-- The Korean Peninsula and the demilitarized zone (DMZ) that splits it in two, are one of the world's most dangerous flashpoints; President Clinton called it "one of the scariest places on earth;"

-- In addition to troops massed on the DMZ, the fragility of Northeast Asian security is underscored by the North's military and technological capability; North Korea has one of world's largest armies of 1 million men, artillery capable of bombarding Seoul and recently launched a Taepodong I missile which could hit anywhere in South Korea and Japan; with further development such missiles could reach Alaska, Hawaii, and even the continental United States;

-- These capabilities make North Korea a threat in the eyes of Japan, South Korea or ROK, the US, and China, too, views the Democratic People's Republic of Korea (DPRK) as a key facet of Northeast Asian security;

-- All this attention on North Korea, however, has not succeeded in resolving, for outside observers, questions about the country's predictability or unpredictability;

-- At times, the North has seemed open to increased contact with the outside world; at others, to be following a strategy of extremely high stakes and dangerous brinkmanship and belligerence;

Recent Developments

-- Early last year there were a few encouraging signs: Kim Dae Jung became president of South Korea and called for a pragmatic engagement, three-stage process of reconciliation and eventual reunification of the two Koreas, separating economics from politics; Four Party talks involving both Koreas, China, and the US to work toward permanent peace arrangements reconvened; North-South talks resumed; later in the year, honorary chairman and founder of South Korea's biggest conglomerate Hyundai, Mr. Chung Ju-Yung, visited North Korea and met the reclusive Kim Jong Il, the leader of North Korea, and worked out arrangements -- which might total $1 billion over ten years, including tourist visits to Mount Kumgang and extensive investment in North Korea;

-- However, at the same time, North Korea continued to send spy submarines south; and last summer, US intelligence detected possible efforts by the North to construct nuclear facilities at Kumchangri, north of the nuclear facilities at Yongbyon, which had been frozen as a result of the 1994 US-DPRK Agreed Framework;

-- On August 31 last year, on the very day that the US, ROK, Japan, and EU were to sign a $4.6 billion "cost-sharing resolution," determining how funding for the KEDO project called for in the Agreed Framework would be financed, North Korea fired a three stage missile across northern Japan; while Pyongyang called it a satellite, the missile caused outrage in Japan and in the US Congress;

What is KEDO?

-- Under the Agreed Framework, signed between the US and the DPRK in October 1994, KEDO must supply two 1,000 megawatt light water reactors (LWR), which do not pose a nuclear proliferation threat, and 500,000 tons of heavy fuel oil (HFO) per year until the pending completion of the first reactor;

-- KEDO is an international organization consisting of four Executive Board member countries, led by the US, ROK, Japan, and the EU, as well as other contributing members; besides providing the DPRK with the two LWR's and the HFO, the broader mission of KEDO is to contribute to the strengthening of the international non-proliferation regime while improving the prospects for lasting peace and stability on the Korean Peninsula and Northeast Asia;

-- KEDO is often referred to as a model of how a cooperative and targeted international diplomatic effort can lead to the resolution of regional security or political crises;

-- It is fair to say that in its first four years of operation KEDO has achieved greater success than most observers initially thought possible and more than many of its current critics will acknowledge;

Broader Accomplishments

-- On the nuclear non-proliferation level, KEDO's success has ensured the continued freeze of the suspect facilities at Yongbyon, including the five megawatt reactor, 50 and 200 megawatt graphite-moderated reactors under construction, the reprocessing facility, and related facilities; the spent fuel rods from the five megawatt reactor have been removed and almost all canned; the DPRK has remained a party to the NPT and has allowed the IAEA to resume its monitoring activities at Yongbyon; these are hard won and highly significant accomplishments;

-- KEDO has also served an important diplomatic function; through its daily work in New York, in negotiations with the DPRK, and at our Kumho site on North Korea's east coast, KEDO has provided a continuous, crucial link between Pyongyang and the outside world; particularly during the occasional flare-ups that have occurred, KEDO has provided a formal and an informal forum for near constant contact and interaction with the North;

-- In addition to being a window to the world for North Korea, KEDO has provided an opportunity for direct contact between North and South Koreans at various levels; South Koreans in KEDO have directly negotiated agreements with North Koreans; we have learned to work with each other and to listen to each other's concerns;

