North Korea: Economic Sanctions Prior to Removal from Terrorism Designation
Released: 2008-06-26T00:00:00

Summary:
This paper explains the U.S. economic sanctions in place up to the point when North Korea was delisted as a state sponsor of acts of international terrorism.
Until June 2008, U.S. economic sanctions were imposed against North Korea for five primary reasons: (1) North Korea is seen as posing a threat to U.S. national security; (2) North Korea is designated by the Secretary of State as a state sponsor or supporter of international terrorism; (3) North Korea is a Marxist-Leninist state, with a Communist government; (4) North Korea has been found by the State Department to have engaged in proliferation of weapons of mass destruction; and (5) North Korea has been found by the President to have detonated a nuclear explosive device. The United States has also taken steps to isolate the Macau-based Banco Delta Asia for counterfeiting and money-laundering activities, actions North Korea has characterized as attacks against it. In accordance with U.S. law, the United States limits some trade, denies trade in dual-use goods and services, limits foreign aid, and opposes entry into or support from international financial institutions. At the President's discretion, North Korea would also be subject to the economic sanctions pursuant to the International Religious Freedom Act of 1998, under which the administration has identified North Korea as a "country of particular concern" since 2001, and pursuant to the Trafficking Victims Protection Act of 2000, under which the administration has classified North Korea in the category of most severe offender (Tier 3) since 2003.
In October 2002, after meetings between high-level U.S. and North Korean government officials, the United States reported that North Korea had confirmed suspicions that it had reactivated its nuclear weapons development program. An international crisis ensued, with North Korea expelling International Atomic Energy Agency (IAEA) inspectors and declaring that it would withdraw from the Non-Proliferation Treaty. Participants in the Korean Energy Development Organization (KEDO)—including United States, Japan, South Korea and European Union—in turn suspended shipments of fuel oil. KEDO also suspended construction of the light-water reactors, the completion of which had been planned for 2003. North Korea officially withdrew from the Nuclear Nonproliferation Treaty on January 10, 2003 (effective three months hence), the first signatory country to do so.

subsections: section_title: Background
subsections: section_title: U.S. Economic Sanctions Against North Korea
paragraphs: The United States imposes economic sanctions on North Korea for five primary reasons: (1) North Korea poses a threat to U.S. national security, as determined by the President and renewed annually under the terms of the Trading with the Enemy Act and National Emergencies Act; (2) North Korea is designated by the Secretary of State as a state sponsor or supporter of international terrorism, pursuant to the Export Administration Act of 1979; (3) North Korea is a Marxist-Leninist state, with a Communist government, and stated as such in the Export-Import Bank Act of 1945, and further restricted under the Foreign Assistance Act of 1961; (4) North Korea has been found by the State Department to have engaged in proliferation of weapons of mass destruction pursuant to the Arms Export Control Act, Export Administration Act of 1979, and Iran, North Korea, and Syria Nonproliferation Act of 2000; and (5) the President has determined that North Korea has detonated a nuclear explosive device, pursuant to the Arms Export Control Act and the Atomic Energy Act. The U.S. Treasury also has identified Banco Delta Asia, a bank based in Macau and used by the North Korean government, as engaging in activities "of primary money laundering concern" as part of the Treasury Department's law enforcement efforts under new authority granted by the USA PATRIOT ACT to curtail international counterfeiting and money laundering. The U.S. action led to Macau seizing Banco Delta Asia and closing North Korea's accounts.
At the President's discretion, North Korea also could be subject to economic sanctions provided in three provisions of law addressing human rights conditions: the Foreign Assistance Act of 1961, under which North Korea is annually castigated for its human rights record; International Religious Freedom Act of 1998, under which the administration has identified North Korea as a "country of particular concern" since 2001; and Trafficking Victims Protection Act of 2000, under which the administration has, since 2003, classified North Korea as a Tier 3 (most severe) offender of standards pertaining to the trafficking of persons for slavery or sex trade. Any sanctions imposed pursuant to these acts would be largely redundant, however, with penalties already prescribed to North Korea for the above-stated reasons.
