[Senate Hearing 105-652]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-652


 
  KEDO AND THE KOREAN AGREED NUCLEAR FRAMEWORK: PROBLEMS AND PROSPECTS

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON EAST ASIAN
                          AND PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 14, 1998

                               __________

       Printed for the use of the Committee on Foreign Relations


                               


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                   U.S. GOVERNMENT PRINTING OFFICE
 50815 cc                  WASHINGTON : 1998



                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
CRAIG THOMAS, Wyoming                CHARLES S. ROBB, Virginia
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              DIANNE FEINSTEIN, California
BILL FRIST, Tennessee                PAUL D. WELLSTONE, Minnesota
SAM BROWNBACK, Kansas
                     James W. Nance, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                    CRAIG THOMAS, Wyoming, Chairman
BILL FRIST, Tennessee                JOHN KERRY, Massachusetts
RICHARD G. LUGAR, Indiana            CHARLES S. ROBB, Virginia
PAUL COVERDELL, Georgia              RUSSELL D. FEINGOLD, Wisconsin
CHUCK HAGEL, Nebraska                DIANNE FEINSTEIN, California

                                  (ii)



                            C O N T E N T S

                              ----------                              
                                                                   Page

Anderson, Desaix, Executive Director, Korean Peninsula Energy 
  Development Organization (KEDO), New York, New York............    18
Deming, Rust M., Principal Deputy Assistant Secretary of State 
  for East Asian and Pacific Affairs.............................     4
Gallucci, Hon. Robert L., Dean, Georgetown University Edmund A. 
  Walsh School of Foreign Service, Washington, D.C...............    20

                                Appendix

Korean Peninsula Energy Development Organization Members and 
  Contributions..................................................    31
Responses to Additional Questions Submitted for the Record to 
  Principal Deputy Assistant Secretary of State Rust Deming......    31
Prepared Statements Submitted for the Record by Witnesses
    Prepared Statement of Rust M. Deming.........................    41
    Prepared Statement of Desaix Anderson........................    43
    Prepared Statement of Robert L. Gallucci.....................    46

                                 (iii)



  KEDO AND THE KOREAN AGREED NUCLEAR FRAMEWORK PROBLEMS AND PROSPECTS

                              ----------                              


                         TUESDAY, JULY 14, 1998

                               U.S. Senate,
             Subcommittee on East Asian and Pacific
                   Affairs, Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:18 a.m. In 
room SD-419, Dirksen Senate Office Building, Hon. Craig Thomas, 
chairman of the subcommittee, presiding.
    Present: Senators Thomas, Kerry, Robb, and Feinstein.
    Senator Thomas. I will call the committee to order. I 
apologize in that we had a vote which was supposed to be at 10, 
but it got pushed back to quarter past 10. I think there will 
be some more committee members here soon.
    In any event, good morning and thank you for being here. I 
will keep my comments short so that we can get on to our 
witnesses.
    This is the subcommittee's first hearing on the Korean 
Peninsula Energy Development Organization and the North Korean 
Agreed Framework since last year. We had it on the subcommittee 
agenda for some time.
    I had hoped to discuss the success that KEDO has had 
implementing the Framework Agreement, getting started building 
the two light water reactors, and stifling the threats of the 
North Korean nuclear weapons development.
    Instead, unfortunately, today the subcommittee meets to 
explore just how it is that KEDO finds itself $47 million in 
debt, behind in its heavy oil delivery schedule, and why the 
North Koreans have accused the U.S. of failing to honor its 
core commitments to the Agreed Framework.
    Because KEDO has fallen behind, the DPRK began maintenance 
work on its plutonium separation plant that has been shut down 
since the agreement was reached. The May statement from the 
North Korean Foreign Ministry noted, and I quote, ``The U.S. 
side should take practical steps to fulfill its obligations 
under the agreement as soon as possible. In case the U.S. side 
repeats empty words, the consequences will be unpredictably 
serious.''
    A sticking point is the delivery of the heavy oil. KEDO 
does not have the money to meet its year's 500,000 ton oil 
commitment. Operating on an October 21 to October 20 fiscal 
year, KEDO has delivered 152,000 tons so far this year. But it 
cannot buy much more because of its $47 million debt from 
previous years.
    So I look forward to an explanation of how this can be. 
Congress appropriated $38 million for KEDO in the current 
fiscal year plus $10 million for a challenge grant, which is to 
be released when other countries contribute a similar amount. 
The administration is seeking another $35 million next year. 
However, neither amount will cover the cost of oil, even at 
today's depressed prices.
    So far as I can learn, Congress has provided the 
President's full request for the purchase of heavy fuel oil. 
So, unless persuaded otherwise, I can only reach one of two 
explanations for the debt. Either the administration low-balled 
the initial figure to Congress, and that low-balling has now 
come home to roost; or, number two, other countries who 
promised financial assistance or which were told could be 
counted upon to do so have not made good on their promises.
    I am also concerned that this administration seems to me to 
have been hesitant to bring the problem to our attention. I can 
think of several causes for their recalcitrance. First, at the 
time the agreement was presented to the Congress, then-
Secretary Warren Christopher promised U.S. costs would never be 
more than $30 million per annum. So they have that benchmark 
deal to deal with.
    Second, the administration may have been hesitant to come 
to the Hill and face what seemed to be a chilly reception from 
some Members of Congress. Some members have been reluctant to 
support the agreement from its inception. Other members have 
expressed resentment over the fact that KEDO incurred debt, 
even though Congress appropriated all the money that the 
administration had previously requested.
    Still others have indicated they feel deceived by perceived 
promises from the administration that other countries would 
volunteer to contribute.
    Since 1993, I have held the view that the Agreed Framework 
is not perfect, of course, but it is the best agreement that 
all the parties are capable of reaching under the 
circumstances. It is the only workable alternative to an 
unpredictable and rogue Nation's development of its nuclear 
weapons program.
    So it behooves us all, the administration and the Congress, 
to honestly examine how we came to this difficult situation and 
now how we can get ourselves out of it. So I hope we will be 
candid with one another and say where we are, why we are there, 
and, indeed, what we do to change that situation.
    Senator Kerry, do you have a comment, sir?
    Senator Kerry. Mr. Chairman, I do have a comment, a brief 
one.
    First of all, thank you for having this important and 
timely examination of where we stand with KEDO. It almost on 
its face should go without any comment because it is so 
obvious. And yet, the obviousness of it simply underscores the 
absurdity of where we find ourselves.
    I think everyone understands that we lost a huge amount of 
opportunity as Russia imploded to gain control over those 
weapons that we had spent 50 years aiming at each other, 
spending millions of dollars. ``Loose nukes'' today present us 
with our own set of new policy problems as a result.
    We have had to labor hard to get Nunn-Lugar money and 
mostly to implement much of that kind of effort because for 
years the world has understood the importance of 
nonproliferation efforts. That has only been underscored, 
obviously--and this, again, I say is so obvious that it 
confounds that we are here--by the grim reminder in recent days 
with India and Pakistan of what happens when the world does not 
pay attention to the dynamics surrounding proliferation. We are 
going to struggle with that one for a while, though I think 
many of us remain hopeful that the damage from that can be 
contained.
    But, clearly, one of the potential spillover damages from 
that is the unleashing of a new sense of independence and/or 
kind of world anarchy on the part of North Korea. The Framework 
that we entered into was hard fought to win. It is a great 
victory, frankly, not just for our foreign policy but for 
international efforts with respect to proliferation. We are now 
here questioning why it is we cannot follow through on our part 
of the agreement. And I do not fault just our component of it. 
I think the international participation in this that was 
expected, anticipated, and ought to be forthcoming is also 
disappointing.
    But, notwithstanding that, for the Congress--and it is the 
Congress to some degree in the appropriations process--to be 
standing in the way of executing our responsibilities here is 
not just absurd, it is dangerous. It is just downright 
dangerous.
    The intelligence estimates not just by us but we know by 
Russia and other entities as to what the potential is for 
nuclear weaponry within North Korea leave us, I think, no 
alternative but to draw a conclusion that to allow the 
Framework to languish in this way is the height of 
irresponsibility on the part of anybody who has their finger on 
the trigger of funds, so to speak.
    I think the administration needs to exert more pressure and 
greater visibility on this. But I think the Congress ought just 
to respond rapidly. There should be an immediate statement from 
the Appropriations Committee that we are just not going to let 
this happen because the dangers are too clear.
    So whether the cost of oil went up, whether there was a 
low-balling with respect to the amount of money, whether or not 
we were disappointed by one or two countries that might have 
participated to a greater degree is worth airing. But in the 
end it is almost irrelevant with respect to the fundamental 
choice that we confront, and that choice is a simple reality: 
we must guarantee that the Framework is upheld; we must 
guarantee that the we continue to have the International Atomic 
Energy Agency oversight, if you will, of the nuclear program 
that has been put on freeze, which is critical; and we need to 
target and stay on target for the year 2003--I believe it is--
for the light reactor production.
    I look forward to the airing, if you will, of the various 
dynamics of this. But it seems to me that the conclusion is on 
the table at the beginning of this hearing, and I think the key 
is how are we going to get there as rapidly as possible. 
Anything else would be just a gigantic lapse on the part of all 
of those who have anything to do with this.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you, Senator.
    Welcome, Mr. Deming, Principal Deputy Assistant Secretary 
of State for East Asian and Pacific Affairs. We are glad to 
have you here, sir.
    We will ensure that all of your statement is in the record. 
If you would like to summarize it, of course, please do so.

    STATEMENT OF RUST M. DEMING, PRINCIPAL DEPUTY ASSISTANT 
     SECRETARY OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS

