Korea: Summit Fever And Sanctions Evasion

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March 21, 2018: In the north the state controlled media has been dealing with the new sanctions by admitting that this is a big problem and exhorting people to make to sacrifices to show the world that North Korea can overcome this unjust aggression. The reality (which is not reported) is that the sanctions are working. People are increasingly angry about it and the anger is mainly directed at the North Korean leadership.

In response to the internal and external pressures North Korea officials are finding ways to get around new sanctions. For example female university students must now spend two years in China for “practical experience” after their first two years of university study. That now involves working as waitresses in North Korean restaurant that used to recruit non-students. But the sanctions ended that. Actually this working in China program for university began in 2014 but has now been expanded in order to keep North Korean restaurants open and earning lots of foreign currency. The government is also allowing North Koreans to visit China for extended periods if they have some job lined up that will generate foreign currency for the government. This does not violate the sanctions because these North Koreans are in China to see friends or family or simply as tourists. But on the side they are illegally working, something that is difficult to police if the “work” is not visible to the general public.

At the same time North Korea is encouraging more foreigners, especially Chinese and South Koreans, to visit North Korea as tourists. Unlike the recent past the tourists are now treated with more attention (to what the tourist wants) and care. Government officials who handle this are under pressure to produce maximum cash from the tourists and that means treating the tourists much better than in the past. This “the customer is always right” attitude has led to plans for using the huge (150,000 seats) stadium in the capital for mass acrobatic events involving up to 100,000 performers on the large field. These events were staged each year from 2007 to 2014. Now they are to be revived, mainly for tourists and their foreign currency. Many Chinese and South Koreans would be attracted to this as well as tourists from even farther away.

In another surrender to the invasion of foreign news and media the government is now selling access to the special IPTV (Internet delivered as in Nexflix) Mansudae Channel that had previously only been available in the capital to certain government employees. Installation and monthly payments for this channel must be made in Chinese yuan. Since activation of the service alone is about $100 the market is donju and anyone else with access to a lot of cash (yuan can be bought on the black market). That activation fee is equal to about two months’ salary for the average North Korean. Mansudae Channel shows some foreign news and on the weekend has old Chinese and Cold War era East European films approved by the censors. Mansudae Channel is expected to show more and more foreign content because that’s what North Koreans want and what many affluent North Koreans get any way they can.

Some measures are deliberately harming the military. For example a hydroelectric dam near the Chinese border, which usually sent much of its power to a munitions factory is now sending a lot of it across the border to a Chinese factory producing building materials. The power plant managers demand payment in cash. U.S. dollars or Chinese yuan are preferred. The North Korean currency is increasingly avoided because the government keeps printing more of the won than the economy can handle. This creates inflation and even domestic markets prefer to sell goods for dollars or yean. Currently one dollar costs 8,100 won while one yuan costs 1,200 won. These exchange rates have been pretty stable. In late 2017 one yuan cost 1,400 won and one dollar cost 8,500. Three years earlier it was 1,300 won for one yuan and 8,200 won per dollar. The yuan is preferred by many customers at markets because it is easier to get your change in yuan. It is easier to get yuan in small bill denominations across the border. The use of dollars at markets is technically restricted and usually reserved for major purchases. That would often be for gasoline or diesel, which has doubled in price in the last year.

Aggressive smuggling (especially using transfers at sea) has kept fuel prices from going even higher. The government is urging fuel buyers who have draft animals (usually oxen) to use ox carts rather than vehicles requiring diesel or gasoline. The use of coal gas powered vehicles is increasing but conversion takes time and scarce resources. North Korea has, for over a decade, been converting thousands of trucks to run on coal gas. This sort of thing was popular in Japan and Germany during World War II because of oil shortages but largely disappeared after 1945. In North Korea these coal powered trucks are an increasingly common sight. But coal gas is half as efficient as petroleum fuels, and vehicles using it are slower, have less range and require more maintenance. Thus coal gas is not suitable for most police and military vehicles or combat operations.

There is still some smuggling across the Chinese border. Smugglers are constantly checking with border guards on both sides to see who is willing to take a bribe to look the other way. You need border guards on both sides, at the same place and time to make this work. It is working as can be seen with now forbidden North Korean exports still showing up in Chinese markets and Chinese and South Korean goods still available in North Korea. But the additional effort, and expense, of moving the goods has driven up prices and reduced demand, especially in North Korea which is, on average, much poorer than China.

Perhaps the most successful way to beat the sanctions is with the growing force of North Korean hackers. They are believed to bring in several hundred million dollars’ worth of cash stolen via the Internet. Most of these hackers are based in China, where a special arrangement still holds despite the new sanctions. The fact is the hacking was always illegal so sanctions don’t really apply and officially China denies any knowledge of that sort of thing going on in China.

