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Strategic Forecasting, Morning Intelligence Brief - April 18, 2007
Days after an agreed deadline to shut down its Yongbyon nuclear
reactor and invite International Atomic Energy Agency inspectors
back in, North Korea had yet to comply as of Tuesday. While there
are conflicting reports of satellite imagery showing "unusual
activity" around the Yongbyon site -- suggesting Pyongyang is about
to comply -- The United States has made it clear it has yet to be
notified of concrete action by North Korea.
Despite the delays, there is little sense of urgency -- and a
general acceptance that North Korea will be late, but ultimately
will shut down the site. The sense of crisis surrounding North
Korea's nuclear program has faded to near-ennui.
In February, months after North Korea tested a nuclear device,
representatives from North Korea, the United States, China, South
Korea, Russia and Japan signed an agreement laying out a phased
process to shut down North Korea's nuclear program and start down
the path of economic cooperation and international diplomatic
engagement with Pyongyang. The agreement marked a breakthrough in
negotiations that had been dragging since September 2005, when,
just after the six parties issued a common statement on the goals
of the nuclear negotiations, the U.S. Treasury Department took
action against the Macau-based Banco Delta Asia (BDA) -- accusing
the bank of assisting North Korea in laundering counterfeit money,
and freezing some $25 million in North Korean-related funds.
The BDA freeze hit North Korea in three ways. First, BDA was a key
bank through which the North Korean government and businesses
conducted international transactions in dollars, euros, yen and
yuan. Shutting down the BDA accounts not only closed off this
avenue of foreign exchange, but also triggered other banks dealing
with North Korean-related accounts to cease working with Pyongyang.
North Korea's international transactions, small though they are,
were significantly hindered.
Second, the freeze was a strike against North Korea's pride. The
punitive action was seen as a slap against the North Korean regime,
and coupled with the accusations of counterfeiting and money
laundering, besmirched the North Korean name (not that it was
especially clean to begin with). For Pyongyang, this was a direct
insult to the regime and leadership -- and North Korean negotiators
have been known to walk out of meetings over much-less-significant
slights, such as when foreign negotiators failed to greet them at
the door.
The third aspect, and perhaps the most significant, was that the
BDA action, coming just days after the September joint statement of
principals, convinced North Korea that the U.S. administration with
which it was dealing was untrustworthy. From Pyongyang's
perspective, if Washington would strike out at North Korea (albeit
economically) immediately after agreeing to work toward consensus,
the talk of cooperation obviously was false. Pyongyang refused to
re-engage in the six-party process until Washington freed up the
BDA accounts.
But as time went on, and Pyongyang kept stalling, it also noted
something more in the seemingly bipolar attitude of the United
States -- a clear lack of policy unity. This was something the
North Koreans knew how to deal with, and they soon started raising
the stakes, leading to a series of missile launches in July 2006
and a nuclear test the following October. Through these provocative
actions, North Korea sought to exploit the factional rift inside
the U.S. government -- just as Pyongyang had skillfully played off
rifts between Washington and Seoul to gain additional leverage.
The U.S. position had been that it would in no way unfreeze the
money; the reason for freezing the funds was Pyongyang's illicit
activity, and Washington could not let that go without setting a
bad precedent, not only for North Korea but also for other
countries. But now, elements in the U.S. State Department and
elsewhere pushed to re-engage North Korea, saying the BDA issue had
stalled dialogue and led to the nuclear test -- and that
re-engagement, rather than isolation and punishment, was the only
way to defuse the crisis (shy of the last resort of military
action ). And as the Bush administration grew more focused on Iraq
and Iran, and saw its Republican majority slip away in the House
and Senate, it finally conceded, allowing a resolution of the BDA
issue and thus re-engagement with North Korea.
This was a major victory for Pyongyang: the United States
completely reversed its earlier stance. Even though Washington
released its hold on the funds shortly after the February
agreement, few banks were willing to accept the money for fear of
U.S. action against them for touching tainted money -- and it took
almost the entire two months of the first phase of the agreement
for Washington finally to work out a deal whereby North Korea could
simply withdraw the money directly from BDA.
Pyongyang is now probing just how much weakness there is in the
U.S. position. The accession to North Korean demands, and the U.S.
delay in fulfillment -- coming on top of the West's rather
restrained reaction to North Korea's nuclear test -- gave
Pyongyang both the confidence and the justification to delay its
own action. North Korea will shut down Yongbyon, and likely within
a few days, but Pyongyang feels that it has once again taken the
driver's seat, and is seeing just how far it can go before reaching
a U.S. break point. And it is now much less trusting that a lasting
deal with the Bush administration would be meaningful.