FLASHPOINT KOREA – 45 MINS

JONATHAN HOLMES, REPORTER: Nine years ago, under the eye of international inspectors, 8,000 spent nuclear fuel rods were stored in a cooling pond in Yongbyon, North Korea.

Last December, the inspectors were expelled.

US satellites saw the fuel rods being trucked away.

And North Korea now claims they've already been reprocessed into weapons-grade plutonium.

ROBERT GALLUCCI, US ASST SECRETARY OF STATE 1992-94: Over the long term, it could be producing 30, 40 nuclear weapons a year.

That's an incredible rate of production.

Even more serious than that image, which is quite serious enough, is the image of North Korea selling fissile material or nuclear weapons to non-states, to terrorist groups, to al-Qa'ida.

JONATHAN HOLMES: That's precisely the threat George W. Bush claimed he was countering when he went to war against Iraq.

PRESIDENT GEORGE W. BUSH (ARCHIVAL FOOTAGE): Everywhere that freedom arrives, humanity rejoices.

And everywhere that freedom stirs, let tyrants fear.

JONATHAN HOLMES: But, as yet, there's no sign that freedom is stirring in North Korea.

And the tyrant Kim Jong Il will be a tougher nut to crack than Saddam Hussein.

Put simply, America and its allies have three options for dealing with North Korea's nuclear ambitions -- they can bribe it or bomb it or blockade it.

And none of them is good.

Each Anzac Day, they march as proudly as the veterans of the Kokoda Trail or Long Tan.

But names like Kapyong and the Imjin River have never lodged in Australia's folk memory.

The Korean War lasted three years and cost nearly four million lives, including those of 339 Australians.

But the guns fell silent 50 years ago.

The war is hardly remembered at all by young Australians today.

The young Americans of the US Army's Second Infantry Division can't forget -- technically, the war is still not over.

While their colleagues were massing in the Kuwaiti desert, they were training with live rounds on the wintry hills just south of the demilitarised zone that cuts the Korean peninsula in two.

COLONEL SCOTT PATTON, US 2ND INFANTRY DIVISION: We train all year long.

We gotta be ready to fight tonight, whether tonight is in the summertime or the wintertime or any time.

JONATHAN HOLMES: Five kilometres to the north, across the zone, is the army of North Korea -- more than a million men, 8,000 bunkered guns and rocket launchers, chemical and biological munitions, and now there's the threat of nuclear weapons too.

KIM MYONG CHOL, CENTER FOR KOREAN-AMERICAN PEACE, TOKYO: It's quite obvious that North Korea has nuclear capability, but that is not the point.

The point is whether America believes North Korea has a nuclear capability or not.

JONATHAN HOLMES: In the bustling heart of Tokyo lives one of the few men in the outside world who can make any claim to speak for the isolated and enigmatic government of the DPRK -- the Democratic People's Republic of Korea.

Officially, Kim Myong Chol is Executive Director of the Center for Korean-American Peace.

Unofficially, he's regarded as an enthusiastic mouthpiece for the North Korean regime.

KIM MYONG CHOL: As you know, America is a country (that) proclaimed use of pre-emption as a state policy.

America is (the) only superpower and can produce hundreds, thousands of nuclear weapons.

So North Korea must need some strong, powerful, physical, military nuclear deterrent against America.

JONATHAN HOLMES: At a meeting in Beijing six weeks ago, US Assistant Secretary of State Jim Kelly was taken aside by his North Korean counterpart.

North Korea, he was told quietly, already has nuclear weapons and is well on the way to building more.

Meanwhile, they had an official proposal to put.

COLIN POWELL, US SECRETARY OF STATE: They did put forward a plan that would ultimately deal with their nuclear capability and their missile activities, uh, but they, of course, expect something considerable in return.

JONATHAN HOLMES: What the North Koreans expect are security guarantees, followed by diplomatic recognition and economic aid.

And they want the payment up-front.

KIM MYONG CHOL: If North Korea give(s) up (its) nuclear weapons program, America (will) never give us food or money, nothing.

America (must) first show money, cash on the table, not under the counter, on the table, then North Korea may consider, otherwise no.

