BEIJING/CHICAGO (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 in the United States and around the world.
The U.N. 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 designed to pressure North Korea into talks about its nuclear weapons and missile programs.
Retailers in the United States and other countries have intentionally limited their exposure to North Korea in recent years, as tensions over the country’s nuclear program have increased. The industry has sought to strengthen control over its supply chain since a textile factory collapse in Bangladesh killed more than 1,100 people in 2013.
Larger retailers, such as Wal-Mart Stores Inc (WMT.N), have the ability to keep North Korea-produced goods out of their stores. But smaller brands may face enforcement challenges, said Marc Wulfraat, president of supply chain consulting firm MWPVL International.
“There are still hundreds and thousands of companies that are sourcing from overseas that don’t have the wherewithal or the resources or people or money to chase after these issues,” Wulfraat said.
Textiles were North Korea’s second-biggest export after coal and other minerals in 2016, totaling $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. Goods still slip through in less visible areas, he said.
Trade in non-banned goods, including food and other daily necessities, continues between China and North Korea.
“Enforcement will depend a lot on China,” said Paul Tjia, an outsourcing specialist who regularly visits North Korea. “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.
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.”
A spokeswoman for Target Corp (TGT.N) said the company has taken steps to keep even unfinished goods from North Korea out of its supply chain.
“We’re aware of the accusations and have clear guidelines and standards in place for our vendors and suppliers,” said spokeswoman Jenna Rack. “We don’t source any products from North Korea or any apparel products from Dandong.”
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.
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,” said Green.
Supply chain consultant Tjia said North Korea textile workers will be hit by the trade ban. “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,” he said.
Reporting by Sue-Lin Wong in Beijing and Richa Naidu in Chicago; Editing by David Greising and Jonathan Oatis