In October 2002, it came to light in negotiations between U.S. and North Korean government officials that North Korea was pursuing nuclear weapons capability. Over July 5-6, 2006, North Korea tested short-range and long-range ballistic missiles with varying degrees of success, the first tests since 1998. On October 8, 2006, North Korea reported that it had detonated a nuclear explosive device. The international community responded to the missile tests and nuclear detonation in the United Nations, adopting U.N. Security Council Resolutions that included the imposition of economic sanctions.
section_title: Recent Turn of Events
subsections: section_title: North Korea's Renewal of Nuclear Weapons Program
paragraphs: Even with the advantage of hindsight, there is no consensus as to when the nuclear weapon crisis began. Some would see the beginning in the President's 2002 State of the Union speech, in which he declared North Korea part of an "axis of evil." The subsequent escalation of threat against another member of the of the axis—Iraq—some contend, left North Korea feeling vulnerable to the threat of attack in the foreseeable future. Some would cite the October 2002 meeting between State Department and North Korean government officials, after which U.S. officials reported that North Korea acknowledged U.S. accusations that it was renewing its nuclear weapons program and thus breaking the terms of the 1994 Agreed Framework and several other international agreements and obligations to which it is party. Other analysts might point to the crisis of 1993-1994, during which North Korea announced it was withdrawing from the Non-Proliferation Treaty, asserting that the crisis never ended but instead has evolved into the current situation. Still others contend that origins of the crisis might be found in the nuclearization of India and Pakistan in 1998, by which the concept of nuclear weapons states and non-nuclear weapons states as a basis for international agreements was challenged, and the subsequent world reaction toward those events, which many cast as short-lived and relatively mild.
North Korea officially withdrew from the Nuclear Nonproliferation Treaty on January 10, 2003 (effective three months hence), the first signatory country to do so. In response, the IAEA Board of Governors adopted a resolution on February 12, 2003, declaring North Korea in noncompliance with its nuclear safeguard obligations and referring the matter to the U.N. Security Council. The U.N. Security Council, in turn, on April 9, 2003 (when the withdrawal went into effect), discussed the matter but declined to consider a resolution of condemnation or sanctions, reportedly because of the opposition of Russia and China—two Security Council permanent members with veto power.
section_title: Six-Party Talks
paragraphs: The Bush administration's position has evolved in the years since the October 2002 meeting, after which the United States reported that North Korea was pursuing nuclear weapons capability. The United States participated in six-party talks—along with North Korea and its major trading partners and neighbors Japan, South Korea, China, and Russia—hosted by China in August 2003, February 2004, June 2004, July/August 2005, September 2005, and—after North Korea's nuclear test—December 2006.
The September 2005 talks, in waning moments, produced a preliminary agreement signed by all parties on September 19 th . North Korea agreed to end its pursuit of nuclear weapons, rejoin the Nuclear Nonproliferation Treaty, and readmit IAEA inspectors. The other signatory states would provide North Korea with new security commitments and aid—including electricity from South Korea. Longer-term commitments included the United States taking steps to normalize its relations with North Korea, and all signatories would consider taking steps to provide a light-water reactor to that country.
The September preliminary agreement did not state a timeline or sequence of events; it is generally agreed that all parties could not have signed it if it had. It was intended that subsequent meetings would be hosted by China, beginning probably in November 2005, to negotiate the implementation of the agreement. These multilateral meetings did not take place. Barely one day after the signing, President Bush stated that North Korea's compliance with terms of the agreement relating to dismantlement required verification, and North Korea's foreign minister declared it would not abandon its nuclear weapons program before the United States and others provided the civil-use light-water reactor. The September preliminary agreement was essentially scuttled as increasingly tense exchanges followed.
The December 2006 round resulted in a stalemate, and was followed by new threats from North Korea that it would test its nuclear weapons capability again soon.
section_title: United States Imposes Financial Sanctions
paragraphs: Around the same time, the United States pursued two paths to increase attention to North Korea's illicit financial activities and proliferation pursuits. On June 28, 2005, the President initiated additional steps to impede financial transactions related to proliferation of weapons of mass destruction, targeting the financial and trade dealings of eight entities, of which three were North Korean (the remaining were Iranian). And on September 12, 2005, coinciding with a convening of the six-party talks, the Treasury Department found that Banco Delta Asia—a Macau-based bank in which North Korea had substantial holdings—was a "financial institution of primary money laundering concern." Treasury Department's Financial Crimes Enforcement Center found that North Korea may reap as much as $500 million annually from counterfeiting, and another $100-to-$200 million annually from narcotics trafficking. The use of financial sanctions, particularly those imposed on Banco Delta Asia, dominated post-September Accord speeches from North Korean officials. North Korea used the Banco Delta Asia action as its justification for not attending six-party talks, though many analysts suggest that North Korea would have stayed away in any event and the bank action just provided a convenient rationale. After the last round of six-party talks, in December 2006, North Korea's chief negotiator cited the United States' financial sanctions as his country's primary obstacle to discussing other matters. U.S. negotiators contend that the financial sanctions have no direct relation to the international community's concerns about North Korea's nuclear pursuits.
