PALO ALTO, Calif. -- The European Union is increasingly showing a new independent stance on foreign-policy issues as the logic of its industrial and economic integration plays out in the international arena.

Already the EU has taken a distinct and independent approach to both the Israel-Palestinian conflict and the nuclear crisis in Iran. Now it has broken ranks over the Korean Peninsula, fed up and concerned with the failure to resolve the ongoing crisis over North Korea's development of nuclear arms.

Reflecting this new stance, the European Parliament this week passed a comprehensive resolution on the Nonproliferation Treaty (NPT) and nuclear arms in North Korea and Iran:

• It urges the resumption of the supply of heavy fuel oil (HFO) to North Korea in exchange for a verified freeze of the Yongbyong heavy-water reactor, which is capable of producing weapons-grade plutonium, to avoid a further deterioration in the situation. At the same time it is calling for the European Council and Commission to offer to pay for these HFO supplies.
• It urges the Council of Ministers to reconsider paying 4 million Euros of the suspension costs for KEDO (the Korea Energy Development Organization) to South Korea to ensure the continued existence of an organization that could play a key role in delivering energy supplies during a settlement process.
• It demands that the Commission and Council request EU participation in future six-party talks, making it clear that the EU will in the future adopt a "no say, no pay" principle in respect to the Korean Peninsula. Having already placed more than $650 million worth of humanitarian and development aid into the North, it is no longer willing to be seen merely as a cash cow. This view was backed in the debate by the Luxembourg presidency and follows a line initially enunciated by Javier Solana's representatives last month in the Parliament's Foreign Affairs Committee.
• It urges North Korea to rejoin the NPT, return to the six-party talks and allow the resumption of negotiations.

The EP cannot substantiate U.S. allegations that North Korea has an HEU (highly enriched uranium) program or that North Korea provided HEU to Libya. It has called for its Foreign Affairs Committee to hold a public hearing to evaluate the evidence. "Once bitten, twice shy" is the consequence of U.S. claims that Iraq possessed weapons of mass destruction.

The world order is changing; the EU -- like China -- is emerging as a significant global power economically with the euro challenging the dollar as the global currency (even prior to the latest enlargement from 15 to 25 member states, the EU's economy was bigger than that of the United States). Speaking at Stanford University earlier this month, former U.S. foreign policy adviser Zbigniew Brzezinski pointed out that the EU, U.S., China, Japan and India will be the major powers in the new emerging global order. Since the new Asia will have three out of the five major players, he stressed the importance of engaging with it.

How will those already in play respond? Some may claim that statements by North Korea welcoming the EU's involvement and participation are merely polite, inoffensive small talk that cannot be taken seriously. Yet there have been a spate of pro-EU articles appearing in Rodong Sinmun, the daily newspaper of the Central Committee of the Korean Workers Party, since 2001.

Of 128 EU-related articles between 2001 and 2004, a majority praised Europe's independent counter-U.S. stance, emphasized its increasing economic power and influence, and heralded its autonomous regional integration. Rodong Sinmun portrays the EU as the only superpower that can check and balance U.S. hegemony and America's unilateral exercise of military power.

North Korea's perception of the EU is well reflected in articles such as: "EU becomes new challenge to U.S. unilateralism"; "Escalating frictions (disagreements) between Europe and U.S."; "European economy (euro) dominating that of the U.S."; "Europe strongly opposing unilateral power play of U.S.," and so forth.

Concurrently, North Korea has pursued active engagement with the EU by establishing diplomatic relations with 24 of the 25 EU member states (the exception being France). It is not necessary to read between the lines to recognize North Korea's genuine commitment to engagement with the EU based on its perception of the EU's emerging role on the world stage.

The Republic of Korea has publicly welcomed the prospect of EU involvement, while China wishes to go further and engage in bilateral discussions with the EU on its new policy toward the North. Russia will follow the majority. The problem is with Japan and the U.S.

In Japan, opinion is split by hardliners in the Liberal Democratic Party who view problems with North Korea as a convenient excuse to justify the abandonment of the Peace Constitution. They don't want a quick solution until crisis has catalyzed the transformation of Japan into what advocates call a "normal" country.

The U.S. expects an EU financial commitment, but not EU participation. The neocons believe that EU participation would change the balance of forces within the talks inexorably toward critical engagement rather than confrontation.

The question is whether the EU's offer will point the U.S. into a corner or trigger a breakthrough. Will U.S. fundamentalists outmaneuver the realists who favor a diplomatic rather than military solution? Only time will tell.

Glyn Ford, a Labour Party member of the European Parliament (representing South West England), belongs to the EP's Korean Peninsula Delegation. Soyoung Kwon is a postdoctoral fellow at Stanford University's Asia-Pacific Research Center.

Chris Farrell: Remember the dot-com boom of the 1990s? It seemed as if every entrepreneur with a good idea and a PC could challenge established companies for customers. Brick-and-mortar companies jumped on the e-commerce bandwagon. The demand for digital workers soared. Long-time computer professionals hopped from job to job, pulling down more money with every employer. Newly minted college graduates juggled multiple job offers. But when the Y2K problem emerged in the latter part of the '90s business and government quickly realized there still weren't enough IT workers on hand to find and repair the computer glitch. The quick fix? Hire computer professionals overseas. And that temporary solution permanently changed the global economy.

