How US-led sanctions have impacted North Korean economy

Above: Children cheering as North Korean leader Kim Jong Un's motorcade passed by in Hanoi yesterday. Left: Mr Kim, accompanied by Vietnamese President Nguyen Phu Trong, attending a welcome ceremony at the Presidential Palace in Hanoi yesterday. Mr K
Mr Kim, accompanied by Vietnamese President Nguyen Phu Trong, attending a welcome ceremony at the Presidential Palace in Hanoi yesterday. Mr Kim had stayed on in Vietnam for an official visit after the summit with US President Donald Trump ended abruptly.PHOTO: BLOOMBERG
Above: Children cheering as North Korean leader Kim Jong Un's motorcade passed by in Hanoi yesterday. Left: Mr Kim, accompanied by Vietnamese President Nguyen Phu Trong, attending a welcome ceremony at the Presidential Palace in Hanoi yesterday. Mr K
Children cheering as North Korean leader Kim Jong Un's motorcade passed by in Hanoi yesterday. PHOTO: REUTERS

HANOI • The breakdown of US President Donald Trump's talks in Hanoi with North Korea leader Kim Jong Un raises an old question again: How much are US-led sanctions hurting the North Korean economy?

Due to a paucity of information, it is hard to say for sure - but things do not exactly look good.

Last July, the Seoul-based Bank of Korea estimated that the North Korean economy had seen its biggest decline in two decades, with the country's real annual gross domestic product falling by 3.5 per cent in 2017. Notably, the Bank of Korea estimated that North Korea's exports declined 37.2 per cent in a single year.

Not all estimates have been so negative, with some suggestions that North Korea's illicit economic activity may be helping to keep the economy stable despite sanctions.

Mr Benjamin Katzeff Silberstein, a non-resident fellow at the Stimson Centre in Washington, recently published an overview of North Korea's economy ahead of the Hanoi summit. "No sense of widespread, general crisis is visible in the data," he wrote, but "the regime is likely under a great deal of stress concerning the economy".

Here is a closer look at some of the sanctions.

OIL IMPORTS

In December 2017, the United Nations Security Council capped crude oil shipments to four million barrels per year, put a ceiling on refined petroleum products including diesel and kerosene to 500,000 barrels and banned natural gas shipments.

 
 
 

North Korea has little oil of its own, relying on imports to keep its citizens and soldiers moving.

China and Russia - Pyongyang's main oil providers and both permanent members of the UN Security Council - voted for the limits in November 2017 after North Korea's sixth nuclear test and a series of missile launches.

Some have called the measure a jab at Pyongyang's "economic lifeline", but the cap was around the level of existing supplies and critics note there are no means to check how much crude oil is delivered through the pipeline running from China to North Korea.

Crucially, the resolution includes an exemption for "livelihood purposes" - similar to clauses in past resolutions that have been used as loopholes. Chinese Customs have not reported crude oil exports to the North for several years, but pipeline operator China National Petroleum Corporation has said in the past that it supplies 520,000 tonnes of crude each year.

According to figures on the UN sanctions committee's website, between them, China and Russia reported supplies of around 340,000 barrels of refined products to the North last year.

COAL AND OTHER EXPORTS

The UN Security Council banned the North from exporting commodities such as coal, iron and lead in 2017. Before the measure was imposed, North Korea reportedly earned around US$200 million (S$271 million) a year from the products - around 30 per cent of its exports by value.

The impact has been significant, and Agence France-Presse reporters in the North have seen mountains of coal piled up on docksides, unable to be exported. The South's central bank said trade with China - which accounts for 95 per cent of North Korea's external business - fell sharply in the first half of last year.

But there have been successful attempts to evade the measures. A UN report last year said deliveries of coal, iron and steel to China, India and other countries generated nearly US$14 million for the North in just six months.

TEXTILES

Imports and exports of textiles - both fabric and clothing - by the North are banned under the UN measures. Textiles are one of North Korea's major businesses, with total exports estimated at around US$750 million in 2016, when they ranked as its second-biggest sales item, according to Seoul's Korea Trade-Investment Promotion Agency.

Chinese firms supply material to the North, where they are made into clothing in factories using cheap labour, and re-exported, mostly to China or Russia.

OVERSEAS LABOURERS

The resolution imposed in December 2017 ordered countries to repatriate tens of thousands of North Korean labourers working abroad when their contracts expire.

Their toil, mainly at construction sites in Middle Eastern countries as well as Russia and China, is considered a vital source of hard currency for Pyongyang. Even before the UN measures, Pyongyang's use of overseas workers - known to work up to 12 hours a day but given only a fraction of their wages - was under scrutiny by the international community for human rights violations.

 
A version of this article appeared in the print edition of The Straits Times on March 02, 2019, with the headline 'How US-led sanctions have impacted North Korean economy'. Print Edition | Subscribe