party

                                  Economic health and
                                  political stability
                                  of the target


As noted above, the data set is dominated by unilateral US 
sanction cases, which suggests several caveats in interpreting 
the observed negative correlation between the probability of a 
sanctions success and the extent of international cooperation. 
First, in a great number of cases, international cooperation 
played no role in the outcome because the United States did not 
seek it.  Second, cooperation was more extensive in cases 
involving more difficult goals, though the data suggests that it 
was a necessary but not sufficient condition for success in such 
cases. Finally, the results suggest that international 
cooperation has become more important over time as US economic 
and political hegemony has declined and the global economy has 
become more interdependent.

Overall, we found that economic sanctions had contributed to at 
least partially successful outcomes in 34 percent of the 115 
cases studied.  The success rate for cases involving what were 
defined as "major" goals--such as impairing the military 
potential of an adversary or forcing the surrender of territory--
was lower, just 23 percent.  We concluded that sanctions are most 
likely to be effective when: (1)  the goal is relatively modest, 
thus lessening the importance of multilateral cooperation, which 
often is difficult to obtain, and reducing the chances a rival 
power will bother to step in with offsetting assistance; (2)  the 
target is  economically weak and politically unstable even before 
sanctions are imposed; (3)  the sanctioner and its target are 
friendly toward one another and conduct substantial trade (the 
sanctioner accounted for 28 percent of the average target's trade 
in all success cases but only 19 percent in failures; in cases 
involving "major" goals, the ratios were 36 percent and 16 
percent, respectively); (4)  the sanctions are imposed quickly 
and decisively to maximize impact (the average cost to the target 
as a percentage of GNP in all success cases was 2.4 percent and 1 
percent in failures, in cases involving "major" goals, the 
figures were 4.5 percent and 0.5 percent, respectively); (5)  the 
sanctioner avoids high costs to itself.

In sum, economic sanctions succeed when the economic and 
political costs of the sanctions to the target outweigh the costs 
it expects to incur from complying.  Multilateral sanctions under 
the auspices of the United Nations typically involve ambitious 
objectives, which runs counter to the first finding that 
sanctions are a limited instrument that work best to achieve 
relatively modest, clearly defined goals.  However, international 
cooperation is also likely to be more extensive under a UN 
mandate than otherwise, which may allow more ambitious objectives 
to be achieved.  Thus, UN sanctions are likely to involve both 
higher costs of compliance, because the objective will be 
ambitious, and higher costs of defiance, because the sanctions 
are likely to be more comprehensive in scope.  

A key problem in evaluating the prospects for success in a given 
case is that, while the costs of defiance--the likely economic 
impact of the sanctions--can be measured with some confidence, 
the costs of compliance cannot be measured in any precise way.  A 
second problem is that the same cost, measured as a percentage of 
GNP, may be valued differently by different types of regimes.  
For example, an authoritarian government may be less responsive 
to the pain inflicted by economic sanctions than a democratic 
government whose survival depends on the support of a majority of 
its citizens.  The normal problems associated with predicting the 
response of a targeted government are compounded when the regime 
is as secretive as that of Kim Il-sung.

THE FRAMEWORK APPLIED TO NORTH KOREA This section takes each of 
the five major conclusions outlined above in turn and applies 
them to the North Korean case. (1)  Goals, cooperation, and 
offsetting assistance.  Inducing North Korea to abandon its 
suspected nuclear weapons program is a high profile, ambitious 
objective.  A secondary, but important, goal is preserving the 
integrity of the international nonproliferation regime.  Thus, 
international cooperation is important.  From the US perspective, 
cooperation is essential because the United States already has 
banned virtually all trade and financial relations with North 
Korea since 1950 and, thus, has very little negative economic 
leverage available to it. (13)

