[China accounts for more than 80 percent of trade with North Korea, and the Trump administration is counting on Beijing to use that leverage to pressure it into giving up its nuclear arsenal. The Chinese government took a big step in February by announcing that it was suspending imports of coal from the country through the end of the year.]
By
Jane Perlez, Yufan Huang and Paul Mozur
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Bridges over the Yalu
River connecting the North Korean city of Sinuiju and
the Chinese city of
Dandong. Dandong is China’s largest border town,
and much of the North’s
trade with the world flows across its bridges
or through its port.
Credit Damir Sagolj/Reuters
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DANDONG, China —
As the end of the fashion season approached, and the suits and dresses arrived
in her company’s warehouses here in the Chinese border town of Dandong, the
accountant crammed about $100,000 into a backpack, then boarded a rickety train
with several co-workers.
She
asked to be identified only by her surname, Lang, given the sensitivity of
their destination: North Korea.
After
a six-hour journey, she recalled, they arrived at a factory where hundreds of
women using high-end European machines sewed clothes with “Made in China”
labels. Her boss handed the money to the North Korean manager, all of it in
American bills as required.
Despite
seven rounds of United Nations sanctions over the past 11 years, including a
ban on “bulk cash” transfers, large avenues of trade remain open to North
Korea, allowing it to earn foreign currency to sustain its economy and finance
its program to build a nuclear weapon that can strike the United States.
Fraudulent
labeling helps support its garment industry, which generated more than $500
million for the isolated nation last year, according to Chinese trade data.
North
Korea earned an additional $1.1 billion selling coal to China last year using a
loophole in the ban on such exports, and researchers say tens of thousands of
North Koreans who work overseas as laborers are forced to send back as much as
$250 million annually. Diplomats estimate the country makes $70 million more
selling rights to harvest seafood from its waters.
China
accounts for more than 80 percent of trade with North Korea, and the Trump
administration is counting on Beijing to use that leverage to pressure it into
giving up its nuclear arsenal. The Chinese government took a big step in
February by announcing that it was suspending imports of coal from the country
through the end of the year.
But
China has a long record of shielding North Korea from more painful sanctions,
because it is afraid of a regime collapse that could send refugees streaming
across the border and leave it with a more hostile neighbor.
In
addition, Beijing now has a sympathetic ear in South Korea, whose newly elected
president, Moon Jae-in, echoes its view that sanctions alone will not be enough
to persuade Pyongyang to abandon its nuclear program.
While
North Korea remains impoverished and dependent on food aid, its economy appears
to be growing, partly because of a limited embrace of market forces since its
leader, Kim Jong-un, took power more than five years ago.
Foreign
trade, primarily with China, has surged, too, more than doubling since 2000,
though it has slipped in the past three years.
In
theory, North Korea’s greater openness to trade makes it more vulnerable to
sanctions, with new potential targets and pressure points. But it also
highlights the limits of an approach to sanctions — defined largely by China at
the United Nations — that aims to punish North Korea’s military and ruling
elite while sparing its people. As trade expands, the lines have blurred.
North Korean Labor
Positioned
near the mouth of the Yalu River, Dandong is China’s largest border town, and
much of North Korea’s trade with the world flows across its old bridges or
through its deepwater port.
Ms.
Lang, 33, moved here more than a decade ago to study environmental protection.
But she ended up like many with ambition in this city of more than three
million: doing business with North Korea.
She
wears exquisite makeup and carries a Louis Vuitton handbag, and she said her
role in the garment trade was straightforward: Orders come in from Japan,
Europe and other parts of China, and she gets the clothes made.
For
those with quick deadlines or detailed specifications, she turns to Chinese
factories in Dandong, where quality control is better. Yet even these factories
employ North Korean laborers, she said.
For
decades, North Korea has been accused of sending workers abroad and
confiscating most of their wages, an arrangement that activists liken to slave
labor. Researchers say the practice has expanded since Mr. Kim took power, with
more than 50,000 workers now toiling in up to 40 countries.
In
Dandong, the local government boasts that 10,000 North Koreans are employed in
its apparel factories, working 12- to 14-hour shifts, with just two to four
days off each month and a monthly wage of no more than $260.
“They
are well disciplined and easy to manage,” says the website of the Dandong
commerce bureau, noting that the workers have been vetted before arrival.
“There is no such thing as absenteeism or interfering with management, no using
illness to shun work or procrastination and losing work time.”
Ms.
Lang sends more-flexible orders to North Korea, where costs are lower but it is
impossible to guarantee delivery dates because of power failures and a shortage
of trucks.
Her
company ships fabric, buttons and zippers to factories there, she said, because
the North lacks the materials, and they put “Made in China” labels in garments
to make them easier to sell overseas.
That
would most likely be considered fraud and a violation of place-of-origin rules
in countries that import the clothes, experts said.
Paul
Tjia, managing director of GPI Consultancy, a Dutch company that offers advice
on doing business in North Korea, said that some of his European clients had
ordered hundreds of thousands of garments and that “Made in China” labels could
be justified by additional work put into the clothes inside China.
But
he added: “I’m not a garment manufacturer. I just make the introductions.”
Loopholes
Abound
China
has kept North Korea’s garment sector off the list of industries targeted by
United Nations sanctions, arguing that punishing it would hurt ordinary people
and not military programs. It has protected North Korea’s seafood industry
using the same argument.
But
it is difficult to say who benefits from this trade, in part because even
private enterprise in North Korea is overseen by state officials who extract
taxes and bribes.
“Whether
the proceeds from the textile industry support the nuclear program is an open
question,” said Joseph M. DeThomas, a professor at Pennsylvania State
University and a former American ambassador involved in sanctions policy.
“Money is fungible.”