    Mr. Deming.  Thank you very much, Mr. Chairman. I am 
delighted to be up here. I took over my responsibilities 3 
weeks ago, and this is my first opportunity to appear before 
the committee, or any committee, for that matter. I look 
forward to very close consultations with the members of the 
committee and the staff as we deal with this very important 
issue.
    The Secretary and the President very much appreciate your 
personal support and the support of the committee for KEDO, the 
Korean Energy Development Organization, and all of our efforts 
to try to implement the Agreed Framework and control the threat 
of nuclear proliferation on the Korean Peninsula.
    As you know, the Korean Peninsula remains one of the most 
unstable and dangerous places in the world. Along with our ROK 
colleagues, 37,000 Americans face more than 1 million North 
Koreans across the Demilitarized Zone which remains extremely 
dangerous.
    In 1993, perhaps the most dangerous situation since the 
armistice in 1953 occurred with the North Koreans moving toward 
the production of nuclear weapons and the Agreed Framework has 
brought that issue under control. We think the results of these 
negotiations have been a success.
    The North's indigenous nuclear program at Yongbyon remains 
frozen. The canning of DPRK's spent fuel is now virtually 
complete and under IAEA seal as are the reprocessing plants and 
the reactors. The IAEA maintains a continuous monitoring 
presence and Pyongyang has remained a party to the NPT.
    North Korea has also acknowledged that it must eventually 
dismantle all the elements of its nuclear program and permit 
its existing spent nuclear fuel to be shipped out of North 
Korea.
    In return for North Korea's nuclear freeze, the United 
States agreed to take the lead in organizing a consortium to 
build two modern, safe, proliferation resistant light water 
reactors in North Korea. In addition, the United States agreed 
to make arrangements to offset the energy foregone with 500,000 
metric tons of heavy fuel oil, or HFO.
    South Korea and Japan have together committed themselves to 
assume virtually the entire burden of the estimated $4.6 
billion light water reactor project. KEDO has commenced work on 
this project; and, although work is not yet fully in swing, an 
important amount of site preparation work has been underway for 
almost a year.
    The provision of heavy fuel oil, which is seen by North 
Korea, our KEDO partners, and the world as principally a U.S. 
responsibility, is the most tangible evidence of the U.S. 
Government's commitment to the Agreed Framework. In meeting its 
responsibility, the U.S. Government has made vigorous efforts 
to recruit assistance from other countries.
    In 1995 testimony before Congress, to which you referred, 
Mr. Chairman, by then-Secretary of State Warren Christopher 
estimated that annual U.S. contributions to KEDO would be 
between $20 million and $30 million, based on the conviction 
that the balance of funds could be raised abroad. Just looking 
at his exact words, he said, ``My own expectation is that the 
annual contribution of the United States will be in the range 
of $20 million to $30 million.''
    We have vigorously sought contributions from other 
countries. The results, frankly, have been disappointing. But 
we have received some help.
    In all, 22 countries and the EU have made contributions to 
the heavy fuel oil program, totaling $52 million, whereas the 
U.S. has contributed approximately $120 million out of a total 
U.S. expenditure of $148 million for the Agreed Framework, 
including the money we spend for the canning of the spent fuel 
at the reactor site.
    We are committed to redoubling our efforts to gain support 
from other countries. But, frankly, it is not realistic to 
think that the shortfall will be met in the near-term by 
contributions from abroad. We believe that continued U.S. 
leadership of and support for the heavy fuel oil program is a 
small price to pay to reinforce peace on the Korean Peninsula 
and to strengthen the global nonproliferation regime.
    The implementation of the Agreed Framework is fundamental 
to U.S. interests on the Korean Peninsula and in East Asia. As 
KEDO fulfills each of its successive steps, North Korea is to 
take steps to resolve our proliferation concerns. For delivery 
of the nuclear components of the plant, North Korea must come 
into compliance with its full scope NPT-IAEA safeguards 
agreement. With full scope safeguards in place, the IAEA will 
be permitted to inspect all of North Korea's facilities and 
materials.
    The additional security this will provide will be a 
significant contribution to American, regional, and world 
security.
    The Agreed Framework is more than simply a nuclear accord, 
however. It is a cornerstone of our efforts to reduce the 
potential for conflict on the Korean Peninsula. The Agreed 
Framework has allowed us to undertake a dialog with North Korea 
that has led to Four Party Talks as well as negotiations on 
missile sales, terrorism, and many other concerns.
    In addition, regular contacts between North and South 
Korea, already taking place at the reactor site, are 
dramatically increasing. This has profound implications for 
reducing tensions on the Korean Peninsula over the longer term.
    We believe it is very much in our interest to continue 
these efforts to reduce tensions on the peninsula.
    A full implementation of the Agreed Framework with all the 
benefits it should bring will only be possible if KEDO remains 
financially healthy and able to carry out its mission. We are 
continuing our international fund raising efforts, as I 
mentioned, to address KEDO's financial difficulties, including 
its debt from past year oil deliveries. However, it is not 
realistic, again, to assume that sufficient contributions will 
be made by other countries; and we, ourselves, will therefore 
have to do more.
    We will continue our consultations with you and your 
colleagues in the House in the near future on our proposals for 
additional KEDO funding and our strategy for addressing the 
organization's financial problems over the long-term.
    Let me close by stressing that KEDO and the Agreed 
Framework remain central to our efforts to promote peace and 
stability in Northeast Asia and to support regional and global 
nonproliferation. KEDO's mission is of utmost importance to the 
national security of this Nation as well. We must not allow 
KEDO to fail.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Deming appears in the 
appendix on page 41.]
    Senator Thomas. Thank you, Mr. Secretary.
    As Senator Kerry said, I don't think we will talk a lot 
about the merits of the Framework Agreement. Most people are 
agreed that there is something to that. But I think more 
importantly, and, quite frankly, I am not sure you answered our 
question as to how we got where we are and how do we get out of 
it.
    For instance, I don't understand KEDO's $47 million debt. 
It is a debt to whom? How did they get the debt? How do you fix 
it?
    Mr. Deming.  My understanding is that KEDO's debt now 
stands at, in fact, $38 million.
    Senator Thomas. Oh, $38 million, $47 million, whatever.
    Mr. Deming.  This debt represents drawing against the $19 
million Japanese fund that they have made available to draw 
against, but it has not contributed directly to heavy fuel oil, 
and drawing against the expectation of future funding from the 
European Union and other countries. All of this funding--and I 
think Mr. Anderson can go into more detail about the exact 
details of how we do this--is based on solid commitments of 
funding from other countries. We have tried to reach out ahead 
of the actual cash on hand in order to try to maintain as 
regular fuel supplies as possible.
    Senator Thomas. You indicated that you think that these 
funds coming from other countries are uncertain, and yet, at 
the same time, that the United States needs to ensure or take 
the leadership to ensure that this program goes forward. And 
yet, I think the administration's request was for $35 million 
again this year, which is insufficient to solve the problem.
    How do you justify that?
    Mr. Deming.  We are looking at that.
    In fact, when Secretary Christopher made his original 
estimates in 1995, frankly we were overly optimistic about our 
ability to attract funds from other countries. We have to be 
much more realistic now.
    It is true that the current request is $35 million. We are 
looking at what we might do to raise that. We are in internal 
consultations in the Department of State and with other 
agencies, and I think we will be beginning consultations with 
both the Senate and the House staff on this. But I think that 
we recognize that we are going to have to do more ourselves.
    While we will continue our vigorous efforts with other 
countries, it is unrealistic and not wise to bet that that is 
going to increase substantially. We are going to have to 
request from the Congress more money to more fully fund our 
heavy fuel oil obligations.
    Senator Thomas. How would you describe the status of 
diplomatic relations with North Korea in terms of the 
statements that they have made that I mentioned before, that 
there might be consequences that would be unpredictably serious 
and less than practical?
    What is the situation with regard to relations with North 
Korea in this respect?
    Mr. Deming.  As you know, Mr. Chairman, North Korea is one 
of the most difficult societies in the world to understand and 
the most difficult to deal with. In my 3 weeks in this 
position, already I have had evidence of that in terms of the 
difficulty of getting a full understanding of what they are up 
to.
    We have made clear to the North Koreans that these threats 
of reprocessing the remaining spent fuel in the reactor ponds 
are irresponsible, unhelpful, and if they moved in that 
direction would be a violation of the Agreed Framework. We have 
expressed that view both orally and in writing to the North 
Koreans.
    We are continually amazed and disappointed by their actions 
on things like submarine infiltrations in South Korea at a time 
when South Korea is trying to reduce tensions on the Korean 
Peninsula through Kim Dae-Jung's Sunshine Policy.
    Every time we attempt to move forward in a constructive 
way, some element in North Korea does something that is 
disturbing.
    Despite all of this, we are absolutely convinced that the 
Agreed Framework remains very much vital to our interests. It 
is in the U.S. interest to proceed with this. We are trying to 
gain more cooperation from North Korea in fulfilling its side 
of the Framework obligations and on missile talks and other 
issues as well. But it remains a very, very frustrating place 
to deal with.
    Senator Thomas. What is your analysis of North Korea's 
performance? There is some indication they have gone back to 
work and do maintenance work on their plutonium separation 
plant, which they agreed not to do.
    Mr. Deming.  Fundamentally, I think North Korea has abided 
by its basic commitments under the Framework and all the 
facilities under the Framework remain frozen.
    They have undertaken maintenance work at the reprocessing 
plant, which is not a violation of the Framework and is being 
undertaken under IAEA supervision. To date, we have had no 
indication from the IAEA that there have been any major 
problems with that work.
    But, to be very frank, the North Koreans are always sort of 
testing the edges of what they can and cannot do. We have had 
to push back constantly to try to make sure that they stay 
within the letter and the spirit of the Framework Agreement.
    Senator Thomas. What about the opportunities to inspect as 
to what they are doing? Are you comfortable that the inspection 
opportunities have been there and continue to be there?
    Mr. Deming.  We are comfortable, and I think the IAEA is 
comfortable, that all of the activities, facilities under the 
Agreed Framework are sufficiently monitored and that the 
elements that are to be frozen are indeed frozen. And there is 
no fundamental violation of any aspect of the Framework 
Agreement.
    Senator Thomas. So if there is a weakness in performing on 
both sides, it is on our side?
    Mr. Deming.  Let me put it this way, Mr. Chairman. It is 
very important that all parties meet their obligations under 
the Framework Agreement. We are now, indeed, still meeting our 
obligations on heavy fuel oil. The deliveries are not as fast 
or rapid as we would like them to be. But we have met our 
obligations every year and we intend to meet our obligations 
this year in terms of providing the full 500,000 tons of fuel 
oil that is due.
    This will take some work with the Congress and 
reprogramming of funds for this year about which we are now 
consulting. But we are adamantly committed to fulfilling our 
obligation. Any North Koreans charges that we are not meeting 
our obligations are completely ill-founded, and we have 
underlined that to them.
    Senator Thomas. Well, it is their charges that have brought 
us here, haven't they? I don't think we have heard from the 
State Department that they are having difficulty living up to 
our agreement?
    Mr. Deming.  We remain concerned about making sure that we 
have the right funding for heavy fuel oil. And, even though we 
are fully meeting our obligations, the fact that North Korea is 
now threatening reprocessing are threats that we need to take 
very seriously even though they are completely falsely based on 
any charges that we are not meeting our obligations.
    I think it is responsible for us to make sure that we do 
everything we can to ensure the funding necessary to get the 
heavy fuel oil there this year and in the out-years as well.
    Senator Thomas. We are going to have to hustle to get the 
500,000 tons this year, aren't we?
    Mr. Deming.  I think we are confident that we will get the 
fuel oil there to meet our obligations.
    Senator Thomas. Senator Kerry.
    Senator Kerry. Thank you, Mr. Chairman.
    Let me understand this as clearly as I can, where we are.
    KEDO has agreed to supply 500,000 tons of heavy oil by 
September 30, is that correct?
    Mr. Deming.  My understanding is that is the so-called KEDO 
fuel year, yes.
    Senator Kerry. OK, September 30. We are agreed on that.
    Mr. Deming.  I'm sorry--it's October 20, I am told. October 
20 is the KEDO date.
    Senator Kerry. And currently we have provided only 152,000 
tons so far in 1998?
    Mr. Deming.  We have another 66,000 tons moving shortly.
    Senator Kerry. How much?
    Mr. Deming.  An additional 66,000 metric tons.
    Senator Kerry. When will that move? Do you know?
    Mr. Deming.  In the next few weeks--at the end of the 
month.
    Senator Kerry. End of the month. So that's at the end of 
July. So in August and September you are going to move three 
times what we have moved in the rest of 1998?
    Mr. Deming.  To be frank, we have in past years not always 
met the fuel year deadline. We have met the calendar year 
deadline.
    Senator Kerry. Which one is North Korea working on?
    Mr. Deming.  Of course, in the past they have understood 
the calendar year. But our nominal obligation is to meet the 
fuel year deadline. We can probably have a little bit of 
slippage in that.
    Senator Kerry. Why would we want slippage? What is the deal 
here? I mean, aren't we trying to build a relationship with a 
country that has been completely isolated for years?
    Mr. Deming.  Senator, certainly we are. But we have had, as 
you know, difficulties.
    Senator Kerry. Isn't reliability a critical component, a 
sort of good faith showing that we are serious?
    Mr. Deming.  I think any fair reading of the Agreed 
Framework will show that we have met our obligations under it.
    Senator Kerry. Then how do we have a $37 million debt with 
a significant shortfall of the $60 million to $65 million that 
KEDO needs to pay on an annual basis?
    Mr. Deming.  I'm afraid that is because we have 
underestimated our ability to attract funding for heavy fuel 
oil from other donors. That is something we have now had to 
come to terms with; and, as I have been discussing, we will be 
talking to you and to the House about ways that we can more 
fully fund this obligation so that we can eliminate the debt in 
a relatively short period and fully fund our obligations for 
future years so we don't have this kind of situation.
    Senator Kerry. So you are saying that the shortfall is 
exclusively the result of the inability to attract funds from 
donor countries?
    Mr. Deming.  Yes, sir. We hoped that we would be able to 
get from other countries much more.
    Senator Kerry. Which countries primarily were our 
expectations from?
    Mr. Deming.  We approached countries in the region which 
have direct security concerns. We got some funding from them.
    Senator Kerry. Which countries? I would like to know which 
countries we approached.
    Mr. Deming.  If you would, please give me 1 second.
    We have approached 37 different countries. We have 
approached Indonesia, we have approached Singapore, we have 
approached Brunei, Australia, New Zealand, Canada, Thailand. We 
have approached the European Union, which has funded and 
provided about a $15 million a year fund for KEDO. We have 
approached Europeans individually--Germany, France, the UK.
    Senator Kerry. Is that a complete list that you have just 
been given?
    Mr. Deming.  Yes. We can submit this for the record.
    Senator Kerry. May I just ask that that list be made a part 
of the record, Mr. Chairman?
    Senator Thomas. Absolutely.
    Senator Kerry. If you could, just provide us with copies of 
that. That would be helpful.
    [The information referred to appears in the appendix on 
page 31.]
    Senator Kerry. How much money in total have we been able to 
collect from donor countries?
    Mr. Deming.  We have been able to collect $73 million. It's 
$73 million.
    Senator Kerry. That's $73 million total?
    Mr. Deming.  Uh-huh.
    Senator Kerry. Now the $19 million that you offered up from 
Japan has, in fact, not been offered up by Japan because the 
Diet has not approved it yet, isn't that correct?
    Mr. Deming.  No, that's not. That money exists. It belongs 
to KEDO. But the Japanese have not allowed it to be--it is a 
loan from Japan to KEDO. We have drawn against that loan.
    Senator Kerry. It's a loan?
    Mr. Deming.  It's collateral. The Japanese have agreed to 
allow that money to be used as collateral for a loan for heavy 
fuel oil. They have not agreed as of yet to forgive that loan 
and allow it simply to be deposited into the KEDO fund.
    Senator Kerry. Now Japan has also, I believe, promised $350 
million toward the reactor itself, is that correct?
    Mr. Deming.  It's $1 billion.
    Senator Kerry. $1 billion.
    Mr. Deming.  South Korea has promised 70 percent of the 
light water reactor, and Japan has promised $1 billion toward 
the cost of the light water reactor.
    Senator Kerry. Do you have any sense that it may be too 
early and--with the resignation of the prime minister and the 
elections and so forth--where that commitment may or may not 
stand?
    Mr. Deming.  I think I can say safely that there is no 
danger that that commitment will be withdrawn. I think the 
Japanese see a fundamental interest in KEDO and in stability on 
the Korean Peninsula, and they will fulfill that obligation. 
They have made clear that that obligation will be $1 billion at 
whatever the current exchange rate is, so we won't get into any 
disagreement about that.
    Senator Kerry. Now Taiwan, I understand, has offered to put 
up some money for KEDO. Beijing, obviously, opposes any 
participation by Taiwan in international organizations.
    Does the administration have a view as to the capacity to 
have Taiwan participate in this particular effort?
    Mr. Deming.  I am not aware, in fact, that Taiwan has made 
that offer. As you point out, Senator, I think having Taiwan 
participate in KEDO raises some serious questions in respect to 
China's continuing support for KEDO and for the other concerns 
on the Korean Peninsula. It is something that we would have to 
look at extremely carefully and consult very closely with our 
other KEDO partners, Japan and Korea in particular, on that 
issue.
    It is a very complex issue, and I cannot offer a definitive 
view at this time.
    Senator Kerry. Has that consultation taken place at this 
point?
    Mr. Deming.  Not to my knowledge, no.
    Senator Kerry. My round is up on this one.
    I do have some more questions and will see if I can come 
back, Mr. Chairman.
    Senator Thomas. Senator Robb.
    Senator Robb. Thank you, Mr. Chairman.
    I wonder if you could review very briefly--and if you did 
so in your opening statement, I apologize as we were just 
coming back from a vote--exactly what the principal parties 
entered into with respect to the Agreed Framework. I know 
Ambassador Gallucci is going to be on the next panel, and we've 
worked with him in the negotiations for this Agreed Framework 
over quite a number of meetings when that was being negotiated. 
But just for the edification of all concerned, would you state 
for this panel the obligations that the United States, that 
South Korea, that Japan, and that other countries entered into 
at that time?
    Mr. Deming.  The United States took the responsibility of 
organizing the consortium to provide North Korea with light 
water reactors and to provide North Korea with interim heavy 
fuel oil to make up for the energy that was lost when they 
closed down their graphite moderated reactor.
