North Korea as a Complex Humanitarian Emergency (Summary)

The Complex Humanitarian Emergency in North Korea: Government Collapse, Food Insecurity, and Cybercrime Financing

Marcus NOLAND:
A complex humanitarian emergency is typically characterized by government collapse, internal strife, and widespread suffering, often requiring external intervention for stability and development, such as the situations in Haiti and Afghanistan.

North Korea is a unique humanitarian emergency in that it is characterized by chronic population suffering and high death rates, but unlike Haiti and Afghanistan, it is not occurring in a collapsed state. Unlike these traditional emergencies, the emergency in North Korea is occurring within a state that is very effective in achieving its objectives, but those objectives do not prioritize the welfare of the average citizen, highlighting the complexity of such emergencies. The situation is further complicated by North Korea’s belligerence and the resultant imposition of economic sanctions.

The review aims to analyze the evidence concerning food insecurity in North Korea, focusing on quantity and price evidence analysis. It will also touch upon the legal and institutional changes taking place in the country.

In socialist countries, food insecurity and death are politically determined, while in market economies, access to food is determined by the ability to command resources in the marketplace. North Korea’s famine in the 1990s shifted from a socialist famine to a market-based famine. Legal and institutional changes are shifting the food economy back to a state-controlled economy.

Context
North Korea has embraced nuclear weapons and is therefore under some UN Security Council resolutions, initially targeting luxury goods and arms. Since 2017, sanctions have broadened, affecting large parts of the North Korean economy and affecting the public, as the country began nuclear tests and intercontinental ballistic missile tests.

Russia and China prevent further actions by the UN Security Council due to international diplomatic changes and so despite North Korea launching many missiles recently, no additional sanctions or resolutions have been imposed. The UN’s ability to act will be tested if North Korea conducts a seventh nuclear test. Sanctions evasion is becoming more focused on cyber activities.

Where does their funding come from? They have a large military and conduct nuclear and missile testing. It is unclear how they can afford it since their exports are limited and even with their evasion of some sanctions, the money does not add up. In the past, they relied on illegal revenue streams like counterfeiting and drug trafficking. However, efforts have been made to stop these sources of money, and it seems they still don’t generate enough funds for their military programs.

North Korea’s cyber-oriented criminal activities are increasing, aided by the rise of cryptocurrencies. Cryptocurrencies enable easier laundering of funds gained through cybercrime. Chainalysis estimates 2022 revenue at $1.7 billion, but some believe this estimate is low. Deputy National Security Advisor Neuberger claims cybercrime is financing up to a third of the missile program. A claim that cybercrime accounts for 40% of gross domestic product is also circulating in Washington. The exact source of this figure remains unknown.

North Korea faced severe economic challenges after additional sanctions imposed in 2017 and the self-isolation policy it adopted during COVID-19. To address this, they closed their borders and cut off international trade. In April 2020, they ran out of money and issued a large volume of national bonds, followed by issuing scrip, a promissory note from the government. This method trades at a discount to actual money, similar to the U.S. during the Great Depression when state governments paid employees in government notes, which was accepted by some, but not all merchants.

Through a series of political meetings, there has been a shift towards a more state-centered economy. North Korea has experienced cycles of liberalization and restriction in the economy, and currently, they are in a period of restriction. At the eighth Workers’ Party of Korea Congress in January 2021, there was a call to revive heavy industry and recentralize the economy. They have also implemented crackdowns on procedures and institutions that allowed market-oriented behavior by North Korean enterprises and households. In North Korean economics, there are some unusual terms that are used, including waku and kiji, which were Japanese terms describing institutions that were originally developed for a different purpose, but have been adapted for market-oriented activities. For example, if a company has a quota under the state system, they might be able to use the quota to trade goods outside their stated purview to engage in trade of other goods. However, the government has been cracking down on these activities.

North Korea’s troubled food economy and the impact of global factors

In 2021, there were signs of trouble in North Korea’s food economy, including Kim Jong Un’s referencing the 1990s famine known as the Arduous March, which caused significant loss of life. Agriculture-focused meetings and reports of hunger-related deaths were also reported. One promising fact is that since the COVID-19 pandemic is largely over, North Korea is reopening its borders and increasing trade.

However, recent laws have increased the government’s control over grain procurement and distribution to the populace. Previously, cooperative farms were allowed to sell surplus food in the market, which was the primary source of food for most North Koreans. A previous rationing system called the public distribution system collapsed in the late ’80s and early ’90s and is now accessible only to certain elites, such as party members and nuclear facility personnel. The majority of the population now obtains their food from local markets.

North Korea has removed the ability of cooperative farms to sell their food to the public, directing it to the state for centralized distribution. The state channels the food into state markets with a small subsidy component and restrictions on household purchases. This shift in the food economy has changed the nature of food insecurity once again, as priority for receiving food is based on the citizen’s political importance rather than their ability to utilize resources within the market.