Fears of unintended consequences, however, complicate the 
decision to impose economic sanctions for North Korea's immediate 
neighbors.  South Korea and Japan do not want to provoke Kim Il-
sung into a rash military response, and no one, but especially 
South Korea, wants to risk an economic collapse that could make 
eventual reunification even more costly for the South, in 
relative terms, than German reunification was for the Federal 
Republic of Germany.  In addition to these concerns, China may 
also be reluctant to acquiesce in UN sanctions to enforce anti-
proliferation objectives, an ongoing sore spot in its own 
bilateral relations with the United States.  In addition to 
Chinese approval or abstention, multilateral UN sanctions would 
also require approval or acquiescence from Russia, which has a UN 
Security Council veto, and which has expressed displeasure at not 
being consulted by the United States on this issue. Even if 
comprehensive UN sanctions are eventually imposed, however, Iran 
and Libya could provide significant offsetting assistance through 
continued oil shipments. (2)  Economic health and political 
stability.  North Korea's economy appears to be under severe 
stress, but that has not yet translated into clear signs of 
political instability.  Visitors to Pyongyang in the Spring of 
1993 reported visible signs of an energy crisis--little traffic 
on the streets and numerous blackouts.  There were also reports 
of food riots in the summer of 1992 and again in the spring of 
1993. (14)  Upon returning from Pyongyang in June 1994, former 
President Jimmy Carter reported that the streets of the capital 
were "bustling and  neon-lit", but diplomats questioned that 
description. (15) (3)  Diplomatic and trade relations prior to 
sanctions.  The volume of potential economic leverage is limited 
because of North Korea's self-imposed isolation, which has been 
involuntarily deepened as a result of the regime's inability to 
generate the hard currency needed to pay for imports, and the 
unwillingness of China and Russia to continue providing goods on 
concessional terms.  Still, if China, Japan, and Russia 
cooperate, the sanctions would cover probably 70 percent of North 
Korea's reported trade flows, well above the average in past 
successful cases (36 percent in difficult cases). (4)  Potential 
economic costs of sanctions for the target.  If North Korea's 
foreign trade accounts for 10 to 15 percent of GNP, comprehensive 
UN sanctions could easily impose an economic cost on North Korea 
at least equal to the average for past successful cases with 
ambitious objectives (4.5 percent of GNP), even allowing for 
extensive evasion and smuggling.16 (5)  Economic costs to the 
sanctioner.  The obverse of North Korea's relative autarky is 
that its trade is not large enough to be of much economic 
importance to its partners.  But the potential costs if sanctions 
provoke a military response from North Korea or an economic and 
political collapse could be quite high.  Concerns about these 
potential costs have have been a major factor dictating the 
cautious strategy followed to date.

SANCTIONS ALTERNATIVES WITH RESPECT TO NORTH KOREA The Hufbauer, 
Schott, and Elliott analysis revealed a strong correlation 
between the estimated economic costs to the target of sanctions 
and the probability of success.  We concluded that a gradual, 
"turning the screws" strategy is less likely to be successful 
than quick, comprehensive-- decisive--imposition of economic 
sanctions because, "Time affords the target the opportunity to 
adjust:  to find alternative suppliers, to build new alliances, 
and to mobilize domestic opinion in support of its policies."  
And, to reiterate, raising the costs of defiance may be 
particularly important when the price the target must pay for 
complying with sanctioners' demands is perceived to be high.

In contrast, the sanctions strategy outlined in early June by the 
Clinton administration begins with modest, primarily symbolic 
sanctions, which would be ratcheted up if necessary.

This cautious gradualism has been dictated by the concerns of 
North Korea's neighbors, who would be primarily responsible for 
enforcing the sanctions and who do not want to provoke either a 
military backlash or a destabilizing and costly economic 
collapse.  North Korea has threatened to treat the imposition of 
sanctions as an act of war and explicitly threatened Japan with 
"deserving punishment" if it cooperated with US proposals to cut 
off the flow of funds from the Korean community in Japan. (17)  
Given concerns in the region about possible North Korean 
responses, the recent opening for continued negotiation spawned 
by former President Carter's trip to Pyongyang was a welcome 
excuse for suspending moves toward sanctions.

If the renewed talks do not produce the desired results, however, 
economic sanctions will quickly return to the agenda.  The first 
phase of the proposed Clinton sanctions would involve boycotting 
North Korean arms exports, which would cost the regime an 
estimated $50 million to $100 million a year.  Other sanctions in 
the initial phase would include suspending the remainder of a $15 
million UN Development Program project, as well as plans for the 
much larger Tumen River project.  Cultural, scientific, and 
educational exchanges would also be cut off. (18)  The second 
phase of sanctions in the Clinton administration plan would ban 
all financial transactions, including North Korea's single 
largest source of foreign exchange, the remittances from Koreans 
in Japan.  A ban on financial transactions would inhibit the 
regime's ability to import oil, food, and other products even 
without imposing sanctions directly on exports to North Korea.  
This measure was deferred to the second phase because of Japanese 
reluctance to be out front on sanctions because of a possible 
backlash among the Korean community there or even the possibility 
of terrorist acts fomented by North Korea.  Japanese officials 
have said Japan would "carry out its responsibility" even without 
a UN resolution, if China continues to oppose the imposition of 
sanctions, but Japan clearly would prefer the political and 
diplomatic cover of a UN mandate. (19)  