JONATHAN HOLMES: North Korea's offer was described in Washington as almost absurdly unacceptable.

In fact, the Bush Administration has ruled out any direct bilateral negotiations between the United States and North Korea.

DONALD RUMSFELD, US SECRETARY OF DEFENSE: And the reason for that is because there's no price that we would be willing to pay that they would be willing to accept to stop engaging in what they're doing with respect to the development of nuclear weapons.

We've been through this once with the Agreed Framework and they broke it.

JONATHAN HOLMES: The Agreed Framework was the deal Bill Clinton did to escape from a similar crisis nine years ago -- and in the Bush Administration's view, Bill Clinton was conned.

But the story began long before Clinton came to power.

In the late 1980s, as the Soviet empire began to crumble, American spy satellites passing over North Korea spotted disturbing activity 100 kilometres north of Pyongyang.

There was new construction at the site of the country's only nuclear reactor, in a river bend near the village of Yongbyon.

LEONARD SPECTOR, MONTEREY INSTITUTE CENTER FOR NON-PROLIFERATION STUDIES: The one reactor they had was relatively small, but we saw larger ones under construction which would have allowed them to cook up plutonium in large amounts -- enough for 10 weapons per year, perhaps.

Then you would have to extract that plutonium from the spent fuel rods, and, again, we saw the build-up of this capacity as well, although still under construction.

JONATHAN HOLMES: Suspicion centred on a huge building, 200 metres long, with thick concrete internal walls, which the North Koreans said was a radiochemical laboratory.

The suspicion only became certainty in 1992, when the North Koreans finally agreed to receive a delegation from the International Atomic Energy Agency, headed by none other than Dr Hans Blix.

DR HANS BLIX, DIRECTOR-GENERAL, IAEA, 1981-97 (ARCHIVAL FOOTAGE): First of all, I should say that we are not here on an inspection tour.

We are here to familiarise ourselves with the nuclear program of your country.

JONATHAN HOLMES: They were taken to the vast 200-megawatt reactor under construction at Taechon and the 50-megawatt reactor being built at Yongbyon.

And most important of all, to the so-called radiochemical laboratory close by.

DR HANS BLIX: We certainly knew that it was a reprocessing plant.

They didn't use that terminology, but as soon as I got out of Beijing and we had a big press conference I used the term -- I said, "This is a reprocessing plant."

The North Koreans didn't like that particular comment but that's what it was and that's what I said it was.

JONATHAN HOLMES: The IAEA inspections didn't go well.

The inspectors felt they were being deceived.

The North Koreans were indignant.

Eventually, they gave notice that in three months time they would expel the inspectors and withdraw from the Non-Proliferation Treaty.

ROBERT GALLUCCI, US ASST SECRETARY OF STATE 1992-94: It came to a head right when the Clinton Administration was coming in the office -- right there in January of 1993.

It was the first crisis on the doorstep and they chose to deal with this
by...by negotiation and I think it was the right choice.

JONATHAN HOLMES: Clinton appointed Bob Gallucci as America's chief negotiator.

The immediate crisis was averted, but the talks dragged on without result.

SELIG HARRISON, CENTER FOR INTERNATIONAL POLICY: I think that there's a remarkable similarity between the 1994 nuclear crisis -- it got very dangerous, it almost got into a war -- and the present crisis.

And what's the same is in both cases the US was trying to get North Korea to back down as a precondition for dialogue about normalising relations.

North Korea had to take the first step to show that we're the superpower.

JONATHAN HOLMES: In the 30 years that he's been covering North Korea as newspaperman, academic and unofficial envoy, Selig Harrison has paid seven visits to Pyongyang.

In his book 'Korean Endgame', he says America has to be prepared to match North Korean concessions step by step.

SELIG HARRISON: In their mind, they're entitled to have a nuclear deterrent against a country with 9,000 nuclear weapons.

Therefore, if we want to get them to give them up, we've got to make reciprocal, synchronised, orchestrated agreements, in which both sides are giving something up as you move toward denuclearisation.

The Clinton Administration didn't...wouldn't buy that.