section_title: North Korea's Ballistic Missiles Tests
paragraphs: On July 5, 2006, North Korea test-launched seven ballistic missiles, ending a self-imposed moratorium of eight years. In response, the U.N. Security Council, on July 15, 2006, unanimously adopted Security Council Resolution 1695. In it, the Security Council condemned the multiple launches, demanded North Korea recommit to a moratorium, and required all member states: "to exercise vigilance and prevent missile and missile-related items, materials, goods and technology being transferred to DPRK's missile or WMD programmes; [and ... ] prevent the procurement of missiles or missile related-items, materials, goods and technology from the DPRK, and the transfer of any financial resources in relation to DPRK's missile or WMD programmes...."
section_title: North Korea's Nuclear Weapons Test
paragraphs: On October 8, 2006, North Korea announced that it had tested a nuclear explosive device. In response, on October 14, 2006, the United Nations Security Council unanimously adopted Resolution 1718 to condemn the test and call on North Korea to return to the six-party talks. UNSCR 1718 invoked Chapter VII of the United Nations Charter—but barred military enforcement that could be allowed under Article 41—to require member states to:
prevent the direct or indirect supply, sale, or transfer to North Korea of conventional weapons, spare parts, delivery systems, or related items as identified by the newly established Committee of the U.N. Security Council; prevent the direct or indirect supply, sale, or transfer to North Korea of luxury goods; cease the procurement from North Korea of any conventional weapons, spare parts, delivery systems, or related items as identified by the newly established Committee of the U.N. Security Council; prevent the transfer to/from North Korea of training, advice, services, or assistance related to the provision, manufacture, maintenance, or use of such weapons or systems; freeze the assets and funds of individuals identified by the Committee of the U.N. Security Council "as being engaged in or providing support for, including through other illicit means, DPRK's nuclear-related, other weapons of mass destruction-related and ballistic missile-related programmes, or by persons or entities acting on their behalf or at their direction ... ," but with significant exceptions; prevent the entry into or transit through a territory of any person, or family member of such a person, designated by the Committee of the U.N. Security Council "as being responsible for, including through supporting or promoting, DPRK policies in relation to the DPRK's nuclear-related, ballistic missile-related and other weapons of mass destruction-related programs ... ," but with exceptions; prevent illicit trafficking in nuclear, chemical, or biological weapons, their means of delivery, and related materials, by engaging in "cooperative action including through inspection of cargo to and from the DPRK ... "; and "intensify ... diplomatic efforts, o refrain from any actions that might aggravate tension and to facilitate the early resumption of the Six-Party Talks ... " with a view to implement the September 19, 2005 agreement.
The U.N. Security Council, in UNSCR 1718, also demanded that North Korea:
not conduct further tests of nuclear weapons or ballistic missiles; resume its self-proclaimed missile moratorium; abandon its pursuit of nuclear weapons capability; rejoin the Treaty on the Non-Proliferation of Nuclear Weapons; return to IAEA safeguards and inspections; abandon any other program in pursuit of weapons of mass destruction capability; cease the export of all conventional weapons, spare parts, delivery systems, or related items as identified by the newly established Committee of the U.N. Security Council; and return to the six-party talks to work toward the implementation of the September 19, 2005, agreement.
Member states of the United Nations are left to work within their own laws to implement the UNSCR 1718 (2006). Secretary of State Rice traveled to Asia from October 17 to 22, 2006, to meet with senior officials of most of North Korea's major trading partners.
section_title: Overall State of Relations
paragraphs: Since 2004, North Korea has maintained that it would consider any imposition of sanctions under the auspices of the United Nations an act of war. On October 17, 2006, a spokesperson from North Korea's Foreign Ministry was credited with stating: "It is quite nonsensical to expect the DPRK to yield to the pressure and threat of someone at this time when it has become a nuclear weapons state.... The DPRK wants peace but is not afraid of war."
While few states have fully normalized relations with North Korea, only the United States has, until North Korea's nuclear test, maintained fairly comprehensive economic sanctions against that country since the 1950-53 conflict. Indeed, in 2002 some analysts proffered that North Korea's coyness about its nuclear weapons pursuits was calculated, in part, to increase pressure to remove the remaining U.S. sanctions—particularly those associated with its designation as a supporter of international terrorism. A desire for increased economic assistance, normalization of economic and diplomatic relations, and a nonaggression pact between North Korea and the United States might also be motivating factors.
