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* North Korea has exploited loopholes in luxury goods ban
* Council hopes to vote on new sanctions draft Thursday
* Luxury goods ban in place since 2006 seen ineffective (Adds quotes from draft resolution)
By Louis Charbonneau
UNITED NATIONS, March 5 (Reuters) - A U.N. Security Council sanctions resolution to be voted on later this week calls for an explicit ban on the sale to Pyongyang of items coveted by North Korea's ruling elite, such as yachts and racing cars, a council diplomat said on Tuesday.
U.S. Ambassador to the United Nations Susan Rice circulated the draft resolution, which was agreed between Washington and Beijing after three weeks of bilateral negotiations, to the 15-nation council earlier on Tuesday. The new sanctions are a response to North Korea's Feb. 12 nuclear test.
The export of luxury goods to North Korea has been prohibited since 2006 when the council imposed sanctions on Pyongyang after its first nuclear test. But the council never defined what a "luxury good" was, leaving it up to individual states to decide what the constitutes a luxury item, and often enabling North Koreans to subvert the ban.
The draft, which the council hopes to vote on by Thursday, calls for ending delivery of specific items to North Korea, such as certain types of jewelry, yachts, luxury automobiles and racing cars.
"I mention yachts because this is actually a another real-world example," a council diplomat said on condition of anonymity. "We've had some success in trying to block the transfer of yachts to the ruling elite."
He said the measures were targeting the North Korean elite, "who are living these rather lavish lifestyles while the rest of their country is impoverished."
Pyongyang was hit with U.N. sanctions for its 2006 and 2009 nuclear tests, measures that were subsequently tightened and expanded after several rocket launches. In addition to the luxury goods ban, there is an arms embargo on North Korea, and it is forbidden from trading in nuclear and missile technology.
A foreign diplomat posted to Pyongyang, speaking on the condition of anonymity, said recently that North Koreans who were allowed to travel abroad appeared to buy as many luxury goods as they could before returning home.
"I have never seen an aircraft so packed with goods of this type," the diplomat said. "Everything is packed with bottles and bags," he added, referring to the regular commercial flights between Beijing and Pyongyang.
The latest draft resolution goes further than previous U.N. measures regarding inspection of North Korean transport vessels for banned items. The proposed new measures make it mandatory for states to inspect any suspicious North Korean cargo to determine if banned items - including luxury goods - are aboard.
"All States shall inspect all (North Korea-linked) cargo within or transiting through their territory .... if the State concerned has credible information that provides reasonable grounds to believe the cargo contains items the supply, sale, transfer, or export of which is prohibited," the draft says.
Under the current rules, inspections are voluntary and do not necessarily apply to luxury goods.
A 2012 report by the U.N. Panel of Experts on North Korea, an independent body that monitors compliance with the North Korea sanctions regime, described attempts by Pyongyang to import yachts.
The report said that an Austrian man cooperated with a Chinese company based in Dalian, China, to deliver two yachts to North Korea. It said the same Austrian also purchased eight S-class Mercedes automobiles for North Korea, with the Dalian-based Chinese firm falsely designated as the end user.
"Austrian authorities learned that (Josef) Schwartz purchased the vehicles at the order of Kwon Yong Rok, a citizen of the Democratic People's Republic of Korea (North Korea) and formerly long-term resident of Austria," the panel's 2012 report said.
Other items North Korea has attempted to import include tobacco and sake.
The expert panel said last year that implementation of the luxury goods ban was "deeply problematic" because it was up to each country to create its own blacklist and not all had done so.
The panel has said that North Korea was exploiting differences between such lists, where they exist, to avoid bans in one member state by shopping in another. The point of specifying certain luxury items in a Security Council resolution is to overcome that problem, the Security Council diplomat said.
The U.N. expert panel has said items considered luxury goods by many countries are sometimes not considered luxury goods by Beijing, which might be why China, Pyongyang's traditional ally and diplomatic protector, is a popular destination for luxury shopping sprees by North Koreans able to travel.
In 2011, the expert panel reported that Italy foiled an attempt by North Korea to import high quality U.S.-made tap dancing shoes valued at almost $200 a pair. Italy determined that the tap shoes were a luxury item, the panel said. (Additional reporting by Michelle Nichols; editing by Jackie Frank)