Daily Times

If vigorously implemented, the new China-backed United Nations sanctions could push North Korea’s command economy to the brink of collapse and make clear the fallacy of what the regime calls its byungjin doctrine — the parallel development of the military and the economy.

That’s a big “if” — sanctions against the Pyongyang regime have a history of falling short, not least because of China’s lack of cooperation. But sometimes even patrons grow weary of their roles. There are signs that this time Beijing means business.

The tougher China-backed U.N. trade and financial sanctions significantly augment sanctions recently adopted by the U.S., South Korea, the EU and Japan after the North’s fourth nuclear-bomb test in January and sixth ballistic-missile launch in February.

The new sanctions include a ban on aviation-fuel shipments to Pyongyang and subjecting vessels going in and out of North Korea to mandatory inspection for illicit cargo, an action tantamount to a naval blockade. The blacklisting of North Korean entities associated with the North’s cyberwarfare capabilities is a case of “smart sanctions” aiming to disrupt personnel networks and precipitate elite dissatisfaction, as are continued bans on luxury-good shipments.

A particularly punitive new measure is the targeting of the North’s commercial trade — including exports of coal, iron, gold, titanium and rare-earth minerals — if proceeds from those exports are going to Pyongyang’s nuclear-weapons program. Sanctions targeting coal would be highly damaging. In 2015 North Korea exported $1.04 billion in anthracite coal to China alone, accounting for more than 42% of trade between the two countries.

The sanctions would also further limit North Korean banks’ access to the international financial system. In the past, when the U.S. Treasury Department designated the small Macanese bank Banco Delta Asia in September 2005 as a “primary money laundering concern,” North Korean accounts in the bank were frozen. This had a cascade effect with other foreign financial institutions restricting transactions with North Korea for fear of reprisals by U.S. regulators.

That action had a severe impact on financial flows into North Korea, caused great concern in Pyongyang, and became tied up with the denuclearisation negotiations at that time. While North Korea has learned to diversify and disguise its offshore financing, the newly approved sanctions are likely to crimp hard currency available to the Pyongyang regime.

Major Chinese banks have reportedly already begun to impede financial transactions with North Korean citizens. The South Korean newspaper Dong-A Ilbo recently reported that “some Chinese banks in northeastern China, including the Dandong, Liaoning Province branch of Industrial and Commercial Bank of China (ICBC), the country’s largest bank, have suspended cash deposit and transfer services for accounts owned by North Koreans since December last year.”

South Korea’s recent decision to close the Kaesong Industrial Complex will further tighten the screws on the North’s economy. The joint North-South venture, launched in 2004 as part of the South’s “Sunshine Policy,” paid North Korean workers in the industrial complex about $560 million over the past 11 years. Yet when South Korea announced it was pulling the plug, Seoul estimated that around 70% of the money sent to Kaesong for wages went “to bankroll the development of nuclear weapons and missiles, to embellish [ Kim Jong Un’s] achievements and purchase luxury goods.”

Some question whether the new sanctions are tough enough. Loopholes include remittances from North Korean overseas workers, oil shipments to North Korea, and the growing exports of manufactured goods to China. Yet for sanctions to be effective, a complete blockade of all of North Korea’s external transactions is not necessary. Smart sanctions seek to avoid unintended humanitarian effects on ordinary citizens. At the same time, they target Pyongyang’s weapons systems, cash flow and the elite few of a regime that has inflicted great suffering on its own people.

The cutbacks in cash flowing into the economy from the closure of Kaesong and even partially effective China-backed U.N. sanctions will make it difficult for North Korea to finance its perennial trade deficit and continue burning cash on its nuclear-weapons and ballistic-missiles programs. The global slump in commodities prices means the North’s exports of coal, iron ore and other commodities aren’t bringing in what they once did. Meanwhile, demand from China is also in steep decline as the Chinese economy slows. In 2015 North Korean exports to China fell 13%.

The mutually reinforcing web of newly emerging international sanctions suggests that this time is different from the past. If the new sanctions are strictly implemented and Beijing keeps up its end of the bargain, the elite in Pyongyang may be compelled to recognise that they are worse off with nuclear weapons and bellicose rhetoric than they would be with a functioning economy.

The writer is president of the Korea Society in New York City and formerly regional manager for sovereign risk in Asia-Pacific and the Middle East for Moody’s Investors Service. A version of this article first appeared in The Wall Street Journal March 1, 2016