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CNN LOU DOBBS MONEYLINE

Exporting America

Aired May 26, 2003 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANNOUNCER: This is a special holiday edition of Lou Dobbs MONEYLINE for Monday, May 26th, sitting in for Lou Dobbs, Jan Hopkins.
JAN HOPKINS, CNN ANCHOR: Good evening. Tonight, "Exporting America," free trade was supposed to create new jobs and markets for U.S. workers. The reality is very different.

The United States is sending much needed jobs and dollars overseas at a high cost here at home.

Then, nuclear standoff, we examine the North Korean nuclear threat. What can be done to stop Kim Jong-il's nuclear program? A series of special reports with the "Economist" magazine and we'll talk with former National Security Advisor Zbigniew Brzezinski.

And, the new South, in contrast to the economic crisis in the north, South Korea has emerged as one of the most successful economies in the world.

But we begin tonight with a special series or reports on a rising threat to the American economy and the American worker. We've called these reports "Exporting America" because we are shipping not only American dollars around the world, we are also shipping jobs.

We begin with a look at the broken promise of international trade for hundreds of thousands of American workers. Jobs in this country are disappearing. In some cases literally being exported overseas along with valuable technology and intellectual capital. We could have easily called these reports the great American giveaway.

Peter Viles has the story.

(BEGIN VIDEOTAPE)

PETER VILES, CNNfn CORRESPONDENT (voice-over): For two years, the American economy has been losing jobs and sometimes you can see exactly where they're going, Honeywell shutting a factory in Rhode Island, where it makes thermal controls, exporting 374 jobs to Mexico and China.

Alcoa this spring announced cutbacks in New York, Texas, and Washington, and invested $400 million in South America, invested $1.1 billion in East Iceland. Delta Airlines outsourcing some reservations jobs overseas, 600 hundred new jobs in India and the Philippines.

Now this is not how global trade was supposed to work out. The promise was new markets and new jobs for American workers. BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: We must recognize that the only way for a wealthy nation to grow richer is to export, to simply find new customers for the products and services it makes.

VILES: The reality is the trade deficit has rocketed the five percent of GDP. The promise of new markets for American products appears broken in what author Arthur Tonelson calls a race to the bottom in wages and costs.

ARTHUR TONELSON, "THE RACE TO THE BOTTOM": And they sold America a bill of goods during the 1990 because they said that all of these new trade agreements, NAFTA, normalized trade with China, were going to boost exports from their American factories, and what they've done is they've used these trade agreements to send production abroad.

VILES: And not just production. Increasingly, corporate America is exporting so-called knowledge jobs. By one estimate, the high tech industry in this country lost 560,000 jobs in 2001 and 2002.

The U.S. is also exporting capital. Among the biggest investors in China, Motorola, $3.4 billion invested; General Electric, $1.5 billion invested; Kodak, $1.2 billion, all participating in a rush to globalize that has outraced U.S. policy.

BARRY C. LYNN, TRADE ANALYST: One of the things that they really don't understand is the degree to which most manufacturing has become globalized and it happens so quickly and it happens so dramatically in the 1990s and over this last decade that most policymakers it's just way off their map.

VILES: The issue is not just jobs. It's intellectual capital as well. In semiconductors and other high tech manufacturing, China has narrowed the gap with the U.S. so quickly it raises national security concerns.

Right now most of the magnets that make smart bombs work are made in Indiana, but (UNINTELLIGIBLE) is closing its Indiana plant and may move the jobs overseas. Indiana lawmakers are asking the White House to intervene and keep those jobs out of China, saying such a move would "threaten national security."

(on camera): Now, that Indiana factory is not an isolated case. A special commission that studied trade with China reported to Congress last year about growing concerns that there was so much reliance on Chinese imports all throughout the American economy that that reliance might "undermine the U.S. defense industrial base.

Peter Viles, CNN, New York.

(END VIDEOTAPE)

HOPKINS: American companies are also struggling to compete in an international market. We take a look now at the challenges and opportunities of an international economy and how companies and labor are responding to the cost of competition. Bill Tucker has that report.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNNfn CORRESPONDENT (voice-over): The international trade often looks like this but it can also look like this, a small town in central Wisconsin. Here in Coloma is the company, Especially For You. The company makes gifts and home furnishings, making furniture for catalogues like Land of Nod and a collectible line of cast resins.

Especially For You is a company caught in the middle of the competitive struggle of international trade. It sends orders for its collectible line to a factory in China. In its shop in Coloma it makes furniture. The company does find some relief from a lower dollar.

JACK ZELIENKA, CO-CEO, ESPECIALLY FOR YOU, LTD.: I think the weaker dollar you would definitely see buyers looking more at domestic manufacturers because now all of a sudden the big price difference between buying something offshore and buying domestic wouldn't be as big as what it is right now.

