Sanctions | Council on Foreign Relations

North Korea

Domain of Gains, Domain of Losses: Why Kim Jong-un’s Expectations Matter for the U.S.-North Korea Summit

Patrick McEachern is a Council on Foreign Relations international affairs fellow at the Woodrow Wilson International Center for Scholars. Views expressed do not necessarily reflect those of the U.S. government or Department of State. When North Korean leader Kim Jong-un reportedly offered a summit meeting with President Donald Trump, American and South Korean officials understandably and predictably credited the “maximum pressure” strategy. They reasoned that sanctions and pressure tactics brought Kim to the table, secured Pyongyang’s unilateral concession on refraining from nuclear and ballistic missile flight tests, and would allow the two leaders to discuss denuclearization. Notwithstanding skepticism about North Korea’s intentions, non-governmental analyses largely agree that Kim is coming to the table because sanctions are “beginning to bite.” However, observed data dispute the notion that North Korea’s economy has suffered recent setbacks. North Korea’s economy has grown following the regime’s domestic marketization and monetization efforts, and food prices and the exchange rate have remained stable. There have been sporadic reports of fuel shortages, but satellite data does not show any lines at the gas pumps. North Korea’s economy chronically underperforms, but it is not facing a current crisis. To be sure, both UN and U.S. sanctions have become more ambitious, and China has signaled a greater willingness to clamp down by signing onto the UN sanctions. China accounts for roughly ninety percent of North Korean licit trade with illicit and weapons-related trade providing additional sources of foreign currency. Though the Chinese and transnational criminal networks fail to report reliable trade data with North Korea, a confluence of anecdotal information supports the idea that North Korea’s foreign earnings have dropped significantly. How can the North Korean economy be doing just fine and sanctions have a biting effect simultaneously? One theory holds that North Korea is financing its trade deficit with reserves, which delays the economic hurt until the savings run out. Kim could worry about the unknown economic consequences of continuing down this path. Beyond economics, the Trump administration has raised the rhetorical pressure with more explicit public discussion of possible military options to come, providing Kim another potential worry about the future. While there are not observed consequences inside North Korea from the pressure campaign today, Kim may expect trouble ahead. The observed-expected distinction is important to understanding Kim’s motivations and psychology ahead of his summit with Trump. Is Kim desperate to make a deal with the Americans to relieve pressure, or is he looking proactively to advance gains? Daniel Kahneman and Amos Tversky, in research that would lead to a Nobel Prize, showed how people psychologically underweight in decision-making probable future consequences over the certainty of observed conditions today. When in the “domain of losses” of facing current problems, leaders are more likely to take desperate risks to reverse their fortunes. When in the forward-looking “domain of gains,” they are more likely to avoid risks to safeguard what they already have. In approaching the U.S.-North Korea summit, Kim Jong-un appears to be in the “domain of gains.” He may be trying to preemptively head off the expected—but probabilistic—consequences of the pressure campaign and test the waters of advancing his regime’s long-sought goals with the Americans. He is not defensively reacting to the certainty of a present problem he can see within his country today. That means he is more likely to be risk-averse in the negotiations and less eager to make just any deal with Trump to get some immediate pressure relief. Kim’s risk-accepting behavior is usually considered dangerous as it implies his greater willingness to use force, but Kim will have to take some risk in curtailing his nuclear program to make progress in diplomatic negotiations. The North Koreans are not close to surrender, but the United States should not negotiate with itself and water down its opening bid before sitting down with the North Koreans either. North Korea’s past negotiating behavior suggests they will initially outline their full wish list, and there is no reason the American should not go on record with the same. Opening bids are different from anticipated outcomes, and a realistic assessment of the other side’s material and psychological motivations can help set expectations to reduce the likelihood that the leaders speak past each other at the summit. It is tempting to look for a win-lose outcome where we get everything we want from the North Koreans and give nothing in return. However, Kim is not desperate, so we should not expect him to give away the farm for free. Looking for a long-term and sustainable win-win outcome that entails difficult and distasteful trade-offs on both sides should be the summit’s goal.

Blog Post by Guest Blogger for Asia Unbound April 3, 2018 Asia Unbound
Cuba

Time to Tighten the Screws on Cuba?

With the Castro era coming to a close in Cuba, it may be time for President Donald J. Trump to take back some of his predecessor’s concessions to Havana.

Expert Brief by Elliott Abrams April 2, 2018
Venezuela

How Much Worse Can it Get for Venezuela’s State Oil Firm PDVSA?

Venezuela’s latest attempt to raise capital by issuing a cryptocurrency, the petro, linked allegedly to its Orinoco oil reserves is problematical on so many levels, it is hard to know how to comment on it beyond pointing out the U.S. government has already said that trading in the new market could risk exposure to U.S. sanctions. Stopping the cryptocurrency could wind up being the easiest item for the Donald J. Trump administration to address in the steps that Caracas is taking to obviate Venezuela’s state oil company Petróleos de Venezuela, S.A’s (PDVSA) creditors. PDVSA is engaging in all kinds of no cash deal making to bypass oil cargo seizures. But the company could face even more difficulty this year as Venezuela’s financial woes have bitten into its capacity to keep its oil fields running. Citibank estimates that Venezuela’s oil production capacity could sink to one million (barrels per day) b/d over the course of 2018, down from 2.8 million b/d in 2015, as its access to credit worsens, sending even more of its facilities into disrepair. International service companies are limiting activities in the country as they take write downs on hundreds of millions of dollars in unpaid fees. Venezuela’s oil fields have a natural decline rate of 25% that requires constant attention to maintain capacity. Finding a soft landing out of the crisis for PDVSA’s U.S. subsidiary Citgo Petroleum could become increasingly complex for the United States as it seeks to manage Venezuela’s deteriorating situation. Washington has placed sanctions on critical members of the Venezuelan government but has been reluctant to take action that could spill over to Citgo’s ability to operate. Citgo operates three of America’s largest oil refineries for a total capacity of 750,000 b/d, including an important regional facility near Chicago. Citgo supplied fifteen billion gallons of gasoline in the United States in 2015. So far, Citgo has been shielded from creditors by its corporate structure. But recently, impatient creditors of state oil company PDVSA are starting to use more aggressive tactics, with one such group trying to seize an oil cargo ship in an attempt to get paid. To avoid such circumstances, PDVSA, which for all intents and purposes can no longer attain bank letters of credit, is “time swapping” ownership of some of the undesignated crude oil cargoes it can muster for export for exchange of later delivery of badly needed fuel and feedstock. The arrangements are designed to discourage creditors from trying to grab oil in international locations because, in effect, the oil is already owned by other parties before it sets sail from Venezuela. Last year, Venezuela shipped about 450,000 b/d to China as part of a repayment of $60 billion in Chinese loans. That is less than half of the oil volume originally anticipated in the payback schedule. In fact, one of the largest lenders, China Development Bank, has been receiving barely enough oil and refined oil products from Venezuela to cover the interest payments on its loans, according to Energy Intelligence Group. China and Russia are still receiving repayments via oil shipments, with some small percentage of the value of the cargoes allegedly getting back to Caracas. Other buyers such as Indian refiners are still seen picking up cargoes on a F.O.B. basis (free on board) that gives immediate ownership on pickup. The question is whether the status quo will prevail or whether Citgo’s operations will be affected as financial problems escalate. The fate of PDVSA’s bonds, which are also in a state of “quasi-default,” are particularly tricky because many diverse parties are laying claim in a manner that could foreclose on Citgo shares. A deal that pledged company stock to bondholders is creating an opening to hasten foreclosure. In another deal, Goldman Sachs purchased $2.8 billion worth of PDVSA bonds at thirty cents on the dollar back in 2017. The thesis behind the Goldman purchase, and most every other credit line extended to PDVSA is that the state firm has valuable assets, some of which are abroad, and giant reserves of oil. Governments come and go but eventually, so the thinking goes, that oil can be turned back into cash. The Venezuela case could test that kind of thesis, with implications for other oil producers trying to go to global markets to turn their oil reserves into cash. The disruption of Venezuela’s oil exports from international trading has been gradual, perhaps somewhat muting its effect to date. The breakdown of the country’s refining system has created openings for U.S. refiners to export increasing volumes of gasoline and diesel to Latin America and elsewhere. To some extent, the drop in its crude oil exports has facilitated the ongoing collaboration between the Organization of Petroleum Exporting Countries (OPEC) and important non-OPEC producers to steady oil prices at higher levels. Higher oil prices are a bit of a help to the Venezuelan regime but with most of its oil having to be sold in barter format, convertible foreign exchange will be increasingly hard to come by, especially if oil field production problems leave it with fewer available barrels to trade. As the financial situation for PDVSA worsens, the oil market effects could widen, especially if it leads to the collapse of Citgo Petroleum. U.S. policy makers should think about whether it’s advisable to develop a contingency plan now for the latter outcome. The Trump administration could consider being pro-active, perhaps offering a crude for products swap open tender for the U.S. Strategic Petroleum Reserve (SPR) with other U.S. refiners now to create at least a small government buffer stock of refined product that could be directed to Illinois or other affected markets in the spring, should Citgo’s operations get unexpectedly interrupted by financial problems or legal proceedings. Such a plan could ameliorate the effect on U.S. consumers from any sudden event related to Venezuela and give Washington more flexibility to respond to the ongoing crisis inside Venezuela. Should nothing go wrong in the coming weeks, the contingency planning could still be a win-win. The refined product stocks could offer the same protections ahead of next summer’s hurricane season and serve as a test case for how to modernize the SPR to include refined products at no government cash outlay.

