The provided text discusses the impact of international sanctions, particularly financial sanctions, on North Korea and its border trade with China. Despite the widespread use of sanctions, the text argues that they have had limited effectiveness in pressuring the North Korean regime. Instead, the sanctions have encouraged the growth of the informal Sino-North Korean border economy, which has become central to North Korea's economic interactions with the outside world.
Key points:
Sanctions' Effectiveness: The academic literature and historical evidence suggest that sanctions may actually strengthen a target state's legitimacy by fostering a "rally around the flag" effect, attributing economic hardships to external forces rather than internal mismanagement. States and private actors often evade sanctions through illicit activities like smuggling.
Financial Sanctions as a Tool: Financial sanctions, by isolating target states from the international financial system, have been argued to be more effective in pressuring states economically. The US Treasury Department's actions against Banco Delta Asia in 2005 serve as a notable example, demonstrating how such measures can significantly impact a state's banking system and deter international banking transactions.
Sino-North Korean Border Economy: Financial sanctions have facilitated the growth of the informal Sino-North Korean border economy, which has taken over as the primary channel for North Korea's external economic relations. This is due to the combination of financial sanctions, bilateral and multilateral conventional sanctions, and the geographical specificity of the border enabling thriving informal trade practices.
Chinese Efforts to Integrate Financial Systems: In response to these developments, the Chinese government attempted to establish a cross-border financial system to facilitate trade with North Korea. However, these efforts were undermined by the growth of informal trade, leading to a reliance on cash transactions and barter rather than formal banking channels.
Economic Challenges for North Korea: Despite the sanctions, North Korea continues to engage in substantial border trade with China. This trade has increasingly been characterized by informal practices, including cash transactions and barter, indicating that the sanctions have not significantly impacted the economy. Instead, they have driven trade into the informal sector, where it has thrived.
New Ventures in North Korea: The text also highlights the emergence of entrepreneurial initiatives within North Korea, such as e-commerce platforms and innovative consumer products, suggesting a growing interest in modernizing the domestic market and finding new ways to engage with the outside world.
In summary, while international sanctions aim to isolate and pressure North Korea, the text argues that they have had limited success, leading to a strengthening of the informal border economy and encouraging new forms of entrepreneurship within North Korea.