US considers sanctions on Chinese companies to pressure North Korea

Washington: Having lost patience with China, the Trump administration is studying new steps to starve North Korea of cash for its nuclear programme, including an option that would infuriate Beijing: sanctions on Chinese companies that help keep the North's economy afloat.

It's an approach that's paid off for the US in the past, especially with Iran, where American economic penalties helped drive Tehran to the nuclear negotiating table. 

Yet there are significant risks, too, including the possibility of opening a new rift with Beijing that could complicate US diplomatic efforts on other critical issues.

The renewed look at "secondary sanctions" comes as Washington seeks a forceful response to North Korea's test this week of an intercontinental ballistic missile that could strike the United States. Few are advocating a military intervention that could endanger millions of lives in allied South Korea across the border.

But options for turning the screw on the North financially also are imperfect. "I don't like to talk about what I have planned, but I have some pretty severe things that we're thinking about," President Donald Trump said on Thursday during an appearance at a news conference in Poland. "That doesn't mean we're going to do them."

He said the US would be watching what happens in the coming weeks and months but chided North Korea for "behaving in a very, very dangerous manner" and added: "Something will have to be done about it."

Already, a wide array of US and international sanctions target North Korean entities and officials, making it illegal for Americans to do business with them.

The US also has pursued companies outside North Korea accused of surreptitiously helping the communist country, such as a small Chinese bank the US penalised last week for allegedly laundering money for North Korea.

But the US thus far has avoided what sanctions experts describe as a logical escalation: secondary sanctions targeting banks and companies that do any business with North Korea - even legitimate transactions that aren't explicitly prohibited by UN Security Council resolutions.

Nikki Haley, Trump's UN ambassador, told an emergency session of the council on Wednesday that the world must do more to "cut off the major sources of hard currency to the North Korean regime."

"We will look at any country that chooses to do business with this outlaw regime," Haley said. On the Korean Peninsula on Thursday, South Korean jets and navy ships fired a barrage of guided-missiles into the ocean during drills, a display of military power two days after North Korea test-launched its first intercontinental ballistic missile.

The live-fire drills off South Korea's east coast were previously scheduled.
In a show of force, South Korea and the United States also staged "deep strike" precision missile firing drills on Wednesday as a warning to the North.

Thursday's drills were aimed at boosting readiness against possible maritime North Korean aggression. They involved 15 warships including a 3,200-ton-class destroyer, as well as helicopters and fighter jets, South Korea's navy said.

"Our military is maintaining the highest-level of readiness to make a swift response even if a war breaks out today," said Rear Adm. Kwon Jeong Seob, who directed the drills, according to the statement.

Potential sanctions targets previously identified by the treasury department include companies based in China, US officials have said. Some may have no business with Americans or US firms, making it harder for the US to limit their operations or freeze assets.

But secondary sanctions would still force such companies to stop doing business with North Korea or risk losing their access to the US financial system, and with it, the dollar - the world's main currency for global trade and finance.

Beijing steadfastly opposes such measures. It says sanctions would hurt China's interests and criticizes the approach for being one-sided, as opposed to international penalties that are globally agreed.

"The US needs to understand the Chinese will never allow Chinese companies and individuals to be designated (for sanctions) at the UN, and the US dollar is still pre-eminent. So the US has leverage," said Anthony Ruggiero at the Foundation for Defence of Democracies, which advocates for a tough approach to North Korea's nuclear programme.

Trump, in recent days, appears to have concluded that his early efforts to enlist China's cooperation on North Korea haven't paid off. On Wednesday, Trump took to Twitter to chastise China for allowing its trade with the North to grow in recent months even as the US urged a reduction.

"So much for China working with us - but we had to give it a try!" Trump wrote. Senior US officials said imposing sanctions on companies dealing with the North was among several steps considered after the ICBM launch, as US intelligence, military and diplomatic officials reviewed different possibilities.

The Trump administration hasn't given up hope China will change course and step up pressure on North Korea, officials said.

In Congress, lawmakers have proposed new sanctions on North Korea's shipping industry and alleged use of slave labour. The House passed a bill in May, but the Senate has yet to approve it.

Secondary sanctions on North Korea would borrow from President Barack Obama's Iran approach before the 2015 nuclear deal with Tehran.

After Congress authorized such penalties, the Obama administration worked with nations around the world to get them to reduce their oil imports from Tehran, while negotiating secretly with Iranian officials.

The sanctions effectively deterred European firms from doing business with Iran and commercial powers such as China and India were encouraged to buy less Iranian petroleum.

North Korea's isolation, which is far greater than Iran's was, could make it even more susceptible to such pressure. China accounts for about 90 per cent of North Korea's trade.

But China has leverage too which is why previous US administrations have held back. China is now the world's second-largest economy, it holds trillions of dollars in US debt and its companies are increasingly tied financially with the West.

And angering Beijing could lead to unpredictable responses in places like the South China Sea, where Beijing has various territorial disputes with America's allies and partners in Southeast Asia.

"It will put a magnifying glass on Chinese businesses that the Chinese government may not want," said Doreen Edelman, an attorney at Baker Donelson who specializes in sanctions compliance.