The Saga of u.s. Economic Sanctions Against North Korea

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THE SAGA OF U.S. ECONOMIC SANCTIONS AGAINST NORTH KOREA Author(s): SEMOON CHANG Source: The Journal of East Asian Affairs, Vol. 20, No. 2 (Fall/Winter 2006), pp. 109-139Published by: Institute for National Security StrategyStable URL: http://www.jstor.org/stable/23257941Accessed: 14-05-2015 11:29 UTC

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THE SAGA OF U.S. ECONOMIC SANCTIONS AGAINST NORTH KOREA 109

THE SAGA OF U.S. ECONOMIC SANCTIONS AGAINST NORTH KOREA

SEMOON CHANG

ABSTRACT

University of South Alabama

The U.S. economic sanctions against North Korea began on June

28, 1950, when the U.S. invoked a total embargo on exports to

North Korea on the basis of the U.S. Export Control Act of 1949.

Since that time, North Korea's digressions have violated at least

15 more U.S. laws, although some such as the Trade Agreement

Extension Act of 1951 under which the most favored nation (MFN) tariffs are banned on North Korea's exports to the U.S. and the

Export Administration Act of 1979 under which North Korea was

branded as a terrorist state are more important. This paper focuses on the status and analysis of existing U.S. economic sanctions

against North Korea based on the hypothesis that North Korea's

policies in the past have crossed the paths of many U.S. laws that

automatically invoked economic sanctions, apparently much like

a bewildered animal stepping on a hunter's trap. North Korea's

trade deficit since 2000 is not sustainable, foreshadowing further

turmoil in its relations with South Korea and the United States.

Key Words: economic sanctions, North Korea, multilateral sanctions

U.S. economic sanctions against North Korea are multi - faceted

rather than directed to any one particular cause. In addition, the

reasons for U.S. economic sanctions against North Korea have

changed over time as the world economy has rapidly been globalizing while leaving the North Korean economy completely behind. To



110 THE JOURNAL OF EAST ASIAN AFFAIRS

find any solution to North Korean problems allegedly caused by U.S.

economic sanctions, it is important to understand the history of

relations among three key countries, North Korea, South Korea and the U.S., that have led to varying levels of U.S. economic sanctions

being imposed on North Korea.

The primary objective of this study is to review the chronicle of

economic relations among North Korea, South Korea and the United

States based on the hypothesis that North Korea's policies in the

past have crossed the paths of many U.S. laws that automatically invoked economic sanctions, apparently much like a bewildered

animal stepping on a hunter's trap. This contrasts with the U.S. economic sanctions against, for instance, Cuba that began with

Presidential Proclamation 3447. The U.S. broke diplomatic relations with Cuba and suspended U.S. bilateral aid in 1961. Following the

failed Bay of Pigs invasion and the Cuban missile crisis, a total

embargo on imports and exports as well as on travel was implemented in 1962 when President John F. Kennedy signed into law the Presidential Proclamation 3447 on February 3, 1962. Additional

objectives include a review of existing sanctions as well as new economic sanctions that the U.S. has considered and supported through the mechanism of the United Nations.

THE EARLY YEARS OF KOREA

With the Treaty of Annexation that Korea signed in 1910 under

duress, Japan occupied and turned Korea into its colony. One industry that Japan allowed Koreans to dominate in the late 1910s was the

manufacturing of rubber shoes that most Koreans wore at that time

(Chung 2006,148). While Korea was going through a rapid colonization

by Japan, the U.S. passed the Trading with the Enemy Act on October

6,1917 in order to tighten economic warfare against enemy countries such as Japan that were still waging World War 1. The Trading with

the Enemy Act, which prohibits any transactions that may aid enemy countries during war, was targeted in its inception toward Japan and other axis countries that were the enemies of the U.S. during World




War I, but later applied to North Korea.

World War II began in 1940 and ended on August 15, 1945

when Japan surrendered to the Allied Forces. In September 1945, the Allied Forces Supreme Command announced a temporary

partitioned occupation of Korea by the US and the former Soviet

Union along the 38th parallel. While Korea was in the process of

being divided, the U.S. passed the Export - Import Bank Act on July

31, 1945, that established the Export - Import Bank of the United

States to facilitate trade between the U.S. and eligible foreign countries

by making loans through the Export - Import Bank. The Export -

Import Bank Act, however, singled out Marxist - Leninist countries

for denial of guarantees, insurance, credit, or other Bank funding

programs. In 1945, North Korea was not subject to this Act because

it was not even a country at the time, but the 1945 Act was put in

place like the Trading with the Enemy Act of 1917 and North Korea

became subject to its provisions later in 1986 when North Korea's

policy crossed paths with the law and was specifically cited as a

Marxist - Leninist country for purposes of the Export - Import Bank.

In July 1947, the U.N. General Assembly recommended a general election throughout Korea based on population and intended to

unify the country under one government. Opposed by the North, the United Nations recommended a general election in the South

only and on May 10, 1948, the election was held. The first national

constitution was adopted on July 17,1948 and the Republic of Korea

was born with Rhee Syngman as its first president on August 15,

1948, while in September a Communist government was established

in the North. In December 1948, the U.N. General Assembly recognized the Republic of Korea as the only legal government in Korea with

46 in favor and 6 opposed. In May of 1949, the U.S. announced

withdrawal of U.S. troops from Korea except for military advisors

and by June 29, 1949, the last U.S. troops had left Korea. Also in

1949, the U.S. passed the Export Control Act of 1949, paving the

way toward another sanctions trap into which North Korea fell

following its invasion of South Korea only a year later.




THE WAR YEARS

On January 12, 1950, the then U.S. Secretary of State Dean

Acheson confirmed that Korea and Taiwan were outside America's

Far East security cordon, giving the perception that the U.S. would

leave Korea undefended if it were attacked. The North did indeed

invade the South in the wee hours of June 25, 1950. The U.S.

responded immediately, and after a US - sponsored resolution calling for military sanctions against North Korea had been passed by the

UN, President Truman ordered US combat troops stationed in Japan to be deployed to defend South Korea. By the time the war ended

in July 23, 1953, no less than 54,246 U.S. soldiers had been killed

and 103,284 wounded; 3,322 other U.N. soldiers had been killed and

11,949 wounded; while as many as 4 million Koreans had been killed

throughout the peninsula, two - thirds of them civilians. China also

lost as many as one million soldiers.

On June 28,1950, only 3 days after the outbreak of the Korean

War, the United States invoked a total embargo on exports to North

Korea, pursuant to authority in Sec. 3 of the Export Control Act of

1949. The day before, June 27, 1950, U.S. forces accompanied by United Nations troops landed on the Korean peninsula to join the

South Korean forces already in combat, but Seoul quickly fell and

bridges across the Han River were destroyed on June 29. On September 15, General MacArthur's troops landed at Inchon, and on September

19, Seoul was recaptured. On September 30, South Korean troops crossed the 38th Parallel into the North. On October 19, the North

Korean capital Pyongyang fell. Late in November, the Chinese army

joined the war, forcing U.N. troops to retreat to the South. Against this background on December 16, 1950, President Truman invoked

authority granted his office under the Trading with the Enemy Act

to declare that a U.S. national emergency existed because of events

unfolding in Korea.

