Insider : Bogged Down in Rice: The U.S. Dilemma : North Korea wants to import the crop from South Korea. Good idea, you say? American lobbyists aren’t so sure.

When the autarkic Communist regime of North Korea’s Kim Il Sung is in such dire economic straits that it tries to import rice from its old capitalist enemies in South Korea, you might think this unprecedented news would be greeted with cheers from the United States.

Think again.

The Bush Administration is actually bogged down in internal debate over whether to challenge South Korea’s plans to begin exporting its rice to the north. And the proposed rice deal has revived once again the recurrent American debate over the sometimes competing interests of economics and foreign policy.

The problem is that South Korea, like Japan, heavily subsidizes its rice industry, bans imports of U.S. rice and, as a result, has in recent years built up a huge rice surplus. Now, the American rice industry is protesting loudly that any effort by Seoul to unload its rice abroad, even to Pyongyang, amounts to an unfair trade practice.

“We’re not opposed to Korean reunification, but we also don’t think the United States should abandon its trade policies,” says David Graves of the Rice Millers Assn., the trade group for the U.S. rice industry. “South Korea is trying to get rid of a problem, not merely to get rice to North Korea. They’re looking to dump half of their inventories onto the world market.”

Graves acknowledges that the American rice industry could not itself sell to North Korea; if Pyongyang cannot buy from South Korea, it would probably turn to Thailand, the world’s largest rice exporter. But the U.S. producers hope to block the deal in order to goad Seoul into opening up its domestic market to American rice.

The rice association has raised such a fuss that the State Department, U.S. Trade Representative’s Office and Department of Agriculture are now wrangling over whether to try to stop the rice deal between the two Koreas.

The effort by the American rice industry “really makes people in (South) Korea very angry,” says Hong-Choo Hyun, South Korea’s ambassador to Washington. “It causes great concern and harsh sentiments toward U.S. business and toward the United States in general.”

In April, the government in Seoul announced the approval of a deal in which a South Korean trading company would barter 5,000 tons of rice to North Korea in exchange for 30,000 tons of coal and 11,000 tons of cement.

South Korean papers subsequently reported that this rice shipment was supposed to be the first of a series expected to add up to 100,000 tons. In May, the 5,000-ton shipment was delayed, supposedly because Pyongyang complained about the price and asked for a specific timetable for delivery of the entire 100,000 tons.

For State Department and Pentagon officials, who have worried for years about the military threat from Pyongyang, the rice deal was a welcome sign that North Korea is in serious economic trouble.

“It shows that the other side (North Korea) is under enormous pressure,” one senior Administration official says. Another U.S. official noted that North Korea’s need to import rice, a basic foodstuff, must be particularly galling because Kim Il Sung has for decades preached an ideology of juche , a form of self-reliance.

One recent U.S. visitor to North Korea, Alan D. Romberg of the Council on Foreign Relations, says he found that officials in Pyongyang are “pretty willing to acknowledge that there have been food shortages. They do not acknowledge starvation conditions. . . . Is it an economy that is about to collapse? I didn’t get that sense. It’s very clear, though, that they want outside involvement in the economy.”

For the American rice industry and for U.S. government officials responsible for promoting U.S. trade and agriculture, the proposed Korean rice deal meant something very different: They feared that the officials in Seoul had come up with a new justification for unloading their surpluses of highly subsidized rice.

Graves of the Rice Millers Assn. says that during the late 1970s, South Korea was the largest market in the world for American rice. Then in the early 1980s, it imposed an import ban and increased domestic subsidies to farmers. The policy succeeded all too well. By this year, it had a stockpile that U.S. officials estimated at about 2.4 million metric tons.

“That surplus exists because the domestic subsidized price of rice in South Korea is five times the price of rice on the world market,” says one Administration official.

Last summer, South Korea tried to export some of its rice to the Philippines under a special long-term loan arrangement. Goaded by the American rice industry, the Bush Administration objected to the deal, and it was scuttled.

Now, South Korean officials are arguing that the rice deal with Pyongyang is special and different. “This is not international trade, but rather a trade between the two Koreas,” says Hyun, the South Korean ambassador. “In our view, it’s humanitarian assistance to our brothers who are facing difficulties up north.”

Graves of the Rice Millers Assn. says Seoul’s claims of humanitarian aid are beside the point. “All we’re asking for is that South Korea liberalize its rice market,” he says. “It’d be a significant market for U.S. rice, if they’d allow us access to it.”

U.S. officials haven’t decided yet whether to oppose the Korean rice deal. They admit they are caught in the swirling pressures of foreign policy and economics.

“We have objected in the past to efforts by South Korea to get rid of its stockpiles,” says one U.S. official. “This would be tougher, because it’s in the interests of reunification. And we don’t want to be seen in the South Korean press as being opposed to reunification.”

“I suspect that if the amounts (of rice) are kept small enough, it won’t be too much of a problem,” another Administration official says. “But anything that involves the international rice market is very sensitive and very political. And I hope the South Koreans have enough sense to realize that.”