The Clinton plan did not explicitly mention moving to a full 
trade embargo in a potential stage three, apparently to placate 
China.  While China might ultimately acquiesce in the phase one 
and two sanctions, by abstaining on a Security Council vote, a 
trade embargo would directly involve China in enforcement.  One 
way for China to finesse this problem would be to refuse to 
continue barter trade if phase two sanctions are imposed and to 
insist on hard currency, which North Korea would be hard-pressed 
to produce if the ban on financial transactions is effective.

Virtually all of the proposed sanctions pose significant 
enforcement challenges. The major markets for North Korea's arms 
exports, primarily missiles, are Iran and Syria.  Iran, in 
particular, would have little incentive to cooperate in the 
sanctions effort.  Iran might also be willing to ignore broader 
trade sanctions and take China's place as North Korea's major 
supplier of oil.  While the administration has called for a cargo 
flight ban to enforce the arms boycott, it apparently believes 
that naval interdiction would be too provocative a step, which 
means Iran potentially could poke large holes in any sanctions 
package.  Even with naval interdiction, and assuming China 
formally acquiesced in a trade embargo, controlling trade across 
the Chinese border could be difficult given the sometimes tenous 
control of Beijing over its farflung regions. Finally, money is a 
fungible commodity and efforts to halt the cash flow from Japan 
to North Korea will require extensive global cooperation, as well 
as limits on the movement of people from Japan to North Korea.

A final question is whether to include food in any sanctions 
package, which would have an immediate impact, exacerbating 
shortages already plaguing the economy.  Food, however, along 
with medicines and other medical supplies, is typically exempted 
from sanctions outside of wartime for humanitarian reasons.  
Moreover, the moral dilemmas raised by including food in an 
embargo are amplified when the targeted regime is an 
authoritarian one in which the people have no voice. 

SUMMARY AND CONCLUSIONS Despite its relative autarky, what North 
Korea does import affects key linkages in its economy and 
economic sanctions, reasonably enforced, could have significant 
economic impact. Modest sanctions, such as those proposed in 
phase one of the Clinton plan, might be effective in sending a 
signal of seriousness to North Korea if talks bog down again in 
July, but only if the threat to increase the pressure as 
necessary is believed in Pyongyang.  In this, China is the key. 
Russia also has a veto in the UN Security Council and would need 
to be consulted on appropriate steps if it becomes necessary to 
move to economic sanctions, but China is the vital link if 
sanctions are to be imposed.

If China were to veto a sanctions resolution in the Security 
Council, it could strengthen North Korea's resolve to stand fast, 
while weakening Japan and South Korea's resolve to cooperate with 
the United States in a sanctions effort without a UN mandate.  If 
China were to abstain on, or even better approve, a sanctions 
resolution vote incorporating phases one and two as outlined 
above, it would bolster any sanctions effort.  China could 
further enhance the impact of phase two financial sanctions by 
requiring hard currency for sales of oil, without being directly 
involved in imposing trade sanctions.

It could be argued that the combination of an ideological 
straitjacket, relatively large military expenditures, and 
economic mismanagement have resulted in self-imposed sanctions 
against the North Korean economy.  Because of the economy's 
inability to produce goods that the rest of the world is 
interested in buying, it is increasingly unable to buy on world 
markets other goods that it needs and cannot produce itself.  
Combined with international political changes that have reduced 
the willingness of its major allies to continue subsidizing it, 
North Korea is increasingly suffering from a self-induced 
economic squeeze.  Under these circumstances, and given the 
likely problems in enforcing economic sanctions, carrots would 
appear to offer greater leverage in this case than sticks--unless 
the regime views the carrots on offer as "poisoned carrots" that 
threaten the Kims' hold on power. (20)  

Which brings us back to the original question:  what does Kim Il-
sung want?  If he views improvement in North Korea's economic 
situation as critical to maintenance of the regime, a combination 
of carrots and sticks likely will be effective in resolving the 
current crisis.  If, however, Kim views the opening to the 
outside world that would accompany improved economic relations as 
a threat to his control, and if he believes nuclear weapons are 
essential in protecting North Korea's security, neither carrots 
or sticks will be effective.  In that situation, sanctions would 
likely be necessary to protect the integrity of the international 
proliferation regime, but policymakers would need to be prepared 
to deal with the potential consequences, including a possible 
military response in the short run and likely collapse of the 
regime in the longer run.