The presidential proclamation, known as Proclamation No. 2914, committed the U.S. to winning the war against North Korea. The

Proclamation effectively invoked additional economic sanctions

against North Korea under then existing laws. A few days later, the




Department of the Treasury issued the Foreign Assets Control

Regulations (FACR) to forbid any financial transactions involving, or on behalf of, North Korea and China, including transactions related

to travel or access to North Korean assets that were subject to U.S.

jurisdiction. North Korea - related FACRs have been modified many times since then (See Rennack 2003, CRS - 12 for details).

In 1951, in keeping with the McCarthyist anti - communist crusade

sweeping across the United States at the time, the U.S. passed the

Trade Agreement Extension Act that required the suspension of the

Most - Favored - Nation (MFN) trade status for all communist countries

except Yugoslavia. North Korea was denied MFN trade status on

September 1, 1951. As a result, while trade is not prohibited with

North Korea under the relevant trade laws, tariffs are set at the

highest rates for imports from North Korea. "The United States grants MFN status or better to countries that account for more than 99

percent of global exports, and thus denial of MFN would clearly be

abnormal. Indeed, in 1998, the term 'most - favored - nation,' or

MFN, was officially changed to the more appropriate ' normal -

trade - relations' or NTR" (Preeg 1999, 4). This denial of NTR status

effectively bans imports of North Korean products to the U.S. market

even if they may are allowed under other provisions. On July 27, 1953, the armistice agreement was signed at

Panmunjom and the bloody Korean war was finally ended. Although the war had ended, events that were to lead to the imposition of

new sanctions were still unfolding.

POST -WAR YEARS

During the early years of the Cold War, the US government, concerned about the dangers of atomic weapons proliferation, embarked on the first of a series of policies designed to prevent the

spread of materials that could be used in the development of nuclear

weapons. On August 30, 1954, the U.S. passed the Atomic Energy Act that prohibited "the transfer of nuclear materials, equipment, or

sensitive technology from the United States to any non - nuclear -




weapon state that the President finds to have detonated a nuclear

explosive device, terminated or abrogated safeguards of the International

Atomic Energy Agency (IAEA), materially violated an IAEA safeguards

agreement, or engaged in (the) manufacture or acquisition of nuclear

explosive devices" (Rennack 2005, CRS-15). At the time of its

passage, this law had no relevance to North Korea, but became

relevant in the 1990s when North Korea started crossing its path. On August 26, 1955, the U.S. State Department issued its first

International Traffic in Arms Regulations (ITAR), which denied exports and imports of defense articles and defense services, destined for or

originating in certain countries. "North Korea has been listed as a

restricted country from the ITAR's inception. The ITAR further states

that any country found to be a supporter of international terrorism

is subject to the ITAR prohibitions and those stated in section 40

of the Arms Export Control Act, which denies the export, directly or indirectly, of any munitions item, lease or loan, credits, guarantees, or other financial assistance to a terrorist country" (Rennack 2003, 11). Importing of defense articles and defense services from nearly two dozen countries which include North Korea is also restricted by the Department of the Treasury's Bureau of Alcohol, Tobacco, and

Firearms regulations.

During the early years after the Korean War, the South, like the

North, was struggling to recover from the devastating economic

effects of the war, while the social upheaval and the acrimonious

divisions that it had caused were now threatening the political process. This was evident in the general election held in the South on March

15, 1960, when Rhee Syngman was elected as president again, but

the voting was so fraudulent that a small demonstration beginning in Masan quickly spread to the rest of the country. On April 19, there was a massive demonstration, led by students in Seoul, against the government. On April 26, Rhee Syngman resigned from the

presidency and fled to Hawaii. On May 16, 1961, Korea's military took over the government by force. Changes that would eventually affect North Korea were also underway in the United States during 1961.

On September 4 that year, the Foreign Assistance Act of 1961




was approved as P.L. 87 - 195, authorizing U.S. government foreign aid programs including development assistance, economic support

funding, numerous multilateral programs, housing and other credit

guaranty programs, the Overseas Private Investment Corporation, international organizations, debt-for-nature exchanges, international

disaster assistance, and more. The Act, however, denied most non -

humanitarian foreign assistance to Communist countries, which

included North Korea. Even if all other aspects of the U.S. - North

Korea relationship were to improve, Rennack states that "it would

probably be necessary for Congress to remove North Korea from

the list set out in the Export - Import Bank Act and the Foreign Assistance Act of 1961, or necessary for the President to exercise

waiver authority made available to his office under those Acts, to

make these other laws inapplicable to North Korea," with other laws

including sections of the Trade Act of 1974, the Export Administration

Act of 1979, and the Bretton Woods Agreements Act of 1957, the

latter of which required the U.S. Executive Directors to the International

Monetary Fund "to actively oppose any facility involving the use of

Fund credit by any Communist dictatorship" (Rennack 2003, 10).

Meanwhile, the I960's were proving to be a turbulent time in

South Korea both socially and politically. In December 1963, Park

Jung - hee was inaugurated as South Korea's 5th president. On June

3, 1964, there was a massive demonstration opposing negotiations with Japan, while South Korea agreed to send troops to Viet Nam

in the October of that year. In June 1965, the Korea - Japan Agreement, which is better known outside Korea as the Japan - Korea Agreement, was signed.

The late 1960's also saw significant developments in the

international arena in terms of signatories to the Treaty on the Non -

Proliferation of Nuclear Weapons, which North Korea itself signed on July 1, 1968, and, as would later be discovered, marked the

beginning of a long confrontational journey of North Korea's nuclear

weapons program. 1968 was also noteworthy in that on October 22

the U.S. approved the Arms Export Control Act, another path that

North Korea would find itself crossing in later years. The Arms Export Control Act authorized U.S. government military sales, loans, leases,




financing and licensing of commercial arms sales to other countries.

The Act, however, clearly states that these sales are not allowed to

countries which the Secretary of State has determined to have

repeatedly provided support for acts of international terrorism. The

countries in this category include Cuba, Iran, Libya, North Korea,

Sudan, and Syria (Code of Federal Regulations, Title 22, Vol. 1, revised as of April 1, 2005, p.486).