TUCKER: But, a lower dollar is not enough and try as Jack might, he can't really compete on an hourly wage basis. Compared with the hourly wages in the United States, workers in Canada are paid 77 cents on the dollar, workers in Mexico 12 cents, Taiwan 28 cents, and in Spain 54 cents.

Unions argue the trade agreements depress wages in both the United States and in the country the jobs are exported to because of the priorities of trade agreements, agreements which put companies and investors first including workers only as an afterthought if they are included at all.

So, labor unions rather than objecting to economic globalization are pushing lawmakers to impose improved working conditions and worker's rights similar to their American counterparts on foreign labor sources as a condition for trade agreements.

ROBERT SCOTT, ECONOMIC POLICY INSTITUTE: A good trade agreement is going to be good for all the members of society. It's going to make everyone better off. It's not going to work to simply enrich one particular class of societies.

TUCKER: Companies meanwhile are finding that to compete effectively they can be successful playing to their strengths.

ZELIENKA: Oh, a nice job.

TUCKER: Sometimes it's on a price basis and sometimes prices outweighed by other advantages.

ZELIENKA: There are some things that we can bring to the table that they can't. For instance, if I work with a national account they can come right to central Wisconsin in my offices over here. We can sit down at my conference table and we can work on developments.

We can bring shorter lead times. We can bring smaller minimum orders and we feel that we're getting close to being on the same level playing field as our foreign competition, simply from the fact that we can bring these things to the table.

TUCKER: Jack would also like a little help from the government in leveling the playing field. He'd like politicians to start by simply paying attention to the issue.

Bill Tucker, CNN, New York.

(END VIDEOTAPE)

HOPKINS: The issue of American jobs being exported overseas has not gone unnoticed in Washington. Senator Fritz Hollings of South Carolina is working to give American companies incentives to hire Americans.

Lou Dobbs spoke with Senator Hollings, the Ranking Member of the Senate Commerce Committee about his efforts on the matter.

(BEGIN VIDEOTAPE)

SEN. FRITZ HOLLINGS (D), SOUTH CAROLINA: Instead of investigating manufacturing firms that are exporting the jobs, we got to sort of investigate the Congress, educate the Congress, and the only way we can get in on this game is to stop the dumping on the one hand and make the penalties for those who manufacture overseas and the benefits for those who manufacture in the United States.

There's a bill in the House side. Both Charlie Rangel and Phil Crane have got it, a bipartisan bill. I have a similar bill over there to keep the jobs in this country and it's going to be an uphill fight because we got to really change the culture.

LOU DOBBS, CNN ANCHOR: Change the culture. As we look at the trade deficit, the declining dollar and end recovery this economy is not creating jobs, in fact going the other way. It is a jobless recovery as you well know.

HOLLINGS: Definitely.

DOBBS: The fact is that there are some sophisticates who would suggest that to be worried about American jobs just isn't really embracing of a more worldly globalizing trend. How do you respond to that?

HOLLINGS: Well, globalizing the trend, you know, that's the crowd that talks about protectionism. Look, we've rebuilt the Pacific Rim in Europe with the Marshal Plan.

Now with the fall of the wall they've gone capitalistic throughout Europe. Even communist China is, you know, competing in a capitalist fashion and there's a real viable trade war or conflict or competition and we've been AWOL. We've got to get into it, use our richest market here as leverage to open up the other markets. We're still not into Japan, 50 years later. These are the kind of things.

We've got a deficit in the balance of trade not only in manufacture. Now, we have lost the high tech. We've got a $15 billion deficit there. We even got a deficit in the balance of cotton and farm products and the Koreans now are really buying all their corn from China, so we're losing that market.

DOBBS: Senator, let me ask you.

HOLLINGS: Yes.

DOBBS: There was a time that a working man or woman in this country could count on the AFL-CIO, the Teamsters, a number of unions to represent their interests. Some would argue that the Democratic Party provided the same service.

HOLLINGS: No. Lou, they're afraid to open their mouths. If they open their mouths they're gone, the job is gone overseas. That's the trouble.

DOBBS: Where in the world is the working man and woman in this country, the middle class, going to find representation in this? It is not of much consolation to say, you know, in the long-term trend we'll see some efficiencies introduced in the economy when a man and a woman loses a job like this.

HOLLINGS: That's exactly right and what happens is, if you open up Dobbs Manufacturing tomorrow morning, you have to have clean air, clean water, Social Security, Medicare, Medicaid, plant closing notice, parental leave, safe working place, safe machinery. You can go to China for less than 50 cents an hour and none of that.

So, I lost 59,600 textile jobs in NAFTA down to Mexico. Now the Mexicans are losing jobs to China and we've got to sort of sober up and get into the competition and do like the others, use barriers, use tariffs, enforce our dumping laws.

Those are the kind of things when I say change the culture, we've got special trade representative goes to Doha, Bob Zoellick. He says we're going to do away with the dumping laws. Well we're not enforcing them but the solution is to enforce those dumping laws, selling at less than cost. We can't compete with that.

