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Peace in Our Time at What Cost? Possible Financial and Legal Implications of Denuclearizing North korea

On 21 June 2005 the flag of the Socialist Republic of Vietnam flew outside of Blair House, across the street from the White House. Standing still on a windless day, the single-star banner heralded how far Vietnam and its prime minister, Phan Van Khai, who would meet President Bush that day, had come only a decade after the United States normalized relations with Vietnam. Khai’s U.S. visit would include stops at Boeing, Microsoft, Nike, the New York Stock Exchange, and Harvard. Khai arrived in Washington with a set mission: to establish a framework for a long-term relationship with the United States and to obtain U.S. support for recognizing Vietnam as a market economy in the run-up to Vietnam’s bid to join the World Trade Organization (WTO).

Recent progress at the six-party talks begs the question of whether it is conceivable that in the next few years a North Korean flag will fly in front of Blair House. Is it plausible that the number two official from the DPRK will stay at Blair House before meeting a U.S. president to seek support for North Korea’s economic reforms and to lay the framework for a long-term relationship with the United States? From the vantage point of 2007, such a scenario appears barely plausible.1 But part of the U.S. strategy of negotiating with North Korea assumes as much; that is, that North Korea will ultimately only relinquish its nuclear weapons in exchange for a normalized relationship with the United States.

This paper seeks to question this assumption, while it remains agnostic as to whether North Korea will give up its nuclear weapons. Instead, this paper argues that North Korea’s ultimate goal during the remainder of the Bush administration may be to gain access to the international financial system rather than denuclearize. It further contends that North Korean leaders are well aware that the state of the North Korean economy demands that North Korea must reform its economy to survive. These assumptions, in turn, have important implications for North Korea’s willingness to forgo nuclear weapons and substantially engage countries beyond China and South Korea as well as for negotiations with the United States. This paper will examine those implications.

In making its arguments, this paper accepts at face value assurances by lead U.S. negotiator and assistant secretary of state, Christopher R. Hill, that North Korea intends to disable the Yongbyon reactor and declare all of its nuclear programs by the end of 2007 and that, with a great deal of good fortune, this actually can occur as early as February 2008. It also accepts in good faith statements by the DPRK Foreign Ministry that North Korea will meet its phase 2 obligations to declare and disable only when the United States removes the DPRK from the U.S. list of state sponsors of terrorism and from the strictures of the Trading with the Enemy Act (TWEA) and that the United States has agreed to these conditions.

This paper will first examine the barren state of the North Korean economy and the reasons North Korea must reform its economy. It will then review the procedures by which the United States will remove North Korea from the list of state sponsors of terrorism and the TWEA, the resulting impact on existing U.S. sanctions against the DPRK, and North Korea’s possible entry into the international financial system. This paper will then tackle what leverage the United States, after the removal of sanctions, will have in negotiating with North Korea to induce North Korea to give up its nuclear weapons. It will also look at the process for North Korea to become a member of international financial institutions (IFIs) and will discuss whether Vietnam can serve as a model for North Korea in normalizing relations with the United States. Finally, it will conclude with policy options for the United States.

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