Congressional Research Service: Report for Congress 94-933 S November 29, 1994 -ti- Korea: Procedural and Jurisdictional Questions Regarding Possible Normalization of Relations With North Korea By Zachary S. Davis, Larry A. Niksch, Larry Q. Nowels, Vladimir N. Pregelj, Rinn-Sup Shinn and Robert G. Sutter KOREA: PROCEDURAL AND JURISDICTIONAL QUESTIONS REGARDING POSSIBLE NORMALIZATION OF RELATIONS WITH NORTH KOREA SUMMARY The Clinton Administration signed an agreement with North Korea on October 21, 1994, detailing steps to end the crisis caused by North Korea's nuclear program and pledging to "move toward full normalization of political and economic relations." Many details of the accord have not been disclosed, including the precise mechanisms to be used to provide light water nuclear reactors and annual shipments of U.S. heavy oil to North Korea, and a clear process to be followed in normalizing political and economic relations. As Congress and the Administration consider taking steps to implement the agreement and normalize U.S.-North Korean relations, they will face a complicated array of legal and regulatory restrictions currently governing U.S.-North Korean relations. These restrictions affect significant aspects of the October 21 accord on nuclear transfers and oil shipments. They cover all areas of official relations including economic, consular, diplomatic, cultural and other interactions. They have often deep historical roots in American opposition to Communist regimes in the Cold War and, more specifically, the Korean War. A review of the legal and regulatory restrictions and an examination of the American experience in normalizing relations with other Communist countries like China and current efforts with Vietnam show that the process of normalization with a Communist country and former military adversary like North Korea could be protracted. Many of the current restrictions on U.S. relations with North Korea are mandated by statutes specifically referring to North Korea or broader statutes affecting certain types of countries that would include North Korea. Some statutes give an element of discretion to the President. Other restrictions on North Korea have been imposed under general statutory or other authorities that have been applied to North Korea by executive decision in response to specific situations or policy goals. There are a variety of paths that might be followed to normalize relations-- e.g., moving ahead first in diplomatic areas while holding back economic ties; moving ahead more quickly in economic than political areas; moving forward in all areas concurrently; etc. In general, the initiative to move ahead rests mainly with the President, but Congress plays an important role in many areas. Without congressional support, full normalization of relations is impossible. --------- TABLE OF CONTENTS U.S.-NORTH KOREAN RELATIONS SINCE 1948 1 U.S. Involvement in Korea, 1945-1953 1 The Korean War and the Armistice Agreement of 1953 2 Armed Confrontation, 1953-1980s 2 Confrontation with Limited Bilateral Contacts, 1988-91 5 The Nuclear Issue in U.S.-North Korean Relations, 1992-94 6 Agreed Statement of August 12, 1994 7 Agreed Framework of October 21, 1994 8 APPENDIX I - The Agreed Framework Between the United States and the Democratic People's Republic of Korea Geneva, October 21, 1994 10 APPENDIX II - President Clinton's Letter to Kim Jong Il 13 WHAT IS THE CURRENT STATUS OF U.S.-NORTH KOREAN POLITICAL RELATIONS? 14 Which Branch of the U.S. Government Has Responsibility for Normalizing Political Relations? 14 What Are the Different Processes Involved in Establishing Government-to-Government Relations? 15 What Are the Procedures to Establish an Interest Section? A Liaison Office? 15 If the United States Were to Normalize Diplomatic Relations With North Korea, What Further Steps Might the United States Consider Taking? 16 Cultural and Educational Exchanges 16 Travel Restrictions 16 Consular Agreement 16 U.S.-NORTH KOREAN MILITARY RELATIONS 17 The Armistice Agreement 17 Withdrawing U.S. Troops; Ending the U.S.-R.O.K. Mutual Defense Treaty 19 NORMALIZING U.S. COMMERCIAL RELATIONS WITH NORTH KOREA 21 Background 21 Embargo on All Transactions 22 U.S. Imports 23 Most Favored-Nation (MFN) Status 23 Generalized System of Preferences 25 Control of U.S. Exports 26 Exports from Foreign Countries 29 Export Financing 30 Private Foreign Investment 31 --------- TABLE OF CONTENTS--(continued) EXPANDED ECONOMIC ASSISTANCE AND SUPPORT FOR NORTH KOREA: WHAT STEPS COULD THE UNITED STATES TAKE? 32 Bilateral Economic Assistance 32 Food Assistance 35 Multilateral Economic Assistance 35 NUCLEAR COOPERATION AND NONPROLIFERATION 37 Statutory Requirements for Nuclear Cooperation 38 Dual-Use Technology 40 Nuclear-Related Assistance 40 Financial Aspects of Nuclear Cooperation 40 NOTE: This report was prepared at the request of the Senate Foreign Relations Committee. With the Committee's permission, the report is made available for general congressional use. --------- page CRS-1 KOREA: PROCEDURAL AND JURISDICTIONAL QUESTIONS REGARDING POSSIBLE NORMALIZATION OF RELATIONS WITH NORTH KOREA U.S.-NORTH KOREAN RELATIONS SINCE 1948* * Prepared by Rinn-Sup Shinn, Analyst in Asian Affairs, Foreign Affairs and National Defense Division. The United States has no formal relations with the Communist North Korean regime in Pyongyang. North Korea, or the Democratic People's Republic of Korea (DPRK), was established in September 1948 under the aegis of the Soviet Union as a counterweight to South Korea. U.S. policy toward DPRK has since been a function largely of U.S. relations with South Korea; the United States played a direct role in the establishment of the Republic of Korea (R.O.K.) and defended the fragile republic from North Korean aggression in the Korean War (1950-53). In the ensuing decades, the triangular U.S.-North Korean-South Korean relations have been frozen in Cold War confrontation. This situation may soon be modified, however, by gradual steps toward normalization of political and economic relations between Washington and Pyongyang. This was made possible under U.S.-North Korean agreements signed in Geneva, in August and October 1994, as part of multilateral effort aimed at "an overall resolution of the nuclear issue on the Korean Peninsula." U.S. Involvement in Korea, 1945-1953 Post-war U.S. involvement in Korea began in 1945, when, to effect the surrender of Japanese forces on the Korean Peninsula, the United States and the Soviet Union agreed to divide Korea at the 38th parallel into two military zones of administration. Under the arrangement, Japanese forces surrendered to U.S. forces south--and to Soviet forces north--of that line. Although intended for temporary military expediency, the dividing line became the de facto north-south boundary in 1948, when the two Koreas emerged as rival political entities, both claiming to be the only legitimate government on the peninsula. The United States recognized South Korea; the Soviet Union did the same for North Korea. By December 1948, the Soviet forces had withdrawn from the North and U.S. forces withdrew from the South by the spring of 1949. --------- page CRS-2 The Korean War and the Armistice Agreement of 1953 The Korean War was started by Kim Il Sung with backing of Soviet leader Joseph Stalin, a fact confirmed by the recent release of official Soviet documents. The United Nations, in accordance with the terms of its Charter, engaged in its first collective action to repulse the aggressors, established "a unified command for UN Forces in Korea," or the UN Command (UNC), to which 16 member nations sent troops and assistance. With the exception of South Korea, the United States contributed the largest contingent to this UN effort. The battle line seesawed from south to north after large numbers of Chinese "people's volunteers" intervened to save the North from the brink of extinction; by summer 1953, the line had stabilized north of Seoul near the 38th parallel into what is now called the demilitarized zone (DMZ). Armistice negotiations began in July 1951, but hostilities continued until July 27, 1953, when the military commanders of the North Korean People's Army (KPA), the Chinese "people's volunteers", and the UNC signed an armistice agreement at Panmunjom. Technically, neither the United States nor South Korea is a signatory to the armistice per se, but both continue to adhere to it through the UNC. No comprehensive peace agreement has replaced the armistice. Thus a condition of belligerency still exists on the peninsula. A Military Armistice Commission composed of 10 members, five appointed by either side, was to supervise implementation of the pact. The war claimed the lives of 54,540 American servicemen (including 33,870 in combat) and left 103,284 wounded and some 7,900 Americans still unaccounted for. (Beginning in May 1990, North Korea handed over 208 sets of "remains" claimed to be those of Americans; in 1993, the U.S. Defense Department paid $890,000 to Pyongyang for 46 of these returned sets in compensation for itemized "expenses"; the U.S. side wants to limit compensation to $2,000 to $3,000 per set of remains, while the North reportedly demands $30,000 each.) Korean casualties, North and South, numbered in the millions. (North Korea remains silent on human toll to this day.) The armistice called for a political resolution to the problem of Korea's division within three months. An international political conference met in Geneva in April 1954 but, after seven weeks of futile Cold War-influenced debate, ended without agreement or progress. Armed Confrontation, 1963-1980s For nearly four decades since the end of the Korean War, the United States has not had a specific policy directed toward North Korea. In fact, whatever policy it did have was aimed largely at complementing its policy toward South Korea, ensuring the security of the South, and maintaining close bilateral ties. To that end, the United States has maintained a military presence in the South under the 1954 Mutual Defense Treaty. For its part, North Korea concluded mutual security treaties with the Soviet Union and China in 1961 and has --------- page CRS-3 continued to build up its military strength as part of its continuing--and economically draining-effort to counter U.S./R.O.K forces in the South. Through the 1980s and beyond, the United States continued to face a hostile North Korea under Kim Il Sung, who tried a mix of soft and hardline approaches toward Washington. In the 1960s, the United States had to contend with belligerent North Korean actions such as the 1968 seizure of U.S.S. Pueblo near Wonsan and the 1969 downing of a U.S. reconnaissance plane off Chongin. In the 1970s, U.S.-North Korean relations remained frigid, despite Pyongyang's assertions that the historic beginning of inter-Korean dialogue in 1972 opened a new era of peace on the peninsula. North Korea contended that the United States should withdraw its troops from the South, since the two Koreas had agreed in July 1972 to cooperate for peace and unification. It also began to signal its desire for people-to-people contacts in direct appeals to the United States. In March 1974, in a letter addressed to the United States Congress, North Korea proposed bilateral negotiations on replacing the "outdated" Korean armistice with "a peace agreement." It argued that direct talks were necessary inasmuch as the United States, not South Korea, had the real power of command and control over South Korean security. Also on Pyongyang's agenda was the demand that U.S. troops be withdrawn from the South as early as possible. In 1975, North Korea began to complain that U.S. nuclear arsenals in the South posed a new threat to the DPRK. Then, as now, the U.S. policy was to encourage dialogue between the two Koreas for mutual accommodation and to ensure peace and stability on the peninsula. Toward the end of 1974, the United States signaled to the Soviet Union and China its willingness to improve relations with North Korea, provided that Moscow and Beijing would take similar steps toward South Korea. In January 1976, North Korea criticized the so-called "cross-recognition" formula as a plot to perpetuate the division of Korea. In a message intended for the two Communist allies, Pyongyang pointedly noted that "a socialist country by nature cannot deal with the puppets raised by the imperialists, much less `recognize' them." Otherwise, Pyongyang insisted, "it would be tantamount to recognizing the U.S. imperialist occupation of South Korea." In the mid-1970s, the United States heightened its vigilance against North Korea, after the discovery in late 1974 of a North Korean tunnel dug under the demilitarized zone (a second tunnel was uncovered in February 1975). Shortly before the fall of Saigon in April 1976, there were also troubling reports out of Beijing that Chinese officials had cautioned Kim Il Sung, at the time of his sudden visit to Beijing on April 18, against launching an attack on South Korea. Then in August 1976, there were North Korean axe murders of two American officers attached to the UNC at Panmunjom. Against this backdrop, the first of U.S.