DOBBS: Senator Fritz Hollings, as always it's good to talk with you. We look forward to you coming back to talk about this very important issue.

HOLLINGS: Thank you very much.

DOBBS: Senator Hollings.

(END VIDEOTAPE) HOPKINS: Coming up, we continue our special series of reports on "Exporting America." Thousands of workers in other countries are taking critical technology jobs away from Americans.

And later, working to keep the jobs at home, what's being done to protect American jobs? We have the report.

(COMMERCIAL BREAK)

HOPKINS: By one count, 560,000 high tech jobs have been lost in this country in the last two years. Many of those jobs have ended up in India and this trend of exporting high tech jobs to India is expected to explode.

(BEGIN VIDEOTAPE)

(voice-over): Bangalore, India home to 100,000 high tech workers, many of them employed by American companies. Across all of India, one million people work for U.S. based companies, like GE Capital and Microsoft.

Eight billion dollars in services are exported from India to the United States each year. The U.S. consulting firm A.T. Kearney is doing more and more work in India.

STEFAN SPOHR, A.T. KEARNEY, INC.: We do have an office in Delhi actually with nearly 100 people, 50 of whom are consultants and the rest are working in creative services and information research.

HOPKINS: Companies like Indian employees because they're hard- working, well educated, and speak English, but the most attractive thing is the difference in pay. An Indian worker earns from one-tenth to one-half what a U.S. worker would. More and more companies are looking at these numbers and moving jobs to India.

JOHN MCCARTHY, FORRESTER RESEARCH: The conservative numbers show that over the next 13 years upwards of 3.3 million services jobs in the U.S. economy will be moved offshore.

HOPKINS: India is the leading destination. The exporting of jobs angers groups like Wash Tech, an offshoot of the Communications Workers of America. They regularly protest outside Microsoft in Seattle with signs like "Think India, Think Unemployment."

MARCUS COURTNEY, WASHTECH: This is a real slap in the face to American technology workers that they have built up this industry. It's one of the most profitable industries in the history of America and now what they're facing is that these companies are turning around and sending their jobs offshore.

HOPKINS: Most companies we talked with like Oracle say they are global companies. They aren't outsourcing high tech jobs they're "augmenting work done in this country with thousands of workers in India." Whatever they call it, in high tech centers like Silicon Valley it's hard to find a job. HEATHER BOUSHEY, ECON. AND POLICY RESEARCH: Unemployment for information technology in the information technology sector has more than doubled over the past couple of years. It now stands at 7.7 percent.

HOPKINS: Wall Street is the latest to join the flight to India. JP Morgan Chase will create 40 jobs in India for research analysts. Lehman Brothers is also hiring analysts in India.

ANDREA BIERCE, A.T. KEARNEY, INC.: If you even look at an MBA graduating from the India Institute of Technology, you'll see that that graduate will hope to get about a $12,000 per year salary and that's with two to three years' experience. Contrast that with a Harvard Business School graduate who will really hope to get closer to $100,000 with the same sort of skill set.

(END VIDEOTAPE)

HOPKINS: Now, Wall Street firms point out that these are not the star research analysts jobs like Jack Grubman had and Mary Meeker has but for crunching the numbers, Wall Street says Indian analysts will do just fine.

Critical technology jobs in this country are also being lost to foreign workers holding special immigrant visas. Kitty Pilgrim has the report.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNNfn CORRESPONDENT (voice-over): Mike Roberts was laid off from his technology consultant job in California. He sold his house and is living in a hotel room with his family and plans to leave California for good when his daughter finishes the school year. He says the company he worked for brought in a wave of foreign workers on H1-B visas. He eventually was replaced.

MICHAEL ROBERTS, TECHNOLOGY CONSULTANT: They were bringing in consultants like one, two, three every week, all H1-Bs, so you start asking and then you start discovering they're all coming through just one or two agencies and you realize they're not even considering American citizens at all.

PILGRIM: Thirty-year-old Daniel Soong was making $160,000 a year but no longer. He lost his job to an H1-B visa worker. The former consultant now can't find a job and lives with his parents. He talks about a recent job interview that went nowhere.

DANIEL SOONG, TECHNOLOGY CONSULTANT: They were just interviewing me in order to satisfy the equal opportunity requirements of the state so they wouldn't be discriminating against American citizens, but in reality they had no intentions of hiring me and they wanted to hire an H1-B visa candidate.

PILGRIM: The H1-B visa was born in the tech room of the early 1990s. There were not enough American workers, so employers asked for a special visa to bring in college educated workers from overseas to fill specialized jobs.

In 1992, the H1-B visa let in a maximum number of 65,000 workers, but by the end of the decade that number jumped to 195,000 every year and that doesn't count visa renewals. For example, in 2001, 342,000 people renewed their H1-B visa.

