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North Korea Talks Stalled by Banking Dispute

Paul Kerr

Hoping to advance an initial agreement to eliminate North Korea 's nuclear weapons program, participants in the six-party talks met in Beijing March 19-22. But progress on the Feb. 13 pact was stalled by an ongoing banking dispute.

Talks recessed because of delays in resolving issues concerning frozen North Korean accounts associated with the Macau-based Banco Delta Asia. According to a statement from China 's Foreign Ministry, the six parties agreed to resume the talks “at the earliest opportunity to…formulate an action plan for the next phase.” No date has yet been set, a Department of State official told Arms Control Today March 29.

Before the recent meeting, the six parties, which also include Japan, Russia, South Korea, and the United States, appeared to have made modest progress. The March round of talks was the sixth in a series since August 2003.

Nonetheless, Assistant Secretary of State for East Asian and Pacific Affairs Christopher Hill expressed optimism about the talks' future. “I'm pretty convinced we can get back on track, and we certainly have time to complete all the…actions” specified in the February agreement, Hill told reporters in Tokyo March 23.

That agreement called on North Korea to halt the operation of its nuclear facilities at Yongbyon within 60 days in return for energy and economic assistance from the other five parties. Five working groups were tasked with formulating specific plans for implementing the rest of a September 2005 joint statement. (See ACT, March 2007.)

In that statement, North Korea pledged to abandon its nuclear weapons and “existing nuclear programs” in exchange for a series of political and economic incentives. (See ACT, October 2005.)

The parties had agreed during their February meeting to meet the next month to assess the working groups' progress and discuss “actions for the next phase.”

Bank Issue Remains Obstacle

In order to strike the earlier deal, the United States had pledged that the Banco Delta Asia dispute would be resolved within 30 days. U.S. and North Korean officials reached agreement within that time frame, but difficulties in transferring disputed funds have delayed its implementation. North Korean negotiators responded by refusing to engage in further discussions.

The bank matter has been a persistent obstacle to the six-party talks' progress since September 2005 when the U.S. Department of the Treasury designated the bank as a “money laundering concern.” Subsequently, the bank froze North Korea 's accounts, and other financial institutions curtailed their dealings with Pyongyang . The United States has asserted that the bank provided financial services to North Korean government agencies and front companies engaged in illicit activities such as drug trafficking.

On March 19, Deputy Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes Daniel Glaser announced that the two countries had “reached an understanding” regarding the frozen funds.

The United States accepted a North Korean proposal for resolving the matter, Glaser said, adding that the funds in question will be transferred from Banco Delta Asia into an account held by North Korea 's Foreign Trade Bank at the Bank of China in Beijing . Pyongyang has agreed that the money “will be used solely for the betterment of the North Korean people, including for humanitarian and educational purposes,” he said.

Although Glaser asserted that the agreement resolves the issue, North Korea has refused to negotiate further until the funds are actually in the account. The process of transferring the funds has proven to be a “complex task,” Hill said March 23, adding that the North Koreans “have made very clear they won't talk about other things” until that task is complete. Pyongyang views resolution of the Banco Delta Asia issue as a test of Washington 's willingness to fulfill its part of the February understandings, Hill added. Chinese Foreign Ministry spokesperson Qin Gang told reporters March 27 that all relevant parties “are still discussing” the matter.

North Korea appears also to have conditioned progress on disabling its nuclear facilities on resolution of the Banco Delta Asia issue. International Atomic Energy Agency (IAEA) Director-General Mohamed ElBaradei said in a March 14 interview with CNN that North Korean officials had said the government would not shut down the reactor until the bank issue was resolved. An unnamed South Korean intelligence official said the reactor is still operating, the semi-official Yonhap news agency reported March 19.

Modest Progress

In February, the six parties formed five working groups, which were to meet within 30 days to discuss the implementation of various aspects of the agreement. All have met once but appear to have made only modest progress.

No additional working group meetings have been scheduled, the State Department official said.

According to the February agreement, North Korea is to shut down and seal its nuclear facilities “for the purpose of eventual abandonment” and allow IAEA inspectors to conduct the “necessary monitoring and verifications.” Pyongyang also is to discuss “a list of all its nuclear programs” with the other parties.

For their part, the other parties are to provide emergency energy assistance to Pyongyang “equivalent to 50,000 [metric] tons of heavy fuel oil.” Hill said during the March 6 edition of The Charlie Rose Show that the initial shipment, which is to be funded by South Korea, will “probably” arrive in North Korea the same day as when Pyongyang shuts down the reactor.

The next diplomatic phase is less detailed but is to include North Korea 's provision of “a complete declaration of all nuclear programs,” as well as the “disablement of all existing [North Korean] nuclear facilities.” In return, the other parties are to provide “economic, energy, and humanitarian assistance up to the equivalent” of an additional 950,000 metric tons of heavy fuel oil.

The details of this assistance are to be determined by a working group charged with managing economic and energy cooperation. A South Korean diplomat told Arms Control Today March 27 that the group discussed the initial fuel deliveries, but little else. Similarly, Hill told reporters March 20 that another group tasked with managing the denuclearization issue had made less progress than he had hoped.

Still, North Korean officials did discuss implementing the nuclear shutdown during the talks with ElBaradei. The two sides “focused on initial monitoring and verification for the shut down” of Pyongyang's nuclear facilities, according to a March 15 IAEA press release. It also stated that the agency must next “reach an agreement” with North Korea on “specific technical arrangements for monitoring and verification.”

Hill said March 6 that he had discussed Pyongyang 's suspected uranium-enrichment program during a bilateral working group meeting in New York . It does not appear that the two sides made progress on the matter. The United States asserts that North Korea has acquired materials for such a program, which can produce fissile material for nuclear weapons. The Yongbyon nuclear facilities produce plutonium, the other fissile material used in such weapons.

The two countries also discussed the normalization of relations, including removing North Korea from a U.S. list of state sponsors of terrorism, Hill added. North Korean Vice Minister Kim Gye Gwan described the talks as “constructive,” the Kyodo news agency reported March 7.

A working group tasked with managing the normalization of Pyongyang 's relations with Tokyo also met. But that meeting was considerably more acrimonious than the U.S.-North Korean meeting, reportedly ending early. The two sides remain divided by Japan 's concerns about North Korea 's past abductions of Japanese citizens.

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