-R.O.K "Team Spirit" joint military exercises began in 1976. Under the Carter Administration (1977-80), U.S. policy toward North/South Korea took a new turn. In March 1977, President Carter announced his intention to pull out all of the 40,000 U.S. ground forces in the South during --------- page CRS-4 the next four to five years, adding that "I am very determined to take this action." Also announced was his intention to lift restrictions on travel by U.S. citizens to North Korea, Cuba, Vietnam, and Cambodia on March 18, 1977, on the ground that these restrictions violated human rights. Two years later, in July at the end of his state visit to Seoul, Carter and his South Korean counterpart jointly proposed to North Korea a tripartite conference for the resolution of Korean problems. Pyongyang rejected it in the belief that an acceptance would amount to tacit recognition of South Korea--and by implication an acknowledgment of a two-Korea policy that North Korea claimed was being pursued by Washington. Later in July 1979, however, Carter ordered a halt to the withdrawal of the remaining 32,000 U.S. combat troops, the "timing and pace" of any further troop reduction was to be reexamined in two years. Under the Reagan Administration (1981-1988), U.S. relations with North Korea showed no sign of movement, even though the Administration in November 1983 urged Pyongyang to come to a tripartite conference; in January 1984, North Korea proposed a similar meeting to be convened on its own terms. But circumstances then were not conducive to dialogue. In early 1983, North Korea had launched an ultra-nationalistic, anti-American propaganda offensive designed to create social and political unrest in the South. This was designed to capitalize on the groundswell of anti-American sentiments among South Koreans in the wake of a civil uprising in Kwangju in 1980, suppressed in a bloody crackdown by U.S.-backed South Korean troops. Pyongyang sought to incite South Korean students and dissidents to anti-American actions, blaming the United States for the continuing territorial division and the resulting "agony and misery of the Korean people." Through clandestine publications (the quarterly Ch'ongmaek in particular) and the Voice of National Salvation broadcasts, North Korea urged South Koreans of all walks to rise up in "anti-U.S., pro-independence" struggles. To that end, Pyongyang in August 1985 inaugurated an anti-U.S./anti-R.O.K underground organization called the "South Korean National Democratic Front"--actually a renaming of the North Korea-based "Reunification and Revolutionary Party" at the disposal of Pyongyang since 1969, as an instrument of propaganda, agitation, and disinformation against U.S./R.O.K. interests. Other factors hampering U.S.-North Korean relations included the October 1983 assassination attempt on the South Korean President Chun Doo Hwan in Rangoon, Burma. Although Chun was not harmed, 17 members of his South Korean entourage, as well as four Burmese officials, were killed by a bomb planted by North Korean agents. Then, in November 1987, in an attempt to underscore Pyongyang's assertions that Seoul would be a highly unsafe place to go for the 1988 Summer Olympics, agents of North Korea on order from top leadership sabotaged a Korean Airlines plane over the Indian Ocean, causing the deaths of all 115 passengers on board. Since January 1988, North Korea has been on the U.S. Government list of states supporting international terrorism. North Korea is also subject to a general embargo on trade and financial transactions under the Trading with the Enemy Act. --------- page CRS-5 Confrontation with Limited Bilateral Contacts, 1988-91 Shortly before the Seoul Olympics (September 17-October 2, 1988), the United States indicated to North Korea that it would move toward improving relations if North Korea did not disrupt the Summer Olympics. At the end of October 1988, the U.S. announced a package of steps on relations with the North. This initiative was also in support of South Korean President Roh Tae Woo's July 7, 1988 overture aimed at drawing Pyongyang out of its isolation, promoting free inter-Korean cross-border movement of people and goods, and cooperating in international forums. The modest package authorized U.S. diplomats to hold substantive discussions with North Korean counterparts in neutral settings; encourage unofficial, nongovernmental visits from North Korea for academic and cultural purposes; facilitate the travel of U.S. citizens to North Korea for family visits, academic and cultural purposes and so on; and permit humanitarian trade in items meeting "basic human needs," on a case-by-case basis. Beginning in December 1988, the U.S. Embassy's political counselor in Beijing met with his North Korean counterpart 33 times, most recently in May 1993. In these meetings, the United States suggested several issue areas in which North Korea could take positive steps as part of a sustained, reciprocal process. These areas included: * Progress in dialogue with South Korea, including serious discussion with the South about confidence-building measures and other concrete steps to reduce tensions; * Conclusion and implementation of an International Atomic Energy Agency (IAEA) safeguards agreement, as required under the Nuclear Nonproliferation Treaty (NPT); * Regularization of a process for returning Korean War remains of U.S. servicemen missing in action (MIAs) and an eventual accounting for all MIAs from the Korean War: * A credible statement condemning terrorism; and * Demonstration of greater respect for human rights. The United States also expressed its concern about North Korean exports of ballistic missiles and related military technology. For its part, North Korea repeated its demand for replacing the 1953 armistice with a peace treaty, withdrawal of U.S. troops from the South, and upgrading the status of talks in Beijing. The United States recognizes that the future of Korean issues is a matter for the authorities of North and South Korea to resolve peacefully through negotiations. As the fundamental decisions must be made by the Korean people themselves, the United States refuses to be --------- page CRS-6 drawn into separate negotiations with North Korea on the 1953 armistice. The United States remains prepared, however, to participate in talks with the representatives of North and South Korea, if so desired by the two Korean governments, provided that both are full and equal participants in any such talks. The Nuclear Issue in U.S.-North Korean Relations, 1992-94 In the early 1990s, Pyongyang's suspected nuclear weapons program overshadowed all other issues in U.S.-North Korean relations. The United States and other countries sought North Korean adherence to its obligations as a signatory to the NPT since 1985. As inducements, U.S. nuclear warheads were withdrawn from South Korea in late 1991, followed by South Korean President Roh's announcement that there were no nuclear arms in the South. Additionally, the United States and South Korea offered to cancel the 1992 Team Spirit joint military exercise, which Pyongyang had long criticized as rehearsals for nuclear attack against the North; and in January 1992, in New York, U.S. Undersecretary of State Arnold Kanter had a first high-level meeting with North Korea's Kim Yong Sun, the ruling Korean Workers Party secretary for international affairs. At the meeting, both sides outlined their respective policies on bilateral and inter-Korean issues-- the U.S. side especially underscoring the critical importance of North Korea's nuclear transparency. At the end of January 1992, North Korea signed a NPT safeguards agreement after six years of stonewalling, and the following month, North and South Korea exchanged signed texts of a Joint Declaration on the Denuclearization of the Korean Peninsula that they had initiated in December 1991. From June 1992 to February 1993, the IAEA was allowed to conduct six regular inspections of North Korea's seven declared nuclear facilities. Meanwhile, inter-Korean negotiations over the implementation of the North/South denuclearization accord were broken off by North Korea, which argued that the nuclear issue should be resolved only through bilateral talks with Washington, not with South Korea or the IAEA. By late 1992, IAEA inspectors found evidence suggesting that North Korea had reprocessed more plutonium than it had declared to the IAEA; plutonium is a key ingredient in the making of nuclear bombs. Rejecting the IAEA demand for special inspections of two nuclear waste sites at Yongbyon that could reveal the history of reprocessing dating back to 1989, Pyongyang announced its decision to withdraw from the NPT on March 12, 1993. It contended that the LAEA violated the principle of "impartiality" as it had relied on intelligence provided by "a third country" (the United States) in calling for special inspections. Pyongyang asserted that such intrusive inspections were part of a U.S. plot to undo North Korea. In May 1993, the United Nations Security Council passed a resolution, urging the North to cooperate with the IAEA and to implement the inter-Korean denuclearization accord. It also called on all member states to encourage North Korea to respond positively to the resolution and to facilitate a solution. --------- page CRS-7 To persuade North Korea to return to the NPT, the Clinton Administration held talks with North Korea in early June 1993, in New York, that led to North Korea "suspending" its withdrawal from the NPT on June 11. A second round of talks was held in July, in Geneva, to set the guidelines for resolving the nuclear issue, inter alia, by exploring ways in which new light water reactors, not capable of producing nuclear weapons material, could be provided to North Korea, for laying the basis for improving overall U.S.-North Korean relations, and for restarting inter-Korean dialogue. In 1994, however, the crisis surged as North Korea not only continued to reject an IAEA full-scope inspection but, in May, removed 8,000 fuel rods from its 25-megawatt reactor, without permitting monitoring by IAEA inspectors. The Clinton Administration began to discuss possible UN sanctions against the North. Pyongyang responded by announcing its intent to withdraw from the LAEA. The mounting crisis was defused, however, after former President Jimmy Carter held talks in June, in Pyongyang, with Kim Il Sung. As a result, a third round of U.S.-North Korean talks opened in Geneva on July 8, 1994, but was cut short by Kim Il Sung's death. An historic North-South Korean summit meeting, planned for late July, was put off indefinitely. Agreed Statement of August 12, 1994 Resumed in Geneva on August 5, 1994, the talks produced an "agreed statement" of August 12. The joint statement stated that the following "elements" should be part of a final resolution of the nuclear issue: * North Korea is prepared to replace its graphite-moderated reactors with light water reactors (LWRs); the United States is prepared to make arrangements for the provision of LWRs of about 2,000 megawatts total to the North and to make arrangements for the supply of interim energy alternatives pending the transfer of the LWRs. * Once the United States provides the assurances for the provision of the LWRs and interim energy alternatives, North Korea will freeze construction of 50- and 200-megawatt graphite-moderated reactors now under construction, forego reprocessing 8,000 spent fuel rods placed in a cooling pond, and seal its reprocessing facility called "radiochemical laboratory," to be monitored by the LAEA. * The United States is prepared to provide North Korea with assurances against the threat or use of nuclear weapons; to agree to establishment of diplomatic representation in each other's capitals; and to reduce barriers to trade and investment as a move toward full normalization of political and economic relations with North Korea. * In return, North Korea is prepared to remain a party to the NPT, to allow implementation of its NPT safeguards agreement and to --------- page CRS-8 implement the North-South [Korean] Joint Declaration on the Denuclearization of the Korean Peninsula. Both sides also agreed that important issues raised during the talks remained to be resolved, that expert-level discussions were needed to hammer out technical details of the agreed statement, and that U.S.-North Korean talks would resume in Geneva on September 23, 1994. Agreed Framework of October 21, 1994 After 17 months of difficult on-and-off negotiations, the two countries signed an "agreed framework" in Geneva, on October 21, 1994, paving the way for ending their nuclear dispute and for moving toward improving their relations (For particulars, see Appendix I. The Agreed Framework between the United States and the Democratic People's Republic of Korea, October 21, 1994). The agreement has a confidential annex detailing how the agreement will be put into effect. The agreed framework is consistent with the broad elements of the August 12 agreed statement. Under the accord, North Korea is to freeze its nuclear activities and "eventually" dismantle its nuclear facilities by the time the second internationally supplied reactor is completed; open two nuclear waste sites to IAEA inspections "when a significant portion of the light water reactor project is completed, but before delivery of key nuclear components." The two sides also agreed to hold expert talks to discuss arrangements for spent fuel storage and ultimate disposition of 8,000 fuel rods unloaded in May 1994 from the existing 25-megawatt thermal (5-megawatt electrical) reactor. The spent fuel is to be shipped out of North Korea by the time the first reactor is completed. In exchange, North Korea will be provided electrical with two new LWRs with a combined generating capacity of around 2,000 megawatts by a target date of 2003. To compensate the North for not restarting the 25-megawatt reactor and for halting construction of 50- and 200-megawatt reactors, North Korea will receive 500,000 metric tons of free heavy oil annually as an interim energy source for heating and generation of electricity until the light water reactor project is finished. The United States also pledged to set up an international consortium (tentatively called the Korea Energy Development Organization--KEDO) to finance and undertake the light water reactor project worth about $4 billion; South Korea will reportedly pay for around 55 percent of the total, with Japan and others paying the balance. Consortium participants include South Korea, Japan and several other countries. In his October 20, 1994, letter addressed to "Kim Jong Il, Supreme Leader" of the DPRK, President Clinton confirmed that he would "use the full powers of my office to facilitate arrangements" for the light water project and for "the funding and implementation of interim energy alternatives" pending completion of the first reactor unit of the project. In the event of some unforeseen difficulties in completing the deal, Clinton assured --------- page CRS-9 that the United States would itself, wto the extent necessary," honor the accord, "subject to approval of the U.S. Congress" (see Appendix II. President Clinton's Letter of Assurance to Kim Jong II, October 20, 1994). The October deal also contains a North Korean pledge to "engage in North-South dialogue, as this Agreed Framework will help create an atmosphere that promotes such dialogue." The outcome of such dialogue, always contentious in the past, will have a significant bearing on how the Agreed Framework will be implemented, since South Korea is to play a key role in providing light water reactors--a role Pyongyang seems to have condoned reluctantly. --------- page CRS-10 APPENDIX I THE AGREED FRAMEWORK BETWEEN THE UNITED STATES AND THE DEMOCRATIC PEOPLE'S REPUBLIC OF KOREA GENEVA, OCTOBER 21, 1994 Delegations of the Governments of the United States of America (U.S.) and the Democratic People's Republic of Korea (DPRK) held talks in Geneva from September 23 to October 17, 1994, to negotiate an overall resolution of the nuclear issue on the Korean Peninsula. Both sides reaffirmed the importance of attaining the objectives contained in the August 12, 1994 Agreed Statement between the U.S. and the DPRK and upholding the principles of the June 11, 1993 Joint Statement of the U.S. and the DPRK to achieve peace and security on a nuclear-free Korean peninsula. The U.S. and the DPRK decided to take the following actions for the resolution of the nuclear issue: I. Both sides will cooperate to replace the DPRK's graphite- moderated reactors and related facilities with light-water reactor (LWR) power plants. 