U.S. said to water down North Korea sanctions before vote

By Gregory Viscusi and Kanga Kong on 9/11/2017

PARIS and SEOUL (Bloomberg) -- The U.S. has watered down a proposal to punish North Korea for its sixth and most powerful nuclear test, omitting an oil embargo and a freeze of Kim Jong Un’s assets, according to a European diplomat.

The U.S., UK and France are united on the latest proposal, but it’s unclear whether Russia and China -- the other veto-holding members of the United Nations Security Council -- will back the text as it stands, said the diplomat, who asked not to be identified because the discussions are private. A vote was scheduled for 6 p.m. New York time, according to a UN official.

Barring oil exports was always a long-shot. Still, the revised draft resolution would cap shipments of refined petroleum products at 2 MMbbl a year while limiting crude oil exports to North Korea to current levels, the diplomat said. It would retain a proposed ban on textile exports, while diluting a ban on the use of guest workers from the isolated country and dropping proposals to freeze the assets of Kim and national airline Air Koryo, the diplomat said.

With more modifications possible, it wasn’t certain whether a vote will take place Monday as the U.S. has demanded. The negotiations reflect differences among world powers over the best way to halt Kim’s push for a nuclear weapon that can target the U.S. homeland. President Donald Trump wants China and Russia to use their economic leverage to rein in Kim, but both countries are skeptical that sanctions will work and have called for peace talks.

North Korea warned on Monday of retaliation if the UN approves the U.S. proposal for harsher sanctions.

“In case the U.S. eventually does rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure that the U.S. pays a due price,” its state-run Korean Central News Agency said, citing a statement by the Ministry of Foreign Affairs that used its formal country name. “The forthcoming measures to be taken by the DPRK will cause the U.S. the greatest pain and suffering it had ever gone through in its entire history.”

Despite the rhetoric, there was a sign both sides are looking for a diplomatic solution. North Korean foreign ministry officials are likely to hold informal talks with former U.S. officials in Switzerland on Monday, Japan’s Nippon Television reported, without saying where it got the information.

Oil sales

China supplies most of North Korea’s crude oil, according to the U.S. Energy Information Administration, but it’s hard to know exactly how much: China hasn’t reported any volumes in its published customs data since 2013. The agency estimates North Korea crude imports at about 10,000 bpd.

China also reported sending 6,000 bpd of oil products to North Korea last year, according to the EIA, citing UN customs data. While that’s about 10% more than the maximum amount allowed in the draft resolution, the exact volume of products is hard to determine and the cap is near estimated levels reported elsewhere.

As many as 60,000 North Koreans are working in more than 50 countries, according to estimates from South Korea’s foreign ministry. U.S. Secretary of State Rex Tillerson has called on the international community to suspend the flow of North Korean guest workers, who earn between $1.5 billion and $2.3 billion a year -- much of which is sent back to the regime.

Russian President Vladimir Putin has said North Koreans would “eat grass” rather than give up nuclear weapons, while China is wary about cutting off Kim’s economic lifeline to the point it risks collapsing his regime. China is North Korea’s main ally and by far its biggest trading partner, including for oil shipments.

China supports action from the UN Security Council in response to North Korea’s nuclear test, Chinese Foreign Ministry spokesman Geng Shuang said in a daily briefing on Monday.

“We hope that the members of the council will reach a consensus on the basis of full consultation and make a voice of solidarity,” he said.

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