World Economy

The UN is considering tougher sanctions on North Korea—but that could actually help Pyongyang

Key Points
  • Sanctions could be bolstering business competitiveness in North Korea as firms develop better methods of evading trade restrictions
  • That could boost the rogue nation's economy, contributing to its roundly-condemned weapons program
  • Despite facing international sanctions since 2006, North Korea's economy grew at its highest rate in 17 years in 2016
A 'David and Goliath' standoff between US and North Korea?
A 'David and Goliath' standoff between US and North Korea?

The United States and its allies have ratcheted up sanctions against North Korea in a bid to pressure the country to give up its nuclear ambitions. That might prove a losing strategy.

In fact, economic sanctions could actually be bolstering Pyongyang's business competitiveness as firms develop better methods of evading trade restrictions. That, in turn, boosts the rogue nation's economy, arguably enabling it to continue with its roundly-condemned weapons program.

"In the category of unintended negative consequences, the application of sanctions has led the North Korean regime to find new, better, innovative ways to do business" inside of China's marketplace, John Park, adjunct lecturer at the Harvard Kennedy School, told CNBC.

North Korean businesses who seek to procure technologies, along with other permitted and prohibited items, directly engage local Chinese middlemen who in turn charge a fee to their clients, Park said in a July testimony before a U.S. House committee.

With the imposition of more extensive sanctions against Pyongyang, the Chinese middlemen, instead of being "scared off," attempt to monetize the increased risk by charging higher fees. Sanctions ultimately attract more capable middlemen driven by the prospect of greater incentives, according to Park.

"You're creating more efficient markets for the North Korean regime to do its activity in the Chinese marketplace," he told CNBC.

"And we're likely to see some version of this continuing with the application of new sanctions."

North Korean leader Kim Jong-Un at the test-fire of the intercontinental ballistic missile Hwasong-14 at an undisclosed location.
STR | AFP | Getty Images

Despite facing United Nations sanctions since 2006 over its nuclear weapons program, North Korea's economy grew at its highest rate in 17 years in 2016, Reuters reported.

Earlier in February, the UN reported that economic sanctions were proving ineffective because of North Korea's ability to elude them with "evasion techniques that are increasing in scale, scope and sophistication."

"Designated entities and banks have continued to operate in the sanctioned environment by using agents who are highly experienced and well trained in moving money, people and goods, including arms and related material, across borders," the report said.

However, some have said the sanctions are not robust enough, and blame China in particular for failing to curb North Korea's economy. Although Beijing has restricted imports from Pyongyang, exports rose by nearly 30 percent in the first half of this year. In the same period, overall trade flows between the two countries rose 10 percent to $2.65 billion.

Despite the latest round of UN sanctions imposed on North Korea in August, the country has conducted its sixth and largest-ever nuclear test on Sunday. It also launched a ballistic missile over Japan in the same month that the sanctions were passed, an act the UN Security Council condemned as "outrageous."

The UN is said to be considering tougher economic sanctions against North Korea in the wake of Pyongyang's latest nuclear trial.