1) In accordance with the October 20, 1994 letter of assurance from the U.S. President, the U.S. will undertake to make arrangements for the provision to the DPRK of a LWR project with a total generating capacity of approximately 2,000 MW(e) bs a target date of 2003. -- The U.S. will organize under its leadership an international consortium to finance and supply the LWR project to be provided to the DPRK. The U.S., representing the international consortium, will serve as the principal point of contact with the DPRK for the LWR project. -- The U.S., representing the consortium, will make best efforts to secure the conclusion of a supply contract with the DPRK within six months of the date of this Document for the provision of the LWR project. Contract talks will begin as soon as possible after the date of this Document. -- As necessary, the U.S. and the DPRK will conclude a bilateral agreement for cooperation in the field of peaceful uses of nuclear energy. 2) In accordance with the October 20, 1994 letter of assurance from the U.S. President, the U.S., representing the consortium, will make arrangements to offset the energy foregone due to the freeze of the DPRK's graphite-moderated reactors and related facilities, pending completion of the first LWR unit. -- Alternative energy will be provided in the form of heavy oil for heating and electricity production. -- Deliveries of heavy oil will begin within three months of the date of this Document and will reach a rate of 500,000 tons annually, in accordance with an agreed schedule of deliveries. --------- page CRS-11 APPENDIX I-(continued) 3) Upon receipt of U.S. assurances for the provision of LWR's and for arrangements for interim energy alternatives, the DPRK will freeze its graphite-moderated reactors and related facilities and will eventually dismantle these reactors and related facilities. -- The freeze on the DPRK's graphite-moderated reactors And related facilities will be fully implemented within one month of the date of this Document. During this one-month period, and throughout the freeze, the International Atomic Energy Agency (IAEA) will be Allowed to monitor this freeze, and the DPRK will provide full cooperation to the IAEA for this purpose. -- Dismantlement of the DPRK's graphite-moderated reactors and related facilities will be completed when the LWR project is completed. -- The U.S. and DPRK will cooperated in finding a method to store safely the spent fuel from the 5 MW(e) experimental reactor during the construction of the LWR project, and to dispose of the fuel in a safe manner that does not involve reprocessing in the DPRK. 4) As soon as possible after the date of this document. U.S. and DPRK experts will hold two sets of experts talks. -- At one set of talks, experts will discuss issues related to alternative energy and the replacement of the graphite- moderated reactor program with the LWR project. -- At the other set of talks, experts will discuss specific arrangements for spent fuel storage and ultimate disposition, II. The two sides will move toward full normalization of Political and economic relations. 1) Within three months of the date of this Document, both sides will reduce barriers to trade and investment, including restrictions on telecommunications services and financial transactions. 2) Each side will open a liaison office in the other's capital following resolution of consular and other technical issues through expert level discussions. 3) As progress is made on issues of concern to each side, the U.S. and DPRK will upgrade bilateral relations to the Ambassadorial level. --------- page CRS-12 APPENDIX I-(continued) III. Both sides will work together for peace and security on a nuclear-free Korean peninsula. 1) The U.S. will provide formal assurances to the DPRK, against the threat or use of nuclear weapons by the U.S. 2) The DPRK will consistently take steps to implement the North-South Joint Declaration on the Denuclearization of the Korean peninsula. 3) The DPRK will engage in North-South dialogue, as this Agreed Framework will help create an atmosphere that promotes such dialogue. IV. Both sides will work together to strengthen the international nuclear non-proliferation regime. 1) The DPRK will remain a party to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) and will allow implementation of its safeguards agreement under the Treaty. 2) Upon conclusion of the supply contract for the provision of the LWR project, ad hoc and routine inspections will resume under the DPRK's safeguards agreement with the IAEA with respect to the facilities not subject to the freeze. Pending conclusion of the supply contract, inspections required by the IAEA for the continuity of safeguards will continue at the facilities not subject to the freeze. 3) When a significant portion of the LWR project is completed, but before delivery of key nuclear components, the DPRK will come into full compliance with its safeguards agreement with the IAEA (INFCIRC/403), including taking all steps that may be deemed necessary by the IAEA, following consultations with the Agency with regard to verifying the accuracy and completeness of the DPRK's initial report on all nuclear material in the DPRK. Kang Sok Ju - Head of the Delegation for the Democratic People's Republic of Korea, First Vice-Minister of Foreign Affairs of the Democratic People's Republic of Korea Robert L. Gallucci - Head of the Delegation of United States of America, Ambassador at Large of the United States of America Source: U.S. Department of State --------- page CRS-13 APPENDIX II PRESIDENT CLINTON'S LETTER TO KIM JONG IL THE WHITE HOUSE Washington October 20, 1994 Excellency: I wish to confirm to you that I will use the full powers of my office to facilitate arrangements for the financing and construction of a light-water nuclear power reactor project within the DPRK, and the funding and implementation of interim energy alternatives for the Democratic People's Republic of Korea pending completion of the first reactor unit of the light-water reactor project. In addition, in the event that this reactor project is not completed for reasons beyond the control of the DPRK, I will use the full powers of my office to provide, to the extent necessary, such a project from the United States, subject to the approval of the U.S. Congress. Similarly, in the event that the interim energy alternatives are not provided for reasons beyond the control of the DPRK, I will use the full powers of my office to provide, to the extent necessary, such interim energy alternatives from the United States, subject to the approval of the U.S. Congress. I will follow this course of action so long as the DPRK continues to implement the policies described in the Agreed Framework Between the United States of America and the Democratic People's Republic of Korea. Sincerely, Bill Clinton His Excellency Kim Jong Il Supreme Leader of the Democratic People's Republic of Korea Pyongyang --------- page CRS-14 WHAT IS THE CURRENT STATUS OF U.S.-NORTH KOREAN POLITICAL RELATIONS?* * Prepared by Robert G. Sutter, Senior Specialist in International Policies. The United States does not have normal diplomatic relations with the North Korean government. It maintains no diplomatic, consular or trade relations with authorities there. The United States has recognized the Democratic Peoples Republic of Korea as a state in the international law sense. Moreover, the United States has acknowledged that the government of the DPRK exercises effective control within North Korea. In recent years, U.S. officials have dealt with DPRK authorities on a range of issues centered on North Korea's nuclear program. In addition, a few Members of Congress have traveled to North Korea for talks with DPRK officials. The United States recognizes that the future of the Korean peninsula is primarily a matter for the people of Korea to decide. The U.S. Government believes that a constructive dialogue between the authorities of South and North Korea to resolve the issues on the peninsula, and that concrete steps to promote greater understanding and reduce tension, are needed to pave the way for unifying the Korean nation. Because the fundamental decision must be taken by the Korean people themselves, the United States refuses to be drawn into separate negotiations with North Korea, as Pyongyang has insisted, on replacing the 1953 armistice with a peace treaty. The United States remains prepared to participate in negotiations between representatives of North and South Korea, if so desired by the two Korean governments and provided that both are full and equal participants in such talks. Which Branch of the U.S. Government Has Responsibility for Normalizing Political Relations? The Constitution divides the foreign relations powers between the executive and legislative branches of the government. For example, the Constitution gives the President the power to send and receive ambassadors, while Congress has the power to regulate commerce with foreign nations, to define offenses against the law of nations, and to declare war. The President and the Senate share the power to make treaties and appoint ambassadors. Although the Constitution does not ascribe the powers of recognizing states and governments to any particular branch of the Government, the President traditionally exercises such authority. The legislative branch of the Government exercises little direct influence over the normalization of relations. Congress, however, controls appropriations that are necessary to implement the President's plan to establish relations. --------- page CRS-15 What Are the Different Processes Involved in Establishing Government-to-Government Relations? General aspects of the process of establishing relations between governments include: 1) recognition of a sovereign state, and 2) establishment of diplomatic relations. Governments can choose to recognize a state -- such recognition is accorded to an entity having a defined area and population under the control of a government that has the capacity to engage in foreign relations. Recognition of a state, however, does not necessarily mean that a government may recognize the government of that state. Often times, political considerations influence a government's willingness to establish or reestablish diplomatic relations with the foreign state. What Are the Procedures to Establish an Interest Section? A Liaison Office? In certain cases, the United States has maintained interest sections or liaison offices in countries with which it has no diplomatic relations. In the case of Cuba, for instance, the United States conducts business with Cuba through the U.S. Interests Section in Havana. The Interests Section is officially part of the Swiss Embassy, but is located in the former U.S. Embassy building. The Cuban Interests Section in Washington operates through the Swiss Embassy, although it is located in the former Cuban Embassy building. The State Department was responsible for negotiating the agreement with the Government of Cuba that led to the creation of the respective interests sections. The United States maintained a liaison office in Beijing from 1973 until it established diplomatic relations with the People's Republic of China (PRC) in 1979. Until 1979, the United States officially had relations with the government of the Republic of China -- located in Taiwan. Upon establishing diplomatic relations with the PRC in 1979, the United States broke official relations with Taiwan. Currently, American commercial and cultural interaction with the people of Taiwan is facilitated through the American Institute in Taiwan (AIT) -- a nongovernmental entity staffed largely by U.S. State Department and other officials who are temporarily separated from the U.S. Government. The AIT was established under the authority of the Taiwan Relations Act (P.L. 96-8, 22 U.S.C. 3301-3316). Section 7(a) of the Act authorizes personnel at the AIT to perform notarial, conservator, and consular services. Section 10(c) of the Act provides the means to grant diplomatic privileges and immunities to the Coordination Council for North American Affairs (the Taiwanese liaison office in Washington, now known as the "Taipei Economic and Cultural Representative Office"), and to its personnel. In 1994, the United States announced that it would soon exchange liaison offices with Vietnam. While the U.S. passed legislation to allow for establishing liaison offices with China, such legislation was said not to be needed in the case --------- page CRS-16 of liaison offices with Vietnam as both Vietnam and the U.S. are parties to multilateral conventions governing diplomatic and consular relations. Later in 1994, the Clinton Administration expressed a willingness to consider opening liaison offices with North Korea. Since North Korea is also a party to the multilateral conventions, U.S. legislation is seen as not needed in the case of a U.S. liaison office with North Korea. If the United States Were to Normalize Diplomatic Relations with North Korea, What Further Steps Might the United States Consider Taking? Cultural and Educational Exchanges The United States has no official cultural, scientific, or educational exchange programs with North Korea. If the United States were interested in pursuing such programs with North Korea it might look to the U.S.