There are three sources available for measuring the food production capacity of North Korea. The UN’s Food and Agricultural Organization (FAO) employs a grain balance methodology, focusing on domestic availability, and particularly in North Korea, where two-thirds of its food is produced locally, the domestic harvest is of particular importance.

The FAO also assesses total utilization of food, including human consumption, feed use for livestock, seed requirements, post-harvest losses, and inventory. They examine imports and aid and then calculate an uncovered deficit. However, uncertainties exist in these components, particularly in terms of production and consumption. Data on food production is available from the FAO itself, the South Korean Rural Development Administration, and the U.S. Department of Agriculture. These sources differ in their findings. For my findings, the composition of grain, including rice, corn, barley, etc., has been defined in a consistent manner over time, enabling the comparison of these three sources.

After comparing the three sources, it is evident that the FAO has different findings.

The FAO has advantages in that it actually visits cooperative or state farms in North Korea, allowing them to observe on-the-ground activities. However, this diplomatic relationship requires them to take North Korean authorities’ statements seriously. The FAO’s figures show greater volatility, higher during good times and lower during bad times. Some believe this reflects North Korea’s decisions to both exaggerate accomplishments and maximize aid inflows when favorable by making it appear as bad as possible.

The U.S. and South Korea do not have direct access to the country, so they use satellite imagery to estimate production and maintain model farms in border regions. These two series are closely aligned and show less volatility, possibly due to less volatile actual output or human nature as they might avoid stating figures that are too high or too low, based on their limited information.

Australian economist Heather Smith critiqued the FAO and WFP’s methodology for estimating human consumption in North Korea in the late 1990s, stating they overestimated the role of grains in the diet by 20%.

Based on these different sources of data for grain production and consumption, we developed a graph comparing the two estimates. According to the FAO-based estimate North Korea would be faced with almost continuous famine, with only 2 out of the last 25 years in a grain surplus, meaning that the UN figures are highly unlikely to be reliable. Compared with an estimate based on the U.S. and South Korean data results in a much more plausible scenario. Production starts with a large deficit in the mid-90s during the famine, but with aid, it goes into surplus. As aid declines, North Korea occasionally gets into trouble again. When grain prices are high, countries like China do not supply as much as they worry about domestic consumption and domestic prices.

Based on the U.S. and South Korean data, North Korea is currently experiencing a grain deficit of around 400,000 metric tons in the year before last year, and last year was possibly worse. Although there are estimates of grain coming in via China, the volume doesn’t seem large enough to make a significant difference. This seems to be the largest deficit North Korea has experienced since the 1990s famine period.

In examining prices, there are two sources of data: DailyNK, a press group run by North Korean refugees in Seoul, and AsiaPress, a Japanese news outlet based in Osaka. DailyNK reports data for three cities, while AsiaPress primarily comes from North Hamgyong Province. I will share data for corn, rice and the parallel exchange rate market. There is a pattern of price increase after the border closure in January 2020, particularly in corn, and evidence of increased volatility of prices and increased dispersion of prices across cities.

When assessing stress in North Korea, the corn-to-rice price ratio is relevant. A rising corn price relative to rice suggests distress, as households with limited funds switch to corn from rice. This trend emerged after the border closure. However, this finding is complicated by the global rise in corn prices compared to relatively stable rice prices over that same period. This makes it challenging to determine whether the effect stems from North Korean distress or global market factors.

Exchange rates correlate strongly across data sources and cities, more so than grain prices. Money’s price differences are easier to exploit than physical goods. Prices are highly correlated across cities, and there’s evidence of cross-city price dispersion post-border closure. Historically, North Korea’s domestic food market saw narrowing price differences, signaling a unified national market, but this trend seems to have reversed. Food prices in North Korea are high and rising, worsened by the pandemic and war. The border closure is a significant factor. The war has inflated global prices, strengthened China, Russia, and North Korea’s ties, and raised concerns about North Korea’s role in supplying arms and possibly personnel for Russia’s Ukraine war efforts, hinted at in recent meetings involving food, energy, and military technology exchanges for arms tied to Ukraine.

The complex challenges and contradictions of North Korea

Likely scenarios in the short term involve muddling through, weakened sanctions, acceptance of North Korea as a nuclear power, and a “levitating” economy funded by cybercrime, as their expenditures are much greater than their legitimate revenue. In the long term, there are concerns about attitudes in South Korea and Japan, the possibility of collapse and absorption, and the potential for North Korea to embrace reform. The international environment is supporting the current suboptimal policies with China and Russia’s backing. However, Kim Jong Un’s youth may push him to take more decisive action towards a more peaceful future.