ROBERT GALLUCCI: So we said we were now going to seek sanctions and return the issue to the Security Council.

The North Koreans said that a sanctions resolution from the United Nations would be taken as an act of war.

MADELEINE ALBRIGHT, US AMBASSADOR TO UN 1993-96 (ARCHIVAL FOOTAGE): Let me say that we have obviously reached a new stage here, as far as the situation in the DPRK is concerned.

JONATHAN HOLMES: In the South Korean capital, Seoul, the American Embassy was preparing to evacuate 100,000 US citizens.

The city's 10 million South Korean residents had nowhere to flee.

PROFESSOR LEE JUNG-HOON, YONSEI UNIVERSITY, SEOUL: Well, the atmosphere here in Seoul was very ominous.

We were preparing for a possible war.

People were stocking up propane gases, instant noodles, thinking that perhaps North Korea might invade South Korea because North Koreans were saying things like that they would set the entire Korean peninsula, or South Korea, into a sea of fire.

JONATHAN HOLMES: It was then, and is today, no idle threat.

The South Korean capital lies just 50 kilometres south of the demilitarised zone between North and South.

PARK JIN, NATIONAL ASSEMBLY, SOUTH KOREA: North Korea has a massive array of artilleries and rocket launchers, as well as Scud missiles, near the demilitarised zone.

And if they start to fire all those artilleries and rocket launchers, then the metropolitan Seoul and other key cities will be within the target range of that massive firepower.

So the damage would be enormous.

JONATHAN HOLMES: But then former president Jimmy Carter intervened.

He'd been invited to Pyongyang by North Korea's ageing 'Great Leader' Kim Il Sung.

ROBERT GALLUCCI: There was a very substantial meeting in the cabinet room in Washington, chaired by the President, the Vice-President, the Secretary of Defense and the Secretary of State and National Security Advisor.

And in the middle of that meeting, in the morning, President Carter called the White House, and I spoke with him, and he indicated that there was a deal of sorts that Kim Il Sung would accept if we would return to the table.

JONATHAN HOLMES: Jimmy Carter had persuaded Kim Il Sung to freeze his nuclear program and allow the international inspectors to stay.

(ARCHIVAL NEWS FOOTAGE, 18 JUNE, 1994) REPORTER: Is there going to be a war there?

FORMER PRESIDENT JIMMY CARTER: Not now.

No, not now.

Thank you.

JONATHAN HOLMES: Four months later, in Geneva, Bob Gallucci signed the so-called Agreed Framework on behalf of the United States.

In return for freezing all nuclear construction and reprocessing, North Korea was supposed eventually to receive two expensive light-water reactors like these, paid for largely by South Korea.

Meanwhile, America was to supply half a million tons of fuel oil each year.

It was a deal Bob Gallucci is still proud of.

ROBERT GALLUCCI: Had we not made that deal, that plutonium program would've put out enough material for 100 nuclear weapons by now.

That didn't happen.

JONATHAN HOLMES: But three weeks after the Agreed Framework was signed, Bill Clinton's Republican opponents won majorities in both Houses of Congress for the first time in 50 years.

House Speaker Newt Gingrich thought the deal smacked of appeasement.

Many of his followers agreed with him then, and agree with him now.

In 1994, Congressman Doug Bereuter was a member of two influential House committees -- on international affairs and on intelligence.

He still is.

DOUG BEREUTER, SELECT COMMITTEE ON INTELLIGENCE, US HOUSE OF REPRESENTATIVES: Well, it is a cycle of extortion that we have fallen into.

We have rewarded North Korea for avoiding bad conduct, for stopping their bad conduct, and we simply have to end that cycle of extortion.

ROBERT GALLUCCI: I don't believe you should use morally laden terms like 'blackmail' and 'appeasement' to deal with the threat if you negotiate effectively and you reduce that threat.

JONATHAN HOLMES: From the North Korean point of view, the rewards that were promised weren't delivered.

The founding father of the nation, the self-styled 'Great Leader' Kim Il Sung, died before the Agreed Framework was signed.

His reclusive son Kim Jong Il inherited not a socialist utopia, but a near-bankrupt family despotism.