In response to the nuclear program start-up in 2002, and other foreign relations matters pending between the various neighboring states and North Korea, and without a U.N. Security Council resolution, North Korea's trading partners imposed unilateral economic and diplomatic sanctions. For example, Japan suspended rice shipments and later required all ships using its ports to have substantial environmental and accident liability insurance, a cost that few North Korean shippers could likely bear. Japan also has stated that relations between the two countries will not be normalized until North Korea is verifiably denuclearized. In December 2002, Japan, South Korea, and the United States suspended oil shipments promised under the 1994 Agreed Framework. Australia delayed opening an embassy in Pyongyang, originally scheduled to open by mid-2003, until the nuclear weapons issue is resolved. Reportedly in 2003, China briefly shut off deliveries through its oil pipeline to North Korea to pressure North Korea to join the first round of six-party talks, though subsequently declined to take this step a second time.
The new economic sanctions mandated by the United Nations barely tax the United States economy because of its relative lack of economic engagement with North Korea. North Korea's neighbors—China, Japan, and South Korea—however, conduct ever-increasing trade with North Korea, and account for 78.7% of North Korea's exports. In 2005, trade between North Korea and South Korea exceeds $1 billion. Trade with China, Thailand, and Japan account for 48.4% of North Korea's imports. Trade between China and North Korea nearly doubled between 2002 and 2004, to $1.39 billion. Trade between North Korea and Russia skyrocketed from $80.7 million in 2002 to $218.4 million in 2004. Efforts to isolate and contain the country would require some economic sacrifice from all of North Korea's trading partners. The economic and social costs to North Korea, on the other hand, could be enormous, as it has come to rely on South Korea and China for food and energy, and in times of crisis has relied on all the six-party talk participants—including the United States—for substantial food aid and fuel oil shipments. One concern far greater than trade loss, of course, at least for North Korea's geographic neighbors, is that severe economic restrictions push the country and its government toward failure and collapse.
Following a North/South summit in 2000, South Korean companies began to invest in an industrial zone along the North Korea-South Korea border, in part to alleviate South Korea's domestic labor shortage. The industrial zone in Kaesong (Gaesong) hosts 15 South Korean businesses overseeing and financing the productions of garments and kitchenware, and is subsidized by the South Korean government. North Korea, after years of negotiation with South Korea, enacted a law in November 2002 to guarantee visa-free access and corporate tax incentives to encourage cross-border development and investment. It is likely that North Korea sees benefits in South Korea's Sunshine Policy of greater engagement, inasmuch as its own gross domestic product (GDP) per capita at $1,000 pales to that of $18,000 in South Korea. While the goods, services, and materials that cross the North/South border to support Kaesong or as Kaesong's output would not be subject to the U.N. sanctions—because the goods and services, at this time, do not have a military application—a debate has emerged within South Korea as to the wisdom of continuing inter-Korean ties. South Korea's Choo Kyu-ho, spokesperson for the Foreign Ministry, stated after the U.N. Security Council vote: "We judged that the contents of the resolution of the U.N. Security Council do not directly affect the economic cooperation programs between the two Koreas, including Kaesong and Kumgang Mountain. We will go ahead with the economic cooperation programs in harmony with the resolution." It is reported that inter-country cooperation at the Kaesong Industrial Complex generates about $0.6 million each month in wages in North Korea, of which the government takes some cut. Another South Korean project in North Korea, a tourist resort at Mount Kumgang (Geumgang), generates some $1.0 million each month for the north.
section_title: U.S. Economic Sanctions Currently In Place
paragraphs: Because of what has been found to be a demonstrated threat to U.S. national security, support of international terrorism, maintenance of a communist, nonmarket economy, engagement in the proliferation of weapons of mass destruction, and illicit use of currencies, U.S. law authorizes the President to restrict trade, aid, arms sales and arms transfers to North Korea, and that country's access to assets held under U.S. jurisdiction.
subsections: section_title: Trade
subsections: section_title: National Emergency Because of Threat to U.S. National Security
paragraphs: Three days after North Korea's Armed Forces launched a full-scale invasion of South Korea in June 1950, the United States invoked a total embargo on exports to North Korea. The Department of Commerce imposed the most restrictive export controls available against North Korea. Over the years, export controls were restated as the Export Administration Regulations, or EARs. In 1965, for example, the EARs were revised to sort countries into categories of relative restriction; North Korea was classified as a member of Country Group Z, the most restricted lot.
