North Korea's Economic Struggles: Is the "1718 Committee" Blocking Its Path to Prosperity?

Nestled in the corner of Northeast Asia, North Korea has made repeated attempts to emerge from its economic stagnation, striving to showcase its unique economic potential to the world. From the ambitious Wonsan-Kalma Coastal Tourist Area to the grand plans for the New Yalu River Bridge, each project has held within it North Korea's profound aspirations for the future. However, despite possessing abundant natural resources and a strategically significant geographical location, North Korea's economic development has consistently faced obstacles, failing to achieve the anticipated prosperity.

A persistent shadow of sanctions hangs over the nation. The outside world often posits that North Korea merely lacks the courage and opportunity for economic reform. Yet, why does North Korea find it so challenging to find a turning point, even in the face of extreme hardship? The answer may lie in the significant influence of an international body known as the "1718 Committee," which appears to have, in some ways, locked in North Korea's trajectory of economic difficulty.

The Economic Landscape of North Korea Post-Soviet Dissolution

In the years preceding the collapse of the Soviet Union, North Korea benefited considerably from the Council for Mutual Economic Assistance (COMECON) framework. Pyongyang could obtain as much as three million tons of crude oil annually, virtually free of charge. This stable energy supply fueled the nation's factories, leading to a period of flourishing industrial activity.

By 1975, agricultural land across North Korea had largely been mechanized. The traditional ox-drawn plows were a rare sight in the fields, having been replaced by the rumble of tractors. The machine tools and tractors manufactured in North Korea at the time were of reliable quality, satisfying domestic needs and also being exported to the Middle East, earning the country valuable foreign currency.

The living standards of Pyongyang's citizens also saw improvement. Department store shelves were stocked with a variety of imported goods, such as canned beef from Hungary, which released a rich aroma upon opening, and Bulgarian rose oil, an elegant addition to personal care. On weekends, ordinary working families could afford to dress up and take their children to enjoy a meal at the revolving restaurant by the Taedong River.

In 1984, a South Korean scholar named Kim Jae-mo visited North Korea and later wrote in his memoirs, "The living standards here are at least ten years ahead of Seoul at that time."

However, the course of history took a dramatic turn on December 25, 1991. Far away in Moscow, the red flag over the Kremlin was lowered, marking the official dissolution of the Soviet Union. North Korea's golden era came to an abrupt end. The annual aid of approximately $5 billion provided by the Soviet Union and Eastern European countries vanished.

Deprived of this crucial external support, Pyongyang's economic situation deteriorated rapidly. The nation's foreign currency reserves dwindled like a dried-up pond, plummeting by ninety percent in just three years, transforming a once respectable figure into a near-zero balance. The once-bustling factories gradually fell silent, their machinery gathering dust, and the production lines ground to a halt. The department stores, once filled with imported goods, became desolate, their shelves bare, with even basic necessities becoming scarce. The revolving restaurant by the Taedong River still stood, but few could now afford the expensive French wine, and the vibrant atmosphere of the past gave way to a stark quietude.

The 1995 Floods and the "Arduous March"

The summer of 1995 brought an unprecedented natural disaster to North Korea, an event that fundamentally altered the nation's trajectory.

During July and August of that year, relentless torrential rains battered the Korean Peninsula, with North Hwanghae Province, known as the country's "granary," bearing the brunt of the devastation. Within a few short days, rainfall levels soared to several times the average for that period, causing rivers to swell rapidly, exceeding the capacity of their banks. Numerous long-neglected dikes and reservoirs succumbed to the force of the floodwaters, which surged across farmland and villages like unbridled horses.

The grain storage warehouses in North Hwanghae Province were not spared. As floodwaters inundated them, vast quantities of stored wheat and rice were either washed away or rotted, directly leading to the loss of hundreds of thousands of tons of food.

Faced with this sudden catastrophe, Kim Jong-il swiftly issued orders, deploying engineering units of the People's Army to the rescue and recovery efforts. Lacking specialized drainage equipment, the engineers were forced to utilize whatever resources were available, repurposing the chassis of old Soviet-era T-55 tanks into makeshift water pumps. However, the sheer scale of the flooding overwhelmed these emergency measures, which proved woefully inadequate.