RON HIRA, IEEE-USA CHAIR: Usually in the technology area that you would bring an H1-B worker in temporarily. Unfortunately, the program has changed into instead of being a last resort the H1-Bs have become in some cases, you know, a first choice.

PILGRIM: Peter Bennett started a Web site complaining about the H1-B visas. Then it gets 1,500 hits a week on his Web site.

PETE BENNETT, NOMOREH1B.COM: Across the country, workers are being displaced wholesale. Entire teams are brought in to replace American workers and where they're being forced to train their replacements.

PILGRIM: Charles Corry did consultant work in Colorado Springs with many high tech firms that use the H1-B visa. He says to him it's clear that companies give preference to the H1-B applicants because the workers are willing to put in longer hours for less money, anything to keep their job in the states.

CHARLES CORRY, TECHNOLOGY CONSULTANT: They're a modern version of indentured servitude, the hours, the salaries typically much lower. I was probably getting twice what the H1-B visa people were.

PILGRIM (on camera): The General Accounting Office is looking into the issue of whether H1-B visa workers are crowding American workers out of their jobs and they expect to come up with a report about mid-September. That timing is critical because Congress takes up the issue of limits on the visas the following month.

Kitty Pilgrim, CNN, New York.

(END VIDEOTAPE)

HOPKINS: Coming up next, keeping jobs at home. We'll take a look at what American businesses and local governments are doing to keep jobs in the U.S. and still allow companies to compete in the international market.

And later, the growing military threat from North Korea. We'll have a special report in conjunction with the "Economist" magazine. We'll talk with former National Security Advisor Zbigniew Brzezinski.

(COMMERCIAL BREAK)

HOPKINS: Companies save millions of dollars by shipping jobs overseas but the savings to corporate America comes at a very high cost to American workers.

Casey Wian reports on what is being done to keep the jobs at home. (BEGIN VIDEOTAPE)

CASEY WIAN, CNNfn CORRESPONDENT (voice-over): Ace Clearwater is all about made in America producing aerospace and power plant parts but rising expenses and cost pressures from customers are forcing the company to consider moving some work to Mexico.

GARY JOHNSON, V.P., ACE CLEARWATER: One of our larger customers requires a six percent price reduction every year. Raw material is going up. The cost of labor is going up. We don't have any interest in moving our company out of the United States but we do have an interest in staying in business and that may be a requirement.

WIAN: Many competitors and customers have already gone overseas.

(on camera): Ace Clearwater used to make $8 million a year worth of these power plant ducts for General Electric but G.E. has shipped about 85 percent of that work to China and Hungary, so Ace Clearwater was in danger of having to lay off nearly half its employees.

(voice-over): Those jobs were saved recently by a military contract for Apache helicopter exhaust nozzles. Still, Mexico beckons. Government officials from Washington to Sacramento are struggling to stop job migration with programs ranging from White House tax breaks for small business to state-funded training and new manufacturing techniques.

LON HATAMIYA, CALIF. TECH. TRADE AND COMMERCE SECY.: We've tried to utilize various incentive programs, whether they're tax incentives, manufacturing investment credits, R&D credits as well as industrial development bonds. We do the best we can and it is very competitive.

WIAN: One New Jersey state Senator wants to make some job migration illegal after learning a state contractor hired operators in India for a welfare program call center. Shirley Turner is sponsoring a bill to keep taxpayer funded jobs home.

SHIRLEY TURNER, NEW JERSEY STATE SENATE: When we send jobs overseas we get no return on that money that's (AUDIO GAP). The people there do not pay taxes. They do not spend money. They do not stimulate our economy.

WIAN: Others stress American productivity and legal protections.

DAVID BRAUNSTEIN, CALIF. MANUFACTURING & TECHNOLOGY CTR.: I'd be a little nervous if I had a good design to put it in China because I would expect that it would move quickly to a lot of other companies unprotected.

WIAN: Still, costs persuade many companies to take the risks. Buck Knives has been fighting to stay profitable in California. Its workers compensation insurance and electricity bills jumped nearly $1 million last year.

Buck has tried making knives in Mexico and Taiwan where it still has limited operations. Cheap labor there helps slash prices enough to satisfy one big customer, Wal-Mart. But the fiercely patriot Buck family and many individual customers never liked the idea.

CHARLES T. BUCK, CHAIRMAN, BUCK KNIVES: I've had a real problem with having another country on our blades. Buck Knives is an American knife and we wanted to keep it that way.

WIAN: Buck is still leaving California, but instead of 50 percent cost savings in Mexico or Taiwan, it's moving to Idaho where it expects savings of about 25 percent.

Casey Wian, CNN, Los Angeles.

(END VIDEOTAPE)

HOPKINS: Still to come, the nuclear threat from one of the countries in what President Bush calls the axis of evil, Our special series in conjunction with the "Economist" magazine; "The Challenge of Change, the new Korea."