Ever since the subsidies stopped flowing from the Soviet Union, the centrally planned economy had been sliding towards the rocks -- its factories made nothing the world wanted to buy, its collective farms couldn't feed its people.

Kim Jong Il knew his country desperately needed outside help -- and he signed the Agreed Framework to get it.

SELIG HARRISON: Having shown they wanted to be friends, they thought we would then respond by ending economic sanctions, moving toward a normalisation of relations, moving toward a peace treaty ending the Korean war -- turning the whole thing around.

DONALD GREGG, US AMBASSADOR TO SOUTH KOREA, 1989-93: None of these things were implemented, and Bill Clinton, I think, bears some fault for not having the guts to fight the Republicans on these issues.

JONATHAN HOLMES: In North Korea too, there was hardline opposition to the deal.

The powerful military never liked the freeze on North Korea's nuclear program.

They liked it even less when the hoped-for economic aid did not arrive.

Kim Jong Il was not his all-powerful father.

According to Selig Harrison, he didn't have the clout to fight the generals.

SELIG HARRISON: The generals in North Korea said to Kim Jong Il, "You've been conned by the Americans.

We're not turning around relations with them.

We're not getting a nickel from them.

They want to bring about our collapse and our absorption by South Korea.

" And he was on the defensive -- Kim Jong Il was, I think -- and gave the generals what they wanted, which was this uranium enrichment deal with Pakistan.

JONATHAN HOLMES: Missile technology is one of North Korea's few successful exports.

In the late '90s, Pakistan was a good customer.

US intelligence suspected, but couldn't then confirm, that North Korea was being paid not with money, but with access to Pakistan's hard-won nuclear expertise.

LEONARD SPECTOR: There are two different materials that can be used as the core of a nuclear bomb.

One of them is plutonium -- this was used in the Nagasaki bomb, the second bomb that we used in...against Japan -- and the other is high-enriched uranium, which was the material in the Hiroshima bomb.

So you can use either one.

JONATHAN HOLMES: In the nuclear facility at Yongbyon, plutonium-laden fuel rods were stored harmlessly under the seals and cameras of the IAEA.

But elsewhere in North Korea, with Pakistan's help, scientists were secretly working on the complex centrifuge cascades which produce weapons-grade uranium from crude uranium ore.

For Washington conservatives, the secret program would prove that doing deals with North Korea is a mug's game.

NICK EBERSTADT, AMERICAN ENTERPRISE INSTITUTE: North Korea is insatiable.

North Korea, I submit to you, cannot be appeased, and that is why it is unwise to attempt an appeasement policy there.

That program was going on during the Clinton era.

It was going on during the heyday of the Agreed Framework.

When Madeleine Albright was dancing in Pyongyang, this was all happening.

JONATHAN HOLMES: In November 2000, while the battle over who had won the Presidential election was raging in Florida, Secretary of State Madeleine Albright experienced a Pyongyang welcome.

It was the high tide of American engagement with North Korea.

But Bill Clinton had run out of time.

On January 20, 2001, he handed over to a very different leader.

NICK EBERSTADT: The policy debate has shifted dramatically since the Clinton Administration.

The hardest hardliners from the Clinton era would qualify as the most moderate moderates in the Administration today.

JONATHAN HOLMES: George W. Bush would bring to foreign affairs a fierce moralism quite different from the pragmatism of Bill Clinton or of his father, George Bush Sr.

What Bush learned about North Korea filled him with indignation -- as he would later make clear to reporter Bob Woodward in an interview for his book, 'Bush At War'.

EXTRACT FROM 'BUSH AT WAR' BY BOB WOODWARD: "I loathe Kim Jong Il!" Bush shouted, waving his finger in the air.

"I've got a visceral reaction to this guy, because he is starving his people.

And I have seen intelligence of these prison camps -- they're huge -- that he uses to break up families, and to torture people."

JONATHAN HOLMES: In the mid-'90s, Western visitors were routinely taken to the so-called Children's Palace in Pyongyang to watch the children of the elite perform.

But out in the villages, hundreds of thousands of less fortunate children were slowly starving to death.