It’s not just the North Korean government that is hustling for more cash. Members of the secret police, who have now become a regular presence on the Chinese border to seek out smugglers and arrest them, or, more frequently, extort a bribe, are increasing their demands. That’s because nearly everyone depends on the free markets for essentials. The increased sanctions have created shortages and price increases. So bribe demands increase. At the same time the secret police at the border also have orders to supervise government approved smuggling operations. That has to deal with the more numerous Chinese border guard and troops on the other side. Some secret police detachments on the Chinese and Russian borders do nothing but smuggling. The Russians have been more cooperative but have less to offer.

The market economy also indicates how successful sanction evasion efforts have been in different parts of the country. This is evident when examining the rise and fall of gasoline (petrol) prices. When these prices fall in markets near the Russian border it means there has been more fuel smuggling there. Same with port and border areas near the west coast when a North Korean tanker has picked up fuel at sea from a smuggler tanker.

The ship-to-ship transfers at sea are something that can be crippled and the United States, Japan and South Korea are cooperating to do just that. U.S. intelligence is monitoring over 200 ships, most of them North Korean, for these high seas smuggling operations and the operators of the foreign delivery ships is being tracked down. Most appear to be controlled by Chinese or Russian firms. These at-sea transfers are a major source of smuggled goods and are the most vulnerable illegal channel the North Koreans have. North Korea insists it is coping with the increased sanctions but all the non-government reports coming out of North Korea indicate otherwise. Because of that the April and May talks involving North Korean, South Korean and American leaders are expected to feature North Korea trying to obtain whatever it needs to stay in business. That will not only involve some imaginative deal making but also the ability to survive implementation. In the past North Korea has always cheated, sooner or later. The Americans and South Koreans know this and are under a lot of pressure to not be deceived again

Putting A Number On Bad Behavior And General Misery

Among the many problems North Korea suffers from corruption is one of the worst. But even that has a silver lining since North Korea has become less corrupt since current leader Kim Jong Un took control in 2011. North Korea is still among the ten most corrupt nations in the world but back in 2012 it was one of the three most corrupt. The 2017 international corruption ratings show the world that the two Koreas are quite different in this respect. In 2017 South Korea was 51 out of 180 (52 out of 176 in 2016) while North Korea was 171 out of 180 (174 out of 176 in 2016). Corruption in the Transparency International Corruption Perception Index is measured on a 1 (most corrupt) to 100 (not corrupt) scale. The most corrupt nations ( usually Syria/14, South Sudan/12 and Somalia/9 ) have a rating of under 15 while of the least corrupt (New Zealand and Denmark) are over 85. African nations are the most corrupt, followed by Middle Eastern ones. The current South Korean score is 54 (versus 53 in 2016) while North Korea is 17 (versus 12 in 2016) compared to 63 (61) for Taiwan, 40 (40) for India, 29 (29) for Russia, 42 (40) for China, 35 (33) for Vietnam, 84 (84) for Singapore, 73 (72) for Japan, 37 (37) for Indonesia, 38 (36) for Sri Lanka, 33 (36) for the Maldives, 34 (35) for the Philippines, 32 (32) for Pakistan, 28 (26) for Bangladesh, 30 (29) for Iran, 15 (15) for Afghanistan, 30 (28) for Burma, 2 71 (66) for the UAE (United Arab Emirates), 62 (64) for Israel, 75 (74) for the United States, 27 (28) for Nigeria, 43 (45) for South Africa, 18 (17) for Iraq, 40 (41) for Turkey, 49 (46) for Saudi Arabia and 28 (28) for Lebanon,. A lower corruption score is common with nations in economic trouble and problems dealing with Islamic terrorism and crime in general. South Korea’s corruption score has not changed much since 2012, when it was 56. But while North Korea was 17 in 2017 that was much improved since 2012 when it was 8.

In addition to a decent rating in the corruption survey South Korea did about the same in the UN sponsored World Happiness Index, coming in at number 57. Communist dictatorships like North Korea and Cuba block access to data needed for the survey and were not rated. But in the case of North Korea there is little doubt that it would rank near the bottom. The top ten are all the usual suspects (Finland, Norway, Denmark, Iceland, Switzerland, the Netherlands, Canada, New Zealand, Sweden and Australia) and then comes Israel, the happiest country in the Middle East as well as being the most powerful militarily and one of the least corrupt. The rest of the rankings are similar to the corruption survey. The U.S. is at 18th place, UAE at 2o, Saudi Arabia at 33, Kuwait at 45, Russia at 59, Japan at 54, Libya at 70, Turkey at 74, Jordan at 90, China at 86, Pakistan at 75, Venezuela at 102, Lebanon at 88, Somalia at 98, Palestinian Territories at 104, Egypt at 122, Iran at 106, Iraq at 117, Bangladesh at 115, Burma at 130, India at 133, Afghanistan at 145, Yemen at 152, Syria at 150 and at 156 (last place) Burundi.