And then, the new government in South Korea, we'll have a special report on its efforts to bridge the divide between the north and the south.

(COMMERCIAL BREAK)

HOPKINS: Now to another threat to Americans, the continued belligerence of North Korea. The United States clearly wants North Korea to shut down its nuclear program before it can produce any more nuclear weapons.

The nuclear standoff began last October when North Korea admitted it has a covert program to make enriched uranium for nuclear weapons. It is not clear, however, just how advanced that program is.

Tonight, in conjunction with the "Economist" magazine, we assess the threat of North Korea in "The Challenge of Change, the new Korea." Lou Dobbs has the report.

(BEGIN VIDEOTAPE)

CHUNG MIN LEE, PROFESSOR, YONSEI UNIVERSITY: North Korea has the fifth largest standing army in the world, 1.1 million men in arms. It has over 700 ballistic missiles that targets everything in South Korea and parts of Japan, a very large stockpile of bio and chemical weapons agents and plus, on top of this, he may already have one or two nuclear warheads.

DOBBS (voice-over): And soon, North Korea could have even more. Recently, North Korea restarted its plutonium-based nuclear energy reactor at Yongbyon, which can be used to create the fuel for nuclear bombs.

ROBERT GALLUCCI, DEAN, GEORGETOWN UNIVERSITY: Whether it's in six months or it's in 12 months, they will have the 30 kilograms of plutonium. They will have enough material for five or six weapons.

DOBBS: Robert Gallucci, Assistant Secretary of State in the Clinton administration helped draft the 1994 framework agreement in which North Korea pledged to freeze and eventually dismantle its nuclear weapons program. We now know the North cheated on that agreement for years. But now the question remains where to draw the so-called red line, the limit that would provoke a serious military response.

BILL EMMOTT, EDITOR-IN-CHIEF, "THE ECONOMIST": It may be that we now have to start contemplating a situation when we accept North Korea with nuclear weapons and decide that the red line has to be in their trade of nuclear material.

GALLUCCI: The problem with that red line is that five kilograms of plutonium would amount to essentially the size of a baseball, so the question is would you be sure a baseball is being transferred to a terrorist group?

DOBBS: The north has already passed on significant ballistic missile technology to Iran, Pakistan and Syria.

President Bush has insisted that North Korea agree to abandon its weapons program and accept reliable, intrusive inspections.

North Korea's leadership is both isolated and enigmatic. Kim Jong-il has a taste for French wine and American movies. His eccentricities, however, in no way diminish the very real danger he and his government present to the region.

GALLUCCI: Whatever you can say about Kim Jong-il, you also need to add, he's intelligent, he's rational.

DOBBS: Rational enough, it seems, to retract his initial demand for one on one talks with the United States. Some interpret North Korea's withdrawal of that demand to be the result of the quick U.S.- led military victory over Saddam Hussein and his regime.

That demonstration of U.S. resolve and power may have influenced China to finally get involved in the North Korean nuclear issue, as well. China's influence and pressure may be necessary to curtail Kim Jong-il's nuclear ambitions.

LEE: If China really wants to see a North Korea without nuclear weapons, China has to do its part and to cut off, for example, even temporarily, those oil shipments and grain shipments into North Korea.

DOBBS: Without the Chinese support, North Korea cannot afford to maintain its huge military force and apparatus.

The negotiations, to be led by Assistant Secretary of State James Kelly, will be complex, difficult and the outcome anything but certain.

Diplomacy is limited, in large measure because the United States is disadvantaged militarily on the Korean Peninsula. While the United States would obliterate North Korea in a full-blown conflict, North Korea would have initial and devastating success against South Korea. Despite a 600,000-man South Korean army equipped with the best U.S. weaponry and 37,000 U.S. troops, most experts say North Korea could level Seoul in hours, not days, in the event of an attack.

EMMOTT: It would be likely to be carried out at the cost of tens of thousands of South Korean lives. And that just may be unacceptable.

YANG SUNG CHUN, FORMER AMBASSADOR, REPUBLIC OF KOREA: We can't make any rash judgment or rash act. For Koreans, this is a life and death matter and we have to decide ultimately about our future and our fate.

DOBBS: The South Korean ambassador could have added that the decision about the future and fate of South Korea is at this moment as much in the hands of Kim Jong-il as it is in the hands of President Roh. South Korea's government now faces the most daunting challenge to its security in half a century.

(END VIDEOTAPE)

HOPKINS: To discuss the threat of North Korea and how the United States should respond, Lou spoke with the former national security advisor, Zbigniew Brzezinski. He is a counsel at the Center for Strategic and International Studies. He is also a professor of American foreign policy at the Johns Hopkins University.

Lou began by asking him if there was any chance of success in these talks.

(BEGIN VIDEOTAPE)

ZBIGNIEW BRZEZINSKI, FORMER NATIONAL SECURITY ADVISOR: Certainly not initially. At some point, if we want to have some sort of regional arrangement, we have to involve the Japanese. And certainly, the South Koreans have to be involved because they have an enormous stake in it.

