Why Did North Korea Sign a Nuclear Deal Now?

Grab them by the banks, and their hearts and minds will follow, as former US president Lyndon Johnson might have said, writes Richard Whelan.

North Korea’s unexpected nuclear agreement on February 13, 2007, after 3 ½ years of negotiations, provides some interesting lessons for dealing with other rogue nuclear states.

After many challenges to the international community, including illegally withdrawing from the Nuclear Non-Proliferation Treaty (“NPT”), North Korea carried out an underground nuclear test on 9 October 2006. Subsequently, UN Security Council resolution 1718 for the first time placed sanctions against North Korea under Chapter VII provisions, which can eventually provide for the use of force. China made clear its unhappiness about the North Korean nuclear test (it had only 20 minutes notice) and it is reported that it quietly imposed restrictions on banking transactions with the North, limited its oil deliveries, and started construction of a wall along part of its border. There is no doubt, therefore, that North Korea was anxious to divert Chinese anger. It is also clear that the U.S. did a fundamental “about face” in its dealings with North Korea. Still there were clearly other factors at work.

A clue to what they might be was contained in a meeting between North Korea and the U.S. in Berlin this January. This unusual one-on-one meeting (the U.S. usually insists on talks only within the Six Party framework, which also includes South Korea, China, Russia and Japan) focused solely on U.S. financial sanctions on North Korea.

The U.S. had for years been looking for ways to stop illicit North Korean activities and for sanctions that target the leadership, rather than the people of North Korea. This led in October 2005 to the US designating the Macao-based Banco Delta Asia (“BDA”) as a “primary money laundering concern” because of its links to North Korean agencies and front companies said to be involved in black market dealings. This caused a run on the bank. The Macao authorities, with the support of China’s central bank, took control of BDA and froze over 50 North Korean-linked accounts. It appears that some of these accounts were being used for Kim Jong-il’s personal spending. That same month the U.S. Treasury designated eight North Korean, Syrian or Iranian companies as being involved in the proliferation of WMD, freezing their assets and prohibiting U.S. persons from doing business with them.

By targeting the international banks doing business with North Korea, the US succeeded in its aim of hurting the country’s elite without really hurting the public. Then in March 2006 the U.S. Treasury extended this new authority to a Swiss industrial wholesale company, Kohas AG, which had all its assets within the U.S. frozen and U.S. companies barred from doing business with it.

North Korea reacted quickly. It stated that nuclear talks could not continue until all such sanctions were lifted, and appeared particularly incensed by the actions against BDA, which denied the leadership access to an important source of “off the books” profits. When Kim Jong-il visited China in January 2006 he expressed concern that prolonged U.S. financial sanctions could lead to his government’s collapse.

The process snowballed. Under pressure from the U.S., other banks around the world restricted or terminated business with North Korea so as not to run afoul of U.S. Treasury sanctions themselves. North Korean traders were forced to either carry cash or rely more on China which itself was restricting banking transactions. The ensuing decline in the black market value of the North Korean currency indicated that the supply of foreign currency in North Korea was rapidly drying up.

U.S. and international attention was also directed at North Korean earnings of approximately $500 million annually from illicit activities. They include currency counterfeiting, narcotics trafficking, cigarette counterfeiting, trafficking in endangered species, and the smuggling of conflict diamonds, counterfeit Viagra, arms and human trafficking, and ballistic missile components and technology, and nuclear materials.

North Korea was stung into action. In early 2006 it “leaked” the fact that it had ordered its embassies and trading companies to stay away from illicit activities. The U.S. however kept up the pressure, banning U.S. citizens, companies, and their subsidiaries from involvement with North Korean shipping, and attempting to convince other countries to impose similar sanctions on North Korea. Japan, which hosts 600,000 ethnic Koreans, made some important supportive moves, banning North Korean vessels from its ports and approving new measures to block the transfer of funds to that country. These new money-laundering measures came into effect on 4 January. This was rapidly followed by the U.S.-North Korea meeting on financial sanctions. Then the unexpected nuclear deal in February 2007.

It is too early to say if this will lead to North Korea giving up its nuclear capability. It may do , despite what many think, as North Korea does not need nuclear weapons to deter aggression. It has an army of 1.1 million and reserves of 4.7 million, with 4,000 tanks and 18,000 artillery pieces, the majority of which are targeted at Seoul, the capital of South Korea, which is a short distance south of the demilitarised zone (“DMZ”).

Although much of its equipment is outdated and in poor readiness, the International Institute for Strategic Studies in its dossier on North Korea’s weapons programmes concluded: “North Korean soldiers are seen as tough fighters. With its massed artillery near the DMZ, North Korea retains the ability to inflict heavy casualties and collateral damage on allied forces and civilians – North Korean forces may not be able to seize Seoul but they can devastate it”. For this reason, with or without nuclear weapons, the U.S. has not been in a position to effect regime change in North Korea for some time.

However intelligent focused action, of the kind we have come not to expect from the Bush administration, got a result. There’s a lesson here for dealing with other rogue nuclear states.

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