Hi
How would the United States enforce economic sanctions (particularly shipping and energy firms doing business with North Korea) against China?
I look forward to your feedback.
By telling Chinese energy and shipping firms that if they do business with North Korea they don’t get to do business with the United States.
Does refusing to do business with China on the basis of them doing business with North Korea conflict with WTO rules? Or does one have nothing to do with the other?
How are they going to find out if they do? Is the US going to post spies in China near the North Korean land border, and deploy patrol boats near North Korean ports, and search or surveil all shipping traffic for Chinese goods? (Serious question—I have no idea how the US could possibly assess Chinese companies’ compliance with such a boycott.)
1] Does the WTO have rules or just guidelines? …
2] If they have rules, wouldn’t trading with North Korea violate those rules? … North Korea isn’t a member …
3] The United States gets what she wants … fuck international laws …
4] I’m not so sure the Chinese government is responsible here … I’ve not heard a lot of squawking from them when the USA does intervene … if NK has missiles that can reach the mainland USA, then they have missiles that’ll reach mainland China … last I heard, if NK does attack the USA, China will stand back and let the USA retaliate … NK is a thorn in everybody’s side as it were …
5] These offending Chinese businesses can have their assets in the USA frozen … generally speaking, the United States is one of the safest places to keep lawfully obtained financial assets … you’d think Chinese authorities would be helpful in curbing these smuggling operations …
Some or all of that. The Department of the Treasury has an entire intelligence apparatus for tracking illicit world trade, money laundering, and other nefarious transactions. Doesn’t mean they catch all of it, but they only need proof of one deal to slap a company with trade sanctions.
As a recent example, here is a Treasury Department statement announcing a bunch of people and companies being added to the sanctions list for their activities in Crimea, including contracting for building roads and having ownership stakes in previously-sanctioned entities.
The WTO includes a “security exception” that expressly reserves the ability of countries to impose sanctions on others under certain circumstances in order to address national security concerns. Among those exceptions are sanctions that are imposed in support of a UN Security Council resolution. The UNSC has indeed approved sanctions against North Korea.
Thanks Ravenmann. Very helpful
Since no-one has mentioned it, it’s worth pointing out that China is the US’ biggest trading partner, and certain levels of sanction could badly hurt the US.
(And, while it’s true that the current administration probably has no understanding of that, and thinks a trade war is a neat way for the US to win bigly, there are enough donors that depend on this kind of trade to limit what the prez can do. But that’s a whole other topic)
A significant part of US sanctions is the ability of the US to tell foreign banks not to do business with a banned entity. The power to enforce this is that virtually all international banking goes, in part, through a US bank. Few foreign banks can engage in foreign transactions without having a US correspondent bank involved in some way. Note that this doesn’t have to be trade involving a banned actor. If a Chinese bank handles a deposit from a Chinese business that trades with N. Korea, the US can tell that bank to stop the transaction or the bank’s US correspondent will be told to cease doing business with that Chinese bank. The only compulsion is the US Gov’t acting on a US bank. But the effect is ruinous for the Chinese bank. And if the US wants to get really nasty-they can tell other international banks (via their correspondents) to stop doing business with the Chinese bank.
And the beauty of all this is that it is a regulatory action that doesn’t require any congressional or court approval. Simply a letter from the US Treasury to a US bank. Boom.
This has the potential to get really nasty in the case of Iran. The US agreed to lift certain sanctions against businesses in Iran so that business deals with the Europeans could go through. The Europeans are highly supportive of those business deals. If the US, as they are promising to do, reneges on those promises or even increases them, then the European Governments will have the choice of either breaking the current worldwide banking system, which many countries would dearly love to see, or continuing to allow the US to dictate what business the Europeans can do. Since the European don’t agree with the US on the Iranian deal, they are tempted to just say goodbye to the US on this issue. The issues are the same in Asia except that there China is more than willing to help Asian countries cut banking links with the US.
So the US has a very strong hand here, but it is brittle. If our friends decide enough is too much, the US would be left alone and the world would build a new international trading system without the US-leaving the US with much reduced influence in the world.
I see now that this is in General Questions. So I need to clarify that I am not an international banker nor am I an expert in banking. My post is my opinion, informed by reading articles on the subject over the years. A detailed explanation of the influence the US has on foreign banks would take an expert to explain and would doubtless be qualified extensively.