Blog Post by Amy M. Jaffe January 23, 2018 Energy Realpolitik

Russia

Containing Russia

The United States has failed to elevate Russia’s intervention in U.S. elections to the national priority that it is, and it has neglected to respond to it in a way sufficient to deter future attacks, warn Council on Foreign Relations Senior Fellows Robert D. Blackwill and Philip H. Gordon in a new special report. They argue, “A wide range of additional measures is therefore needed in order to better protect U.S. society and political and electoral systems from further intervention.” Surveying the full scope of the “extraordinary Russian attack on the core of the American democratic system” during the 2016 U.S. presidential election and beyond, Blackwill and Gordon—who served in Republican and Democratic administrations respectively—conclude that, “The United States is currently in a second Cold War with Russia.” “The Russian effort to destabilize the United States does not take place in a vacuum. Rather, it stems from the Russian president’s strongly held view—shared by a wide range of Russians—that the spread of U.S. regional and global hegemony since the end of the Cold War threatens Russian vital national interests and deprives Russia of its rightful place on the world stage,” they explain. “There is also little doubt that Russian interventions continue—both to influence upcoming elections and to divide Americans, fanning the flames of cultural, racial, and class resentment and seeking to delegitimize institutions, the free press, and elected officials,” the authors write. The report’s prescriptions for U.S. policymakers are “designed in the first instance to deter Russia from again stoking disunity in the United States by making clear to the Kremlin and to its national security apparatus the significant cost of their activities.” The recommendations in Containing Russia: How to Respond to Moscow’s Intervention in U.S. Democracy and Growing Geopolitical Challenge include: Expanded Sanctions. Working closely with European partners, implement asset freezes and visa bans on Russian officials and entities known to be involved with election and political interference. Current sanctions have “failed to send a sufficiently powerful message to Moscow.” Electoral and Cyber Countermeasures. Strengthen the cybersecurity of federal networks and critical infrastructure and support legislation to enhance transparency and update campaign finance laws to cover online activity. European Security. Work with European partners to expand sanctions, maintain the numbers of permanent NATO forces currently in Europe, and “deploy permanently an additional armored combat brigade in Poland and maintain permanent multinational battalions in the Baltic states.”

Council Special Report by Robert D. Blackwill and Philip H. Gordon January 19, 2018 U.S. Foreign Policy Program
United States

The Iran Deal Saga Continues

An important legislative deadline passed last week in Washington without much mention. You might remember that back on October 13, President Donald Trump announced he would not certify that Iran was complying with the Joint Comprehensive Plan of Action, or the Iran nuclear deal as it is more commonly known. Trump’s decision triggered a provision of the 2015 Iran Nuclear Agreement Review Act (INARA) giving congressional leaders sixty days to submit legislation to re-impose sanctions on Iran or even torpedo the agreement. Legislation submitted during the sixty-day window would receive expedited consideration. That window closed last Wednesday. Benjamin Shaver, who interned for me this semester, discusses the consequences of the passing of the deadline. INARA recognized that a president might determine that Iran was not complying with the nuclear deal. If that happened, the act stipulated that the majority and minority leaders in the House or the Senate would have sixty days to introduce legislation to reintroduce U.S. sanctions on Iran. Under the terms of INARA, any motion that congressional leaders introduced would be given expedited consideration, meaning that the typical legislative maneuvers used to delay or block legislation could not be used. Just as important, no other members of Congress could submit legislation on Iranian sanctions during the sixty-day window. INARA’s sixty-day window closed at midnight last Wednesday, December 13, without leaders on either side of the aisle submitting legislation. It’s not surprising that Democratic leaders stood pat. They say the deal is working. It’s more surprising that neither House nor Senate Republican leaders introduced a bill to punish Iran for what Trump said was Tehran’s noncompliance. After all, they had been critical of the deal since it was unveiled, and Trump leads their party. Of course, Republican leaders have been busy trying to pass a tax reform bill. Now that the sixty-day window has closed, any member of Congress can submit a bill to re-impose sanctions on Iran. Two senators who just might do that are Bob Corker (R-TN) and Tom Cotton (R-AR). On the same day that Trump declined to certify, Corker and Cotton announced a plan to fix what they saw as the Iran deal’s flaws. Their plan hasn’t gone anywhere over the last two months, at least not publicly; it remains just a fact sheet on Corker’s website. Here’s the rub. Even if Corker and Cotton do submit a bill based on their plan, it won’t receive expedited consideration. It would face the same obstacles that any bill faces once it is submitted, including a Senate filibuster. Corker and Cotton would need to round up sixty votes in the Senate to stop inevitable Democratic efforts to derail the legislation. With Republicans holding just fifty-two seats—fifty-one once Doug Jones of Alabama is sworn in—sixty will be a tough number to reach. It won’t help that some Republican senators were skeptical, at least initially, of the Corker-Cotton approach. They worry that it would antagonize European allies and that it would be wiser to try and pass legislation that would impose sanctions on Iran for its ballistic missile program and support for terrorism. What does all this mean? Congress isn’t likely to pass new Iran-related legislation any time soon, if ever. So the ball is now back in Trump’s court. If he wants to re-impose sanctions on Iran, he will have to do it himself. The good news for the White House is that the president has the power to do just that. All he has to do is stop signing executive orders waiving the sanctions that were suspended once the Iran nuclear deal went into effect. He has waived them twice so far in his presidency, most recently in September. The sanctions can be waived for up to 120 days, which means Trump will have to decide whether to waive them again before January 12. Mark that date on your calendar. It’s going to be important.