On December 27, 1972, Park Jung - hee was inaugurated as the

8th president of South Korea following the controversial adoption of the so - called Yu - Shin constitution that allowed him to remain

as president for the rest of his life. Nevertheless, in a sign of the

political and social turmoil that was gripping the country during the

70's, on August 15, 1974, Park Jung-hee's wife, Yook Young soo was assassinated during the celebration of the Independence

Day. On the international stage, on April 25, 1975, South Korea

joined the Nuclear Non - Proliferation Treaty, while that same year the U.S. Department of the Treasury (DOT) issued Foreign Assets

Control Regulations that prohibited transactions relating to agricultural

products from a third country if the raw goods originated in North

Korea. In contrast, in a conciliatory measure the following year, the

DOT issued additional Foreign Assets Control Regulations that

unblocked assets of North Koreans who emigrated and established

U.S. residency. On March 10,1978, the U.S. passed the Nuclear Non - Proliferation

Act. The Act promoted the establishment of a framework for

international cooperation in developing peaceful uses of nuclear

energy; authorized the U.S. government to license exports of nuclear

fuel and reactors to countries that adhere to nuclear non - proliferation

policies; provided incentives for countries to establish joint international

cooperative efforts in nuclear non - proliferation, and authorized

relevant export controls. The policy statement included the establishment

of common international sanctions. Meanwhile, South Korea's path to a democracy was bloodily curtailed on October 26, 1979, when

Park Jung - hee was assassinated, culminating in the re - establishment

of military rule a few months later through a coup led by the Generals

Chun Doo - hwan and Roh Tae - woo on December 12, 1979.




On September 29,1979, the U.S. passed the Export Administration

Act, authorizing the executive branch to regulate private sector exports of particular goods and technology to other countries. Section 5 of

the Act authorized the President to "prohibit or curtail the export of

any goods or technology" for national security reasons, while Section

6 of the Act authorized the President to 'prohibit or curtail the export of any goods, technology, or other information" for foreign policy reasons. Once a country is determined to be supporting international

terrorism, Section 6(i) of the Act states that the U.S. Secretary of

State must notify the Committee on Foreign Affairs of the House

and the Committee on Banking, Housing, and Urban Affairs of the

Senate "before any license is approved for the export of goods or

technology valued at more than $7,000,000," effectively banning U.S.

exports to the country in question. In 1987, North Korea fell foul of

the Act when its agents were discovered to have been responsible for the downing of a South Korean jetliner (see below).

The 1980's dawned with political and social unrest continuing in South Korea, and state terrorism continuing to be practiced by North Korea. On May 18,1980, there was the fatal Kwang - ju protest

following the declaration of nationwide martial law in South Korea.

On October 9, 1983, a terrorist bomb linked to North Korea killed

four South Korean cabinet members, which included the deputy

prime minister and the foreign affairs minister, in Rangoon, Burma.

In November 1984, President Ronald Reagan proposed a four

party meeting among North Korea, South Korea, the U.S. and China, but to no avail. On the humanitarian front, the first meetings of

separated families were held simultaneously in Seoul and Pyongyang

during the period September 20 to 23, 1985.

On December 12, 1985, North Korea joined the Nuclear Non -

Proliferation Treaty. Although North Korea acceded to the Nuclear

Nonproliferation Treaty (NPT), it did not complete a safeguards

agreement with the International Atomic Energy Agency (IAEA). Under Article III of the NPT, North Korea had 18 months to conclude

such an arrangement. In the coming years, North Korea would link

adherence to this provision of the treaty to the withdrawal of U.S.

nuclear weapons from South Korea.




SOWING THE SEEDS OF THE CURRENT CRISIS

On the one hand while seeming to embrace the principles of

peace and security by joining the international community in its

moves to prevent the proliferation of nuclear weapons, on the other

hand North Korea was continuing to practice its policy of state

terrorism. On November 29,1987, Korean Air Lines 858, flying from

Baghdad (Iraq) to Seoul via Abu Dhabi and Bangkok (Thailand), was

45 minutes away from Bangkok when it exploded in flight because

of a bomb reportedly planted by two North Korean agents. Following the explosion, which killed 115 passengers and crew members, the

then U.S. Secretary of State George Shultz placed North Korea on

the list of countries supporting international terrorism under Section

6(i) of the Export Administration Act of 1979. North Korea was

added to the list effective January 20, 1988. Placement on the sec.

6(i) list "not only results in the constriction of trade possibilities;

placement also may trigger denial of beneficial trade designation (NTR or GSP), unfavorable tax status for investors, new limits on

diplomatic relations, opposition in international financial institutions, and stricter licensing requirements for trade with the United States in food and medicine" (Rennack 2003, CRS - 7).

Then in 1989, through satellite photos, the U.S. learned of new construction at a nuclear complex near the North Korean town of

Yongbyon. U.S. intelligence analysts suspected that North Korea, which had signed the Nuclear Nonproliferation Treaty (NPT) in 1985

but still had not allowed inspections of its nuclear facilities to take

place, was in the early stages of making an atomic bomb. This was

the beginning of the complex negotiations of linking North Korea's NPT compliance to the normalization of relations between the U.S. and North Korea. Also in 1989, the U.S. Export Administration

Regulations were modified to allow the export to North Korea of

commercially - supplied goods intended to meet basic human needs. In 1990, the U.S. fined the German chemical firm Degussa for

illegally supplying U.S. - originated reactor material to North Korea, while that same year North Korea successfully tested a Scud - C

missile, hitting targets off North Korea's eastern coast from a base




in the Kangwon Province, and Iran reportedly tested what U.S.

intelligence identified as a version of North Korea's Scud - C. In

1991, the Soviet Union was dissolved and the cold war ended. This

historical milestone also marked the end of the Soviet Union's

economic support of North Korea.

On September 18,1991, the United Nations accepted both South

Korea and North Korea as members. On December 31 of that year, the two Koreas signed the South - North Joint Declaration on the

Denuclearization of the Korean Peninsula. Under the Declaration, both countries agreed not to "test, manufacture, produce, receive,

possess, store, deploy or use nuclear weapons" or to 'possess nuclear

reprocessing and uranium enrichment facilities." They also agreed to mutual inspections for verification of the measures agreed to under

the declaration. On January 30, 1992, more than six years after

signing the NPT, North Korea concluded a comprehensive safeguards

agreement with the International Atomic Energy Association (IAEA), and on April 9, 1992, North Korea ratified the agreement. In May

1992, North Korea allowed a team from the IAEA to make inspections.

Nevertheless, over the next several months, the North Koreans

repeatedly blocked inspectors from visiting two of Yongbyon's

suspected nuclear waste sites and IAEA inspectors found evidence

that the country was not revealing the full extent of its plutonium

production. On March 6, 1992, the United States imposed what appear to

be the first company - specific sanctions on North Korea's Lyongaksan Machineries and Equipment Export Corporation and Changgwang

Sinyong Corporation for missile proliferation activities.

Meanwhile a democratic electoral process was finally established

in South Korea, when later that same year, on December 18, Kim

Yong - sam was elected as the 14th, but first civilian, president in

South Korea. The following year, the 1993 Inter - Action Council

meeting, held in Paris on February 17 and 18, concluded that a

gradual approach to Korean unification should be pursued only if it

is certain that the process cannot be reversed; if there is a risk of

reversal in political terms, a big bang approach would be preferable; the choice of an appropriate exchange rate will be of paramount




importance for the success of the transition; and, more importantly, Korean unification would not happen against the will of China,

Russia, Japan, and the United States.