March 19, 2018: The first South Korea F-35A stealth fighter had its first flight in the United States. South Korea has ordered 40 F-35As modified slightly for South Korean use. The first of these will arrive in South Korea in 2018 and all will arrive by 2021. The government is considering buying another twenty. Earlier this month an American amphibious ship arrived in the West Pacific carrying vertical takeoff F-35B aircraft that can operate from its flight deck. These F-35Bs provide support for American marines. Japan is planning to buy at least 20 F-35Bs for its helicopter carriers. This would be in addition to the 42 F-35As that are being assembled under license in Japan. The U.S. regularly operates stealth aircraft over South Korea (usually from bases in Japan) and recently this has included visits from F-35s, F-22s and B-2s.

March 16, 2018: the U.S. and South Korea agreed to shorten their regular joint military exercises that usually take place between February and April. These exercises were already delayed because South Korea was hosting the Winter Olympics this year.

March 12, 2018: South Korea signed the contract to order another 90 Taurus cruise missiles from Germany. South Korea already has ordered 170 Taurus and has received and tested some (launched from their F-15K fighter-bombers). Taurus was developed by German and Swedish firms and entered service in 2005. It is a 1.4 ton cruise missile that has a range of over 500 kilometers and a cruising speed of about 1,100 kilometers an hour. It travels at low altitude (35 meters/112 feet). The guidance system includes a thermal imaging sensor that seeks out a specific target shape and can land within three meters (under ten feet) of it in any weather or at night. Taurus uses a half ton (481 kg) warhead that has special features for penetrating (up to six meters of concrete) well protected underground bunkers. The warhead also has excellent fragmentation effect against surface targets. Taurus costs about $1.2 million each. Meanwhile South Korea has increased production of locally designed and made guided rockets that are launched from multiple tube systems on trucks and are assigned to hit the many North Korean artillery and rocket systems near the DMZ.

March 8, 2018: In a surprise move the U.S. president agreed to hold face-to-face negotiations with the North Korean leader. The North Koreans agreed that denuclearization be on the agenda. The leaders of the two Koreas had also agreed to talks and these will be held in April while the U.S.-North Korean talks will be in May. The talks between the two Koreas would probably concentrate on the details of reviving economic ties between the two countries once sanctions were lifted. South Korean diplomats set up proposals for both talks and North Korea accepted. However, despite the worsening economic situation in North Korea it is considered unlikely a deal will be made that would eliminate North Korean nukes and allow acceptable (to everyone) inspections to guarantee compliance of whatever is agreed to. In late February North Korea issued a directive signed by leader Kim Kong Un that North Korea would never surrender its nuclear weapons. The American and South Korea leaders want just that. Many times in the past North Korea has come to the table and accomplished nothing. But this time North Korea is in the worst shape since the Korean War (1950-53) when it was heavily bombed by the UN intervention force. After that North Korea had decades of generous aid from China and Russia to rebuild. But there is no one willing to rebuild North Korea this time, not as long as the north has nukes, ballistic missiles and a foreign policy based on threatening to use these weapons on enemies near (South Korea and Japan) and far (the United States). This time around threats have even been made against China. So this time the situation is different, but will that mean a different attitude towards negotiations?

March 6, 2018: China has delayed, but not (yet) blocked an American proposal for the UN to blacklist 33 ships and 27 shipping companies for taking part in a new North Korean effort to get around economic sanctions. This may have something to do with the North Korean leader Kim Jong Un offering to personally meet with his American counterpart to try and negotiate a mutually agreeable deal that would shut down the North Korean nuclear weapons and missile programs while also dealing with the sanctions and North Korean economic problems in general. The Americans seem amenable to this meeting but caution that North Korea has been using “bait and switch” tactics for decades. In short North Korea is not considered a reliable negotiating partner. Meanwhile the U.S. unilaterally imposed these new sanctions on February 23rd. China protested that. Most of the ships are North Korean and many of the others are believed to be secretly controlled by North Korea while pretending to belong to another country. Chinese efforts to block these new sanctions may have something to do with the fact that all the efforts to impose economic sanctions on North Korea has led to China providing more data about its trade with North Korea. That in turn has enabled economists and intelligence analysts to obtain a more comprehensive and accurate sense of the North Korean economy. What this shows is that despite the growing effectiveness of economic sanctions on North Korea (especially with China participating more fully) North Korea is finding ways to get around the restrictions. It appears that corruption in China has played a large part in economic relations with North Korea and are now the corrupt practices are being used more heavily as so many legitimate trade opportunities are unavailable. The major suspect here is the continuing “arrangement” between China and North Korea that allows thousands of North Korean Cyber Warriors (hackers and support staff) to operate in China. In return China gets a cut of the proceeds (the North Korean hackers are excellent at stealing cash or secrets) as well as a certain amount of mercenary hacking for China by the North Koreans. This arrangement has long been known to exist but China has always denied it. That defense is no longer working and if enough details of these corrupt connections get out Chinese credibility takes a major hit.