Blog Post by Guest Blogger for James M. Lindsay December 20, 2017 The Water's Edge
North Korea

The Challenge From North Korea

This Global Governance Working Paper is a new feature of the Council of Councils (CoC), an initiative of the Council on Foreign Relations. Targeting critical global problems where new, creative thinking is needed, the working papers identify new principles, rules, or institutional arrangements that can improve international cooperation in addressing long-standing or emerging global problems. The views and recommendations are the opinion of the authors only, do not necessarily represent a consensus of the CoC members, and are not the positions of the supporting institutions. The Council on Foreign Relations takes no institutional positions on policy issues and has no affiliation with the U.S. government. The Challenge A nuclear-armed North Korea is a threat to the fragile strategic equilibrium on the Korean Peninsula and to international security at large. Emboldened by a nuclear arsenal, the highly militarized regime of President Kim Jong-un could be tempted to embark on aggressive acts. Meanwhile, the United States could opt for preventive military action. Even if neither party seeks a military confrontation, conflict could ensue due to miscalculation or simple misreading of each other’s intentions. Limited military exchanges could spiral out of control, eventually involving not only North Korea, the United States, and its allies in the region—Japan and South Korea—but also China. The repercussions of North Korea’s nuclear challenge may not be limited to Northeast Asia, not least because the nonproliferation regime, a pillar of international security, would be dealt a serious, if not fatal, blow if regional adversaries sought to meet it by acquiring their own nuclear arsenals. The destabilizing effects of North Korea’s nuclear and ballistic programs on regional and international security cannot be overestimated. In devising a response to the North Korean challenge, regional actors should remain committed to the denuclearization of the Korean Peninsula, but they should also implement security measures with observable results short of full denuclearization. Specifically, the United States and its allies should concentrate on sanctioning North Korea and on diplomatic action, actively seeking the involvement of China and Russia, while employing a strategy of deterrence and containment. North Korea’s Objectives According to President Kim, North Korea’s nuclear and ballistic programs are meant to establish “equilibrium” with U.S. forces. Kim craves the ultimate deterrent: a nuclear-armed intercontinental ballistic missile (ICBM) capable of reaching the United States. In his eyes, this option is a necessary guarantee for his and his party’s continued rule—indeed, their survival. The brisk increase in number and scope of missile and nuclear tests in 2016 and 2017 is consistent with this goal. Kim may also be indulging in more daring thoughts, like taking advantage of North Korea’s nuclear and ballistic programs to militarily pursue unification with the South. Recommendations To minimize the risks of a regional conflict, strategic miscalculation, or North Korean adventurism, the United States and its allies should pursue the following recommendations. Avoid a preventive military strike. It is tempting to handle North Korea the way Alexander the Great used to untie knots, namely by swinging a sword at them. Yet, there is no Gordian knot solution to North Korea. The notion that U.S. bombing of North Korea’s nuclear and ballistic facilities holds the promise of a quick and definitive fix should be put aside. U.S. forces may be unable to find or destroy all nuclear and missile-related targets and would probably only slow down the North’s progress, at the cost, however, of a military confrontation that could escalate into a full-fledged regional war. The North’s arsenal of conventional capabilities and chemical and biological weapons has the capacity to inflict tremendous pain on South Korea, and no one should rule out the possibility of Kim using nuclear weapons. Nor can the eventuality of a reluctant China entering the fray to prevent the loss of a useful buffer between its own border and the U.S.-South Korean border be dismissed. Unsurprisingly, neither U.S. allies in the region nor China or Russia are in favor of preventive military action. Pursue a multipronged policy response. Containment and crisis management, not war, are the least bad ways to handle North Korea, and both warrant coordination among the regional powers. The wisest way to address this challenge is a policy mix involving defense and deterrence, sanctions, and diplomacy. While these different types of action can unfold independently, all actors involved should do their best to prevent actions in one area from undermining what can be done in another. The United States, Japan, and South Korea should work to improve their defense and deterrence assets while making an effort to coordinate with Russia and China, both bilaterally and in the United Nations, on sanctions and diplomacy. Strengthen U.S. and allied defenses. Strong defense and deterrence assets are essential to persuade the North that its opponents have the capacity to minimize the damage of an artillery or missile attack and respond to it effectively. Given the North’s growing ballistic capabilities, missile defense is an obvious starting point. The United States can bolster South Korea’s nationally operated missile defense assets, both on land (Patriots) and at sea (Aegis). Critically, U.S. and South Korean defense planners will have to work on overcoming technical and political impediments to the interoperability of the South’s system with the U.S.-built Terminal High Altitude Air Defense (THAAD), currently being deployed to the South. With the North having amplified its missile threat, and in the absence of any arms control arrangement, opposition to THAAD in South Korea has actually collapsed, with President Moon Jae-in, until recently a vocal opponent, now supporting it. However, China and Russia have fiercely opposed THAAD deployment for fear that its X-band radar would be used to track their own ballistic capabilities. Beijing, in particular, will likely continue its efforts to drive a wedge between Seoul and Washington on the deployment of missile defense systems in South Korean territory. More generally, China’s ability to exert pressure on South Korea to influence the latter’s decision-making on security matters should not be underestimated. In view of that, Washington and Seoul should make clear that THAAD is exclusively tailored to North Korea’s ballistic threat, even going as far as to issue a declaration that they may remove it if that threat eventually vanishes. These are opportune steps to assuage Chinese and Russian concerns. There may also be room for confidence-building measures to assure China that THAAD radars have only limited abilities to detect and track Chinese missile launches. Establish more credible deterrence. Bolstering deterrence will involve a delicate balancing act between dissuading North Korea and not alarming China or Russia. Potentially harmful side effects on the global nonproliferation regime should also be avoided. The latter point is critical. Cold military logic would suggest that Japan and South Korea, in agreement with the United States, should build their own arsenals. This step would contribute to making Tokyo and Seoul masters of their own destinies and reduce the risk that U.S. territory becomes the target of a nuclear attack. Northeast