The Beijing Deal Is Not the Agreed Framework

Abstract

IntroductionThe latest round of the Six Party Talks resulted in a joint statement to implement a phase of "Initial Actions" including:* The DPRK will freeze plutonium production and processing at Yongbyon and will let IAEA inspectors back into the country to monitor and verify this freeze* Five working groups will be set up on U.S.-DPRK relations, U.S.-Japan relations, energy and economic aid, Armistice and security issues, and denuclearization of the Korean Peninsula* Provision of 50,000 tons of heavy fuel oil equivalent of emergency energy assistance to the DPRK within 60 days.The six parties also agreed to undertake the "next phase," defined as: "provision by the DPRK of a complete declaration of all nuclear programs and disablement of all existing nuclear facilities, including graphite-moderated reactors and reprocessing plant-economic, energy and humanitarian assistance up to the equivalent of 1 million tons of heavy fuel oil (HFO), including the initial shipment equivalent to 50,000 tons of HFO, will be provided to the DPRK."U.S. Cave-in?The Beijing Deal has been attacked already as a sell-out and reminiscent of the 1994 U.S.-DPRK Agreed Framework under which the DPRK froze its nuclear fuel cycle and got two light reactors and half a million tons of heavy fuel oil per year until the reactors were complete. The old Agreed Framework collapsed in 2002 when the United States accused the DPRK of pursuing uranium enrichment outside of the Agreed Framework. The ultra-hard line critics have got it wrong, again.The Agreed Framework provided two reactors at a cost of about $4 billion to the DPRK on a 2 percent per year confessional financing basis. In present value for the capital and operating costs, and assuming the power would have been exported to South Korea on a commercial basis (the North Korean grid being incapable of operating these reactors), the total "annualized" cost the reactors would have been about $300 million per year for the DPRK.The export earnings from the ROK would have been about $700 million per year from the two DPRK reactors exporting power to the ROK grid. The DPRK would thereby have earned about $368 million per year in profit. To this, we add an additional $150 million per year for ∂ a million tons of heavy fuel oil that would have gone to the DPRK each year until the reactors were complete under the old deal.The total net present value that the DPRK stood to gain in the Agreed Framework was about $4.6 billion (this would have been spread over 30 years from the time the reactors began operating). The economics were important in the Agreed Framework, although it foundered primarily on the failure of both parties to implement their commitments to normalize political and security relations.What do they get in the Beijing Deal? A measly 50,000 tons of heavy fuel oil in the next 60 days, provided they freeze their plutonium facilities and the talks in the working groups go well over this time frame. When they have fully "disabled" their fuel cycle, they get another 950,000 tons of heavy fuel oil (or equivalent value from other energy assistance). At the earliest, this would be in two years. The present value of this fuel is about $257 million or about 6 percent of the $4.6 billion value of the old deal that they gave up when they opted for nuclear weapons. And, they get none of it until phase 2 is completed, and phase 3 of actual disarmament defined and presumably well underway.And the 50,000 tons to be sent in the first 60 days given by the United States and other parties as a good faith down-payment is worth? ... a tiny $15 million versus the $4.6 billion that they gave up when the opted for nuclear weapons. It is purely symbolic and is the price to be paid to get Pyongyang to continue to talk about phase 2 and 3; and if they don't talk turkey in the working groups, even that is likely to evaporate.What does all this tell us? …