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Hopes wither for resumption of North Korea nuclear talks

BEIJING—As U.S. financial sanctions bite hard into North Korea, prospects have faded sharply for a diplomatic resolution to the peninsula's nuclear crisis.

Diplomatic talks hosted by China broke up about six months ago for a short "recess." The negotiations, among envoys of six countries, never got going again.

The impasse is partly the fallout from U.S. financial sanctions to combat North Korea's alleged efforts to counterfeit American currency and proliferate weapons. The latest U.S. sanctions came last week, against a Swiss company with links to Pyongyang.

While the impact is largely sketchy, the sanctions against North Korea appear to have teeth. South Korean news media report a steady rise in the black-market value of dollars in the North. North Korea, meanwhile, howls at the sanctions, vowing never to return to the talks in Beijing until they're lifted.

"The outlook for six-party talks is really quite grim," said Peter M. Beck, a Seoul-based expert for the International Crisis Group, which pushes for conflict resolution.

The success of the U.S. measures has emboldened Bush administration hard-liners who think North Korea will never honor its pledge, signed last September after two years of diplomatic wrangling, to eliminate its nuclear-weapons programs in exchange for security guarantees and financial aid.

On Capitol Hill, Treasury Undersecretary Stuart Levey asserted Tuesday that banks around the world are slamming the door on North Korea.

"Our combined actions have been described as causing, quote, `a ripple effect around the world,' constricting the flow of dirty cash into Kim Jong Il's regime," Levey told the Senate Banking Committee.

When the Bush administration first announced its financial sanctions last September, just days before the diplomatic breakthrough, they barely caused a ripple.

Those sanctions targeted a bank in Macau, Banco Delta Asia, as a prime money-laundering concern, disrupting North Korea's commercial activities, as well as eight North Korean commercial entities.

"North Korea didn't pay much attention to it. It didn't realize the problem could be so serious," said Li Dunqiu, a Korean peninsula expert at the Institute of World Development, a research center under China's government body, the State Council. The sanctions had a significant impact on North Korea's trade, although "not a deadly blow," he said.

Washington has since warned other banks that they, too, could become targets, constraining North Korea's efforts even to buy food and fuel abroad.

"These measures make all other banks cautious about having any business with North Korea," said an Asian diplomat who spoke on condition of anonymity. "North Korea finds it hard to open a euro account or transact any commerce."

As the clock ticks and Washington becomes consumed with the nuclear crisis in Iran, Pyongyang is using the sanctions as a reason to stay away from talks.

"North Korea probably sees no merit in coming back to the six-party talks," said the diplomat, who's deeply involved in the negotiations.

Meanwhile, Vice President Dick Cheney and Secretary of Defense Donald H. Rumsfeld have severely restricted U.S. chief negotiator Christopher Hill's freedom to negotiate, arms control experts and officials in Washington said, speaking on condition of anonymity. Hill declined to comment.

The peril for Washington in allowing the diplomatic track to wither, said Daniel Pinkston, the head of the East Asia program at the Center for Nonproliferation Studies in Monterey, Calif., is that North Korea's nuclear arsenal becomes an "endowed" fact.

"The longer this drags on, then people get used to the fact that they have nuclear weapons," Pinkston said, noting that the thinking may become: "They had them last year. They had them five years ago. They didn't use them. It's stable."

Washington's aggressive stance on North Korea has unnerved South Korea. The nation's largest newspaper, Chosun Ilbo, reported this week that Seoul is urgently studying whether the Bush administration may use the USA Patriot Act to designate North Korea as a "primary money-laundering concern," giving it pariah status. The move could leave vulnerable 15 South Korean corporations that are investing in the joint Kaesong industrial complex with North Korea as part of thriving inter-Koreas trade.

Washington and Seoul differ markedly over strategy. Washington is just as determined to pursue sanctions against Pyongyang as Seoul is to offer investment in North Korea.

Washington is scouring for new sanctions targets. On March 30, the Treasury moved against the Swiss firm Kohas AG, and its president, Jakob Steiger, saying the firm acted as a technology broker in Europe for North Korea's military, and was partly owned by a subsidiary of a targeted North Korean company.

Envoys from the United States, North and South Korea, China, Russia and Japan are to meet in Tokyo next week for an unofficial private-sector conference, the first head-to-head encounter since talks stalled in Beijing in November. While the meeting tempers pessimism, few experts can predict when formal six-party talks might get back on track.

"It's hard to say right now how we move beyond the deadlock," said Beck, the International Crisis Group expert.

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(c) 2006, Knight Ridder/Tribune Information Services.

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