Asia does not exist in a vacuum, though. It is part of an international security system of which the nonproliferation regime based on the Nuclear Nonproliferation Treaty (NPT) is a fundamental component. The NPT would be severely, if not fatally, damaged by a withdrawal of Japan and South Korea, two of its staunchest supporters. With the treaty weakened or gone, power politics would be a greater factor—or perhaps the only factor—shaping nonproliferation dynamics, which would be a far weaker guarantee that countries such as Egypt, Iran, Saudi Arabia, Turkey, and many others (as varied as Argentina, Brazil, Indonesia, and Vietnam) would stick to nonproliferation commitments. The security benefits that Japan and South Korea would gain by going nuclear should be weighed against the risk of generalized, uncontrolled proliferation. A nuclear-armed Japan and South Korea would also change the regional power structure, probably leading China and Russia to adjust their deterrence policies. This would likely reduce any chance of regional cooperation on North Korea. Deterrence should therefore unfold along more traditional patterns—extended nuclear deterrence (by the United States) and conventional deterrence. Reassurance should go both ways. Mechanisms to ensure extended nuclear deterrence should be put in place incrementally to avoid or minimize frictions with Russia and China. Thus far, the United States has refrained from committing permanent deployments of strategic assets—bombers or dual capable aircraft, nuclear-armed submarines, and carrier groups—to land bases and ports in South Korea. Increasing their periodic deployment through more intensive rotations is the wisest choice. For the same reason, redeploying U.S. tactical nuclear weapons to South Korea (which were removed in the early 1990s) is not advisable. Such a move would carry a high risk of escalating tensions with the North—but also with China—while bringing no strategic benefits not already provided by U.S. nuclear-armed submarines and nuclear-capable bombers. South Korea will need to bolster the credibility of its so-called massive retaliation and punishment plan, involving assets to destroy North Korea’s heavy artillery along the thirty-eighth parallel in the shortest timeframe possible and beefed-up strike capabilities—all matters on which assistance from the U.S. government and coordination with U.S. forces are essential. To that end, the United States and South Korea should increase cooperation on target acquisition, while also coordinating more with Japan on intelligence gathering. Enhanced cooperation will also be needed to strengthen digital defenses and exploit the North’s cyber vulnerabilities. Coordinate sanctions with regional powers. The purpose of sanctions is to punish and deter flagrant breaches of nonproliferation commitments—an important message also sent to any other potential proliferator. Targeted sanctions can also contribute to containing the Kim regime by denying it access to resources that could be crucial for the advancement of its nuclear and ballistic programs. These secondary functions of sanctions against North Korea remain important even if it continues its nuclear weapons program. Recent developments show that it is possible to build and keep a united diplomatic front involving such major powers as China and Russia around a robust package of sanctions. The UN Security Council (with resolutions 2371 and 2375) has prohibited North Korean exports of coal and textiles, banned natural gas imports, capped oil imports, curtailed financial transactions, and forbade arrangements that would result in additional North Korean citizens working abroad. The United States has gone much further with an executive order that threatens the freezing of assets held in the United States by foreign companies and individuals engaging in any financial or trade transactions with North Korean entities. These measures have the potential to inflict heavy pain on North Korea. Revenue from coal and textile exports and remittances are Pyongyang’s only significant remaining licit sources of foreign funding. North Korea’s heavy reliance on China for oil (and food) is also an important vulnerability, while targeting financial transactions is meant to curtail the North’s ability to get foreign currency, often through front companies set up abroad. With China apparently willing to play along with U.S. sanctions, North Korea may soon be under economic siege. Whether this will be enough to induce a change of course, however, remains open to question. The Kim regime has the luxury of not having to worry about the effects of sanctions on the population, widely subdued by years of propaganda and ruthless repression. In addition, thanks to some modest domestic reforms, the North’s economy has performed decently recently, which provides the regime with some slack. Moreover, China, frustrated as it may be by North Korea’s nuclear bravado, will refrain from taking steps that could lead to its collapse. China’s cooperation with the United States has increased lately, but Beijing’s fundamental strategic calculus—that a nuclear-armed North Korea would be better than a unified U.S.-allied Korea at its border—has not changed. Washington should bear this in mind, particularly when it comes to applying secondary sanctions. It is an open secret that China, like Russia (and many other countries), opposes such measures because they give the United States de facto extraterritorial jurisdiction. The United States would be wise to apply the new sanctions only against companies in violation of UN Security Council resolutions. Explore options for realistic diplomacy. Sanctions can, and should, be used as bargaining chips in negotiations. Ideally, the dormant Six Party Talks should be resumed, although direct contact between the United States and North Korea and between the North and the South will be needed too. Even if the lifting of sanctions should be linked to denuclearization, limited exemptions and waivers could be promised in return for de-escalating measures by the North. In exchange for a moratorium on nuclear and missile tests, the United States could also offer not to increase its military activities and presence on the peninsula. Perhaps even more critically, the parties could agree on mechanisms to prevent accidental escalation, including hotlines, military-to-military contacts, and regular exchanges of information. There are also a number of incentives unrelated to sanctions that the regional powers can put on the table in order to persuade the North to exert self-restraint. South Korea could envisage the reopening of the Kaesong industrial complex and discuss the disputed maritime demarcation line in the Yellow Sea; Russia could be allowed to develop infrastructure projects in the North; and the United States, China, and South Korea could signal their readiness to start talks on a formal peace treaty. Conclusion North Korea’s nuclear and ballistic weapons development is a threat to international security and imperils the global nonproliferation regime. This strategy of deterrence and containment combined with regional power coordination would defuse the risk of events spiraling out of control. The most that can be reasonably hoped for in the current circumstances is not a resolution of the North Korea crisis, but injecting a higher degree of predictability into regional relations. For as long as all parties know where the trip wire triggering a major conflagration is, the risk they will deliberately walk or accidentally stumble into it will be far lower than it is now.

