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PacNet #3 – Kim Jong Un’s New Year’s Resolution: What It Means.

Why, after giving South Korean President Moon Jae-in the cold shoulder since his inauguration in May 2017, has North Korea’s Supreme Leader Kim Jong Un suddenly warmed up to South Korea, calling for an opening and dialogue in his New Year’s Day address?

History teaches us that economics ultimately drives politics. North Korea’s New Year’s Day gambit is likely a political play not only to drive a wedge in the US-ROK denuclearization policy but also to convince South Korea to provide the economic relief that it so desperately needs.

International sanctions now palpably constrict North Koreas’ foreign exchange inflows on which the sustainability of its nuclear bomb-ICBM project and the living standards of the elite in Pyongyang depend. Kim wants to change that – while keeping unreformed the totalitarian system of the Democratic People’s Republic of Korea. This contradiction means any thaw in Kim’s cold treatment of the ROK will not be deep enough to resolve its fundamentally diverging strategic objectives with South Korea, not to mention with the major regional powers. Indeed, South Korean President Moon is reported by the local press as having cautioned that any improvement in ties should come together with efforts to denuclearize the North.

Nonetheless, there are several positive developments in Pyongyang’s New Year’s opening that will, at least temporarily, defuse tensions on the Korean Peninsula.

The hotline is reopened, again

The most consequential of these developments is Pyongyang’s decision to reopen the Panmunjom military hotline, which it has repeatedly closed and reopened in recent years (in 2009, 2013 and again in 2016). For the past two years the North refused to answer the military-to-military hotline, retaliating for former President Park Geun-hye’s shuttering of South Korean business operations in the joint North-South Kaesong Industrial Complex in reaction to North Korea’s detonation of its fourth nuclear bomb. Communication between the two militaries could now possibly avert an accident from escalating into a confrontation, or worse. This is especially crucial given the rise in tensions following the North’s fifth and sixth nuclear bomb tests earlier this year and successful launch of an ICBM that theoretically has the range to strike any city in the U.S., including Washington, DC, and New York.

Let the Games Begin

Another positive development is that the first conversations on the reopened hotline involved the North’s intention to take part in the Winter Olympics being held next month in the South Korean city of Pyeongchang, less than 50 miles south of the DMZ. North Korean participation will add another dimension to the Olympics, although the North Korean team consists only of a pair of figure skaters. Nonetheless, the surety of peace is a much-needed boost to the profile of these Olympics. The two countries have jointly participated in the Olympics in the past, at the Summer Olympics in Sydney in 2000 and in Athens in 2004. Also, North Korea sent teams of athletes to the Asian Games held in Incheon, South Korea, in 2014.

The US and ROK Defer Joint Military Drills

To support a peaceful Olympics political environment, President Moon and President Trump announced that South Korea and the U.S. will postpone the joint military drill that was scheduled to be held in February during the games. This gesture, however, should not be misinterpreted as a fundamental shift in the alliance’s deterrence stance. As the South Korean Foreign Ministry made clear, “the South Korean government disagrees with the idea of canceling the military exercises in return for the North halting its nuclear weapons program.” South Korea will not trade legitimate self-defense measures for North Korea’s illegal weapons programs.

The Dark Underside of Kim’s Gambit

Offsetting these positive developments is North Korea’s long-held ambition to become, or more accurately to remain, a nuclear weapons power. Kim Jong Un double-downed on that strategic intention in his New Year’s speech by declaring that the North will mass produce an operational arsenal of missiles and bombs, for which he claims to have installed a “desk-top button” to attack the U.S., and implicitly any other enemy state, at will.

The DPRK’s nuclear ambitions are problematic in three ways. First, such ambitions threaten geopolitical stability on the Korean Peninsula and the economic prosperity of South Korea. Second, such a capability will likely lead to proliferation, threatening regional and global stability. That is the historical lesson of the Soviet Union proliferating nuclear know-how and materials to China, China to Pakistan, and Pakistan to North Korea. North Korea has both political and financial incentives to proliferate. And third, by threatening the U.S. with such weapons North Korea raises the possibility of a pre-emptive strike if threat perceptions become material.

A corollary lesson to these three risks is that diplomacy as practiced over the past two decades had failed to shut down North Korea’s nuclear ambitions, intentions and capabilities.

