Wednesday, March 21, 2007

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Who's leveraging who in Northeast Asia?

The Financial Times' Demetri Sevastopulo and Andrew Yeh explain the rather bizarre goings-on over the past three days involving North Korea, the financial sanctions against Banco Delta Asia, and the strange Treasury department statement that, "North Korea has pledged, within the framework of the Six-Party Talks, that these funds will be used solely for the betterment of the North Korean people, including for humanitarian and educational purposes."

What the heck happened? According to Sevastopulo and Yeh:

Condoleezza Rice, US secretary of state, orchestrated a significant shift in US policy towards North Korea by persuading the US Treasury to agree to Pyongyang’s demands to release $25m frozen in a Macao bank since 2005.

Current and former officials say Christopher Hill, the chief US negotiator on North Korea, convinced Ms Rice that the US should sacrifice the issue of the frozen funds to push forward the broader goal of implementing last month’s six-party accord on denuclearising the Korean peninsula.

Several people familiar with the debate said Hank Paulson, Treasury secretary, agreed to overrule officials responsible for terrorism financing, who objected to the move, after Beijing warned that a failure to return the North Korean funds would hurt the Sino-US strategic economic dialogue....

Many experts, and some White House officials, were dismayed when Daniel Glaser, the Treasury deputy assistant secretary for terrorist financing and financial crimes, said in Beijing on Monday that the US and North Korea had agreed on a mechanism to refund all the money. Critics also derided the explanation that Pyongyang had vowed to use the money for humanitarian purposes.

Gordon Flake, a Korea expert who heads the Mansfield Foundation, said the Treasury shift angered even supporters of the broader nuclear disarmament accord. He said Treasury had insisted for 18 months that the move against BDA was a “law enforcement action” that was not linked to the nuclear talks. But he said the statement in Beijing clearly showed there was a political link.

“We have traded away the pressure we had on them,” said Mr Flake.

Full disclosure: I worked with Glaser during my stint at Treasury, and he always exuded competence.

Beyond that, Flake's statement seems internally inconsistent. The financial sanctions cannot be both a strict law-enforcement matter and a source of leverage. It's one or the other. Clearly, it appears that they were leverage.

The sentence in the story that bothers me is China's linkage of this move to the SED. If that's what tipped the scales, then Beijing better be making some concessions in those negotiations that no one knows about.

posted by Dan on 03.21.07 at 11:26 PM


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