Report by Riccardo Alcaro and Ettore Greco November 29, 2017 International Institutions and Global Governance Program

Russia

Economic Constraints on Russian Foreign Policy

For now, Russia is able to achieve many of its foreign policy goals despite the limitations of its economy, but that will not last forever. The United States should prepare to seize future opportunities for a more constructive relationship.

Report by Christopher Smart November 17, 2017 Greenberg Center for Geoeconomic Studies
China

After the Party Congress, Will Xi Jinping Finally Get Tough on North Korea?

The importance of the Chinese Communist Party’s 19th party congress to the future of Xi Jinping’s leadership and the direction of China has paralyzed policy debates on many issues, including North Korea. The paralysis has persisted despite the Donald Trump administration’s efforts to wheedle greater Chinese cooperation to rein in North Korea’s missile and nuclear programs before they can strike the U.S. mainland. But even if the configuration of Chinese power for the next five years has stabilized, this does not mean that the geopolitical, economic and domestic political factors paralyzing Chinese willingness to cooperate with the United States on North Korea will suddenly disappear. Rather, the contradictions influencing these three influences on Chinese policy formation will likely intensify. First, China’s geopolitical aspirations will constrain cooperation with the United States on policy toward North Korea. China’s suspicions of U.S. intentions toward North Korea under Trump have surely not been assuaged by his calls for cooperation, even while Chinese fears of U.S.-North Korea military confrontation have gone up. Stability on the Korean peninsula trumps denuclearization as China’s top objective despite China’s grudging willingness to squeeze North Korea. Even if the United States takes unilateral measures toward Chinese suppliers of North Korea in order to force them to choose between Washington and Pyongyang, China is likely to squeeze but not cut off North Korea’s access to the umbilical supply chain that keeps Kim Jong-un afloat. Moreover, the more Trump pressures Xi on China, the more the North Korea issue becomes enmeshed in a broader struggle for hegemony in Northeast Asia. North Korea’s growing threat saps American strength and generates strains in America’s alliances with Japan and South Korea, which constrain China’s growing desire to dominate Asia. But the failure of the U.S.-led alliance framework would unleash daunting new challenges to security on China’s periphery, including the prospect that Japan, South Korea and possibly Taiwan might go nuclear both to even the playing field with a nuclear North Korea and as a hedge against both Chinese regional dominance and the risk of U.S. withdrawal from the region. Second, China’s economic interests on the Korean peninsula keep hope alive in China’s northeastern provinces that coastal supply routes currently blocked by North Korea will gradually open up. On the border, Chinese money has already poured into North Korea through infrastructure, tourism, gambling, and joint manufacturing projects that involve North Korean labor on both sides of the border. Much of this exchange is not reflected in official statistics, but goes a long way toward answering how backdoor cross-border trade between China and North Korea has kept prices inside North Korea stable in the face of sanctions to date. China’s northeastern border provinces would welcome a vibrant North Korean economic neighbor, especially one with which China maintains a monopoly in trade. Even if Beijing decides to support international efforts to impose complete economic isolation on North Korea, there will always be local suppliers willing to take the risks and receive the premiums necessary to ensure that North Korea’s leadership receives the essentials. And if a humanitarian crisis breaks out, China will be the first responder, as it was during the North Korean famine in the late 1990s. Third, Xi himself arguably may be more sensitive to the crosswinds of Chinese public opinion as he forges his approach to North Korea, but his primary objective remains to burnish a reputation for strong leadership. On the one hand, Chinese public opinion toward North Korea continues to sour, and there is no love lost in Chinese internet commentary on “Kim Fatty the Third,” even despite efforts by China’s internet police to block such references from China’s internet. In academic circles, Chinese elites recognize North Korea more as a strategic liability than a strategic asset and are more willing to support economic pressure on North Korea. But North Korea’s ideological and historical value as a fellow communist country will prevent Xi from sacrificing the North Korean buffer, for fear that the absence of North Korea as a foil would turn public criticisms inward and challenge the Chinese Communist Party’s domestic legitimacy. The worry that stripping away of North Korea would invite scrutiny of Xi’s own leadership may indeed be the biggest factor that paralyzes China’s willingness to confront North Korea, despite the growing threat Kim’s leadership direction poses to China’s own interests. This post originally appeared on Forbes.

Blog Post by Scott A. Snyder October 17, 2017 Asia Unbound
North Korea

Trump's Stepped Up Sanctions on North Korea

The Trump administration issued a new Executive Order on September 21 expanding the U.S. Treasury’s authority to block North Koreans, and those who do business with or on behalf of North Koreans, from accessing the U.S. financial system. It represents the broadest effort to date to use economic pressure to reverse Kim Jong-un’s decision to pursue a capability to threaten the United States with nuclear weapons. The U.S. Treasury now has the capacity to target North Korean financial transactions and overseas labor networks, any entity that trades with North Korea, to bar vessels or aircraft that have visited or interacted with North Koreans within the prior six months from entry into U.S. ports, and to block North Korean assets that flow through the U.S. financial network. A measure of the power of the new authorities is that China’s central bank immediately issued an advisory to Chinese banks to stop providing financial services to new North Korean customers and to wind down loans with existing North Korean customers. Essentially, the Executive Order enables secondary sanctions on Chinese entities and puts Chinese entities that do substantial business with the U.S. at risk of facing significant financial losses, providing a powerful incentive for Chinese compliance with Treasury rules. The breadth of the Executive Order should provide the United States with the capability to counter many of the sanction-evasion tactics North Korea has employed as part of a cat-and-mouse game. North Korean shell and front companies and dual ledgers kept with Chinese partners have enabled financial flows to and from the country that have enabled North Korea to safely embed its procurement activities in the global supply chain. Assistant Treasury Secretary Marshall Billingslea says his department engages “on a daily basis in ‘hand-to-hand’ financial combat with North Korea’s illicit networks.” As the U.S. Treasury detects entities that violate the new Executive Order, those partners of North Korea will be at risk of having their U.S.-based assets frozen and/or blocked from the U.S. financial system. If the U.S. Treasury applies its authorities aggressively and in concert with other financial authorities in Europe, Japan and South Korea, the isolating effect on flows to North Korea should be sufficient to impose serious economic hardship inside the country. The scope of the U.S. Treasury action is proportionate to the level and urgency of the threat from North Korea that the administration feels, in contrast to the UN Security Council resolutions, which are products of a consensus involving China and Russia as proponents of the lowest common denominator. It is still not clear that North Korea will yield to economic pressure in its pursuit of nuclear weapons. After all, North Korea’s nuclear project is ultimately about Kim Jong-un’s survival, which he regards as a higher priority than economic hardship. Moreover, Kim himself will be the last North Korean to suffer from economic sanctions; rather severe restrictions on North Korea’s trade with the outside world may generate a renewed humanitarian crisis that would put at risk millions of North Korean people. Thus, there is a risk that Kim Jong-un will see economic sanctions, in tandem with presidential threats of annihilation and continued shows-of-force along the demilitarized zone (DMZ) and on North Korea’s east coast, as a strategy for regime change. That is why it must be paired with efforts to strengthen channels of diplomatic communication to North Korea that gives credibility to Secretary of State Rex Tillerson’s rhetoric that the U.S. does not seek North Korea’s collapse, or, for that matter, to wipe North Korea off the face of the earth. While North Korea uses missile and nuclear tests as its main tools by which to convince the U.S. to acquiesce to the country’s nuclear capability, the new U.S. economic sanctions are designed to magnify the costs of North Korea’s nuclear acquisition and put the survival of the Kim Jong-un regime sufficiently at risk to convince him to reverse direction and denuclearize. Unless both sides can find space to reduce misunderstanding, both North Korea and the United States are on a trajectory through their respective actions toward not just hand-to-hand economic conflict, but also a much more costly military confrontation. This post originally appeared on Forbes.

