Warning Shots Fired at N.Korean Patrol Boat in West Sea
A North Korean patrol boat crossed the Northern Limit Line (NLL) at around 4:47 p.m. on Wednesday, but retreated after the South Korean Navy fired warning shots. This is the first time that a North's patrol boat has trespassed the NLL since the North and South's military authorities activated the hot line on June 15 to prevent accidental confrontation between the two nations.
According to the Joint Chiefs of Staff (JCS), the North's patrol boat crossed the NLL 0.7 miles towards the south while controlling Chinese ships engaging in illegal operations 15 miles west off the sea from Yeonpyong Island. But it retreated 7 minutes after the South's Navy fired warning shots.
At around 4:40 p.m., right before the boat crossed the NLL, the Navy broadcasted a warning message saying, "Your boat is approaching the NLL. Please, move back to the North immediately." Then, at 4:48, seeing the boat trespass the line, they sent another warning message three times saying, "Your boat crossed the NLL. If you do not move towards the north immediately, we will fire warning shots." Despite these warning messages, the North Korean patrol boat continued to move south, so the Navy fired two shots at 4:54 and drove the boat away north of the NLL at 5:01.
A JSC official said, "Considering that four Chinese fishing ships were operating on the northern sea when the North Korean patrol boat crossed the NLL, we think that they crossed the line accidentally while supervising illegal fishing activities."
There is a possibility, however, that the boat invaded into the NLL to test the South Korean will to guard themselves in this atmosphere in which inter-Korean military tensions have eased following the recent general-level military talks. This assumption was made because unlike other days, there were strange problems in communication between the South and North's patrol boats that day.
Last year, North Korean patrol boats crossed the NLL five times in total and retreated after receiving warning shots three times.

(englishnews@chosun.com )

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Seoul's confusing love-in with Pyongyang
By David Scofield

It's been confusing times recently for North Korea's supporters and alleged collaborators in South Korea, a relatively new democracy that has launched a virtual political love-in with Pyongyang, turning a blind eye to its widespread repression and human-rights abuses. Some critics of the North, such as those who try to run an anti-Pyongyang radio station, Free North Korea, have been harassed - FNK may even be forced off the air. And yet a pro-Pyongyang professor languishes in jail - and his sentence soon may be increased for his refusal to denounce the North.
First, on July 1, the Presidential Truth Commission on Suspicious Deaths proclaimed that three North Korean spies who died 30 years ago in South Korean custody were actually "martyrs" in Korea's fledgling democracy movement. Then a day later, the state prosecutor's office announced it would seek to increase the seven-year sentence of German-Korean Professor Song Du-yul, another North Korean supporter, to 15 years for his refusal to renounce involvement in activities in "praise and support" of North Korea's leadership. The Truth Commission has little genuine interest in the plight of Song now, but 30 years after his death he too may be retrospectively labeled a "martyr" in modern South Korea's struggle to realize democracy.
Song Du-yul, like the North Korean spies of 1970, has been imprisoned under anti-subversion, anti-communist legislation that since 1991 has been called the National Security Law (NSL).
The NSL was designed to "suppress anti-state acts that endanger national security". There is no direct reference to North Korea, but Article 1 of that country's constitution states, "The Democratic People's Republic of Korea is an independent socialist state representing the interests of all the Korean people." This strongly suggests that the Pyongyang government is the only legitimate government on the Korean Peninsula and, as such, has earned the title "anti-state" by South Korean authorities.
Professor Song, who returned to South Korea last September 22 at the urging of the Korea Democracy Foundation, was detained by authorities upon arrival at Incheon airport for his "anti-State" activities. Song, a naturalized German citizen, had been convicted by a Seoul court on March 30, 2003, of joining the (North) Korean Workers Party, accepting money from that "anti-state" organization and planning meetings with the same group - offenses still punishable by death in South Korea.
Song knew there was a high likelihood he would be arrested upon his return, but the presidential election of Roh Moo-hyun, the self-styled defender of human rights and ardent advocate of democracy, prompted Song and the Korea Democracy Foundation to challenge the anachronistic law on "anti-state" activities, a decision that Song is paying for with his freedom.
Song is currently in prison awaiting a ruling on the appeal of charges against him, but he is not the only party appealing. The state prosecutor has said the court erred in not finding Song guilty of planning academic meetings in North Korea and it is appealing the sentence, demanding that Song serve a minimum 15 years for his actions and beliefs.
Of course, while Song cools his heels in detention, potentially for the next 15 years, the South Korean government is fully committed to supporting all manner of rapprochement with the "anti-state" government of North Korea. The current administration, like the preceding one under former president Kim Dae-jung, has made reconciliation with North Korea the top priority. South Korea has played host to innumerable events and festivals in celebration of intra-Korean friendship. Most recently Workers Party members from North Korea, "praisers" of the "anti-state North", celebrated with South Koreans at Munhak Stadium in the port city of Incheon in recognition of the four-year anniversary of the North-South summit of June 15, 2000. Not even the arrival of outspoken human-rights activist Norbert Vollersten, displaying photos of the malnourished and starving people in North Korea, could dampen the mood at the intra-Korean love-in.
Explicit articles within the National Security Law notwithstanding, South Korea's rapprochement polices, focused as they are on financial incentives, are illegal and punishable by prison sentences ranging from a year in prison to death, a reading of the document shows.
Intra-Korean cultural festivals and sports meets have become convenient channels for government-sanctioned cash payoffs to North Korea, an offense punishable by seven years in jail. The fourth anniversary of the now-infamous North-South Summit that was celebrated in Incheon last month in itself was a product of a widely reported US$500 million payoff to North Korean leader Kim-Jong-il. The North Korean cultural ambassadors and athletes who have come to South Korea since the summit have left with bags far heavier than when they arrived, as the goodwill of North Korea comes with a high price. Indeed, during the Peace Festival on the South Korean island of Cheju last year, North Korean participants refused to board their plane, already loaded down with new appliances from South Korea, as they said the money being sent to the "Dear Leader" was simply not enough, according to reports. The group demanded, and eventually got, an additional $1 million for Kim, it was reported.
Concerning the "cash for summit" scandal, as it was called in South Korea, former president Kim Dae-jung acknowledged that $100 million went to North Korea, while reports at the time put the amount at $500 million. Many speculated, however, that the real figure was closer to $1 billion. There was a trial and many of Kim Dae-jung's underlings were convicted of the payoff, but all received light, suspended sentences, since the crime was committed with the motive of reunification, or so thought the judge.
During the past year, the South Korean government has become increasingly savvy in finding ways to channel cash to North Korea. The much-heralded Gaesung Industrial Complex appears set to become another conduit for cash to North Korea. Since its inception, those involved with the project have expressed doubt about the viability of the project. The lack of any adherence to market principles - combined with the North Koreans' strong adherence to the pan-Korean practice of making deals and promises only to change agreements unilaterally later as it suits them - make the prospects of profit from the zone, even when the North Korean workers will be paid less than $2 a day, a very remote possibility. Undaunted, the government of South Korea has pledged that any losses incurred by Southern companies will be absorbed by Seoul. The message is clear: you invest the money, we will reimburse you.
So why is Song in jail?
The National Security Law represents to conservatives in South Korea the last line of defense, thwarting ideological invasion from North to South, and it would a mistake to assume that the leftist, pro-North rhetoric so often articulated by those in the Blue House is representative of all government organs, especially those conservative bureaucrats involved in state security. For incumbent administrations, the law's vaguely written articles allow the prosecution of, and the government maximum leeway in interpreting, "anti-state" violations, so that the law becomes a very powerful tool of internal control, and further insurance that all dealings with North Korea will be channeled through the government.
South Korea's use of the NSL to muzzle and imprison ideological supporters of Pyongyang, and not those simply committed to policies of rapprochement through financial appeasement, calls into question the liberal democracy that South Korea purports to be. True reconciliation and rapprochement should be a product of free information and open discussion. Information empowers individuals and changes societies, as the leadership in North Korea is well aware; they maintain unprecedented control over information within the country, a key to the regime's survival
But South Korea, with its liberal democratic institutions, should be establishing itself as an example to its brethren to the north. Let the people of South Korea freely speak, disagree, and debate their beliefs and convictions. The maintenance of the NSL and the imprisonment of Song give the impression that South Korea is not sure of its democracy or democratic principles, fearing plurality and discord, and opting for suppression rather than discussion and debate.

David Scofield, former lecturer at the Graduate Institute of Peace Studies, Kyung Hee University, is currently conducting post-graduate research at the School of East Asian Studies, University of Sheffield, United Kingdom.

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Logging on to terror.com
By Sudha Ramachandran