In 1997, the ABC's 'Foreign Correspondent' travelled with the aid agency CARE International into the Northern mountains.

A devastating drought had followed two years of floods.

Even the hospitals had no food for dying children.

Foreign governments and NGOs suspected that food aid was being diverted to the army and the privileged area around Pyongyang.

Hundreds of thousands, perhaps millions of North Koreans died in the famine of the 1990s.

A new famine is looming this year.

And then there are the prisoners.

In one sense, the whole nation is held captive, fenced in from any contact with the outside world.

But within the bigger prison are the camps that President Bush's intelligence told him of.

They hold an estimated 200,000 inmates.

Kang Chul Hwan is a rarity -- a prisoner who was released from the gulag then escaped from North Korea and has made it to the South.

KANG CHUL HWAN, SURVIVOR OF NORTH KOREAN PRISON CAMP (TRANSLATION): It was a living hell.

Everyone, child, adult or old person, has to work equally hard.

Most people are malnourished, and with the forced labour, they are dying a slow death.

JONATHAN HOLMES: Torture is routine.

Those who try to escape, says Kang, are hanged in front of the entire camp.

KANG CHUL HWAN: Death by hanging was the most terrible thing.

While they were hanging, people threw stones at them.

Their faces go black, and their flesh is torn by the stones.

It was the most horrible sight.

NICK EBERSTADT: I don't think there is any government on the face of the planet that would compare to the DPRK in terms of complete totalitarian abrogation of individual rights.

There aren't too many rules, but one of the rules should be that people don't have to live this way under...uh, monstrously oppressive governments.

JONATHAN HOLMES: That's a view George W. Bush undoubtedly shares.

In the wake of the September 11 terrorist attacks, he made his feelings plain.

North Korea found itself included in the President's "axis of evil".

PRESIDENT GEORGE W. BUSH (ARCHIVAL FOOTAGE, 29 JANUARY, 2002): North Korea is a regime arming with missiles and weapons of mass destruction while starving its citizens.

The United States of America will not permit the world's most dangerous regimes to threaten us with the world's most destructive weapons.

JONATHAN HOLMES: Two weeks after that speech, the man who'd been George Bush Sr's ambassador to South Korea travelled privately to the capital of the North, Pyongyang.

DONALD GREGG: I met a three-star general and we had a very tough conversation.

He said, you know, "We're ready to fight and die against you Americans if you drive us into a corner."

And I said, "I know that. That's why I've come."

JONATHAN HOLMES: What Donald Gregg didn't know was that US suspicions about North Korea's secret uranium enrichment program were hardening into certainty, though the source of their intelligence still hasn't been made public.

DOUG BEREUTER: The highly enriched uranium program is, by everyone's conclusion, a program that is conducted literally underground.

The North Koreans do one thing better than anyone else and that is build tunnels and underground caverns, and they have an extraordinary infrastructure underground in that country.

So it certainly wasn't from photographs, you can reach that conclusion.

LISA MILLAR, REPORTER: But the US became certain?

DOUG BEREUTER: We became certain.

JONATHAN HOLMES: In October last year, Assistant Secretary of State Jim Kelly was dispatched to Pyongyang to confront the North Koreans with the evidence.

To almost everyone's surprise, they did not deny it.

DOUG BEREUTER: I think that they had thought through their response and decided, "The jig is up.

We may as well put this on the table and say, 'Look, we've got this now.

We have more negotiating clout."

And so, that was the time it was revealed.

JONATHAN HOLMES: Days later, former ambassador Donald Gregg paid his second visit in a year to Pyongyang.

The North Koreans, it seemed, wanted to play nuclear poker again.

But the Bush Administration did not.

DONALD GREGG: I came back saying that the North Koreans had said to us that if we would move towards some kind of a nonaggression agreement with them, they would, as they put it, end all of our nuclear concerns.

And I urged that steps be taken in that direction, but I was told that that would not happen as that would be rewarding bad behaviour by the North Koreans.

PRESIDENT GEORGE W. BUSH (ARCHIVAL FOOTAGE, 14 JANUARY, 2003): People say, "Are you willing to talk to North Korea?

Of course we are.

But what this nation won't do is be blackmailed."