There was also a major political development of a different sort

in the North, when, on July 9, 1994, North Korean President Kim

II Sung died and was succeeded by his son, Kim Jong II. On October

21, 1994, the United States and North Korea concluded four months

of nuclear development and weapons negotiations by adopting the

"Agreed Framework" in Geneva. To resolve U.S. concerns about

Pyongyang's plutonium - producing reactors and the Yongbyon

reprocessing facility, the Agreement called for North Korea to freeze

and eventually eliminate its nuclear facilities. North Korea also would

allow the IAEA to verify compliance through special inspections. In

exchange, Pyongyang would receive two light water reactors (LWRs) and annual shipments of heavy fuel oil during construction of the

reactors. The LWRs were agreed to be financed and constructed

through the Korean Peninsula Energy Development Organization (KEDO), a multinational consortium. Tensions were, however, again raised on the peninsula when, in December 1994, North Korea shot

down a U.S. helicopter near the DMZ. One U.S. soldier was killed.

Pyongyang held the pilot for 13 days before the U.S. expressed "sincere regret" for the incident in order to secure his release.

In 1995, the U.S. Central Intelligence Agency (CIA) reported that Iran had received four Scud transporter - erector - launchers

(TELs) from North Korea. Also in 1995 as a follow - up to the 1994

Agreed Framework, the U.S. Department of the Treasury issued

Foreign Assets Control Regulations that authorized travel - related

transactions, greater telecommunications, news bureaus, banking, and

the importing of magnesite from North Korea, and in 1996, the

Department of the Treasury issued Foreign Assets Control Regulations that authorized donations targeting basic human needs after flooding and famine events in North Korea.

On May 24, 1996, the United States again imposed sanctions

against North Korea and Iran for missile technology - related transfers.

The sanctions prohibited any imports or exports to sanctioned firms

and to those sectors of the North Korean economy that were




considered missile - related. The pre - existing general ban on trade

with both countries made the sanctions largely symbolic, however.

On October 11, 1996, South Korea was accepted into the OECD

and officially joined on November 26 when the National Assembly

approved its application for membership. On August 6, 1997, the United States imposed new sanctions

against two additional North Korean entities for unspecified missile -

proliferation activities. In November 1997, with the outbreak of the

Asian Financial Crisis, South Korea requested IMF assistance to help solve its own financial crisis. On February 25, 1998, in his inaugural

speech, South Korean President Kim Dae - jung announced his

sunshine policy. On April 17, 1998, the United States imposed sanctions against North Korea and Pakistan in response to Pyongyang's transfer of missile technology and components to Pakistan's Khan

Research Laboratory. On August 31, 1998, North Korea fired a

three - stage Taepodong rocket missile over Japan toward the Pacific

Ocean.

EASING OF ECONOMIC SANCTIONS

On November 17,1998, the United States and North Korea held

the first round of high - level talks in Pyongyang over North Korea's

suspected construction of an underground nuclear facility. On November

18, 1998, against a background of improving relations between the

two Koreas, the first official sightseeing trip to Mount Kumgang by South Korean tourists took place. On May 25 - 28, 1999, the first

U.S. presidential envoy, former Defense Secretary William Perry, visited North Korea and delivered a U.S. disarmament proposal; while continuing the thaw in relations between the two countries, on September 13, 1999, North Korea pledged to freeze long - range missile tests.

On September 17, 1999, President Clinton agreed to the first

significant easing of economic sanctions against North Korea since

the end of the Korean War in 1953. President Clinton announced

the lifting of most export restrictions that had been applied to North




Korea in response to that country's willingness to cease missile

testing. On November 29, 1999, however, U.S. Congress ensured

some safeguards by passing the North Korea Threat Reduction Act

that prohibits direct or indirect exports of nuclear material or technology from the U.S. to North Korea until the president determines that

North Korea is in compliance with international agreements, including the Agreed Framework of 1994. On April 11, 2000, U.S. Congress

passed the Congressional Oversight of Nuclear Transfers to North

Korea Act. This Act made sure that Congress would have to agree with the President's determination and report regarding the transfer

of nuclear materials as governed by the North Korea Threat Reduction

Act of 1999. On April 6, 2000, the United States imposed sanctions

against a North Korean firm, Changgwang Sinyong Corporation, for

exporting missile systems to Iran.

Exemplifying the doctrine embodied by his own Sunshine Policy, the first meeting between Kim Dae - jung of South Korea and Kim

Jong - il of North Korea was held in Pyongyang on June 13 - 15, 2000, which led to the historic June 15 declaration in which they promised to reunite families divided by the Korean War and to pursue other economic and cultural exchanges. No commitments were made,

however, regarding nuclear weapons, missile programs or military deployments in the Demilitarized Zone.

Mirroring the thaw in relations between the two Koreas, details

of eased U.S. sanctions against North Korea were announced on

June 19, 2000 through amendments to the Foreign Assets Control

Regulations that were authorized under the Trading with the Enemy Act and established through economic sanctions against North Korea

dating as far back as 1950.

Key provisions of the June 19 amendments to the Foreign Assets

Control Regulations are: (a) that the ban on exports to North Korea

is ended, provided that any exports or re - exports to North Korea

are licensed or otherwise authorized by the Department of Commerce

or other appropriate agencies! (b) that goods of North Korean origin

may not be imported into the United States either directly or through third countries, without prior notification to and approval of the

Office of Foreign Assets Control; (c) that U.S. passports are valid



THE SAG/1 OF U.S. ECONOMIC SANCTIONS AGAINST NORTH KOREA 123

for travel to North Korea and individuals do not need U.S. Government

permission to travel to North Korea; and (d) that U.S. travel service

providers are authorized to organize group travel to North Korea,

including transactions with North Korean carriers. In March 2006,

Pyongyang extended invitations to several U.S. tour operators to

bring Americans into the country. Geographic Expeditions of San

Francisco, Universal Travel System of Santa Monica, and Poe Travel

of Little Rock (Ark) are reported to have responded to the invitation

(The Wall Street Journal, March 10, 2006). Rennack notes that following the easing of sanctions in 2000,

there was some speculation that North Korea would be the first

country to be removed from the sec. 6(i) list of state sponsors of

terrorism. "North Korea was particularly interested in changing its

status so that it could effectively apply for membership in the World

Bank and the International Monetary Fund. The United States is

required by law to oppose membership in the international financial

institutions, or (the provision of) financial support, to terrorist states"

(Rennack 2003, CRS - 7).

During the period August 15 -18, 2000, the first exchange of

separated families under the June 15 declaration took place in Seoul

and in Pyongyang. From November 30 to December 2, 2000, the

second exchange of separated families was carried out, again in

Seoul and in Pyongyang. In appreciation of his landmark efforts

aimed at improving relations between the two Koreas, Kim Dae -

jung was awarded the Nobel Peace Prize on December 8, 2000.

GATHERING DARK CLOUDS

On October 6, 2000, the U.S. passed the Iran Nonproliferation Act of 2000, which required the President to identify "every foreign

person with respect to whom there is credible information indicating that the person, on or after January 1, 1999, transferred to Iran"

goods, services or technology the export of which is controlled for

the purposes of the nonproliferation of materials that could be used

in the development of weapons of mass destruction (WMD). The Act




authorized the President to apply a range of sanctions against any

foreign person which include denial of procurement contracts with

the U.S. government, prohibition of importation into the United

States, denial of foreign assistance as laid out in Executive Order

12938, and denial of U.S. government sales of items on the U.S.