    Senator Robb. With respect to just the interim heavy fuel 
oil, what was the extent of the obligation that the United 
States incurred in terms of responsibility for the provision of 
the entire 500,000 tons annually?
    Mr. Deming.  The U.S. agreed to take the lead in organizing 
funding for heavy fuel oil. Our expectation was and remains 
that this would not simply be a sole U.S. obligation but that 
we would take the lead in getting contributions from other 
countries to participate in this.
    Senator Robb. Indeed, it was assumed that the United States 
would be principally an organizer and not a contributor, was it 
not?
    Mr. Deming.  That's right. When Secretary Christopher came 
up here, he testified that he expected the U.S. contribution 
would be between $20 million and $30 million on the expectation 
that we would be able to make up the balance from other 
countries. We have undertaken a vigorous effort over the last 
few years, approaching 37 countries, I think in 75 different 
diplomatic interventions. We will submit for the record this 
whole list of what has been done.
    [The information referred to appears in the appendix on 
page 31.]
    Senator Robb. But just on that point, what percentage of 
the total funding to date has been provided by the United 
States directly and what percentage which, as you suggested, 
was not expected to exceed 20 percent, and what percentage has 
been provided by other countries in the region or 
internationally?
    Mr. Deming.  The total KEDO funding is $191 million 
dollars. Out of that, the U.S. has provided $118 million.
    Senator Robb. That's 100-what?
    Mr. Deming.  It's $118 million, $91 million of which is for 
KEDO--excuse me--the total $118 million, $79 million of which 
has gone to heavy fuel oil, $27 million of which has gone to 
canning the spent fuel at the reactor, which is almost 
complete. It is 95 percent complete.
    So the balance from other donors is about $73 million.
    Senator Robb. All right, let's move on to the contributions 
to the light water reactor itself that were expected from South 
Korea and from Japan, if you will.
    Mr. Deming.  Under the Agreed Framework, South Korea 
undertook to fund a major share of the light water reactor and 
Japan to make a ``significant contribution,'' as I recall the 
wording.
    Senator Robb. There used to be numbers associated with 
those.
    Mr. Deming.  I am going back to the original commitment.
    Senator Robb. OK.
    Mr. Deming.  Since then, those commitments have turned into 
numbers and the numbers are: South Korea has agreed to fund 70 
percent of the cost of the light water reactors and Japan has 
agreed to contribute $1 billion in U.S. dollars to that.
    Senator Robb. Was it not the original intent that all of 
the costs or virtually all of the costs would be borne by those 
two countries? I recall the number, instead of 70 percent at 
the time, being $4 billion that South Korea was going to 
provide, most of it in-kind, and that the Japanese were going 
to provide $1 billion, and that the United States was going to 
organize the international community to provide the heavy fuel 
support. Is that at variance with your understanding of the 
agreement?
    Mr. Deming.  No. I think that has been the basic division 
of labor, never completely formalized. Frankly, I think the 
South Koreans and Japanese have always insisted that the U.S. 
play some role in the light water reactor, which we have not, 
of course.
    Senator Robb. Wasn't that pretty well decided during the 
course of negotiations? I know they have since encouraged U.S. 
participation in the light water reactor to substitute for the 
graphite reactor. But wasn't that pretty well settled during 
the course of the negotiations?
    Mr. Deming.  I prefer to leave that to Mr. Gallucci in 
terms of the details of what was understood during the 
negotiations.
    Senator Robb. I see a wan smile on his face. We will look 
forward to his testimony. [General laughter]
    Mr. Deming.  In my association with this issue, the 
Japanese and the South Koreans have always sought some U.S. 
participation in the light water reactors.
    Senator Robb. Let me just ask you one question to finish up 
as my time is about over.
    What would be the consequences with respect to the ability 
of Kim Jung-Il and Pyongyang to reconstitute its nuclear 
weapons capability in the event for whatever reason we fail to 
live up to our commitments internationally to provide money for 
the heavy fuel oil or there was what appeared to be a complete 
breakdown? I must tell you that your assurances by both the 
South Koreans and the Japanese are a little stronger than I 
have received directly in recent conversations with 
representatives of those two governments.
    What would be the capability to reconstitute a nuclear 
program?
    Mr. Deming.  Well, as you know, the North Korean facilities 
are frozen; they are not at this stage dismantled. So anything 
that is frozen is capable of being unfrozen.
    I am afraid that, under the worst case scenarios, we could 
find ourselves back in the situation we were facing in 1994 
when this crisis reached its head.
    Under the program, as we move forward in the development of 
the light water reactors and deliver the major non-nuclear 
components, then North Korea begins to dismantle the facilities 
as well. But we are not at that stage yet. So the facilities 
still exist.
    Senator Robb. Thank you.
    My time has expired, Mr. Chairman, and I thank you.
    Senator Thomas. Senator Feinstein.
    Senator Feinstein. Thanks very much, Mr. Chairman.
    I am sorry I missed your oral comments, Mr. Deming. I have 
had a chance to review your written ones. Let me ask you for 
your judgment.
    In your judgment, are all parties maintaining their 
commitments?
    Mr. Deming.  I think all parties fundamentally are 
maintaining their commitments to the Agreed Framework, 
including the United States.
    Senator Feinstein. Let me ask you a specific question about 
the $10 million challenge grant that was included over and 
above the $35 million that was appropriated. What progress has 
been made in seeking matching funds and what countries have 
agreed to provide funds under this challenge grant?
    Mr. Deming.  We have attracted, as I mentioned earlier, 
about $73 million from other donors. But this money came in, I 
think, almost all before the challenge grant. So, frankly, we 
have had a very difficult time meeting the requirements of that 
challenge grant. We have been discussing with the staffs on the 
Hill the possibly of reprogramming that money without being 
able to meet the requirements of that challenge.
    Senator Feinstein. When you say ``reprogramming that 
money,'' what specifically are you referring to?
    Mr. Deming.  Well, we are still looking at from where that 
money might be transferred. It's to try to have the Congress 
allow us to move forward with that money despite our inability 
to meet the matching requirement. We think that is the prudent 
thing to do.
    We have tried very, very hard. We are continuing our 
efforts to raise funds from other countries. In the last year, 
the ability to raise funds in Asia has been seriously 
compromised by the Asian financial crisis, as I am sure you can 
appreciate. The EU and others are continuing their annual 
contributions of about $15 million a year. We are getting some 
small help from other countries, and we are going to continue 
to make this effort.
    But as I said in my statement and in my oral comments 
before you came in, I think it is unrealistic to assume that we 
are going to be able to get enough money from other donors to 
be able to fill the gap between what we have appropriated and 
what needs to be there to fund our heavy fuel oil obligations.
    Senator Feinstein. What do you propose doing with the gap?
    Mr. Deming.  We are discussing ways that we can, as I said, 
reprogram money. We have already moved forward with 
reprogramming $5 million.
    Senator Feinstein. Now you see, I am not understanding your 
term ``reprogramming.''
    Mr. Deming.  I mean taking money that is in the State 
Department budget for other projects and moving it over to this 
project.
    Senator Feinstein. Oh. So, in other words, our grant would 
cease to be a challenge grant, and we would add money to it? Is 
that what you are saying?
    Mr. Deming.  Yes.
    Senator Feinstein. OK.
    Let me ask another question, and this is, again, one to 
solicit your expertise and knowledge.
    I have been concerned by what at least appears to me to be 
increased incursions by submarines and intelligence forces from 
the North to the South, particularly this last submarine when 
the intelligence officers apparently shot and killed the 
sailors aboard the sub.
    What do you make of this? Is it at all related to the 
Agreed Framework?
    Mr. Deming.  Anything to do with North Korea we have a very 
difficult time understanding their decisionmaking process, if 
they have such a process, and why they do things that seem to 
us to be clearly counterproductive to their own interests. At a 
time when President Kim Dae-Jung is reaching out to the North 
with his Sunshine Policy, the North has come up with a series 
of very provocative and completely irresponsible kinds of 
incidents, including the two submarine incidents.
    As our analysts look at this, I think it is very, very 
difficult to determine the logic behind it or what the reasons 
are. We have no evidence that it is directly linked, or even 
indirectly linked, to the KEDO program or in that regard. But, 
frankly, we just don't know because we have no real insights 
into how these people make decisions and why they do the things 
they do at a time when it seems completely counter to their 
interests to do these things.
    Senator Feinstein. I had the privilege of meeting with the 
Korean Foreign Minister while he was here last week. I was very 
heartened by his attitude, which is one of at least trying to 
make specific overtures and see if there is not an open window 
for some progress in the relationship at this time. So from the 
position of the South, I felt that they were doing all they 
could.
    Do you agree with that or do you think there are other 
overtures that could, in fact, be made?
    Mr. Deming.  No, absolutely. I think the South is doing 
even more than its share. I mean, it is turning the other cheek 
in the face of these provocations.
    When President Kim Dae-Jung was here, I think we were 
terribly impressed, as I think the Congress was as well, with 
his commitment to reaching out to the North and trying to move 
things forward. Hopefully, the North will find a way to respond 
a little more in the way they should.
    I think we need to give South Korea full credit for its 
patience and the wisdom of its policies as it deals with a very 
difficult North Korea.
    Senator Feinstein. I have one quick question. You mentioned 
the Japanese $1 billion commitment. What chances do you see of 
that commitment being kept?
    Mr. Deming.  I am absolutely confident. Before I came back 
to Washington, I was the number two in the Embassy in Tokyo; 
and I have worked this issue with them a long time. I am 
absolutely confident they will keep this commitment.
    Senator Feinstein. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you. We will have a couple of more 
questions before we move on to our second panel.
    You mentioned progress on the site. Now it has been some 
time. My understanding is there has been relatively little 
progress other than some surveying and this and that. What is 
your expectation there in terms of when actual construction and 
progress will be made?
    Mr. Deming.  Others on the panel may have more detailed 
information. My understanding is a lot of earth has been moved 
around. I was talking to a German diplomat yesterday who had 
just come back in May from visiting the site. He said he was 
amazed by the number of heavy equipment up there. There were 50 
or 60--oh, more than that--South Korean workers with North 
Korean workers, working together if not living together, and 
things are beginning to move.
    As to when actual physical laying of cement takes place, I 
think Mr. Anderson can be more precise on the exact timetable. 
But things are moving forward there.
    Senator Thomas. What do you suppose prompted the North 
Korean Government to come out with this statement about the 
U.S. not fulfilling its obligations?
    You indicate that we are. Yet they indicate we are not. How 
do you reconcile those two points of view?
    Mr. Deming.  I think the North Koreans are always looking 
for any kind of vindication that they can use as leverage. The 
fact is that the fuel oil deliveries have been slower than we 
would have liked them to have been. But, as I said before, we 
are confident that we will be able to meet our obligations 
during the course of the calendar year if not during the course 
of the so-called fuel year.
    The North Koreans watch things very carefully and, as I 
said, are always looking for points of leverage. They 
apparently think they have found one here.
    Senator Thomas. There are a number of other issues, other 
than the heavy oil. In 1995, the State Department announced a 
series of things they were going to do to reduce the barriers 
of trade. Have those progressed--such things as unblocking 
certain frozen assets; establishment of liaison offices in the 
two countries; use of U.S. credit cards; more travel between 
the U.S. and North Korea?
    Mr. Deming.  My understanding is that some of the things 
have moved forward. The financial transaction, I think the 
credit card thing, has moved forward.
    We have tried to move forward in other areas, and 
particularly since President Kim Dae-Jung was here and 
expressed a strong interest in the U.S. doing what it could to 
reexamine sanctions. We are in that process.
    Ambassador Designate Kartman, who will be the Ambassador to 
the Four Party Talks if he is confirmed by the Senate, is 
scheduled to go in August to Seoul to consult with the South 
Koreans about the whole sanctions issue. But, frankly, as we 
move forward in this, the North Koreans do provocative things, 
like the submarine incident, and this does not help the 
atmosphere in trying to get support for removing some sanctions 
and reducing the barriers between North and South Korea.
    On the liaison offices, we are prepared to move forward. 
But the South Koreans have put a number of barriers in our way. 
I'm sorry, I mean the North Koreans have put a number of 
barriers in our way.
    For one example, we would like to be able to support that 
office across the DMZ from South Korea, which would make it 
economically feasible to maintain an office in Pyongyang. The 
North Koreans have not agreed to that, and there are several 
other points where they are raising barriers to it.
    We would very much like to move forward, but it takes two 
to tango; and they have not been willing to dance, as of yet.
    Senator Thomas. Just as an observation, as one who is 
interested in electric distribution and generation, it has 
always been interesting to me that the nuclear plants that were 
in question run by the North Koreans, no one could ever 
determine that there was any power grid going out from them. 
And, if you are going to have a light water power plant here, 
there has to be a power grid. A power plant is not very useful 
unless you have a way to distribute its power. As far as I 
know, there has been no effort made to continue that.
    Senator Kerry.
    Senator Kerry. Just very quickly, Mr. Chairman, thank you.
    How would you sum up the options at this point in time? Is 
this a no option situation? Are there a couple of options as to 
how you may proceed?
    Mr. Deming.  In terms of funding for heavy fuel oil?
    I think the basic options at this point are, first, to 
continue our efforts to get funds from abroad, understanding 
that we are not going to get a great deal more than we have 
gotten, at least in the near-term.
    Second is to look at reprogramming existing funds to try to 
ensure that we meet our obligations this year.
    Third is to come up to the Congress in the budget process 
with a request for fuller funding.
    Senator Kerry. Is reprogramming preferable to a 
supplemental?
    Mr. Deming.  I will have to defer to my colleagues who 
handle Congressional relations on the details of how to do 
this. I am sorry. I don't want to make a definitive statement 
on that as I don't feel comfortable there.
    Senator Kerry. That's OK.
    Let me ask this. Have we approached any of our allies in 
the Middle East--the Saudis, the Kuwaitis, the Gulf States--to 
supply some oil directly?
    Mr. Deming.  Yes, we have.
    Senator Kerry. What is the result of that?
    Mr. Deming.  I'm afraid there has been no success. We are 
going back again.
    There are some letters going out shortly that are a 
followup on an earlier request.
    Senator Kerry. Kuwait refused?
    Mr. Deming.  Yes, Kuwait has refused and numerous times, I 
am told.
    Senator Kerry. Numerous times? That is sort of interesting, 
isn't it?
    Senator Feinstein. Would you yield for just a moment on 
that point?
    Senator Kerry. I would yield. Sure.
    Senator Feinstein. Why are these Middle Eastern Nations 
refusing to help? Do you have a feeling about what the reason 
is, particularly the more affluent ones?
    Mr. Deming.  I don't, Senator. I'm sorry. I've just come 
into this, and I have not dealt directly with the Middle East 
Nations on this. But my understanding is that they just simply 
see this as sort of outside their sphere of interest and that 
their sphere of interest is rather narrowly drawn.
    We think this is a global as well as a regional challenge. 
We have had difficulty getting other countries to accept that.
    But I must say, the fact is that the EU has come through, 
and individual European countries have come through with a not 
insignificant contribution. And the EU is a difficult process, 
as you can imagine, to get all these countries together to 
agree on funding for heavy fuel oil. We are very grateful for 
that. So we should give due credit to them.
    Senator Kerry. I think that is appropriate. But I also 
think it would be appropriate to perhaps ask the Secretary if 
she would not--I don't know if she has a personal basis, but I 
think it would be well worthwhile reiterating and raising to a 
higher level of request, perhaps, both the visibility as well 
as the interpersonal aspect of it, the notion of how 
appropriate it might be for some other countries to take part 
in this, particularly, I think, some of our friends in the 
Middle East.
    I am just dumbfounded that that has been ``stiffed'' on a 
number of occasions.
    Mr. Deming.  Senator, the Secretary is very concerned with 
this issue and is fully supportive of all our efforts. I would 
certainly do that.
    Senator Kerry. Would you convey that?
    Mr. Deming.  Yes, sir.
    Senator Kerry. I might even call her and chat with her 
about it. But I think that the world ought to be aware that 
this is not just our effort. This is something that obviously 
pertains to everybody.
    We have a lot of countries, a number of countries, that 
have restrained their nuclear programs based on the assumption 
that we were all moving down a common road.
    Now India and Pakistan obviously present us with a bump in 
that. But, on the other hand, properly translated and properly 
massaged in the next months, India and Pakistan could be turned 
into a very positive event that could underscore the futility 
of that road and, in fact, strengthen our ability to build the 
regime, the protocol by which we restrain other countries. I 
think of Brazil, Argentina, South Africa, and other places 
which are impacted by this.
    I would think most leaders today would not be so foolish as 
to believe that their security is enhanced by moving in that 
direction or that that is a wise expenditure of resources, and 
so forth. But there are obviously countries, North Korea among 
them, which just think differently about their threats, their 
concerns, and these issues.
    I think it is really worth doing; that and, if I could, I 
would commend that to you.
    My last question, quickly, is this. Last month, the North 
Koreans threatened publicly to conduct maintenance on the 
plutonium processing plant. Do we know whether or not that has 
moved beyond the threat stage? Has that occurred?
    Mr. Deming.  My understanding is they have done some 
maintenance which is consistent with the framework, and it has 
been under IAEA supervision. The IAEA has not indicated to us 
that there has been any deviation from their obligations.
    Senator Kerry. Good.
    Thank you very much.
    Thank you, Mr. Chairman.
    Senator Thomas. Senator Feinstein, are we ready for the 
second panel?
    Senator Feinstein. No further questions. Thank you very 
much.
    Senator Thomas. Thank you very much, Mr. Secretary. We are 
glad to have you here for the first time and hope to see you 
back again.
    Mr. Deming.  Thank you very much, Mr. Chairman.
    Senator Thomas. Let us now welcome our other two witnesses 
today. We are particularly pleased to have Desaix Anderson, the 
Executive Director of KEDO from New York and Ambassador Robert 
Gallucci, who is a vital speaker in this instance since he was 
sort of the author of this whole arrangement and has appeared 
before this committee on a number of occasions.
    Mr. Anderson, would you care to begin. Your full statement 
will be included in the record. If you would care to, please 
summarize it.