BANGALORE - While militant and terrorist groups have been using the Internet for almost a decade, its growing popularity as a meeting place for terrorist groups over the past few years has made cyberspace a key battleground in the "war on terror". Far from successful at "smoking out terrorists" from their hideouts in the mountains and caves of Afghanistan, counter-terrorism strategists are finding the task of tracking terrorists and their activities in cyberspace even more daunting.
There has been a sharp increase in the number of militant groups using the Internet for their activities. In 1998, about half of the 30 militant groups that were labelled terrorist organizations by the US maintained websites. By 2000, almost all terrorist groups had established their presence on the web. According to Gabriel Weimann, senior fellow at the Washington-based United States Institute for Peace (USIP) and professor at the Haifa University in Israel, the number of terrorist-run websites has increased by 571% over the past seven years.
The Internet has become the terrorists' preferred choice of communication for the same reasons it is popular among people in general: it is quick, inexpensive and easily accessible. What makes it particularly attractive to terrorists is that it gives access to huge audiences spread across the world, provides anonymity and is hard to police or regulate.
Not only have the number of terrorist websites increased, but also the uses to which terrorists put the Internet have diversified. Its use as a propaganda tool is perhaps the most overt. Terrorist websites typically outline the nature of the organization's cause and justifications for the use of violence. The Liberation Tigers of Tamil Eelam (LTTE) website, for instance, carries accounts of the LTTE's "freedom struggle", the legality of its demand for an independent Tamil Eelam and the legitimacy of its armed struggle. The website carries interviews given by LTTE leader Velupillai Prabakaran and his speech on "Heroes Day". It also carries press releases that provide the media with its take on events in Sri Lanka.
But use of the Internet as a propaganda tool is just the tip of the iceberg. Terrorists are using the Internet as a weapon in psychological warfare, to raise funds, recruit, incite violence and provide training. They also use it to plan, network and coordinate attacks. Thomas Hegghammer, who researches Islamist websites at the Norwegian Defense Research Establishment, says that "in a sense, [the Internet has] replaced Afghanistan as a meeting place".
Groups with links to al-Qaeda used the Internet as a weapon in psychological warfare in the recent spate of kidnappings and beheadings that they carried out. Gruesome videos of the killing of Daniel Pearl and the beheadings of Nick Berg, Paul Johnson, Kim Sun-il and others were posted on the Internet. By doing this, the terrorists were able to reach out to a global audience, and in the process amplify many times over the terror generated by a single terrorist incident.
The "heroism" of the fighters, their "sacrifices" and their "martyrdom" are recurrent themes on which militant websites focus. These are aimed at motivating others to join the cause and also to encourage donations. It is said that while websites play an important role in motivating youngsters to contribute in one way or another to the cause, they stop short of actually recruiting through the web.
Women and children are targeted by these websites, too. Mothers are exhorted to send their sons to battlefields. One website - Princess Taliban - details the many ways women can help the jihad cause, including reading the proper bedtime stories to prepare their children for a future as combatants.
Several websites incite violence and provide know-how, even online training in terror tactics. In an interview with ABC's Lateline reporter Tony Jones, former Reuters journalist Paul Eedle, who is studying radical Islamic websites, compared the Internet with a training camp. He drew attention to two fortnightly magazines, one general political and the other specifically military, being developed by al-Qaeda in Saudi Arabia. Explaining the significance of these online training magazines to al-Qaeda, Eedle pointed out: "They have to replace their physical bases in Afghanistan somehow and so long as there is a small number of highly trained people to lead groups, then these detailed manuals of writing how to write recipes for explosives are all crucial."
The Palestinian militant group Hamas has been providing online training in bomb-making for several years. The module consists of 14 lessons, including the production of a belt filled with explosives used often by suicide bombers. Those who show lack of commitment by missing a class are not allowed to continue with the course.
"The Terrorist's Handbook", "The Anarchist Cookbook" and the "Mujahideen Poisons Handbook", which provide detailed instructions on how to construct bombs and concoct homemade poisons, are posted on several militant websites.
Another manual distributed through the Internet is "The Encyclopedia of Jihad". Prepared by al-Qaeda, it provides detailed instructions on how to establish an underground organization and execute attacks. A recent edition of the al-Qaeda's publication al-Battar - or "The Sword" - provides a comprehensive guide to kidnapping, suggested hostage-taking methods, potential targets, negotiating tactics and directions on how to videotape the decapitation of victims and post the video on the web. Incidentally, this online information was posted ahead of the recent spate of kidnappings and beheadings in West Asia.
Speaking at the New American Foundation in Washington last week, Weimann pointed out that the Hezbollah site provides links to downloadable games. "These games are training children to play the role of terrorists, to be suicide bombers and to actually kill political leaders," Weimann said.
The Internet has been described as a virtual Afghanistan, where terrorists can meet, discuss and plan their operations. Terrorists have been hiding pictures and maps of targets in sports chat rooms, on pornographic bulletin boards and on web sites. Encrypted messages are being sent in pictures on websites - a practice known as steganography - containing instructions for terrorist attacks.
In a USIP-published report "How Modern Terrorism Uses the Internet", Weimann points out that al-Qaeda used the Internet extensively while planning and coordinating the September 11 attacks. Thousands of encrypted messages were posted in a password-protected area of a website. By accessing the Internet in public places and sending messages via public e-mail the operatives preserved their anonymity. He also describes how Hamas militants and sympathizers "use chat rooms to plan operations and operatives exchange e-mail to coordinate actions across Gaza, the West Bank, Lebanon and Israel". Instructions in the form of maps, photographs, directions and technical details of how to use explosives are often disguised by means of steganography, which involves hiding messages inside graphic files.
Sometimes, however, instructions are delivered concealed in only the simplest of codes. Mohammed Atta's final message to the other 18 terrorists who carried out the attacks of September is reported to have read: "The semester begins in three more weeks. We've obtained 19 confirmations for studies in the faculty of law, the faculty of urban planning, the faculty of fine arts, and the faculty of engineering." (The reference to the various faculties was apparently the code for the buildings targeted in the attacks.)
But experts like Hegghammer reject the view that militants use the Internet to plan and coordinate attacks. He believes that the sort of planning required for attacks is done in secret "very, very carefully". The Internet, he argues, is used mainly to share ideas and spread propaganda.
While it is the use of the Internet by Islamic militants that has grabbed the attention of intelligence agencies and counter-terrorism officials over the past several years, the Internet is being used by an array of groups with very different ideologies, including American white supremacist and militia groups, anarchists and groups with secessionist ambitions like the self-proclaimed "Republic of Texas". They, too, incite violence and provide input on bomb-making.
Fighting a losing battle
Counter-terrorism experts find themselves in the deep end in their "war on terror" in cyberspace. The rapid pace at which information technology is advancing makes it hard to fight terrorists. Several Islamist militant groups might be using medieval methods of violence, such as beheading, but the skill with which they are using the Internet indicates that their feet are firmly placed in the 21st century.
Shutting down websites does not help, as they re-emerge quickly on different servers. It is difficult to catch moving targets. Weimann describes terrorism on the Internet as "a very dynamic phenomenon: websites suddenly emerge, frequently modify their formats, and then swiftly disappear - or, in many cases, seem to disappear by changing their online address but retaining much the same content".
Not only is the task of intercepting encrypted messages and images on the Internet's estimated 28 billion images and 2 billion websites a tough one, but also interpreting it is difficult as it is impossible to read an encrypted message without cracking the encryption's code. Cracking a code is time-consuming. However, a highly encrypted message crossing the net can sometimes grab the attention of security sleuths who are then likely to crack it. This has prompted several militants to opt for low-tech, text only messages, as these are unlikely to catch attention.
Analysts are suggesting that instead of engaging in a futile effort of closing down websites, counter-terrorism strategists should simply listen to what is being discussed in cyberspace - in the chat rooms and discussion rooms. The discussion rooms provide intelligence on attacks, but more importantly, on how ideology and opinion is shaping in the larger Muslim community. Hegghammer argues: "That is where you really get the early signs of the ideological developments, which are later going to affect us, or might affect us, physically."
Governments and counter-terrorism experts are doing their best to keep up with the terrorists. But barring major technological advances, the cat and mouse game going on in cyberspace is likely to continue, with the mouse remaining elusive.

(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)
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Pakistan faces its jihadi demons in Iraq
By Kaushik Kapisthalam

When it comes to troops for Iraq, it is no secret that the United States is not too gently pressuring Pakistani President General Pervez Musharraf to send soldiers for peacekeeping purposes. And with the appointment of the current Pakistani ambassador to the US, Ashraf Jehangir Qazi, as the next United Nations envoy to Iraq, it appears likely that Islamabad will bow to the pressure.
Should this happen, among the threats its soldiers are likely to face are those from a number of foreign jihadis. While current world attention - thanks to Washington's conviction - seems to be largely focused on Jordanian terrorist Abu Musab al-Zarqawi and his al-Tawhid force, one of the least-reported foreign jihadi groups in Iraq is one of Pakistan's very own - Lashkar-e-Taiba (LeT).
LeT's origins
LeT is a Pakistani Salafist (Wahhabi) jihadi group that was formed in 1986 as the military wing of the Markaz Da'wa wal-Irshad (MDI) or "Center for Religious Learning and Social Welfare". Pakistani Salafists Zafar Iqbal and Hafiz Mohammad Saeed, both professors in the Islamic studies department of the University of Engineering and Technology of Lahore, set up LeT with seed money from a Saudi "sheikh" whom many believe to have been Osama bin Laden. There were also generous contributions from the Islamic University of Medina in Saudi Arabia. Another founding member of the LeT was bin Laden's mentor, Abdullah Azzam, who also had a role in the founding of the Palestinian Hamas.

LeT and the Markaz soon set up bases in the eastern Afghanistan provinces of Kantar and Paktia, both of which had a sizable number of Ahle-Hadith (Salafi) sect followers of Islam, with the aim of participating in the jihad against the Soviet occupation of Afghanistan. Because the LeT joined the Afghan jihad at a period when it was winding down (the Soviets invaded in 1979), the group did not play a major part in the fight against the Soviet forces, which pulled out in 1989. However, the Afghan campaign helped LeT gain the trust of Pakistan's Inter-Services Intelligence (ISI) agency as well as gain a cadre of war-hardened fighters. In the 1989-90 period, however, the LeT turned its attention from the internecine squabble in Afghanistan to Kashmir, which is where it gained its notoriety.

Although confused by many analysts as a "Kashmiri" group, LeT in fact is mainly made up of Pakistani Punjabis, with a smattering of Afghans, Arabs, Bangladeshis, Southeast Asians and the occasional Western Muslim recruit. Though the LeT's nominal goal was to help Pakistan annex Indian-administered Kashmir, it fit in well with its grand plans of establishing an Islamic caliphate. LeT sees Hindu-majority India as an obstacle on a par with the US and Israel to the Islamist dream of creating a unified empire that spans the entire Muslim world. LeT is still active in Kashmir, while simultaneously being faithful to its original goal.

Dilshad Ahmad and Fallujah
In April, Indian journalist Praveen Swami, who has long experience in reporting on terrorism, defense and security matters, broke a story in Outlook about a leading LeT ringleader named Dilshad Ahmad being arrested in Iraq by British forces, and then given over to the US for interrogation. A few other people were arrested with Ahmad, who went under several aliases, including Danish Ahmad and Abdul Rehman al-Dakhil.

After the interrogators determined Ahmad's identity, they reached out to their Indian counterparts to find out more about his origins. Ahmad, a longtime Lashkar operative from the Bahawalpur area of Pakistan's Punjab province, was LeT's operational lead for its campaign of violence in India between 1997 and 2001. Ahmad is also known to be a confidant of Zaki-ur-Rahman Lakhvi, the second-in-command in the Lashkar military hierarchy, and has trained many LeT fighters in its Maskar Abu Bashir camp in Afghanistan.

In 1998, Ahmad addressed a major LeT conference in the group's headquarters at Muridke, near Lahore, arguing for the need to extend the organization's activities outside Kashmir. Given all this, Ahmad's presence in Iraq signals an intent on LeT's part to set up a beachhead in Iraq, and therefore should have sent alarm bells ringing among US authorities. But so far there has been little direct mention of the LeT arrest in Iraq beyond the original report of Ahmad's arrest.

Other media reports, while not directly talking about LeT in Iraq, have hinted at such a presence, especially in the violence-torn central Iraqi city of Fallujah. A June 25 report in the Washington Times said that jihadis from foreign nations, including Pakistan, had set up checkpoints throughout Fallujah and were imposing Taliban-like harsh Islamic laws. Even before that a few media reports and comments by military analysts noted the presence of Pakistani jihadis in Iraq. It is quite possible that LeT operatives had set up bases in the Fallujah area in the Sunni triangle.

LeT's suitability for Iraq
Among all the Pakistani jihad groups, there are many reasons the LeT is most suited to operate in Iraq. First, unlike the Deobandi (Islamic thought) jihadi groups such as the Jaish-e-Mohammed and the Harkat-ul-Mujahideen, LeT does not have any political ambitions inside Pakistan. The Deobandis have built a powerful political movement within Pakistan, but their political participation has also resulted in periodic tussles with the Pakistani army, which although highly supportive of jihad in Afghanistan and India, nevertheless brooks no challenge to its vise-like grip on political power within the nation. In contrast, the LeT-led Pakistani Salafist movement has traditionally stayed apolitical, and instead focused on global jihad outside Pakistan. Given this, LeT has had a free hand to operate within Pakistan.

