East & Pacific Asia

Sanctions are Driving Market Reforms in North Korea


Since the thaw in inter-Korean and North Korea-United States relations in early 2018, South Korea’s President Moon Jae-in has called for the easing of sanctions against North Korea to encourage Kim Jong-un to continue the denuclearization process. Meanwhile, President Donald Trump’s policy is to maintain the maximum pressure campaign until “final, fully verified denuclearization” can be achieved. Some proponents of sanctions relief also argue that open trade forces economic reforms. But the multilateral United Nations Security Council Resolutions that impose sanctions against North Korea were only passed starting in 2006 in response to the first nuclear weapons test, and the hermit kingdom has shown little interest in economics reforms during the preceding decades of open trade. Kim, since taking power in 2011, has been known to implement unprecedented levels of market reforms, not because sanctions have eased at all but precisely because they have expanded over time. These sanctions are applying significant pressure on the regime.

North Korean road from Nampo to Käsong
Image courtesy of Uwe Brodrecht © 2015

While the effectiveness of the sanctions is difficult to measure, there is evidence that they are causing noticeable pain on North Korea. Kim, however, still has his nuclear weapons, and there have been no indications that he would give them up simply because the sanctions were unbearable. North Korea has circumvented the economic pressure in creative ways, including illicit trade in luxury goods, deceptions on transport ships, and hacking of global financial institutions. These measures are generating enough income to sustain the regime.

Another reason behind North Korea’s seeming stability is the series of market reforms implemented by Kim. Locally-responsible and state industrial enterprises now give the state only  20 to 50 percent of their output, selling the remainder to buy raw materials with market-based prices, which is essentially a free market system. Also, state-owned enterprise managers are now able to engage in foreign trade and joint ventures and to accept investment from non-government domestic sources.

The Kim dynasty’s priority has been and remains regime survival while maintaining totalitarian control over its people to the utmost extent possible. Economic liberalization requires the government to cede some degree of control, and Kim would only allow that if he had no other choice. North Korea’s Foreign Minister Ri Yong-ho’s recent visit to Vietnam to study its socialist-oriented market economy may hint at North Korea’s willingness to follow the Vietnamese or Chinese model. But again, that will only signify the necessity of further reforms for the regime’s stability. North Korea’s political system is unique, and it stands on precarious grounds because it requires loyalty from its citizens to one particular family rather than simply to the communist party.

If sanctions are lifted prematurely, prior to North Korea’s denuclearization, Kim may find additional market reforms unnecessary. Open trade and aid will bolster his regime, and he will be able to keep his people fed enough that he can keep the centrally planned economy. While Kim will likely be unable to completely reverse the reforms that have already been implemented, he may be able to gradually roll them back if he chooses.

An absence of market reforms would not by any means signify lack of interest in economic development. The Kim family has always desired recognition on the world stage as a force to be reckoned with, and it surely understands that economic might is just as important as military might. After all, North Korea evolved from the military first —or songun—policy to the parallel economic and nuclear weapons development—or byungjin—policy in 2013 to the purely economic “new strategic line” in 2018.

If the international community wants to continue to witness economic reforms in North Korea, it cannot assume open trade will drive them. At the same time, sanctions cannot be imposed indiscriminately with the hopes of accelerating change. Most sanctions currently in place are concerned with North Korea’s nuclear weapons program; therefore, if Kim does decide to denuclearize (or take a satisfactory measure towards denuclearization like providing a list of his nuclear weapons arsenal), the applicable sanctions must also be lifted. Recognizing this unforeseen side effect of the maximum pressure campaign will assist the policymakers of the United States and South Korea in making informed decisions regarding North Korea as the rest of the world awaits the news of additional summits in the new year.

Ki Suh Jung is an Officer in the United States Navy with experience in the Asia-Pacific.

The views expressed are those of the author and do not reflect the official policy or position of the US Navy, Department of Defense, or the US Government.

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