September 16, 2005 - 12:20 AM

China draft raises hopes at North Korea talks

By Jack Kim and Teruaki Ueno

BEIJING (Reuters) - The United States threatened to freeze North Korean assets if the reclusive state did not toe the line in talks aimed at ending its nuclear weapons programme, but a new proposal from China raised hopes for progress.

The six-party talks in Beijing looked in jeopardy on Friday -- their fourth day -- as Pyongyang hung tough, rejecting a South Korean offer of electricity in return for renouncing nuclear arms and insisting on its right to nuclear energy.

But China, hosting the negotiations, put forward a revised draft statement which was thought to acknowledge North Korea's right in principle to an atomic energy programme, offering a potential way out of the stalemate.

"We think that this new document is balanced in character, and it includes North Korea's right to peaceful atomic energy and the possibility in the long term of building a light-water nuclear reactor," Russian news agencies quoted Russian chief negotiator Alexander Alexeyev as saying.

China has asked all parties for a response on its draft by Saturday afternoon, a South Korean official said.

"We are at an important crossroad," chief South Korean delegate Song Min-soon told reporters. "We're at the point of whether to accept it (the draft) or not, not to discuss it further,"

Alexeyev said the talks would go into recess if no agreement was reached on the statement by that time.

Late on Friday Russia's Interfax news agency quoted a North Korean source as saying China's draft was unacceptable and "practically repeats the position of the United States".

In the Hong Kong-datelined report, Interfax's source said this would probably mean the talks would end on Saturday.

U.S. Secretary of State Condoleezza Rice said Washington wanted to see progress within five days and warned that the United States was not solely dependent on the talks to get North Korea to abandon its nuclear ambitions.

"The president signed an executive order, if you remember that freezes assets and some entities that we believe that are engaging in proliferation trade," Rice said in an interview conducted on Thursday with the New York Post, a transcript of which was released by the State Department.

With the talks between the two Koreas, the United States, Japan, Russia and China already deadlocked over North Korea's insistence on being supplied with a light-water nuclear reactor, reports said that Pyongyang had gone further and threatened to boost nuclear weapons production if its demand was not met.

COMPROMISE?

South Korea has offered to supply the North with 2,000 megawatts of electricity if it scraps its nuclear weapons programmes, and has said it would not be opposed in principle to Pyongyang having an atomic energy programme in the future.

But North Korea turned the offer down, one source said.

"North Korea adamantly insisted on a light-water reactor and the United States refused to accept the North Korean demand," the source, close to the talks, told Reuters. "In that context, North Korea effectively rejected the South Korean energy package, which is one of the pillars of our proposals."

But Alexeyev said the Chinese draft proposal, which he said acknowledged North Korea's right to a light-water reactor in future, could be an acceptable compromise.

Failure to reach an accord in Beijing could prompt Washington to take the issue to the U.N. Security Council and press for sanctions. China opposes such a move, and North Korea has said sanctions would be tantamount to war.

North Korea appeared to offer some leeway, saying it would accept joint management and inspections of a light-water reactor.

"In order to dispel U.S. concerns in the provisions of a light-water reactor, we said we would leave its operation to joint management and will also accept inspections," a North Korean official said.

But he tempered the offer with a threat.

"If the U.S. continues to insist that it will not give us a light-water reactor, which is a measure of trust, then we have no choice but to continue our own way for our own peaceful nuclear activities," the official said.

North Korea also indicated that it was going ahead with the processing of spent fuel rods into plutonium, Japan's Kyodo news agency said.

U.S. intelligence estimates that Pyongyang has already produced enough bomb-grade plutonium from its five-megawatt reactor at Yongbyon to make nine or more nuclear weapons.

Washington, which once branded North Korea part of an "axis of evil" along with Iran and Saddam Hussein's Iraq, says it must end all nuclear programmes verifiably and irreversibly.

It says the North can then expect aid and security guarantees, but Pyongyang says these must come first.

(Additional reporting by Jack Kim in BEIJING, Elaine Lies in TOKYO and Sue Pleming in NEW YORK and Oliver Bullough in MOSCOW)