   STATEMENT OF DESAIX ANDERSON, EXECUTIVE DIRECTOR, KOREAN 
PENINSULA ENERGY DEVELOPMENT ORGANIZATION (KEDO), NEW YORK, NEW 
                              YORK

    Mr. Anderson.  Thank you very much, Mr. Chairman. I would 
like to say I am very pleased to be here.
    I would like to just give some abbreviated remarks, if that 
is satisfactory.
    Senator Thomas. That's fine. Thank you.
    Mr. Anderson.  In the 3 years that KEDO has been operating, 
we have made somewhat surprising progress and have had greater 
success than most people seem to realize.
    First, KEDO has ensured that North Korea has kept its 
nuclear nonproliferation commitments under the Agreed 
Framework. Pyongyang's national nuclear program, including the 
plutonium production plant, have been frozen.
    Senator Thomas. Excuse me. Would you pull the microphone 
closer? I think the folks in the back are having trouble 
hearing you.
    Mr. Anderson.  Certainly.
    Virtually all of the spent fuel rods from the 5 megawatt 
reactor have been canned. The DPRK has remained a party to the 
NPT, and the IAEA has been allowed to monitor the nuclear 
facilities.
    Second, KEDO has served a very important diplomatic or 
geopolitical function. Through its daily work in New York and 
the DPRK, and the negotiations at the Kumho site in North Korea 
on the East Coast, KEDO has provided a novel and a crucial link 
between Pyongyang and the outside world, providing a forum of 
nearly constant contact with the North Koreans. It serves as a 
prototype organization which will help to try to engage North 
Korea and bring it into the international community.
    Third, KEDO has provided an opportunity for direct contact 
between South and North Koreans on both a formal and an 
informal level. That is one of the main objectives of the 
Agreed Framework.
    Under KEDO's institutional umbrella, South Koreans and KEDO 
have negotiated directly with the North Koreans on various 
agreements.
    In the field itself, the agreements between KEDO and South 
Korean contractors and subcontractors have been negotiated and 
signed between North Korean companies and South Korean 
companies to provide such things as labor, goods, facilities, 
and other services at the site.
    Similarly, there has been considerable interaction between 
the 120 South Korean workers at the site and the anywhere 
between 75 and 90 North Korean workers who are working with 
them.
    Fourth, the physical work to prepare the site has proceeded 
smoothly and, in fact, we are ahead of schedule in the past 
year. Thousands of tons of equipment to construct the light 
water reactors have been delivered to the site. We have 
constructed a small village, including housing facilities, 
medical facilities, roads, and a restaurant from which both 
North and South Korean workers are served, and even have opened 
a bank.
    Although there has been significant progress during the 
past 3 years, it is no secret that KEDO now faces very serious 
financial challenges: first, resolving how the KEDO Executive 
Board members will share the burden of paying for the two light 
water reactors, with a cost estimated now at $4.6 billion; and, 
second, how to finance KEDO's commitment to deliver 500,000 
tons of heavy fuel oil to North Korea each year.
    With respect to cost sharing, South Korea has agreed it 
would play a ``central role'' and Japan a ``significant role''; 
and you are aware, from what Mr. Deming has said, what that is 
being translated into. The KEDO Executive Board, however, will 
meet in New York later this week to try to finalize exactly 
what these commitments mean and the modalities for putting this 
package together. I hope that we are very close to a final 
agreement on that issue.
    Once we reach agreement on the cost sharing, KEDO intends 
to conclude later this year a turnkey contract with our prime 
contractor, Korea Electric Power Corporation, KEPCO; and the 
turnkey contract will govern the rest of the project, including 
full-scale construction work.
    With respect to the funding of the heavy fuel oil shipments 
to the North, KEDO began 1998 $47 million in debt from oil 
delivered to North Korea in 1997. With the exception of the $19 
million in collateral provided by the Japanese, however, there 
are commitments for the remainder of it. So it is debt with 
backing.
    The cost of delivering this year's allotment will run to 
between $55 million and $65 million. By the end of this month, 
KEDO will have shipped 216,000 of the 500,000 tons needed to 
ship this year, including 66,000 tons being shipped this month.
    If KEDO does not obtain the funding for the oil shipments 
and does not reach agreement on funding the light water 
reactors, North Korea's adherence to the Agreed Framework, 
including the pledge to freeze and eventually to dismantle the 
nuclear program, would be jeopardized. The implications of such 
a development obviously are dire.
    The North's spent fuel from its 5 megawatt reactor is 
currently stored in canisters under IAEA safeguards, but it 
contains enough plutonium to produce four to five nuclear 
bombs, should they attempt to do so.
    However, I remain, I must remain, optimistic that the 
funding will be found. It is too important for security in the 
region and globally.
    The importance of KEDO's work has been recognized by the 
international community, particularly by the United States, 
South Korea, Japan, and the European Community, and there are 
some 26 other countries who have made financial contributions. 
I would be happy to give you a list of those, which I think you 
will find interesting.
    [The information referred to appears in the appendix on 
page 31.]
    Mr. Anderson.  As KEDO's Chief Executive Officer, I would 
like to thank those Members of Congress, both Democrats and 
Republicans, who have supported KEDO's work in the past; and I 
appreciated your opening remarks. I urge that you continue this 
support.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Anderson appears in the 
appendix on page 43.]
    Senator Thomas. Thank you, Mr. Anderson. Ambassador 
Gallucci.

    STATEMENT OF HON. ROBERT L. GALLUCCI, DEAN, GEORGETOWN 
     UNIVERSITY EDMUND A. WALSH SCHOOL OF FOREIGN SERVICE, 
                        WASHINGTON, D.C.