Another aspect of LeT's activities is its charitable wing, the Dawa. In fact, the current name of the LeT's parent group is Jamaat-ud-Dawa, or the Party for Preaching. Through its charitable wing, LeT attracts many doctors, engineers and educated professionals to its cause. This could provide a great cover for the LeT to infiltrate into a strife-torn nation such as Iraq. The LeT also has strong links among Saudi Islamists, as well as some members of the royal family. According to LeT's own past claims, a significant portion of its funding comes from Saudi sources, given its Wahhabi ideals. LeT has a good number of Arab volunteers, and it also makes it compulsory for its non-Arab recruits to learn Arabic, which means that its members can easily mingle with Iraq's Arabic-speaking population. For all these reasons, it is not surprising that the LeT sees Iraq as a golden opportunity to strike at its biggest target - the United States.

LeT's overseas experience
LeT has a proven track record of operating far away from its Pakistani base. In what has come to be known as the "Virginia jihad" case, US authorities broke up a terrorist cell in the state of Virginia this year. The ringleader of the cell was a man named Randall Royer, an American convert to Islam. During the trial, six men pleaded guilty, while three more were convicted of terrorism-related charges. The men, belonging to various ethnic backgrounds, admitted to being members of LeT and the published indictment laid out the dates and periods when they went to Pakistan to train in LeT's camps.

The indictment also pointed out that LeT's own website, which constantly changes its address, said the group had four facilities for training mujahideen from around the world, including camps named Taiba, Aqsa, Um-al-Qura and Abdullah bin Masud. The trained LeT fighters, the website claimed, participated in jihad in Afghanistan, Kashmir, Bosnia, Chechnya, Kosovo and the Philippines. The website also prominently displayed a banner portraying LeT's dagger penetrating the national flags of the US, Russia, the United Kingdom, India and Israel. Another LeT cell was recently broken in Australia, with plans to blow up a nuclear reactor, among other targets.

A call to arms
LeT's publications, which are still freely available in Pakistan, have long been a harbinger of the group's plans. Of late, LeT's official statements have concentrated on Iraq more than Kashmir. In fact, a recent editorial in LeT's weekly Urdu publication Ghazwa (Arabic for a raid against unbelievers; September 11, 2001, is described by al-Qaeda as a Ghazwa) called for sending mujahideen to Iraq to take revenge for US actions in the Abu Ghraib prison scandal as well as for the "rapes of Iraqi Muslim women". A translated excerpt from that editorial is below:


The Americans are dishonoring our mothers and sisters. Therefore, jihad against America has now become mandatory. We [LeT] should send our mujahideen to Iraq to fight with the Iraqi mujahideen. Remember that the mujahideen are the last hope for Islam. If the mujahideen are not supported today, Islam will be erased from the map tomorrow.
In this context, Indian reporter Praveen Swami and Pakistani correspondent Mohammad Shehzad recently broke a story that claimed that up to 2,000 Pakistani men had signed up for LeT's armed operations in Iraq, based on their leaders' calls for jihad. Pakistan's border with Iran is porous and could provide an easy opportunity for LeT's fighters to enter Iraq from the east. Notably, Dilshad Ahmad was reportedly captured in Basra, which is close to Iran. LeT's intimate ties with Saudi Arabian Islamists provide another convenient route into Iraq, from the largely unguarded southern Iraqi border with the kingdom.

Banned but free?
What perplexes most analysts is why the US has not pressed Pakistan to shut down the LeT in the first place. Under pressure from the US and the military threat from India, Musharraf banned the LeT, along with some other groups, in January 2002. While more than 2,000 terrorists were arrested, all but a handful were released after a few weeks.

But what happened with the leaders was egregious. According to the Human Rights Commission of Pakistan, LeT's Emir Hafiz Saeed was whisked away to a safe house of Pakistan's ISI. After a few months, he was released without any charges being pressed against him. To make up for the inconvenience, Pakistan government apparently even paid him a stipend during his "arrest".

Soon after his release, Emir Saeed barnstormed around Pakistan collecting funds and recruiting volunteers for jihad in Kashmir, Afghanistan and other places. Things got so blatant that US Ambassador to Pakistan Nancy Powell had to issue a harsh statement about the farcical ban, which forced the Pakistanis to act. Even then, the Pakistanis placed LeT on a "watchlist". To make clear where things stood, LeT organized a 150,000-strong rally just hours after being put on the list, and Emir Saeed promised the faithful that its jihad would continue in Kashmir, as well as in Iraq.

LeT also has close ties with al-Qaeda. In April 2002, top al-Qaeda leader Abu Zubaida was arrested from an LeT safe house in Faisalabad, Pakistan. Pakistani officials did not, however, arrest the local LeT leader who had housed Zubaida. LeT also prides itself in its fighters' ability to be brutal. French Islamic experts Maryam Abou Zahab and Olivier Roy note in their recent book Islamist Networks: The Afghan-Pakistan Connection that LeT teaches its members such skills as beheading and eviscerating victims to inflict terror. LeT has also pioneered fidayeen or suicide attacks with multiple fighters on the same target to cause maximum damage.

The upshot for the US and Pakistan
This saga of LeT expanding from a home-grown Pakistani jihadi group focused on Kashmir into a possible multinational terror network points out the danger in allowing nations such as Pakistan to make distinctions between "good terrorists" (who don't attack Americans or Pakistanis) and "bad terrorists" (who target Americans or Pakistanis).

For the Pakistanis, the blowback from a policy of state sponsorship of jihadi groups began in 2002 when a five-member "coalition" of the jihadi organizations was launched to avenge the US invasion as well as Musharraf's about-turn in Afghanistan, where he renounced the Taliban. The coalition was called Brigade 313 (from the number of warriors in the battle of Badr in the times of the Prophet Mohammad) and was made up of the jihadi groups LeT, Jaish-e-Muhammad, Harkat-ul-Jihad al-Islami, Harkat-ul-Mujahideen al-Almi and Lashkar-e Jhangvi. The 313 group is said to be responsible for the killings of Christians in Pakistan, and also attempts on Musharraf's life. Despite this, Musharraf has tried to cut deals with groups such as LeT, instead of shutting them down. It would be ironic if Pakistan sends its troops to Iraq, only to end up fighting terror groups fostered by its own military establishment.

For the US, the scenario is starker. Perhaps US authorities did not want to press Musharraf on LeT because they thought the group was not directly targeting Americans. Or maybe they figured that the general was sincere in his promises to shut down the group. But LeT's Iraq campaign and its ability to recruit fighters openly in Pakistan to fight Americans abroad has exposed the hollowness of such a strategy.

(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)


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Arms suppliers scramble into Iraq
By Thalif Deen

NEW YORK - When the 15-member United Nations Security Council legitimized the US-imposed interim government in Baghdad in June, the five-page unanimous resolution carried a provision little publicized in the media: the lifting of a 14-year arms embargo on Iraq.
The Security Council's decision to end military sanctions on Iraq has triggered a rush by the world's weapons dealers to make a grab for a potentially multimillion-dollar new arms market in the already over-armed Middle East.
The former US-run Coalition Provisional Authority (CPA), which handed over power to the new Iraqi government on June 28, finalized plans for the purchase of six C-130 Hercules military transport aircraft, 16 Iroquois helicopters and a squadron of 16 low-flying, light reconnaissance aircraft - all for delivery by next April.
The proposed purchases were part of an attempt to rebuild and revitalize Iraq's sanctions-hit, weapons-starved military.
But some experts question the strategy.
"The flow of weapons to Iraq will not improve the security situation in Iraq, nor will it make the country safe from outside threats or an external invasion," said Naseer H Aruri, chancellor professor (emeritus) at the University of Massachusetts. "With 140,000 US military personnel, 20,000 from the so-called coalition of the willing and another 20,000 contracted civilians, Iraq remains occupied and denied effective sovereignty," said Aruri, author of Dishonest Broker: The US Role in Israel and Palestine.
"Purchasing weapons at this time, therefore, is more relevant to the needs of the occupier relating to the suppression of armed opposition, and consolidation of US hegemony. Moreover, it is not appropriate for the interim government, a subcontracting agency for the United States, to go shopping for arms as numerous arms exporting countries compete feverishly for contracts," he told Inter Press Service (IPS).
The United States, the United Kingdom and Jordan are providing assistance and training for the creation of a 40,000-person Iraqi army.
With blessings from the US Congress, the former CPA also earmarked about $2.1 billion for national security, including $2 billion for the new army and $76 million for a civil defense corps.
Since late last year, Iraq has purchased 50,000 handguns from Austria, 421 UAZ Hunter jeeps from Russia and millions of dollars' worth of armored cars from Brazil and Ukraine, along with AK-47 assault rifles, 9mm pistols, military vehicles, fire-control equipment and night-vision devices.
The biggest single deal was a $327 million contract with a US firm to outfit Iraqi troops with body armor, radios and other communications equipment. The contract has been challenged by two non-US firms that lost out on the bidding process.
The decision by the CPA to purchase the handguns from the Austrian gun maker Glock late last year evoked a strong protest to the Pentagon. "There are a number of US companies that could easily provide these weapons," Representative Jeb Bradley, a member of President George W Bush's Republican Party, said in a letter to US Defense Secretary Donald Rumsfeld, "Why were other firearms companies, namely American companies, passed over?" he asked.

The US Army Corps of Engineers awarded two contracts, totaling $2.7 million, to US firms in March for transmission, distribution, communications and controls for the Iraqi infrastructure. A third contract valued at $7.8 million - for a modern, digital cellular, command and control system to link the various sites of the Iraqi armed forces and the Coalition Military Assistance Training Team - was also awarded to a US-based company.

The US has also awarded a $150 million contract for the renovation of four military bases at Umm Qasr, al-Kasik, Tadji and Numaniyah in various parts of Iraq. And the Pentagon has plans to expand existing military bases near Mosul, Baghdad and Kut, specifically for the US Army. This contract is estimated at about $600 million.

"It does not seem wise to introduce new weaponry and military capability into Iraq's volatile mix of ongoing war and occupation, civil strife and political transition," said Frida Berrigan, senior research associate with the Arms Trade Resource Center, a project of the World Policy Institute.

On average, more than two US soldiers are killed each day, she said, and inter-Iraqi violence is taking a deadly toll on civilians and government officials. "Before Iraq is outfitted with high-tech weaponry, it seems that the low-tech needs of clean water and reliable electricity should be met," Berrigan told IPS.

In addition, if experience with the Iraqi police force is any indication of what is to come from a US-armed and -trained security force, she said, this is not the right time for the interim leadership to embark on an arms spending spree.