JONATHAN HOLMES: North Korea is playing hardball too.

It's thrown out the inspectors and withdrawn from the Non-Proliferation Treaty.

Some observers believe Kim Jong Il is now a captive of his military hardliners.

ALEXANDRE MANSOUROV, ASIA-PACIFIC CENTER FOR SECURITY STUDIES: They tell him, "We told you so -- that you can't trust the US imperialists because their bloody nature remains the same.

It's world domination, that's what they want.

And they hate us and, you know, their goal is regime change."

JONATHAN HOLMES: Alexandre Mansourov spent three years as a Soviet diplomat in Pyongyang.

The North Korean regime, he says, is now in a mood of obstinate defiance.

ALEXANDRE MANSOUROV: Kim Jong Il does not trust the Bush Administration.

He doesn't expect them to deliver on any promise they will make.

And clearly, since President Bush looks at North Korea in existential terms -- it's evil regime, and you can't bargain with evil.

I mean, evil either must die or you have to kill it.

JONATHAN HOLMES: And killing Kim Jong Il -- or trying to -- is certainly one option.

In March, the US Air Force moved two squadrons of long-range bombers to the Pacific island of Guam.

And a squadron of Stealth fighters moved to South Korea for exercises, and is still there.

DOUG BEREUTER: The fact that we moved B1 and B2 bombers to Guam, that we've deployed Stealth fighter aircraft is an interesting wake-up call, I hope, to the North Korean regime.

After all, we used the Stealth fighters in the past to try to decapitate leadership -- basically kill Saddam Hussein in Iraq on...both wars.

JONATHAN HOLMES: The Iraq War demonstrated the awesome power of the American military and the President's willingness to use it in America's interests.

The Bush Administration believes Saddam's downfall sent a powerful message to Kim Jong Il.

So does the Howard Government.

ALEXANDER DOWNER, MINISTER FOR FOREIGN AFFAIRS: Very soon after the war in Iraq, despite the fierce rhetoric of the North Koreans, they agreed to a Chinese proposal to sit down with the Americans in trilateral talks.

And that process of the trilateral talks only began after the war in Iraq, so I think, if you like, the North Koreans have got the message.

JONATHAN HOLMES: But the Chinese believe the North Koreans learned a different lesson from the war in Iraq.

PROFESSOR JIA QINGGUO, INTERNATIONAL STUDIES, PEKING UNIVERSITY: That is, even if you cooperate with the US, even when you don't have nuclear weapons or weapons of mass destruction, if the US wants to attack you, it will attack you.

So the best way to defend yourself is to have weapons of mass destruction.

JONATHAN HOLMES: Arguably, the North Koreans need no nuclear weapons to deter a pre-emptive strike -- whether against Kim Jong Il himself, or the nuclear facility at Yongbyon.

KIM MYONG CHOL: You know, (if) America attack(s) Yongbyon, North Korea (will) attack South Korean -- I mean, American base in South Korea.

That means millions of South Koreans will die.

JONATHAN HOLMES: The risk to the citizens of Seoul is no smaller now than it was in 1994.

PROFESSOR LEE JUNG-HOON: Even if there is, like, 5 per cent, 1 per cent chance that North Korea can lash out, should there be some sort of a surgical strike on Yongbyon, North Korea will not just sit idly by -- fire back into South Korea.

I mean, that's certainly something that we do not want to see happening.

JONATHAN HOLMES: But the threat these days is not just to South Korea.

In August 1998, the North Koreans shocked the world by trying to put a satellite in orbit with a sophisticated three-stage missile.

NORTH KOREAN TV ANNOUNCER (TRANSLATION): The first successful satellite launch in our country has boosted the morale of the people who worked as one to build this great Communist country.

JONATHAN HOLMES: The first stage of the missile landed in the Sea of Japan.

The second flew over Japan and splashed into the Pacific, more than 300 kilometres east of the main island of Honshu.

The effect in Japan was electrifying.

PROFESSOR YASUHIKO YOSHIDA, OSAKA UNIVERSITY: The Japanese people were shocked and panicked with the shot.

"Oh, Japan was attacked.