-- There has also been considerable interaction between the more than two hundred South and North Korean workers at the site; it has been a remarkable aspect and benefit of the project that workers from the two Koreas, which remain technically at war, laughing, sharing cigarettes and in general learning each from the other for the first time; as the LWR project progresses, thousands of South and North Koreans will work side by side jointly building the two light water reactors;

-- Finally, KEDO has also provided important political benefits to its founding members; KEDO has become an important feature of the landscape on the Korean Peninsula and in Northeast Asia by becoming an important mechanism for coordinating and harmonizing Japanese, South Korean, American, and now European interests and policies; this is especially important given the historical tension between Japan and Korea;

Other Components of Engaging the North

-- KEDO's mandate is actually quite narrow, but its impact is broad; our work serves as a first step, the start of a foundation for a new structural relationship that the outside world is attempting to build with North Korea;

-- If all goes well, KEDO can be a vehicle to begin the process whereby Pyongyang might be enticed from its isolation and brought into the broader regional and international community;

-- upon this base, the other components of this relationship with Pyongyang can be built; these include:

-- the Four Party Talks, involving the US, China, and the two Koreas, to build confidence on the Peninsula, end the state of war which exists, achieve force reductions and military transparency; and secure a permanent structure for peace and stability in Northeast Asia;

-- North-South Talks -- crucial to any longer term solution on the Peninsula -- and for which KEDO has already proven to be a useful prototype;

-- Normalization talks by the North with the United States and Japan -- including incumbent difficulties, such as resolution of issues like DPRK missiles, technology transfer, and humanitarian issues;

-- US-DPRK talks focus on missiles and, separately, on the "suspicious underground activities;"

-- It is very clear that North Korea attaches great importance to the LWR project; even when various components of the structural relationship seem stymied, there has been no diminution of Pyongyang's enthusiasm for dealing with KEDO on the LWR project;

-- In effect, KEDO is a classic confidence building measure, part of a foundation upon which North-South dialogue, Four Party Talks, and bilateral normalization talks can build;

-- But, it is not enough to construct only a foundation; all parties concerned -- including the ROK, Japan, the US, the DPRK -- must have an architectural design of the new structural relationship they seek, including how to build it and some vision of what ultimately may emerge upon the foundation; I will return to this point in a moment;

Perceptions of the Players

-- Let's look at what I perceive to be the current perspectives of the ROK, Japan, and the United States in the wake of the missile and suspect underground facilities crisis;

-- The Kim Dae Jung Administration of South Korea made a major investment in a serious attempt to separate economics from politics, eschew early reunification, or the collapse of the DPRK; Seoul's reaction to a string of provocations has been patient and visionary; but the political cost has been serious and the "sunshine policy" put at risk by Pyongyang's failure to reciprocate the constructive policies in Seoul; with Pyongyang's new proposal for talks, this may be in the process of changing;

-- In Tokyo, Pyongyang's obduracy in negotiating humanitarian issues of importance to Japan -- further visits by wives, the kidnaping cases -- had already hardened attitudes and cost Pyongyang considerable goodwill; the missile broke the camel's back, provoking Tokyo's "outrage and anger" and the clear perception that now the DPRK represents a security threat to Japan -- a radical change which resulted in calls for stepped up research on a theater missile defense system (TMD) and Japan's own "intelligence satellite;"

-- Evidence of suspect facilities and the new threat from missiles drastically undercut congressional support for Washington's policy toward North Korea, and forced short deadlines on the Administration to resolve the ambiguities of the underground facilities or sacrifice the Agreed Framework with all the dire consequences this would entail; the "underground facilities" issue, was overblown from the start since it would take several years to build facilities and actually produce plutonium; this issue seems on its way to resolution; the missile threat thus may soon take front stage;

-- China's longstanding ties and support for North Korea reflect the importance it places on the DPRK's stability and the realization that instability in North Korea could affect the security and prosperity of the entire region; Beijing is very much afraid that the intense focus on missiles, "underground facilities," etc. will hype the North Korean threat and create such momentum that confrontation will inexorably explode -- and that Beijing will be expected to defuse issues related to North Korea which are not under Beijing's control; Beijing will then be blamed for failure to end the crisis;