"Instead of aiding the United States in putting down the uprisings, thousands from Iraq's newly trained police force deserted, and many reportedly turned over their US-issued weapons to street fighters. How many of the 135 Americans killed during that month faced American guns and ammunition?" Berrigan asked.

"It's a well-known fact that Iraq is saturated with weapons and ammunition, particularly firearms and light machine-guns, but also others," said Mouin Rabbani, a Middle East analyst based in Jordan and a contributing editor to the Washington-based Middle East Report.

That is one reason the US has experienced so much difficulty in its efforts to eradicate the insurgency, he said: the insurgents do not appear to be dependent on a flow of weapons from outside their borders.

At the same time, the Iraqi security forces, particularly the Iraqi national army once it is properly reconstituted, does not have - or has only very few - weapons systems normally associated with national self-defense, such as combat aircraft, artillery and air defenses, Rabbani said.

"One can argue about whether or not investing in such systems constitutes a particularly wise move by the Iraqi national authorities given the numerous and severe challenges facing Iraqi society," he told IPS.

But it is a fact that a sovereign Iraqi state has a legitimate right to acquire sophisticated weapons systems and, given the way political and military leaders invariably behave, will seek to acquire them, he added.

Rabbani said Iraq has a long military tradition, some would even say a long tradition of militarism, and the dissolution of the Iraqi armed forces, combined with the destruction of much of the heavy weaponry that was left at the end of a previous war, means the government will have to invest considerably more in developing an effective military than would otherwise have been the case.

But, he added, "It would be particularly reprehensible if American and other arms exporters exploit their control of Iraq and its government to foist upon it the purchase and acquisition of weapons systems that are either prohibitively expensive, including systems marked up in price to make a fast buck, or unnecessary."
If they do so, Rabbani said, they will be repeating a pattern of weapons sales seen during the past several decades to, for example, Saudi Arabia and other Persian Gulf states (part of the system known as petrodollar recycling).
Overall military spending in the Middle East is estimated to reach about $55 billion annually by 2007, rising from about $52 billion in 2003, according to Forecast International, a US-based defense market research organization.
The big spenders include Saudi Arabia, which will average more than $18 billion in defense spending annually through 2007, followed by Israel (more than $9 billion), Iran ($4.5 billion), the United Arab Emirates (about $3.7 billion) and Egypt (more than $3 billion).
A large proportion of the funds is earmarked for weapons purchases, mostly from the US, the UK, France and Russia.
Iraq's first decisions concerning military acquisitions will be critical, Rabbani said, because they will virtually determine subsequent purchases (in terms of compatibility, for example).
"It therefore seems to me crucial that such decisions be made by a genuinely independent Iraqi government, upon the recommendation of a professional assessment by a genuinely independent Iraqi military high command, on the basis of both the current and future needs of the country and its existing traditions," he said.
Even "grants" of sophisticated weapons by the US or other states with military export industries will interfere with this process, said Rabbani. "The pattern in Iraq so far is that it is being seen as a financial bonanza - and where civilian contractors like Halliburton and Bechtel have gone, military contractors such as Lockheed and Raytheon can be expected to follow."

(Inter Press Service)


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Radio Free Syria to Break Assad's Media Monopoly
By Nick Grace
June 17, 2004

Radio Free Syria will hit the airwaves this weekend, Clandestine Radio Watch (CRW) has learned, marking the first phase of a sophisticated media campaign to chip away at the Ba'ath Party regime in Damascus and to promote democracy and tolerance.
The station's inaugural broadcast will occur on June 20, 2004, and air thereafter on Sundays at 1800 UTC on 13650 kHz.
Sources within the Reform Party of Syria, which built the station, tell CRW that the schedule is planned to expand after a period of testing. Although the sources would not confirm the location of the transmitter reports in the Israeli press point to a facility in Cyprus allegedly funded by Washington. "We are not funded by anyone," one source close to the station's operations said. "Radio Free Syria is being built independently with the support of Syrian businessmen and women who want openess and peace."
Radio Free Syria will be the first station run by Syrians, themselves, that promotes democracy, freedom of conscience and respect for minority and human rights. Its planners expect this message to serve as a burst of fresh air for their target audience, which is subjected to state-run propaganda that serves to bolster the ruling Ba'ath Party as well as Islamist programming preaching intolerance broadcast by such outlets as The Arabic Radio and Hezbollah's TV and radio stations. Live roundtable discussions are planned as well as comedy and entertainment that all listeners can enjoy - Muslims, Christians, Arabs, Kurds and Assyrians.
"This is just the first phase," a planner said. "The regime's feet is about to be put into the fire."
Listeners are welcome to contact the station by e-mail, webmaster@radiofreesyria.org. The station also has a Web site that contains programming that can be downloaded, www.radiofreesyria.org.

Run by the Reform Party of Syria the station began test broadcasts on the Internet on Mar 31, 2004, and is planning actual radio broadcasts to Syria via Cyprus.


Copyright ?1996-2004 ClandestineRadio.com. All rights reserved.

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Radio Free World
Liberty-starved countries see a boom in clandestine radio.

By Nir Boms & Erick Stakelbeck
Although it often seems like a solitary outpost of democratic sanity, the U.S. is not alone in waging the war of ideas.
Since 9/11, over a dozen privately owned, pro-democracy radio stations have emerged in freedom-starved countries like North Korea, Syria, Iran, and Cuba.
From the earliest days of World War II to its peak during the Cold War, clandestine radio played a critical role in the fight for liberty. Today is no exception.
Iraq's Radio al-Mustaqbal figured prominently in the CIA's covert plans to topple Saddam Hussein throughout the past decade. Likewise, Voice of the People of Kurdistan played an integral part in the Pentagon's psychological war prior to the U.S. invasion of Iraq last March, eventually helping to secure the surrender of 9,000 Iraqi soldiers at the outset of Operation Iraqi Freedom.
Following the fall of Saddam, these clandestine outlets, now fully licensed, joined the rapidly growing Iraqi media market, which is comprised of over 50 fledgling radio and television stations. Among them is Radio Dijla, Baghdad's only private, commercial radio station. Operating out of a modest house in the Baghdad suburbs, Radio Dijla allows listeners a forum to freely express their views and concerns, a concept unheard of in Iraq just 15 months ago.
In Afghanistan, where an estimated 96 percent of all households own a radio unit, clandestine radio has also begun to blossom. After the fall of the Taliban in late 2001, a pair of successful Afghan-Australian businessmen, Zaid and Sadd Moshen, returned to Afghanistan and developed the first commercial FM radio station in the country's history.
Called "Arman" (the Afghan word for home), the station addresses issues such as human rights, women's rights, national reconciliation, and the importance of private-sector contribution and social responsibility.
Beginning in 1979, Iran saw a similar rise in pro-democracy broadcasting spurred by the ascension of Ayatollah Khomeini's tyrannical regime. Today, there are no fewer than 16 clandestine, anti-government radio stations operating over Iranian airwaves.
One of the most successful of these subversive outlets is KRSI radio, which began broadcasting into Iran from Los Angeles in 1999.
"Every time we hear of a political prisoner being arrested, we announce his name, write to the U.S., U.N., and the human-rights community, and start a campaign," says Ali Reza Morovati, one of the founders of KSRI. "Now the people in Iran have a voice, and I sense that even the ayatollahs are being more cautious."
An important newcomer to the clandestine-radio arena is Syria. Last week, the U.S.-based Syrian Reform party launched "Radio Free Syria" in order to "educate the Syrian public on issues of democracy, freedom and the cessation of violence." The station, which is available on shortwave frequency and the Internet, plans to air cynical and humorous programs criticizing Syria's ruling Baath party as well as on-air plays written by dissident Syrian playwrights.
"Radio Free Syria will help us unite and consolidate the reformers inside Syria with the reformers pressuring the regime from the outside," says Farid Ghadry, president of the Syrian Reform party and Syrian Democratic Coalition.
Elsewhere, a dissident station called Radio Free North Korea began operating out of Seoul this past April, thanks to the efforts of a small group of North Korean defectors. "Our program aims to help North Koreans know better about their actual situation and to let the rest of the world know about the reality of the North Korean government," says Kim Sung-Min, the station's president and chief writer. "(Our aim is also) to finally lead the nation to become a democratic nation like South Korea."
A precedent of sorts exists for the efforts of Sung-Min, Ghadry, and Morovati: It can be argued that the U.S.-backed Radio Free Europe and Radio Liberty helped hasten the fall of the Iron Curtain and defeat Soviet Communism during the 1980s. Unlike these programs, however, the purveyors of clandestine radio operate without state funding.
"What we're seeing is a true grassroots effort to democratize these countries without the help of state dollars," says Nick Grace, Washington managing editor of Clandestine Radio.com, a monitoring project that tracks subversive media around the world. "Commercial opposition broadcast radio predates September 11. However, it is clear that the war of ideas awakened a number of pro-democratic groups around the world to the effectiveness of the media as a weapon to spark a change in their respective countries."
Over the last two years, the U.S has become much more engaged in its attempts to foster democracy around the world, particularly in the Middle East. Institutions like the National Endowment for Democracy and Voice of America, along with projects like the Middle East Partnership Initiative (MEPI), have almost quadrupled their funding over this period. MEPI, according to State Department statistics, received $29 million in 2002 and $100 million in 2003, while $145 million has been committed for 2004.
But only $3.2 million, or 3.3 percent, of MEPI's funds were directed to help indigenous NGOs, and none of this money was allocated to voices of opposition in countries like Syria, Saudi Arabia, or Iran (which is currently ripe for change, in large part because of its burgeoning pro-democracy movement).
While U.S. policymakers have invested millions in radio and TV stations that aspire to deliver a "natural" voice aired out of Washington, they've bypassed opportunities to help genuine pro-democracy advocates that often struggle merely to stay on the airwaves. If the U.S. wishes to be truly effective in its efforts to spread democracy, it should reconsider this strategy.
-- Nir Boms is a senior fellow at the Council for Democracy and Tolerance. Erick Stakelbeck is senior writer for the Investigative Project.


http://www.nationalreview.com/voices/nir_boms_stakelbeck200407130857.asp

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The Benefits Trap
Old-line companies have pledged a trillion dollars to retirees. Now they're struggling to compete with new rivals, and many can't pay the bill.

June 28 was the day hope ran out for United Airlines' 35,000 retirees. That was the day the government announced it would not guarantee the bankrupt airline's loans -- virtually assuring that if UAL Corp., (UALAQ ) the airline's parent, is to remain in business it will have to chop away at expensive pension and retiree medical benefits. The numbers are daunting. UAL owes $598 million in pension payments between now and Oct. 15, and a total of $4.1 billion by the end of 2008, plus an additional $1 billion for retiree health-care benefits, obligations the ailing airline can't begin to meet. And if United finds a way to get out of its promises, competitors American Airlines (AMR ), Delta Air Lines (DAL ), and Northwest Airlines (NWAC ) are sure to try to as well.

