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Confronting the `Dear Leader'

July 15, 2006|Gary Hufbauer | GARY HUFBAUER is Reginald Jones senior fellow at the Institute of International Economics and coauthor of "Economic Sanctions Reconsidered."

IF HALF A CENTURY of economic punishment could alter bad behavior, North Korea would be Exhibit A for tyranny reformed. The United States has isolated the Hermit Kingdom since the Korean War -- longer and harder than any country subjected to economic sanctions.

Until the 1990s, the objectives were to transform the regime, to persuade Pyongyang to stop threatening South Korea and to stop the sale of drugs, counterfeit dollars and weapons. But faced with the acquisition of nuclear weapons by "Great Leader" Kim Il Sung, President Clinton took a new tack. Clinton's 1994 Agreed Framework offered huge economic carrots alongside continued sanctions. If Kim's son, Kim Jong Il, would stop manufacturing plutonium, the West, South Korea and Japan would provide billions of dollars in aid and two nuclear power plants.

Pyongyang went right ahead with its bomb project. In 1994, North Korea probably had enough plutonium for two bombs; now it reportedly has enough for at least eight. As the July 4 launch of a Taepodong 2 shows, economic carrots have worked no better at stopping the nuclear buildup than economic sticks have worked at regime change.

The next stages in North Korea's escalation plans are as predictable as they are worrisome. "Dear Leader" Kim will soon launch an intercontinental ballistic missile that can reach Los Angeles, San Francisco or Seattle. As North Korea and Iran are now staunch allies, sharing weapons lore and much else, these two survivors of the "axis of evil" may stage simultaneous tests of their nuclear bombs for theatrical effect. North Korean and Iranian engineers are no doubt hard at work miniaturizing nuclear warheads to fit on ICBMs.

Given that virtually every economic sanction the West can imagine has been imposed, what can we do next? How can a new round of economic diplomacy do any better? Based on my review of about 200 sanctions episodes since World War I, it is hard to be optimistic. Since the end of the Cold War, sanctions were imposed about 70 times but achieved their objectives in fewer than 30 cases -- and many of the successes were soft targets. Two factors further lower the chances of success with North Korea: a despot so tyrannical he makes Saddam Hussein seem benevolent, and Pyongyang's belief in nuclear ICBMs as a passport not only to regime survival but also to profitable blackmail.

It is well known that multilateral sanctions are more likely to succeed than unilateral efforts, and the Bush administration is sensibly doing its best to line up the great powers for a united front against North Korea. But multilateral sanctions are unlikely. Just as with efforts to impose tight sanctions on a nuclearizing Iran, the holdouts are China and Russia. China wants good relations with Iran to ensure future oil supplies, and the only threat China feels from North Korea is not a nuclear strike but a flood of refugees. Russia is keen to assert its status as a resurrected great power, and this consideration alone motivates a distinct approach to Tehran and Pyongyang.

South Korea is another holdout from the united front. The soft-line approach of President Roh Moo-hyun is designed to slide by any confrontation with Pyongyang and to take economic advantage of North Korea's isolation and dirt-cheap labor. As a result, U.S. diplomatic relations with South Korea are at a low point. But the latest missile test is finally eroding support for Roh's approach.

CHINA CONTROLS most of the economic leverage over Pyongyang because it accounts for about 40% of North Korea's external trade. South Korea is the next biggest player, accounting for about 25% of its trade and most of its foreign investment. Although the United States, Japan and Europe have practically no commerce with North Korea, all have extensive economic relations with China, Russia and South Korea. The diplomatic question of the moment is whether to put some of these relations on the table in a quiet effort to garner support for economic pressure against North Korea.

In practice, what would this style of indirect economic diplomacy entail? Economic sticks have never succeeded against China or Russia, but the U.S. could quietly offer economic carrots in return for a united front. For example, Washington might offer to desist from its long-running campaign to appreciate the Chinese renminbi against the dollar, and it could shorten the list of items Beijing wants that are subject to export controls. The Bush administration could go easy on Russia's entry requirements for admission to the World Trade Organization.

South Korea should be an easier target. The United States could offer a free-trade agreement with long-delayed agricultural reforms as a very big enticement to stop coddling North Korea.

Still, such economic carrots, though costly to the United States, may not persuade Beijing, Moscow or Seoul to put meaningful economic pressure on Pyongyang. And it's far from certain that additional pressure would persuade Kim to change course.

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