"suspicious underground nuclear facilities," submarines, "Taepodong" missiles, governmental paralysis, misunderstanding and misinterpretation on all sides and a failure to accept major progress made - all feeding on each other to prevent the kind of progress for which I hoped; I have felt as though we were in the cockpit of conflict;

-- In recent months, we have begun to see a few rays of light; in this vein, let me characterize the roles of the principal players during this period:

-- The extraordinary vision and wisdom of South Korea's President Kim Dae Jung has transformed the role of South Korea into a force for regional peace and reconciliation; his leadership has, in turn, edged the United States and Japan into more accommodating postures vis-a-vis North Korea; his decisive action to rescue and reform South Korea's economy after the financial crisis struck in December 1997 and to modernize Korea's financial system, labors' role, and the chaebol will strengthen Korea's economy and make it competitive for the 21st century;

-- President Kim has also taken advantage of the exceptional diplomatic successes of his predecessor Roh Tae Woo and cultivated ties with virtually every leader in the region, with China, Mongolia, and Russia, as well as through his landmark visit to Tokyo in October 1998 through which he and Prime Minister Obuchi wisely laid out a new and constructive understanding between Japan and South Korea for the future; Kim Dae Jung's relationship with Washington is perhaps the best and most balanced ever between Washington and Seoul; in other words, Kim Dae Jung has revamped South Korea's place on the diplomatic map, staking out a prominent and solid role for Seoul in regional affairs;

-- US efforts have remained the backbone of diplomatic resolve to deal with the nuclear non- proliferation, missile, and other security issues on the Peninsula; from the Agreed Framework of October 1994, Ambassador Charles Kartman's achievement of the agreement on inspection of "suspicious activities" at Kumchangri last May, North Korea, to the recent agreement in Berlin, and, of great significance, Secretary William Perry's extraordinary diplomatic efforts and the recommendations in October he delivered to President Clinton, based on close consultations with Japan, South Korea, China, and in May 1999 in Pyongyang;

-- A visit to Washington perhaps in March by a "senior North Korean official foreshadows an acceptance, at least to some degree, of Secretary Perry's proposals and could be the turning point in the history of hostility between the DPRK and the outside world;

-- Although seriously shaken by the firing of the three stage rocket over Northern Japan and the attendant political fallout in August 1998, Tokyo has resumed its significant role in common efforts to deal with the issues related to North Korea; normalization talks between Japan and North Korea also now are in the offing, possibly next month, and are also an essential component of managing the Korean puzzle;

-- The Taepodong, more than the importuning of generations of US State/Defense Department officials, has awakened Japan to consider its legitimate security interests for the first time since WWII and the establishment of the US-Japan Alliance;

-- younger Japanese leaders, starting with Prime Minister Obuchi, are now seeking to define a "normal" Japan with updated, practical defense guidelines spelling out the Japanese role with its principal security partner, the US:

-- a Japan which participates in UN Peacekeeping operations, as the new three coalition partners in Tokyo are actively seeking to allow and a Japan which has normal security interaction with its neighbors (such as the July joint maritime exercise with South Korea);

-- The European Union, a board member of KEDO since September 1997, has taken increasing and very constructive interest in North Korea; the EU provides 15 million ECU annually to KEDO, is seriously considering establishing diplomatic relations with the DPRK, is making a significant humanitarian contribution, and is a welcome "objective" player in the unfolding evolution on the Peninsula; Italy normalized relations with the DPRK last month; France is engaged in discussions;

-- In my view, China, too, has been a valuable and constructive player regarding developments in Korea; although a supporter, China declined to join KEDO to preserve its independent role with North Korea; I am confident that Beijing has provided constructive advice on economic reform in North Korea, encouraged North Korea to defuse the nuclear issue in 1994, and urged Pyongyang to defuse the Kumchangri issue;

-- China has been an invaluable partner in the Four Party Talks; China also provides roughly 150,000 tons of food, some oil, and refuge for several hundred thousand North Koreans who have crossed the Chinese-Korean border in search of food; perhaps 1-200,000 remain in China today;

-- Russia's influence declined dramatically when the former Soviet Union abruptly established diplomatic relations with South Korea; cutoff of Russian economic assistance precipitated the sharp decline in North Korea's economy over the past nine years; Moscow has been nibbling at the diplomatic margins recently, trying again to assert some role in Pyongyang to position itself for a role in diplomatic maneuvering to shape Northeast Asia in the days and years ahead;

-- Russian Foreign Minister Ivanov visited Pyongyang this week to sign a Treaty replacing the Soviet-era pact which required Moscow to come to the DPRK's aid should North Korea be attacked. In this first visit since former Foreign Minister Shevardnadze difficult visit in 1990, Ivanov hopes to strengthen economic and commercial ties and begin building a new relationship with the DPRK;