Blog Post by Scott A. Snyder September 26, 2017 Asia Unbound
North Korea

Russia and the North Korean Nuclear Challenge

North Korea’s sixth nuclear test on September 3, 2017, generated reports of tremors being felt as far away as Changchun, China, over 400 miles from the Punggye-ri test site. Although it stands to reason that the tremors also reached into the sparsely populated Russian Far East, both Russian media reports and the official reaction to the test were muted. Russia’s foreign ministry called for calm and for parties to “refrain from any actions that lead to a further escalation of tension.” The Chinese foreign ministry reaction was stronger, stating that “the Chinese government resolutely opposes and strongly condemns this.” Despite its geographic proximity and shared border with North Korea, Russia stands behind in coordination with China, with Beijing leading the response to North Korea’s nuclear development. After all, the brazenness of the North Korean test was unprecedented, and the humiliation for Xi Jinping was deeper, given that the test occurred on the eve of a BRICS summit in Xiamen, at which Putin was present, but that Xi had intended to use to further assert Chinese global leadership. China’s leading and Russia’s supporting roles on North Korea are a reversal from the international experience in the P-5 Plus One talks with Iran in which Russia played a leading role in negotiations with China in the background. China’s stake in North Korea is directly tied to Chinese interests in stability on the Korean peninsula, its historic role as convener of the Six Party Talks, and its central role as a supplier of food and fuel to North Korea. In contrast, Russia’s main contributions to Six Party Talks were accomplished through its inclusion in the talks; its ongoing mercantile interests in transit and energy links with North Korea shadow those of China but are distinctly marginal to China’s central role. Russia’s secondary role on Korean peninsular issues does not prevent Moscow from occasionally playing a spoiler role. In 2016, the United States engaged primarily with China to negotiate language for the UN Security Council Resolution in response to North Korea’s fourth nuclear test, only to have the text held up by Russian officials, who objected to language that would have restricted Russian sales of airplane fuel to North Korea. In negotiations on the just-passed UNSC Resolution 2375 following the sixth North Korean nuclear test, Russia and China combined to fight off a U.S. draft proposing a complete ban on oil sales and North Korea’s low-cost labor exports for foreign currency-earning purposes. In conjunction with the adoption of UNSC Resolution 2375, Russian and Chinese officials reinforced each other’s call for diplomacy as the essential missing ingredient necessary to solve the North Korean nuclear stand-off while expressing skepticism on the efficacy of sanctions. The Russian foreign ministry has expressed its support for China’s dual suspension proposal, which calls on the United States and South Korea to end their twice annual military exercises in return for a moratorium on North Korean nuclear and missile testing. But the United States objects to this starting point for talks since the tests are what the UNSC Resolutions and the sanctions are already punishing, whereas military readiness remains the key to effective deterrence. Another reason why Russia might feel unsatisfied with the call for additional economic sanctions against North Korea is that Russia is also the object of redoubled American sanctions toward Russia through Congressional legislation passed targeting both Russia and North Korea. The Russians resent being lumped together with North Korea while simultaneously being asked to cooperate on sanctions against North Korea. Given Russia’s desire to remain relevant as a player on Korean peninsula-related issues, Moscow’s primary objective will be to secure a continued presence in any future revival of multilateral diplomacy with North Korea. A more aggressive scenario might have Russia play a spoiler role in opposing U.S. interests, but this strategy is risky given the unpredictability and historically-evident costs of being dragged into renewed North Korean-made military conflict. This post is set to appear in the October edition of Formiche.

Blog Post by Scott A. Snyder September 14, 2017 Asia Unbound
North Korea

North Korea’s Nuclear Defiance of Trump’s “Fire and Fury”

Following a public demonstration of a completely “homemade” nuclear device claimed to have “great destructive power,” North Korea conducted its sixth nuclear test, which the U.S. Geological Survey reported as generating a 6.3 magnitude explosion. The test, accompanied by a demand that the United States abandon its “hostile policy” toward North Korea, directly defies President Donald Trump’s warnings that North Korean threats would be met with “fire and fury, and frankly power that the world has never seen.” If the president follows through on his rhetoric, the United States will be involved in what Defense Secretary Mattis has characterized as a “catastrophic” military conflict to permanently end the North Korea threat. Such a conflict could consume Trump’s presidency and drastically transform the political landscape; it would probably not relieve Trump’s domestic political difficulties but compound them. Whatever doubts are openly circulating within Congress regarding Trump’s leadership could be magnified and underscored if Trump becomes a war president. But if the president does not follow through on his rhetoric, he will be seen as a paper tiger and his power to effectively use the bully pulpit of the presidency would be further reduced. The credibility of the president globally might take a hit, but in not following up on rhetorical threats toward North Korea, Trump would in reality be little different from Clinton or Bush. Trump will want to handle North Korea’s sixth nuclear test different from Obama, so a U.N. Security Council resolution will not be enough. On the other hand, the Trump administration must be careful to avoid escalating a crisis without adequate preparations to ensure that the administration is not entrapped by North Korea into an outcome unfavorable to U.S. interests. There has been growing Congressional interest in an expanded secondary sanctions regime against North Korea, especially against Chinese counterparts with business interests in North Korea. There is also support for utilizing unilateral financial measures more aggressively to cut off the money flow to North Korea, even though existing U.N. sanctions have virtually quarantined North Korea—on paper. China has less grounds to object to U.S. self-defensive measures following North Korea’s sixth nuclear test. But the task of applying those sanctions in practice requires cooperation from the Chinese, and to a lesser extent, the Russians, as well as other members of the international community. In addition to sectoral bans on coal and seafood products, China and Russia will be under great pressure to agree to an oil embargo and a cut-off of support for North Korean laborers working abroad. While these measures may bring additional financial pain and isolation to North Korea’s leadership, they will take time, and they occur against the backdrop of rumors that Kim Jong Un has stockpiled significant petroleum reserves in order to ride out likely repercussions of an international oil embargo on North Korea. But time is increasingly not on Trump’s side. Preparations for conventional military action against North Korea would run up against a variety of obstacles. Evacuation of expatriate civilians from and positioning of augmented U.S. forces in South Korea would take weeks if not months and could trigger North Korean preemptive measures. Plus, South Korean President Moon Jae In has insisted that no military action should take place on the peninsula without Seoul’s concurrence. North Korea is probably counting on South Korea to restrain the United States from unilateral military action against it given that up to one million South Korean casualties could result from a retaliation by Pyongyang. A preemptive decapitation strike would likely face the same risk of North Korean retaliation. Finally, Trump could talk to Kim, even at risk of acquiescing to the reality that North Korea is a nuclear state. Clearly, North Korea is using the tests to shape the strategic environment in its favor. But there is slim evidence that Kim is ready or willing to talk, given that he has to date had no interaction with any other international leader, and there are no indications that North Korea is willing to negotiate a compromise or make concessions. North Korea’s sixth test pushes the United States closer to a strategic choice between two unacceptable options : acquiescence to North Korea as a nuclear power, or “catastrophic” military conflict to permanently end the North Korea threat. Even if North Korea were to be recognized as a nuclear state, it is not clear that Kim’s sense of vulnerability would be reduced. Kim must not be allowed at all costs to export his vulnerability to the rest of the world: that should be Trump’s primary goal. This post originally appeared on Forbes.

Blog Post by Scott A. Snyder September 5, 2017 Asia Unbound
Sanctions

Have Sanctions Become the Swiss Army Knife of U.S. Foreign Policy?