Oh, what happened?

The war declared against us by North Korea!"

JONATHAN HOLMES: The third stage of the missile apparently failed, but its potential startled US intelligence.

These days, in the bunkers of NORAD -- the North American Aerospace Defense Command -- deep beneath Cheyenne Mountain in Colorado, visitors are treated to a scary simulation.

The scenario -- a single ballistic missile aimed by North Korea at the city of Anchorage, Alaska.

In the real world, US intelligence doesn't believe the North Koreans are yet able to fit nuclear warheads on long-range missiles.

DOUG BEREUTER: They don't have that capability at this point, but clearly they are adding to their missile development program and they're adding to their stock of missiles.

And I have no doubt they have nuclear weapons.

JONATHAN HOLMES: If they have nuclear weapons and were attacked, this isolated and fanatical little nation might well carry out its threat to use them.

KIM MYONG CHOL: Of course, North Korea (will) also become destroyed.

North Korea (is) happy to die while destroying (the) American mainland and Japan.

JONATHAN HOLMES: It's not surprising that almost no-one is keen to call the North Koreans' bluff.

DOUG BEREUTER: Unfortunately, there is no military option that's easy and safe to pursue there.

PROFESSOR LEE JUNG-HOON: A war on the Korean peninsula would be disastrous.

ALEXANDER DOWNER: I don't think military action is imminent at all against North Korea.

PRESIDENT GEORGE W. BUSH: I'm absolutely convinced this issue will be solved in a peaceful way.

JONATHAN HOLMES: But the question is, how?

If the Clinton solution and the Iraq solution -- bribery and bombing -- are ruled out, what's left?

The answer, says President Bush, is pressure from North Korea's neighbours.

PRESIDENT GEORGE W. BUSH (ARCHIVAL FOOTAGE, 20 APRIL, 2003): Well, the key thing in the North Korea agenda is that China is assuming a very important responsibility.

China's policy is for a nuclear weapons-free peninsula.

South Korea believes that the peninsula ought to be nuclear weapons-free, Japan strongly believes that.

And I believe that all four of us working together have a good chance of convincing North Korea to abandon her ambitions to develop nuclear arsenals.

JONATHAN HOLMES: In fact, North Korea's nuclear ambitions have created a fever of regional diplomacy.

There's one reassurance, at least -- that most of the states in the region agree could be offered to North Korea to help persuade it to cooperate.

ALEXANDER DOWNER: You might get a situation where there is some kind of multilateral security guarantee -- a North Asian security guarantee, which would include the United States and North Korea -- for countries in the region, and on the other hand, North Korea agree to disband its nuclear programs.

PROFESSOR JIA QINGGUO: North Korea should give up nuclear weapons or nuclear weapon programs, and the United States should give up the right to attack North Korea, and China, somehow, in some way, should give North Korea security guarantees.

JONATHAN HOLMES: But even if America agrees to this much, says Robert Gallucci, it probably won't be enough.

ROBERT GALLUCCI: It's clear they also want energy and they'd like the light-water reactors completed.

That would be 2,000 megawatts of energy -- quite a lot by North Korean standards.

Undoubtedly, they'd be looking for food aid, and I think, most importantly, they'd be looking for that political relationship with the United States.

DR HANS BLIX: I think that's worth it.

I know that a lot of moralists will say that, "They are behaving very badly and, therefore, you cannot reward this."

But I have not seen that anyone has come up with a better solution than this.

And the Agreed Framework that was concluded in 1994, well, I can see that some people don't like it, but under the circumstances, I thought that was the best at the time.

JONATHAN HOLMES: But there'll be no more carrots for North Korea from the Bush Administration.

Indeed, some senior members are calling for an economic blockade, which they hope will cause the regime to collapse.

DONALD RUMSFELD (ARCHIVAL FOOTAGE, 17 APRIL, 2003): China supplies, I believe, something like $400 million or $500 million a year to North Korea.

That's terribly important to that country.

Japan has various things where large sums of money -- not that much, but something less -- flow into North Korea.

South Korea, in the past, has had some money flow from the South to the North.

All of which sustains that dictatorship.