-Chinese experience as a model. In January 1979, the United States and China signed a Cultural Agreement that has established a long-term basis for official exchanges. According to the agreement, the U.S. Information Agency is charged with managing the U.S.-China cultural exchange program. The agreement, however, governs only official, government-to-government contacts, and neither precludes nor covers U.S.-China cultural exchanges that may be privately sponsored. As has occurred under many official U.S.-China agreements, costs of the official cultural exchange programs have been arranged, with each country covering the costs of its own involvement. Travel Restrictions The United States has no restrictions against U.S. citizens travelling to North Korea. Freedom of travel is limited in part by strict restrictions on the amount of money and the use of credit cards and other financial instruments by U.S. citizens in North Korea, governed by the Office of Foreign Assets Control of the U.S. Treasury (see section on U.S.-North Korean commercial relations). Because the United States has no consular establishment in North Korea at this time, the State Department is able to provide no assistance to U.S. citizens travelling there. Consular Agreement The United States and North Korea may decide to conclude a consular agreement. Since both sides are parties to multilateral conventions governing consular relations, such an agreement may appear redundant. Nevertheless, supporters of such bilateral consular agreements see them as possibly increasing the ability of U.S. diplomats to visit promptly Americans imprisoned abroad. If a bilateral consular treaty is reached, as it was with China in 1981, it would require congressional approval. --------- page CRS-17 U.S.-NORTH KOREAN MILITARY RELATIONS* * Prepared by Larry A. Niksch, Senior Specialist in Asian Affairs. U.S. military relations with North Korea are governed by: the armistice of 1953 which ended the Korean War; the role of U.S. troops in South Korea (currently about 36,000) to help defend against a North Korean attack; and the Mutual Defense Treaty between the United States and South Korea, signed in 1953 and ratified in 1954. North Korea has proposed negotiating with the United States (without South Korea's participation) for the replacement of the armistice with 8 U.S.-North Korean peace agreement. According to North Korea's proposal, first made in 1974, a peace agreement would provide for the withdrawal of American forces from South Korea. Proposals of changes in the armistice agreement, the size and operations of U.S. troops, and in the U.S.-R.O.K. (Republic of Korea) Mutual Defense Treaty would constitute major policy questions for the Clinton Administration and Congress. They also involve several legal and technical issues, some of which overlap with policy questions. Several technical and possibly financial issues in any U.S. troop withdrawal would involve provisions in the U.S.-R.O.K. status of forces agreement. Signed in 1966 and entered into force in 1967, the U.S.-R.O.K. Status of Forces Agreement stipulates rights, obligations, and understandings between the two governments regarding base facilities, entry and exit of U.S. military personnel, customs duties, and criminal jurisdiction necessary for the stationing of U.S. forces in Korea. The Armistice Agreement The Korean armistice agreement was signed on July 27, 1953, by military representatives of the United Nations Command, North Korea, and China. The agreement set up an armistice commission composed of the three signatories. The United Nations Command was established by a UN Security Council resolution of July 7, 1950. The resolution placed a "unified command . . .under the United States." The command was authorized "at its discretion to use the United Nations flag." The resolution gave the United States broad authority, requiring it only to report to the Security Council "as appropriate." From July 1953 to the present, the UN Commander in Korea has been the American general who commands U.S. forces in South Korea. Until 1979, the UN Commander had operational command of U.S. and R.O.K. forces. At that time, operational control was transferred to the new U.S.-R.O.K. Combined Forces Command.[1] This left the UN Command with responsibility for only the --------- page CRS-18 armistice, participating in the armistice commission and administering the Joint Security Area in Panmunjom. where the commission meets. 1. Pollack, Samuel. Self Doubts on Approaching Forth: The United Nations' Oldest and Only Collective Security Enforcement Army, the United Nations Command in Korea. In Dickinson Journal of International Law, Vol. 6, No. 1. p. 16. Moreover, the makeup and operation of the armistice commission has changed since 1990. Under a U.S.-R.O.K. agreement in March 1991, a South Korean general replaced an American general as head of the UN team on the armistice commission. In 1953, South Korea had refused to sign the armistice and had not participated in the armistice commission. North Korea refused to meet with the new South Korea-led team and announced in April 1994 that it was withdrawing from the commission.[2] China made a similar withdrawal announcement in early September 1994. 2. Radio Pyongyang, April 28, 1994. Text of North Korean Foreign Ministry Statement. The U.S. Government, through the UN Commander in Korea, would have wide prerogative in negotiating changes in the armistice agreement or even negotiating a new armistice accord. If the U.S. Government directly negotiated a peace agreement with North Korea that replaced the armistice agreement, the UN Security Council or the General Assembly probably would consider action to abolish the UN Command. In 1975, under the Ford Administration, the United States submitted a resolution to the General Assembly to disband the UN Command if alternative arrangements to maintain the armistice were found.[3] With regard to the role of Congress, the Clinton Administration might argue that since Congress did not declare war during the Korean conflict, it would not have to ratify a peace agreement. 3. Pollack, p. 18. If South Korea did not participate in U.S.-North Korean negotiations, South Korea presumably would not be bound legally by such an accord. However, South Korea's participation in the Combined Forces Command (CFC) would constitute a means by which the United States could ensure South Korean compliance, if the commander of the CFC were given responsibility for administering provisions of a peace agreement similar to provisions of the armistice agreement (for example, the status of the demilitarized zone and investigations and negotiations of violations of the agreement). The CFC commander would need operational control over R.O.K. forces related to such provisions. Gaining this kind of command authority probably would require U.S.-R.O.K. negotiations and amendments to agreements governing the CFC. Such procedural problems could be avoided partially if South Korea were included in negotiations over a peace agreement South Korea would then be a full party to any agreement. However, the inclusion of South Korea in any --------- page CRS-19 such negotiation is a policy issue in large part because of North Korea's opposition to inclusion of South Korea in talks over a peace accord. Withdrawing U.S. Troops; Ending the U.S.-R.O.K. Mutual Defense Treaty The U.S.-R.O.K. Mutual Defense Treaty contains the following language: "Either Party may terminate it [the treaty] one year after notice has been given to the other Party." Under identical language, the United States gave Taiwan a one year's notice in 1979 for termination of the U.S.-Republic of China Mutual Defense Treaty. The Carter Administration invoked the treaty's one year's notice despite a sense-of-Congress resolution passed in 1978 as part of the FY 1979 foreign assistance act. That resolution stated that there should be "prior consultation between Congress and the executive branch on any proposed policy changes affecting the continuation in force of the Mutual Defense Treaty of 1954." Following the Carter Administration's announcement of the one year's notice, the Senate passed a "sense of the Senate" resolution declaring that Senate approval "is required to terminate any mutual defense treaty between the United States and another nation." Senator Barry Goldwater also filed suit in federal court seeking to block the treaty's abrogation without Senate approval. A federal district judge ruled in Goldwater's favor, but the appeals court overturned that decision. The appeals court, however, noted special circumstances regarding the treaty with Taiwan and said that the ruling applied only to that treaty.[4] 4. Congressional Quarterly, Inc. China: U.S. Policy Since 1945. Washington, D.C., 1980. p. 39-42. A U.S. decision to withdraw U.S. troops from South Korea would not be prohibited by the Mutual Defense Treaty or any other U.S.-R.O.K. agreement. The Bush Administration unilaterally withdrew about 7,000 troops from South Korea during the 1990-1992 period without legal impediments.[5] The United States progressively reduced the number of its troops in South Korea from the end of the Korean War until the mid-1970s. The Carter Administration abandoned its plan to withdraw American ground forces because of policy reasons, not legal restrictions. 5. U.S. Department of Defense. A Strategic Framework for the Asian Pacific Rim. Report to Congress, 1992. pp. 19-20. --------- page CRS-20 The Carter Administration came under heavy criticism from both the House and Senate over the withdrawal policy (a key reason for Carter's cancellation of the withdrawal), but Congress made no legislative attempt to mandate a retention of ground troops in South Korea.[6] 6. Niksch, Larry A. U.S. Troop Withdrawal from South Korea: Past Shortcomings and Future Prospects. Asian Survey, March 1981. p. 325-341. Nevertheless, the United States and South Korea have set up a security consultative system, composed of several organizations that undoubtedly would be utilized to discuss issues related to a U.S. decision to withdraw. An annual R.O.K.-U.S. Security Consultative Meeting at the defense ministers' level no doubt would consider policy questions as well as broad procedural issues. These might include: the scheduling of withdrawals, the status of base infrastructure, allowances for Korean workers at U.S. bases, and disbandment of joint U.S.-R.O.K. command organizations, including the Combined Forces Command. Much of the detailed drafting of procedural arrangements would be carried out by the Policy Review Subcommittee and the Logistics Cooperation Committee. The U.S.-R.O.K. commands also establish other working level groups as the need arises. One could expect that they would set up a number of these groups to draft specific plans for a troop withdrawal.[7] Under the U.S.-R.O.K. Status of Forces Agreement (SOFA), a joint committee sets policies and procedures related to Korean workers at U.S. bases.[8] 7. For a description of the security consultation system, see: R.O.K. Ministry of Defense. Defense White Paper, 1991-1992. pp. 157-161. 8. R.O.K. Ministers of Defense. Defense White Paper, 1993-1994. p. 115. --------- page CRS-21 NORMALIZING U.S. COMMERCIAL RELATIONS WITH NORTH KOREA* * Prepared by Vladimir N. Pregelj, Specialist in International Trade and Finance, Economics Division. This section discusses restrictions at present in force on U.S. commercial relations with North Korea, and presents a brief history, and the means for their removal or modification. Some changes in the restrictions are likely to be made in the short term pursuant to the recent U.S.-North Korea framework agreement on North Korean nuclear issues. Background For well over four decades--longer than any other country--North Korea has been the target of a regime of U.S. commercial sanctions of the most comprehensive and restrictive kind. Because of their varied rationale and historical development, these sanctions also at times overlap and are duplicative. In addition to--and along with--a virtually total embargo on U.S. commercial and financial transactions and blocking of North Korean assets in the United States, imposed in 1950, various other types of transactions (specific aspects of merchandise trade, export credits, private investments) are prohibited, limited, or subject to discriminatory practices. Apart from the sanctions imposed unilaterally by the United States, economic relations between the United States and North Korea are adversely affected by North Korea's reluctance to engage in broad international economic relations. Examples include North Korea's nonparticipation in various international economic entities and compacts (e.g., the International Monetary Fund, the World Bank Group, the General Agreement on Tariffs and Trade, or the prospective World Trade Organization, and the Multifiber Arrangement), which to some extent also directly affects bilateral U.S.