Select Committee on Economic Affairs Second Report

CHAPTER 8: IMPLICATIONS FOR POLICY TOWARDS NORTH KOREA AND IRAN

111.  Economic sanctions are major elements of current efforts to influence North Korea and Iran. We received evidence on both cases.[43]

North Korea

112.  In October 2006, North Korea tested a nuclear weapon. SCR 1718 adopted that month under Chapter VII demanded that North Korea not conduct any further nuclear weapon tests or launch any more ballistic missiles, re-enter the Non-Proliferation Treaty (NPT) and IAEA safeguards and renounce nuclear weapons. The mandatory sanctions imposed under SCR 1718 are a ban on its imports and exports of major conventional arms and nuclear weapon-related technology; a ban on its imports of "luxury goods"; a targeted financial freeze and travel ban on those involved in assisting North Korea's weapons programmes; and stop and search rights for cargoes going to and from North Korea.

113.  While giving evidence in late October 2006, Dr Howells noted regional worries, such as those of South Korea, that severe sanctions would turn the country into an "economic basket-case" which was "very unstable" but asserted that a nuclear North Korea was "infinitely more dangerous". However, North Korea already has nuclear weapons and severe sanctions could destabilise it, with unpredictable and potentially catastrophic results. A route to the de-nuclearisation of North Korea is needed which limits the risks of that process. Dr Howells indicated his view that North Korea will have been shocked by the rapid and unanimous adoption of the sanctions resolution (Q 289). Dr Howells also stated: "Whether or not it will persuade that regime, which is a very peculiar one, I think, to change tack, is another matter altogether". This is the central issue: whether the Government thinks its objective is achievable or its strategy workable, as its sanctions principles stipulate.

114.  Dr Howells pointed out correctly that the sanctions in SCR 1718 will be quite mild in their economic effects. However, in addition, Japan unilaterally banned all trade with North Korea in October 2006 and the US already had longstanding tough unilateral sanctions in place. In September 2005 the US signed an agreement in principle to normalise relations with North Korea in return for full international controls on its nuclear technology. However, immediately afterwards, the US began a unilateral campaign of threatening banks worldwide with punishment if they continued to do business with North Korea, claiming that North Korea was involved with illegal activities. This has been highly successful in producing a wave of withdrawals of banking services and consequent trade difficulties for North Korea.

115.  On 13 February 2007, the Six-Party Agreement involving the US, North Korea, South Korea, China, Japan and Russia was reached. North Korea agreed to shut down its reprocessing facilities with a view to their abandonment, permit the resumption of IAEA safeguards and discuss with the other parties a list of other nuclear facilities to be abandoned. North Korea and the US agreed to begin bilateral talks on outstanding issues with the aim of moving towards full diplomatic relations, while the US agreed to begin the process of lifting its unilateral economic sanctions and ceasing to cite North Korea as a state sponsor of terrorism. North Korea and Japan also committed themselves to commencing talks aimed at normalizing their relations. The other parties are to provide North Korea with economic, humanitarian and energy assistance including 50,000 tons of heavy fuel oil. All of this is to occur in a coordinated manner via five Working Groups in an Initial Actions phase lasting sixty days. This and the next phase are to include a full declaration of all North Korea's nuclear facilities and their disablement, and energy assistance to North Korea equivalent to 1 million tons of heavy fuel oil (including the initial 50,000 tons). The parties restated their commitment to their 19 September 2005 agreement which included commitments to verified denuclearisation of the peninsula, mutual security reassurances, full normalization of relations and economic cooperation, energy assistance to North Korea and talks "at an appropriate time" about providing North Korea with less proliferation-prone light-water reactors (LWRs). While the two agreements cover similar ground, the later one is a major advance in that it contains timetabled reciprocal measures in the first phase and reciprocal measures for a second phase with some expectation that they will also be timetabled. If implemented fully, it would be a dramatic breakthrough in the security relations of the peninsula.

116.  The role of the recently intensified economic sanctions in bringing about the 13 February Agreement is disputed. For some, they assisted the broader diplomatic process by placing extra pressure, especially financially, on North Korea. For others, intensified US and new UN sanctions have worked in tandem with the package of positive incentives to induce North Korean cooperation. From a third perspective, the sanctions were unnecessary, on the grounds that this was a deal that North Korea wanted anyway and that the main problem was the Bush administration's unwillingness to do a deal due to its hostility to the North Korean regime. The deal, according to this third view, was a product of the failure of the Bush administration to coerce North Korea into submitting its nuclear capabilities to international control without simultaneous major incentives and a product also of the loss of control of Congress to the Democrats in November 2006. Whichever interpretation one favours, economic sanctions and their lifting are likely to be secondary to political will in deciding whether or not the deal is implemented. Reciprocal timetabled steps can signal the existence of political will to implement a deal and can help to build trust; they cannot create political will which is absent. The deal is very similar to the US-North Korean Framework Agreement of October 1994 but with the political complexion of US politics reversed.