UAL workers are about to find out what other airline employees already know: The cost of broken retirement promises can be steep. Captain Tim Baker, a 19-year veteran of US Airways Inc. (UAIR ), was one of several union representatives sorting through that airline's complicated bankruptcy negotiations in March, 2003. Of the airline's many crises, the biggest was the pilots' pension plan, a sinkhole of unfunded liabilities. Baker reluctantly agreed to back US Airways' proposal to dump the pension plan on the Pension Benefit Guaranty Corp. (PBGC), the government agency that is the insurer of last resort for hopelessly broken plans. It's a move that practically guarantees that retirees will receive less than they were promised, in some cases less than 50 cents on the dollar. But of a raft of bad options, it seemed the only one that could keep the company afloat. "It was the pension underfunding and its future requirements that were going to put in jeopardy the airline's ability to get out of bankruptcy," says Baker. "At some point you have to look around and say that is all there is."

Baker has paid dearly for that decision. He was voted out of his union position by angry fellow pilots and instead of the six-figure annual pension he was promised, when he retires in 15 years he'll get just $28,585 a year from the PBGC, plus whatever he can save in his 401(k).

Stories like Baker's are becoming dreadfully common as employers faced with mounting retiree costs look to get out from under. It's not just troubled industries like airlines that are abandoning their role as retirement sponsors to America's workers, either. The escalating cost of retirement plans is a critical issue at a range of long-established companies from Boeing (BA ) to Ford Motor (F ) to IBM (IBM ), many of which compete against younger companies with little or nothing in retiree costs.

SHIFTING THE RISK
As employers abandon ever-more-costly traditional retirement plans, the burden is falling on individuals and taxpayers

Why are retirees being left out in the cold? An unsavory brew of factors have come together to put stress on the retirement system like never before. First, there's the simple fact that Americans are living longer in retirement, and that costs more. Next come internal corporate issues, including soaring health-care costs and long-term underfunding of pension promises. Perhaps most important, in the global economy, long-established U.S. companies are competing against younger rivals here and abroad that pay little or nothing toward their workers' retirement, giving the older companies a huge incentive to dump their plans. "The house isn't burning now, but we will have a crisis soon if some of these issues aren't fixed," says Steven A. Kandarian, who ended a two-year stint as the executive director of the PBGC in February. Kandarian is not optimistic about how that crisis might play out, either. "By that time it will be too late to save the system. Then you just play triage."

As industry after industry and company after company strive to limit -- or eliminate -- their so-called legacy costs, a historic shift is taking place. No one voted on it and Congress never debated the issue, but with little fanfare we have entered into a vast reorganization of our retirement system, from employer funded to employee and government funded, a sort of stealth nationalization of retirement. As the burden moves from companies to individuals -- who have traditionally been notoriously poor planners -- it becomes near certain that in the end, a bigger portion will fall on the shoulders of taxpayers. "Where the vacuum develops, the government is forced to step in," says Sylvester J. Schieber, a vice-president at benefit-consulting firm Watson Wyatt Worldwide (WW ). "If we think we can walk away from these obligations scot-free, that's just a dream."

EVIDENCE OF THE SHIFT is everywhere. Traditional pensions -- so-called "defined-benefit" plans -- and retiree health insurance were once all but universal at large companies. Today experts can think of no major company that has instituted guaranteed pensions in the past decade. None of the companies that have become household names in recent times have them: not Microsoft (MSFT ), not Wal-Mart Stores (WMT ), not Southwest Airlines (LUV ). In 1999, IBM, which has old-style benefits and contributed almost $4 billion to shore up its pension plans in 2002, did a study of its competitors and found 75% did not offer a pension plan and fewer still paid for retiree health care.

Instead, companies are much more likely to offer defined-contribution plans, such as 401(k)s, to which they contribute a set amount. In 1977, there were 14.6 million people with defined-contribution benefits; today there are an estimated 62.5 million. Part of their appeal has been that a more mobile workforce can take their benefits with them as they hop from job to job. But just as important, they cost less for employers. Donald E. Fuerst, a retirement actuary at Mercer Human Resource Consulting LLC, notes that while even a well-matched 401(k) often costs no more than 3% of payroll, a typical defined-benefit plan can cost 5% to 6% of payroll.

Despite the stampede to defined-contribution plans, there are still 44 million Americans covered by old-fashioned pensions that promise a set payout at retirement. All told, they're owed more than $1 trillion by 30,000 different companies. Many of those employers have also promised tens of billions of dollars more in health-care coverage for retirees. Even transferring a small part of the burden to individuals or the government can have a profound impact on the corporate bottom line. The decision by Congress to have Medicare cover the cost of prescription drugs, for example, will lighten corporate retiree health-care obligations by billions of dollars. Equipment maker Deere & Co. (DE ) estimates that the move will shave $300 million to $400 million off its future health-care liabilities starting this year.

The U.S. Treasury, on the other hand, pays and pays dearly. That drug benefit, which takes effect in 2006, is expected to cost the government the equivalent of 1% of gross domestic product by 2010, and other potentially big taxpayer costs are looming, too. In mid-April, over the objections of the PBGC, Congress granted a two-year reprieve from catch-up pension contributions for two of the most troubled industries: airlines and steel. Congress also lowered the interest rate all companies use to calculate long-term obligations, lowering pension liabilities. While these moves lighten the corporate burden, they increase the chances taxpayers will have to step in. "The less funding required, the more risk that's shifting to the government," says Peter R. Orszag, a pension expert and senior fellow in economic studies at the Brookings Institution. "The question is: How comfortable are we with the risk of failure?"

Company-sponsored health care, which generally covers retirees not yet eligible for Medicare and supplements what Medicare will pay, is likely to disappear even faster than company pensions. Subject to fewer federal regulations, those benefits are easier to rescind and companies are fast doing so. It's much harder to renege on pension promises. So instead, many profitable companies are simply freezing plans and denying the benefits to new employees. Last fall, Aon Consulting (AON ) found that 150 of the 1,000 companies they surveyed had frozen their pension plans in the previous two years, a dramatic increase from earlier years. Another 60 companies said they were actively considering following suit.

STRESS ON A FRAGILE SYSTEM
The government bailout fund is $9.7 billion in the red, and Social Security and personal savings are hardly going to be enough

The cost of honoring PBGC's commitments could be higher than anyone is expecting. The government bailout fund has relied on having enough healthy companies to pony up premiums to cover plans that fail. But in a scenario of rising plan terminations, healthy companies with strong plans still in the PBGC system would be asked to pay more. For corporations already fretting that pensions have become a competitive liability and a turnoff to investors, this could be the tipping point. Faced with higher insurance costs, they could opt out, rapidly accelerating the system's decline as the remaining healthy participants become overwhelmed by the needy. In the end, the problem would land with Congress, which could be forced to undertake a savings-and-loan-type bailout. It's almost too painful to think about, and so no one does. But when the bill comes due, it will almost certainly be addressed to taxpayers.

Most worrisome is the record number of pension plans in danger of going under. According to the PBGC, as of September, 2003, there was at least $86 billion in pension obligations promised by companies deemed financially weak. That's up from $35 billion the year before. And it's on top of a record number of companies that managed to dump their troubled pension plans on the PBGC last year: 152. In 2003, a record 206,000 people became PBGC pensioners, including 95,000 from its biggest takeover ever, Bethlehem Steel Corp.

Even for healthy companies, pensions have become a serious drag. The companies of the Standard & Poor's 500-stock index, for example, continue to run an aggregate pension deficit of $149 billion, according to David Bianco, an accounting analyst at UBS (UBS ). That's despite a strong stock market in 2003, which pushed up pension plan assets, and despite the billions companies contributed, including $18.5 billion from General Motors Corp. (GM ) alone. If conditions don't change, Bianco figures the S&P 500 companies will end the year $192 billion in the hole.

WHAT TODAY MIGHT be seen as an isolated problem for a limited number of companies promises to bloom into big trouble for us all. By conventional math, the PBGC is already insolvent: As of September, 2003, it had $46.5 billion of liabilities and only $35 billion of assets, a deficit of $11.5 billion that had close to tripled in one year. The agency paid 2003 benefits of $2.5 billion, but only took in $1 billion of premium income from companies with defined-benefit plans. (The PBGC says the deficit had dropped to $9.7 billion as of March, but can't give further details.) The PBGC is not directly funded by the taxpayer, but it is backed by the U.S. government, which would likely bail it out in a crisis.

The fragility of that system only increases the stress on other sources of retirement income and insurance: Social Security, Medicare, and personal savings. Social Security has its own $11.9 trillion deficit. And the still-recent history of personal savings vehicles like 401(k)s shows that people generally save too little, pay too much in fees, and fail to adequately diversify their risk. Olivia S. Mitchell, executive director of the Wharton School's Pension Research Council, is among the many who think one result is that we will all have to work longer than we thought. "It used to be thought Social Security was the safe leg of the retirement stool, but that's not safe either," says Mitchell.

Demographic trends will only make matters worse. As recently as 1985 there were three U.S. workers for every retired person. Now it's close to even. And we're still six years away from 2010, when the first of the baby boomers will hit 65. Not only are more people retiring, but they're living longer once they get there. Today 17% of the U.S. population is age 60 or older. According to Census Dept. data, that figure will rise to 26% by 2050, when college graduates entering the workforce today can finally begin to think about retiring. It's the complete reversal of the years after World War II, when companies first began offering pension plans in great numbers. In those days the workforce was young and retirees were only a sliver of the population. It was easy to make promises.

The world has changed dramatically since then. In the '40s and '50s, if a company offered retirement benefits, its competitors probably did too. Pattern bargaining by unions held entire industries to the same standard. But companies that once could rely on geographic boundaries and market dominance to minimize the threat of upstarts and outsiders are now struggling to keep up in a global marketplace full of new competitors. Companies like IBM, Verizon Communications (VZ ), and even General Motors today must contend with rivals who don't bear the cost of old-style benefits. For every lumbering US Airways there's an agile Southwest or Jet Blue Airways Corp. (JBLU ), newer rivals with cheaper benefits. For every GM, there's a Toyota Motor Corp., with a leaner and younger U.S. workforce.

Nowhere are pension obligations a greater competitive millstone than in Detroit. The U.S. carmakers today have some of the biggest pension obligations and pool of retirees anywhere. By contrast, their Japanese competition only started U.S. manufacturing in the late 1980s, and have far lower costs. General Motors has 514,120 participants in its hourly-rate employee pension plan, all but 142,617 of whom are retired. Pension and health-care costs for those retirees added up to about $6.2 billion in 2003, or roughly $1,784 per vehicle according to Morgan Stanley (MWD ). Compare that to Toyota's U.S. (TM ) plan, which had only 9,557 participants, just two of whom were retired as of Toyota's latest Internal Revenue Service filing covering 2001. Toyota's pension cost is estimated at something less than $200 per vehicle.

