A Silver Lining to Asia's Financial Cloud
The South Korean financial crisis is about to undermine the nuclear deal the United States struck with North Korea back in 1994. The United States promised Pyongyang two large power reactors worth $5 billion in exchange for a freeze and eventual dismantling of North Korea's small indigenous plutonium production reactors. North Korea had already violated the inspection provisions of the Nonproliferation Treaty and looked like it might use its plutonium for bombs. The two large reactors may have been an unsavory payoff, but the State Department fixed it so South Korea would pay, with some help from Japan, and that deflected criticism in the United States. Several months ago, the project broke ground. Now suddenly, South Korea is broke, the International Monetary Fund is nixing South Korean projects right and left, and the nuclear deal with the North may have to go back to the drawing board.
That isn't all bad. The twin-reactor deal never made much sense except on the symbolic level--for North Korea. The large reactors are much too big for the small North Korean electric grid. If North Korea needs more electric generators, it hardly needs the most expensive ones that take the longest to put on line and produce plutonium to boot. The new reactors, while harder for the North to use for plutonium production, would produce more plutonium than the small indigenous ones they would replace. In fact, the new reactors, called "proliferation-resistant" by the State Department are essentially the same as those the State Department labeled a proliferation risk when Russia talked of supplying them to Iran. Most important, under the 1994 deal, North Korea doesn't have to dismantle its plutonium production plants until the second of the two U.S.-supplied reactors is ready. That could be in 10 years--or never--which will leave the United States subject to blackmail indefinitely. It doesn't hurt to have a financial excuse to rethink the deal.
There never was any suggestion about the U.S. taxpayer picking up the tab, so that's out. Or should be. Administration officials swore up and down about this when they defended the original deal before Congress. (It wouldn't hurt to make sure the current South Korean bailout contributions don't contain a hidden pass-through for the nuclear deal.) The United States has already borne the initial burden, paying more than $80 million so far to provide North Korea with half a million tons of heavy fuel oil per year (doing so until the first reactor is built was part of the very generous deal). The reactors were supposed to be paid for by South Korea--the country whose national security was most immediately endangered, and which will inherit them if the peninsula becomes one. But what if the South can't pay?
President-elect Kim Dae-jung said [news story, Jan. 9] that in the current difficulties "Japan and the United States must contribute more." He cannot afford to be subsidizing North Korean nuclear reactors when he is under IMF pressure to cancel South Korean infrastructure projects that won't produce a short-term return. To add to the problems, the Korea Electric Power Corp., the prime contractor for the North Korean reactor project, is in deep financial trouble and cannot put up any money. The Japanese are not going to pick up the tab, either. They haven't even put money for the reactors into their 1998 budget, as Japanese officials confirmed on Dec. 22, 1997.
Not South Korea, not the United States and not Japan--what then? We should change the deal. If the North needs electric generators, let us find the lowest-cost solution--by putting the project out for bid. This is the way most countries go about building electric plants today. We will undoubtedly get a non-nuclear result that will come in sooner and at a fraction of the current cost--maybe something the South Koreans can still afford. And it wouldn't hurt for North Korea to get firsthand experience with markets and competition.
Getting the project done sooner would mean the North would have to dismantle its own nuclear facilities that much sooner, too. Pyongyang claims it is hanging on to its indigenous nuclear facilities in case it needs to revive them if the new electrical capacity is not installed. Actually, the North is using that option to blackmail the United States.
Of course, diplomats will argue that North Korea would never agree to modifying the agreement, that we got the best deal possible. Maybe. Time has passed, and the North Koreans may realize shrewdly that if they want electric generators, this may be the only way to get them. If they don't go for an economically advantageous non-nuclear deal, then we know they are up to no good, and we definitely should not trust them with reactors. It's a self-answering proposition.