Munitions List and export licenses for dual - use items. This is another

path that North Korea would cross only three months later, culminating in US President Clinton imposing sanctions on one of its leading

corporations, the Changgwang Sinyong Corporation, on January 2, 2001 for violation of the terms of this act.

On January 20th 2001, George W. Bush was formally sworn in

as the 43rd President of the United States! the new administration

would begin a complete review of US policy on North Korea, and

this would signal a sea change in the US government's approach to

its relationship with the hermit state. Meanwhile, continuing the

improvement in relations between the two Koreas established under

Kim Dae Jung's Sunshine Policy, the third exchange of separated families was carried out in Seoul and Pyongyang later that year, on

February 26-28, 2001. In contrast, and in line with the tougher stance towards North Korea being taken by the new US administration, on June 26, 2001, the State Department again announced sanctions

under the Iran Nonproliferation Act of 2000 on North Korea's

Changgwang Sinyong Corporation, for unspecified missile - related

transfers to Iran. The announcement represented the second time

that sanctions had been imposed on the same company under the

Act. Although the sanctions prohibit any U.S. entity from doing business with the North Korean firm, they were again largely symbolic because the company was still subject to previous sanctions imposed on April 6, 2000 and on January 2, 2001.

On September 11, 2001, there were terrorist attacks by A1 Queda on the World Trade Center and the Pentagon, in what up until now

have been the worst terrorist attacks on the US in peacetime. The

next year, in his State of the Union address (January 29, 2002), President Bush labeled North Korea, Iran, and Iraq "an axis of evil," while later that year (April 1, 2002), as relations between the two

nations continued to worsen, President Bush stated that he would




not certify North Korea's compliance with all provisions of the

Agreed Framework of 1994.

Despite the hardening attitude taken by the US towards it, in

July 2002, North Korea began to undertake economic reforms that

were radical by North Korean standards. Many prices and wages were raised to narrow the gap between market prices and controlled

prices. The partial liberalization of prices and wages was intended

to provide more incentives for production by allowing factories to

be in charge of procurement as well as sales. "While prices became

more realistic (i.e., close to market prices), they remain essentially fixed prices, not directly subjected to the laws of supply and demand.

This is an important difference to the price reforms introduced in

China in 1984, a case sometimes cited as similar to the North Korean

move of July 2002" (Seliger 2005, p.30).

Unfortunately for North Korea, the positives of economic reform

domestically were being offset by the negatives of increasing isolationism

internationally. On August 16, 2002, the United States again imposed sanctions against the Changgwang Sinyong Corporation of North

Korea and on the North Korean government itself for transferring missile technology to Yemen, while later the same the U.S. publicly revealed the discovery of North Korea's nuclear program (October

16, 2002). Meanwhile, North Korea countered that it was renewing its nuclear weapons program and thus breaking the terms of the

1994 Agreed Framework. In response, the U.S., Japan, and South

Korea halted oil supplies to North Korea promised under the 1994

deal. Japan suspended rice shipments and Japanese legislators considered a ban on private remittances to North Korea and trade

transactions. Furthermore, Australia announced its delay in opening an embassy in Pyongyang, which had been scheduled to open by mid - 2003, until the nuclear weapons issue is resolved (Rennack

2003, 4). The Bush administration proposed that the U.N. Security Council take over management of the crisis and called for multilateral

economic sanctions, but to no avail.

At the same time as the rift between the US and North Korea

was deepening, tension in the relationship between the US and South

Korea was also beginning to surface. On December 30, 2002, Paul




Eckert of Reuters reported in a news release that "South Korea,

underscoring differences with the United States, said on Monday that

pressure and isolation would not persuade communist North Korea

to halt its nuclear brinkmanship." This was later confirmed by President

Kim Dae - jung, who said that dialogue was the only option. As the

crisis escalated, on January 10, 2003, North Korea announced that

it would withdraw from the Nuclear Non - Proliferation Treaty, and

removed monitoring seals and cameras from its nuclear facilities. In

response, on February 12, the International Atomic Energy Agency declared North Korea to be in breach of atomic safeguards and

referred the case to the U.N. Security Council, while five days later, North Korea reciprocated by threatening to abandon the 1953 Korean

War armistice if the United States were to continue with its military

buildup in the region. On the South Korean political front, Roh Moo - hyun was sworn

in as South Korea's new president on February 25, 2003, while

North Korea heated up the already inflamed international situation

by firing a test - missile into the Sea of Japan, hours before Roh was sworn into office. Continuing by now its seemingly preferred form of diplomatic brinkmanship, it followed up this belligerent act

by firing a short - range missile into the Sea of Japan on March 10.

On March 24, 2003, the U.S. again imposed sanctions against the

Changgwang Sinyong Corporation of North Korea for a missile -

related transfer of materials. Generally company - specific sanctions

last for two years and include a denial of contracts with agencies of

the U.S. government, denial of licenses for items on the U.S. Munitions

List (USML), and, sometimes, a denial of all licenses for importing into the United States for the sanctioned person or entity. "Because

North Korea is a non - market economy, all relevant activities of the

government of North Korea are also sanctioned when entities in

North Korea are found to have engaged in proliferation under U.S.

law" (Rennack 2003, 8). Rennack lists the following company

specific sanctions involving North Korea: Lyongaksan Machineries

and Equipment Export Corporation (twice cited in 1992); Changgwang Credit Corporation (twice cited in 1992); Changgwang Sinyong

Corporation ((1996); Lyongaksan General Trading Corporation (1996);




Korea Pugang Trading Corporation (1997); Changgwang Sinyong

Corporation (1998); Changgwang Sinyong Corporation (2000);

Changgwang Sinyong Corporation (2001); and Changgwang Sinyong

Corporation (2002) (Rennack 2003, 8). In response to the rapidly escalating tensions in the region over

the North Korean situation, the United States, North Korea, and

China held trilateral talks in Beijing the following month (April 23 -

25, 2003), during which North Korea controversially confirmed to

the U.S. delegation that it did indeed possess nuclear weapons. On

May 21, 2003, Junichiro Koizumi, the Prime Minister of Japan, announced that his government was prepared to take preemptive

military action against states that "intend to or are threatening" to

attack Japan. On June 9, 2003, Japan began actively inspecting North Korean vessels docking at its port justifying the searches as

safety inspections. On July 31, North Korea announced that it was

willing to attend six - party meetings with the United States, Japan, South Korea, China, and Russia to discuss North Korea's nuclear

program. On August 8, 2003, the South Korean Navy fired warning shots at two North Korean "tugboats" that crossed the Northern

Line. During the period August 27 to 29, 2003, (and again between

February 25 and 28, 2004), representatives from the U.S., China,

Russia, Japan, South Korea and North Korea met again in Beijing to negotiate the ongoing dispute over North Korea's nuclear weapons

program without making any significant progress.

