The U.S. Imposes Secondary Sanctions on Chinese and Russian Firms Over North Korea

The U.S. has announced new sanctions on ten Russian and Chinese firms as well as six individuals that it accuses of aiding North Korea’s nuclear weapons program, pilling more pressure on the Kim Jong Un regime just hours after a total of 67,500 South Korean and American troops began 11 days of combat drills.

The secondary sanctions drew a swift rebuke from China, which called on Washington to “immediately correct its mistake” of targeting its firms. Pyongyang had not responded to the secondary sections directly, but threatened “merciless retaliation and unsparing punishment” against the U.S. and South Korea for its parts in the annual drills, which the regime considers a dress rehearsal for invasion.

U.S. Treasury Secretary Steven Mnuchin said his department “will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system.”

The latest moves come after the U.N. Security Council on Aug. 5 unanimously passed Resolution 2371, which targets a third of North Korea’s $3 billion of foreign earnings — mainly iron, lead, coal and seafood exports — plus revenue streams through its banks and foreign ventures. In a tweet, Trump called it “the single largest economic sanctions package ever on North Korea.”

The Aug. 5 sanctions announcement sparked an alarming escalation of rhetoric. Trump warned Pyongyang’s escalating missile tests would be met with the “fire and fury” of nuclear war, while Kim responded by saying he was “examining” an attack on U.S. military bases on its Pacific territory of Guam.

Resolution 2371 passed with the support of Russia and, somewhat surprisingly, China. The latter acquiesced, no doubt, partly to curry favor with Trump and hopefully avoid the large import levies he promised at the stump. In addition, under that deal Chinese banks didn’t face secondary sanctions. Tuesday’s announcement has narrowed that significant loophole.

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Since the mid-2000s, when coal prices were at record highs, North Korea has been exporting coal to China and squirreling away the proceeds in Chinese banks. According to John Park, director of the Korea Working Group at the Harvard Kennedy School, these “slush funds” would allow the regime to continue its weapons program for the foreseeable future.

Tuesday’s sanctions included three Chinese coal companies that were assessed to have imported over $500 million of coal from North Korea between 2013 and 2016. In addition were three Russian individuals and two Singapore-based firms involved in providing oil to North Korea.

China still provides North Korea half-a-million barrels of oil every year on livelihoods grounds, and cutting off this supply is what many observers believe brought Kim Jong Un’s father Kim Jong Il to the Six-Party denuclearization talks in 2003.

Tuesday’s announcement also targets firms that facilitate North Korean workers to be employed overseas. An estimated 60,000 toil abroad as laborers and waitresses — chiefly in China, Russia and the Middle East — returning annual remittances worth some $500 million.

According to Rajiv Biswas, Asia-Pacific Chief Economist at IHS Markit, Tuesday marks “a significant shift in U.S. economic sanctions strategy to target third country entities and persons, with further targeted measures likely to ramp up pressure on any actors who try to act as a conduit for sanctioned North Korean entities.”