View from Pyongyang

-- Pyongyang's overriding goal is survival; Pyongyang has abandoned the goals of communizing the South and early reunification under DPRK auspices; Pyongyang is convinced that it's survival is threatened by two challenges:

1) it is surrounded by hostile forces, led by the United States, which are intent on destroying the DPRK, or stalling, while waiting on the DPRK's collapse;

2) the DPRK economy is in danger of total collapse;

-- In my view, based on regular conversations with North Koreans, Pyongyang believed that the Agreed Framework and KEDO, as its instrumentality, committed the United States to end its hostility toward the DPRK and move rapidly to normal relations;

-- North Korean concern with erratic HFO deliveries and the pace of the construction of the light water reactors fed suspicion that the United States was not proceeding as hoped; even more, the failure after four years to lift economic sanctions was both blamed (erroneously) for the declining state of the DPRK economy and, even more importantly, was seen as a signal that Washington was not genuinely committed to ending hostility toward the DPRK;

-- These suspicions have been exacerbated by US reaction, however justified, over the purported "suspicious underground facilities" and missile launch last summer, as well as rhetoric in the US Congress and the reports in the press of an Opslan 5027 calling for US and ROK occupation and takeover of the DPRK in some contingencies;

-- Likely conflicted views among leadership -- those who believe some opening necessary, and others addicted to "juche" and would have serious doubts about contamination from "sunshine policy" or engagement with the United States;

Regarding the Threat of Total Economic Collapse

-- As you are aware, the 1989 collapse of the Soviet Union, including its financial assistance and China's 1992 policy decision to normalize ties with South Korea and its ending of preferential commercial treatment of the DPRK cut North Korea adrift from its financial moorings; together Moscow and Beijing had provided the subsidies which sustained North Korea since its founding;

-- After losing that support, the DPRK economy, by my estimate, declined some eighty percent between 1989 and today;

-- The DPRK's industrial economy has declined dramatically and functions only marginally, at perhaps twenty percent of the capacity of the late eighties; DPRK's primitive agricultural economy -- because of floods, droughts, Stalinist and "juche" agricultural policies -- produces about half annual requirements; I agree with the IMF and World Bank assessments that the DPRK economy cannot recover without massive external inputs;

-- Despite certain ideological legacies, out of historical concern for preserving its sovereignty and territory, Pyongyang is fearful of overdependence on China as its principal source of economic or military support;

-- After flirting in the late eighties with Japan as a potential partner to rescue the economy and then South Korea with the comprehensive agreements achieved in 1991-92, Pyongyang evidently concluded that the United States was key to managing the security and economic threats it perceived; North Koreans contend that Washington is also the path to relations with Tokyo and Seoul;

Invigorating the Approach

-- At this point, Pyongyang seems to have almost concluded that its approach through the Agreed Framework to manage its security and economic concerns may be failing;

-- The Agreed Framework and KEDO are, as a consequence, at serious risk -- Both because of US and allied concern about the "suspicious underground facilities" or another missile launch, but also because of failure to accelerate the pace of commitments under the Agreed Framework;

-- Needless to say, Pyongyang has not been an easy partner for our common efforts, but no matter how difficult Pyongyang may be, it is our basic goals, in Northeast Asia that are at risk; the alternative to sustaining the core of the Agreed Framework and KEDO is confrontation and increased risk of war;

-- To rescue our objectives vis-a-vis the DPRK -- non-proliferation , ending a missile threat, and building a peaceful and prosperous Northeast Asia, I believe that the Agreed Framework and KEDO must be folded into a comprehensive package of policy moves, taken in concert with Seoul, Tokyo, Brussels, and Beijing, and articulated directly at top political levels in Pyongyang by an American political figure;

-- "How" this approach is articulated is just as important as its contents;

-- But KEDO, the seed for peace, may have been planted in acidic soil, been subjected to extreme temperature changes, been ill-tended, and now need to be bedded in more hospitable terrain;

The outlines of the broader approach would include:

-- Acknowledgment to Pyongyang that the potential of the Agreed Framework has not met either of our broader goals and expectations; consequent frustrations and suspicions have mounted to the point of undermining our original understandings and intentions;

