On February 18, 2017, China's Ministry of Commerce and its General Administration of Customs jointly announced a suspension of China's imports of coal from North Korea, also known as the Democratic People's Republic of Korea (DPRK), for the remainder of 2017. The suspension, if not offset by economic cooperation that provides North Korea with other income, could signal a new willingness on China's part to impose economic pressure on the North Korean regime in response to its nuclear and missile programs. Some analysts speculate it could be the first in a series of Chinese and U.S. moves to restart diplomacy over Pyongyang's nuclear and missile programs. China's announcement also could be an effort to avoid violating United Nations Security Council (UNSC) sanctions against Pyongyang at a time when the Trump Administration is accusing China of not doing all it can to rein in North Korea.

Coal's Importance to North Korea

Coal is believed to be North Korea's top export item. From 2010 to 2015, according to estimates by the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA), coal shipments accounted for an average of a third of North Korea's total export revenues. According to import statistics available through Global Trade Atlas, North Korea's coal exports generated more than $1 billion in revenue for Pyongyang each year in this period. More than 97% of the exports went to China.

U.N. Sanctions Targeting North Korea's Coal Exports

After North Korea conducted its fourth nuclear test in January 2016, the U.N. Security Council on March 2, 2016, passed UNSC Resolution 2270 (UNSCR 2270), which required U.N. member states to cease importing North Korean coal. China successfully pushed for an exception for coal transactions that were deemed to be "exclusively for livelihood purposes and unrelated to generating revenue for the DPRK's nuclear or ballistic missile programs." China appears to have encouraged its businesses to make use of this "livelihood" exception. China's imports of coal from North Korea grew in both volume and value during 2016. (See CRS Insight IN10647, Why Did March 2016 U.N. Sanctions Not Curb China's Imports of Coal from North Korea?)

Following North Korea's fifth nuclear test in September 2016, the Security Council on November 30, 2016 passed UNSCR 2321, limiting North Korea's total exports of coal under the "livelihood" exception. For the month of December 2016, UNSCR 2321 capped North Korea's coal exports at 1 million metric tons or a value of $53.5 million, whichever was lower. Starting in 2017, UNSCR 2321 capped North Korea's annual coal exports under the "livelihood" exception at the lower of 7.5 million metric tons or a value of $400.1 million.

Possible Explanations for China's Suspension of Imports of North Korean Coal

Analysts have offered several possible explanations:

• 1. China may have determined that North Korea's most recent actions justify a ratcheting up of economic pressure on the regime. China has in the past emphasized that UNSCRs should neither have adverse consequences for North Korea's population nor "affect negatively normal economic and trade activities." On February 13, 2017, however, Kim Jong Nam, the older half-brother of North Korea's ruler, Kim Jong Un, was assassinated in Malaysia, reportedly poisoned with the banned chemical agent VX. Kim Jong Nam had been living with his family in China's Macao Special Administrative Region. South Korea has accused the North Korean government of involvement in the murder. The day before the assassination, North Korea launched a ballistic missile, in violation of UNSCRs.
• 2. China may have hoped "to offer a cooperative gesture to the incoming Trump administration in return for an initiative on negotiations," according to one analyst. China's suspension came a day after Secretary of State Rex Tillerson, in a meeting with Chinese Foreign Minister Wang Yi, "urged China to use all available tools to moderate North Korea's destabilizing behavior," and after Wang called for a resumption of Six-Party Talks, suspended since 2008, involving China, Japan, North Korea, Russia, South Korea, and the United States. North Korean officials reportedly planned to travel to the United States in March 2017 to hold discussions with U.S. scholars and former U.S. officials for the first time since 2011. On February 24, 2017, however, the Trump Administration reportedly declined to grant visas for the North Korean participants.
• 3. China may have determined that its failure to keep its imports of coal from North Korea within the UNSCR 2321 caps for December 2016 was an embarrassment that would be compounded if Chinese coal traders exceeded the UNSCR 2321 caps for 2017, too. For December 2016, a U.N. tracking website shows China reported imports that were twice UNSCR 2321's allowed volume of coal imports for the month and more than three times the allowed value.

Possible Economic Impact

For the first month of 2017, China reported importing nearly one fifth of the full-year volume cap for 2017. With coal prices rising, and assuming that China imported North Korean coal from February 1-18, 2017, at the same rate as it did in January, one analyst estimates that China may have reached around two thirds of UNSCR 2321's full-year value cap before the suspension took effect. The annual caps in the resolution already stood to reduce North Korea's coal exports in 2017 by either 15 million tons or nearly $800 million, compared to 2016. If China does not re-start imports to reach the full value cap for 2017, North Korea could lose another $100-$150 million in export earnings this year. In 2015, according to KOTRA and South Korea's Ministry of Unification, North Korea's total export earnings were an estimated $4.1 billion.