March 5, 2018: Because China has enforced most of the economic sanctions North Korea has seen the value of imports from China fall to an eight year low.

March 2, 2018: Commercial satellite photos taken throughout late February confirm that trade between China and North Korea is way down. The photos showed few trucks using the main crossings on the west coast and little activity a warehouses on both sides of the border.

February 27, 2018: Off the east coast of South Korea a Chinese warplane entered the South Korean ADIZ (Air Defense Identification Zone) and remained for over four hours despite repeated radio warnings. Finally South Korea sent up fighters and the Chinese aircraft left. This intrusion was unusual as it was off the east coast while in the past the intrusions were all off the west coast. Over the last year South Korea has been seeing more ADIZ violations by Chinese aircraft with one or two such intrusions a month. Some of this is because in 2013 South Korea expanded its own ADIZ for the first time in 62 years. Off the west coast the new ADIZ overlaps with the new one China declared a month earlier. South Korea was openly defying China, in part because the new Chinese ADIZ includes a bit of disputed submerged rock (Leodo) that South Korea has stationed troops on using a platform built on the rock. South Korea does not recognize the new Chinese ADIZ.

Japan launched another surveillance satellite into orbit. This one will keep an eye on North Korea and China. Japan has been building and launching its own satellites, using Japanese rockets, for over a decade. So far Japan has launched seven surveillance satellites. Three of them use cameras and four use radar.

February 26, 2018: The government reported that oil and petroleum product exports to North Korea in January were basically zero. The only exception was a small quantity of aviation fuel to sustain what little commercial aviation activity still occurs in North Korea. This is the fourth month in a row for the oil export ban. Overall trade with North Korea was down 52 percent in January compared to 2017. It was down 82 percent in December.

February 20, 2018: For the second time this month a Japanese Navy patrol aircraft photographed a stationary North Korean tanker tied up to a Chinese tanker off the Chinese coast and apparently transferring petroleum. The same North Korean tanker had been spotted (and photographed) by the Japanese in January doing a similar in the East China Sea. The UN has put sanctions on s growing number of cargo ships and tankers but these vessels can still do transfers at sea. This takes longer, is still illegal and is increasingly being witnessed (and photographed) by American, Japanese or South Korean patrol aircraft. China responded with new rules making it more difficult for Chinese companies to get away with the false paperwork, turning off the automatic ship tracking devices and other scams North Korea uses to illegally export items to China. North Korea got around that by using ships registered in Hong Kong, where it is easier to hide the identity of the owner. In addition China is calling for more sanctions on dual use items that are still legal for North Korea to import from China. A list of items was provided by China and included gas masks used by firefighters (that could also be used by soldiers), flight simulators for civilian aircraft that could easily be adapted to military aircraft and air scrubbers for underwater operations (ship repairs, offshore oil wells) that could also be used in submarines. The items in the Chinese list are all available from Chinese manufacturers.

February 16, 2018: In early 2018 the U.S. Air Force ordered another $21 million worth of their 14 ton deep penetrator bomb (the MOP or Massive Ordnance Penetrator, officially the GBU-57). Based on past purchases this would be 5-10 GBU-57s. Earlier purchases had included a lot of additional equipment as well as modifications to the B-2 bomber that is the only aircraft that carries this bomb. There is no official data on the number of MOPs the air force has because data on bombs used for tests and training are kept secret. The 6.2 meter (20.5 foot) long MOP has a thick steel cap, which was originally designed to penetrate up to 8 to 61 meters (26-200 feet) before exploding. The smaller number is for concrete (highest degree of hardness) or up to 61 meters of rocky earth. This was the original spec, which is now supposed to be improved. The 2013 modifications apparently addressed the fact that the then new Iranian nuclear facility (Fordo) was supposed to be buried beneath 90 meters of earth and rock. This new order, and any design tweaks, are apparently intended for North Korean targets.

 

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