-North Korean economic relations. The measures whereby the existing restrictions on U.S.-North Korean economic relations can be removed or mitigated depend primarily on the type of authority under which they have been imposed. Most are mandated by statutes affecting a group of countries (e.g., "Communist," or other similarly described countries) which include North Korea either specifically or by implication. Such statutes may, however, contain an element of executive discretion, generally subject to statutory conditions for its use. Other restrictions have been imposed under general statutory authorities that have been applied to North Korea by executive decision in response to specific situations or policy goals. Consequently, certain restrictions can be lifted only by the enactment of measures repealing or modifying the applicable statutory mandate, others can be revoked by executive action as authorized by and subject to the conditions, if any, imposed by the relevant statute, and others still might be repealed at --------- page CRS-22 executive discretion alone. All restrictions, of course, can be removed by specific legislation. Measures reducing or removing some restrictions on U.S. commercial transactions with North Korea are expected to be taken in the near term in view of the framework agreement between the two countries on North Korean nuclear issues, reached in Geneva on October 21, 1994 (see p. 10). Under the agreement, "the two sides will move toward full normalization of political and economic relations." Specifically, "within three months of the date of this document, both sides will reduce barriers to trade and investment, including restrictions on telecommunications services and financial transactions." Embargo on All Transactions The most comprehensive U.S. measure restricting economic relations with North Korea is a virtually total and strictly enforced embargo on U.S. trade and financial relations with North Korea. Following the mid-1950 imposition of a ban on exports to North Korea, triggered by North Korea's attack of South Korea (see below: Control of U.S. Exports), the comprehensive embargo was imposed under the "national emergency" authority of section 5(b) of the Trading With the Enemy Act (TWEA). The embargo was based on the proclamation of a national emergency (Pres. Proc. 2914; 15 F.R. 9029) after the escalation of the North Korean conflict by the entry of Chinese forces into it.[10] The embargo was implemented as of December 17, 1950 (15 F.R. 9040) through Foreign Assets Control Regulations (31 C.F.R. Part 500), which are administered and have been modified in various ways by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury. 10. Identical embargo, imposed at the same time on China, was lifted in June 1971. Although the "national emergency" authorities of the TWEA were repealed in late 1977 and replaced by the International Emergency Economic Powers Act (IEEPA) (50 U.S.C. 1701-1706), the measures taken in exercising the original TWEA national emergency authorities (e.g., the North Korean embargo) have been continued in effect through annual determinations by the President that extensions of such authorities are in the national interest of the United States. The latest such determination extended the North Korean embargo through September 14, 1995 (Presidential Determination No. 94-46, September 8, 1994, 59 F.R. 47229). The regulatory mechanics of the embargo consist of a general ban on commercial and financial transactions, which can take place only if they are authorized by regulation (general license), or specifically licensed by OFAC. One general license under the Foreign Assets Control Regulations, major in scope, permits exports to North Korea (31 C.F.R. 500.533), provided they have been licensed or otherwise authorized by the Bureau of Export Administration (BXA) in the Department of Commerce under the Export Administration Act and --------- page CRS-23 related regulations (see below: Control of U.S. Exports). With the operational control over exports in the hands of the BXA, the OFAC, in practice, controls only imports from and financial transactions with North Korea, including the blocking of North Korean assets in the United States (amounting to $9.1 million). Regulations also permit certain types of marginal financial transactions, such as limited remittances to individuals in North Korea for necessary living expenses, transactions incidental to individual travel to, in, and from North Korea, and to travel of North Korean individuals to, from, and in the United States, and importation or exportation of informational materials. Specific licenses are issued for imports of small value gifts of North Korean origin and, on a case-by-case basis, for travel agencies to provide travel services in connection with travel to North Korea for noncommercial tours or various private exchange programs. Apart from its possible removal or modification by specific legislation, the embargo on all transactions with North Korea-- including the blocking of North Korean assets in the United States--can be removed or modified by executive action. This could take place in several ways: by instituting a policy of approving on a case-by-case basis, instead of denying, the licenses required under current regulations; by changing the restrictiveness of the regulations with respect to North Korea (e.g., by increasing the scope of transactions permitted by various, if still marginal, general licenses); or, definitively, by revoking their applicability to North Korea by striking North Korea from the list of countries subject to Foreign Assets Control Regulations (31 C.F.R. 600.201).[11] 11. In addition to North Korea: Cambodia and, for transactions that took place before February 3, 1994, Vietnam. U.S. Imports In addition to being generally prohibited under the comprehensive embargo, U.S. imports from North Korea are subject to two other separate restrictions, in practice of virtually no consequence while the embargo remains in force and generally of lesser impact: the denial of the nondiscriminatory (most-favored-nation; MFN) status; and ineligibility for the U.S. generalized system of preferences. Most-Favored-Nation (MFN) Status Lack of North Korea's MFN status in its trade with the United States means, mainly, that the United States would assess customs duties on imports from North Korea essentially at the high rates enacted by the protectionist Tariff Act of 1930 rather than at the substantially lower rates resulting from concessions granted by the United States in subsequent negotiations with other countries. Because of long-standing U.S. statutory policy, dating back to 1934 and at present stated in section 126 of the Trade Act of 1974 (19 U.S.C.2136), --------- page CRS-24 and, in most cases, also obligations under various international trade agreements, concessional rates granted to any country are applied as a matter of general policy to imports from all U.S. trading partners. This policy was changed by section 5 of the Trade Agreements Extension Act of 1951 (65 Stat. 73), which required the President to suspend MFN status of most Communist countries. The suspension was implemented generally by Presidential Proclamation 2935 of August 1, 1951 (16 F.R. 7635) and specifically for "any part of Korea which may be under Communist domination or control" by Trade Agreement Letter of the same date with effect on Sept. 1, 1951 (16 F.R. 7637). This provision remained in the form of a regulation until it was incorporated into the Tariff Schedules of the United States (TSUS), a completely revised and restructured form of the United States basic tariff document, enacted in 1962. In General Headnote 3(e) (later redesignated 3(d)), the TSUS contained a list of "Communist countries" denied MFN status, including "Korea (any part of which may be under Communist domination or control)." This identification was modified somewhat in a new thorough revision of the tariff document (Harmonized Tariff Schedule of the United States - HTS; 19 U.S.C. 1202; not codified), which was enacted by section 1204 of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 3004) and entered into force on January 1, 1989. Countries denied MFN status, listed in its General Headnote 3(b), including "North Korea," were no longer referred to as "Communist countries" but merely listed as countries the imports from which were subject to "Rate of Duty Column 2" (i.e., the full, non-MFN rate). Meanwhile, the denial of MFN status to North Korea was reaffirmed by section 401 of the Trade Act of 1974 (19 U.S.C. 2431),[12] which required continued denial of MFN status to any country denied such status at the time of its enactment, except as otherwise provided in Title IV of the Act. The procedure of Title IV, applicable to "nonmarket economy" (NE) countries (of which North Korea is one),[13] requires compliance with the provisions of the freedom-of-emigration (usually referred to as Jackson-Vanik) amendment (sec. 402; 19 U.S.C. 2432), and the conclusion of a bilateral trade agreement and its implementation by enactment (sec. 405; 19 U.S.C. 2435). 12. Unless otherwise stated, further references to statutory titles or sections in this part of the report are those to the Trade Act of 1974. 13. This is the procedure under which EN status has been extended to and is annually being renewed with respect to most present or former "Communist" countries, including China. The requirements of the Jackson-Vanik amendment can be fulfilled by either (1) a Presidential determination that North Korea is in full compliance with the freedom-of-emigration requirements of the amendment, or (2) a waiver of such compliance by the President if he has determined that such waiver will substantially promote the objectives of the amendment. The determination of full compliance must be renewed semiannually and is subject, at year-end, to --------- page CRS-25 disapproval by a joint resolution, enacted under a special fast- track procedure (sec. 162; 19 U.S.C. 2192). Waivers of full compliance are issued under the waiver authority originally granted in 1976 and automatically renewable, under specified conditions, every mid-year; annual renewals of the waiver authority also are subject to joint resolutions of disapproval (which may target individual countries), enacted by a fast-track procedure applicable only to such disapprovals (sec. 163; 19 U.S.C. 2193). The initial issuance of a waiver does not require congressional approval nor is it subject to congressional disapproval. The trade agreement required by law must contain a reciprocal grant of MFN status as well as several safeguard provisions. Its implementation must be approved by the enactment of a joint resolution (sec. 407(c)(1); 19 U.S.C. 2437(c)(1)), considered under the same fast-track procedure (sec. 151; 19 U.S.C. 2191) (but without being subject to the additional detailed procedural conditions) as other trade agreements (e.g., the Uruguay Round agreements). By its own terms, such trade agreement remains in force for three-year periods but may be renewed virtually automatically. Such renewals are not subject to congressional approval or disapproval. Closely tied in with the provisions of section 401 are those of section 409 (19 U.S.C. 2439), which bar the extension of MFN status to an NME country which denies or places serious obstacles to a citizen's right to emigrate to join a close relative in the United States. Affecting the same countries as section 402, this provision does not apply to any country with respect to which a Jackson-Vanik amendment determination or waiver is in effect. The United States also accords MFN status as a reciprocal obligation under the General Agreement on Tariffs and Trade (GATT) to the parties to the Agreement. In the event that North Korea, which is not now nor has made any moves toward becoming a party to the GATT, were to accede to the GATT--or, rather, to its institutional successor, the World Trade Organization (WTO), once it is established--the United States could avoid its MFN obligation under the GATT or the WTO toward North Korea by invoking, respectively, GATT Article XXIV or WTO Article XIII. Either provision allows reciprocal nonapplication of the GATT or, respectively, the Uruguay Round agreements between a current and a newly acceding party to the GATT or the WTO if either does not consent to it. Generalized System of Preferences North Korea also is denied the status of "beneficiary developing country" (BDC) under the U.S. generalized system of preferences (GSP) (secs. 501-505; 19 U.S.C.2641-2645), which permits a substantial array of products of countries designated as BDCs to be imported into the United States under certain conditions free of duty. North Korea has not been designated a BDC and, consequently, does not appear in the list of designated BDCs contained in General Note 4(a) of the HTS. --------- page CRS-26 Designation of a country as a BDC is subject to a number of conditions several of which would clearly appear to be relevant with respect to North Korea (sec. 502(b); 19 U.S.C. 2462(b)). Designation is denied, for example, generally, to a country that: aids or abets international terrorism;[14] does not afford internationally recognized worker rights to its workers; or, if a Communist country, does not have MFN status with the United States, is not a party to the General Agreement on Tariffs and Trade (GATT) nor a member of the International Monetary Fund (IMF), and is controlled by international communism. While compliance with the antiterrorist and the worker rights conditions may be waived by the President if he determines that the designation of a country as a BDC is in the national economic interest of the United States, the Communist-country restriction may not. 14. For more detail, see below: Control of U.S. Exports. As to the conditions applicable solely to Communist countries: North Korea is denied MFN status by the United States and is neither a party to the GATT nor a member of the IMF, but, arguably, could be considered as not being controlled by international communism, an aspect to be definitively determined at the time of the eventual designation. Once the conditions for designation are fulfilled or, if waivable, waived, a country may be designated as a BDC of the GSP by Presidential action alone and neither requires approval by Congress nor is subject to disapproval by Congress (other than by specific legislation).