Eric Schmidt visited Pyongyang when he was the Executive Chairman of Google, but was not allowed to meet with Kim Jong Un and instead was sent to an unheated room to observe a soldier looking at a computer monitor. In contrast, when the retired American basketball player Dennis Rodman visited, he had plenty of time to entertain him. These experiences reveal Kim Jong Un’s values, priorities, and leadership qualifications, or lack thereof.

In conclusion, the humanitarian emergency in North Korea is exacerbated by changes in the food economy, leading to the greater risk of politically driven increases in food insecurity mirroring the 1990s famine. China and Russia are providing external support, allowing North Korea to maintain its contradictory policies. The country’s struggle is likely to be costly to its population.

Comment

North Korea’s political will hinders COVID-19 vaccine acceptance and contributes to humanitarian crisis

FURUKAWA Katsuhisa:
While working for an NGO in Vienna during the COVID-19 pandemic, I was part of the effort to help North Korea to deal with the COVID-19 pandemic through provision of vaccines or other therapeutics. The DPRK declined the WHO’s offer of COVID-19 vaccines after an initial report of side-effects to the AstraZeneca vaccine.

Several months later, the public health community gathered substantial information about AstraZeneca vaccine’s side effects, identifying high-risk individuals and those who should avoid it. While AstraZeneca vaccines were widely administered globally, North Korea still refused the vaccine due to the reluctance of decision-makers in Pyongyang. According to a public health expert in the WHO community who is familiar with the situations in the DPRK, no one in the channel of the country’s decision-making process apparently continued to refuse to take the political responsibility associated with the vaccine’s side effects. This prolonged refusal to accept vaccines resulted in the extended closure of North Korea’s borders, contributing to the food insecurity issue.

The future direction of North Korea: Economic control and resource allocation

Considering North Korea’s future direction, two key factors are crucial: control over economic activities and resource allocation between civilian and military sectors. In recent years, there has been a notable trend of increased control over economic activities, especially during the pandemic. The focus shifted from profit-making to allocating limited resources to meet specific policy objectives defined by the Workers’ Party of Korea, particularly when the border was closed.

Mr. Kim Jong Un’s recent speech in the Supreme People’s Assembly suggests a return to past efforts to reform North Korea’s unique style of economic reform. However, it’s important to note that North Korea’s definition of reform differs from ours and primarily involves procedural and systemic improvements. The question remains whether North Korea is genuinely inclined to undertake more substantial reform actions. To assess this, North Korea’s broader national and external strategic direction should be examined.

North Korea’s national strategy has shifted since last year, particularly after Russia invaded Ukraine. Previously, since the Cold War the national strategy focused on economic reform and normalizing relations with the U.S. However, North Korea’s statements, particularly since last year, have emphasized confidence in their ability to save their economy despite hardships and border closures without assistance from the U.S. and other countries. They now feel more confident in carrying out economic policies independently, while the U.S.’s relative weight or importance for North Korea’s economic reform seems to have diminished.

China and Russia recently issued a joint statement declaring their pursuit for a multipolar world and an end to U.S. hegemony. North Korea has adopted similar terminology, suggesting that its long-term grand national strategy of economic reform and normalizing relations with the U.S. has been suspended or abandoned. This shift towards reliance on China and Russia may result in North Korea’s nuclear posture being shaped to acquire war-fighting capabilities, which would require significant state resources to modernize and maintain its military sectors.

Kim Jong Un faces a critical question: can he secure enough resources to pursue previous economic reform efforts? Cyberattacks have become a new revenue source for North Korea, but will they hinder internal efforts to liberalize or deregulate procedures under the party’s tight control? This is a significant concern. While the U.S. Department of Agriculture reported favorable grain harvest conditions in North Korea, food shortages persist. These shortages are not solely due to natural conditions but also systemic issues.

Marcus NOLAND:
We face a political and moral/ethical conundrum as the North Korean government’s values are orthogonal to the U.S. and others, and the outside world may have no leverage to influence their actions. Removing sanctions may lead to a more efficient North Korean economy, but this may not necessarily result in greater food imports or food for the citizenry. The core of the issue is how to deal with a regime that appears unaccountable, whether it’s in the food economy or nuclear issues.

Q&A

Q:
Stopping food exports to North Korea does not appear to be effective; however, what kind of embargo in what kind of products, do you believe would be effective against North Korea?

Marcus NOLAND:
Sanctions haven’t worked. North Korea closed its own borders, severing international trade and in 2023, Russia and China are enabling North Korea, with Russia clearly violating the earliest sanctions which banned the import of North Korean arms. A more effective approach may involve targeting cybercrime and cryptocurrency laundering to cut North Korea’s military funding, as broader sanctions won’t work without Chinese and Russian enforcement.