The Agreed Framework and KEDO

-- The Agreed Framework and KEDO have been a major instrument for the policies of four of these six players - the US, Japan, South Korea, and the European Union - but China and the Soviet Union are keenly aware of the role we are playing; In a visit last month to Beijing, senior Chinese leaders expressed appreciation for KEDO's efforts in North Korea, stressing their importance;

-- KEDO has achieved far more than critics admit;

-- All North Korean nuclear facilities at Yongbyon remain frozen (the 5, 50, and 200 megawatt reactors, the reprocessing facility, the spent fuel rods have been frozen since the Framework was adopted); and, all these North Korean nuclear facilities will eventually be dismantled and full scale inspections by the IAEA held;

-- This is a major non-proliferation accomplishment; those who oppose the Agreed Framework should make clear how they would propose to deal with this threat;

-- KEDO also plays a very important diplomatic role as a channel to the DPRK - in New York, Pyongyang, and at Kumho on North Korea's northeast coast where we are building the reactors - we are in continual contact with the North Koreans;

-- KEDO is also a unique organization for harmonizing the policies of the four toward North Korea, having led to unprecedented cooperation between Japan and South Korea, as well as with the US and EU on an Asian issue;

-- KEDO is a model for ameliorating future crises before they break into conflict;

-- KEDO also fosters North-South contacts and negotiations at all levels - workers, managers, and senior policy personnel;

Current Situation

-- To bring you up to date, I signed the Turn key contract with the South Korean company KEPCO, the Korean Electric Power Corporation, December 15, 1999, to build the entire plant in Kumho, North Korea; I signed loan agreement for $3.22 billion with South Korea's KEXIM last December 15, and another with the government of Japan for 116.5 billion yen on January 31;

-- We finally should begin full-scale construction of the reactors within a few weeks - a highly significant confidence building measure for North Korea;

-- We have already constructed from nothing a village at Kumho, half way up the eastern coast of North Korea, workers housing, a restaurant for one thousand workers, a water purification plant and electrical generators, a karaoke or norebang bar, places for religious worship for three faiths, a soccer field and hot baths; we have knocked down half a mountain on which the reactors will be sited, built roads, pipelines and are about to construct the causeway and port on Kumho's beautiful coast;

-- KEDO is the basic building block of a new relationship with North Korea, a device for bringing North Korea from its isolation; I am convinced that North Koreans themselves see KEDO as a test to whether the DPRK can deal satisfactorily with the outside world;

-- Upon this building block, other facets of a new relationship can be constructed - bilateral negotiations between the US-North Korea, including the missile talks; Japan and North Korea normalization talks; North-South talks and the Four Party talks; and eventually beneficial commercial/business exchange - all of which may now have more promise of progress than just a few months ago;

-- When the Four Party talks move beyond the immediate issues of a peace treaty, CBM's, etc., Japan and Russia should be brought into the process directly to join the two Koreas, China and the US - to help forge permanent peaceful and cooperative arrangements and institutions in Northeast Asia generally - and the kinds of guarantees against weapons of mass destruction and military threat which could make a reunited Korea feel secure despite being surrounded by the world's great powers;

-- Let's turn to the core of the most challenging issue in Northeast Asia, bringing North Korea into a peaceful and constructive relationship with its neighbors and the international community;

North Korea Role in Northeast Asia

-- Pyongyang's overriding goal is survival, and is today still convinced that it's survival is threatened by two challenges:

1) Pyongyang's belief that the DPRK is surrounded by hostile forces, led by the United States, which are intent on destroying the DPRK's socialist system, or stalling, waiting on the DPRK's collapse;

2) The fact that the DPRK economy is in danger of total collapse, with obviously profound political implications;

Regarding the Threat of "Hostile" Forces

-- 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; these were US obligations; Pyongyang, of course, was obligated to move forward in N-S dialogue and to deal with "other matters of US concern;"

-- North Korean concern with erratic heavy fuel oil (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 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, " missile launch in August of 1998 and the threat of another launch last summer;

Regarding the Threat of Total Economic Collapse

-- As for its economic collapse, the DPRK economy declined, I estimate, roughly seventy percent between 1989 and 1999, after Pyongyang lost its financial underpinnings of support from the Soviet Union and China;

-- The DPRK's industrial economy has declined dramatically and functions at only a fraction of the capacity of the late eighties; the DPRK's agricultural economy - because of floods, droughts, and failed Stalinist and "juche" agricultural policies - produces about half annual requirements;

-- Better weather and more fertilizer helped boost North Korea's crops 8.5 percent in 1999, the highest production in five years, but North Korea is still short 960,000 tons from the needed 5.18 million tons required;