117.  The 1994 agreement was negotiated by the Clinton administration. Due mainly to Republican opposition in Congress, heavy fuel oil deliveries fell behind schedule, construction of promised LWRs barely started, US economic sanctions remained despite a call by South Korea in 1998 for them to be lifted, the US did not recognise North Korea, and regime change continued to be a major theme in US policy debates. At some point, possibly in 1998 or earlier, North Korea did a secret deal with Pakistan to exchange missiles for technology to produce highly enriched uranium (HEU). This could have eventually given it another route to nuclear weapons although it seems that North Korea did not have a large-scale programme in this area. The Clinton administration quickly found out about the HEU technology import but chose not to publicise it on the grounds that North Korea's much more immediate plutonium route to nuclear weapons was frozen and because the HEU capabilities could have been dealt with along with other undeclared facilities under the Framework Agreement. In October 2002, the Bush administration exposed North Korea's HEU cheating and declared that the Framework Agreement was null and void. North Korea expelled the IAEA inspectors and in January 2003 withdrew from the NPT.

118.  The fundamental weakness of the Bush administration's earlier, more confrontational, sanctions-based approach was that North Korea's plutonium facilities, which had been frozen, were unfrozen and mobilised for nuclear bomb-making. Policy on North Korea is now back where it was in 1994, but with a nuclear-armed North Korea which might turn out to want to retain those nuclear weapons. Dr Howells stated that, due to its extensive economic ties with the regime, "it is China that is going to make or break this sanction" (Q 290). This would be true if the strategy was based on inflicting maximum economic costs on the regime. Alternatively, it could be that the overall diplomatic framework within which the sanctions are operating is more important. North Korea has repeatedly stated its conditions for renouncing nuclear weapons and scrapping longer-range ballistic missile exports: diplomatic recognition, security guarantees, lifting of sanctions and major economic incentives. However distasteful the regime is, such a deal is preferable to the dangers of nuclear-armed confrontation and the 13 February Agreement is to be welcomed. We will never know for certain if North Korea is serious about giving up its nuclear capabilities until the US is serious, consistent and persuasive about accepting those conditions, as the other regional actors wish it to be. We endorse the Government's support for the Agreement and the phased lifting of sanctions as part of that Agreement.

Iran

119.  In 2003, the IAEA discovered that Iran had been secretly working on uranium enrichment and plutonium reprocessing. The IAEA reported in February 2006 that it was unable to conclude that there were no undeclared nuclear activities or materials in Iran, but also that it "has not seen any diversion of nuclear material to nuclear weapons or other nuclear explosive devices." The IAEA wants Iran to carry out its legal obligation to cooperate fully with monitoring, whereas the Security Council permanent members and Germany want Iran to voluntary renounce enrichment and reprocessing, even though it is under no legal obligation to do so, in order to establish international confidence in the exclusively non-military nature of Iran's nuclear programme. As far can be ascertained, Iran is ten years away from being able to produce a nuclear bomb. Iran has stated that it will never acquire nuclear weapons, but in 2005 President Ahmadinejad made a statement that is usually translated as: "Israel must be wiped off the map". The US, the UK and Israel have said that acquisition of nuclear weapons by Iran would be intolerable and the US is making military threats against Iran.

120.  In August 2005, the EU-3 (the UK, France and Germany) proposed a Framework for a Long-Term Agreement (FLTA) involving LWRs, security guarantees and economic cooperation in return for a permanent renunciation of enrichment and reprocessing. The FLTA offers UK-French guarantees not to use nuclear weapons against Iran, EU support for Iran's civil nuclear programme, a trade and cooperation agreement and support for Iranian accession to the World Trade Organisation (currently blocked by the US). Dr Howells stated that: "We … offered very generous proposals and, to use the cliché, we have gone the extra mile with Iran" but said: "it is very difficult to get messages from Iran that are comprehensive in any way" (Q 288). However, in August 2005 Iran stated that it would accept the deal if it had a clearer timetable and if the US dropped its long-standing unilateral economic sanctions, established diplomatic relations and provided security guarantees. In an offer which has become known as the 'Grand Bargain' and which was immediately rejected by the Bush administration, Iran had proposed a similar comprehensive political settlement with the US in 2003 after the invasion of Iraq. It has noted President Bush's answer in April 2006 to a question about whether US options regarding Iran "include the possibility of a nuclear strike": "all options are on the table". It also draws attention to US support for the Israeli nuclear industry despite Israel's possession of nuclear weapons. The key strength of the EU's proposed Framework Agreement on Iranian nuclear technology is its emphasis on incentives rather than sanctions and its key weakness is the lack of US support for it.