Negotiations at this stage are really being intermediary, so they're providing facilities but these are essentially bilateral talks pretending to be trilateral talks with the Chinese giving us the umbrella, sort to speak.

DOBBS: And the last time, in 1994, that that was attempted it led to agreements for which North Korea stated it would not proceed with nuclear weapons manufacturing. They didn't work out.

What is the leverage that the United States has in this instance with North Korea?

BRZEZINSKI: Well, the leverage, obviously has to be both negative and positive. The negative leverage is the threat, for example, of the regional boycott of eventually even a regional embargo on North Korea. And as a last resort, even military action. But to achieve that, you have to have a great deal of political consensus, and that's very difficult to manufacture.

The positive inducements, of course, are some form of financial economic assistance. But that may not be enough at this stage to get the North Koreans to roll back what they're already doing. They may be willing to slow down or to stop, but to have them really dismantle what they have been doing is going to take a lot of pressure.

DOBBS: And there are those who might be somewhat confused that there would be these, as you describe them, disguised bilateral talks between North Korea and the United States without the participation of the principle power in the region, that is, China, and certainly without the representatives of the government of the nation whose national security, the United States, is trying to protect. That is, South Korea.

What possible positive result can come out of that?

BRZEZINSKI: Well, I would assume that these talks are preliminary. And in a sense, we're feeling them out. They're feeling us out. At some point, if this is to be a serious negotiation, we'll have to involve the Japanese and the South Koreans. After all, if there's to be pressure, it has to have a collective base.

If there are to be incentives, we have to provide them. But my guess is the North Koreas, will ask for too much in the way of incentives unless there are credible threats and as I said, these credible threats require a regional point of departure.

DOBBS: And, regional point of departure means what in the case of specifically China and Japan?

BRZEZINSKI: It means their involvement, their support, the same is true of the South Koreans and the South Koreans, are very uneasy about a policy of confrontation, of genuine pressure. So, in effect, in a practical sense, we are left essentially with positive incentives. And these may not be enough to satisfy the North Korean expectation.

DOBBS: Not enough to satisfy them and the outcome is then what?

BRZEZINSKI: Probably in the short run, essentially, continued talks while they go ahead with the production or procurement of nuclear weapons, and these will change the strategic equation because if they have won now, they can only use it essentially defensively. They couldn't use it offensively because they would have nothing left and it may not even work.

But once they have several, then they're in a much better position to exercise choice, even to exert blackmail.

DOBBS: And that blackmail now directed toward the United States, yet the principle power in the region, China, would ,seemingly at least, have the most to lose, would have its national security most at risk here. Why the reticence, in your judgment, for the Chinese to participate in straight up, head up in talks with North Korea?

BRZEZINSKI: I think they are beginning gradually to be involved. And I hope that we can draw them into a more intensified and generally constructive strategic engagement. At this stage, they don't really want to be involved because the position on our presence in the region, on the implications of all of this for Japan, is still not very clear. Last but not least, they're increasingly preoccupied with their domestic difficulty. That should, however, induce them to take a more constructive stand because the economy could be affected by what is going on right now with SARS.

DOBBS: What is clear now, would you not say, is that it is a very risky business and a very difficult process that the United States has embarked upon?

BRZEZINSKI: It's much more serious than the so-called struggle of the weapons of mass destruction in Iraq, which haven't yet been turned up. North Korea represents a genuine security problem and a potential very serious security threat.

DOBBS: Zbigniew Brzezinski, thank you for being with us.

BRZEZINSKI: Thank you.

(END VIDEOTAPE)

HOPKINS: Coming up next, a startling admission from North Korea. Last month, it claimed for the first time it has nuclear weapons. We examine what that could mean for the delicate balance of power on the Korean Peninsula.

And then the stunning success of the South Korean economy. We look at whether it's strong enough to withstand the challenges posed by North Korea.

(COMMERCIAL BREAK)

HOPKINS: For the first time, North Korea admitted it has nuclear weapons. Long suspected, North Korea said it would prove that it has weapons and soon.

North Korea's claim is a challenge for the newly installed government of South Korea. That government was elected on a promise of improved relations with the north.

Now an in-depth look at the new face of South Korean politics, in conjunction with "The Economist" magazine, in "The Challenge of Change: The New Korea."

Lou Dobbs reports.

(BEGIN VIDEOTAPE)

DOBBS (voice-over): The narrow election of President Roh in December of 2002 was a surprise not only to South Korea, but also, to Washington. The Roh administration immediately demonstrated it wants to follow new policies on North Korea.

Roh is determined to be different. The first Korean president not to be a member the political elite, President Roh is a guitar- playing activist with his own Internet site who even cried on television.

Roh campaigned on a platform of reform that would be ground- breaking even in this country. He took donations from piggy banks he handed out to ordinary citizens, not relying on huge checks from political interest groups.