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

-- North Korea is now a desert of primitive agriculture, few farm and draft animals or hand tractors, idled industry, a badly deteriorated infrastructure, drastically reduced energy production, a seriously weakened rural population living in miserable huts with broken windows and little heat; a government which touts its "military first policy," which absorbs a huge percent of the country's declining GDP;

Recharging the Battery

-- At some point in the winter of 1998, Pyongyang seemed to have almost concluded that its approach through the Agreed Framework to manage its security and economic concerns might be failing;

-- In my view, the Agreed Framework, KEDO, and hopes for a structure of peace in Northeast Asia have been, as a consequence, at serious risk;

-- 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 with catastrophic results;

-- To rescue our objectives vis-a-vis the DPRK - non-proliferation, ending a missile threat, and building a peaceful and prosperous Northeast Asia - the Agreed Framework and KEDO needed to be and now have been folded into a comprehensive package of policy moves devised through the extraordinary efforts of former Defense Secretary William Perry, in concert with Seoul, Tokyo, in consultation with Beijing, and articulated directly at top political levels in Pyongyang by Secretary Perry;

-- I believe that Secretary Perry outlined a broader approach which included:

-- Acknowledgment to Pyongyang that the potential of the Agreed Framework had 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;

-- Without making threats, he artfully made clear that Pyongyang had the opportunity for meaningful and peaceful engagement and support for the rehabilitation of North Korea's economy, in the context of elimination of the nuclear, missile, and military threats on the one hand, or face isolation (confrontation) with all the economic and military dangers this would pose to North Korea;

-- The prospects for cooperation among the great powers had to originate with the establishment by the US and its closest allies of a new framework for dealing with the DPRK; we had to show that we were prepared to broaden engagement with the DPRK to make credible that we were intent on ending the hostile relations between ourselves and the DPRK;

-- I think that Secretary Perry accomplished precisely that goal;

Immediate Measures

-- As I understand that in his report (but have not seen), Secretary Perry recommended two measures to be undertaken rapidly to serve our own interests as well as to signal a new beginning:

-- The Agreed Framework and KEDO would remain at the core of our efforts; but the U.S. would be prepared to accelerate and broaden all aspects of their implementation; that acceleration is underway;

-- To this end, in part, the US should lift expeditiously all non-security-related 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; President Clinton announced these actions last September;

-- Political relations would also advance; I assume that the opening of liaison offices in Washington and Pyongyang, anticipating rapid movement to normal, diplomatic relations, was among the proposals envisaged;

-- Beyond these he laid out feasible further steps to be taken to move towards normalizing relations; when the "senior North Korean official" Washington in the next month or so, U.S. interlocutors and he will have to define what steps specifically are to be taken. Pyongyang's dilemma will be deciding how far it can dare reform its economy without risking political breakdown;

Longer Term Measures

-- Let me look beyond the early term; other measures, which I would recommend, would take slightly longer, but should be pursued with despatch:

-- The US-ROK-Japan should work closely to promote DPRK entry into the IMF, the World Bank, and the Asian Development Bank as quickly as the DPRK can satisfy the technical and transparency requirements of membership;

-- The US, Japan, ROK and the European Union, and others, should 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, infra structural 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 should encourage efforts by the UNDP, 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 should 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;

Security Issues

-- It should go without saying that effective US-ROK military deterrence, which we now have, must continue to be ensured; that deterrence would only be undermined should North Korea develop nuclear or other weapons of mass destruction, and the means to deliver them, such as ballistic missiles;

-- Pyongyang would have to understand that the benefits I outlined 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 take into account North Korean sensibilities; I am convinced that Secretary Perry accomplished this;

-- In light of Washington's and its allies' willingness to move ahead to resuscitate the DPRK economy, it would be essential that Pyongyang erase promptly suspicions about any future nuclear activities or suspicions, such as occurred at Kumchangri;

-- DPRK willingness in missile negotiations to end development, deployment, and export of long range missiles would be an essential component to pursuit of this broadened approach with the DPRK; with economic recovery/development, missile sales would not be needed;

-- As CBM's are achieved with commensurate tension reduction that facilitates an environment conducive to genuine peace, mutual force reductions would also become feasible;.

Implications of this Approach

-- A rejuvenated and broadened initiative represents the best hope for establishing a constructive relationship with the DPRK to bring it from its isolation into the international community, to avoid dangerous confrontation, and bring peace and stability to Northeast Asia; rigorous adherence of the policies of the past forty-five years will not suffice; moreover, the significant progress already made must be built upon;

-- 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 and Beijing, in an inevitably even more dangerous period which might emerge;

-- But such an approach offers the best hope of turning North Korea from the wildcard its still remains into a less menacing and perhaps more constructive member of the community in Northeast Asia; it also offers the best opportunity of turning the Korean Peninsula from the cockpit of the region into perhaps a major hub of commerce and exchange in this dynamic and strategically crucial region of the world.