    Ambassador Gallucci.  Thank you, Mr. Chairman. I also, with 
your permission, would like to submit a written statement for 
the record.
    Senator Thomas. Absolutely.
    Ambassador Gallucci.  Mr. Chairman, I understand the issue 
is whether or not Congress should, in general terms, be 
providing more funds now and in the future to support KEDO and 
that those funds would, in turn, be used for the purchase of 
heavy fuel oil to be delivered to North Korea.
    Is it, in other words, in the national security interests 
of the United States to provide, perhaps, in round numbers 
maybe $50 million a year for heavy fuel oil for North Korea or, 
about, in round numbers, twice what Secretary Christopher 
estimated 3\1/2\ years ago might be required of the United 
States under the Agreed Framework? In other words, is this game 
worth that candle?
    For some, the answer, I think, is as clear as the benefits 
that have already been realized seem to be. That 5 megawatt 
reactor that had been producing a bomb's worth of plutonium a 
year is frozen. The spent fuel from that reactor that has, we 
estimate, 5 or 6 bombs' worth of plutonium contained in it, has 
been recanned for safe storage and eventual shipment out of 
North Korea, rather than being reprocessed.
    The facility that was constructed and expanded, the 
reprocessing plant, for the sole purpose of separating 
plutonium, we think, for nuclear weapons, has been frozen. Two 
large graphite reactors that by now could be producing enough 
plutonium for maybe 25 or 30 nuclear weapons are frozen.
    All of this freezing is also easily verified by the IAEA. 
That is what has happened so far.
    In the future, if the Agreed Framework is sustained, those 
facilities are completely dismantled; that fuel I referred to 
is shipped out of North Korea; and North Korea must come clean 
on how much plutonium it produced in the past. It must settle 
the issue of those special inspections or it does not get those 
two light water reactors that are part of the Agreed Framework.
    But the question for some is has the Agreed Framework been 
fully implemented? I would say the answer is no.
    The North-South dialog, which we hoped would flow from the 
Agreed Framework--and there is language in the Agreed Framework 
that is designed or was designed to pressure the North in the 
direction of a dialog directly with the South--the expectation 
in the Agreed Framework that that might come about has not been 
realized despite the very aggressive pursuit of peace by new 
South Korean President Kim Dae-Jung.
    Second, there are what are referred to in the Agreed 
Framework as the ``other concerns'' of the United States of 
America. I would mention two principally here--the North Korean 
ballistic missile program, as we are very concerned about the 
development of extended range ballistic missiles, two in 
particular, and their export by North Korea; and we are also 
very concerned about the forward deployment of North Korea's 
million man army close to the DMZ, close to South Korea, and 
the deployment of 37,000 Americans.
    Would it not have been better, as some have noted, had the 
Agreed Framework provided for the delivery of two 
conventionally fueled plants rather than two light water 
reactors--in other words, solve the problem of North Korea's 
gas graphite reactors not with light water reactors but with 
coal fired plants? Yes, it would have been. But that I do not 
believe was negotiable. We tried. It would not have been 
accepted. The North Koreans insisted on modern nuclear 
technology to replace the graphite technology.
    Does the Agreed Framework remove North Korea's threat to 
the United States, to regional security? It does not. There are 
those ballistic missiles. There are other programs of weapons 
of mass destruction in North Korea. There is the threat of the 
North Korean conventional forces to U.S. forces and to South 
Korea. There is always the risk of secret facilities that must 
be discovered.
    In 1995, when I spoke, Mr. Chairman, to members of this 
committee, I noted that our experience with Iraq--and I had had 
a fair amount of that experience--taught us all, I think, that 
there are secret facilities which are sometimes hard to find, 
and that we are accomplishing with the Agreed Framework 
something very specific which was addressing a known set of 
facilities, and a known set of facilities which, by now, I 
believe would have produced probably enough plutonium for about 
10 nuclear weapons.
    So we are accomplishing something very specific with the 
Agreed Framework so far, and we have the prospect of 
accomplishing a great deal more if the Framework is sustained.
    But the question, I think, that is before Congress now is 
at what cost. The largest financial cost, of course, is the 
roughly $5 billion that is projected as the price tag for the 
light water reactor project, those 2,000 megawatt light water 
reactors, to be borne principally by Japan and the Republic of 
Korea, and, in addition, maybe an estimated $65 million a year 
for heavy fuel oil, to be borne by the United States, the 
European Union, and other States that decide to contribute each 
year until the first light water reactor comes on line.
    But I would ask, as the Congress considers this, that those 
numbers, particularly the U.S. burden, be put in context. If 
the U.S. portion were, say, about $50 million or $50 million to 
$60 million, I would suggest that that is a relatively small 
price to pay compared to the alternatives to deal with this 
problem.
    I recall that when we looked at the alternative to the 
Agreed Framework and we thought it might be a return to the 
United Nations Security Council and perhaps the vote of 
sanctions, there would be a very large price tag attached to 
the cost of U.S. military force redeployments--naval, sea, and 
air--to deal with the contingency that might result from a 
Security Council resolution.
    I would also suggest that that figure is small, of course, 
compared to the cost of any military contingency that we might 
launch in order to deal with this treat.
    Would we, Mr. Chairman, be willing to spend $50 million a 
year to end the nuclear weapons program in Southeast Asia, in 
India and Pakistan?
    In short and in sum, Mr. Chairman, I think this game is 
worth that candle.
    Thank you.
    [The prepared statement of Ambassador Gallucci appears in 
the appendix on page 46.]
    Senator Thomas. Thank you, sir. Thanks to both of you.
    I have just a couple of quick questions.
    Mr. Anderson, we have had this agreement now for some time 
and some commitments, apparently, but you indicate that the 
specifics of the contribution of South Korea and Japan are yet 
to be determined.
    Assume that now the cost has gone up to close to $5 
billion, instead of $4 billion. What happens if, partly because 
of their financial condition, they do not agree to this?
    Mr. Anderson.  Mr. Chairman, it has actually gone from $4 
billion to $5.2 billion and now it is down to $4.6 billion.
    All of the details of the agreement for the light water 
funding have got to come together as a package. But there is 
not any question about the commitment of South Korea or Japan 
along the lines that Mr. Deming mentioned. So the bulk of the 
money is there. It is exactly how these arrangements were put 
together.
    Senator Thomas. You are talking about the detail. You would 
say that there is a commitment by both South Korea and Japan to 
pay their share?
    Mr. Anderson.  It has been unequivocally reconfirmed in 
recent weeks. Yes, sir.
    Senator Thomas. OK. I will write that down.
    You indicated also that there is $47 million, and with the 
$19 million from Japan there is also commitment for the rest of 
it. Where does that commitment come from?
    Mr. Anderson.  Well, for example, the European Union. We 
are expecting $17 million from them within a few days. Part of 
it is borrowed against that, that funding. There are other 
commitments that are made, but we have not yet received them. 
So it is against those funds that we have purchased the fuel 
oil.
    Senator Thomas. So the $47 million has been offset by--you 
are comfortable with commitments to offset that?
    Mr. Anderson.  Well, I am not comfortable with them. If we, 
indeed, received all of these commitments, they would take care 
of $28 million of the $47 million. But we would have no money 
with which to purchase the current requirements.
    Senator Thomas. The State Department does not seem to be 
quite as confident as you in terms of those commitments.
    Mr. Anderson.  I don't think there is a disagreement there. 
It is just the way in which I am phrasing it. You could call it 
$47 million in debt, but we have commitments for $28 million of 
that, which we could pay off if we had to. But we could not 
order new oil which is necessary for the current requirement.
    Senator Thomas. Is there any reason to think that North 
Korea is looking for reasons to sort of pull away from the 
agreement?
    Mr. Anderson.  They started raising the question when I 
visited North Korea last November. They said there were those 
who were pushing to resume their nuclear program because we 
were not moving quickly enough. So there has been a ratcheting 
up of what they have been saying over the past several months.
    They have also not confined it to the fuel oil. They have 
talked about three things: one, the lifting of the U.S. 
sanctions, and we had nothing to do with that; second, the pace 
of the light water reactor construction; and, third, the heavy 
fuel oil.
    Now they are mistaken about the light water reactor. We 
are, in fact, ahead of schedule because we have worked faster 
than we intended. But they have linked their threats to all 
three of these items.
    So there is a growing concern on their part; and I think 
these could be remedied by finding the funds so that we could 
provide the oil on a regular basis, and so the light water 
reactor construction can begin in earnest within a couple of 
months.
    Senator Thomas. Mr. Ambassador, in your view, is there any 
relationship between this light water reactor, this KEDO 
agreement, and sanctions?
    Ambassador Gallucci.  Mr. Chairman, I am not sure about the 
connection you are suggesting.
    Senator Thomas. Well, Mr. Anderson suggested they have 
raised several questions which have caused them to question the 
KEDO agreement or to not adhere to it, one of them being 
sanctions.
    Correct?
    Mr. Anderson.  Yes.
    Senator Thomas. And I am saying when you negotiated the 
KEDO thing, was there any suggestion that there would be an 
opening of trade, that sanctions would not be there? Do they 
have a reason to question that?
    Ambassador Gallucci.  By my recollection, Mr. Chairman, the 
language of the Agreed Framework has, over time, the United 
States and the DPRK moving to a more normal relationship. But 
it is linked to other issues of concern being resolved.
    We took certain steps, the United States did, I would say 
certain minimal steps immediately after the negotiation of the 
Agreed Framework, and it was the judgment then of the 
administration that we were acting consistent with the 
Framework. The North Koreans have always been disappointed that 
more has not been done by the United States.
    I think you have heard Deputy Assistant Secretary Deming 
refer to the moves so far and the inclination with the new 
President, Kim Dae-Jung, in South Korea to relook at that 
issue. But also, I say again, the North Korean behavior 
sometimes, provocations of one kind or another, bear upon that.
    So I think we should not be surprised that the North 
Koreans are wanting more from the United States, and I think we 
have been moving quite deliberately and appropriately.
    Senator Thomas. It seems that one of the most unusual 
things you would expect to hear was North Korea being concerned 
that the United States has not been open enough--the United 
States, of all countries, not being open.
    You indicated that you think it is the role of Congress to 
provide. What about the administration making a request? This, 
after all, was an administration agreement. You did not bring 
it to us as a treaty. The Congress has never agreed to this, 
right?
    Ambassador Gallucci.  I used to be repeatedly corrected, 
Mr. Chairman, by lawyers not to use the word ``agreement'' and 
to call it an ``Agreed Framework.'' So I have been struggling 
to do that.
    Senator Thomas. Well, what is your reaction to the 
administration's request for funding?
    Ambassador Gallucci.  I have not, in fact, followed very 
closely the requests of the administration each year since I 
have left government. I think the expectation--and here I am 
speaking as a citizen when I say this--I think the expectation 
of the administration was that its efforts with other 
governments would have brought forth more fruit than so far 
they have realized, and that their request to Congress was 
conditioned by that. When other governments have not been as 
forthcoming as we think they ought to have been, they have come 
back to Congress for more help.
    The thrust of my remarks today really is that the stakes 
here are such that, after regretting that other governments 
have not been more forthcoming, it is yet still a Framework 
that is very, very worth sustaining.
    Senator Thomas. I am going to ignore the timer here for a 
moment and ask one more question.
    You indicated that there are inspections of the sites but 
there were described sites to be inspected.
    Isn't it possible that there are lots of other sites in 
which things could be happening in which there is no 
inspection?
    Ambassador Gallucci.  Senator, this question, as I said, 
was raised before. The only answer, plausible answer, is 
absolutely. Let's be clear about this.
    I made reference to the Iraq experience which should really 
chasten all of us about our intelligence community and other 
governments that were focused on Iraq before the Gulf War; and 
then, after the Gulf War, in the Special Commission we found 
all kinds of things we did not anticipate.
    A country like North Korea, which is known for a certain 
amount of tunneling, can presumably have the capability to try 
to hide things. The Agreed Framework is a wonderful tool, first 
to get at known facilities that threaten our forces and our 
alliance in the international community.
    Second, it commits the North Koreans if they wish to stay 
in the Framework, within the Framework not to do certain 
things. They are not only listed to some degree in the public 
version of the Agreed Framework, but, as you know, there is a 
Confidential Minute which has a certain increased detail, which 
is available to the subcommittee, which is useful to us.
    I am not now nor was I before asserting to you that the 
Agreed Framework turned or changed the nature of the North 
Korean regime. We hope over time it will be a vehicle to help 
that happen. But this is still a country that must be watched 
very, very carefully.
    Senator Thomas. Senator Kerry.
    Senator Kerry. I have just a quick question. Thank you, Mr. 
Chairman.
    Under the Agreed Framework, Japan and South Korea were 
going to pick up the cost of the reactor. I understand now 
there may be a projected $350 million or so shortfall in their 
capacity or willingness to do that.
    I see Mr. Anderson's head nodding affirmatively.
    If that is true--and is that your understanding--who makes 
up the difference? Are we obligated to?
    Ambassador Gallucci.  If I could give a little bit of 
history here, Senator, when we had not yet concluded the Agreed 
Framework but were attempting to put together the package, the 
light water reactor package, our team visited Seoul and Tokyo 
and came away with commitments for, in the language at the 
time, a ``significant contribution'' from the Republic of Korea 
and an ``important contribution'' from Japan--or language to 
that effect.
    Subsequently, we translated it into 70 percent from South 
Korea and $1 billion from Japan.
    At the time, both South Korea and Japan wished the United 
States to participate in the light water reactor project as 
well. It is my clear recollection that we could make no such 
commitment; that we were prepared to say that we would take the 
lead, that the United States would take the lead, in putting 
together the consortium that would provide the funding that 
would supply the heavy fuel oil; and that we would seek to have 
the United States participate in the light water reactor 
project. This means we would seek from Congress.
    In fact, I remember coming to Congress and so seeking. I 
also remember so failing.
    Senator Kerry. So that's up in the air.
    Ambassador Gallucci.  Right now I speak as a citizen and 
say what I understand is that discussions have been proceeding 
between the United States, Japan and the Republic of Korea to 
resolve what seems to be a gap for the last percentage, however 
much that turns out to be, 10 percent or less.
    Senator Kerry. I appreciate that answer. It is helpful to 
get the history on the record. I also appreciate very much your 
strategic comparison of what we achieve and do not achieve 
here. I could not agree with you more that the differential on 
the fuel oil, compared to the deployment of the Seventh Fleet 
or a whole bunch of other things that could be envisioned here, 
not to mention the long-term costs with respect to 
proliferation and engagement, is obviously pale.
    So I hope we can, as a result of this hearing, find some 
rapid, sensible resolution of this.
    Thanks, Mr. Chairman.
    Senator Thomas. Thank you, Senator.
    Senator Feinstein.
    Senator Feinstein. Thank you, Mr. Chairman.
    Ambassador Gallucci, as one who was here in 1995 and heard 
your testimony before this committee, I must tell you that I 
regard this with some sense of dismay and some feeling that 
this thing is falling apart.
    Let me begin with the dialog portion of this. As I recall 
the testimony almost 4 years ago, a lot was put or an emphasis 
was placed on the fact that there would be dialog. I understand 
that there has been one set of meetings but now nothing is 
scheduled. So the real Four Party Talks are in a hiatus, if I 
understand it correctly.
    I am very concerned about that. I could interpret this all 
wrong, but it looks to me like you are sort of setting the 
precedent for the United States to put more money into this 
thing. And, unless there is a corollary of the discussions 
proceeding and some progress taking place, our committee report 
points out that, even with respect to the dismantlement of 
existing reactors and the reprocessing facility, the costs 
there are presumed to be the responsibility of North Korea; and 
the smallest of the reactors is already contaminated with 
radioactivity and expected substantially to increase the cost. 
It seems to me, then, that we are getting nowhere fast except 
into a holding situation.
    If you can disabuse me of this feeling of dismay that I 
have as a product of the testimony, I would appreciate it.
    Ambassador Gallucci.  Senator, I am going to try, because I 
do not share your dismay.
    If I take the forest view for just a second, before going 
down to the trees, I would say that with the Agreed Framework 
in place now approaching 4 years, the performance under the 
Framework has been nothing short of remarkable. The creation of 
KEDO, the participation of a number of countries, even if it is 
not as much as we would like, is still significant. Those 
facilities are frozen that would be producing nuclear weapons 
right now. They were frozen under a continuous IAEA presence, 
and American technicians canned that fuel--all of it that could 
be easily canned. They have some sludge that has yet to be 
handled. I think this is all remarkable.
    I don't think, if I may now say, that it is all that 
remarkable that North Korea has not burst forward with a dialog 
with the South. We fought very hard for language in the 
Framework which would, if this were a binding agreement, compel 
North Korea to the table. But it is not that. It is a 
``framework'' and for a variety, I am sure, of political 
reasons, the North Koreans have not come forward. I listed that 
as one of the elements of the Framework not realized.
    But if I could offer at this point something, if the 
Framework stays in place and the North Korean nuclear weapons 
threat is kept in a box and ultimately dismantled, at the kinds 
of costs that are indicated here to the United States--we are 
talking about tens of millions of dollars each year for maybe 
10 years and billions of dollars for the Japanese and Koreans--
this is still, compared to the alternative way of dealing with 
this problem--and I hesitate to say this as a taxpayer--peanuts 
compared to the money we pay to deal in the defense 
establishment with threats of this character.
    This is a tremendous bargain.
    While I am saying that, I want us very much, the U.S. 
Government, to put pressure: (a) on other governments to 
participate in this because it is a good deal for them, too, 
and we should not bear all this burden; and also (b) on the 
North, now that we have particularly a government in the South 
that has been so aggressive in pursuing that dialog and in 
pursuing peace with the North. I want that to happen.
    But, Senator, time is on our side. It is not on the side of 
the regime in North Korea. I think if we can sustain the 
progress we have made and the course we are on, we are doing 
very well.
    Mr. Anderson said, I think quite correctly, that the light 
water reactor project is, indeed, on schedule. This, I say 
again, is absolutely remarkable--the building of this kind of 
facility in North Korea using South Korean neighbors. This is 
the kind of thing we dreamed about happening for years. Now it 
is happening.
    We have now a problem with heavy fuel oil that is in the 
tens of millions of dollars; and if the Agreed Framework should 
falter for that, it would be a tragedy in my view.
    Senator Feinstein. Well, no, it is not that. I mean it is 
one thing to say this thing is great. It is another to 
recognize that it is frozen and could be started up at any 
time.
    I think the thing that is going to be persuasive here is 
the Four Party Talks. If there are not discussions that can 
lead to some kind of permanent solution, I don't see that we 
get all that much. I agree that delay is worth something. But I 
would not embroider on that a whole tapestry.
    Ambassador Gallucci.  Senator, I will stay away from that 
metaphor. But if we could go back to the terms of the 
Framework, according to the terms of the Framework the North 
Koreans receive the big benefits--the light water reactors, the 
$5 billion project--only after these facilities are not only 
frozen but completely dismantled, and only after the spent 
fuel, the only spent fuel that we know of that exists in North 
Korea, is completely shipped out. So this problem is not only 
frozen, it is disposed of, as we understand it now, to the best 
of our ability. This is if nothing happened on the dialog.
    Now I do not want to diminish the political elements of the 
Agreed Framework. They were very important to us, and I want 
very much for that dialog to proceed. But I, myself, at this 
moment, as I assess what this is worth to American national 
security and to stability in Northeast Asia, I look at the 
Framework as having delivered, at least up to this point. And I 
want to preserve it.
    I do want to pressure those North Koreans into dialog with 
the South. But I would not hold up implementation of the 
Framework pending that dialog.
    Senator Feinstein. When is the dialog going to begin? It 
has been almost 4 years now.
    Ambassador Gallucci.  I really do not want to be in a 
position of apologizing for Pyongyang not doing what it is 
supposed to do under the terms of the Framework. What I really 
want to do is tell you that, as we press them to do that, in 
the meantime, I would like to see the United States do what it 
said it would do, which is to take responsibility for the 
delivery of the heavy fuel oil.
    We are not yet behind the terms of the schedule. We are 
behind the terms of the pace at which we told the North Koreans 
we would try to deliver heavy fuel oil.
    In other words, I want to join you, Senator, in insisting 
that that dialog get started. But when we turn from that 
observation that the North Koreans are really not delivering, 
what ought to happen now with respect to the Congress and the 
administration is I want to make sure that we sustain the 
Framework.
    Senator Feinstein. Mr. Chairman, will you permit me just 
one more question?
    Senator Thomas. Sure.
    Senator Feinstein. How far are we behind on the heavy fuel 
oil?
    Ambassador Gallucci.  Actually, Senator, the way I 
understand the deal when we first did it, and I don't know 
whether there have been further talks, we are not yet behind at 
all in terms of delivery of heavy fuel oil, that is, the formal 
expectations--I don't want to say ``obligations,'' but 
expectations--of the Agreed Framework.
    However, at one point the North Koreans told us early on in 
this arrangement in 1994-1995 that it would help them if we 
paced our delivery of heavy fuel oil in a way that allowed them 
to consume it, so that we would deliver a certain amount over 
the months.
    According to that schedule, we are not on that schedule. 
But that is not an obligation of ours.
    Senator Feinstein. How far off that schedule are the 
deliveries?
    Ambassador Gallucci.  If I could, I would shove that 
question over to my colleague. I am not sure about the months 
and the timing and, indeed, the exact amount of oil that has 
been delivered. But I suspect that we are behind the schedule.
    Can I ask my colleague to speak to that?
    Mr. Anderson.  You may.
    Senator, we have delivered 216,000 tons of the 500,000. 
What the North Koreans would like is for us to deliver 4,400 
tons a month. We have done that for several months but not 
since last October. We started late because we were still 
delivering 1997 oil until January.
    To actually deliver all that is committed, the 500,000 
tons, we would need to deliver 95,000 tons per month in August, 
September, and October. I suspect that that can be spread out a 
little bit more and probably the North Koreans will agree to 
it.
    But we started late, and we have been delivering pretty 
regularly since then. But we are now without funds totally. So 
to get all that is committed delivered, we will need to deliver 
95,000 tons in those 3 months or over the rest of the year, and 
we need the funding for that.
    Senator Feinstein. So in other words, you are saying that, 
unless you get additional funding, you won't be able to keep 
that portion of the terms of the agreement?
    Mr. Anderson.  That's correct, Senator.
    Senator Feinstein. Is there any indication from the North 
Koreans that they will be willing to begin the Four Party Talks 
in a serious manner?
    Ambassador Gallucci.  If there is, I am unaware of it. I 
know that the Four Party Talks were stopped. I know that there 
were some direct talks between the North and South in Beijing, 
but I don't know the current status. I would respectfully have 
to ask that that be passed to the administration to respond to.
    Senator Feinstein. May I, Mr. Chairman, ask for a response 
in writing on that point?
    Senator Thomas. Surely.
    Senator Feinstein. Thank you very much.
    Senator Thomas. Are you clear as to what she is asking?
    Mr. Deming.  The status of the Four Party Talks.
    Senator Feinstein. On the talks, yes. Thank you.
    [The information referred to appears in the appendix on 
page 40.]
    Senator Thomas. All right, thank you. We appreciate it very 
much.
    Certainly I think there is agreement that we must continue 
to make this thing work, that it is a valuable tool. I think we 
also have to make sure that we do not allow North Korea to find 
reasons not to comply.
    Further following the Senator from California's notion, 
accomplishing this is not in itself success. This is a role. 
This is a part of moving toward opening North Korea, in my 
view, and causing some changes to be made there. The success of 
this individually will not be a success in the changes.
    We need to comply with what we have agreed to. On the other 
hand, it seems to me that we should not be pushed into picking 
up the whole load. Just because you are a leader does not mean 
you have to pay the tab. I think sometimes we slide over into 
that.
    So I hope that our policy and where we want to go, all of 
that, using this activity of the KEDO and so on should be made 
clear. Our policy needs to be clearly stated with respect to 
this country, as in my view it needs to be with all countries. 
We need to let it be known that we will adhere to that policy 
that we articulate.
    Ambassador, thank you, sir.
    Ambassador Gallucci.  Thank you, Mr. Chairman.
    Senator Thomas. Mr. Anderson, good luck in your difficult 
chore.
    Mr. Anderson.  Thank you.
    Senator Thomas. Mr. Secretary, we are glad to have had you 
here.
    Mr. Deming.  Thank you, sir.
    Senator Thomas. Thank you all so much.
    The subcommittee is adjourned.
    [Whereupon, at 11:50 a.m., the subcommittee adjourned.]



                            A P P E N D I X

                              ----------                              



     Korean Peninsula Energy Development Organization Members and 
                             Contributions

Members
    United States, Republic of Korea, Japan, EU, Canada, Australia, 
Finland, New Zealand, Indonesia, Chile, Argentina, and Poland. Total: 
12.
Contributions \1\
    Total contributions to KEDO of $195.8 million consist of $91.5 
million from the U.S. and $104.3 million from 21 other countries and 
the EU.