The Congress takes an important, positive step to reinforce Russian sanctions, but are we at risk of overusing the sanctions tool? Senate and House negotiators have reached agreement on a bill that would significantly constrain the president’s ability to ease Russian sanctions, and the legislation is expected to reach the president’s desk with veto-proof majorities this week. While an important step in U.S.-Russia relations, and in some ways the most concrete policy change emerging from the Russia scandal to date, it is but one of a number of recent or prospective decisions by the Congress and Trump administration expanding the scope of sanctions, and perhaps not even the most consequential. Sanctions have been a centerpiece of economic statecraft in both Democratic and Republican administrations, and especially after 9/11 with a new focus on financial sanctions in countries as diverse as Russia, Iran, and North Korea. Yet now more than ever, sanctions policy appears to have become a policy of first resort. The critical question is whether we are getting the balance right, and whether their extensive use presents long-term risk to the global economy. Consider the following recent sanctions news: North Korea. In late June, the U.S. Treasury announced sanctions against the Chinese Bank of Dandong, a Chinese shipping company, and two related individuals for their involvement in providing illicit trade and finance to North Korea. The announcement by the Treasury’s Financial Crimes Enforcement Network (FinCEN) of sanctions against Bank of Dandong for acting as a conduit for illicit North Korean financial activity, and is a foreign bank of primary money laundering concern, was most notable. Such a “secondary sanction” aims to leverage the strength and role of the U.S. financial system to pressure a target (in this case, the North Korean government) by sanctioning a business or individual outside the United States (and the target country) that does business with the target. By imposing these sanctions, the administration aims to sever Bank of Dandong from the U.S. financial system, disrupting North Korean financial flows. This was a modest first step. The companies involved are small, and there is a reasonable expectation that new companies will spring up to replace the disrupted business. Further, for U.S. firms that might be willing to do business with North Korea through intermediaries, the announcement is a clear sign that there could be material costs to supporting the North Korean government. The most significant effect of the measure may be in the signal to the Chinese government to do more. Secondary sanctions are not often used, in part because the perceived extraterritoriality of their use can cause problems for U.S. relations with the country whose institutions have been sanctioned. While the measures announced in June seem narrowly targeted and purposely limited in scope, and Treasury Secretary Mnuchin went to length to state that China was not the target, there are a number of ways that secondary sanctions could be extended, including larger Chinese financial institutions or expanding the sectors affected by the sanctions, with significant economic and political implications. The move comes at a time of significant uncertainty for U.S.-China relations. There is little doubt that U.S. policymakers are growing increasingly frustrated with the ineffectiveness of current North Korean policy. Recent presidential tweets complaining of lack of Chinese pressure on North Korea, a Taiwan arms package, the failure of U.S.-China talks last week to make progress on economic issues, and the possibility of substantial U.S. tariffs on steel imports all underscore that the economic détente following April’s Mar-a-Lago summit may be coming to an end. Venezuela. The Trump administration is preparing to extend sanctions, promising “strong and swift economic actions,” if the Maduro government goes ahead with a controversial plan to establish a new “Constituent Assembly” that would rewrite the constitution, stripping powers from the democratically elected (and opposition controlled) National Assembly. While sanctions are already in place against individuals associated with human rights abuses or drug trafficking (including the freezing of assets of eight members of Venezuela’s Supreme Court in May), the Trump administration may be readying a dramatic escalation in sanctions unless the Venezuelan government reverses course on the constituent assembly. This could include broad sanctions aimed at limiting the development and exportation of oil (though there might be carve-outs in this case limiting the effect on U.S. refineries that currently import Venezuelan crude). My preference though, and perhaps even more effective, would be tough limits on Venezuela’ ability to issue new debt. Such restrictions, which could prohibit both U.S. companies’ holding/purchasing new debt or the financing for such debt moving through the U.S. financial system, would severely constrain the government’s ability to continue to meet its debt payments. At a time when the government is defaulting on nearly all its commitments to the Venezuelan people, it has reinforced its position by continuing to make payments on international bonds through increasingly expensive and ad hoc deals. Now, however, the Venezuelan government appears to have exhausted its liquid and usable foreign exchange reserves, and faces substantial payments in October and November on debt owed by the state oil company PDVSA. On its face, intensified financial sanctions at this time could be a powerful catalyst for change, and perhaps with a lower humanitarian toll than would be the case with a complete cutoff in oil revenue and a collapse in imports. Russia. The legislation now in the Congress toughens U.S. sanctions policy on Iran, North Korea, and Russia, but the focus of attention has been on the measures that would allow Congress to block efforts by the Trump administration to ease sanctions on Russia. Notably, the president would be required to send Congress a report explaining why he wants to suspend or terminate a particular set of sanctions, and lawmakers would then have 30 days to decide whether to allow the move or reject it. Given the broad set of existing sanctions in place (earlier Russia sanctions did not employ secondary sanctions but did enact broad sectoral sanctions on energy and finance), such a decision would seem to protect one of the most comprehensive sanctions programs on the books. The bill has veto-proof majorities in both houses, even as some have raised constitutional concerns that the requirements in this proposed sanctions legislation (that Congress sign off on significant Russia policy alterations) could unduly constrain future presidents’ foreign policy authorities. Regarding other countries, the bill reportedly prevents those out of compliance with North Korean sanctions from operating in American waters or docking at U.S. ports, and adds restrictions against products produced by North Korean forced labor. For Iran, the sanctions package imposes penalties on those involved in Iran’s ballistic missile program and anyone who does business with them. This seems in line with administration policy. While adhering to the July 2015 Joint Comprehensive Plan of Action (JCPOA), the administration appears ready to institute an economic pressure campaign to confront Iran over its conventional weapons program and support for militants. To be sure, I see a reasonably strong case for the more expansive use of sanctions in each of these cases. Particularly in the case of Venezuela, strong financial sanctions limiting the capacity of the government to continue to finance debt payments, particularly when those deals make the future recovery of the county more difficult, should be a top priority. But has the pendulum swung too far? Facing a growing array of foreign policy challenges, one consistent feature of the new administration’s stated approach has been its willingness to move quickly to impose bilateral economic impediments to trade and finance, including sanctions. While a compelling case can be made in each instance for the use of sanctions, it’s hard not to conclude that sanctions have become the go-to weapon of choice, a Swiss army knife with a ready attachment just right for any foreign policy challenge. No doubt, sanctions have been a growing force in diplomacy for some time. The 9/11 attacks quickly renewed interest in sanctions among policymakers and, backed by a series of executive orders, as well as legislation (Section 311 of the Patriot Act), brought about a new focus on financial sanctions and an effort to harness the power of sanctions to disrupt financial flows across borders. In cases as diverse as North Korea, Iran, and Russia, financial sanctions found a new rationale and value as a driver of American foreign policy. So it would be wrong to suggest that the aggressive use of financial sanctions is in any sense new. The question though is whether the pendulum has now swung strongly in favor of the greater use of sanctions. In Russia in particular, the use of “smart” and “asymmetric” financial sanctions by the Obama administration sought to impose substantial costs on the Russian government while limiting the damage to U.S. firms and the global financial system more generally. That meant that, when assessing a tightening of sanctions, the potential longer-term costs to global markets—such as derisking by firms, retaliation, and longer-term costs of disrupted trade and finance, were carefully weighed. Reports at the time suggest that the Obama administration took serious their responsibility to preserve and open, robust global trade and financial system. If, as many have argued, we are in midst of a consequential shift in our politics, from left-right to one where the debates revolve between advocates of more open and closed economic policies, I wonder whether this administration, or those that follow, will find it easy to get the balance right. Reports on recent trade deliberations within the Trump administration suggest that, while there are many advocates for open markets, it is clearly understood that the most critical decision makers on trade have a more protectionist leaning, and a willingness to use unilateral action to address grievances. Could the same be true on sanctions? Without a strong advocate of open markets at the table when the decisions are made, the risk is that sanctions become seen as an easy option without significant economic costs. Without these checks and balances, the risk of their overuse is profound. There is a certain irony here. On the Russia sanctions, the Trump administration does not want to lock in sanctions, but Congress rightly insists on its review. Beyond Russia, there seems to be a greater willingness by the administration to sanction trade and investment to achieve economic and foreign policy objectives, causing concern for those of us who see great value in U.S. leadership and support for an open, integrated global marketplace. There are economic costs, if confidence in the reliability of markets is lost, which can add up over time as sanctions are repeatedly employed. As argued earlier, in each of these current cases, an expansion of sanctions looks to be the best of a difficult set of choices. But looking forward, we should be concerned that the pendulum will swing too far, that sanctions become too easy an option. There are some things for which a Swiss army knife is the perfect tool, but for appendicitis I’d rather see a doctor.