On the humanitarian front, there are reforms to the sanctions’ regime that could minimize their impact on essential humanitarian goods. Simplifying the process for relief agencies to provide food and vital medical supplies in North Korea is essential. There must be clarification as to what is permissible and what’s not within the sanctions’ framework. However, the primary focus should shift towards addressing cyber and cryptocurrencies since tightening trade sanctions on goods won’t be effective given the current political situation.

Q:
Are there effective ways and measures to deal with these cyberattacks and cryptocurrency problem?

Marcus NOLAND:
Better coordination between national and private authorities to combat counterespionage could work. The United States government is imposing sanctions on cryptocurrency laundering sites that make it difficult to trace transactions. However, shutting down these sites is challenging. A more effective multilateral approach might yield better results.

FURUKAWA Katsuhisa:
The United Nations has not enforced any embargo on humanitarian-related activities for North Korea. When a humanitarian NGO needs to transport dual-use items into the DPRK for humanitarian purposes, there is a procedure in the UN Security Council which clears which items can or cannot be transferred to the DPRK.

UN sanctions regime targets the DPRK’s weapons programs, especially the weapons of mass destruction programs, by terminating the flow and movements of funds, people, goods, and technology related to the DPRK’s weapons programs. Unfortunately, however, the UN sanction regime has failed to curtail these flows and failed to achieve its principal objective.

Strangely, however, China and Russia argue that the UN sanctions regime has hurt North Korea’s humanitarian activities and obstructed the flow of humanitarian goods to the DPRK. This is a strange argument because although the UN sanctions regime has failed to achieve its principal objective and could not prevent the arms-related transfers, China and Russia assert that this regime has somehow successfully prevented the flow of humanitarian goods to the DPRK which is not even an objective of this regime. These two Member States of the UN Security Council have deliberately neglected the facts that there are mechanisms in the UN system for humanitarian NGOs when shipping humanitarian goods to the DPRK. This mechanism has been utilized by the NGOs and UN Member States.

Also, it should be noted that a Russian bank was granted by the UNSC and US government to establish a subsidiary in the DPRK to transfer funds to/from the DPRK so long as the transfers are not related to activities in violation of the sanction measures, but this bank withdrew from the financial services on its own business interests. The sanction regime should not be blamed for the decision by this Russian bank to withdraw from the DPRK market.

North Korea faces financial challenges, and while U.S. financial sanctions have been effective, a UN Security Council resolution allowed Russian banks to operate in North Korea for humanitarian purposes. However, these Russian banks were profit-oriented and exploitive, prompting UN organizations to stop using them, leading to their withdrawal from North Korea. This situation underscores the structural issues within North Korea’s economy, which hampers its internal functioning as people continue to escape from the country.

Effective sanctions against North Korea should address its growing cyberattack industry. To achieve this, international cooperation is crucial, beyond relying solely on the U.S. government and American firms for investigations. Cyber incidents are global, yet investigations are primarily led by the U.S., whose resources are limited. Other governments, including Japan, should take a more active role in leading and participating in responses, especially since major cyber incidents have involved individuals based in Japan as primary actors or suspects.

More sanctions must be imposed on North Korea’s partners in China and Russia. While the U.S., Japan, and South Korea have occasionally sanctioned companies and individuals in these countries, there is a need to do more, particularly after a recent North Korean delegation visit to Russia, which itself was a violation of U.S. sanctions. This delegation included individuals on the UN sanction list who were not supposed to travel outside North Korea. Russia failed to seek approval for exemption from the Security Council and also ignored its obligation to prohibit entry for staff from entities sanctioned by the UN Security Council including military and armament manufacturers. These actions are clear violations of basic UN sanctions. It’s important to note that new Security Council resolutions aren’t necessary; existing resolutions provide legal grounds for all UN Member States to sanction violators. Enforcing financial sanctions, prohibiting transactions, and travel bans against those who violate sanctions is an obligation under the UN Security Council resolutions.

The U.S., Japan, South Korea, and EU countries must work to convince other UN nations to fulfill their duties. Russian military personnel, Ministry of Defense, and President’s office personnel should be prohibited from traveling abroad as it violates the rules. The decision on sanctions depends on each country’s commitment. If they are serious, sufficient necessary legal measures are already in place.

Marcus NOLAND:
In the nuclear field, there is a phrase ‘nuclear breakout’ which refers to a country leaving the non-proliferation regime and starting to build nuclear weapons. Russia seems to be disregarding UN rules, engaging in a ‘UN breakout’. China’s behavior is also questionable. This presents challenges as there is a humanitarian crisis in North Korea, complicated by tensions with them, and a lack of support for collective action. As suggested by Dr. Furukawa, there is a need to strengthen multilateral cooperation to contain the damage being caused by Russia and potentially China, and to constrain North Korea’s nuclear ambitions.