-- For the sake of peace and prosperity in Northeast Asia, the US and its allies are prepared to broaden engagement with the DPRK to make credible that we are intent on ending the hostile relations between ourselves and the DPRK -- in line with President Kim Dae Jung's approach;

-- It would be absolutely -- but artfully -- clear that Pyongyang must choose between meaningful and peaceful engagement and support for the rehabilitation of North Korea's economy, in conjunction with elimination of the nuclear, missile, and military threats on the one hand, or isolation (confrontation) with all the economic and military dangers this poses to North Korea, on the other;

Immediate Measures

-- Some measures should be undertaken immediately to serve our own interests and signal a new beginning:

-- The Agreed Framework and KEDO would remain at the core of our efforts; but we must be prepared to accelerate and broaden all aspects of their implementation;

-- To this end, the US should lift expeditiously all sanctions under the purview of the President to demonstrate the good faith of the United States to move to a normal, constructive relationship with the DPRK;

-- The US would propose immediate establishment of liaison offices in Washington and Pyongyang, anticipating rapid movement to normal, diplomatic relations; if Pyongyang is not ready to open in Washington, the US would open its liaison office first, assuming DPRK concurrence;

Longer Term Measures

-- Others would take slightly longer, but would be pursued with despatch:

-- The US-ROK-Japan would work closely to promote DPRK entry into the IMF, the World Bank, the Asian Development Bank as quickly as the DPRK could satisfy the technical and transparency requirements of membership; in the meantime, the allies would support training activities by all three institutions to help with North Korea's economic recovery;

-- The US, Japan, ROK and the European Union, with participation by other interested countries, would agree to establish a Korean Peninsula Investment Facility which would work with the DPRK to identify North Korean industry appropriate for external investment and to facilitate such investment; emphasis on investment with potential to speed restoration of North Korea's basic industry, energy production, infrastructural development and export potential; (This could incorporate such ideas as Kim Dae Jung's "Pusan to Beijing" rail link, Russia's Siberia to South Korean oil pipeline, as well as Pyongyang's interest in mining, energy, the electrical grid, etc.);

-- The US and its allies would encourage efforts by the UNDP, WFP, FAO, NGO's, and others to assist in the rehabilitation of the agricultural sector of the DPRK economy;

-- Generous humanitarian assistance with food and basic medicine would continue during the period working toward recovery in North Korea;

-- All these efforts would aim to help build the long term viability of the DPRK industrial and agricultural economy;

-- While the US would be prepared to move ahead in all these areas, in conjunction with progress on other issues in the Four Party and US-DPRK bilateral talks, bilateral dialogue with Japan and South Korea would also be essential to success; the EU would also be part of these efforts;

(Similar messages would be delivered by Tokyo, Seoul, and Brussels to Pyongyang; Beijing's support would also be sought);

Security Issues

-- Pyongyang would have to understand that these benefits would flow only in conjunction with Pyongyang's ending its threatening activities; this would have to be articulated very carefully since Pyongyang dislikes intensely "tit for tat," "quid pro quo," or conditioned approaches; the diplomatic challenge is to achieve these ends in ways which do not offend North Korean attitudes; Pyongyang would also have to make clear its intention to end its hostility toward us;

-- "Suspicious Underground Facilities" - in light of Washington's and its allies' willingness to move ahead to resuscitate the DPRK economy, it would be essential that Pyongyang clarify promptly this and any other comparable suspicions;

-- Missiles - DPRK willingness to end development, deployment and export of medium and long range missiles would be essential components of this broadened approach with the DPRK;

-- Reduction of force deployments on the DMZ should also be high on the agenda of the Four Party talks;

Implications of this Approach

-- A rejuvenated and broadened initiative represents the best hope for rescuing a constructive relationship with the DPRK, to bring North Korea from its isolation into the international community, to avoid dangerous confrontation, and bring peace and stability to Northeast Asia;

-- I judge the gamble for peace to be worth the risk;

-- None of the measures proposed is irreversible; all could be pursued pragmatically, taking into account developments in Pyongyang;

-- Should this new start fail, the United States would be in a far stronger position to rally its allies, including Beijing, in an inevitably even more dangerous period ahead;