In 1989, the EARs were again modified to allow the export to North Korea of commercially-supplied goods intended to meet basic human needs. The regulations stipulated that shipments would require validated licenses on a case-by-case basis.
In 1995, as part of the United States' engagement of North Korea under the 1994 Agreed Framework, and again in September 1999, in response to North Korea's willingness to cease missile testing, President Clinton announced the lifting of most export restrictions applied to that country. Regulations issued in June 2000 amended the EARs to reflect North Korea's new relatively unfettered status. Many items that previously had required a license were now eligible for export without a license; certain items on the Commerce Control List (CCL) moved from a policy of denial status to case-by-case review. Departments issuing the new regulations, however, stated that "[t]his easing of sanctions does not affect U.S. anti-terrorism or nonproliferation export controls on North Korea, including end-user and end-use controls maintained under the Enhanced Proliferation Control Initiative."
Today, the remaining export restrictions against North Korea include a range of terms related largely to that country's place on the State Department's list of state supporters of international terrorism. Thus, items that are controlled for national security concerns generally are not available to North Korea. The country is on the most restrictive list—Country Group E—which severely limits its access to computers, software, national security-controlled items, items on the CCL, and service or repair of such items. North Korea also is limited as an end-user by some licenses because it is a communist state, though this problem can be overcome by license exceptions issued by the Department of Commerce.
The President currently has authority to ease export restrictions imposed against North Korea. Even if considered a supporter of international terrorism, licensing exceptions may be considered by the Commerce Department. To lift all the export controls applied to North Korea, that country would, at a minimum, have to be removed from the list of countries supporting acts of international terrorism maintained by the State Department pursuant to section 6(j) of the Export Administration Act of 1979. The President holds the authority to make such a change in the sec. 6(j) list.
section_title: Terrorism
paragraphs: Following the November 29, 1987, destruction of Korean Air Lines 858, in flight, by a bomb reportedly planted by two North Korean agents, Secretary of State George Shultz placed North Korea on the list of countries supporting international terrorism. Most elements of trade, Beneficiary Developing Country status, sales of items on the U.S. Munitions List, most foreign aid, Export-Import Bank funding, and support in international financial institutions are denied to countries found to be supporting international terrorism under the Export Administration Act of 1979. North Korea was added to the list effective January 20, 1988. Placement on the sec. 6(j) list not only results in the constriction of trade possibilities; placement also may trigger denial of beneficial trade designation (NTR or GSP), unfavorable tax status for investors, new limits on diplomatic relations, opposition in international financial institutions, and stricter licensing requirements for trade with the United States in food and medicine.
Following the easing of sanctions that pertained to trade, travel, and related transactions in 2000, there was some speculation that North Korea would be removed from the sec. 6(j) list of state sponsors of terrorism. North Korea was particularly interested in changing its status so that it could effectively apply for membership in the World Bank and the International Monetary Fund. The United States is required by law to oppose membership in the international financial institutions of, or financial support to, terrorist states. The United States discussed the matter with South Korea and Japan in 2000. South Korea supported North Korea's bid for this step toward normalization; Japan opposed a change in status until the matter of kidnaped Japanese citizens was resolved. North Korea remains on the United States' sec. 6(j) list.
North Korea is also among those countries listed as being in violation of section 40A of the Arms Export Control Act, which prohibits the selling or licensing of defense articles or defense services to any country that the President finds "is not cooperating fully with United States antiterrorism efforts." The President is required to make such a determination annually, and the prohibition may be waived on grounds that it is in the national interest to do so.
section_title: Nonmarket State
paragraphs: The Trade Agreement Extension Act of 1951 required the suspension of Most-Favored-Nation trade status (which has since been replaced by Normal Trade Relations status) for all communist countries except Yugoslavia. As a result, North Korea was denied MFN trade status on September 1, 1951.
North Korea remains listed in the headnotes of the Harmonized Tariff Schedule of the United States (HTSUS) as a Rate of Duty Column 2 country (along with Cuba). As a result, while trade is not prohibited with North Korea under the relevant trade laws, tariffs are set at the highest rates for imports from that country. A side result of being denied MFN or NTR is that any such country is also denied preferential trade treatment under the Generalized System of Preferences (GSP), pursuant to the Trade Act of 1974.
section_title: Proliferator
paragraphs: On several occasions, North Korean entities have been found to be in violation of U.S. missile nonproliferation laws. Once a finding is made, the imposition of sanctions is mandatory, though sanctions may be waived if the President finds it "essential to the national security of the United States" to do so. The severity of the sanction depends on the type of material or technology transferred. The duration of the sanction also depends on the material or technology involved; generally sanctions are imposed for two years.