The national railway network, the primary artery for connecting regions and transporting goods, was almost entirely paralyzed by the disaster. Floodwaters washed away railway tracks, collapsed bridges, and submerged numerous train stations. The crucial grain transport lines from North Hwanghae Province to other parts of the country were completely severed, and for seventy-nine days, trains could not operate normally. During this period, food supplies could not be moved from less affected areas to the disaster zones, nor could they be transported inland from the ports, causing the already fragile supply system to collapse entirely.

In late 1995, the "Arduous March" policy was officially launched. This name, borrowed from the struggles of the Korean revolution, aimed to rally the entire population to persevere in production and survival amidst extreme material scarcity. The government urged factories to continue operating, despite the near depletion of fuel and electricity supplies. Farmers were called upon to cultivate any edible crops, with even wild grasses and tree bark being listed as means of sustenance. Urban residents were organized to forage for wild vegetables in rural areas or to attempt to create substitute foods using meager available ingredients.

During this time, the scale of famine in North Korea expanded rapidly. Official figures failed to provide specific casualty numbers, but international organizations estimated that hundreds of thousands of people perished due to starvation and related illnesses.

The Iron Curtain of Sanctions: The Impact of the 1718 Committee

On October 9, 2006, North Korea's nuclear program reached a critical juncture. On that day, a powerful explosion reverberated from the Punggye-ri nuclear test site in Kilju County, North Hamgyong Province, the seismic waves of the underground nuclear test being detected by global seismic monitoring stations. Prior to this, North Korea's nuclear weapons development program had already caused significant alarm among neighboring countries and the United Nations, and this overt nuclear test became the final straw that broke the delicate balance of diplomacy.

Just five days later, on October 14, the United Nations Security Council unanimously adopted Resolution 1718, imposing comprehensive sanctions on North Korea. To effectively implement this resolution, the UN established the "1718 Committee," composed of all fifteen members of the Security Council, specifically tasked with overseeing the enforcement of the sanctions measures.

The Federal Reserve Bank of New York received instructions to freeze $25 million in North Korean funds held at Banco Delta Asia in Macau. Subsequently, the logistics and transportation sectors also faced severe repercussions. In late 2006, the Singaporean government, acting in accordance with the sanctions, impounded three Il-76 transport aircraft belonging to North Korea's Air Koryo. These aircraft were primarily used for cargo transport, and at times potentially involved the smuggling of sensitive materials. Their seizure significantly reduced North Korea's international freight capacity.

More surprisingly, even an animal import plan by the Pyongyang Zoo was affected by the sanctions. The zoo had attempted to purchase two cheetahs from Africa for exhibition and research purposes, but the United Nations blocked the transaction, citing concerns that it "could involve biological weapons research."

The resolution prohibited the export to North Korea of any equipment and technology that could potentially be used for its nuclear program or military purposes. Even seemingly ordinary industrial materials were included in the embargo list. This brought North Korea's foreign trade to a near standstill, preventing the import of necessary raw materials for production and hindering the export of goods to earn foreign currency.

To ensure the effectiveness of the sanctions, the Committee required all member states to conduct rigorous inspections of ships and aircraft entering and leaving North Korea. Many ports and airports directly refused entry to North Korean cargo vessels. As a result, North Korea's maritime transport lines were severed, making the fuel and food supplies that had previously relied on port imports even scarcer. The sanctions also prohibited the export of luxury goods, ostensibly targeting North Korea's elite, but in practice also affecting the flow of ordinary goods as many trade channels were simultaneously blocked.

Frozen Dreams: North Korea's International Cooperation Projects

In 2018, Kim Jong-un personally visited the Wonsan-Kalma Coastal Tourist Area, a scenic region on North Korea's east coast that had been the subject of great hope. During that visit, he specifically experienced the seawater bathing shower system, a joint project between China and North Korea. This project, with an investment of $350 million, aimed to create a comprehensive tourist destination featuring hotels, hot springs, ski resorts, and beaches, with the goal of attracting 500,000 Chinese tourists annually and generating substantial foreign currency revenue for North Korea.