Notes 1.  Hufbauer, Gary Clyde, Jeffrey J. Schott, and Kimberly 
Ann Elliott, Economic Sanctions Reconsidered, 2nd ed., rvd., 
Washington, Institute for International Economics, 1990.

2.  Oxford Analytica Daily Brief, January 25, 1993; Park Young-
ho, "Will North Korea Survive the Current Crisis?  A Political 
Economy Perspective," The Korean Journal of National Unification, 
vol. 2, 1993, p. 113-115; Journal of Commerce, June 20, 1994, 7A; 
Australian National Korean Studies Centre, Korea to the Year 
2000:  Implications for Australia, East Asia Analytical Unit, 
Department of Foreign Affairs and Trade, Commonwealth of 
Australia, 1992, 50; Wall Street Journal, March 13, 1993.

3.  Washington Post, December 9, 1993; Financial Times, December 
10, 1993.

4.  Oxford Analytica Daily Brief, January 25, 1993.

5.  Journal of Commerce, November 16, 1993; Economist 
Intelligence Unit, China, North Korea Country Profile, 1992-93, 
p. 80; Peter Hayes, "Should the United States Supply Light Water 
Reactors to Pyongyang?"  Paper presented to a Carnegie Endowment 
for International Peace Symposium, November 16, 1993, p. 22.

6.  Wall Street Journal, April 2, 1993; Journal of Commerce, June 
20, 1994, 7A; Washington Post, June 17, 1994, A20.

7.  Economist Intelligence Unit, op. cit., p. 87.

8.  Park, op. cit., 108; Oxford Analytica Daily Brief, January 
25, 1993.

9.  Far Eastern Economic Review, May 30, 1991, 38-39; Journal of 
Commerce, June 20, 1994, 7A.

10. Hayes, op. cit., p. 22; Journal of Commerce, June 20, 1994, 
7A.

11. Economist Intelligence Unit, op. cit., p. 86.

12. New York Times, November 1, 1993; Journal of Commerce, June 
20, 1994, 7A.

13. When the United States imposed the original trade embargo of 
North Korea at the beginning of the Korean War in 1950, it was 
comprehensive.  In April 1989, the United States modified the 
embargo to allow "commercially-supplied goods intended to meet 
basic human needs," subject to case-by-case approval.  
Congressional Research Service, "Economic Sanctions Imposed by 
the United States Against Specific Countries:  1979 through 
1992," CRS Report for Congress 92-631 F, Foreign Affairs and 
National Defense Division, August 10, 1992, Washington.  

14. Oxford Analytica Daily Brief, January 25, 1993.

15. Washington Post, June 21, 1994, A1.

16. The methodology used in our analysis to estimate the costs to 
the target of economic sanctions involved, first, estimating the 
value of the trade or financial flow initially affected by the 
sanction, and, then, multiplying that figure by a fraction based 
on the availability of alternative sources or markets.  The 
multiplier used in cases involving partial sanctions was 
typically .3 or .4; in cases of extreme dependence or tight 
enforcement, multipliers of .75 to .9 were used.  For example, a 
multiplier of .9 was used for the boycott of Iraqi oil exports 
because Iraq's limited outlets facilitated enforcement, but a 
lower value of .5 was used for exports because Iraq's long land 
borders allowed for some smuggling.  In the North Korean case, a 
multiplier of .5 applied to total trade flows (assuming 
comprehensive sanctions) would give a cost of 5 to 7.5 percent of 
GNP.  Since many of the commodities North Korea imports tend to 
affect key sectors of the economy, a higher multiplier might be 
appropriate, which might raise the cost to as high as 10 percent 
of GNP.

17.  New York Times, June 10, 1994, A11.

18.  Washington Post, June 16, 1994, A1; Wall Street Journal, 
June 16, 1994, A12.

19. New York Times, November 1, 1993.

20.  United States Institute of Peace, "North Korea's Nuclear 
Program: Challenge and Opportunity for American Policy," Special 
Working Group Report, Washington, 1994; Andrew Mack, "North 
Korea's Nuclear Program:  the Options are Shrinking," The 
Research School of Pacific Studies, The Australian National 
University, Canberra, 1994.

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