Sanctions include, at a minimum, a denial of contracts with agencies of the U.S. government, denial of licenses for items on the U.S. Munitions List (USML), and, at a maximum, a denial of all licenses for importing into the United States for the foreign person or entity.
Because North Korea is a nonmarket economy, all relevant activities of the government of North Korea are also sanctioned when entities in North Korea are found to have engaged in proliferation under U.S. law.
With the nuclear weapons test of October 8, 2006, the President has statutory authority—and in some cases is required—to cut off all foreign aid except humanitarian and food aid, deny sales or transfers of defense articles and defense services, deny export licenses for items on the U.S. Munitions List (USML), deny foreign military financing, deny credit underwritten or provided by government coffers, withhold U.S. support in the international financial institutions, deny export licenses for dual-use items, and withhold Export-Import Bank support. The United States already maintained a fairly comprehensive sanctions regime on North Korea, thus most of these relationships were already broken or limited.
section_title: Aid
subsections: section_title: Terrorism
paragraphs: Because the Secretary of State has identified the government of North Korea as a state sponsor of acts of international terrorism, it is denied most aid under the Foreign Assistance Act of 1961. North Korea's access to U.S. foreign assistance is also limited in annual foreign operations appropriations measures. In most instances, it is not expressly stated that the restriction or prohibition is associated with North Korea's place on the terrorist list. Even if the appropriations law prohibits the availability of foreign aid, there are numerous exceptions to the law. Thus, programs in nonproliferation, demining, child survival, conservation and biodiversity, food aid, debt buybacks, health and disease prevention, unanticipated contingencies, international disaster assistance, antiterrorism, may be funded or supported in spite of country-specific restrictions.
Under the current Foreign Operations, Export Financing, and Related Programs Appropriations Act, North Korea is denied direct foreign aid and direct loans, credits, insurance and guarantees of the Export-Import Bank. In the same Act, supporters of international terrorism, of which North Korea is one, are denied bilateral assistance and participation in programs designed to provide debt relief to the poorest nations.
Under the current Department of Defense Appropriations Act, North Korea is denied assistance "unless specifically appropriated for that purpose."
At the President's discretion, North Korea would also be subject to the economic sanctions provided in three provisions of law addressing human rights conditions: the Foreign Assistance Act of 1961, under which North Korea is annually castigated for its human rights record; the International Religious Freedom Act of 1998, under which the administration has identified North Korea as a "country of particular concern" since 2001; and the Trafficking Victims Protection Act of 2000, under which the administration has, since 2003, classified North Korea as a Tier 3 (most severe) offender of standards pertaining to the trafficking of persons for slavery or sex trade. Any sanctions imposed pursuant to these acts would be largely redundant, however, with penalties already prescribed to North Korea for the above-stated reasons.
section_title: Nonmarket State
paragraphs: The Export-Import Bank Act of 1945 also singles out Marxist-Leninist countries for denial of guarantees, insurance, credit, or other Bank funding programs. North Korea is specifically cited as a Marxist-Leninist country for purposes of the Export-Import Bank.
The Foreign Assistance Act of 1961 denies most non-humanitarian foreign assistance to any Communist country. North Korea is among five countries so designated, though the law is not limited to those countries named.
Several laws deny benefits or assistance to communist countries, but do not explicitly name any particular state. Because North Korea has been denied such benefits or aid in the course of the events of the early 1950s and thereafter, these other sections of law would probably be redundant if applied to or cited for North Korea.
In some instances, the President may determine that, for purposes of a particular law, North Korea is no longer a "Marxist-Leninist state." If, however, all other aspects of the U.S.-North Korea relationship were to improve, it would probably be necessary for Congress to remove North Korea from the list set out in the Export-Import Bank Act and the Foreign Assistance Act of 1961, or necessary for the President to exercise waiver authority made available to his office under those Acts, to make these other laws inapplicable to North Korea.
section_title: Arms Sales and Arms Transfers
paragraphs: The International Traffic in Arms Regulations (ITAR), administered by the Department of State, begins:
It is the policy of the United States to deny licenses and other approvals for exports and imports of defense articles and defense services, destined for or originating in certain countries. This policy applies to Belarus, Cuba, Iran, Libya, North Korea, Syria and Vietnam. This policy also applies to countries with respect to which the United States maintains an arms embargo (e.g., Burma, China, Liberia, Somalia, and Sudan) or whenever an export would not otherwise be in furtherance of world peace and the security and foreign policy of the United States.
