Why Has North Korea Responded Positively to the Nuclear Talks in 2007

Abstract

IntroductionI have repeatedly pointed out the adverse impact of numerous U.S. economic sanctions on North Korea's trade. I have written, for instance, that the large trade deficit, unless compensated somehow, is not sustainable.1 Further, since China and Japan were the only two steady importers of North Korean products from 2000 to 2005, if one or both countries turned against North Korea by joining the U.S.-led economic sanctions, it would be difficult for North Korea not to feel the impact. And so it came to be. "Japan rapidly tightened its economic relations with North Korea during the past year or two," I wrote in 2007, "including a total ban of imports from North Korea, over the issues of kidnapping and nuclear weapons, leaving China as the only country that has a key influence on North Korea's trade. Prospects are that North Korea's exports may decline, making North Korea's trade deficit issue even more difficult."2 Even with these premonitions, it was a pleasant surprise to see the way in which North Korea responded to the nuclear talks later in 2007.The objective of this paper is to explore the economic reasons behind North Korea's positive response to the nuclear talks in 2007, by hypothesizing that the North Korean leaders altered their approach partly because of the adverse impact of economic sanctions on North Korea's trade that had reached an unsustainable stage, and partly because of a greater calculation of benefits and costs by the North Korean leaders since the collapse of the Soviet Union, the process of which began in 1989.Key Economic Sanctions against North KoreaThe economic sanctions that have been imposed against North Korea since the beginning of the Korean War in 1950 are chronologically explained elsewhere by me.3 Among the many sanctions imposed on North Korea are three that currently have a direct impact on North Korea's trade. One is the U.S. denial of a most-favored nation (MFN) trade status on North Korea's exports, which was imposed on September 1, 1951. Because of the widespread use of the MFN tariffs, these are known as Normal Trade Relations (NTR) tariffs. Without MFN status, tariffs on North Korean exports to the United States can be so high that it would be impossible for North Korea to even consider exporting anything to the United States.Another important sanction was levied when North Korean agents blew up Korean Air 858 on November 29, 1987, when the plane was on its way from Baghdad to Bangkok. The explosion killed 115 passengers and crew members. On January 20, 1988, North Korea was placed on a list of countries that support international terrorism, on the basis of the U.S. Export Administration Act of 1979. The importance of this sanction is that placement on the list made it impossible for North Korea to borrow development funds from international financial institutions, including the World Bank and the International Monetary Fund.4The third key economic sanctions may be termed collectively the "U.S.-led Proliferation Security Initiative, announced by President George W. Bush in May 2003, which is designed to interdict weapons of mass destruction shipments to and from countries of proliferation concern, such as North Korea."5 Ever since President Bush labeled North Korea, Iran, and Iraq as an "axis of evil" in his State of the Union address on January 29, 2002, there had been a gradual tightening of sanctions until 2007. The October 2002 discovery of North Korea's nuclear program, and North Korea's subsequent announcement that it was renewing the program, broke the terms of the 1994 Agreed Framework, and led to a rapid downturn in the relations between North Korea and the United States. The worsening relations were followed by a broad tightening of North Korea's illegal financial transactions. The broad tightening culminated in Banco Delta Asia's termination of business dealings with North Korea as of February 16, 2006. Banco Delta Asia had long been suspected of handling North Korea's illicit activities overseas, such as laundering of counterfeit U. …