United States--$91,500,000 \2\
European Union (EU)--$34,654,500
Japan--$32,260,000 \3\
ROK--$17,165,000
Australia--$9,379,00
Canada--$2,696,500
New Zealand--$1,355,400
Germany--$1,011,500
UK--$1,000,000
Indonesia--$974,900
Netherlands--$790,200
Norway--$500,000
Singapore--$600,000
Brunei--$423,700
Finland--$310,500
Malaysia--$300,000
Thailand--$300,000
Argentina--$200,000
Philippines--$150,000
Czech Republic--$127,816
Switzerland--$118,100
Oman--$50,000
Greece--$25,000
Hungary--$10,000
Pledges \4\
    Total: $20.6 million

EU--$16,618,500 (ECU 15 mil. x 1.1079 $/EU)
France--$2,000,000 (US$ 2 mil.)
Italy--$1,710,000 (Lira 3 bil. x .00057 $/Lira)
New Zealand--$264,200 (NZ$ 500,000 x .5283 $/NZ$)

    \1\ Contributions through August 21, 1998.
    \2\ Does not include appropriations for the spent fuel canning 
project, which is funded and implemented independently by the United 
States. To date, the U.S. has appropriated US$27 million for the spent 
fuel project, bringing U.S. total contributions in support of the 
Agreed Framework to US$118.5 million.
    \3\ Includes $19 million cash collateral fund provided by Japan to 
KEDO to facilitate HFO borrowing.
    \4\ Only includes pledges approved by legislature of donor. 
Exchange rates as of 7/20/98.

                               __________

Responses to Additional Questions Submitted for the Record to Principal 
            Deputy Assistant Secretary of State Rust Deming

           Responses to Questions Submitted by Senator Helms

    Questions 1-5. Can you tell the committee, on an unclassified 
level, with a reasonable degree of assurance, whether or not North 
Korea may be engaging in nuclear or nuclear weapons related activities 
at sites other than those covered by the Framework Agreement? Our 
colleague on the House Appropriations Committee, Foreign Operations 
subcommittee Chairman Sonny Callahan recently (Washington Post, July 6, 
1998) expressed his concern that North Korea may be pursuing nuclear 
weapons at facilities other than those frozen under the agreement. 
According to the Washington Post the Administration said ``there is no 
evidence of this.'' Is the Administration response an accurate 
statement and do you stand by that statement today?
    Is it the Administration's assessment that North Korea has 
terminated its nuclear weapons program?
    Are there nuclear weapons related activities which were underway 
prior to the signing of the Agreed Framework which are still underway 
in North Korea?
    Has new information been acquired over the past year regarding key 
components of a nuclear weapons program?

    Answer. We are aware of Chairman Callahan's concerns. Since those 
concerns related to intelligence assessments, they were addressed 
during a classified briefing provided to Rep. Callahan and other 
Members of Congress. In response to your questions in this area, we 
would be pleased to schedule a similar briefing.

    Question 6. What is the extent of North Korea's nuclear weapons 
related cooperation with other states, both as a supplier and as a 
recipient of nuclear weapons related technology?

    Answer. We will be pleased to brief you on this topic in a closed 
setting.

    Question 7. Would the provision of sophisticated nuclear technology 
and training assist North Korea in pursuing a nuclear weapons program 
if it is still pursuing such a program?

    Answer. Light water reactors (LWRs) are significantly more 
proliferation-resistant than North Korea's frozen graphite-moderated 
reactors. It is much harder to obtain and divert weapons material from 
spent LWR fuel.
    Under the terms of the Agreed Framework, the DPRK must come into 
compliance with IAEA full-scope safeguards before the LWRs can be 
completed. This will permit the IAEA to maintain safeguards over any 
spent fuel eventually produced from the LWRs.
    Under the terms of the Supply Agreement between KEDO and the DPRK, 
the DPRK must allow, if requested by KEDO, the shipment of its LWR 
spent fuel out of North Korea for disposal abroad.
    The technology and training which KEDO is providing the DPRK in 
connection with the LWR project is useful only for building and 
operating LWRs. The technology is highly specialized and of little use 
in pursuing a nuclear weapons program.

    Question 8. Where does the heavy fuel oil that we provide under the 
Agreed Framework come from? Please provide the source, costs, and 
shipping methods for each HFO provider.

    Answer. The attached tables list each delivery of HFO that KEDO has 
made to North Korea, including the date, quantity, cost, and source of 
the oil.

    The HFO Sellers listed in the tables ship oil from the following
                                countries
      Montello.........................  Singapore
      Itochu...........................  Japan
      Honam............................  South Korea
      Vitol/Vitol Asia.................  Singapore
      BP Oil/BP Singapore..............  Singapore
      Sunkyong.........................  South Korea
      Hanwha...........................  South Korea
      Mitsubishi.......................  Japan
      Caltex...........................  South Korea
      Petro Diamond....................  Japan
      Sumitomo.........................  Japan
      Meiwa............................  Japan
      Nissho Iwai......................  Japan

    All KEDO HFO has been delivered by oil tanker to one of three DPRK 
ports: Sonbong, Nampo/Songrim, or Chongim.

                                                                                     HFO Costs--1996 Program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      B/L Date or
            Scheduled               Discharge Date    Ship  (HFO Seller)  B/L Quantity  M/Ts    Transportation       Freight Cost       Commodity Cost      Commodity Cost     Total Freight and
                                     Delivery Port                                              Price  Per M/T                              Per M/T                                Commodity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
12/95...........................  1/14/96             Vigour              29,400              $26.00 Est.         $764,400            $112.00 Est.        $4,057,200          $4,057,200
                                    Sonbong             (Montello)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  1/14/98             Cherry              12,100              $26.00 Est.         $314,600            $112.00 Est.        $1,669,800          $1,669,800
                                    Sonbong             (Montello)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2/96............................  3/12/96             Yang He             21,500              $15.50              $333,250            $114.99             $2,472,285          $2,805,535
                                    Sonbong             (Itochu)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  3/13/96             Asahi Maru          18,100              $16.50              $298,650, Includes  $114.99             $2,081,319          $2,379,969
                                    Sonbong             (Itochu)                                                   $3,733.13 ISC Fee
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3/96............................  3/20/96             Liu He              22,807.90           $10.00              $228,079            $126.73             $2,890,445.17       $3,118,524.17
                                    Sonbong             (Honam)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  3/30/96             Liu He              22,454.80           $10.00              $224,548            $126.73             $2,845,696.80       $3,070,244.80
                                    Sonbong             (Honam)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
4/96............................  5/2/96              Posidon             34,100.968          $23.00 Est.         $784,323 Est.       $111.50             $5,921,520.66       $5,921,520.66
                                    Sonbong             (Vitol Asia)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  5/4/96              Jin He              9,999.554           $23.00 Est.         $230,000 Est.       $111.50             (Included in        (See above)
                                    Chongjin            (Vitol Asia)                                                                                       above)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5/96............................  6/4/96              Natuna Sea          37,800.129          $15.00 Est.         $585,902 Est.       $115.40             $4,929,136.82       $4,929,136.82
                                    Sonbong             (BP Oil)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6/96............................  7/8/96              Natuna Sea          37,837.679          $15.50 Est.         $586,484 Est.       $100.00 Est.        $4,370,251.92       $4,370,251.92
                                    Sonbong             (BP Oil)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
7/96............................  8/16/96             Jin He/Dan Chi      24,730.031          $33.37              $825,307.90         $104.00             $2,571,923.12       $3,397,231.12
                                    Nampo               (Sunkyong)
                                      9,327
                                    Songrim
                                      15,403
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  7/22/96             Yu Chi              21,017.007          $12.75              $267,966.84         $104.00             $2,185,768.73       $2,453,735.57
                                    Sonbong             (Sunkyong)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
8/96............................  8/23/96             Yu Chi              21,062.321          $12.85              $270,650.82         $108.65             $2,288,421.18       $2,559,072
                                    Sonbong             (Hanwha)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  9/4/96              Jin Chi             21,000              $15.50              $325,500            $109.75             $2,304,750          $2,630,250
                                                        (Itochu)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
9/96............................  8/30/96             Daqing-73           20,000              $16.00              $320,000            $115.50             $2,310,000          $2,630,000
                                    Nampo               (Vitol)
                                      4,000
                                    Songrim
                                      16,000
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  9/25-30/96          Daqing-71           20,006.255          $16.00              $320,100,08         $111.50             $2,230,697.43       $2,550,797.51
                                    Nampo               (Mitsubishi)
                                    Songrim
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  9/26/96             Yu Chi              20,701.122          $16.00              $331,217.95         $111.50             $2,308,175.10       2,639,393.05
                                    Chongjin            (Itochu)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  10/8/96 Est.        Yu Chi              20,703.277          $14.00              $289,845.88         $111.40             $2,308,415.39       $2,598,261.27
                                    Sonbong             (Itochu)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
10/96...........................  10/4/96             Daqing-71           20,000 Est.         $15.75              $315,000            $126.00             $2,520,000          $2,835,000
                                    Nampo               (Vitol)
                                      5,172.707
                                    Songrim
                                      14,827
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  10/14/96            Daqing-73           20,000 Est.         $14.75              $315,000            $126.00             $2,520,000          $2,835,000
                                    Nampo               (Vitol)
                                      9,000
                                    Songrim
                                      11,000
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  10/15/96 Est.       Ming Chi            21,006.360          $15.25              $320,346.99         $123.25             $2,589,033.87       $2,909,380.86
                                    Sonbong             (Mitsubishi)
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  10/21/96 Est.       Jin Chi             21,005.387          $15.25              $320,332.15         $124.25             $2,609,919.33       $2,930,251.48
                                    Sonbong             (Mitsubishi)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                 HFO Costs--1997 Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 Delivery Date      Ship  (HFO     B/L Quantity  M/   Transportation                     Commodity Cost
 Scheduled Month  (B/L Date)     Delivery Port        Seller)             Ts          Price  Per M/T     Freight Cost       Per M/T       Commodity Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/97 (2/6/97)................  2/8/97            M/T Magpie        21,850.30         $13.50            $294,979.05      $105.25          $2,299,744.08
                                 Sonbong           (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/97 (2/14/97)...............  2/22/97           M/T Yu Chi        21,627.00         $16.00            $346,032.00      $105.25          $2,276,241.75
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3/97 (4/20/97)...............  4/24/97           M/T Sun River     21,990.845        $15.50            $340,858.10      $107.50          $2,364,015.84
                                 Sonbong           (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3/97 (4/24/97)...............  4/25/97           M/T Jin Chi       20,320.4          $16.00            $325,126.40      $108.75          $2,209,843.50
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/97 (5/17/97)...............  5/19/97           M/T Jin Chi       20,044.6          $15.40            $308,686.84      $108.77          $2,180,251.14
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/97 (5/27/97)...............  5/29/97           M/T Egret         22,059            $12.75            $281,252.25      $108.77          $2,399,357.43
                                 Sonbong           (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6/97 (6/15/97)...............  6/29/97           Natuna Sea        37,999.435        C & F             C & F            $122.90          $4,670,130.00
                                 Sonbong           (BP Singapore)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6/97 (6/18/97)...............  6/20/97           Daqing-75         22,035.5          $14.90            $328,328.95      $113.00          $2,490,011.50
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6/97 (6/29/97)...............  7/6/97             Sun River        22,000            $15.90            $349,800.00      $110.25          $2,425,500.00
                                 Sonbong           (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/97 (7/15/97)...............  7/16/97           Natuna Sea        37,999.156        C & F             C & F            $120.90          $4,594,097.96
                                 Sonbong           (BP Singapore)
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/97 (7/18/97)...............  8/7/97            Daqing-76         23,073.588        $18.75            $432,629.78      $109.75          $2,532,326.28
                                 Nampo, Songrim    (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
8/97 (8/28/97)...............  8/30/97           Anfu              23,538.67         $12.75            $300,118.04      $106.12          $2,497,923.66
                                 Sonbong           (Sunkyong)
--------------------------------------------------------------------------------------------------------------------------------------------------------
8/97 (9/2/97)................  8/7/97            Magpie            25,303.3          $12.60            $318,821.58      $107.75          $2,726,430.58
                                 Sonbong           (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
8/97 (9/18/97)...............  9/10/97           Daqing-74         22,049.606        $15.10            $332,949.05      $106.12          $2,339,904.19
                                 Nampo, Songrim    (Sunkyong)
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/97 (10/8/97)...............  10/10/97          Egret             23,192.3          $16.10            $386,400.00      $110.10          $2,553,472.23
                                 Nampo, Songrim    (LG-Caltex)                                          (includes
                                                                                                        $13,003.97 for
                                                                                                        changes)
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/97 (9/20/97)...............  9/22/97           Liu He            24,415.539        $12.90            $314,960.45      $106.12          $2,590,977.00
                                 Sonbong           (Sunkyong)
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/97 (9/24/97)...............  9/28/97           Daqing-76         22,377.3          $14.90            $333,421.18      $110.10          $2,463,740.73
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
11/97 (12/26/97).............  12/28/97          Jin He            21,980.692        $17.00            $374,000.00      $106.00          $2,329,953.36
                                 Sonbong           (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
11/97 (12/23/97).............  12/27/97          Daqing-71         22,050.181        $17.10            $377,058.10      $109.95          $2,424,417.40
                                 Nampo, Songrim    (Itochu)
--------------------------------------------------------------------------------------------------------------------------------------------------------
12/97 (1/9/98)...............  1/15/98           Jin He            22,272.838        $17.00            $378,638.25      $106.10          $2,363,148.11
                                 Sonbong           (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
12/97 (1/10/98)..............  1/19/98           Daqing-75         22,147.3          $15.00            $332,209.50      $111.50          $2,469,423.95
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                 HFO Costs--1998 Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 Delivery Date      Ship  (HFO     B/L Quantity  M/   Transportation                     Commodity Cost
 Scheduled Month  (B/L Date)     Delivery Port        Seller)             Ts          Price  Per M/T     Freight Cost       Per M/T       Commodity Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
2/98 (3/3/98)................  3/8/98            M/T Ding He       21,948.399        $15.75            $345,687.28      $67.90           $1,490,296.29
                                 Sonbong           (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2/98 (3/8/98)................  3/7/98            M/T Daqing-72     20,060.739        $15.00            $300,911.09      $74.90 + .50     $1,512,579.72
                                 Nampo, Songrim    (Sumitomo                                                              = $75.40
                                                  Corp.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3/98 (3/27/98)...............  3/30/98           M/T Egret         22,142.8          $13.00            $287,856.40      $76.45           $1,692,817.06
                                 Sonbong           (Meiwa Trading
                                                  Co.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3/98 (3/13/98)...............  3/22/98           M/T Tanja Jacob   21,999.410        Included in       Included in      $87.70           --
                                 Songrim           (BP Singapore)                     commodity per     commodity
                                                                                      ton price         price (C & F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
4/98 (4/17/98)...............  4/21/98           Daqing-76         21,994.72         $17.50            $384,907.60      $77.25           $1,699,092.12
                                 Nampo, Songrim    (Petro
                                                  Diamond)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/98 (5/22/98)...............  5/31/98           Daqing-73         21,88.5           $15.10            $330,516.35      $95.18           $2,083,347.43
                                 Nampo, Songrim    (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6/98 (6/20/98)...............  6/22/98           Daqing-76         21,841.5          $14.50            $317,550.00      $83.00           $1,812,844.50
                                 Nampo, Songrim    (Nissho Iwai)                                        (min. cargo
                                                                                                        contract)
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/98 (7/16/98)...............  7/17/98 Est.      Dan Chi           19,776.3          $13.50            $266,980.05      $78.50 Est.      $1,522,439.55
                                 Sonbong           (LG-Caltex)
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/98 (not available).........  7/28/98 Est.      An Fu             22,000 Est.       $13.50            $297,000.00      $79.50 Est.      $1,749,000.00
                                 Sonbong           (LG-Caltex)                                          Est.                              Est.
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/98 (7/12/98)...............  7/20/98 Est.      Alex              20,999.428        $16.00 Est.       $335,990.85      $80.00 Est.      $1,679,954.24
                                 Nampo, Songrim    (BP Singapore)                                       Est.
--------------------------------------------------------------------------------------------------------------------------------------------------------

            Response to Question Submitted by Senator Thomas

    Question. In addition to the LWR, will North Korea also need a 
power grid to distribute the power generated, particularly given that 
the previous reactors at Yongbyon were never connected to a grid?