LEE: It's a very American story, if you think about it. I mean, he had nothing. He grew up with nothing, none of the privileges of the South Korean blue blood, and then rose to become a lawyer first. And then, chose to be a labor activist lawyer and then eventually rose to be president of South Korea.

DOBBS: Roh was barely elected and he won because of the support of those known as Korea's 386 generation. The three stands for people in their 30s. The six because most were born in the 60s. The 8 for the 1980s, a decade that began in Korea with the killing of hundreds of pro-democracy protesters in a governmental crack-down that South Koreans refer to still as the Kwangju Massacre.

CHI YEON HO, PRESIDENT, OHMYNEWS: I was in the generation believes that the United States supported and endorsed the dictatorship regime responsible for Kwangju.

DOBBS: Mr. Ho says the Kwangju Massacre fueled anti-Americanism among the 386 generation. Mr. Ho himself was imprisoned for a year for criticizing both the South Korean and U.S. governments.

The 386 generation stakes much of its identity on independence from U.S. policy in the region.

In December of 2002, candlelight vigils for two Korean schoolgirls that were killed by a U.S. military personnel vehicle was full-scale anti-American protest.

That anti-Americanism is reflected in a Pew Research. The survey found 44 percent of South Koreans had a negative opinion of the United States. Only Muslim countries and Argentina dislike America more.

Some suggest those popular opinions surveys reflect a need for a change in U.S. policy.

EMMOTT: I think the experience of dealing with South Korea on the decades of dictatorship probably shaped American attitudes and also froze the American position with regard to South Korea. Under dictatorship, you could influence a single set of people, politicians. Under a democracy, you have to influence a wide range of people many of whom will have local sensitivities, their own interests, their own prejudices.

DOBBS: Some of those prejudices border on the delusional. Most South Koreans actually believe that if North Korea were to use nuclear weapons, they would be directed at Japan or the west coast of the United States, but not at Kim Jong-il's ethnic cousins to the south.

HO: Historically, North Korea and South Korea have been one nation and we have the same blood. It is beyond ideology and politics.

DOBBS: But it is because of politics and ideology that the United States maintains 37,000 troops. After 50 years after an attempt to repel the north's invasion of the south.

Early in his career, President Roh called for the complete withdrawal of U.S. forces from the peninsula. More recently, as Defense Secretary Rumsfeld said that would be fine with him, Roh and others backtracked. They have made it clear they want U.S. troops to remain.

CHA: While generations change in Korea, one thing that doesn't change in Korea is geography and Korea will forever be a small country in a region of very big powers.

DOBBS: Those big powers, China, Russia, and then Japan, but what if the biggest country of all were to withdraw its troops from the peninsula?

EMMOTT: I don't think it matters to regional security beyond South Korea. I think the U.S. has enough resources, enough friends and facilities to deal with the broad, regional security issues without South Korea.

DOBBS: The question now is whether South Korea's new government, which rode a tide of anti-Americanism to victory at the polls, possesses the character to successfully manage a changing relationship with the north and an evolving relationship with its most powerful ally, upon whom it's dependent for national security and from whom it must demonstrate political and social independence to preserve its national identity.

(END VIDEOTAPE)

HOPKINS: Diplomatic efforts continue between South Korea and the United States. Earlier this month, South Korean President Roh Moo- hyun met face to face with President Bush for the first time.

During their summit, the two leaders agreed to seek a peaceful solution to the nuclear stand-off with the north but also to consider, quote, "further steps if Pyongyang continues threats to peace and stability on the peninsula."

Still ahead, you e-mails. We'll share some of your thoughts on exporting America.

Plus, the dramatic economic success and challenges facing South Korea. Part of our special series from "The Economist" magazine.

And we'll hear from international financier Wilbur Ross.

(COMMERCIAL BREAK)

HOPKINS: Over the past two decades, South Korea has become one of the most successful economies in the world. South Korea is now the 12th largest trading nation. Its growth rate climbed to 6 percent last year after the economic crisis of the late 1990s.

We look at the South Korean economy in conjunction with "The Economist" magazine in "Challenges of Change: The New Korea."

Again, Lou Dobbs reports.

(BEGIN VIDEOTAPE)

DOBBS (voice-over): Welcome to the most wired nation on Earth: South Korea. It leads the world in broadband Internet access. Sixty- seven percent of Korean households have a broadband connection, compared to only 15 percent in the United States.

And Seoul has fast become the online gaming capital of the world, thanks to startup NCsoft, created and run by a 35-year-old Kim Tack Jin.

KIM TACK JIN, PRESIDENT AND CEO, NCSOFT, Korea had the leadership in the area of the Internet and we give a lot new style of content, especially in games.

DOBBS: And with more than four million subscribers, NCsoft's online fantasy game, "Lineage," allows 300,000 players to log on at the same time. It surprised even gaming powerhouses like Microsoft and Sony.