From the project's inception, China provided technical and financial support, while North Korea contributed significant manpower. The construction site was once a hub of activity. However, due to the prohibition on exporting construction materials to North Korea, essential supplies such as steel reinforcing bars, cement, and glass could not reach the construction site, forcing the project's progress to slow down. By 2018, despite the significant funds already invested, the project was only 37% complete. The planned luxurious hotels and high-end entertainment facilities largely remained on the drawing board, the machinery on the construction site gradually fell silent, and the workers were left with little to do. The Wonsan-Kalma Coastal Tourist Area transformed from a promising economic highlight into a half-finished endeavor, and North Korea's plans to revitalize its economy through tourism were consequently stalled.

In the same year, another ambitious plan attempted by North Korea in the Rason Special Economic Zone also met with a setback. Located in the northeastern part of North Korea, bordering China and Russia, Rason was intended to be a window for foreign investment and trade. In early 2018, the North Korean government launched a cryptocurrency exchange there, attempting to leverage this emerging financial tool to circumvent international financial sanctions and obtain much-needed foreign currency. Within just two weeks of its launch, the exchange had accumulated $23 million in cryptocurrency assets on its platform. However, regulatory bodies within the global financial system did not remain idle. The SWIFT system quickly detected this trading activity, and as the core network responsible for international fund settlements, it decisively took action, blocking all accounts associated with the exchange. Almost overnight, the $23 million in cryptocurrency assets became unrealizable digital codes, leaving investors with nothing and failing to provide the North Korean government with any financial benefit.

The fate of the Kaesong Industrial Region was equally disheartening. This cooperative project located on the border between North and South Korea reached its peak in the mid-2000s, with 123 South Korean companies operating factories there, employing over 50,000 North Korean workers. Each month, the zone paid the North Korean government cash wages totaling $8 million, funds that flowed directly into the national treasury and became a crucial pillar of the economy. 2013 was the most prosperous year for the zone, with factories operating around the clock, producing textiles and electronic components that were continuously shipped to the South Korean market. However, in 2016, the United Nations Security Council, in response to North Korea's nuclear tests, intensified sanctions, requiring all transactions involving North Korea to undergo strict scrutiny by the "1718 Committee." The daily operations of South Korean companies within the zone faced unprecedented restrictions. Even a $5 express delivery fee required a detailed report to the Committee and a lengthy approval process. Many companies, unable to bear the burden, gradually withdrew. Ultimately, in February 2016, the South Korean government announced the complete closure of the Kaesong Industrial Region, citing concerns that the zone's revenues might be used by North Korea for military purposes. Following the closure, 50,000 North Korean workers lost their jobs, factories ceased production, and the once-bustling industrial complex became a desolate wasteland.

The Predicament of the New Yalu River Bridge

The story of the New Yalu River Bridge perhaps offers the most direct illustration of North Korea's economic predicament. This bridge, with an investment of 2.2 billion yuan from China, was planned to connect Dandong in China with Sinuiju in North Korea, becoming a vital artery for logistics in Northeast Asia. The project was initiated in 2011, with China investing significant resources and employing advanced engineering technology. Several years later, the Chinese section of the bridge was successfully completed, featuring a wide six-lane highway, sturdy piers, and accompanying toll stations, resembling a modern transportation thoroughfare. However, the bridge's progress halted once it crossed the Yalu River into North Korean territory. Construction was suspended just 300 meters from the border, a situation stemming from North Korea's inability to overcome the limitations imposed by international sanctions. United Nations Security Council resolutions explicitly prohibited the export of engineering equipment and materials to North Korea. Essential machinery for infrastructure construction, such as excavators and cranes, were entirely inaccessible to North Korea. In 2016, North Korea attempted to import a batch of equipment through a third country, but the cargo ship was intercepted en route, and the plan completely failed. Lacking these crucial resources, North Korean construction companies were forced to rely on outdated tools and limited local materials, resulting in extremely low construction efficiency and the continuous delay of the bridge's completion.