The impact on profits is dramatic. Excluding gains from its finance arm, GM earned $144 per vehicle in the U.S. in 2003. GM's margins are now 0.5%, among the worst in the industry. But without the burden of pension and retiree health-care costs, the auto makers' global margins would be 5.5%, according to Morgan Stanley. That's not great, but a lot closer to Asian carmakers like Honda Motor Corp., which earns 7.5% on its global sales.

GOODBYE, RETIREE HEALTH CARE
Companies are racing to cut or drop retiree medical benefits to give a quick boost to their bottom lines

Retiree health-care coverage, which is easier to eliminate than pensions, is disappearing even faster. Unlike pensions, which are accrued and funded over time, retiree health care is paid for out of current cash accounts, so any cuts immediately bolster the bottom line. Estimates are that as many as half of the companies offering retiree health care 10 years ago have now dropped the benefit entirely. Many of those that have not yet slammed the door are requiring their former workers to bear more of the cost. Some 22% of the retirees who still get such benefits are now required to pay the insurance premiums themselves, according to a study by Hewitt Associates Inc. (HEW ). Some 20% of employers told Hewitt that they might make retirees pay within the next three years. This hits hardest those who retire before 65 and are not yet eligible for Medicare. But even older retirees suffer when they lose supplemental health benefits like prescription coverage.

IT'S NOT JUST struggling companies, either. IBM, which is already fighting with retirees in court over changes made to its pension plan in the 1990s, is now getting an earful from angry retirees about health-care costs. In 1999, IBM capped how much retiree health care it would pay per year at $7,500 of each employee's annual medical-insurance costs. Although IBM is certainly in no financial distress -- the company earned $7.6 billion on $89 billion in sales last year -- Big Blue says its medical costs have been rising faster than revenue. Last year the company says it spent $335 million on retiree health care.

This year, for the first time, many IBM retirees are beginning to hit the $7,500 limit. Sandy Anderson, who worked as a manager at IBM's semiconductor business for 32 years, and today is the acting president of a group of 2,000 retirees called Benefits Restoration Inc., saw his own insurance bill triple this year. He suspects that the company is trying to make the perk so expensive that retirees drop it, a cumulative savings calculated by the group at $100,000 per dropout.

But more than that, Anderson is angry that as a manager, IBM encouraged him to talk to his staff about retirement benefits as part of their overall compensation. The job market was tight, and IBM's message was our salaries aren't the highest, but we will take care of you when you stop working, he says. Now he feels the company is reneging. "I feel I've misled a lot of people, that I've lied to people," says Anderson. "It does not sit well with me at all." IBM says its opt-out levels are low and that it often sees retirees return to the plan after opting out for a period of time. The company also argues that it has not changed its approach to retiree medical benefits for more than a decade and that the rising cost of health care is the real issue.

Even with the reductions, Anderson and his generation of retirees are better off than many. In 2003 the giant computer maker said it would pay nothing toward health insurance for future hires when they retire.

THE PERFECT PENSION STORM
Three years of stock market declines plus record-low interest rates have left pension funds woefully underfunded

One reason companies have hit the accelerator on dumping their benefits is because of sharp price increases. Retirement plans have become radically more expensive in the past two years alone. Due to smoothing mechanisms built into pension accounting, their investments are still suffering from the equity market declines of 2000, 2001, and 2002. That has put a big dent in the value of their stock holdings, generally 60% or more of their total assets. At the same time, interest rates, which are used to calculate the size of a company's liability, have remained stubbornly low, implying a bigger pension liability. Although the recent legislation eases the problem somewhat, it doesn't nearly close the gap between what these funds owe and what they have in assets.

Combined with the rise in retirees, those market conditions have led to two years of record underfunding in company-sponsored plans. A recent study by analysts at CreditSights Ltd. found that 85% of the defined-benefit plans in the S&P 500 don't have enough assets to cover their pension obligations. Together the underfunding equals 15% of their 2003 cash flow. As a result, companies will have to put billions of dollars of cash into these plans this year to help close the gap.

It's a drastic turnaround from the late 1990s when these plans had more than enough money. In 1999, the average S&P 500 pension was overfunded by $726 million, according to CreditSights. Four years later, at the end of 2003, it was $463 million underfunded, a swing of almost $1.2 billion. A steady rise in interest rates and a strong stock market could help to solve that underfunding, but experts worry that the whipsaw effect of the past few years and the billions companies have been forced to contribute has heightened executive discomfort with the volatility of pensions. According to Credit Suisse First Boston (CSR ) analyst David Zion, the companies in the S&P 500 have contributed $88 billion to their pension plans over the past two years. They're likely to have to add another $31 billion over the next two years. Despite an $18.5 billion infusion into its pension plan in 2003, it will take years before General Motors, for example, has fully funded plans. "These things have a fairly long tail," says GM Chairman and CEO G. Richard Wagoner Jr.

Companies didn't make it any easier on themselves by contributing as little as possible to their pensions in the booming 1990s. As recently as 2001, half of the large pensions monitored by actuaries at Milliman USA were generating pension income, contributing an aggregate $12.5 billion boost to their parent companies' reported earnings. Companies with overfunded pension plans were often able to fund retiree health care with pension overage. Many companies contributed little or nothing to their pension plans as the bull market drove up assets more than enough. Former PBGC chief Kandarian notes that adjusting for inflation, in the early 1980s plan sponsors were putting $63 billion per year into their plans. By the last half of the 1990s that had dropped to $26 billion, and companies had become used to getting expensive benefits on the cheap.

WHEN THEY DID contribute, it was often not with cash but with stock, real estate, and other less liquid "alternative" investments. With pension promises basically free, companies were also offering pension increases in lieu of salary raises, increasing their obligations. From 1980 to 2000, the size of the promises made grew 2.3 times, Kandarian says.

Among those making the most extravagant retirement pledges were the steel mills, and it was in their plans that the industry's weakness was most dramatically realized. In a massive wave of bankruptcies, the steelmakers have shifted $7.5 billion of their obligations to the PBGC in the past 3 years.

But in that disaster some have found an opportunity to arbitrage the difference between the old retirement model and the new. International Steel Group Inc. (ISG ) has in the past two years grown into the largest steelmaker in the country by acquiring the mills of old steel companies, including Bethlehem Steel, LTV, and Acme Metals out of bankruptcy, once they've been freed of pension and health-care promises. These companies had been pummeled by cheaper international competition as well as lower-cost U.S. mini-mills, and as they shrank to cut costs, their retiree bases mushroomed to many times the size of the active workforce. Faced with the possibility that they would lose all the remaining jobs left at these companies, the United Steelworkers union was eventually willing to compromise.

RISK ARBITRAGE
A company free of its retiree promises can become a tougher competitor -- though former workers suffer

Free of those pension promises, ISG chairman Wilbur L. Ross Jr. enjoyed the big run-up in steel prices on a much cheaper cost base than many of his competitors. ISG's predecessor companies shed $12 billion of legacy health-care costs and another $9 billion of pension obligations. The company today claims to be competitive with both international steelmakers and efficient U.S.-based mini-mills. ISG's defined-contribution cost for employees was $45 million in 2003. Its very modest retiree health-care benefits cost $4.3 million. By contrast, Bethlehem Steel alone was paying out $500 million a year in pension benefits. Today, U.S. Steel Corp. (X ) has moved to an ISG-style defined-contribution pension plan, but only for future retirees. It still owes $8 billion to existing pensioners.

It's a bit of retiree-cost arbitrage that won't last forever. But before it's over, Ross predicts other industries will follow this harsh path to competitiveness. Those most at risk: textile makers, airlines, tire and rubber companies, auto-parts suppliers and, potentially, he says, the auto makers. "There is a huge unfunded liability that's building up because of the defined-benefit system," says Ross. "If nothing changes, the stone they [PBGC] have to roll up the hill will just get heavier."

Workers bear the brunt of it. Bill Luoma, head of the Mahoning Valley Steelworkers Retirees Council, which counts bankrupt LTV retirees among its members, says that with their health insurance gone, many have stopped visiting doctors other than for emergencies. For companies struggling to compete in the global economy, carrying those burdens themselves is like strapping on a 200-pound weight to run a 40-yard dash. But to shed them is to leave decades of workers devastated. In the end, someone will have to pay. The only question is who.


By Nanette Byrnes with David Welch in Detroit




Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.

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Underground Dwellers
There are more than you might think.



Last week, the Organization for Economic Cooperation and Development in Paris issued a new report on the underground economy. This is only the latest study showing that a large fraction of employment and production in major countries as well as developing nations is taking place off the books, unrecorded in national accounts and untaxed by governments.

According to the report, the underground economy varies from 1.5 percent of gross domestic product in the United Kingdom to almost half in the Kyrgyz Republic. The OECD does not present data for the United States, but there is much data showing that it is a growing problem here as well. A recent book, The Shadow Economy: An International Survey (Cambridge University Press) by economists Friedrich Schneider and Dominik Enste, estimated the U.S. underground economy at between 6.7 percent of GDP and 13.9 percent in 1990, depending on the method used for calculation.

One common method is to look at currency in circulation as an indication of underground economic activity. By its nature, such activity is done almost entirely in cash so as to avoid detection by the authorities through checks or credit cards. On this basis, underground economic activity in the U.S. has probably risen sharply since 1990.

According to the Treasury Department, in 1990 there was $1,105 of currency in circulation for every American. By March of this year, that figure had risen to $2,455, an increase of 122 percent. It is highly unlikely that all of this increase is due to the needs of consumers to buy more goods and services, because per capita personal consumption expenditures only rose by 79 percent over the same period. This suggests that at least 35 percent of the increased demand for cash was for underground economic activity.

A further indication that this is the case is shown by looking at the composition of currency in circulation. Since 1990, 84 percent of the increase in currency is accounted for by $100 bills. Such bills now represent 71 percent of the monetary value of all U.S. currency, up from 52 percent in 1990. Average people do not ordinarily use $100 bills, but they are used heavily in the underground economy, which includes drug dealing and other illegal activity. Hence, it is reasonable to assume that the increased demand for $100's is due almost entirely to an increase in the underground economy.

Of course, even if this is true, it doesn't necessarily mean that the underground economy is growing here. U.S. currency is the exchange medium of choice for underground activity worldwide. Indeed, 45 percent of U.S. currency circulates outside the U.S. for this reason. According to the Commerce Department, the U.S. "exported" $16.6 billion in currency last year, almost all of it in the form of $100 bills.

The former chief economist for the International Monetary Fund notes that the European currency, the euro, is now competing for the underground economy's business by having 500 euro notes, worth more than 5 times the U.S. $100, the largest bill printed by the Treasury in more than 50 years. He notes that $1 million in $100's would fit in a briefcase, but $1 million worth of 500 euro notes would fit in a purse -- a big advantage in the underground world.

