Can South reward the North and stay sanctions compliant?

As the world looks on and inter-Korean rapprochement moves proceed apace, it is important to ask a key question: What is Kim Jong-un’s most likely near-term objective?

The answer to that is sanctions relief that would facilitate the economic progress he has promised his impoverished country. The possibility of a peace treaty and perhaps the removal of American forces from the peninsula – on which most analysts and news media are focusing – are actually longer-term objectives.

In recent days, some regional and local governments in South Korea are preparing to engage with North Korea in anticipation of favorable outcomes from the upcoming summit between Washington and Pyongyang. Those proposed North-South interactions range from merely exchanging artists, athletes and scholars to full-blown economic ventures.

A high-risk environment

This is putting the cart before the horse. There is no sign of denuclearization or a peace treaty yet, and this ebullience ignores hard realities. North Korea is a high-risk investment area, with precious few benchmarks of successful commercial intercourse. And of course, global sanctions prohibit financial engagements.

A number of UN sanctions plus those unilaterally imposed by individual nations present significant obstacles to normal financial and economic engagement with North Korea. Then there is the risk of just doing business in North Korea as the Egyptian telecommunications company Orascom discovered to its great chagrin.

Before sanctions can be rescinded, the entities that levied them must be convinced that such action is warranted. Hard evidence to substantiate any plea for relief by Pyongyang might now be linked with progress on denuclearization and other matters that come up for discussion during the forthcoming Pyongyang-Washington summit. Sanctions relief – and permission to economically engage – will not come overnight.

Impractical and ill-advised programs

Even once sanctions are abated – or even rescinded – care must be exercised in how agencies interact financially with the North for money is completely fungible – and totally fluid. Every red cent can be used by North Korea for its own purposes.

Unless financial aid is directly given to the North Korean citizens who need it most, it will most likely be diverted to purposes of Pyongyang’s choosing. And even when it has been directly handed to the intended recipients, it is likely that some form of “tax man” from the regime will quickly appear to take a large cut.

Gifts-in-kind also do not always get to the proper recipients. Medicine and food are often enough diverted to the North’s elites and military to supplement meager rations, or syphoned off to be sold for the profit of corrupt cadres on the black market.

One example of an ill-advised project is the installation of solar panels and building insulation for apartments in Pyongyang. It is the elites of the Kim regime, not average North Korean citizens, who reside in those apartment buildings. Improving the living conditions of Kim’s favorites is just about as bone-headed as it gets.

Reopening the inter-Korean Kaesong Industrial Complex (KIC), shuttered amid tensions in 2016, or developing another such project as has been proposed – is also poorly thought out. The companies in the South that employed North Korean citizens benefited from cheap labor, but only a small percent of the average population – the relatively few workers in the KIC and their families – benefited.

However, their meager wages were skimmed by as much as 70% as the regime raked in much needed hard currency without breaking a sweat.

The mention of inter-Korea rail and highway systems in the Panmunjom Declaration brings to the fore a rather complex topic. Clearly, both North and South would benefit. Businesses in the South would gain access to China’s routes to markets in Europe as well as direct access to Russia’s energy, and Pyongyang would be able to charge transit fees for all the goods traversing its country.

However, that returns to the problem of monetarily supporting the Kim regime rather than benefiting ordinary North Koreans. The North has little of interest to the world outside its extractive minerals and cheap labor. Income from both go primarily into Pyongyang’s coffers.

Transportation routes to external markets don’t offer much to the average citizen struggling to make a living through farming, manufacturing low-quality goods for domestic consumption, or engaging in various market activities.

Still: These ideas do have potential.

The right way forward

Done properly, financial and economic aid to the North can certainly improve living conditions for the average citizen without increasing the war-making readiness of the regime or benefitting the elites.

The way to go is infrastructure: highways, electrical grids, sanitation and water systems – along with the loosening of restrictions on internal market conditions as China did under Deng Xiaoping.

But rather than donate money and supplies without control or oversight, projects should first be identified, prioritized and vetted. Material not available in the North can be provided as in-kind supplies directly to work sites, and the necessary skills can be passed on by training from and supervision by experts from the South. Donated funds and goods-in-kind should not go to waste in sloppily constructed buildings, dams and roads that quickly deteriorate like many of the structures erected in Pyongyang without regard for safety and standards.

It is early days yet. Even so, South Korea needs to carefully craft plans and come up with better ideas: projects that benefit the average North Korean citizen and do not reward elites or contribute to Kim Jong-un’s war chest.