Sanctions Are Working

To fully realize its nuclear capability, and also succeed in its aspirational byungjin policy of parallel military and economic development, North Korea needs commercial trade, technology and foreign exchange from the outside world. That is why sanctions are the best option to force a change in North Korea’s strategic ambitions. The United Nations Security Council (UNSC) and the United States have implemented a series of tougher and more comprehensive sanctions since early 2016, following every North Korean nuclear bomb test or ballistic missile test. The result is that about 90 percent of North Korea’s previously licit merchandise exports have been made illicit, including almost 90 percent of North Korea’s refined petroleum product imports. Evidence that such sanctions are working is found in market prices for gasoline in Pyongyang, which spiked earlier this year and remain about 90 percent higher than earlier this year, despite some recent easing.

Moreover there are now restrictions on new investment into North Korea, thereby crimping its juche policy of self-reliance, on industry textiles, and also calls for a ban on North Korean labor exports within two years. These labor exports are a significant source of foreign exchange, perhaps as much as $500 million annually.

UNSC Resolutions 2375 adopted in September 2017 and 2397 adopted in December, again following North Korean provocations, further constrict Pyongyang’s international trade, banning ship-to-ship transfers of goods in the open seas and allowing countries to seize vessels engaged in illicit activities, respectively. Acting under such authority, South Korea seized a vessel in November and another in December, both suspected of breaching UNSC sanctions on transferring oil products to North Korean vessels. In both cases, the true owners of the vessels were Chinese shipping companies, although they had been registered in Hong Kong and Panama.

These seizures were likely a significant factor prompting Kim’s New Year’s opening to South Korea. Despite the seeming prosperous new look of Pyongyang, the North Korean economy has barely grown following the long period of economic stagnation under Kim Jong Il. In fact, even Cuba’s performance was stronger—until a major aid donor, Venezuela, teetered and collapsed.

Sanctions have started to curtail economic exchanges with China, its largest trade partner by far, as well as with the rest of the world. North Korea’s licit merchandise trade peaked at $7.6 billion in 2014 and most likely fell sharply in 2017, against a background of rising global trade. The 2018 trade outlook will be bleaker as sanctions bite harder, despite smuggling and evasion. Although China and Russia officially state that they adhere to UNSC sanctions, both countries are often not full-faith enforcers, in effect throwing a lifeline to the DPRK.

But North Korea needs more than that increasingly tenuous lifeline.

“Watertight coordination” with US

That is why Kim Jung Un is attempting to warm up to South Korea—to forge another weak link in the network of international sanctions while driving a wedge in the US-ROK alliance. South Korea has not only walked away from its once thriving Kaesong Industrial Complex trade, which at its peak in 2015 reached $2.7 billion, but also it is strictly enforcing UNSC sanctions. North Korea could also be angling to get South Korea to allow its businesses to return to Kaesong, which it unilaterally reopened in October 2017, although such a move would appear to contravene UNSC sanctions.

Despite the positive aspects of this pre-Olympic thaw in North-South relations, North Korea ultimately is hemmed in by the Moon government’s reiteration that negotiations with the North cannot be de-coupled from the South’s nuclear disarmament objective. Indeed South Korean Prime Minister Lee Nak-yon cautioned that negotiation with North Korea will be difficult, as it might demand “different treatment” as a self-declared nuclear power and that the new conciliatory gestures are not likely to change the security situation on the Korean peninsula.

The bottom line is that Kim Jong Un’s New Year’s divide-conquer-prosper gambit is a long shot premised on perceived weak links in ROK-US coordination and indeed, the alliance itself. The Moon administration, however, has stated there will no shift in its “watertight coordination” with the US.

Kim’s pledge to mass produce offensive missiles and nuclear bombs in the year ahead will continue to make North Korea’s weakening economy a target for what has become a broadside of sanctions. Time is not on North Korea’s side.

As history now shows us in Iran, economic grievances and an unaccountable government can lead to an uprising against even a theocracy whose claim on power is in large part derived from virulent anti-American propaganda and empty promises.

For more information visit non-partisan, nonprofit The Korea Society.

Thomas Byrne ([email protected]) is President of The Korea Society and an adjunct professor at Columbia and Georgetown Universities. Before joining the Korea Society in 2015, he was the Asia-Pacific and Middle East regional sovereign risk manager for Moody’s Investors Service. This work was previously published in Huffington Post and can be found here.

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