The underground economy results from many factors, including criminal activity. But the bulk of it arises from ordinary businessmen and workers who are evading taxes and government regulations. The OECD downplays the importance of taxes and puts most of the responsibility on regulation. However, other studies have found that high tax rates are the most important factor in stimulating growth of the underground economy.

"In various surveys, the tax burden has always been identified as the main cause for the growth of the shadow economy," according to Schneider and Enste. Their analysis found that a 10-percentage point increase in the tax burden would cause the underground economy to rise by 3 percent of GDP. A Federal Reserve study found an even higher response, with an increase in the tax rate from 9.3 percent to 10 percent leading to a 1.5 percent rise in underground output.

A recent IMF study found that the composition of taxation was very important. High taxes on small businesses and the self-employed were most likely to lead to underground economic activity. "Raising tax rates too high drives firms into the underground economy," the study concluded.

One indication that taxes are stimulating tax evasion here is that the amount of income reported on tax returns has fallen compared to the amount of income paid as calculated by the Commerce Department. This income gap tends to rise and fall with the tax burden.

Whether caused by taxes or regulations, it is clear that government is the prime cause of the underground economy.

-- Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.


http://www.nationalreview.com/nrof_bartlett/bartlett200407140832.asp


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China's Bourses: Stock Markets Or Casinos?
They're still roller coasters of instability -- and change may take some time


When shares of Han's Laser Technology Co. began trading on June 26, it was a red-letter day for the Shenzhen Stock Exchange, which hadn't seen an initial public offering since October, 2000. But the joy was short-lived for any investors who had been hoping for more than a speculative pop from the stock. After soaring 367% on its opening day of trading, shares of the Shenzhen maker of laser markers deflated by the maximum 10% limit the next day -- and the next, and the next. By July 7, Han's Laser was nearly 50% off its high and, though still above its offering price, showed no signs of stabilizing. Such volatility "doesn't have any meaning at all," says a Han's Laser spokesman. "It only reveals speculation." To experts, the stock was acting just like the market in which it trades. "It's like a casino," says Zhang Qi, analyst at Haitong Securities Co. in Shenzhen. "Everybody's speculating."

Indeed, Shenzhen and the larger Shanghai Stock Exchange both have a reputation for being little more than short-term trading dens that scare away serious investors. That's a problem, because China has a pressing need for stock markets capable of efficiently allocating capital to its fast-growing industrial base. As in the 1990s dot-com boom in the West, nothing exposes the instability of China's markets better than IPOs. Seven other companies made their debut on the Shenzhen market the same day as Han's Laser. Each rose an average of 129.9% before beginning a downward spiral.

The stock-flipping behind these gyrations, by both brokers and retail punters, even has a name: chao gu, which translates roughly as "stir-fried shares." Fundamentals? Some companies have them, some don't. (Han's Laser, for its part, is profitable, boasting net income of $4.44 million last year.) No matter: In the 13-year history of the mainland bourses, the initial success rate of IPOs has been almost 100%. Last year the average first-day gain among the 64 new listings in Shanghai was an eye-popping 72% -- and last year was a bear market. Most quickly lose altitude. One exception: China Yangtze Power Co., whose shares have climbed steadily since it debuted last November. But trading in new stocks is typically purely speculative. Almost no one in these markets thinks of buying and holding stocks -- a sure sign of an immature market.

BRING ON THE FOREIGNERS
What can be done to create authentic market conditions? The China Securities Regulatory Commission has been declaring its good intentions since it was created in 1992. But the agency has been hampered by its inexperience and lack of independence -- it is basically an arm of the State Council, China's all-powerful Cabinet. Plus, the markets were established solely as a way for state-owned companies to privatize, not as a way to raise money for deserving companies. (The CSRC did not reply to faxed questions.)

One strategy authorities are pursuing to strengthen Chinese bourses is to allow in foreign investors. The theory is that with foreigners demanding higher standards for listed companies, trading will become more regular and IPOs more thoroughly vetted, and the reputation of the exchanges will improve, making them competitive with rival Hong Kong. Thus, under the Qualified Foreign Institutional Investors program, which began in May, 2003, foreign institutions may now invest directly in the $500 billion A-share markets of Shanghai and Shenzhen, which were previously off-limits.

But things are off to a slow start. According to the State Administration of Foreign Exchange, out of $1.8 billion in foreign investment capital approved at the end of March and earmarked for financial investments, only 63% has gone into securities and convertible bonds. The rest is parked in bank deposits. Most foreign fund managers find slim pickings among mainland equities and have concentrated on 50 to 100 stocks from the 1,300 available. "There's certainly nothing like HSBC (HBC ) or General Electric (GE ) or IBM" says Mandy Yang, general manager of China International Fund Management Co. in Shanghai, JPMorgan Fleming's joint venture with Shanghai International Trust and Investment.

The IPO practices on the Shenzhen and Shanghai exchanges are especially exasperating. For one thing, the shares are priced according to a rigid formula dictated by the government, so that IPO prices bear little or no relation to the underlying fundamentals of the company. Strict rules on who can subscribe to an IPO also create a false scarcity that drives demand -- for a short time. "The IPO market is not really market-driven, it's more regulation-driven," says Nicole Yuen, head of China equities at UBS in Hong Kong, and a member of the CSRC listing committee.

An even bigger problem with China's stock markets stems from the government's reluctance to relinquish control over state-owned enterprises when they list. About two-thirds of all listed companies' shares are nontradable blocks held by state agencies and other state-owned companies. This makes for thinly traded shares, which increases volatility. It also deters investors from taking a buy-and-hold approach, for fear the government will one day dilute their holdings by releasing its shares. One solution under consideration: allow existing shareholders to buy untradable shares at a discount.

Yet the government, despite its vow to fix the system, remains reluctant to unleash real market forces. "I don't think the capital markets have anything to do with risk; they have everything to do with funneling money to state-owned enterprises," says Carl E. Walter, chief operating officer for JP Morgan Chase & Co. in China. This in turn provides little incentive for local underwriters to conduct thorough due diligence on the stocks they bring to market. "It's a joke," says Walter.

With such structural problems, it's hard to see how the mainland exchanges will rapidly mature. But fund managers are quietly exerting more discipline on the market by buying stocks of well-run companies, to which they make regular visits. The number of funds has grown to about 135 since 1998, with some $30 billion under management, representing 5% of the market. Beginning last year, a number of foreign houses, including ABN Amro (ABN ), ING Group (ING ), and JPMorgan Fleming Asset Management (JPM ) have set up joint-venture fund companies. "Mutual funds and more transparent institutional investors have brought some sense to the market," says Joon L?, deputy chief investment officer at China International Fund Management.

The presence of long-term investors hasn't put a stop to the IPO wildness, but some brakes are being applied. On June 29, for example, Jinan Iron & Steel Group's debut fizzled, closing just marginally above its 76 cents IPO price, reflecting investor concern that a Beijing-imposed slowdown in the steel industry would hurt earnings. A flat IPO? That may be a sign that one day mainland exchanges may behave like real stock markets.


By Frederik Balfour in Shanghai, with Chen Wu in Hong Kong




Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.

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N.E. nuclear plants first to seek storage damages
Trial against US over waste costs begins
By H. Josef Hebert, Associated Press | July 13, 2004

WASHINGTON -- The government's failure to open a dump site for commercial nuclear waste could expose taxpayers to tens of billions of dollars in damages. The first in an expected string of trials to determine how much began yesterday across the street from the White House.

ADVERTISEMENT

More than two decades ago, the government signed a contract with utilities promising to take charge of the highly radioactive used reactor fuel at commercial power plants by 1998. But the government has yet to come up with a central storage site.

A number of court cases have ruled that the Energy Department is liable for the cost of keeping the waste -- and possibly punitive damages -- because of a breach of contract. How much is at stake is anyone's guess, but the industry has put the number as high as $56 billion.

The first case, involving three utilities that own the Yankee group of reactors in Maine, Massachusetts, and Connecticut, went to trial yesterday before the US Court of Federal Claims. The trial is expected to last seven weeks.

Jerry Stouck, a lawyer representing the utilities, outlined a case that was expected to focus on the government's repeated failures, dating to 1983, to get approval for a central waste dump at Yucca Mountain in Nevada and its refusal in the interim to accept the waste at some other facility.

The courts already have ruled that the government violated its contract with the nation's utilities to take charge of the waste. Now the utilities are seeking damages, with 65 claims having been filed.

''Damages. Damages. It's all about damages. How much money are we entitled to," Stouck said during a break in the proceedings.

The case before Judge James Merow of the claims court is limited to used reactor fuel that is being stored at Maine Yankee in Wiscasset, Connecticut Yankee in Haddam Neck, and Yankee Rowe in Rowe, Mass., nuclear plant sites. The issue is of special importance to the utilities because the reactors have been shut down and keeping the waste is more expensive and may affect site cleanup.

''If this litigation is successful, it will provide some financial relief to the electric customers who bear the increasing costs to store fuel at these sites as a result of the DOE's failure to meet its legal obligations," said Bruce Kenyon, chairman of Yankee Atomic Electric Co.

The utilities together are asking for $548 million in damages for the costs incurred to keep the spent reactor fuel in dry-cask storage until 2010. That is when the proposed Yucca Mountain waste site is expected to begin taking waste from commercial power plants.

The damages sought by the New England utilities is nearly double the $268 million cited in 1999 when they began litigation. Stouck said the costs of keeping the waste on site had been underestimated and storing it has become more expensive because of increased security needs with today's terror threats.

But the money sought in this trial is only a fraction of what the government may have to pay, given that these are only three of 65 claims filed -- claims by the owners of the country's 102 reactors at 72 power plants.

And the bill could grow if the Yucca Mountain waste site fails to open in 2010 as planned. A federal appeals court last Friday raised new questions about the Energy Department's ability to keep its timetable when it rejected the government's proposed radiation protection standard for the Yucca site.

In a recent letter to Congress on problems getting funding for Yucca Mountain, Energy Secretary Spencer Abraham estimated utilities will incur $500 million a year in costs for keeping used reactor fuel on site for every year the Yucca Mountain dump is delayed past 2010.

? Copyright 2004 Globe Newspaper Company.

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US in talks over biggest missile defence site in Europe

Ian Traynor in Warsaw
Tuesday July 13, 2004
The Guardian

The US administration is negotiating with Poland and the Czech Republic over its controversial missile defence programme, with a view to positioning the biggest missile defence site outside the US in central Europe.
Polish government officials confirmed to the Guardian that talks have been going on with Washington for eight months and made clear that Poland was keen to take part in the project, which is supposed to shield the US and its allies from long-range ballistic missile attacks.

Senior officials in Prague also confirmed that talks were under way over the establishment of American advanced radar stations in the Czech Republic as part of the missile shield project.

"We're very interested in becoming a concrete part of the arrangement," said Boguslaw Majewski, the Polish foreign ministry spokesman. "We have been debating this with the Americans since the end of last year."