[15] 15. GSP legislation expired October 1, 1994. Measures to extend it are pending. Control of U.S. Exports The United States has controlled most commercial exports of civilian-use articles to foreign countries, primarily for national security and/or foreign policy reasons, under the authority of a succession of export control acts dating back to 1949 and most recently reenacted as the Export Administration Act of 1979 and since amended several times (50 U.S.C. App. 2401-2420).[16] Just as the scope of the legislation has expanded over the years, so also has the scope and detail of export control regulations, now codified at 15 C.F.R. 769-799.2 as Export Administration Regulations, and promulgated and administered under statutory policies and guidelines by the Bureau of Export Administration (BXA) of the Department of Commerce. 16. The Act expired in June 1994; its provisions are carried out under Executive Order 12923 of June 30, 1994 (59 F.R. 34551), issued under the authority of sec. 101(b) of P.L. 95-223 (Title I - Amendments to the Trading with the Enemy Act)(50 U.S.C. App. 5 note), until the Act itself is extended by legislation. --------- page CRS-27 Under present regulations, the scope and severity of controls applicable to exports to any country depends on the country group to which a country is assigned, where the degree of restrictiveness is reflected in the range of articles that require an individual "validated" license for each shipment (or group of related shipments) to a certain destination. The greater the number of articles requiring a validated license, the more restrictive the export control, not only quantitatively but also qualitatively in the sense that validated licenses may also be denied. Validated licenses are not required for exports that may take place under a general license, that is, a regulation which, in effect, gives an advance blanket permission for a specific type of export. The assignment of countries to their groups and the application of specific licensing requirements are done by the BXA. The statutory export control authority, specifically the Export Control Act of 1949, was used to impose, on June 28, 1950, as an immediate reaction to North Korea's attack on South Korea, the earliest restriction on U.S. trade with North Korea: an export embargo, by suspending all licenses, general as well as validated, for exports to North Korea (15 F.R. 4189). While this embargo later became part of the comprehensive embargo on all transactions imposed in December 1950 under a different authority, its administration has remained with the export control agency rather than OFAC (see above: Embargo on all Transactions). After the February 1994 lifting of the embargo on Vietnam, North Korea is one of only two countries--the other being Cuba--still remaining in Country Group Z (15 C.F.R. Part 770, Supplement No. 1), the group subject to the heaviest restrictions, amounting to a virtually total embargo on exports. The mechanics of the embargo consist of the requirement that, for foreign policy purposes, virtually all exports to group Z countries must be approved by validated licenses, and of the stated general policy to deny all applications for them (15 C.F.R. 785.1). Altogether excepted from the validated license requirement are informational materials (books, newspapers, journals, movies, maps) (15 C.F.R. 785.1), and gift parcels of limited value, content, and frequency (15 C.F.R. 771.18). While requiring specific approval, "Humanitarian Licenses" are issued, under specified conditions, for exports of donated goods to meet basic human needs (15 C.F.R.773.5 and Part 773, Supplement No.7); commercially supplied goods to meet basic human needs, in quantities larger than allowed by the humanitarian license, and exports to meet emergency needs that do not qualify for the humanitarian license are considered on a case-by-case basis (15 C.F.R. 785.1). In addition to the embargo on exports to North Korea as such, a separate foreign-policy restriction applies to exports to North Korea as a country supporting international terrorism. As provided for in sec. 6(j) of the Export Administration Act of 1979, as amended (50 U.S.C. App. 2405(j)), the Secretary of State, on January 20, 1988, determined "that North Korea is a country which has repeatedly provided support for acts of international terrorism" (53 F.R. --------- page CRS-28 3477). As a consequence of such determination, exports to the country involved of goods or technology that are determined of being able to make a significant contribution to its military potential, or enhance its ability to support acts on international terrorism, require a validated license. Denial of the license, in effect, constitutes a ban on such exports. The determination is also cause for sanctions in other economic relations, such as denial of eligibility for the generalized system of preferences, and denial of foreign income tax credit under income tax law (see above: Generalized System of Preferences, and below: Private Foreign Investment).[17] 17. An identical determination, provided for in sec. 620A of the Foreign Assistance Act of 1961 (22 U.S.C. 2371), bars the affected country (e.g., North Korea) from receiving any assistance under the Foreign Assistance Act, the Agricultural Trade Development and Assistance Act of 1954 ("P.L.480"), the Peace Corps Act, or the Export-Import Bank Act of 1945 (see below: Bilateral Economic Assistance). In practice, the same determination is made for the purpose of both statutes. A determination of support of international terrorism can be rescinded only if the President submits to the Congress, (1) before the rescission takes effect, a report certifying that there has been a fundamental change in the leadership and policies of the country's government, that the government is not supporting acts of international terrorism, and that it has given assurances that it will not do 80 in the future; or (2) at least 45 days before the rescission, a report that the government in question has provided no support to international terrorism during the preceding 6 months and has given assurances that it will not do so in the future. Since changes in the overall U.S. export control policy can be made by executive action by the Bureau of Export Administration within the statutory guidelines, any relaxation of controls on U.S. exports to North Korea is possible without congressional involvement. The first likely step in the direction of normalizing export controls--most likely in the context of the lifting of the comprehensive embargo--would be in reassigning North Korea to Country Group Y, which would place North Korea at the level of control restrictiveness applied to mast of the former Warsaw Pact members. In the matter of commercial exports of defense articles or services, section 38 of the Arms Export Control Act (22 U.S.C. 2778) authorizes the President to designate those items that are to be considered as defense articles and services (the U.S. Munitions List) and to promulgate regulations for the export of such articles and services. The President delegated this authority to the Secretary of State, who has issued the International Traffic in Arms Regulations (ITAR) (22 C.F.R. 121-130). Section 126.1 of the ITAR establishes the policy of the United States to deny licenses for export to or import from 28 countries, including North Korea. --------- page CRS-29 This regulation may be temporarily suspended or modified in the interest of the security and foreign policy of the United States (22 C.F.R. 126.4), or an exception to it made under specified conditions (22 C.F.R. 126.2) to allow the licensing of exports of Munitions List articles and services to North Korea. The regulation itself can be amended administratively within its statutory intent. In the case of government-to-government military sales, section 3(a)(1) of the Arms Export Control Act (22 U.S.C. 2763(a)(1)) prohibits the U.S. Government from selling or leasing defense articles or services unless the President finds that the furnishing of such articles or services to a country or international organization would strengthen the security of the United States and promote world peace. In addition to special provisions for controlling exports to any destination of nuclear-related commodities placed on the "nuclear referral list" because of their possible "dual use" (15 C.F.R. 778.2), which are administered by the BXA under the Export Administration Act (see p. 40), a separate control regime is in effect for exports of nuclear equipment and material[18] and is administered by the Nuclear Regulatory Commission in conjunction with the State Department under the authority of the Atomic Energy Act of 1946, as amended. Regulations governing trade in nuclear equipment and material are contained in 10 C.F.R. Part 110, section 110.28 of which lists North Korea as an embargoed destination. 18. Virtually identical restrictions apply also to imports of nuclear equipment and material. Exports from Foreign Countries Exports from foreign countries to North Korea are to some extent affected by Transaction Control Regulations (31 C.F.R. 505). With some exceptions, these prohibit a U.S. person to engage in any transaction in connection with the sale or purchase in any foreign country, and shipment to any country of the former Sino- Soviet bloc (or its successors), including North Korea, of any merchandise included in the list of articles at one time subject to international controls of the now defunct Coordinating Committee for Multilateral Export Controls (COCOM), or prohibited by U.S. munitions or nuclear control provisions. This prohibition was promulgated on July 23, 1953 (18 F.R. 4291), with respect to all countries of the then Sino-Soviet Bloc and is maintained in force under the same authority and administered in the same way as Foreign Assets Control Regulations (see above: Embargo on All Transactions). While shipments originating in 23 Western countries have been excepted from this prohibition, the exception does not apply to shipments to North Korea. These provisions are administered and can be modified by the Office of Foreign Assets Control. --------- page CRS-30 Export Financing Financing of exports to North Korea through export credits is restricted or affected in several ways. Participation in any U.S. Government program that extends export credits or export credit guarantees or insurance is prohibited to any non-market economy country (including North Korea) unless the freedom-of-emigration requirements of the Jackson-Vanik amendment are fulfilled. The principal export-financing programs affected by this restriction are export credits and credit guarantees or insurance of the Export-Import Bank of the United States and the Commodity Credit Corporation. The prohibition of North Korea's access to U.S. Government export credits and export credit guarantees or insurance contained in the Jackson-Vanik amendment can be removed by the President in either of the two ways provided in that amendment for compliance with its requirements (a determination of full compliance, or a waiver) for the restoration of the MFN status (see above: Most- Favored-Nation (MFN) Status). However, although functionally related to it, a country's (North Korea's) access to U.S. Government financial facilities is not contingent on its having been extended MFN status,[19] nor is it subject to congressional approval or disapproval. The Export-Import Bank of the United States also is specifically prohibited by its own organic law (sec. 2(b)(2), Export-Import Bank Act of 1945; 12 U.S.C. 635(b)(2)) from engaging in any type of credit transaction (credit, credit guarantee or insurance) for the benefit of any "Marxist-Leninist" country, among them North Korea, unless the President determines either (1) that the country has ceased to be a Marxist-Leninist country, or (2) that such transactions are in the national interest. A separate determination of national interest is needed for any Eximbank loan of $50 million or more. North Korea is also barred by sec. 620A of the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2371) from participation in the Eximbank's facilities as a country determined to have provided support to acts of international terrorism, but the restriction is waivable (see below: Bilateral Economic Assistance). North Korea's access to Eximbank's credit facilities would, consequently, be subject to compliance with, or waiver of, the requirements of the (1) Jackson-Vanik amendment, (2) Marxist- Leninist provision, and (3) counter-terrorist provision, none of which would, however, need to involve congressional action. 