Korea summit economic pledge raises sanctions-busting fears

SEOUL (Reuters) - A pledge by the leaders of North and South Korea to foster economic ties has heightened worries among skeptics that Seoul’s push to revive nuclear talks could undermine the sanction regime credited with bringing Pyongyang to the negotiating table.

South Korean President Moon Jae-in and North Korean leader Kim Jong Un attend a luncheon in Pyongyang, North Korea, September 19, 2018. Pyeongyang Press Corps/Pool via REUTERS

Speaking at a joint news conference in Pyongyang on Wednesday, South Korea’s President Moon Jae-in said he and North Korean leader Kim Jong Un agreed to the normalization of the Kaesong joint border industrial park and tours to North Korea’s Mount Kumgang.

The two projects, which were suspended amid tensions between the rivals under Moon’s two conservative predecessors, had been lucrative sources of cash for the impoverished North.

Moon said the steps were part of an agreement to turn the Korean peninsula into a “land of peace without nuclear weapons and nuclear threats”.

But his visit was criticized by U.S. Senator Lindsey Graham who said it risked undermining the U.S. policy of “maximum pressure” aimed at leaving Pyongyang little choice but to abandon its nuclear and missile development programs.

“While North Korea has stopped testing missiles and nuclear devices, they have NOT moved toward denuclearization,” Graham said on Twitter. “South Korea should not be played by Kim Jong Un.”

North Korea is believed to have earned hundreds of millions of dollars by skirting layers of U.N. Security Council sanctions dating back to 2006, the year of its first nuclear test, trading in banned minerals and weapons.

Some South Korean firms had been accused of importing coal from the North disguised as Russian shipments in violation of U.N. sanctions, which critics say raises questions about Seoul’s will to vigorously enforce international sanctions.

“We are currently cooperating within the framework of international sanctions,” Yoon Young-chan, South Korea’s presidential senior secretary for public communications said this week. “We believe if new conditions are formed, changes could be possible,” he added.

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The Kaesong industrial park is subject to Security Council sanctions adopted in September 2017 that banned clothing and textile exports, as well as a ban on financial joint ventures with North Korea.

At the height of its operations, it brought Pyongyang an estimated $110 million in wages and fees, according to a 2016 South Korean government statement.

The resumption of South Korean tours to the Mount Kumgang resort, meanwhile, suspended in 2008 after a South Korean woman was fatally shot by North Korean guards, could violate the U.N. sanctions banning the transfer of bulk cash to Pyongyang.

At its heyday, the tours to the East Coast border resort, operated by a unit of the Hyundai conglomerate, were a $40 million-a-year moneyspinner for the impoverished North.

Kim Sung-han, South Korean vice foreign minister under one of Moon’s conservative predecessors and now a professor of international studies at Korea University, accused Moon of being ready to breach sanctions in pursuit of the goal of denuclearizing the North.

“Under the grand premise, minor disputes and unintended collateral damages like sanctions violations are seen as okay if the progress in inter-Korean relations can lead to progress in denuclearization,” Kim said.

Bruce Bennett, of the RAND Corporation in California, said Moon’s strategy could put Seoul at odds with the United States.

“President Moon apparently hopes that President Trump will simply agree with doing what North Korea wants. I think President Moon is taking a serious risk,” Bennett said.

Tycoons from some of South Korea’s largest family-run conglomerates accompanied Moon to Pyongyang this week at the request of the South’s presidential office, with North Korean officials warmly greeting business leaders including Samsung Electronics vice chairman Jay Y. Lee.

On Wednesday, Moon was scheduled to visit Mansudae Art Studio - an entity that was blacklisted by the Security Council last year for earning cash to fund its arms program by erecting monuments and military facilities in African countries.

Yoon, South Korea’s presidential senior secretary for public communications, said Moon’s visit on Wednesday afternoon had been previously scheduled and “simply consists of viewing artworks”.

Reporting by Jeongmin Kim and Joyce Lee; Additional reporting by Hyonhee Shin; Editing by Jack Kim and Alex Richardson