Thank you rbroome. Very helpful. Thank you all.
It already did go nasty: Münchener Sicherheitskonferenz: Keiner wollte Irans Airbus betanken - DER SPIEGEL
During the recent security conference in Munich, local oil companies were afraid of getting into Trouble with the US and therefore refused to re-fuel the Iranian Airbus which the Iranian Foreign Minister had used to get there.
In the end, the organizer of the conference called the German Foreign ministry for help, who talked to the ministry of defence.
Considering that being able to talk with official Ministers of foreign states to defuse tense situations and maybe negotiate better cooperation, this is really the opposite of constructive to solving Problems (which is the official reason to use sanctions in the first place: get the foreign country’s government to agree to compromise somewhere).
We have no leverage with China. They’ve been kicking our ass for decades, and we’ve been bending over to make easier for them. We can play some low stakes games with them, they’ll give us a little concession to play on the news, but the flip side where we give away more than we receive will stay on the flip side.
Agreed. And China is actively pursuing an alternative banking regime-with their banks in charge-for the world. The US is resisting but China has a reputation for being very laissez-faire regarding foreign activities so they have that going for them. No one likes being told what to do by an outsider.
To hopefully confirm my understanding of the mechanisms and clarify for others, here is a long explanation of part of the problem. As I understand it, and as I said I am not an expert on this subject, the daily banking activity that is required and effectively controlled by the US is handling routine payments for international trade. It isn’t about who holds whose gold or how many reserves are available. A company in country X called BusX wants to sell commodity Y (which may be a payment for telecom services, oil, consumer goods, food, anything) to a busZ in country Z. This is accomplished by a BusZ obtaining a purchase order (it’s international equivalent) drawn on a BankZ and sending it to BusX (often using the facilities of BankZ). BusX in turn deposits this in BankX which potentially grants a business loan to BusX to produce and ship the commodity Y. Where it gets tricky is BankX and BankZ have never heard of each other. They are local banks in different countries with no experience-or trust-in dealing with each other. So BankX and BankZ each have a correspondent relationship with BigBankX and BigBankZ who know each other. BigBankX and BigBankZ trade P.O.s and settle currency accounts with each other every day. BigBankZ knows nothing about BusX or commodity Y, but that doesn’t matter. They trust BigBankX and that works for them. The money moves quickly from BusX to BusZ. Well, you can see where this is going. BigBankX and BigBankZ don’t have to reside in country X or Z. They can be a giant bank like JPMorgan Chase or HSBC or Mitsubishi. In fact, it would be even more convenient if BigBankX = BigBankZ. How efficient. One bank gets double the fees. As I remember it, one of the big reasons the bank crash of 2009 was so scary is that the big banks around the world were beginning to lose faith in one another and in themselves. If JPMorgan Chase had suspended trading for a couple of days to sort things out, remember for a day or two (or moment or two) the bank itself is on the hook for the value of each PO, the world-wide ripple effects would have taken years to repair. If BigBankX is told by it’s government to not handle any POs from company X, then that company and country has little recourse except to directly establish currency transfers between country X and country or business Z. That will work, poorly, once or twice but isn’t reliable or efficient. And if the country controlling BigBankX is being really nasty, they can tell BigBankX to not handle business with second and third-tier entities. All of a sudden the ship carrying commodity Y can’t get insurance or fuel or pay docking fees. And further, BigBankZ can only function in this environment by having a close relationship with BigBankX. If BigBankX is told to slow things down or suspend their relationship with BigBankZ with regard to certain countries, then millions of transactions are impacted. Note that in this case, poor country Z has no say in the matter. And if bankZ’s has a correspondence relationship is with a US bank, then country Z might not even hear about it until it is all over.
This is a powerful tool, but brittle. There is nothing preventing bankX and bankZ from establishing a correspondent relationship with the Bank of China (the world’s largest bank) and all of a sudden the US loses all influence while China gains control of the activity. Preventing or minimizing that is part of the equation for the US. But gaining the trust of banks is about more than size or political influence. It is a club built on years of experience and everyone understanding the laws of the host country. China is working on it, but their banking laws are relatively new and enforced by the Chinese legal system. That will take some getting used to by bankX in Peru or Ghana.
If I have the essentials correct, hopefully more knowledgable posters will provide concurrence or better yet corrections.
Sorry for the length, I am not knowledgeable enough to be concise.