But even today, it is the chaebol of large family-controlled businesses such as Samsung and Hyundai who wield real economic power here.

The chaebol were responsible for the success of Korea Inc. that made the quick industrial growth in capital-intensive sectors like steel and semiconductors. The success has come at a cost. Rules bent and laws broken.

The chaebol have sometimes been built on insider training, questionable accounting practices and sweetheart deals, some sanctioned by the government.

EMMOTT: Korea has had crony-capitalism in the past. Their were a lot of big strides in pushing it back. It hasn't gone far enough. There's still too much corruption.

DOBBS: Hyundai, the largest chaebol, was forced to break up. Daewoo, second on the list, defaulted in 1999 on $78 billion of debt. Korean accounting standards remain murky and many remain unconvinced by attempted reforms of the chaebol.

VICTOR O. CHA, PROFESSOR, GEORGETOWN UNIVERSITY: If you look at the exit polling, for the election, you will find that contrary to what many people outside of South Korea might think, North Korea was not the number one issue. The number one issue for voters was the economy and it was reform in terms of political reform and ridding corruption.

EMMOTT: The chaebol represents an unhealthy concentration of power in the Korean economy and Korean society. It's just like the Rockefeller Trust and other big monopolies formed in the United States in the early 20th Century. The monopolies were too big; they had to be broken up. It's the same in South Korea.

DOBBS: The major challenge to the South Korean economy miracle in the short term comes from just north of the border.

CHA: I've done lots of conference calls with investors in which the main question that they ask is not about the Roh Moo-hyun government, not about his economic plans, not about his economic advisors. It's about the threat from North Korea.

DOBBS: In February, Moody's had its long-term outlook on the South Korean economy from positive to negative because of rising tensions on the peninsula.

But ironically, if war with the north causes concern, reunification would bring its own substantial problems. North Korea's economy is in shambles. Absorbing communism's worst failure could easily cost more than a trillion dollars.

South Korean leaders argue the answer, both to avoiding war with the north and easing the cost of reunification, is the same. The Sunshine Policy, that's the term of former President Kim Dae-Jung's program of reconciliation, engagement and investment in the north.

CHUN: The kind of achievement and accomplishment in the humanitarian, economic and non-controversial areas between north and south for the last five years will not be reversible or revocable.

DOBBS: So far, it's resulted in the construction of north-south rail links through devastated North Korea that could open eventually Chinese, Russian and European markets. And there have also been dramatic family reunions across the DMZ.

Still, some argue the Sunshine Policy has a darker side, a side that can no longer be ignored.

LEE: Ironically, of the hundreds of millions of dollars we gave to North Korea, I am convinced that much of the money was used for military purposes to target the U.S. forces as well as South Korea. And this is the biggest irony of the Sunshine Policy.

(END VIDEOTAPE)

HOPKINS: For more on the rise of South Korea's economy, Lou spoke with Wilbur Ross. He's the chairman and CEO of WL Ross and Company, perhaps the best known restructuring financier in this country.

He has first-hand experience in Korea. He was awarded a medal by the South Korean government for his help during the crisis of 1997 and '98. Lou began by asking him to what extent will the impact on the South Korean economy be lasting.

(BEGIN VIDEOTAPE)

WILBUR ROSS, CHMN. & CEO, WL ROSS: I think it will only last until there's some resolution of the present situation. Prior to that, most of us were quite convinced that North Korea didn't really want war, had no aggressive plans. And I felt the Sunshine Policy would lead, not to reunification but to normalization of relations.

I don't think anybody wants reunification. The German experience has proven how expensive that can be.

But South Korea desperately needs a low-cost manufacturing alternative to China. Eight-hundred companies had signed up with Hyundai for what was going to be a big industrial park just on the north side of the DMZ before the Sunshine Policy was eliminated by our government.

DOBBS: Are the antics of Kim Jong-il inexplicable to you?

ROSS: No. And I think that's the only weapon he has. You have people starving there. And no condition's stronger than having a common enemy to distract a starving population from their own problems.

But I also think if you look at the timing, he was very agreeable until the Sunshine Policy was knocked out. He really wants money, not weapons.

DOBBS: He wants money. Not weapons. But he is engaging in nuclear blackmail now.

ROSS: Up to this point.

DOBBS: He's successfully in at least creating an engagement. And, at the same time, he is leading a country, dictator of a country of some 25 million people. Of almost 15 million people in South Korea.

He is watching an economic miracle right across the border. He is watching the punishment of his own people.

ROSS: Right.

DOBBS: There can be no question what the right answer is here.

ROSS: Well, I think the right answer was what was about to happen before the Sunshine Policy was ended, namely South Korea and Japan were going to dump tens of billions of dollars into North Korea, as they say, to provide an alternative to China. It's unfortunate that our geopolitical policy interfered with the economic trend that was developing.


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