121.  UN SCR 1696 of July 2006 noted that Iran had failed to cooperate fully with the IAEA and had resumed enrichment despite the IAEA's non-mandatory request to suspend such activities. SCR 1696 made the suspension, but not renunciation, of enrichment and reprocessing (including research and development) mandatory under Article 40 of Chapter VII, the step before sanctions (Article 41) or force (Article 42). The Resolution indicated that if the Security Council had not received by 31 August a report from the IAEA that such a suspension was in place, it would impose sanctions. No such report was received and in December 2006 the Security Council passed SCR 1737 unanimously under Article 41 of Chapter VII. It banned export to Iran of anything that might assist its nuclear enrichment, reprocessing and heavy water-related and ballistic missile programmes (which exempting LWRs, one of which Russia is building in Iran); banned related investment, training, education and other services; banned cooperation with related Iranian entities; and imposed travel monitoring (not bans) and financial freezes on named persons assisting those programmes. The Resolution also endorsed a proposal made in July 2006 which at least involved the US as well as the EU but which was a watered down version of the Framework Agreement, lacking security guarantees, recognition of Iran by the US and a commitment to full lifting of US sanctions. Iran has indicated that it may exercise its legal right to leave the NPT and hence end all IAEA inspections. Iran has also threatened to impose its own sanctions in the form of an oil embargo or an increase in its oil prices.

122.  As in the case of North Korea, the US has recently been imposing financial sanctions on Iranian state-owned banks and has sought to discourage the global finance sector from working with Iran. Iran has responded by seeking to conduct its foreign exchange activities in Euros. In March 2007, Russia announced a delay in supplying nuclear fuel and in the construction of the LWR due to Iran falling behind with payments for them. Furthermore, all five permanent Security Council members agreed to prepare another resolution to ban financial assistance to Iran for anything other than developmental and humanitarian purposes, to almost double the list of Iranian companies and officials subject to targeted financial sanctions and to ban imports of arms from Iran. President Ahmadinejad has faced domestic elite criticism and electoral reverses for his fiery rhetoric, perceived mishandling of nuclear diplomacy and economic incompetence. For some, this is evidence that the combination of escalating UN economic sanctions and US military threats is starting to work. Others argue that President Ahmadinejad's domestic setbacks are unlikely to lead to the international compliance that is being sought. Thus far, there are no indications that Iran will comply. Ironically, due to the difficulties it faces in Iraq, the US is now talking to Iran about Iraq's future while still refusing to recognise Iran and normalise relations with it.

123.  Dr Howells stated in his evidence: "I think the international community is right to feel a great deal of impatience and a sense, I suppose, of saying nothing has worked so far, so maybe we had better come up with sanctions" (Q 288). However, in December 2004 President Bush said: "We're relying upon others because we've sanctioned ourselves out of influence with Iran". The alternative that has not been tried with anything like sufficient vigour is getting the US on board with the EU's proposals. Mr Kovanda's statement that: "we are particularly proud that the United States subscribed to the European approach to diplomacy with Iran" is misleading in that the US had refused to offer the same full range of incentives as the EU (Q 273). It continues to be debated whether Iran is sincerely seeking a deal or whether it is stalling while it continues progress towards nuclear weapons potential. The only way to find out for sure is to offer a comprehensive deal which includes the US. We urge the Government to make every effort, bilaterally and through the EU, to persuade the US to commit fully to involvement with the EU's proposed Framework Agreement.

Implications for policy towards North Korea and Iran

124.  Reliance on sanctions as the main means of resolving the current disputes with North Korea and Iran appears to be a recipe for failure.

125.  Lord Renwick stressed that fear for security in the case of either state will promote intransigence (Q 281). We found it plausible that this has been a central consideration. Iraq was unwillingly denuclearised under international control only following massive aerial bombing and then exceptionally severe economic sanctions, with regime security concerns slowing compliance. This experience suggests that Iran and North Korea can only be coerced into changing their nuclear policies by the kind of sanctions, reinforced by bombing, that are so costly in humanitarian terms that they are unlikely to be imposed due to widespread political opposition, or by invasion and occupation, with all its attendant uncertainties, costs and risks of escalation. Libya's abandonment of its nuclear ambitions showed that substantial economic sanctions can contribute to a positive outcome only with full US commitment to abandoning regime change and normalising relations in all spheres.[44]

126.  The prospects for success would appear to be maximised by a pragmatic emphasis on securing a sustained US commitment to broader international initiatives offering lifting of sanctions, economic incentives, diplomatic recognition and security guarantees. These incentives should be phased and coordinated with verifiable, reciprocal steps by North Korea and Iran.

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43   Oral evidence from Kim Howells (QQ 288-291), Karel Kovanda (QQ 272-273), Lord Renwick (QQ 278-282) and Alex Vines (QQ 308-309). Back

44   Jentleson, Whytock, "Who 'Won' Libya?", p. 81 Back