Why Economic Sanctions Have Failed Against North Korea

The United States and other major actors have long opted for economic sanctions to destabilize North Korea’s authoritarian regime and end its nuclear program. Over the years sanctions have inflicted major economic damage and isolated North Korea from the global economy, but have failed to change the course of the Kim regime’s stability and nuclear program. Though the most recent UN sanctions and the U.S. Treasury Department financial sanctions designating North Korea as a “primary money laundering concern” are the toughest measures to date, they have not yet broken the cycle of the regime responding to external pressure with additional ballistic missile tests to prove its resilience against foreign pressure.

Why have sanctions failed against North Korea? Sanctions have been ineffective for two reasons: Pyongyang has been able to shield its ruling circle from the economic costs of sanctions, and has employed means of repression to quell dissent and domestic opposition. Sanctioning countries often assume that foreign economic pressure will impair the target’s economy and military capacity, thus undermining the support base of the leadership. This would in turn force the regime to capitulate to foreign pressure to avoid the erosion of its authority. Yet, sanctions against authoritarian targets, especially those with a relatively small support base, rarely put enough pressure to induce concessions. The targeted regimes survive external pressure by diverting the economic costs of sanctions to ordinary citizens and using the remaining resources to offer selective rewards to their supporters to isolate them from the economic hardship. Selective rewards in turn preempt defections from the ruling circles.

North Korea is a textbook example of a sanctioned authoritarian regime with a relatively small and cohesive ruling coalition. The regime is essentially under the control of a coalition of high-ranking military officials, Korean Workers’ Party leaders, and top bureaucrats. A large portion of the ruling elites are members of the extended Kim family, with other members chosen based on their family background and personal connections with the Kim family. The regime provides a wide spectrum of selective rewards to its ruling elites in return for loyalty, including residency and special housing benefits in Pyongyang, better and more food, and access to scarce goods such as luxury cars, jewelry, and electronics. Some members of the ruling circle even profit from the sanctions by participating illicit economic activities—such as money laundering, arms trafficking, and counterfeiting goods and currency—to generate revenue and mitigate the adverse effects of sanctions.

The regime has remained defiant against foreign pressure also because of its continued use of repression against any potential domestic opposition. The regime’s full command over a repressive state apparatus, among the world’s worst, and total surveillance of society has enabled the leadership to eliminate any challenges to the status quo. Severe human rights violations such as public executions, torture, and years of imprisonment in prison camps discourage anti-regime activities and dissent. Informants in workplaces, schools, and party offices detect organized opposition. Through the neighborhood watch system, Inminban, members of each neighborhood unit monitor fellow members and report anti-regime activities to party authorities. Hence, even if foreign pressure might create more grievances and dissatisfaction against the current leadership, North Korean citizens simply lack any channels to organize opposition.

Can sanctions be better designed to “work” against North Korea? Pyongyang has been subject to several rounds of sanctions in the form of trade embargoes, financial restrictions, bans on the export of luxury goods, aid cuts, and travel sanctions since the 1950s. The U.S.-led sanctions during the Cold War that restricted North Korea’s trade and financial ties with Western economies failed in extracting concessions. These sanctions might have even done more harm than good as they exacerbated the already dire living conditions of ordinary citizens while instigating no major policy reforms or outright regime change in Pyongyang.

Selective sanctions directed at the ruling elites may partially “work” if enforced effectively. For instance, sanctions on the export of luxury goods may help put some pressure on the ruling elites. There have been multiple rounds of UN sanctions on the export of luxury goods to North Korea since 2006. However, these selective sanctions have so far not succeeded, as the regime has continued to access most luxury items through illicit trade and the use of intermediaries. The ban on luxury goods has also not been very effective because there is no agreement among sanctioning countries on what encompasses luxury goods.

The non-proliferation sanctions on dual-use technologies and other materials used for nuclear purposes could still be partially effective. It may be unrealistic to expect that Kim Jong-un will give up his nuclear program as it is perceived to be a vital deterrent to external military threats and a security guarantee for the survival of the regime. However, these sanctions may at least hinder or prolong the development of more advanced nuclear technologies.

Financial sanctions on foreign banks may also be instrumental in reducing the regime’s access to foreign currency and disrupting its illicit financial activities. Financial sanctions such as the recent U.S. Treasury Department measures could put more direct pressure on the regime by blocking its access to the U.S. dominated global financial system. Most countries and their financial institutions might be compliant with U.S. financial sanctions in order to not be excluded from the U.S.-dominated global financial system and avoid damaging their own reputation by doing business with a sanctioned country.

Economic sanctions alone are unlikely to achieve the ambitious goals of regime change and denuclearization. Selective sanctions on luxury goods, dual-use products, and other items may still help contain the aggressive military behavior of Pyongyang and keep its nuclear program under control, yet they require international cooperation to be truly effective. Increasing the intensity of these sanctions in response to North Korean provocations can only have a minimal impact if enforcement of sanctions and procedures to punish those who violate them is not agreed upon, both in letter and in spirit, by sanctioning countries. Though this is clearly easier said than done, cooperation is vital for sanctions on North Korea to succeed.