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Textile Exports at Forefront of UN Sanctions on North Korea

Textile exports became a key negotiating chip in the nuclear showdown between North Korea and the U.S. and United Nations in the latest sanctions against the Kim Jong-un regime.

The new sanctions handed down by the U.N. Security Council include a complete ban on North Korean exports of textiles, including fabrics and partially completed apparel. Textiles are one of North Korea’s major exports, with a total export value estimated at $750 million in 2016.

Textiles were North Korea’s second-biggest export after coal and other minerals in 2016, according to data from the Korea Trade-Investment Promotion Agency. Nearly 80 percent of the textile exports went to China. China uses North Korea as a low-cost alternative to domestic production, where cost have risen dramatically in recent years. Chinese companies are said to be large investors in North Korean facilities.

President Trump has long railed against China’s trade policy, recently threatening to cut off trade with any country that imports goods from North Korea.

[Read more about Trump’s position on trade with China: Trump May be Poised to Take Aggressive Trade Action Against China]

The new U.N. resolution also further clamped down on North Korean guest workers abroad by banning the issue of new work permits for North Korean workers by U.N. member countries. The new sanctions also authorized U.N. member countries to inspect ships if they have reasonable grounds to believe that the ships are carrying North Korean goods that are subject to the sanctions.

Rajiv Biswas, Asia Pacific chief economist for IHS Markit, said, “The latest U.N. Security Council sanctions will clearly ramp up economic pressure on North Korea and further choke off foreign exchange inflows, which have already been significantly reduced by previous U.N. sanctions resolutions. However, the relatively moderate sanctions imposed on oil exports to North Korea will not have much impact on one of the North Korean regime’s greatest potential economic pressure points, which is its dependency on oil imports.”

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The final resolution adopted by the security council on Monday imposed a ban on oil condensates exports to the regime, capped refined petroleum exports at 2 million barrels a year–cutting existing export levels by half–and maintaining international exports of crude oil to North Korea at existing levels of about 4 million barrels a year. China supplies most of North Korea’s crude.

“This resolution reduces about 30 percent of oil provided to North Korea by cutting off over 55 percent of refined petroleum products going to North Korea,” said a statement from the U.S. mission to the U.N. “Combined with the previous Security Council resolutions, over 90 percent of North Korea’s publicly reported 2016 exports of $2.7 billion are now banned (coal, textiles, iron, seafood), which does not include revenues from overseas workers.”

Although the U.S. had pushed for severe sanctions on oil exports and had proposed a complete ban on oil exports to North Korea during Security Council negotiations for the new sanction measures, these were not approved by some other permanent members.

However, some more moderate sanctions on oil exports to North Korea were included in the latest U.N. Security Council resolution, which increased economic sanctions on the country with the objective of bringing North Korea back to the six-party talks.

Biswas noted that the new sanctions on oil exports would be unlikely to have much impact on the operations of the North Korean military.

As China has been the major supplier of oil to North Korea, the new resolution would have little impact on Chinese oil exports to the country, since the exports would be capped at recent export levels over the past 12 months. However, China or Chinese oil companies could still decide to unilaterally impose tougher oil export sanctions on North Korea.

Chinese trade data shows that Chinese gasoline exports to North Korea fell sharply, to just 120 tons in July, compared to 8,262 tons in June, according to IHS. This reflects the decision of Chinese state-owned oil company China National Petroleum Corporation to cut sales of oil to North Korea due to credit risk concerns about potential non-payment by North Korea.  However, Chinese exports of diesel to North Korea actually increased from 367 tons in June to 1,162 tons in July, indicating that the North Korean regime is still getting some fuel supplies from China, which can keep its most essential operations functioning.

Few diplomats or observers believed the punitive measures alone would force Kim Jong-un’s regime to stop its nuclear and missile tests. It test-fired two intercontinental ballistic missiles in July and carried out its sixth nuclear test, a powerful blast it said was the detonation of thermonuclear device, on Sept. 3.