The first ITAR was issued on August 26, 1955; North Korea has been listed as a restricted country from the ITAR's inception. The ITAR further states that any country found to be a supporter of international terrorism is subject to the ITAR prohibitions and those stated in section 40 of the Arms Export Control Act, which denies the export, directly or indirectly, of any munitions item, lease or loan, credits, guarantees, or other financial assistance to a terrorist country. Section 40 further prohibits U.S. individuals from engaging in such trade or support of such a country.
Importing of defense articles and defense services is similarly restricted by the Department of the Treasury's Bureau of Alcohol, Tobacco, and Firearms, the regulations of which state:
It is the policy of the United States to deny licenses and other approvals with respect to defense articles and defense services originating in certain countries or areas. This policy applies to Cuba, Iran, Iraq, Libya, Mongolia, North Korea, Sudan, Syria, Vietnam, and some of the states that comprised the former Soviet Union (Armenia, Azerbaijan, Belarus, and Tajikistan). This policy applies to countries or areas with respect to which the United States maintains an arms embargo (e.g., Burma, China, the Federal Republic of Yugoslavia (Serbia and Montenegro), Haiti, Liberia, Rwanda, Somalia, Sudan, UNITA (Angola), and Zaire). It also applies when an import would not be in furtherance of world peace and the security and foreign policy of the United States.
Again, the President has the authority to change these regulations by removing North Korea from the list of restricted countries.
section_title: Access to Assets
subsections: section_title: Declaration of National Emergency
paragraphs: On December 16, 1950, President Truman invoked authority granted his office under the Trading With the Enemy Act to declare that a U.S. national emergency existed because of recent events in Korea (and elsewhere, as "world conquest by communist imperialism is a goal of the forces of aggression that have been loosed upon the world"). A few days later, the Department of the Treasury issued Foreign Assets Control Regulations (FACR) to forbid any financial transactions involving, or on behalf of, North Korea and China, including transactions related to travel or the access to North Korean assets that were subject to U.S. jurisdiction. Korea-related FACR have been modified on numerous occasions to take into consideration new circumstances (i.e., transactions relating to technology not in existence at the time the regulations were issued) or to ease restrictions in response to changing conditions (i.e., signing of the Agreed Framework, emerging reports of famine, North Korea's announced moratorium on missile testing). Today the regulations continue to forbid transactions except in the following instances, in which the regulations:
unblock assets of North Koreans who emigrated and established U.S. residency (1976) (41 F.R. 16554); ease travel-related restrictions for special activities (1989) (54 F.R. 5231); allow freer flow of informational materials (change in legislation not specifically targeting North Korea, 1989) (54 F.R. 5231; subsequently amended); establish telecommunication between the two countries (1992) (57 F.R. 58986; subsequently amended); authorize travel-related transactions, greater telecommunications, news bureaus, banking, and importing magnesite from North Korea after the Agreed Framework was reached (1995) (60 F.R. 8934); authorize donations targeting basic human needs after flooding and famine events (1996) (61 F.R. 9344); authorize certain aviation-related fee payments (1997) (62 F.R. 17548); allow transactions related to the exporting of computer hardware and software, provided there is adherence to the relevant Export Administration Regulations (2000) (65 F.R. 38165); allow North Koreans to invest in property under U.S. jurisdiction, provided the property interest is created on or after June 19, 1999 (the date of President Clinton's announcement to ease U.S.-North Korea relations) (2000) (65 F.R. 38165); allow imports from North Korea that do not violate various proliferation laws and regulations (2000) (65 F.R. 38165); and engage in transactions with the government of North Korea provided those transactions do not constitute a donation to a U.S. individual and do not violate laws and regulations relating to terrorism (2000) (65 F.R. 38165).