19. As a past example: a Jackson-Vanik waiver was issued on December 29, 1990 (E.O. 12740, 56 F.R. 355) for the then still existing Soviet Union, to a substantial extent in order to allow it access to U.S. export credit facilities, but MFN status was not extended to any part of the by then (in December 1991) dissolved Soviet Union until June 1992. --------- page CRS-31 Private Foreign Investment American private investment in North Korea falls under the embargo on all transactions with North Korea. Were the embargo to be lifted, such investment would still be adversely affected by three provisions involving the investors' ability to use the facilities of the Overseas Private Investment Corporation (OPIC), a U.S. Government agency insuring or guaranteeing American private investments in developing countries. One is the prohibition, contained in the Jackson-Vanik amendment, of investment guarantees for investments in nonmarket economy countries that do not comply with the requirements of that amendment (see above the implications of the Jackson-Vanik amendment for Eximbank operations); the other two consist of restrictions placed on OPIC operations by virtue of OPIC legislation being part of foreign assistance legislation (see below p. 33-34) in (a) Communist countries and (b) countries determined under sec. 6(j) of the Export Administration Act of 1979 as providing support to acts of international terrorism (see above p. 27). The terrorist country determination also plays a role in two provisions of the U.S. income tax law, functionally related to American private foreign investment, which create certain disadvantages for incomes originating directly or indirectly in such countries. Section 901(j) of the Internal Revenue Code (26 U.S.C. 901(j)) disallows any credit to U.S. taxpayers for taxes paid or accrued to such countries (as well as those with which the United States does not have diplomatic relations) on income, war profits, or excess profits. Moreover, under section 952(a)(5) of the Code (26 U.S.C. 952(a)(5)), income of any controlled foreign corporation (CFC) (a foreign corporation in which U.S. shareholders own 50 percent of the voting power of all voting stock, or 50 percent of total stock value) derived from a country while it is on the terrorist support list is considered "Subpart F income." While U.S. income taxes on foreign-source income of U.S. shareholders of foreign corporations generally may be deferred until the income is actually distributed, "Subpart F income" to a shareholder is taxable when earned by a CFC, whether distributed or not. --------- page CRS-32 EXPANDED ECONOMIC ASSISTANCE AND SUPPORT FOR NORTH KOREA: WHAT STEPS COULD THE UNITED STATES TAKE?* * Prepared by Larry Q. Nowels, Specialist in Foreign Affairs, Foreign Affairs and National Defense Division. With the end of economic support from the Soviet Union and the continuation of systemic problems associated with a highly centrally planned economy, economic conditions in North Korea have declined dramatically in recent years. The North Korean economy contracted by a reported 20 percent between 1989 and 1993, with output declining by an estimated 10-15 percent in 1992 alone. The country suffers from chronic food shortages that have led to short-term austerity measures but no long-term solutions to the food security problem. If the recently signed nuclear agreement proceeds successfully and North Korea becomes a less isolated nation, it might be expected that Pyongyang will seek external economic assistance from bilateral aid donors like the United States, and membership in the International Monetary Fund (IMF), the World Bank. and the Asian Development Bank. The United States has never extended any type of foreign assistance to North Korea and numerous legislative restrictions stand in the way of future consideration of economic aid initiatives. These same legal impediments would also block the use of foreign aid resources to finance the procurement of heavy oil for North Korea that the U.S. pledged as part of the nuclear agreement between the two countries. Restrictions also exist governing U.S. actions in the international financial institutions that would impede North Korean membership and access to the facilities of these multilateral organizations. Bilateral Economic Assistance[18] 18. Bilateral economic assistance primarily involves programs administered by the U.S. Agency for International Development, but may also include aid activities including those of the Overseas Private Investment Corporation, the Trade and Development Agency, the Peace Corps, the State Department's narcotics control program, and others depending on the scope of the legislative restrictions noted below. Although several restrictions stand in the way of the initiation of a regular U.S. bilateral foreign aid program, the most explicit prohibition -- and one that does not include a direct Presidential waiver authority -- appears as section 507 of the Foreign Operations Appropriations Act, FY 1995 (P.L. 103-306). Section 507 prohibits any assistance provided under the Act for direct (bilateral) aid to a list of countries, including North Korea. Though Congress has included a list --------- page CRS-33 of prohibited countries in annual foreign aid appropriation measures dating back to 1974, North Korea was added for the first time in the FY 1995 act.[19] 19. North Korea was added to the ineligible country list during the House-Senate Conference Committee on the Foreign Operations appropriation bill in early August 1994. The House-passed measure contained no references to the DPRK while the Senate version of H.R. 4426 included an amendment banning funds in that or any other act for North Korea unless the President certified that the DPRK did not possess nuclear weapons, had halted its nuclear program, and had not exported weapons-grade plutonium. Sponsors of the Senate amendment expressed concern over what they regarded as a series of concessions made by U.S. negotiators during talks with North Korea over the past 18 months. They saw foreign aid as an additional "carrot" that American officials might use in subsequent discussions, and wanted to ensure that U.S. assistance would not be offered unless the DPRK took significant steps to terminate its nuclear program. Conferees deleted the Senate amendment, which would have blocked the use of any U.S. funds for assisting North Korea, but added the DPRK to the section 607 list of countries prohibited from receiving Foreign Operations funds. If the Administration wanted to use foreign aid funds for North Korea, it would have to pursue one of two routes: convince Congress to drop North Korea from this list in next year's Foreign Operations Appropriations bill, something that would not lift the ban on using FY 1995 funds for financing the oil or launching other programs; or the President could utilize his special and most expansive foreign policy waiver authority, found in section 614(a) of the Foreign Assistance Act of 1961, to lift the immediate prohibition of section 507. Section 614(a) allows the President to provide assistance (up to $50 million annually per country) to a nation otherwise prohibited by determining that to do so is important to the security interests of the United States, and notifies Congress in writing. Because of the far- reaching nature of the section 614(a) authority, the President is required to consult with, and provide a written policy justification to the House Foreign Affairs Committee, the Senate Foreign Relations Committee, and the House and Senate Foreign Operations Appropriations Subcommittees. In practice, past Presidents have used the authority sparingly and with close consultation with Congress. While the removal of North Korea from the list of section 507 countries would eliminate the most direct aid prohibition, several other foreign assistance laws ban or potentially block assistance to North Korea. Each, however, contains a waiver authority that the President would presumably exercise if he chose to use the section 614(a) waiver. Provisions applying to North Korea include: * Communist country prohibition -- section 620(f) of the Foreign Assistance Act of 1961 (FAAct, 61) prohibits U.S. aid to Communist countries. North Korea is on the list of Communist countries included in section 620(f). The President may exempt a country from this --------- page CRS-34 this restriction if he determines and reports to Congress that to do so would be important to the national interest of the United States. * terrorist country prohibition -- section 620A of the FAAct, 61, bans assistance under that Act, food aid under P.L. 480, Peace Corps assistance, or Export- Import Bank credit facilities for countries that the Secretary of State has determined to have repeatedly supported acts of international terrorism. The Secretary designated North Korea as a terrorist country on January 20, 1988.[20] The President can waive this prohibition after consulting with Congress and determining that national security interests or humanitarian reasons warrant the resumption of assistance. The President may also remove a country from the list of terrorist nations, if he certifies to Congress that either, (1) there has been a fundamental change in leadership and government policies, the government is no longer supporting acts of terrorism and it has provided assurances that it will not to do so in the future, or (2) 45 days in advance of removing the terrorist designation, the government has not supported acts of terrorism for the past six months and has provided assurance that it will not do so in the future. Congress has included a similar prohibition and waiver authority annually since FY 1988 in the Foreign Operations Appropriations Act (at present section 529 of the FY 1995 appropriation, P.L. 103-306). 20. The Secretary designated North Korea as a terrorist country under the authority of section 6(j) of the Export Administration Act of 1979, and not under the authority of section 620A. * non-nuclear weapon state prohibition -- section 530(b) of the Foreign Relations Authorization Act, FY 1994-95 (P.L. 103-236), prohibits any assistance under the FAAct, 61, to any non-nuclear weapon state that the President has found to have "terminated, abrogated, or materially violated" an International Atomic Energy Agency (IAEA) safeguards agreement or violated a bilateral U.S. nuclear cooperation agreement. The IAEA has found North Korea to have violated its safeguards agreement. The President may waive this prohibition if he reports to Congress in advance that the prohibition of aid would be "seriously prejudicial" to the achievement of U.S. nonproliferation goals or would "jeopardize the common defense and security." One additional restriction concerning human rights violations might also potentially apply, although no determination has been made. Sections 116 (development aid) and 502B (security aid) for the FAAct, 61, ban assistance to the governments of countries that consistently violate the human rights of its people. --------- page CRS-35 Despite these broad restrictions limiting possible U.S. economic assistance to North Korea, a few programs administered by the Agency for International Development (USAID) are exempt from any legislative prohibitions. Presumably, the President could extend these activities -- for child survival programs and for research on and treatment and control of AIDS to the DPRK without issuing any waivers. USAID can also provide foreign disaster relief in any country regardless of aid prohibitions that would otherwise prohibit U.S. assistance. Food Assistance The Agricultural Trade Development and Assistance Act of 1954 ("PL 480") (P.L. 83-480) authorizes the transfer, on both a grant and credit basis, of U.S. agricultural commodities to developing and least developed countries facing foreign exchange shortages, difficulties in purchasing food needs through commercial channels, food deficits and high levels of malnutrition, and emergency food requirements. So long as North Korea meets these requirements, presumably, it could be declared eligible for U.S. food assistance. (As noted above, however, the President would first have to waive section 620A of the FAAct, 61, or remove North Korea from the list of terrorist states.) Regardless of these general eligibility requirements, emergency food aid under title II of PL 480 may be extended notwithstanding any other limitation or prohibition. Congress repealed in 1990 a general exclusion for Communist countries which the President would have had to waive for the DPRK if it were still in force. Multilateral Economic Assistance North Korea is not a member of the International Monetary Fund (IMF), the World Bank or the Asian Development Bank, so that existing restrictions on U.S. contributions to these institutions and lending to countries like North Korea would not apply at the present time. Should the DPRK seek membership in the future, the United States could take steps to facilitate North Korean admittance or to oppose it.