North Korea nuclear talks founder on banking hitch (2nd Roundup)

Mar 22, 2007, 14:27 GMT

Beijing - North Korea has criticized an imminent major annual military drill of US and South Korean forces as a 'dangerous provocation,' reports said Thursday.

The drill was 'casting a shadow over the implementation of an agreement adopted with much effort at the six-party talks on February 13 and the progress of the talks,' a Foreign Ministry statement from Pyongyang is quoted as saying, referring to negotiations to end North Korea's nuclear weapons programme.

'Dialogue and sabre-rattling cannot go together,' the official KCNA news agency quoted a ministry spokesman as saying.

The criticism came as six-party negotiations on ending North Korea's nuclear weapons programme were suspended on Thursday, after diplomats had spent three days waiting in vain for the transfer of frozen North Korean funds from a Macau bank.

The one-week drill is scheduled to begin in South Korea on Sunday. Some 29,000 US soldiers are due to take part, with 6,000 of them being flown in form other countries, military sources said.

The US aircraft carrier Ronald Reagon would also be part of the drill, reports said. North Korea had repeatedly condemned the annual drill as a threat in the past.

According to the US, the US-South Korean military drill is for defence purposes only. The US Command, which is stationed in South Korea had informed the North Korean People's Army about the drill in advance, as usual.

On the six-party talks, Chinese Vice Foreign Minister Wu Dawei said a meeting of chief delegates had agreed to suspend the dialogue but resume it 'at the earliest opportunity.'

'The parties reaffirmed that they will faithfully carry out their commitments in the joint statement of 19 September 2005 and the (agreement on) initial actions for the implementation of the joint statement,' Wu said.

'The parties agreed to recess and will resume the talks at the earliest opportunity to continue to discuss and formulate an action plan for the next phase,' he said.

Ministry spokesman Liu Jianchao said earlier that all sides were making 'constructive and active efforts' to resolve the banking problem.

'But the difficulties in resolving this issue have exceeded our expectations,' Liu told reporters.

'We still need some time to consult with the relevant parties,' he said.

The problems over the transfer of 25 million dollars from the Macao-based Banco Delta Asia to a Bank of China account in Beijing meant that the talks had made no progress since Monday.

A one-day extension on Thursday failed to produce any breakthrough, and North Korean chief nuclear negotiator Kim Kye Gwan was seen at Beijing's Capital Airport early Thursday afternoon, South Korea's Yonhap news agency reported.

Uncertainty surrounded the planned bank transfer after Bank Of China officials said such a transfer would normally be completed in one to two working days, irrespective of the amount involved.

Yonhap quoted unnamed sources as saying that the main cause of the delay was the Chinese bank's refusal to accept the North Korean funds from the Macau bank accounts.

These accounts had been ruled by the US Treasury last week as being linked to the North's illicit financial activities, such as counterfeiting and money laundering.

China's banking system has recently introduced anti-money laundering regulations similar to those used in Western nations.

Another reason for the delay was that documents needed to be filled out by holders of North Korea's approximately 50 accounts at the Macau bank, Yonhap said.

Liu said the transfer would be 'conducted reasonably and according to the law' but declined to elaborate.

The bank is in the receivership of the Monetary Authority of Macau (AMCM), which said on its website that the disposal of North Korean funds would be 'in accordance with the instructions of the account holders.'

US negotiator Christopher Hill said on Wednesday that North Korea's insistence on moving the funds before resuming talks had brought a 'real opportunity cost' to the six-party process.

But Hill said he believed the six-party process was 'still on track' and that North Korea was committed to a February 13 agreement to dismantle its nuclear programme.

North Korea, the United States, China, South Korea, Japan and Russia already had 'elements of a good plan for the next phase,' Hill said without elaborating.

The six delegations held several bilateral sessions this week and 'listened to reports by the five working groups, and conducted discussions on implementing the initial actions and an action plan for the next phase,' Wu said.

The latest round of talks had begun amid optimism on Monday after diplomats said an agreement had been reached on the release of the North Korean funds, removing a major sticking point in the negotiations. The delegations had been scheduled to discuss steps required by North Korea to meet its obligation to shut down its main nuclear reactor and allow UN inspections within 60 days of the February 13 agreement.

The six nations agreed in February that North Korea would shut down its Yongbyon nuclear reactor in exchange for energy supplies, normalized international relations and the lifting of US economic sanctions.