Generally, the President has the authority to change regulations, as long as those changes meet the requirements of any relevant law. He also annually renews the state of national emergency, in place against North Korea since 1950. He could allow the declaration to expire or he could lift it at any time. Congress could terminate a declaration of national emergency by passing a joint resolution, under terms of the National Emergencies Act.
section_title: Proliferation of Weapons of Mass Destruction
paragraphs: On June 28, 2005, President Bush expanded the authority granted his office to address the threat posed by the proliferation of weapons of mass destruction—authority first exercised by President George H.W. Bush in 1990—to freeze assets and property of those engaged in the proliferation of weapons of mass destruction. The 41 st President had declared that the United States faced a national emergency relating to weapons proliferation (in the absence, at the time, of a reauthorized Export Administration Act), and thus took steps in 1990 to control the exports of certain goods and services, and authorized a ban on foreign aid and credit, procurement contracts, imports and exports, support in international financial institutions, and landing rights. The 43 rd President's order took additional steps to block property and assets under U.S. jurisdiction of any person found, in part—
... to have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern;
... to have provided, or attempted to provide, financial, material, technological or other support for, or goods or services in support of, any activity or transaction described [above] ... or any person whose property and interests in property are blocked pursuant to this order ...
The Executive Order identifies eight foreign entities, of which three are North Korean. Department of the Treasury's Office of Foreign Assets Control has subsequently added another eight North Korean entities to this restricted list, as well as a Swiss company that was found to engage in transactions with one of the North Korean restricted companies.
On January 9, 2007, the Department of the Treasury announced that it had designated Bank Sepah, a state-owned Iranian financial institution, as an entity materially contributing to Iran's proliferation activities. Bank Sepah, coincidentally, according to Treasury, is credited with transferring more than $500,000 for an associate of the Korean Mining Development Corporation. That entity was cited on December 28, 2006, under the Iran, North Korea, and Syria Nonproliferation Act of 2000, for exporting missile technology to Iran.
section_title: Counterfeiting and Money-Laundering
paragraphs: On September 12, 2005, the Treasury Department found that Banco Delta Asia—a Macau-based bank in which North Korea had substantial holdings—was a "financial institution of primary money laundering concern." Treasury Department's Financial Crimes Enforcement Center found that North Korea may reap as much as $500 million annually from counterfeiting, and another $100-to-$200 million annually from narcotics trafficking. The finding authorizes the Secretary of the Treasury to require "special measures" on the part of U.S. financial institutions and financial agencies that involve increased record keeping and reporting on Banco Delta Asia's transactions. Though the Department of the Treasury has only issued a "proposed rulemaking" to impose the most stringent fifth special measure—to prohibit certain bank transactions—a regulation implementing this action has not yet been issued. Nonetheless, the finding and proposed rulemaking has had a chilling effect on Banco Delta Asia's international business relations. Department of the Treasury officials have testified that "some two dozen financial institutions across the globe have voluntarily cut back or terminated their business with North Korea, notably including institutions in China, Japan, Vietnam, Mongolia, and Singapore. The result of these voluntary actions is that it is becoming very difficult for the Kim Jong-Il regime to benefit from its criminal conduct."
Appendix A. Other CRS Products Relating to North Korea
Overview
CRS Report RL33567, Korea-U.S. Relations: Issues for Congress , by [author name scrubbed].
CRS Report RL33389, North Korea: A Chronology of Events in 2005 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].
CRS Report RL32743, North Korea: A Chronology of Events, October 2002-December 2004 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].
CRS Report RL32493, North Korea: Economic Leverage and Policy Analysis , by [author name scrubbed] and [author name scrubbed].
Proliferation
CRS Report RL33709, North Korea's Nuclear Test: Motivations, Implications, and U.S. Options , by [author name scrubbed] and [author name scrubbed].
CRS Report RL33590, North Korea ' s Nuclear Weapons Development and Diplomacy , by [author name scrubbed].
CRS Report RS21391, North Korea ' s Nuclear Weapons: Latest Developments , by [author name scrubbed].
CRS Report RS21582, North Korean Crisis: Possible Military Options , by [author name scrubbed].
CRS Report RS21473, North Korean Ballistic Missile Threat to the United States , by [author name scrubbed].
CRS Report RL31900, Weapons of Mass Destruction: Trade Between North Korea and Pakistan , by [author name scrubbed].
Counterfeiting, International Narcotics Control
CRS Report RL32167, Drug Trafficking and North Korea: Issues for U.S. Policy , by [author name scrubbed].
CRS Report RL33324, North Korean Counterfeiting of U.S. Currency , by [author name scrubbed].
Foreign Aid
CRS Report RS21834, U.S. Assistance to North Korea : Fact Sheet , by [author name scrubbed].
CRS Report RL31785, Foreign Assistance to North Korea , by [author name scrubbed].
Appendix B. North Korea—Economic Sanctions Currently Imposed in Furtherance of U.S. Foreign Policy or National Security Objectives
Appendix C. North Korean Entities Cited for Proliferation Activities Under U.S. Law