By Sue-Lin Wong
BEIJING (Reuters) - United Nations sanctions on North Korea's important textiles industry are expected to disrupt a business largely based in China and pose compliance headaches for clothing retailers around the world.
The UN security council imposed a ban on North Korea textile exports and a ceiling on the country's imports of crude oil on Monday, ratcheting up sanctions that are likely to hit the country's ordinary citizens.
"If the goal of the sanctions is to create difficulties for ordinary workers and their ability to make a livelihood, then a ban on textiles will work," said Paul Tjia, an outsourcing specialist who regularly visits North Korea.
Textiles were North Korea's second-biggest export after coal and other minerals in 2016, totalling $752 million, according to data from the Korea Trade-Investment Promotion Agency. Nearly 80 percent went to China.
Enforcement of the textile ban along North Korea's 1,400-km (870 mile) border with China - where goods are sometimes smuggled across, often on boats at night - could be challenging, North Korea experts say.
"In the past, we have seen shows of quite convincing enforcement in the major centres, such as at Dandong," said Chris Green, a North Korea expert at Leiden University in the Netherlands, referring to the largest trading hub on the China-North Korea border. "But further upriver, where press intrusion and interest tends not to be there, we haven't seen the same degree of energetic enforcement."
Despite tightening sanctions, trade in non-banned goods including food and other daily necessities continues between China and North Korea carried by hundreds of trucks crossing back and forth every day.
"Enforcement will depend a lot on China," said Tjia. "So far, a lot of the North Korean textiles trade to Europe and other places goes via China."
"It will be up to Chinese companies that deal in the North Korean textile trade to take action and up to the Chinese government to ensure the Chinese companies are taking action."
On a recent visit to the Chinese border with North Korea, several Chinese traders told Reuters the Chinese government is strictly enforcing U.N. sanctions to the point that some businesses that rely on trade with North Korea have already gone bankrupt or traders have had to start trading in non-sanctioned goods.
MORAL QUESTION
Another challenge is that clothes can be partly made in China and partly in North Korea with a "Made in China" label attached to the finished product.
"Even if a label says "Made in China", some parts of the product are allowed to be made in North Korea and other places," Tjia said. "For example, the buttons may come from Italy, the cotton may come from Australia or India, the labour may come from North Korea or China, the accessories may come from Bangladesh."
North Korea does not release statistics on the number of people involved in the textiles industry but experts estimate at least 100,000 people are employed at North Korean textiles factories, producing goods both for export and the domestic market.
Cheng Xiaohe, a North Korea specialist at Beijing's Renmin University, estimates the figure may be as high as 200,000 people.
A ban on textiles will not only impact factory workers but also their families who are supported by work in textiles factories, said Green.
Wages at textiles factories grew tenfold around 2010 when North Korea was experimenting with economic reforms, according to Green, so people suddenly went from earning 30 North Korean won to 300 won.
"They were suddenly getting a reasonable wage. Whereas 30 won or being paid in kind wouldn't get you very far, if you were suddenly being paid 300 won, it would get you something - until of course inflation kicked in."
Textiles factories in North Korea are increasingly "run like private businesses and part of the new, evolving social contract is that people get paid a wage and they can live off that wage, which is new to this generation," said Andray Abrahamian of Choson Exchange, a Singapore-based NGO that trains North Koreans in business skills.
"This year, we've entered a realm of sanctions where the effects are really, really going to be felt by ordinary people."
(Reporting by Sue-Lin Wong; Editing by Bill Tarrant.)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)