At
least one North Korean enterprise controlled by the atomic energy bureau, the
Korea Kumsan Trading Corporation, ran a garment factory that added embroidery
and beading to clothing, according to a North Korean government trade website.
And
South Korean officials say that the millions paid by Chinese companies to fish
in North Korean waters go primarily to firms controlled by the North’s
military.
Sanctions
also do not cover the organized export of labor. The United States has urged
countries to eject North Korean workers, saying their remittances benefit the
military, not their families. But China, Russia and other nations continue to
hire them.
American
sanctions against North Korea began with a near-total economic embargo adopted
in 1950, at the start of the Korean War. Over the years, some sanctions were
eased and others added, including after the cyberattack on Sony Pictures in
2014 that Washington attributed to the North.
The
United Nations Security Council did not impose sanctions until July 2006, when,
after a series of missile tests, it banned countries from selling material for
missiles or weapons of mass destruction to North Korea.
The
North detonated its first nuclear device months later, followed by additional
tests in 2009 and 2013, and two in 2016. The Security Council tightened
sanctions after each test, as well as after a satellite launch in 2013. It
targeted military supplies and luxury goods, shut Pyongyang out of the
international financial system and, most recently, banned a range of mineral
exports.
But
loopholes abound. Resolutions called for searches of vessels carrying cargo to
North Korea but have failed to stop its use of ships sailing under foreign
flags. And when the Security Council banned its top export, coal, China
insisted on an exception for transactions judged to be for “livelihood
purposes.”
New
measures seek to limit North Korea’s ability to make money through its
embassies. In Berlin, for example, the authorities are closing a hostel run out
of former diplomatic quarters. But the North has responded to such crackdowns
by shifting business to countries with weaker enforcement.
“How
much cooperation will the international community get from Cuba, Russia, Iran
or even Pakistan, Bangladesh or Laos?” asked Stephan Haggard, an expert on the
North Korean economy at the University of California, San Diego.
The
United States has also urged a boycott of Air Koryo, the North Korean airline,
but it still flies to China and Russia. Chinese tourism to North Korea is
booming, said Cha Yong Hyok, whose company, Indprk, takes groups by train to
Pyongyang and will soon use new flights from Dandong.
The
North often circumvents banking sanctions using front companies and agents
overseas, and North Koreans routinely send and receive payments using Chinese
intermediaries who take a commission, despite the ban on “bulk cash” transfers.
“We
can and should go after these targets, but turning this into a game of
financial cat-and-mouse will never achieve the level of pressure needed,” said
Daniel L. Glaser, a former Treasury Department official involved in sanctions
enforcement.
Ultimately,
he argued, that pressure will come only if China makes a strategic decision to
truly squeeze the North. “Though China has taken helpful steps at times,” he
said, “it has never been willing to go all in.”
Business With the North
Many
of China’s best-known companies have done business with North Korea even as
they have sought customers and investors in the United States or relied on
American-made parts and materials.
ZTE,
the mobile phone and electronics manufacturer, for example, shipped about $15
million of goods to the North in 2015, according to Chinese customs records
viewed via the global trade database company Panjiva.
The
company agreed to pay $1.19 billion in March for violating American sanctions
against Iran and North Korea, in part by sending 283 shipments of electronics
with American-made components to the North. ZTE has pledged to improve
oversight.
But
many Chinese companies sell their products to North Korea without running into
such problems.
The
electric car and battery maker BYD, in which Warren E. Buffett’s Berkshire
Hathaway owns a 10 percent stake, has shipped about $14 million in goods to
North Korea since 2012, including rubber products in January and vehicles in December,
customs records show. BYD and Berkshire Hathaway did not immediately respond to
a request for comment.
Just
about every big Chinese appliance maker does business with North Korea, too,
shipping refrigerators, air-conditioners, televisions and other electronics.
The major Chinese automakers sell vehicles to the North as well.
Even
Tsingtao Brewery shows up in the customs records, with a delivery of about
$20,000 worth of beer in the summer of 2014.
United
Nations sanctions prohibit the sale of luxury goods to North Korea, but
countries are generally left to define what that means. The resolutions list
jewelry, luxury automobiles, sports equipment and snowmobiles but make no
mention of televisions, consumer electronics or home appliances.
In
some cases, Chinese companies with access to advanced technology are doing
business with North Korea. Subsidiaries of the defense manufacturer Norinco
made seven shipments, mostly of electronic and optical goods, worth a total of
$1.5 million, in the second half of last year, according to the records.
Norinco did not respond to a request for comment.
Matthew
Brazil, a security consultant and former diplomat for the United States who
investigated Chinese trade controls in the 1990s, said it was often impossible to
get China to follow up on leads suggesting Chinese firms were violating
restrictions.
“Three
months later, if you’re lucky, the visit is scheduled, and many times, visits
weren’t scheduled at all,” he said.
Mr.
Brazil said the problem had persisted, and as a result, “any level of control
of American electronics has completely collapsed because this technology can be
so easily shipped from China to North Korea.”
On
AliExpress, an e-commerce platform operated by the Chinese internet giant
Alibaba, six of the nine shipping services list North Korea as a potential
destination. Alibaba declined to comment.
The
manager of a shipping firm in Dandong who asked to be identified only by her
surname, Li, because of the nature of her work said shipping a package of
electronics to North Korea was straightforward “as long as it doesn’t have
obvious labels” and meets weight requirements.
In
fact, a delivery is more likely to run into problems on the North Korean side
of the border than with customs inspectors in China. “The key,” she said, “is
to make sure everything is fine with the people on the other side.”
Jane
Perlez and Yufan Huang reported from Dandong, China, and Paul Mozur from Hong
Kong. Ryan McMorrow contributed research from Beijing, and Caroline Zhang from
Shanghai.