Other sources in Warsaw said Pentagon officers have been scouting the mountain territory of southern Poland, pinpointing suitable sites for two or three radar stations connected to the so-called Son of Star Wars programme.

As well as radar sites, the Poles say they want to host a missile interceptor site, a large reinforced underground silo from where long-range missiles would be launched to intercept and destroy incoming rockets.

Under Bush administration plans, two missile interceptor sites are being built in the US - one in California, the other in Alaska. Such a site in Poland would be the first outside America and the only one in Europe.

"An interceptor site would be more attractive. It wouldn't be a hard sell in Poland," said Janusz Onyszkiewicz, a former Polish defence minister.

"This is a serious runner," said a west European diplomat in Warsaw. "It's pretty substantial. The Poles are very keen to have an interceptor site. They want a physical American presence on their territory. They wouldn't be paying anything. It would be a totally American facility."

"I knew about possible radar sites, but I was surprised to hear talk about missile silos," said another source in Warsaw.

In the Czech Republic, too, the proposed radar site, extending to 100 sq km, could be declared extraterritorial and a sovereign US base.

The talks are at the exploratory stage and no decisions have been taken, officials stressed. US officials played down talk of central European participation in the missile shield. But the confidential nature of the negotiations, being led on the US side by John Bolton, the hardline under-secretary of state for arms control, has angered senior defence officials in the region, who have been kept in the dark.

Milos Titz, deputy chairman of the Czech parliament's defence and security committee, learned of the talks last week and immediately called the defence minister, Miroslav Kostelka, to demand an explanation. According to the Czech web newspaper, Britske Listy, Mr Kostelka conceded to Mr Titz that the talks were going ahead and promised to supply details to the committee this week.

The committee is to hold an extraordinary session today, apparently to demand more information on the issue from the government.

According to a Washington-based thinktank, the Arms Control Association, the Pentagon has already requested modest funding for preliminary studies on a third missile interceptor site based in Europe.

Lieutenant General Ronald Kadish, director of the Pentagon's Missile Defence Agency (MDA), told Congress this year of plans to construct a missile shield base abroad. "We are preparing to move forward when appropriate to build a third [ground-based interceptor] site at a location outside the United States," he said.

In addition to Poland and the Czech Republic, the Washington thinktank reported last week that the US was also talking to Hungary about possible involvement in the missile shield which is yet to be properly tested and which many experts believe is unworkable. Sources in Warsaw said the US was also talking to Romania and Bulgaria. Last week, the Australian government signed a 25-year pact with the US on cooperating in the missile shield programme.

The two interceptor sites being built in Alaska and California are primarily to insure against a potential ballistic missile attack on the US by North Korea. The possible European site is being widely seen as a shield against missiles from the Middle East, notably Syria or Iran.

But many believe that any such facility in Poland would be concerned mainly and in the long term with Russia. Such concerns appear to be reflected in Polish government thinking.

While the Poles were still waiting for specific proposals from the Americans, said Mr Majewski, they were also insisting that any Polish participation had to be squared first with Moscow for fear of creating military tension in the region.

"The Americans are working quite hard on this," he said. "They need to clear the path with the Russians and reach a consensus before we will move ahead."

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NOW KOFI WANTS TO RUN THIS FUND...TRUST....?

http://theworld.org/latesteditions/20040713.shtml
US and UN AIDS report (4:30)
UN Secretary General Kofi Annan has asked the United States to show the same commitment to the fight against HIV/Aids as to the war on terror. Mr Annan is attending the International Aids Conference in Bangkok. He says the US was spending huge amounts to tackle terrorism and weapons of mass destruction but had failed to deliver on its promises to combat the spread of Aids. The World's Katy Clark has more.






THE REAL WORLD

Drip, Drip, Drip
More Oil for Food details leak out. When will the U.N. come clean?

BY CLAUDIA ROSETT
Wednesday, July 14, 2004 12:01 a.m. EDT

Kofigate continues. Another stack of secret United Nations Oil for Food documents has now reached the press, this batch procured by congressional sources and providing--at long last--a better view of Saddam Hussein's entire U.N.-approved shopping list. This huge roster of Oil for Food relief contracts fills in a few more of the vital details about Saddam's "humanitarian" partnership with the U.N., spelling out the names of all his U.N.-approved relief suppliers and the price of every deal.

We need no longer wonder which Russian company got the contracts, on the eve of war, in February 2003, to sell broadcasting gear to Saddam, or for how much. The U.N. list says Nord Star, from which Saddam--approved directly by Secretary-General Kofi Annan's office, in the name of relief, in the thick of the U.N. debate over Iraq--ordered up $3.4 million worth of TV studio equipment. Or, if one wants to admire the versatility of Saddam's Russian suppliers, it's now clear it wasn't just one Russian oil firm, Zarubezhneft, that made a sideline out of selling milk to Saddam. In late 2002, Russia's Kalmyk Oil & Gas Co. did a deal to supply Iraq with $1 million worth of "instant full cream milk powder."

And, if anyone has been wondering exactly which nameless Saudi supplier backed out of a $5 million contract to sell vegetable ghee to Iraq when the U.N., post-Saddam, began renegotiating a kickback surcharge of some 10% out of the remaining Oil for Food contracts, the name on the U.N. list is the Al Riyadh International Flower Co. (Which, by the way, turned up last year on a Pentagon list of Oil for Food suppliers overpaid by Saddam, with overpricing in Al Riyadh's case estimated at about 20%, and total overpayment on three contracts estimated at $8.6 million.)





This kind of information won't get you all the way to confirming the precise who, when and how-much of the illicit side deals, the U.N.-condoned influence peddling, the billions in graft and smuggling, that became the hallmarks of Oil for Food. But if, during the course of the seven year Oil for Food program, the U.N. had made a habit of releasing instead of hiding such basic details as names and prices, there might have been enough public alarm raised early on so that it might not now be necessary for anyone to investigate the program.
Transparency during Oil for Food, instead of leaks after the program ended, would have brought before the public, much sooner and more clearly, not just the strange bent of Saddam's business with his pals in places like France, Syria and especially Russia, but also his taste for selling oil via such financial hideaways as Cyprus, Liechtenstein, Panama and, above all, Switzerland. That might have fueled many more calls, much earlier, for reform. There might have been no need for the eight or nine (or have we reached 10?) investigations now in motion.

Had the U.N. been forthright about Oil for Food, there might have been no need last summer for Pentagon auditors to check the strangely high prices on many Oil for Food contracts, and report back that this U.N. relief program had entailed a spree of overpayments for such stuff as Tunisian baby food and Syrian bathroom sets--overpricing being a route for Saddam's regime to collect kickbacks from U.N.-approved suppliers. And had the U.N. published this latest leaked list, even in its current form--which, as a printout instead of a computer file, does not lend itself to a quick search--perhaps someone during those interminable Security Council fights of early 2003 might have gone through the painstaking job of adding up what France and Russia were actually raking in from Saddam's regime. Please stay tuned, especially should anyone now choose to leak the U.N.'s secret list of individual oil contracts, which would help complete the picture.

This list means progress, at least, in the great paper chase attending upon efforts to explain to the aggrieved Secretary-General Kofi Annan and his senior staff why a U.N. relief scandal involving $10 billion or more in embezzlement might be of interest even to those not working for Paul Volcker's U.N.-authorized investigation. A vast U.N. spreadsheet leaked some time back showed only the relief contracts from 1997 through early 2001, more than two busy years short of the full program.

This latest list, which runs to hundreds of pages, totaling tens of billions worth of deals, goes all the way from the first relief contract negotiated by Saddam's regime with the Australian Wheat Board, in 1997, to the final spate of Saddam's contracts processed in mid-2003 for such goods as millions of dollars worth of "detergent" from Egypt, Germany, Saudi Arabia and Syria.

Along the way, this list offers an opportunity to browse such stuff as an order for $286,481 worth of "milk and yogurt homogenizer" from the financial fields of Liechtenstein. Or the dozens of contract entries, totaling hundreds of millions worth of Oil for Food business, awarded by Saddam to one of his regime's own front companies, as designated in May by the U.S. Treasury: Dubai-based Al Wasel & Babel. It would be helpful, of course, to know the official quality and quantities of goods purchased, information still socked away in the secret hoards of the actual contracts. Although, given recent General Accounting Office testimony that Cotecna, the Swiss-based inspections firm hired by the U.N. to check Oil for Food imports into Iraq, looked at only 7% to 10% of the deliveries, we may have to hunt elsewhere for confirmation of just how well these sales figures reflect actual shipments of, say, authentic sugar and genuine steel.

But bit by bit, the picture comes into sharper focus. More than a year ago, while trolling the U.N. Web site looking for clues as to what in creation was really going on inside the black hole called Oil for Food, I came across a most wondrously cryptic notation. It appeared on the U.N.'s public list of Iraq relief contracts, a list so generic that it was impossible to identify Saddam's business partners, or how much of what, exactly, they were selling, or at what prices. But even in that bland landscape--in which, for instance, the lone word car served to describe $5 million worth of vehicles supplied via two contracts out of the United Arab Emirates--one entry stood out for sheer vagueness: The contractor's country was Russia, and the contract was for "Goods for Resumption of Project."
What goods? What project? Querying the U.N. produced only the answer that such details were secret. The U.N. was protecting the confidentiality of Saddam and his goods-for-resumption-of-project suppliers.

Now, thanks to assorted studies and leaked lists, it is possible with a little cross-referencing to discover that the supplier was a Russian state company, Technopromexport, and the contract was for "mechanical equipment," sold to Iraq for $1,475,261. The question remains: Why should this have been a U.N. secret?

The U.N. to this day has refused to release any more detail to the public, first citing the need to protect the privacy of Saddam and his business partners, then sending out letters in April reminding the overseers of oil sales and relief imports to keep quiet, and now deflecting all inquiries to the Volcker investigation--which doesn't answer questions about Oil for Food and won't have a final report out until at least the end of the year.

It's intriguing, in its way, to trace the clues back and forth, trying to piece together the biggest jigsaw puzzle of graft, fraud and theft in the history of humanitarian relief. But wouldn't it have spared us all a lot of grief had the U.N. chosen to run this program not as a private consulting arrangement with Saddam, but as an open book? Just this week, U.N. spokesman Stephane Dujarric reiterated to the San Francisco Chronicle what has clearly become Mr. Annan's party line--that the Secretariat, which collected a $1.4 billion commission on Saddam's oil sales to run this program, was "not mandated to police the contractors; it's not the way the program was set up by the Security Council members."

Interesting how Mr. Annan bowed to the Security Council when it was the ordinary people of Iraq being robbed, but now that his own office is under fire, he feels free to let his subordinates run around blaming the Security Council. Wasn't anyone at the U.N. paid to think?

Ms. Rosett is a fellow at the Foundation for the Defense of Democracies and the Hudson Institute. Her column appears here and in The Wall Street Journal Europe on alternate Wednesdays.