To succeed, a state should specialize in products in which it has a comparative advantage, according to economist David Ricardo. Ricardo focused on tangible goods traded in the international market. However, states also possess another, by no means less marketable characteristic – reputation. A cause of many conflicts and wars, international standing is a commodity by itself because it can be turned into commercial advantage. The importance of reputation goes beyond attracting potential investors and trade partners. Studies show that concerns over reputation can ensure a state’s compliance with treaties and international norms, including the nuclear nonproliferation regime.
No state can thrive on international standing alone. However, reputation can reinforce or undermine the value of other marketable commodities and even influence the state’s export decisions. While comparative advantage in manufacturing arms offers a great source of export income, selling wrong arms into wrong hands can tarnish a state’s international reputation and offset its profits with resulting sanctions and embargos.
What can North Korea export, given its lack in valuable resources and technological expertise? North Korea’s highest-valued commodities include armaments as well as minerals, metallurgical products, and textiles. Its main customers are South Korea and China.
North Korea does not have a comparative advantage in most of its exports. Years of underinvestment due to massive military spending depleted its industrial capital stock, and its highly centralized economy is hardly conducive to innovation. Not surprisingly, Pyongyang faces chronic economic problems and has no resources for improving the quality of its commodities.
The two commodities omitted from the official statistics are North Korea’s notoriety and its nuclear weapons expertise. Many people do not understand that having successfully tested a plutonium bomb in May 2009, North Korea turned its pariah status into an asset. Today, North Korea’s comparative advantage over so many other states is its ability to transgress law by trading prohibited goods on the shady markets with impunity. Even Pyongyang’s former comrade from the Axis of Evil, Iran, has more to lose from exporting sensitive nuclear technology than North Korea. The North’s customers are just as roguish, and trading with them offers the benefit of virtually no competitors because most Western suppliers avoid such markets.
According to Ricardo, the exchangeable value of all commodities rises as the difficulties of their production increase. The value of nuclear weapons is enormous because they are difficult to develop and few states have learned the nuclear secret. Powerful by virtue of their material characteristics alone, nuclear weapons can become commodities in the very logic of the deterrence theory. Nuclear weapons are unlikely to be used in combat and possessing them even in small numbers will deter most enemies. Just keeping them in stock makes little sense, given that they are costly to maintain and slowly lose their value as more states acquire nuclear expertise.
Pyongyang has exported conventional arms before and on occasion threatens to export sensitive nuclear technology. North Korea has attempted to transfer sensitive weapons technologies to Iran, Syria, and even Burma. Since North Korea’s successful nuclear test, potential profits from its nuclear capacities have skyrocketed; successfully tested technology will be in much higher demand. In May 2009, North Korea announced that it “satisfactorily settle[d] the scientific and technological problems arising in furthering increasing the power of nuclear weapons and steadily developing nuclear technology.” In other words, Pyongyang claims that technical glitches are eliminated, and this implies that the nukes are ready for sale.
Preventing North Korea from transferring critical materials and technologies should become a high-priority matter today. The international community can accomplish this through a two-pronged approach, which combines sticks and carrots. The sticks should create barriers to North Korea’s trade in nuclear commodities and punish it for noncompliance. The carrots should normalize discourse with Pyongyang and help it catch up with the rest of the world.
First, the Security Council must provide the UN member states with the means for enforcing restrictions on North Korea. According to Resolution 1874, Pyongyang’s ships can be inspected on the high seas only with its consent. A UN member state can also direct a vessel to “an appropriate and convenient port” for inspection by local officials. If North Korea refuses to divert the ship, a report to a UN committee can be filed. Unfortunately, such reports and other paperwork will hardly succeed in halting North Korea’s illegal activities.
More efficient ways to exert pressure on North Korea should be employed. For example, in May Pyongyang renounced the 1953 armistice that ended fighting in the Korean War. In effect, this opened the door for the use of force against North Korea’s vessels by all combatants in the conflict (including the United States, the leader of the UN Command in 1953). So far the stern warnings issued to stop North Korea from developing nuclear weapons have not been actualized, and it is time for the international community to act on its promises. The Proliferation Security Initiative, which provides for the interdiction of third-country ships on the high seas on the basis of carrying nuclear materials, is another step in the right direction. However, it is only half-effective without China’s participation.
Second, a potential North Korean move toward nuclear disarmament should be rewarded with incentives like the normalization of relationships with the outside world, assistance with developing non-nuclear energy sources, and modernization of the North’s agriculture with Western technologies and equipment. South Korea’s assistance with developing North Korea’s infrastructure, natural resources, and light industry is especially crucial. If the gap between the isolated and technologically inferior Pyongyang and its better faring neighbors is bridged, the state will be able to manufacture more commodities for export. At the same time, its reputation will become more vulnerable to the allegations of engagement in illegal arms sales. Tarnished reputations can recover over time, and this can eventually happen with North Korea. The opportunities may come to exist in the near future, given the imminent change of Pyongyang’s leadership.