Global Economics

U.S.-North Korea Nuclear Deal: Who Wins?


President Bush has begun the process of removing Pyongyang from the terrorism blacklist, but real economic and trade improvements will be a long time coming

When President George W. Bush announced on June 26 that he was removing North Korea from a U.S. list of terrorism-sponsoring nations, it seemed that Pyongyang had deftly played its nuclear card. After years of escalating threats, North Korea seemed to be ready to compromise, publicly acknowledging its nuclear plants and materials, and agreeing to resume stalled six-nation talks with the U.S., China, Japan, South Korea, and Russia, in a process that would lead to the dismantling of its Yongbyon nuclear facility. The reward: coveted access to Western capital and technology, which Pyongyang needs to shore up its shaky economy. South Korea's former Unification Minister Lim Dong Won hailed the deal as the biggest step forward in U.S.-North Korean relations since the Korean War ended in 1953.

But the benefits for Pyongyang won't kick in right away. Sure, Washington has lifted restrictions on trade and released Pyongyang's assets that were frozen under the Trading with the Enemy Act. And it has already begun the 45-day period required to erase North Korea from the terrorism blacklist, which makes the country eligible to receive aid from international financial institutions. Yet real improvements in its economy and its trade ties with the West will be a long time in coming.

Consider Pyongyang's access to foreign aid. To start receiving low-cost loans from the World Bank or the Asian Development Bank, North Korea must first become a member state of the International Monetary Fund. Joining the IMF would require that Kim Jong Il adopt reforms promoting transparency and openness; hardly anybody believes the dictatorial leader will do so.

"Made in North Korea" Lacks Consumer Appeal

Don't expect North Korea's trade with the U.S. to suddenly surge, either. In theory, Pyongyang can start doing business with U.S. firms. But the reality is that North Korean goods would face import tariffs as much as 100 times higher than countries with a most-favored-nation status. And how many American consumers would buy a product sporting a "Made in North Korea" tag?

Trade would certainly help an economy that's been barely functioning for nearly two decades. Until the 1970s, the North's economy was comparable in size to that of the South. Now it's about 1/36th the size, South Korea's central bank figures. Last year, North Korea's economy likely contracted 2.3%, following a 1.1% decline in the previous year, according to the Bank of Korea. Says Choi Soo Young, a senior researcher at the Korea Institute for National Unification, a Seoul state-funded think tank: "With the economy reduced to an empty shell, you wouldn't call it a win for the North."

Does Washington gain anything from dealing with an unpredictable dictator? After all, this could be Kim's latest ploy to coax U.S. officials to the negotiating table. In 1994, North Korea agreed to freeze its nuclear program in exchange for U.S. promises of economic aid. That arrangement fell apart when Pyongyang reneged on its part of the deal. In October 2006, the regime's underground nuclear-detonation test aggravated tensions. The problem with talking to a pariah like Pyongyang is that the U.S. could embolden other so-called rogue regimes to ratchet up the rhetoric to win similar concessions.

Unresolved Issues Linger

North Korea has yet to fully relinquish its nuclear ambitions. Its declaration, which came six months after a December deadline set by Washington, only relates to nuclear weapons that use plutonium. The North still hasn't explained how many weapons it has built, whether it exported nuclear technology to countries such as Syria, or whether it has a backup program to enrich uranium. There are other problems, including the threat of an attack—either from troops or ballistic missiles—on South Korea, Japan, or other Asian neighbors, and the unresolved kidnapping of Japanese citizens decades ago.

Not long ago a U.S. deal with North Korea, which Bush named in an "axis of evil," seemed a long shot. Washington has stressed symbolism more than anything else in the recent agreement. Bush insisted that Pyongyang would have to demonstrate that it's winding down its nuclear programs, and his national security adviser, Stephen Hadley, said that if Pyongyang failed to fulfill its obligations, Washington could reimpose sanctions or push for new ones. The U.S. won't lift financial sanctions designed to thwart North Korean money laundering, illicit financing activities, and weapons proliferation, U.S. officials said. "This isn't the end of the process," Bush said. "This is the beginning of the process."

Some critics think Bush, plagued by an unpopular war in Iraq and a nuclear standoff with Iran, rushed an accord to salvage his foreign policy. It's also possible that he may have wanted to take the pressure off fellow Republicans in the runup to the November Presidential elections (BusinessWeek.com, 9/14/07). Some observers question whether he gained enough from the pact. "This is a big shame," says John Bolton, a former U.S. envoy to the U.N. under Bush. "This is an agreement that almost entirely benefits North Korea. They've gained enormous international political legitimacy."

Overnight Changes Aren't Likely

That's not to say that talking isn't productive. One day after submitting its declaration, North Korea blew up the cooling tower of its plutonium-producing reactor at Yongbyon, 60 miles north of Pyongyang. The U.S., Japan, South Korea, Russia, and China are expected to discuss more assistance for Pyongyang, on top of promises to provide 1 million tons of fuel oil, or its equivalent, as well as diplomatic and security guarantees (BusinessWeek, 10/22/07). More aid could come from South Korea and Japan if Pyongyang makes good on its promises.

Experts caution against too much optimism. "It took Vietnam five years before it concluded a trade pact with the U.S. even after the two countries normalized diplomatic ties," says Lee Young Hoon, an expert on North Korea at the Bank of Korea. "It definitely will be years before North Korea starts enjoying substantial benefits from the U.S."


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