    Answer. A reliable transmission and distribution system is 
necessary for a safe startup, operation, and shutdown of a nuclear 
power plant and to assure a reliable off-site power supply for safety-
related equipment.

    North Korea's existing capabilities are inadequate to handle the 
2,000 megawatts of electricity which will be generated by the LWR's.

    Upgrading the transmission and distribution system is the 
responsibility of the DPRK. Neither KEDO nor any of its members have 
undertaken any obligation to pay for this upgrade.

    Consultations with the North Koreans about the required 
characteristics for the transmission grid are ongoing.

    Response to Question Submitted by Senator Kerry of Massachusetts

    Question. What are our options for providing the necessary funding 
for HFO? Should the additional funds be reprogrammed or provided 
through a supplemental?

    Answer. We are in the process of consulting with the Congress on 
reprogramming $15 million under Section 614 authority, and considering 
later in this fiscal year invocation of the Secretary's authority under 
Section 451 of the Foreign Assistance Act, if necessary, to reprogram 
$12 million for KEDO HFO.

    We do not believe that a supplemental would be an effective 
response to KEDO's funding needs, given the difficulties in integrating 
such a supplemental into the appropriations process

    We look forward to discussing our funding plans with you further in 
this consultation process.

    Meanwhile, we are continuing and redoubling our efforts to raise 
funds and support abroad for KEDO.

    We are committed to ensuring that sufficient funding is secured to 
meet KEDO's obligations to provide heavy fuel oil.

          Response to Question Submitted by Senator Feinstein

    Question. When is North/South dialogue going to begin? Is there any 
indication that the North is willing to begin four-party talks in a 
serious manner?

    Answer. At the North's initiative, North and South Korea did engage 
in direct talks last April in Beijing on possible ROK fertilizer 
assistance. Those talks ended without resolution and there is no 
indication as to when they might continue.

    We are fully supporting the efforts of our ROK allies to persuade 
North Korea to resume the North-South dialogue.

    The ROK and the U.S. first proposed four party talks in April 1996 
date. After strenous efforts by us, the ROK and the PRC, the first 
round of plenary talks was held in December 1997 and the second in 
March 1998.

    A third plenary round of the Four Party talks has yet to be 
scheduled, though it is our hope that it will be convened soon.

    North Korean intransigence prevented any progress from being made 
during the first two rounds of Four Party Talks. Specifically, the DPRK 
insisted that withdrawal of U.S. troops from Korea and the negotiation 
of a U.S.DPRK peace treaty be the main topics of discussion, while the 
U.S. and ROK called for the establishment of subcommittees to address 
the topics of confidence-building measures to reduce tensions, the 
establishment of a permanent peace treaty to replace the Armistice. 
North Korea subsequently offered to withdraw its demands in return for 
more food aid and an easing of U.S. sanctions--a proposal which we 
rejected out of hand.

    Nonetheless, we consider it to be a very significant accomplishment 
that we have finally persuaded the North to participate in multilateral 
talks which include the ROK and which are designed to lead to a 
permanent peace settlement. We communicate regularly with the North at 
the working level in an effort to make the DPRK's involvement more 
constructive.

    In our view, the ROK's dialogue with the North is complementary to 
the Four Party process. While the purpose of the Four Party talks is 
the reduction of tension on the Peninsula and the achievement of a 
permanent peace treaty to replace the armistice, North-South talks 
allow the two to address specific topics such as the food situation. 
Progress in the Four Party process and better relations between the 
participants are mutually reinforcing.

                  Prepared Statement of Rust M. Deming

    Thank you, Mr. Chairman. I greatly appreciate the opportunity to 
appear before your Committee today to speak about U.S. policy toward 
North Korea. The Secretary and President appreciate your past support 
for the Korean Peninsula Energy Development Organization--KEDO--and for 
the Agreed Framework, and hope that you will continue to support our 
efforts.
    The Korean Peninsula remains one of the most unstable and dangerous 
places in the world today. Forty-five years after the armistice, 37,000 
American troops, together with their colleagues from the ROK, face more 
than a million North Korean troops across the demilitarized zone. One 
of the most dangerous moments of that tense history was just four years 
ago, in the summer of 1994.
    In 1993, isolated by the transformations of its cold war patrons 
and facing a southern neighbor with growing economic power and global 
stature, North Korea began to bring its efforts to acquire nuclear 
weapons to fulfillment. Kim Il Sung's engineers had completed a large-
scale plant to reprocess plutonium from spent fuel produced by North 
Korea's Soviet-designed graphite-moderated reactor. In addition, the 
North had begun constructing two larger graphite-moderated reactors, 
which in addition to being of unsafe design, would be capable of 
producing enough plutonium for a significant nuclear arsenal within a 
few short years.
    Disputes over past production of plutonium and the monitoring of 
nuclear facilities by the International Atomic Energy Agency led the 
DPRK to announce, in June 1994, its withdrawal from the IAEA; the North 
was also on the verge of carrying out its threat to withdraw from the 
Nuclear Nonproliferation Treaty, or NPT. When the DPRK subsequently 
began to defuel its reactor without the IAEA's presence, which would 
make confirmation of past production of plutonium more difficult, the 
security situation on the Korean Peninsula was as tense as it has been 
at any point since the cessation of open hostilities in 1953. Military 
forces on both sides were augmented and placed on high alert. 
Fortunately, a negotiated solution was found and a crisis averted.
    The result of these negotiations was the 1994 U.S.-DPRK Agreed 
Framework. To date, the Agreed Framework has been a success. The 
North's indigenous nuclear program at Yongbyon remains frozen, the 
canning of the DPRK's spent fuel is now virtually complete and under 
IAEA seal, as are the reprocessing plant and reactors. The IAEA 
maintains a continuous monitoring presence and Pyongyang has remained a 
party to the NPT. North Korea also has acknowledged that it must 
eventually dismantle all the elements of its nuclear program and permit 
its existing spent nuclear fuel to be shipped out of North Korea.
    In return for the North's nuclear freeze, the U.S. agreed to take 
the lead in organizing a consortium to build two modern, safe, 
proliferation-resistant light water reactors, known as LWRs, in North 
Korea. In addition, the United States agreed to ``make arrangements to 
offset the energy foregone,'' with 500,000 metric tons of heavy fuel 
oil or ``HFO''.
    That consortium, which became known as the Korean Peninsula Energy 
Development Organization or ``KEDO'', was founded by the U.S., Japan 
and South Korea in 1995 to implement both the LWR and HFO aspects of 
the Agreed Framework. KEDO has negotiated with the DPRK a Supply 
Agreement for the LWR project, six side protocols and a number of other 
instruments spelling out how the LWR and HFO aspects of the Framework 
would be implemented.
    South Korea and Japan have together committed themselves to assume 
virtually the entire burden of the estimated $4.6 billion LWR project. 
Specifically, South Korea has pledged to fund 70 percent of the 
project, and Japan has agreed to provide $1 billion. KEDO has commenced 
work on the project and, although work is not yet in full swing, an 
important amount of site preparation work has been underway for almost 
a year.
    With respect to the funding of any shortfall that might occur at 
the later stages of the LWR project, discussions among the original 
three members of the KEDO Executive Board as well as the European 
Union, which just joined as a major contributor, are continuing and, we 
feel, are approaching a resolution.
    The provision of heavy fuel oil, which is seen by North Korea, our 
KEDO partners and the world as principally a U.S. responsibility, is 
the most tangible evidence of the U.S. government's commitment to the 
Agreed Framework. In meeting this responsibility the U.S. government 
has made vigorous efforts to recruit assistance from other countries. 
U.S. officials have made direct approaches, in most cases repeatedly 
and at a high level, to 37 countries and the European Union for HFO 
funding. In general, we have targeted countries with a direct interest 
in peace and stability in East Asia as well as those with the ability 
and willingness to contribute, whether in funding or in kind, to a 
cause that serves global nonproliferation goals.
    In 1995 testimony before Congress, then-Secretary of State Warren 
Christopher estimated that annual U.S. contributions to KEDO would be 
between $20-30 million, based on the conviction that the balance of 
funds could be raised abroad. Secretary Christopher's testimony was an 
implicit pledge to you that we would make our best efforts to secure 
such contributions. The results have been disappointing, but we have 
received some help. Australia, New Zealand and Canada, strong 
supporters of the Agreed Framework, have made generous contributions 
totaling almost $12 million. The European Union has contributed $34.7 
million to date. (An additional EU contribution of $16 million is 
expected this summer.) Japan has made available a collateral fund of 
$19 million for the HFO program, though it has declined our requests 
that it turn the fund into a hard contribution; we are continuing to 
discuss this issue with the Japanese government. In all, 22 countries 
and the EU have made contributions to the HFO program totaling $52 
million, whereas the U.S. has contributed approximately $80 million for 
HFO (out of a total of $118.5 million for Agreed Framework-related 
expenses, including the canning of spent fuel).
    We will redouble our efforts, but it is not realistic to think that 
the shortfall will be met in the near term by contributions from 
abroad. I believe that continued U.S. leadership of and support for the 
HFO program, until such time as the first LWR plant is built, is a 
small price to pay to reinforce peace on the Korean Peninsula and to 
strengthen the global nonproliferation regime.
    The implementation of the Agreed Framework is fundamental to U.S. 
interests on the Korean Peninsula and in East Asia. As KEDO fulfills 
each of its successive steps, North Korea is to take steps to resolve 
our proliferation concerns. Following completion of the first LWR 
containment building and its electrical generating equipment--but 
before delivery of the nuclear components of the plant--North Korea 
must come into compliance with its full-scope NPT IAEA safeguards 
agreement. I cannot overstate the significance of this step. With full-
scope safeguards in place, the IAEA will be permitted to inspect all of 
the North's nuclear facilities and materials. The additional security 
this will provide will be significant.
    The Framework's implementation carries with it associated benefits 
in the nuclear area, many of which were not even envisaged at the time 
of its signing. We are working with North Korea's nuclear community, 
for example, in an effort to foster an independent nuclear regulator 
for the LWRs, as well as a general nuclear ``safety culture'' which 
would not otherwise exist.
    The Agreed Framework is more than simply a nuclear accord, however. 
It is the cornerstone of our efforts to reduce the potential for 
conflict on the Korean Peninsula. The Agreed Framework has allowed us 
to undertake a dialogue with North Korea that has led to the Four Party 
Talks as well as negotiations on missile sales, terrorism and a host of 
other concerns. In addition, regular contact between North and South 
Koreans is dramatically increasing, in particular at the LWR site. 
North and South Korea have begun to take steps to cooperate on such 
issues as air traffic and telephone links between the two countries. 
Progress has been slow at best in all of these areas, and North Korea 
remains a very difficult interlocutor. However, we believe it is very 
much in our interest to continue these efforts to reduce tensions on 
the Korean Peninsula.
    The full implementation of the Agreed Framework, with all the 
benefits it should bring, will only be possible if KEDO remains 
financially healthy and able to carry out its mission. As I stated 
before, we are continuing our international fundraising efforts and 
working on ways to address KEDO's financial difficulties, including its 
debt from past year oil deliveries. However as I have just noted it is 
not realistic to assume that sufficient contributions will be made by 
other countries, and we will therefore have to do more. We will 
continue our consultations with you and your colleagues in the House in 
the near future on our proposals for additional KEDO funding and our 
strategy for addressing the organization's financial problems over the 
long term.
    Let me close by stressing that KEDO and the Agreed Framework remain 
central to our efforts to promote peace and stability in Northeast Asia 
and to support regional and global nuclear nonproliferation. KEDO's 
mission is of utmost importance to the national security of this nation 
as well. We must not allow KEDO to fail.
    Thank you.

                 Prepared Statement of Desaix Anderson

    I am very pleased to be here today to update you about KEDO's work 
and the progress of the light-water-reactor (LWR) project. Now is a 
good time to discuss this subject since there have been many 
developments regarding the Korean Peninsula in the past few months--
developments that have helped place KEDO's efforts in context.
    In his inaugural address in February, President Kim Dae Jung spoke 
of ``reconciliation, exchanges, cooperation and non-aggression.'' He 
also spoke of the implementation of the 1991 North-South ``non-nuclear 
declaration.'' These statements, as well as calls for family contacts, 
for cultural, economic and communication exchanges, and the decision to 
lift the ceiling on South Korean investment in the North, suggest that 
a spirit of hope and reconciliation might be in the air. The cattle run 
through Panmunjom last month by the Chairman of Hyundai, the proposal 
for a joint ``unity'' celebration, talks of joint sports teams and 
matches, resumption of the Military Armistice Commission (MAC) talks at 
the general officer level, initiation of the Four Party Talks in 
Geneva, and resumption of North-South talks are welcome signs from 
North Korea.
    These statements, and more generally, President Kim's ``sunshine'' 
policy, which separates economics from politics, are a very welcome 
change from the past. They are also a far cry from the situation that 
existed in 1994. In fact, it is easy to forget that five years ago 
Pyongyang announced its intention to pull out of the Nuclear Non-
proliferation Treaty and blocked inspections by the International 
Atomic Energy Agency, in the process heightening global fears that its 
nuclear program might have purposes other than electricity generation. 
As Don Oberdorfer illustrated in his recent book, The Two Koreas, in 
June 1994, war on the Korean Peninsula was not only a possibility, but 
also may have been much closer than most people realized.
    I will not claim that KEDO is responsible for the change from war 
footing to calls for rapprochement, but I do believe that the Agreed 
Framework and KEDO, which was created to implement much of it, have 
been important parts of the process which has brought more stability to 
Northeast Asia and may help lead to reconciliation between the North 
and South. KEDO, while helping to defuse a very real security threat, 
has also been a classic confidence-building measure.
    KEDO was founded in early 1995 by Japan, South Korea and the United 
States to fulfill commitments made under the October 1994 Agreed 
Framework. Today KEDO has 12 members, including the European Union 
(EU), which joined KEDO as an Executive Board member late last year, 
Australia, Argentina, Canada, Chile, Finland, Indonesia, New Zealand 
and Poland. The diversity among KEDO's members is a sign of growing 
international support for KEDO's work and a recognition of its 
accomplishments during the past three years.
    While support for and membership in KEDO have grown, the KEDO 
Secretariat itself has remained relatively small. We now have 35 
professional and support staff, primarily from the United States, ROK, 
Japan, and Europe. Structurally, the Secretariat is divided into six 
divisions: the Policy and DPRK Affairs Division; the Project Operations 
Division; the Nuclear Safety and Quality Assurance Division; the Legal 
Division; the Finance and Heavy Fuel Oil Division; and General Affairs 
(administrative). The Secretariat's small size and dedicated staff have 
created a relatively smooth operation that belies the difficulty 
inherent in bringing together driven, talented individuals from 
substantially different professional backgrounds and cultures.
    It is fair to say that in its three years of operation KEDO has 
achieved greater success than most observers initially thought 
possible. This success has occurred on seve ral levels.
    On the nuclear non-proliferation level, KEDO's success has ensured 
that North Korea has kept its commitments under the Agreed Framework. 
Pyongyang's suspect graphite-moderated reactors and related facilities 
have been frozen; the spent fuel rods from the five-megawatt reactor 
have been removed and the canning of those rods was virtually completed 
in April; and, the DPRK has remained a party to the NPT and has allowed 
the IAEA to monitor its nuclear facilities.
    In addition to ensuring thus far these non-proliferation 
achievements, KEDO has also served an important diplomatic, or 
geopolitical, 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 crucial link between Pyongyang and the 
outside world. Particularly during the occasional flare-ups that have 
occurred, KEDO has provided a 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 opportunity for direct contact between South and North 
Koreans, on both a formal and informal level. Under KEDO's 
institutional umbrella, South Koreans at KEDO have directly negotiated 
agreements with North Koreans. At the negotiating table and in the 
field at the Kumho site, the learning curve from KEDO's interaction 
with the North has been steep and agreement has never been easy. But in 
slogging away through countless negotiating sessions, we have learned 
to work with each other and to listen to each other's concerns.
    I should note that the interaction I just described is not limited 
only to members of the KEDO Secretariat or delegations from KEDO's 
Executive Board members. Under agreements arranged by KEDO, KEDO's 
South Korean contractors and subcontractors have directly negotiated 
and signed separate contracts with North Korean companies which will 
provide labor, goods, facilities or other services at the site.
    Similarly, there has 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 to see workers 
from the two Koreas, which remain technically at war, talking, sharing 
cigarettes and in general learning about each other for the first time. 
As the LWR project progresses, eventually thousands of South and North 
Koreans will work side by side jointly building the two light-water 
reactors.
    It is also worth noting another success of KEDO. KEDO has provided 
important political benefits to each of its founding members. In a few 
short years, KEDO has become an important feature of the landscape on 
the Korean Peninsula and in Northeast Asia. It serves as an example of 
how a cooperative and targeted international diplomatic effort can lead 
to the resolution of regional security or political crises. KEDO has 
become an important mechanism for coordinating and harmonizing 
Japanese, South Korean, American, and now European interests and 
policies.
    Let me turn for a moment to the actual work KEDO has undertaken at 
the negotiating table and on the ground.
    First, let me address KEDO's track record at the negotiating table.
    As you know, under the Agreed Framework, in exchange for 
Pyongyang's freezing and ultimately dismantling its graphite-moderated 
reactors and related facilities, KEDO will provide two proliferation-
resistant 1,000 MW(e) light-water reactors and 500,000 tons of heavy 
fuel oil per year until the first reactor comes on stream.
    In December 1995, KEDO concluded a Supply Agreement with the DPRK 
that serves as a roadmap for the project. It states, among other 
things, the project's scope, terms of repayment, and general terms and 
conditions under which KEDO, its prime contractor and subcontractors 
will operate at the site.
    Since the Supply Agreement, KEDO has negotiated and signed six 
additional protocols, or agreements, with the DPRK. These protocols 
address issues such as:

   KEDO's juridical status, and privileges and immunities in 
        the DPRK;
   transportation routes to and from the DPRK;
   communications to and from the site;
   access to, use of and takeover of the site;
   the provision of DPRK labor, goods, facilities and other 
        services; and,
   penalties in the event of nonpayment by the DPRK for the 
        cost of the two reactors.

    The protocols in many ways have proven perhaps more difficult than 
the Supply Agreement to conclude since they have addressed in detail 
sensitive issues unprecedented in nature for the North Korean regime.
    In addition to the Supply Agreement and the protocols, just 
mentioned, KEDO and the DPRK have also concluded approximately two 
dozen detailed implementing agreements on issues such as: medical 
services; procedures for sea, land and air transportation; and, 
guidelines and principles for contracts to be signed between KEDO, its 
contractors or subcontractors and DPRK companies. Many of these 
agreements are different from protocols only in name. They, too, 
address very sensitive, unprecedented issues that have required 
creative thinking by both sides to resolve.
    With respect to actual work on the ground, following conclusion of 
the necessary protocols and agreements, KEDO officially broke ground 
for site preparation last August at the Kumho site. For the 
groundbreaking ceremony, a large delegation, including diplomats from 
almost all KEDO member countries and 27 journalists from Japan, South 
Korea and the United States, traveled by boat directly from South Korea 
to a port near the site. These journalists broadcast live via satellite 
pictures of the ceremony around the world without any interference or 
censorship from the DPRK.
    The 120 KEDO construction workers, technicians and engineers at the 
site, the overwhelming majority of whom are South Korean nationals, 
have now almost completed initial site preparation. Thousands of tons 
of equipment have been delivered to the site to build the necessary 
infrastructure for the nuclear reactors. A small village has been built 
from nothing. We now have housing facilities, a medical facility, 
roads, water services, electricity services; a restaurant for North and 
South Korean workers, recreational facilities, and other amenities. 
KEDO workers travel to the site by boat or chartered aircraft, enjoy 
access to direct dial phone lines and mail service to South Korea, 
watch CNN on satellite television, and enjoy consular projection, 
privileges and immunities similar to those accorded diplomats and other 
international organizations.
    Shortly before the groundbreaking ceremony, KEDO opened a permanent 
branch office at the site. This office is staffed by a small core of 
professional diplomats from Japan, the US and the ROK who rotate out of 
North Korea on a regular basis. A few months after KEDO opened its 
branch office, a South Korean bank (the Korea Exchange Bank) also 
opened a branch office at the site to service the financial needs of 
workers living there.
    We recently completed the second of four oceanographic surveys 
(using a South Korean ship) to evaluate the environmental impact of the 
LWR project, and this spring we inaug urated what will become regular 
cargo/passenger service between Sokc'ho, South Korea to Yangwha, the 
port near the Kumho site.
    Before discussing the road ahead, let me point out that work at the 
site, while progressing very well, has not always been easy. The winter 
is cold, and, with only very limited exceptions, our workers are 
required to remain within the site boundaries. The situation in general 
is lonely, harsh and stressful. Also, as one might expect at any 
construction site, there have also been accidents and incidents, many 
typical of construction work. However, to date, KEDO and the DPRK have 
been able to work through these events without serious disruption to 
the project. It is a testament to the desire of both sides to keep 
their commitments under the Supply Agreement that KEDO and the DPRK 
have worked together pragmatically to resolve any differences and move 
forward with the project.
    I should start my discussion of the road ahead by stating clearly 
that the political achievements and work on the ground that have 
already been achieved would not have been possible without the strong 
political and financial support KEDO has received from its member 
countries and other contributors, particularly South Korea, Japan, the 
United States, and, more recently, the EU.
    KEDO has an ambitious agenda for 1998. We would like to pursue 
agreements with North Korea on a range of issues, including:

   a protocol on training for DPRK technicians who will operate 
        and maintain the light-water reactors;
   a protocol on quality assurance and warranties;
   and, a protocol on the delivery schedule for the project 
        (including the requirement that the DPRK will come into full 
        compliance with its NPT and IAEA safeguards obligations before 
        KEDO ships significant nuclear components to the site).

    In addition to these protocols with the DPRK, KEDO intends to 
conclude later this year a turnkey contract with our prime contractor, 
the Korea Electric Power Corporation (KEPCO). The site preparation work 
now being performed by KEPCO (described earlier) is under a separate 
contract financed through South Korean Export-Import Bank loans worth 
approximately US$45 million. The turnkey contract will govern the rest 
of the project, including full-scale construction work.
    It is no secret, of course, that KEDO faces serious financial 
challenges. KEDO began 1998 US$47 million in debt from the heavy fuel 
oil delivered to North Korea in 1997. Additionally, KEDO is committed 
to delivering 500,000 metric tons of oil in the current fuel-oil year 
(which runs from October to October). This commitment has cost US$65 
million/year for the first two full years of the program (1996 and 
1997), but may cost slightly less this year because of lower oil 
prices.
    With respect to the LWR project, the Executive Board members agreed 
in November 1997 that the cost estimate for the project would be about 
US$5 billion. However, this cost is likely to drop to $4.5/4.6 billion 
because of the devaluation of the Korean won versus the US dollar.
    The coded language for cost sharing has always been that South 
Korea would play a ``central'' role and Japan a ``significant'' role in 
the project. The Executive Board is meeting in New York later this week 
to continue discussions on how to translate this language into real 
financial commitments and money, and we are very close to reaching a 
final agreement. The financial crisis in Asia has certainly not been 
helpful, but South Korea and Japan have unequivocally reaffirmed their 
respective commitments.
    My top priority has been to achieve a comprehensive resolution of 
financing issues for the LWR project and the supply of heavy fuel oil 
so that we can operate on a firm financial basis. This would be 
reassuring to all parties.
    The Executive Board, particularly the United States, is also 
working to retire the debt that currently exists with respect to heavy 
fuel oil and to establish stable financing for the future. It would be 
myopic to say the least to jeopardize the non-proliferation 
accomplishments of KEDO by failing to provide funds for this relatively 
inexpensive component of the Agreed Framework. With financing for the 
light-water-reactor project and heavy fuel oil arranged, KEDO would be 
free to concentrate on concluding the turnkey contract and the 
remaining protocols, and moving ahead to construct the LWRs.
    Despite the accomplishments of the Agreed Framework and KEDO, there 
are some clouds on the horizon. The DPRK criticism of the pace of the 
LWR project's progress; of the slow and erratic pace of provision of 
heavy fuel oil; and, in the US bilateral context, of the lifting of US 
economic sanctions against North Korea, has taken an increasingly 
worrisome tone. The recent acknowledgment by Pyongyang that it has sold 
missiles and would continue to do so could be interpreted as a threat 
or, conversely, as an offer to re-engage the U.S. and possibly 
negotiate a solution to the issue. Recent nuclear testing in India and 
Pakistan have also underscored the importance of KEDO and its 
objectives.
    In and of itself, but particularly in the context of recent 
developments in Asia, especially in Northeast Asia, KEDO remains an 
important, even essential, element of Northeast Asian security. KEDO 
members have demonstrated this by their support for KEDO's mission and 
activities. It is imperative for the security interests we all share, 
that needed political and financial support continue to be provided.
    Thank you.

                Prepared Statement of Robert L. Gallucci

    Mr. Chairman:
    Thank you for giving me this opportunity to appear before the 
Subcommittee on the subject of KEDO and the Agreed Framework with North 
Korea.
    I understand the issue before the Congress, in general terms, to be 
whether or not to permit the Administration to provide additional funds 
to KEDO for the purchase of heavy fuel oil, that would then be supplied 
to North Korea, and thus help meet an immediate need as provided by the 
terms of the Agreed Framework. Put even more broadly, the issue is 
whether or not the financial burden of providing heavy fuel oil through 
KEDO, for years into the future, in order to preserve the Agreed 
Framework, is worth it to the United States. Is it in the national 
interest, or even the national security interest, to spend perhaps 
twice as much for this purpose as Secretary Christopher estimated, more 
than three years ago, when he thought the bill for the United States 
would be between twenty and thirty million dollars per year until the 
first light water reactor came on line in North Korea?
    That was a controversial question three years ago when the ink on 
the Agreed Framework had not yet dried, but with three years of 
experience behind us, one might expect that the calculation would 
become a bit easier. For most it has, but for some it has not.
    Those who see the clear benefits of the Agreed Framework observe 
that the gas graphite reactors and associated facilities have indeed 
been frozen:

   the 5MW reactor that produced about a bomb's worth of 
        plutonium each year of its operation has not been refueled;
   the estimated six bombs' worth of plutonium contained in 
        spent fuel has been re-canned by American technicians for safe 
        storage and eventual shipment out of the country--rather than 
        separated for weapons fabrication as we believe had been 
        planned;
   the plutonium separation facility has been frozen;
   the two larger gas graphite reactors under construction that 
        we estimated when completed could have produced enough 
        plutonium each year for 25-30 nuclear weapons have both been 
        frozen;
   IAEA inspectors have been on the ground verifying these 
        provisions of the Framework.

    This was the biggest, most immediate benefit to the United States, 
its allies South Korea and Japan, and the international community. Over 
time, if the Framework is sustained, the gas graphite reactors and 
associated facilities will be dismantled, the spent fuel shipped out, 
and the North will accept whatever inspections the IAEA determines are 
necessary to come into full compliance with its safeguards 
obligations--including the resolution of the dispute over its initial 
plutonium declaration.
    The North can be expected to do all this in the future for the same 
reason that it has cooperated over the last three years: its short term 
gain of 500,000 tons of heavy fuel oil each year, and in the long term, 
the delivery two light-water moderated power reactors.
    The Framework has a number of other important provisions aimed at 
objectives that have not yet been realized, such as establishing a 
dialogue between North and South, and resolving other issues of concern 
to us that would in turn permit normalizing relations between the North 
and the United States. The North's failure to respond adequately to 
President Kim Dae Jung's initiatives, together with intermittent 
military provocations, leave North Korea far short of the position 
envisioned in the language of the Framework. Similarly, our concerns 
about the North's development and export of extended-range ballistic 
missiles, and forward deployment of its army along the DMZ, while not 
explicitly mentioned in the Framework, remain important obstacles to 
the improved relations between the U.S. and the North which are part of 
the Framework.
    That said, the principal purpose of the Agreed Framework, as seen 
from the American perspective, was to stop a very large nuclear weapons 
development program from succeeding in a country run by a rogue regime, 
and eventually to bring that country, which had violated its safeguards 
undertakings and announced its intention to withdraw from the Nuclear 
Non-Proliferation Treaty, back into the safeguards and treaty regimes. 
That is the road we are now on. The Framework, a diplomatic solution, 
costs about $5 billion for the light water reactors, virtually all of 
which will be managed by South Korea and Japan, and about another $65 
million per year for perhaps ten years, some significant portion of 
which the Administration argues that the U.S. should manage.
    However one judges the fairness of the burden-sharing in this 
arrangement, no one should doubt that the size of the burden for the 
United States would have increased astronomically if a military 
solution had been forced upon us by a failure to find a diplomatic one. 
Even the cost to the U.S. of those relatively small land, air, and sea 
movements necessary to improve our defensive posture in the event of a 
vote in the Security Council to impose sanctions, would dwarf the 
funding levels now discussed for heavy fuel oil. Should we have had to 
resort to force to deal with the emerging nuclear threat, the financial 
cost, while far greater still, would have been slight compared to the 
cost in American and South Korean lives.
    For some of those who see the virtue of a diplomatic solution, 
particularly when compared to the alternatives, the Framework is 
criticized for making the provision of nuclear reactors to North Korea 
part of that solution. Why not, they ask, provide the same amount of 
energy with conventionally fueled power stations. The answer is that in 
both Berlin and Geneva, at the technical and the political levels, the 
North was pitched on the virtues of conventional plants--facilities 
that could be provided much earlier and would be much better suited to 
the North's electrical grid; however, the North insisted on having 
modern light-water moderated nuclear reactors if they were going to 
give up their gas graphite nuclear reactors.
    The Agreed Framework does not put to rest all our concerns about 
North Korea nor could it. It addresses a group of facilities that we 
were confident would have produced a significant amount of fissile 
material by now if not stopped. Is that worth twice what Secretary 
Christopher estimated it might cost, perhaps $50 million each year? If 
it is not worth that much to manage this nuclear threat with diplomacy, 
how much would it cost to remove it or defend against it with military 
means? Would we be willing to remove the risk of nuclear war between 
India and Pakistan--where no American troops are deployed--for that 
amount of money?
    Mr. Chairman, an increase in the amount of U.S. funding for KEDO is 
essential now and for the longer term, even if the Administration is 
successful in its efforts to draw greater support from other countries. 
Sustaining KEDO sustains the Agreed Framework, and it is clearly in the 
national security interest to do so.