June 8, 2017 1:11 pm JST

North Korea sanctions don't stop trade with China, Russia

Oil and iron ore deals continue, risking the wrath of the US

TAKAYUKI TANAKA and OKI NAGAI, Nikkei staff writers

The North Korean port of Rajin is the principal hub for trade with China and Russia.

MOSCOW/BEIJING -- China and Russia are continuing to trade commodities with North Korea, weakening the effectiveness of international sanctions against Pyongyang and risking the wrath of the U.S.

Since January, China's imports of iron ore from North Korea have quadrupled from year-earlier levels despite a ban on such imports, in principle, under UN sanctions aimed at curtailing the North's nuclear weapons and missile programs.

Meanwhile, Russia's energy exports to North Korea for the first three months of this year doubled from the same period in 2016.

The two countries' trade with the isolated Kim Jong Un government, which seems bent on holding to and expanding its illicit arms stockpile, represents a significant hole in the international sanctions regime that the U.S. has been seeking to tighten.

The troubling picture of trade between China and North Korea emerged from data compiled by CEIC Data, an economic research specialist, from official statistics published by China Customs.

China's iron ore imports from its impoverished neighbor soared 340% in April from a year earlier to $20.26 million. Iron ore shipments fluctuate from month to month, but China's imports of North Korean ore have been running more than 300% higher than year-earlier levels since January.

Net with holes

The trend has not changed since the early April meeting between U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, in which the two leaders agreed to work more closely together to deal with the security threat from Pyongyang's arms programs.

The U.N. Security Council imposed a ban on iron ore imports from North Korea in March last year, but nonmilitary transactions were exempted.

Since it was slapped with a strict embargo on coal exports late last year, North Korea has apparently increased its iron ore exports to make up for the loss of foreign currency. China's customs authorities appear to be turning a blind eye to these "civilian transactions."

Trade between China and North Korea has fallen sharply as a result of the sanctions. Imports of North Korean iron ore are only worth about one-tenth as much as its previous coal imports, which at one time accounted for half Pyongyang's exports to China. Overall, North Korea's exports to its neighbor plunged 52% on the year in March and 41% in April.

China says it is strictly abiding by the U.N. sanctions against Pyongyang. Some diplomats say that although China's increased purchases of iron ore do not, strictly speaking, violate the sanctions, they run counter to the spirit of the U.N. resolution, which aims to cut off the flow of foreign currency to the North.

Fueling the regime

Russian government data, meanwhile, shows trade with North Korea surged 85% on the year in the first quarter of 2017, amid increased tensions between Washington and Pyongyang. Russia's exports to the North, mostly energy shipments, jumped 133% during the period to $31.41 million.

Western observers point out that the official data are the tip of the iceberg. Russia's actual oil product exports to North Korea amount to hundreds of thousands of tons annually, they say. 

In May, Russia opened regular cargo and passenger ferry service between the Siberian port of Vladivostok and North Korea's Rajin. The ferry, the Man Gyong Bong, is operated by a Russian company.

With the move, Moscow has underlined its commitment to its goal of boosting bilateral trade tenfold by 2020. Russia has made no secret of its support for North Korea, in defiance of Washington's diplomatic campaign to tighten the noose around Pyongyang.

Russian President Vladimir Putin, speaking at an economic forum in St. Petersburg on June 2, defended North Korea's arms ambitions, saying small countries believe they have no other option than possessing nuclear weapons to protect their independence, security and sovereignty.

The U.N. Security Council on June 2 adopted a new resolution strengthening sanctions against North Korea. Both China and Russia voted in favor. But the resolution merely expands the list of banned trade items. It does not include stronger measures, such as limiting the country's oil supplies.

The trade restrictions have failed to stop the North from launching missiles. The country test-fired three ballistic missiles in May alone. It also test-fired on Thursday what appeared to be surface-to-ship cruise missiles that traveled about 200km off the country's east coast, South Korea's military said.

International criticism of China and Russia's behavior regarding North Korea may intensify in the coming months. The Trump administration is unlikely to be pleased that China and Russia are lending a hand to Kim Jong Un, who has vowed to develop an intercontinental ballistic missile that can carry a nuclear warhead to the U.S. mainland.

On June 1, the U.S. Treasury Department imposed sanctions on a Russian company involved in oil exports to North Korea.

During her visit to Beijing in late May, Susan Thornton, the U.S. acting assistant Secretary of State, urged China to take stronger steps against North Korea. The Chinese, she said, "know now that they don't have, I think, as much time to try to bring the North Koreans to the table, get their calculus changed and get them to the negotiating table as they may have previously thought."

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