[21] Once a member, however, several legislative restrictions, unless waived, would require U.S. executive directors to these institutions to oppose loans for the DPRK: 21. To become a member of these institutions, country applications must be approved by a majority vote of the Boards of Governors. Generally, eligibility is based on the country's willingness to meet economic standards that apply to all members. The IMF, for example, requires that members avoid restrictive foreign exchange practices and all institutions insist on receipt of information concerning internal economic affairs of their members. The United States would have a voice in the decision-making process, but could not unilaterally veto North Korea's application. --------- page CRS-36 * selected countries prohibited from indirect assistance --beginning with the FY 1992 Foreign Operations Appropriations, Congress annually has included North Korea in a list of countries that are ineligible from receiving assistance "indirectly"--that is, through multilateral organizations--from the United States. The President may waive this restriction, as he has done annually, if he certifies that it is in the U.S. national interest. (The current prohibition is in section 523 of the Foreign Operations Appropriations, FY 1995.) * Communist dictatorships -- section 43 of the Bretton Woods Agreements Act (22 U.S.C. 286aa) -- commonly referred to AR the "Gramm Amendment"-- requires the Secretary of the Treasury to instruct the U.S. Executive Director of the IMF to "actively oppose" the use of any IMF credit facility by a "Communist dictatorship" (not further defined, but presumably including North Korea) unless the Secretary of the Treasury, upon request, at least 21 days before the IMF vote on approving such use, certifies that the loan meets a series of economic criteria. * terrorist nations -- section 628 of the FY 1995 Foreign Operations Appropriations requires the Secretary of the Treasury to instruct each U.S. Executive Director to international financial institutions (IFIs) to oppose any loan to a country that the Secretary of State has designated (under section 6(j) of the Export Administration Act of 1979) as a terrorist state. As noted above, the Secretary determined on January 20, 1988 that North Korea repeatedly supported international acts of terrorism. * non-nuclear weapon state - section 823 of the Foreign Relations Authorization Act, FY 1994-95, requires the Secretary of the Treasury to instruct U.S. IFI Executive Directors to oppose use of the institutions' funds "to promote the acquisition of unsafeguarded special nuclear material or the development, stockpiling, or use of nuclear explosive device by any non-nuclear weapon state." As with restrictions concerning bilateral assistance, requirements to oppose IFI loans based on human rights conditions might also apply if a determination applicable to North Korea was made (section 7001 of the International Financial Institutions Act). Present U.S. law also affects potentially U.S. contributions to international organizations, such as the UN Development Program, that assist North Korea. Section 516 of the Foreign Operations Appropriations Act, 1995, states that, at the discretion of the President, the United States may withhold a share of its voluntary contribution to various UN and other international organizations in proportion to the amount of aid such organizations might have provided to Communist countries listed under section 620(f) of the Foreign Assistance Act of 1961. --------- page CRS-37 NUCLEAR COOPERATION AND NONPROLIFERATION* * Prepared by Zachary S. Davis, Analyst in International Nuclear Policy, Environment and Natural Resources Division. On August 12, 1994, the United States and North Korea announced an agreement in principle to exchange North Korea's current nuclear program for new reactors that would be less suited for making nuclear weapons. The State Department proposal would assist North Korea in acquiring two light water reactors (LWRs) in exchange for a "freeze" on its current nuclear program. The "freeze" would require an end to construction at the Yongbyon reprocessing facility and at two reactors that are nearing completion, and their eventual dismantlement. An international consortium - the Korea Energy Development Organization - would facilitate the transfer of replacement reactors. The delivery of the reactors is to take place over a ten-year period if North Korea complies with its obligations under the Non-Proliferation Treaty (NPT) and its safeguards agreement with the International Atomic Energy Agency (IAEA).[22] Negotiations during September and October produced a framework agreement which was announced by President Clinton on October 18 and signed by the United States and North Korea on October 21.[23] 22. South Korea and the United States have agreed that South Korea should build the reactors. Seoul has agreed to pay about 60-75 percent of the estimated cost of around $4 billion, with Japan and perhaps other countries contributing the rest of the money. The deal would also provide "interim energy alternatives" to North Korea until the new reactors begin operation. North Korea at one point rejected this offer, apparently because it would rather have Russian or German reactors as well as $2 billion in compensation. "Agreed Statement of August 12th, 1994"; State Department Briefing, September 21, 1994; R. Jeffrey Smith, "Demands by North Korea Puzzle U.S. Negotiators," Washington Post, September 23, 1994, A32. 23. Statement by President Bill Clinton Regarding U.S.-North Korea Framework Agreement, The White House, October 18, 1994; Special Briefing on U.S.-North Korean Relations, Robert Gallucci, Assistant Secretary of State for Politico- Military Affairs and Ambassador at Large, The White House, October 18, 1994. This section focuses on the parameters that would permit U.S. nuclear cooperation with North Korea, including participation in the proposed reactor transfer. Some questions remain about the precise nature and timing of the U.S. role in the reactor transfer. The requirements for direct U.S. nuclear cooperation may not apply for the near term, but could be relevant at a later stage in the reactor construction project if the U.S., U.S. companies, or U.S. allies are to make material contributions to North Korea's nuclear program.[24] Other restrictions could apply depending on the terms of the transfer. 24. The issue of U.S. allies could be relevant in connection with the retransfer of U.S.-origin technology to North Korea. --------- page CRS-38 Statutory Requirements for Nuclear Cooperation Two laws govern direct nuclear cooperation between the U.S. and a foreign country: the Atomic Energy Act of 1954 (P.L. 83-703) and the Nuclear Nonproliferation Act of 1978 (P.L. 95-242).[25] These laws establish criteria that must be satisfied as a condition for nuclear cooperation. 25. The Nuclear Nonproliferation Act of 1978 tightened the restrictions on nuclear exports in the Atomic Energy Act of 1954. Foremost among the criteria is the requirement that a bilateral agreement for nuclear cooperation be in force between the U.S. and a foreign government.[26] There is no cooperation agreement between the United States and North Korea, so direct nuclear transfers would not be permitted until such an agreement was in effect. State Department officials have indicated that negotiations on a U.S.-North Korea bilateral nuclear agreement are expected to commence in the near future. Agreements for nuclear cooperation must be submitted for consideration by Congress.[27] 26. Agreements for cooperation are negotiated by the State Department, then reviewed by the Department of Energy, the Nuclear Regulatory Commission, the Arms Control and Disarmament Agency and the President before being sent to Congress. 27. Under Section 123 of the AEA, the President must submit agreements for cooperation, accompanied by a Nuclear Proliferation Assessment Statement prepared by the Arms Control and Disarmament Agency, to the Senate Foreign Relations Committee and the House Foreign Affairs Committee. For most agreements, Congress has thirty days of continuous session to consider the agreement; it can either adopt a resolution of disapproval or consent to the agreement by taking no action. Other criteria in the Atomic Energy Act (AEA), as amended by the (NNPA) could restrict U.S. nuclear exports to North Korea. Section 123(a)(2) of the AEA (42 U.S.C. 2153(a)(2)) requires that "IAEA safeguards be maintained with respect to all nuclear materials in all peaceful nuclear activities within the territory" of any non-nuclear weapon state as a condition for U.S. supply of nuclear technology. The unresolved issue of North Korea's plutonium inventory could present a problem for meeting this requirement. The President may exempt a proposed agreement from the requirements of section 123 "if he determines that inclusion of any such requirement would be seriously prejudicial to the achievement of United States non-proliferation objectives or otherwise jeopardize the common defense and security." --------- page CRS-39 Export licensing requirements for nuclear technology are contained in Sections 126, 127, and 128 of the AEA, as amended by the NNPA (42 U.S.C. 2165, 2156 and 2157). The Nuclear Regulatory Commission (NRC) issues such licenses after consultations with the Departments of State, Energy, Defense, Commerce, and the Arms Control and Disarmament Agency. The criteria in sections 126, 127, and 128 include: IAEA safeguards on the export; no use of the export for nuclear weapons; adequate physical security; no retransfer without prior U.S. consent; and no reprocessing of U.S.-origin materials without prior consent. Like section 123 discussed above, section 128 requires full-scope safeguards on all nuclear activities in any non-nuclear weapons state as a condition of export. The President can waive the criteria and authorize an export license that does not satisfy sections 126, 127, and 128, provided that the license is submitted to Congress and Congress does not adopt a concurrent resolution of disapproval (AEA, section 128(b)(1)). If a nuclear cooperation agreement between the United States and North Korea enters into force, the AEA, as amended, conditions cooperation on compliance with the terms of the agreement. Section 129 on "Conduct Resulting in Termination of Nuclear Exports" (42 U.S.C. 2158) states: "No nuclear materials and equipment or sensitive nuclear technology shall be exported to (1) any non-nuclear weapon state that is found by the President to have, at any time after the effective date of this section: (A) detonated a nuclear explosive device; or (B) terminated or abrogated IAEA safeguards; or (C) materially violated an IAEA safeguards agreement; or (D) engaged in activities involving source or special nuclear material and having direct significance for the manufacture or acquisition of nuclear explosive devices, and has failed to take steps which, in the President's judgement, represent sufficient progress toward terminating such activities." Points B, C, and D could be relevant in the case of North Korea, depending on the nature of the cooperation.[28] 28. The President can waive the restrictions. --------- page CRS-40 Dual-Use Technology Section 309(c) of the NNPA directs the Department of Commerce to control exports of dual-use equipment that could have nuclear applications. Under the authority of the Export Administration Act of 1979, as amended, the Bureau of Export Administration maintains a Commodity Control List (CCL) as well as a list of controlled countries. The items on the CCL that are subject to nuclear nonproliferation control are known as the Nuclear Referral List.[29] North Korea is a controlled country with respect to nuclear technology. Thus, North Korea's status as a controlled country could bar the United States from contributing controlled items to a reactor project in North Korea unless North Korea were removed from the controlled country list, and/or the Commerce Department issued licenses for export of dual-use items to North Korea. However, it may be possible for the United States to provide uncontrolled items such as safety equipment for the storage of spent fuel rods or non-nuclear power generating equipment if such assistance is not barred by other laws. 29. The Export Administration Act expired in June 1994 after the 103rd Congress failed to pass new export control legislation. Authority for maintaining export controls is provided by the International Emergency Economic Powers Act (P.L. 95-223.) (see also above: Control of U.S. Exports.) Nuclear-Related Assistance Several other laws could also could restrict U.S. nuclear-related cooperation with North Korea. These mainly affect the non-nuclear aspects of the agreement. In addition to the prohibitions cited above in the Foreign Operations Appropriation FY 1995 and the Foreign Assistance Act of 1961, the Foreign Relations Authorization Act for FY 1994-95, section 530, prohibits U.S. assistance under the 1961 foreign aid act to any non-nuclear state found by the President to have terminated, abrogated, or materially violated an IAEA safeguards agreement. The IAEA has found North Korea to have violated its safeguards agreement. This restriction, as well as others, could especially narrow U.S. options to provide alternative energy supplies such as oil and/or compensation to North Korea for stopping its current nuclear program. Financial Aspects of Nuclear Cooperation Financing for the reactor construction project is to be arranged through an international consortium. Although it is not clear how or if the United States might contribute materially to the proposed multilateral consortium, U.S. law could restrict certain types of contributions. Most importantly, Congress would have to authorize and appropriate funds for any U.S. financial contribution. Moreover, as mentioned above, several legal impediments stand in the way of utilizing foreign assistance funds for these purposes, although the President maintains waiver authorities. --------- page CRS-41 Regarding international funding, the Foreign Relations Authorization Act for FY 94-95, section 823, amended the International Financial Institutions Act (22 U.S.C. 262d(a)) to direct the Secretary of the Treasury to instruct U.S. representatives to international financial institutions to oppose the use of the institution's funds to promote the acquisition of unsafeguarded special nuclear material or the development, stockpiling, or use of any nuclear explosive device by any non- nuclear weapon state. Ongoing problems with undeclared, and therefore unsafeguarded, nuclear materials in North Korea could trigger this restriction with respect to financial institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank. Also, North Korea is not a member of these institutions.