Blog Post by Robert Kahn July 24, 2017 Macro and Markets
European Union

EU Creates a Diplomatic Toolbox to Deter Cyberattacks

The European Union asserts its right to sanction entities in response to cyberattacks against its members in the hope that it creates a deterrent effect.

Blog Post by Guest Blogger for Net Politics June 20, 2017 Net Politics
China

Can China Meet President Trump’s Expectations On North Korea?

North Korea is not abandoning its nuclear ambitions, as proven by Saturday’s failed ballistic missile test. However, neither is the United States abandoning its plan to pressure North Korea into submission. The key to the success of U.S. President Donald Trump’s strategy? China. Trump’s efforts to win China over to his “maximum pressure and engagement” approach to North Korea started at the Mar-a-Lago summit with Chinese President Xi Jinping in early April. Days later, Trump expressed his “absolute confidence that [Xi] will be trying very, very hard” to resolve the North Korea issue and mentioned that “some very unusual moves have been made over the last two or three hours.” Shortly thereafter, there were rumors in media reports that China might have reduced the flow of petroleum to Pyongyang, causing gas rationing in the capital. Concerns over U.S. pressure Despite China’s uneasiness with a nuclear North Korea, however, China continues to see ramped up U.S. military pressure on North Korea as an even bigger concern. An editorial in the state-run Global Times shows Beijing’s frustration with a possible U.S. military response to Pyongyang’s threats. And in a call between Trump and Xi on April 24, the Chinese president switched back to urging Trump to exercise restraint. At the United Nations, Chinese Foreign Minister Wang Yi counseled enforcement of sanctions along with his usual urging all parties to manage the issue peacefully through dialogue. The Chinese position elicited a statement by U.S. Secretary of State Rex Tillerson that the U.S. does not seek regime change. The commander-in-chief of the U.S. Pacific command, Admiral Harry Harris, also said that U.S. pressure is designed to “bring the North Korean leader to his senses, not to his knees.” Yet U.S. military maneuvers and warnings about future North Korean intercontinental ballistic missile development from U.S. Ambassador to the United Nations Nikki Haley overshadow these statements and have drawn ever more shrill responses from Pyongyang. A litmus test for China-U.S. relations The Trump administration is clearly eager to change North Korea’s trajectory—in any way possible. And Beijing’s role in helping do so seems to be a litmus test that will influence the future of the U.S.-China relationship. I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem! — Donald J. Trump (@realDonaldTrump) April 11, 2017 Yet Chinese and American analysts alike point out the likely limits of China’s willingness to pressure North Korea to the extent the Trump administration desires. While Chinese analysts recognize the dangers posed by North Korea, they have long seen Chinese influence as limited and believe that U.S. hostility toward North Korea is the root cause of peninsular tensions. But American analysts and political leaders are increasingly frustrated that China has not cut the umbilical cord of food and energy supplies that the North depends on for its economic survival despite its political isolation. Frustration in Washington Secretary Tillerson has identified gaps in Chinese enforcement of UN sanctions as the missing ingredient in successfully curbing North Korea. The Trump administration ultimately expects Beijing to put enough pressure on Pyongyang to make Kim realize that the nuclear program endangers rather than assures the survival of his regime. However, this course of action imposes on China higher risks than the country has been willing to take so far. It prefers the status quo to the dangers of political instability and refugee flows across China’s border. Another area in which frustration in Washington has boiled over is related to China’s cautious and permissive approach that enables North Korean front companies and elites to skirt sanctions by embedding North Korean procurement in China’s supply chain so that North Korean entities can secure necessary financing from Chinese banks despite UN Security Council (UNSC) sanctions on such activities. The UN sanctions reports are intended to strengthen enforcement of the UN resolutions, but instead they show how North Korean sanctions evasion methods have neutralized the economic impact of the resolutions. There are moves in Congress afoot to force the Trump administration to take a more aggressive unilateral approach to punishing Chinese business partners and financial enablers of North Korea through the unilateral application of secondary sanctions, but the question is how to do so without sparking global financial stability, given that North Korean operations seem to be deeply embedded in China’s financing system. Will China pay up? Ever since North Korea’s first nuclear test in 2006, China has struggled with a menu of policy options toward North Korea that are even more unsatisfactory compared to those faced by the United States. Placing the level of pressure needed to force Kim Jong-un to give up his nuclear weapons program risks the North Korean regime collapsing, leading to refugee flows and potentially a unified Korea allied with the United States; refusing to crack down on North leads to a North Korea racing toward its nuclear finish-line, U.S. military build-up in Northeast Asia, and even a direct military conflict with the United States. The price that Beijing pays for its longstanding support for a North Korean regime that exports instability as its only sure means of regime survival is a bill that has finally come due. The Trump administration seems intent on securing outstanding payments as a principal means by which to pressure Pyongyang. Can Trump convince China to pay up? This posted originally appeared on Forbes.com.

Blog Post by Scott A. Snyder May 3, 2017 Asia Unbound
Congresses and Parliaments

The Bid to Give Congress a Say on Any Move to Relax Sanctions on Russia

I wrote on Monday that Donald Trump’s critics on Capitol Hill will have a hard time challenging his foreign policy choices. An early test of that claim could come in the form of a new bill that would require congressional approval before Trump could relax existing sanctions on Russia. The legislation, which has yet to be introduced, is set to be sponsored by Sen. Chuck Schumer (D-NY), the Senate minority leader, and Sen. Ben Cardin (D-MD), the ranking member on the Senate Foreign Relations Committee. Schumer said on ABC’s This Week with George Stephanopoulos that two other Senate heavyweights, Sen. John McCain (R-AZ), the chair of the Senate Armed Services Committee, and Sen. Lindsey Graham (R-SC), will cosponsor the bill. Trump has said he would consider lifting existing sanctions on Russia if the Kremlin agreed to cut its nuclear weapons. The wisdom of trading sanctions relief for arms cuts is debatable, and it’s an idea Trump may never pursue. But as things stand now, if he did he wouldn’t need Congress’s permission. The bill Schumer described would change that. Without seeing the bill’s details it’s impossible to say precisely how it would constrain Trump or how hard those constraints might be to evade or break. But he isn’t likely to sign on to the idea in any event. No president wants to see Congress clip his wings on foreign policy, especially as his administration is just starting. And GOP lawmakers contemplating whether to support the bill will be reminded of one sobering fact: three out of four Republican voters think Trump has taken the right approach toward Russia. So stay tuned.

Blog Post by James M. Lindsay January 25, 2017 The Water's Edge