JONATHAN HOLMES: There's little disagreement in the region that a crackdown on North Korea's illegal earnings is long overdue.

The recent seizure by Australia's Special Forces of the North Korean freighter 'Pong Su' set a dramatic example.

It had just deposited at least 125 kilos of heroin on the Victorian coast.

Though it will be hard to prove in court, the drug was probably refined in North Korea, from opium poppies grown there as part of a deliberate government program.

As well as heroin, North Korea is a major source of methamphetamines smuggled into Japan and of counterfeit American banknotes.

DOUG BEREUTER: Can we stop it all?

No, but we could make it much more difficult by an effective regional embargo.

JONATHAN HOLMES: But it's doubtful if North Korea's neighbours will agree to a blockade which endangers the regime itself.

The regional power which can make or break a blockade policy is China.

It shares a long land border with North Korea along the Yalu and Tumen rivers.

Across those rivers flows just enough Chinese oil and food to keep North Korea from collapse.

But now the relationship is under severe strain.

PROFESSOR JIA QINGGUO: North Korea is saying that having nuclear weapons is not a bad thing...in North Korea, but China is saying that, no, this would jeopardise China's security, in the sense that other countries in the region would have an incentive to have nuclear weapons, then we will have a nuclear arms race in the region.

JONATHAN HOLMES: Many South Koreans agree.

PROFESSOR LEE JUNG-HOON: I think there will be, er, growing calls here in South Korea for a, er, deterrent - stronger deterrent - and a stronger deterrent would not be provided by simple conventional weapons.

JONATHAN HOLMES: Even pacifist Japan - the only country ever to have suffered nuclear bombardment - may respond in the same way.

PROFESSOR YASUHIKO YOSHIDA: We need to develop our own nuclear weapons as (a) deterrent. This is seriously discussed and debated here and there in mass media, in newspapers and public debate.

PROFESSOR JIA QINGGUO: This would definitely increase the danger and risk for the region to have a nuclear war, and China certainly does not want to see this to happen.

JONATHAN HOLMES: But nor does China want to see North Korea implode. Already, in the rust-belt cities of China's north-east, there are hundreds of thousands of illegal refugees from North Korea. Some are creating international embarrassment for China by making well-publicised dashes for freedom across embassy walls in Beijing in front of the cameras of the global media. A collapse of North Korea, the Chinese fear, would bring far worse problems.

PROFESSOR JIA QINGGUO: To have a lot of refugees, a lot of...a civil war breaking out in North Korea, or even, in a desperate move, the North Korean...collapsing North Korean regime may attack South Korea. We don't want to see that to happen. We don't think the economic blockade is going to produce a constructive and desirable result. It brings more damages than bring benefits.

JONATHAN HOLMES: Besides, many of those who know North Korea best say there's no guarantee an economic blockade would make the regime back down or loosen its vice-like grip on power.

SELIG HARRISON: There's a lot of talk about the collapse of North Korea, but they've got a very tight political system, a successful program of brainwashing. And, um, the whole nationalist ethos is...holds North Korea together and I think will work against a collapse, certainly in the short run.

JONATHAN HOLMES: As even the Bush Administration admits there may not be time for the 'long run'.

DONALD RUMSFELD: If they begin to sell nuclear materials sufficient to make 6, 8, 10 weapons, that changes the nature of the world fairly significantly, because the people they would sell it to would be terrorist states or terrorist networks - not a happy prospect.

ALEXANDRE MANSOUROV: I don't see any political will, any political constituency in the North, to compromise.

DOUG BEREUTER: We don't have many good options, frankly, with respect to North Korea.

SELIG HARRISON: I see no sign that the Bush Administration is ready to give anything to get anything, and, therefore, I think it's a very gloomy prognosis.

JONATHAN HOLMES: Over 50 years, we've grown used to the thought that the Korean peninsula is a dangerous flashpoint. But we may have to get used to a new threat - that some time soon, within months, perhaps, a North Korean freighter may set sail, or an aircraft may take off, carrying a mere 8kg of weapons-grade plutonium to an eager buyer - enough to make a bomb that could utterly destroy New York or London or Sydney.