International Business: THE KOREAS
A SHORT HALF-LIFE FOR A NUCLEAR AGREEMENT?
When the U.S. reached an accord with North Korea last October to ease the threat of Pyongyang's nuclear weapons program, it seemed like a deal too good to be true. The South Koreans would build two light-water reactors in the North based on their own version of technology originally licensed from ABB Combustion Engineering. The burden of $4 billion in financing would be carried by Seoul and partly by Japan, leaving the U.S. with few costs but a key leadership role. And in return, the North froze its weapons program.
Now all that is at risk. The U.S. began a crucial round of negotiations with Pyongyang diplomats Apr. 12 in Berlin. The North has imposed an Apr. 21 deadline for signing a final agreement. The sticking point is this: Seoul is insisting that the North accept wording calling for "South Korean-type reactors." But the North, eager to avoid acknowledging the South's technological superiority, refuses to let it take the lead in building the plants.
Seoul says it is prepared to walk away from the deal unless it gets its way. Foreign Minister Gong Ro-Myung is threatening to pull out of the Korean Energy Development Organization, a consortium set up to manage the proposed plants. "We won't compromise, and there's no alternative to South Korean reactors," Gong said on Apr. 11.
The collapse of the nuclear plan could spark a crisis unless the Clinton Administration can come up with an alternate solution. Washington is quietly exploring the possibility of allowing Westinghouse Electric Corp. to step into any breach, South Korean sources tell BUSINESS WEEK. The Pittsburgh-based company is eager to revive its flagging nuclear division with a first sale of its new $900 million AP-600 light-water reactor. Developed at a cost of $350 million, it's billed as cheaper, safer, and simpler than current models.
Westinghouse hopes to sell dozens of the new reactors in Asia. But the hardest one to sell is the first. That's why the company may be willing to take an equity position in a first one in North Korea, according to South Korea's largest newspaper, Chosun Ilbo.
The State Dept. denies it is considering a lead role for Westinghouse, and the company also denies it is angling for a North Korean deal. "Westinghouse is not involved in discussions or negotiations among the U.S. government, the Republic of Korea, and the North Korean government regarding the supply of a light-water reactor to North Korea," the company said. Sources at Westinghouse say their competitors in South Korea stand to benefit from the publicity embroiling the company.
SHALLOW POCKETS. There could be lots of problems even if Westinghouse does step in. One is the Republican Congress, which has opposed help for North Korea's Communist regime. Additional financing could be a problem because no U.S. government guarantees would be available and North Korea is broke and can't afford to help pay. Seoul almost certainly would not help provide financing because the deal would be perceived as a breakthrough for Pyongyang. It has long been the North's goal to deal directly with the U.S., cutting Seoul out of the dialogue. So there could be new tensions between Washington and President Kim Young Sam.
Westinghouse also could find its relations strained with the government-owned utility Korea Electric Power Corp. The U.S. company is currently working on a nonnuclear power project in Inchon with KEPCO, which was to have been the primary contractor for the North Korean nuclear plants.
And there almost certainly would be a battle in Washington. A Westinghouse deal would be "dead on arrival" if it goes to Congress, says Douglas Paal, president of the Asia Pacific Policy Center. One possible way around U.S. technology restrictions would be to enter a joint venture with a Japanese partner, such as Mitsubishi Heavy Industries Ltd. Even that, however, would require approvals from the U.S. State, Energy, and Commerce Depts., the company says.
So the Clinton Administration could find that none of its options work. It has staked a great deal of prestige on defusing the North Korean nuclear threat, in the face of Republican criticism. But Pyongyang and Seoul could make it impossible for Washington to broker a deal. If the Berlin talks fail, some diplomats expect North Korea to restart its nuclear reactor and resume generating weapons-grade material. That would make last October's breakthrough seem like a distant memory indeed.By Laxmi Nakarmi in Seoul, Stephen Baker in Pittsburgh, and Amy Borrus in Washington