US, China said to discuss choking off North Korea energy

[NEW YORK] The US and China are locked in negotiations over curbing North Korea's energy trade in response to its fifth nuclear test last month, according to four diplomats from United Nations Security Council countries with direct knowledge of the talks.

The world's two biggest economies - both of whom can veto any resolution - are discussing restrictions on North Korea's trade in coal, iron ore and crude oil, according to the diplomats, who asked not to be named because the discussions are private.

Other nations also considering separate sanctions against North Korea once the Security Council acts, the diplomats said.

The US and its allies are seeking to further tighten sanctions against Kim Jong Un's regime to prod him into abandoning a pursuit of nuclear weapons that has only intensified in recent years, with the latest test coming Sept 9.

The measures stand little chance of success without support from China, which has kept its neighbour from collapsing to avoid both a humanitarian crisis and the presence of American and South Korean troops on its border.

"The US wants to strangle North Korea, but is asking China to be the executioner," said Shi Yongming, an associate research fellow at the Foreign Ministry-run China Institute of International Studies.

In a statement to Bloomberg News on Tuesday, China's foreign ministry confirmed that it's in "negotiations with relevant parties" on North Korea without responding to questions on details, including whether restrictions on energy are under discussion.

It said the Security Council should take further actions which are "conducive to solving the nuclear problem on the peninsula and maintaining peace and stability." The foreign ministry added that it opposes unilateral sanctions against North Korea and defended its record in enforcing past Security Council resolutions. It vowed "serious punitive actions" against companies or individuals that violate those resolutions.

"We're willing to cooperate with relevant countries under the condition of mutual respect and on equal footing, but at the same time oppose any country's so-called long-arm management of Chinese entities or individuals according to its internal laws," the foreign ministry said.

China accounts for more than 70 per cent of North Korea's trade and provides most of its food and energy supplies, according to the Council on Foreign Relations. Data from China's General Administration of Customs shows that imports of North Korean coal and iron ore increased from January to August compared with the same period in 2015. Information on crude oil wasn't available.

In March the UN passed its toughest sanctions yet against Kim's regime, but a loophole allows it to trade goods needed for "livelihood" or emergencies. China currently allows imports of coal and iron ore - both banned items under the UN sanctions list - from the North if the resources are not related to Pyongyang's nuclear project.

The response to North Korea's latest nuclear test is "moving fast, or at least fast by normal Security Council standards," UK Ambassador Matthew Rycroft said Tuesday, without giving more details.

Samantha Power, the US envoy to the UN, plans to visit South Korea this week to discuss measures against North Korea, Yonhap News Agency reported on Wednesday, citing a government official it didn't identify.

While Beijing may consider some new restrictions on North Korean commodities, a ban on energy trade would lead to the regime's collapse, said Mr Shi at the China Institute of International Studies. He said it's more likely that China will agree to a more detailed sanctions lists - particularly goods that can be used for both military and civilian purposes.

"A shut-down of trade in essential resources like crude oil and coal would not be possible," Mr Shi said from Beijing.

Last week, the US Justice Department sanctioned China-based Dandong Hongxiang Industrial Development Company Ltd for acting on behalf of a North Korean bank that the US and UN had said provided financial services in support of weapons of mass destruction proliferators.

The public security department in China's northeastern Liaoning province said last month on its official Weibo account that they have placed Dandong Hongxiang and its bosses under investigation for "serious economic crimes involved in trade activities." The company is based on the China-North Korea border in Liaoning's Dandong city.

Targeting smaller companies like Dandong Hongxiang will "alarm the others of the dangers of trading with North Korea," said Go Myung-hyun, research fellow at the Asan Institute for Policy Studies in Seoul. "China is worried of a possible sudden collapse of the North Korean economy when North-China trade is cut, so there could be a compromise such as letting the North trade coal and iron ore with China only to some extent compared with the previous year."

The US has already issued a warning to China, and a lawmaker introduced a bill that would block North Korea from accessing the global banking system.

"It would also be useful if Chinese banks and companies understood dealing with North Korean companies is going to be risky," Ambassador Daniel Fried, the US State Department's coordinator for sanctions policy, told a Senate subcommittee last month.

Japanese Prime Minister Shinzo Abe has also called for stronger sanctions. Russia, however, is more lukewarm on economic penalties while still calling for a Security Council response.

"The Security Council's goal must be to resolve the problem, not just take steps that benefit one or another group of countries," Russian Foreign Ministry spokeswoman Maria Zakharova told reporters Sept 29.

"So the decision to be adopted by the Security Council should be proportionate and meet the required task."

BLOOMBERG