Meanwhile, in the US, new legislation was being introduced to

further isolate North Korea both internationally and economically. On November 23, 2003, Senators Evan Bayh and Sam Brownback

introduced Senate Bill S.1903, known as the highly confrontational

North Korea Democracy Act of 2003. Sec.7(a) of the Act states that

"The President is authorized to exercise any of his authorities under

the Foreign Assistance Act of 1961, the Arms Export Control Act, the International Emergency Economic Powers Act, or any other

provision of law to impose full economic sanctions against North

Korea, or to take any other appropriate action against North Korea,

including the interdiction of shipments of weapons, weapons - related

components, materials, or technologies, or dual - use items traveling




to or from North Korea, in response to the activities of North Korea

to develop nuclear weapons in violation of North Korea's international

obligations," while Sec. 9(b) provides a "refugee status" for settlement

in the U.S. to North Koreans fleeing North Korea regardless of their

status in South Korea by stating in Sec.9(b)(2) that Tor purposes of

eligibility for refugee status under section 207 of the Immigration and Nationality Act, or for asylum under section 208 of such Act, a national of North Korea shall not be considered a national of the

Republic of Korea." Although the North Korea Democracy Act of

2003 did not pass, it did eventually pave the way for the passage of the North Korean Human Rights Act of 2004.

2004 saw a number of key developments in the areas of human

rights and humanitarian assistance for North Koreans, together with

a goodwill gesture on the part of North Korea regarding the issue

of kidnapped Japanese citizens. On April 28, 2004, the first North

Korea Freedom Day was held in Washington, D.C. The North Korea

Freedom Act and the North Korea Human Rights Act were pending in the U.S. Congress on that day. These Acts are aimed at promoting the human rights of North Koreans, providing them with humanitarian assistance and taking measures to ensure that refugees are protected. The next month (May 22), following a summit between the leaders

of North Korea and Japan, five men and women, whose Japanese parents were abducted by North Korea decades ago, were allowed to leave the country to reunite with their families in Japan, while

on June 23, 2004, the third round of six nation talks was held in

Beijing. According to the January 2005 issue of the CubanNews, North Korea's vice minister of foreign affairs, Choi Su Hon, visited

Havana in June 2004 to "strengthen bilateral relations." In November

2004, Vice Marshal Kim Yong Chun, chief of staff of the Korean

People's Army, spent five days with his generals "evaluating Cuba's

military infrastructure."

On October 18, 2004, President George W. Bush signed into

law H.R. 4011, the North Korean Human Rights Act. Title 1 requires the human rights issue to be a part of any negotiations with North

Korea, while Title II makes humanitarian assistance inside North

Korea available only if North Korea makes substantial improvements




on human rights. Title III authorizes the U.S. to allow North Koreans

to apply for U.S. refugee and asylum status even if South Korea

accepts them for settlement in South Korea and gives them South Korean citizenship.

DEVELOPMENTS SINCE 2005

Products produced in North Korea became an issue in the Free

Trade Agreement (FTA) negotiations between South Korea on the one hand, and Japan and the U.S. on the other. This is because

South Korea plans to include the so - called Kaesong provision in

future FTA negotiations. The Kaesong provision would require

preferential duties for products produced in the North Korea's

Kaesong industrial zone just like products produced in South Korea, thus partially offsetting the U.S. most favored nation (MFN) sanctions; the U.S., however, is not likely to accept the Kaesong provision. (Seo Jee - yeon, titled "Korea Finds New Headache in FTAs With

US, Japan," Korea Times, January 31, 2005). The Kaesong provision

may be rendered irrelevant, however, if South Korea brings Kaesong products to South Korea for final packaging and then exports them as South Korean products.

During early 2005, unfortunately, relations between North Korea and the international community generally took a turn for the worse! its relations with Japan are a case in point. The abduction of Japanese nationals during the 1970's has caused increasing hostility between the two nations ever since the 2002 summit in Pyongyang in which

Kim Jong - il admitted that his agents had kidnapped 13 Japanese citizens in the past for use as language instructors in Pyongyang's

espionage programs (Park Song - wu, titled "Unification Minister Asks

Japan Not to Sanction NK," Korea Times, February 4, 2005). The

abduction issue came to a head in late 2004 when it was discovered

that DNA samples taken from remains returned by North Korea to

Japan purportedly of a Japanese national kidnapped in 1977 were

proven to be inconsistent, prompting Japan to consider imposing sanctions against North Korea and provide sanctuary for North Korean




refugees in a bill proposed by the ruling Liberal Democratic Party in February 2005.

Meanwhile, North Korea reverted to its by now accustomed

posture of diplomatic brinkmanship, when on February 10, 2005, it

declared that it had nuclear weapons, was pulling out of the six -

party talks, and would bolster its nuclear weapons arsenal. Noteworthy this time though in the North Korean rhetoric was that it was the

first public claim by North Korea that it actually possessed nuclear

weapons. On March 1, 2005, the Marine Oil Pollution Compensation

Guarantee Law, which passed the Japan's Diet in 2004, took effect.

The Law bans vessels of 100 gross register tons or larger from

docking at Japanese ports unless they carry sufficient insurance to

cover all damages caused by possible future oil spills. The law is

particularly damaging to North Korea because in 2003, for instance, 72.8 percent of foreign vessels that docked in Japan carried such

insurance, but only 2.5 percent of North Korean ships carried such insurance.

As relations between North Korea and the U.S. continued to deteriorate during the first half of 2005, the U.S. said it would consider

pushing for U.N. sanctions against North Korea if its government refused to return to talks on its nuclear program (April 18, 2005). On May 1, 2005, North Korea fired yet another short - range missile into the Sea of Japan, on the eve of a meeting of members of the

International Non - Proliferation Treaty. On July 26, Nuclear

disarmament talks among the two Koreas, China, Japan, Russia, and

the U.S. began in Beijing following North Korea's 13 - month boycott, recessed on August 7, and resumed on September 13. Then on

September 19, in significant conciliatory moves made by both sides, North Korea agreed to give up all its nuclear activities and rejoin the Nuclear Non - Proliferation Treaty, while the U.S. expressed no

intention of attacking North Korea.

In April 2005, the Refugees International made several thoughtful

proposals regarding the issue of Korean refugees in China, which

included that China "take immediate humanitarian steps to protect North Koreans in China"; that South Korea "become more proactive




in its efforts to protect North Korean refugees"; that South Korea

should "recognize that North Korean refugees need more time to

adapt to life in South Korea and provide financial support to Korean

non - governmental organizations for alternative education, vocational, and life skills programs"; and that the U.S. "move cautiously to

implement the assistance provisions of the North Korean Human

Rights Act of 2004 for North Koreans outside their country, being careful to ensure that funding is provided on an appropriate scale

for the operating environment in the border region" (Chamy 2005,

3-4). In a noteworthy development in the international arena, on

November 17, 2005, the UN General Assembly passed a resolution

condemning North Korea for its human rights abuses. South Korea

abstained for the fourth year in a row. In December, North Korea

ordered the U.N. World Food Program to cease its humanitarian

operations by December 31. In December 2005, U.S. ambassador

to South Korea Alexander Vershbow stated that the U.S. would not

end sanctions against North Korea (USA Today, December 8, 2005,

10A), while North Korea said it would not return to international

nuclear disarmament talks unless the U.S. lifted its sanctions imposed for its alleged currency counterfeiting and other illegal activities

(Mobile Register, January 3, 2006, 5A). 2006 dawned with more startling revelations from the US regarding

these hitherto alleged currency counterfeiting and money laundering activities by North Korea. On January 23, a team from the U.S.

