An Analysis of North Korea's Operation Mechanism to Acquire Foreign Currency: Centered on the Mineral Sector (Anthracite, Iron Ore)

Abstract

The international community assumes that most of the profits from North Korea's mineral exports are diverted to the development of weapons of mass destruction (WMD) such as nuclear weapons and ballistic missiles. This belief has led to the implementation of strong export sanctions since the beginning of 2016. UNSCR No. 2270 of March 2016 prohibits the export of anthracite, iron ore gold, titanium, vanadium, and rare earth materials, except for the purpose of public welfare. UNSCR 2321 (November 2016) imposed a quota on the export of anthracite ($400 million or caps upon 7.5 million tons per year) which prohibits the export of silver, copper, nickel and zinc; UNSCR 2371 (August 2017) banned all exports of anthracite, iron and iron ore, lead and lead ore. Discussions on the effects of mineral sanctions have centered around not only the reduced exports of minerals from North Korea due to sanctions, but also the reduction of foreign currency flowing into North Korea, as well as North Korea’s response measures to develop and expand other channels of acquiring foreign currency through smuggling. Academic and political attention has moved to the impact that these restrictive measures on mineral exports have had on North Korea's economy. As such, there is a great need to analyze the production and export mechanism of mineral products in North Korea in depth. As such, this study aims to analyze the North's mineral resources in a systematic manner, focusing particularly on the production and export of anthracite and iron ore, and the acquisition and distribution mechanism of foreign currency resulting from this trade. We analyzed the existing literature available and trade datasets from reliable sources, both domestic and foreign, to explore the portion of profits from mineral exports going to the authorities and the markets, the possibility of minerals that were blocked for export to be used in domestic markets, and the impact of sanctions on the North Korean economy. In addition, we conducted interviews with defectors and parties engaged in mineral trade with North Korea, after which we cross-referenced the answers from all interviewees by asking identical structured questions.