• North Korean Sanctions Don’t Interfere with Making Money

    April 4, 2013 // 43 Comments »

    Oh, a new crisis in North Korea!

    (Drumbeat) On June 26, 2008, the President issued Executive Order 13466, declaring “a national emergency to deal with the threat to the national security and foreign policy of the United States constituted by the current existence and risk of the proliferation of weapons-usable fissile material on the Korean Peninsula,” and continued certain restrictions with respect to North Korea that had been imposed under the authority of the Trading With the Enemy Act.

    (Drumbeat) On August 30, 2010, another President issued Executive Order 13551, expanding the scope of the national emergency declared in E.O. 13466 and adding new restrictions.

    (Drumbeat) On April 18, 2011, the President issued Executive Order 13570 to take additional steps to address the national emergency declared in E.O. 13466 and expanded in E.O. 13551 that will ensure implementation of the import restrictions contained in several United Nations Security Council Resolutions and complement the import restrictions provided for in the Arms Export Control Act.

    (More Dramatic Drumbeat) Criminal fines for violating the E.O.s range up to $1,000,000; individuals may also face imprisonment up to 20 years. In addition, civil penalties of up to the greater of $250,000 or twice the amount of the underlying transaction may be imposed administratively for each violation.


    The path was clear: The United States would apply a variety of economic sanctions to both punish North Korea for going nuclear and, more importantly, choke off its access to the world markets and the hard currencies needed to keep the evil regime alive. By cutting off its money supply, sanctions wold starve North Korea of the real fuel– money– needed to drive its nuclear program.

    Except of course if real money is involved.

    Kaesong

    Meanwhile, a South Korea-North Korea joint venture project happily churns away, generating some two billion dollars a year in hard currency for the North. At the Kaesong project, 123 South Korean firms employ more than 50,000 North Koreans to make whatever “household goods” are. In addition, Kaesong also generates more than $80 million a year in cash in wages, paid directly by South Korean firms to the North Korean government rather than to workers.

    Business is done in the international currency of U.S. dollars, ensuring North Korea of plenty of sanctions-free moolah.

    Business Could Not be Better

    In fact, business couldn’t be better. According to North Korean Economy Watch, despite rising cross-border tension, the trade between South and North Korea reached a record high last year. South Korean products worth $896.26 million were shipped to North Korea, up 13.4 percent from the previous year. The amount of products that came from the North jumped 19.3 percent on-year to $1.07 billion.

    In fact, since 2004, total wage payments for North Korean workers in Kaesong totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. To keep things humming along, electrical power and telephone service are supplied from South Korea.

    All About the Benjamins

    The appeal to South Korean industrialists is counted in dollars and cents; the monthly wage for a North Korean worker in Kaesong is about US$128, pennies compared to the labor costs in the South. The Kaesong complex is only a short one hour drive from Seoul, rail service exists to move goods and heavy raw materials, the labor force speaks Korean and shares cultural ties and hey, if a worker gets out of line, demands labor union rights or simply a day off, he can be “replaced,” replaced with extreme prejudice as they say. This is capitalism on steroids, baby.

    And while on April 3 the North Koreans banned South Korean personnel from Kaesong, they continue to accept South Korean money there. In addition, some 261 South Korean workers remain in Kaesong; although new workers are banned from coming in, the old ones are conveniently allowed to stay on. Follow the money.

    One sweet deal: while the U.S. throws sanctions at North Korea in a hissy fit because they went nuclear while we were looking the other way (wars in Iraq and Afghanistan), what really matters on the Peninsula is money. It’s all about the Benjamins.

    BONUS: The U.S. just spent $5.5 million of your sequester tax dollars flying two B-2 bombers over South Korea to intimidate North Korea. They did not bomb the industrial complex at Kaesong described above.




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