Treasury Department's Financial Crimes Division investigating these

illicit financial activities presented South Korean officials with its

evidence that North Korea was indeed engaged in counterfeiting U.S.

dollars. On January 27, Raphael Perl, a congressional researcher in

charge of tracking Pyongyang's drug dealings and counterfeiting, stated that the U.S. authorities had completed a rough draft of an

executive order that would stop any financial firms such as banks,

brokerage houses, and insurance companies involved in transactions

with North Korea from conducting business in the U.S.

The previous year, in a tightening grip around the financial

network used to fund North Korean illicit financial activities, the U.S.




had already identified the Macau - based Banco Delta Asia as

Pyongyang's primary money laundering channel in September 2005, and had already induced China to close North Korea's transaction

account at the bank, while a presidential decree froze the U.S. assets

of 11 North Korean trading firms. The U.S. Treasury Department banned all American banks from dealing with Banco Delta Asia.

Japan's Bank of Tokyo, Mitsubishi and Mizuho Corporate Bank

ceased all transactions with Banco Delta Asia (Mainichi Shimbun,

February 2, 2006). Korea Exchange Bank, which was the only South

Korean bank that had transactions with Banco Delta Asia, cut business

transactions with Banco Delta Asia as of February 1, 2006.

The state of affairs, however, between the two Koreas on the

economic front in terms of inter - Korea trade, was fortunately far

different. On February 12, Korea's ruling and opposition lawmakers

submitted a joint proposal to establish a special economic zone that

would extend from Kaeseong in the North to Paju in the South's

Gyeonggi Province, crossing the North - South border. Construction

on the Kaesong industrial zone had begun a few years previously, in June 2003, and its operations began in 2004. By 2006, at least

15 South Korean companies had set up shop in the zone, shipping manufactured goods ranging from kitchen pots to semiconductor

parts to the South, while at the same time utilizing cheap North

Korean labor. Clothing, footwear, and containers for cosmetics are

among other products manufactured in the zone. The zone has played a major role in boosting inter - Korean trade to historic levels, from

$41.7 million in 2004 to $176.7 million in 2005, according to KITA.

Meanwhile, further revelations regarding North Korea's illicit

financial activities were being made public. On February 13, South

Korea was reported to have been sitting on information from the

U.S. that 140,000 counterfeit U.S. dollars, produced by North Korea, were found in Seoul's Namdaemun market in 2005. On Feb.16, the

Macau - based Banco Delta Asia, which the U.S. had singled out as

North Korea's main money - laundering channel, stopped all transactions

with North Korea and requested the U.S. not to adopt new rules

that would ban the U.S. or other nations from conducting transactions

with the bank. On March 19, it was revealed in the news media




(Reported by the South Korean newspaper, the Chosun Ilbo website

on March 18, 2006), that the People's Bank of China had issued a

directive to China's financial institutions to increase vigilance against fake US $100 bills that they suspected were smuggled into China

from North Korea. North Korea's counterfeiting operations is believed

to extend beyond U.S. currency to U.S. goods including cigarettes and the drug Viagra. In other developments regarding the illicit

transfer of nuclear materials or technology to North Korea, the U.S.

froze the assets of the Swiss company, Kohas AG, on March 30, for

aiding North Korea in the alleged proliferation of nuclear weapons

technology. On the humanitarian front, U.S. Sen. Sam Brownback (R - Kansas)

announced (May 6) the first U.S. acceptance of six North Korean

refugees from a Southeast Asian country according to the North

Korea Human Rights Act of 2004; while sanctions tightened on the

economic front, when on May 28, the U.S. banned all U.S. citizens,

permanent residents, and companies based in the United States from

using North Korean vessels.

There were also disturbing developments that month concerning North Korea's long - range missile capabilities, with sporadic reports that U.S. and South Korean intelligence agencies had spotted preparations for the test launch of long - range missiles by North

Korea. The Taepodong - 2 missile has a range of 9,320 miles, long

enough to hit the U.S. from North Korea. The earlier intelligence

reports were confirmed when on July 4, North Korea test - launched

seven missiles, of which one was the long - range Taepodong - 2

type, but which failed and fell into the Sea of Japan within 40 seconds

after the launch. The firing of the missiles caused an international

outcry, particularly when it was later discovered that the first missile

had been fired at 3:32 a.m. local time, around the time that Asiana

flight OZ 235, from Chicago to Incheon International Airport, had

also been flying through the airspace above the East Sea between

2:30 - 3:10 a.m. It was later confirmed that North Korea had given secret notice to its fishing vessels to stay out of the impact waters

the previous day, but had failed to notify fishing vessels from South

Korea, Japan, or Russia in the East Sea at the time of the firings.




The Korean Ministry of Construction and Transportation later ordered

airlines using the Kamchatka route over the Russian peninsula and

through North Korean airspace to take the Pacific Ocean route

instead.

On July 5, one day after the firing of missiles by North Korea, the United Nations Security Council was convened. On July 15, the

U.N. Security Council adopted Resolution 1540, by a 15 to 0 vote,

condemning North Korea's missile tests and requiring U.N. member countries not to supply to, or purchase from, North Korea anything related to North Korea's programs on missiles and weapons of mass

destruction. The enforceability of the resolution is questionable,

however, because it excluded any reference to Chapter 7 of the U.N.

Charter that would have made the resolution enforceable by military force. It should also be noted that the key issue of the July 4, 2006

missile testing was the firing of a long - rage missile for the first time, whereas North Korea's test - firing of short - range missiles in the

past (March 24 2003 and, again, in May 2005) had failed to attract

strong reaction from the United States.

Meanwhile, in a landmark development concerning the US -

ROK alliance, on September 14, President George W. Bush agreed to President Roh Moo - hyun's request that the U.S. hand over the wartime operational control of Korean troops to the South Korean

government at a date to be determined by the bilateral Security Consultative Meeting.

At this present juncture prospects do indeed seem dim regarding

any short - term improvement in US - North Korean relations, and

it is quite likely that, without a significant change in approach by both parties, the ongoing saga of US sanctions and North Korean

brinkmanship will continue.

POTENTIAL IMPACT OF NEW ECONOMIC SANCTIONS

If the current stalemate on nuclear weapon issues is not settled to the satisfaction of all parties involved, the talk of additional U.S. or new multilateral economic sanctions against North Korea is likely




to be intensified. Two issues merit consideration. One relates to the

current status of North Korea's foreign trade, and the other relates

to whether effective multilateral economic sanctions can be imposed on North Korea. The first issue is a problem of North Korea as the

target country, while the second issue is a problem of the U.S. as

the lead sanctioning country. A review of the United Nation's Commodity trade (Comtrade)

database indicates that North Korea's trade deficit with the rest of

the world, excluding South Korea, from 1992 to 2005 was $6,773,219,318, of which no less than 76.1 percent ($5,152,709,540) was incurred

during the last five years of that period, from 2000 to 2005. Comtrade

treats the trade between North Korea and South Korea as an intra -

state trade and thus excludes the inter - Korean trade figure from

North Korea's trade data. If North Korea's trade deficit with South

Korea were to be included, North Korea's trade deficit from 2000

to 2005 would actually have increased by an additional $971,465,000 to a total of $6,124,174,540.

