The UN Security Council votes to adopt a resolution imposing sanctions against North Korea. Photo: Getty Images
North Korean nuclear negotiator Kim Yong Chol told Secretary of State Mike Pompeo in May 2018 that Pyongyang’s shift away from weapons was “not a result of sanctions that have been imposed from outside.”
But in July 2018, Seoul-based Bank of Korea estimated the North Korean economy had seen its biggest decline in two decades, with the country’s real annual gross domestic product (GDP) falling by 3.5% in 2017 while exports declined 37.2% in 2017 alone.
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, wrote “the regime is likely under a great deal of stress concerning the economy.”
“The sharp decline in North Korea’s exports last year is a direct effect of the sanctions,” Kim Byung-yeon, an expert on the North Korean economy at Seoul National University, told The Washington Post in 2018.
Though North Korea has been under various forms of sanctions since 2006, things changed when the United Nations Security Council began imposing new tough sanctions from 2016 onwards. Crucially, Beijing and Moscow came on board with these new multilateral measures, cutting off crucial markets in which North Korea could earn money for exports or labor.
The breakdown of the summit raises an old question again: How much do U.S.-led sanctions hurt the North Korean economy?
In December 2017, the UN Security Council capped crude oil shipments to North Korea 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.
Crucially, the resolution includes an exemption for “livelihood purposes”. Chinese customs have not reported crude oil exports to the North for several years.
According to figures on the UN sanctions committee’s website, 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 a year from the products, accounting for 30% of its exports by value.
South Korea’s central bank said trade with China – which accounts for 95% of North Korea’s external business – fell sharply in the first half 2018.
A UN report last year said deliveries of coal, iron and steel to China, India and other countries generated nearly US$14 million for Pyongyang in six months.
Both imports and exports of textiles, including fabric and clothing, are banned under the UN measures. Textiles are one of North Korea’s major businesses and second-biggest sales item with total exports estimated at around US$750 million in 2016, according to Korea Trade-Investment Promotion Agency.
China is the major supplier of material while the importers of North Korea’s textiles are mostly China and Russia.
The resolution imposed in December 2017 ordered countries to repatriate tens of thousands of North Korean laborers 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.
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