With reduced military sales and counterfeiting revenues caused

by existing U.S. economic sanctions, and with the absence of any

significant foreign direct investment, it is clear that the trade deficit is not sustainable and North Korea has to be feeling enormous

financial pressure. During 2004, North Korea exported to 101 countries, but that number had decreased to 67 by 2005, while it imported from 80 countries, but that number had decreased to 48 by 2005.

The impact of new economic sanctions against North Korea would

be devastating to its economy, assuming of course that any new

sanctions can successfully be imposed to ban all imports to and

exports from North Korea. This is the potential cost that North Korea

will have to take into consideration in current negotiations. In view of the relatively large, albeit shrinking, number of countries

engaged in trade with North Korea, it appears impossible to impose a complete ban on North Korea's foreign trade without a naval

blockade, an act which North Korea may well consider to be a

declaration of war. In addition, the burden of multilateral economic

sanctions will be felt predominantly by China and South Korea, who

may also find themselves with so many more North Korean refugees




flooding across their borders that they would not be willing to go

along with any new multilateral sanctions.

One possible scenario is for the U.S. to consider unilaterally

passing laws similar to the Cuban Democracy Act of 1992 and the

Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996

to complement the existing or substitute for new U.N. economic

sanctions.

The key provisions of the Cuban Democracy Act of 1992 are

to prohibit subsidiaries of American companies from trading with

Cuba, (this type of trade had been legal since 1975), and to restrict

ships that have traded with Cuba from docking in U.S. ports. Exports

by U.S. subsidiaries to Cuba prior to the passage of the Act were

mostly foodstuffs and pharmaceuticals from Western Europe. These

exports increased sharply from about $200 million a year in the

mid - 1980s to more than $700 million in 1991, but "did almost

entirely disappear after passage of the 1992 Act. When U.S. subsidiaries

stopped exporting to Cuba, they were simply replaced by French, Swiss, and other European company exports at little extra cost to Cuba" (Preeg 1999, 15). In other words, passage of a similar law

against North Korea would simply take all future business opportunities away from U.S. firms and turn them over to other countries. This will weigh against, but not necessarily eliminate, the passage of such a law in the U.S. because supporters for those laws rarely consider their hidden economic consequences.

The Cuban Liberty and Democratic Solidarity (LIBERTAD) Act

of 1996 is also known as the Helms - Burton Act. To many this Act

has a tone of hate and vengeance and states that "the President

should encourage foreign countries to restrict trade and credit relations

with Cuba" by applying sanctions "against countries assisting Cuba."

The United Nations condemned the Helms - Burton Act as affecting the sovereignty and legitimate interests of other states by a vote of

138 to 3, with 38 abstentions (Preeg 1999, 20).

Practically everyone, including most Americans, with the exception of a small number of conservative politicians in the United States,

agrees that the economic sanctions against Cuba should be lifted. In contrast, no such wide - spread agreement exists on economic




sanctions against North Korea, making additional U.S. - led economic

sanctions against North Korea a distinct possibility.

CONCLUSION

This paper has explored the hypothesis that North Korea's

policies in the past have crossed the paths of many U.S. laws that

automatically invoked economic sanctions against North Korea, like

a bewildered animal stepping on a hunter's trap. No less than 16

U.S. laws that involve North Korea are cited in this paper. Unfortunately, this saga does not appear to have a happy ending any time soon.

Continuing digressions by North Korea, including the 2006 long -

range missile testing, have not been helpful in promoting mutual

confidence. The June 2006 version of the U.S. Foreign Assets Control

Regulations mentioned North Korea 84 times, whereas from the

perspective of future North Korean economic development no mention

whatsoever would have been preferred. When President Clinton eased U.S. economic sanctions in 1999

by allowing U.S. exports to North Korea, it has had little, if any, impact on North Korea's trade with the United States because North

Korea's exports to the U.S. are still subject to higher tariffs in the

U.S. by not being eligible for the MFN tariffs. North Korea's economy

desperately needs the infusion of foreign investment to escape from

its snail - paced growth rate, but the infusion is not likely to come

so long as North Korea remains ineligible for financial assistance

from international organizations owing to U.S. economic sanctions.

Financial sanctions that the U.S. imposed against North Korea since

2005 are likely to have a significant impact on North Korea, which

may prompt North Korea to request financial help, as well as rice

and fertilizers, from South Korea.

Regardless of whether it is by the North Korean leaders' masterful

design or by pure coincidence, one may view that North Korea is

lucky in that all its past digressions such as the 1950 invasion of

South Korea with millions of lost lives, 1987 bombing of Korean

Air Line 858, numerous illicit transactions in connection with missile




proliferation by North Korean firms, government - sponsored kidnapping of 13 Japanese citizens for use as language instructors in Pyongyang's

espionage programs, kidnapping of many more South Koreans, massive counterfeiting of U.S. dollars during the past two years, and numerous human rights violations (Omestad 2003), are all about to

be forgiven with massive economic assistance in return for the promise that North Korea give up its nuclear weapons program.




REFERENCES

Chang, Semoon. 2005. Economic Sanctions on Cuba and the Role

of the Southeastern Port States. Journal of Business & Economic

Perspectives 31 (Spring/Summer), 24-38.

Chang, Semoon. 2006. North Korean Human Rights Act of 2004.

North Korean Review. 2(1): 98-105.

Chamy, Joel R. April 2005. Acts of Betrayal: The Challenge of

Protecting North Koreans in China, Refugees International.

Chung, Young - lob. 2006. Korea Under Siege, 1876-1945: Capital Formation and Economic Transformation, New York: Oxford

University Press.

Omestad, Thomas. 2003. Gulag Nation. U.S. News & World Report,

134(22), June 23, 12-21.

Preeg, Ernest H. 1999. Feeling Good or Doing Good with Sanctions:

Unilateral Economic Sanctions and the U.S National Interest,

Washington, DC: Center for Strategic and International Studies.

Rennack, Dianne E. 2003. North Korea: Economic Sanctions, a report

prepared for the U.S. Congress (Received through the CRS Web), updated January 24, 2003.

Rennack, Dianne E. 2005. Nuclear, Biological, Chemical, and Missile

Proliferation Sanctions: Selected Current Law, a report prepared for the U.S. Congress (Received through the CRS Web), updated October 21, 2005.

Seliger, Bernhard. 2005. The July 2002 Reforms in North Korea:

Libermann - Style Reforms or Road to Transformation. North

Korean Review 1(1), 22-37.



Documents

The Saga of u.s. Economic Sanctions Against North Korea