Paul Saffo: Y2K was huge in getting the ball rolling on offshoring.

Farrell: Paul Saffo is director of the Institute for the Future, a high-tech think tank in Silicon Valley.

Saffo: But once they went overseas, they discovered it's not just a matter of cost. These programmers overseas are often better than the best you can get in the United States.

Farrell: Ireland, the Philippines, and Israel were among the more popular destinations for offshoring Y2K programming fixes. But India became the offshore capital. It had plenty of high-tech companies staffed with well-educated English speaking digital workers. Thanks to India's steep import barriers in the 1980s, no one could afford new computer systems. So Indian tech workers were the world's leading experts in the older software languages that needed upgrading. Suhas Patil is chairman emeritus of semiconductor maker Cirrus Logic.

Suhas Patil: And they were listening to their customers and what their needs were, and as the recognition came that systems had to be upgraded to not have the problem based on the Y2K issues, that's how they got their break.

Farrell: And made the most of the opportunity. AnnaLee Saxenian is Dean of the School of Information Management and Systems at the University of California, Berkeley.

AnnaLee Saxenian: I think the importance of Y2K was overwhelmingly about establishing Indian companies' reputation among US customers and helping begin a set of customer supplier relationships that have simply taken off in the last four years.

Farrell: Of course, Y2K contracts ended in 2000. Yet many Indian companies took advantage of their now sterling programming reputations to negotiate for more sophisticated work. Research. Software development. Accounting services. Long-distance medical advice. Rafiq Dossani is a senior research scholar at Stanford University.

Rafiq Dossani: India is now growing at 70-80 per cent a year in offshored services ... services which are maintaining an accounting system, maintaining an HR system, doing claims processing, that's growing easily at 70 per cent, maybe even higher.

Farrell: Offshore also came onshore during Y2K. The town of Mountain View lies at the heart of California's Silicon Valley. Housed in one of the many nondescript low-rise office buildings that crowd the region's business avenues is the Indus Entrepreneur, or TIE. It is a networking base for the Indian high-tech Diaspora.

Shankar Muniyappa: Y2K was a big opening as early as 98.

Farrell: Shankar Muniyappa is director of information systems for TIE. He came to America for Y2K-and stayed.

Muniyappa: Myself and many of us believe still believe this is the place where you need to be if you want to be middle of innovation.

Farrell: Some 30,000 Indian IT professionals now live and work in the Valley. Rafiq Dossani of Stanford University:

Dossani: At least 25 per cent of the start ups have Indian employees at fairly senior levels working for them. And ... there's a whole infrastructure therefore being built around them because it's a substantial number now, so you see shopping malls you see business services and so on catering to this particular immigrant community.

Farrell: That community is adding vitality to the American economy. Still, many American high-tech workers are threatened by the offshoring of white collar jobs. The numbers are murky, but according to Mark Zandi of Economy.com 370,000 non-manufacturing jobs moved overseas over the past fours years-with most of the information technology jobs going to India. Salaries are down too. Still, the big factor behind the loss of 1.5 million jobs lost since Y2K is improved business efficiency or productivity - not offshoring. And Y2K also played an important role in boosting business efficiency.

Economists initially looked at Y2K as a productivity killer.

Imagine a town threatened by a rising river. Every able-bodied person in town is put to work stacking sandbags. It's necessary work to save the town - but it's unproductive work. Nothing gets built. No food gets grown.

With the Y2K bug, programmers, chief information officers, project managers, and other digital workers were getting paid to do unproductive work - stacking sandbags of silicon. No innovative investments. No new productivity enhancing software.

But economists were wrong. Y2K wasn't a flood. Instead, think of it as clearing a path choked with underbrush. Once the trail is open, it is much easier to zip from point A to point B. Y2K gave companies an excuse to clean up their software and hardware underbrush - a critical factor in today's improved business productivity. Paul Saffo:

Saffo: A lot of companies said well, gosh, if we're going to have to spend all this money to fix our software let's also see what else we can do at the same time, so it was an invitation to replace a whole bunch of stuff. ... So it forced people to ask hard questions about how they were using things and in the best instances people really did become more efficient.

Farrell: The result? Companies used the new systems they installed to cut costs and work smarter - and hire fewer workers.

[Voice of Leonard Nimoy: "Do you have hard copies of all your important documents ... such as bank statements."]

That's Leonard Nimoy, Mr. Spock from Star Trek. He's narrating the Y2K Family Survival Guide video - one of thousands of products peddled by prophets of doom. Y2K did bring home how reliant we all are on computers. Many of us still don't back up critical data at home. The same isn't true for business and government. Many learned from Y2K just how vulnerable information systems are to a malicious attack or unforeseen disaster. Case in point: Y2K actually helped some businesses survive 9/11.

[News broadcast of President George W. Bush: "I've directed the full resources of intelligence and law enforcement communities to find those responsible and bring them to justice."]

The attack on the World Trade Center stopped trading on the New York Stock Exchange. Against the odds, that citadel of capitalism opened six days later.

John Koskinen: The reason the markets, securities markets, were able to open the Monday after the Tuesday of 9-11 was they still had the test scripts that had been developed in 1998 and 99.

Farrell: John Koskinen credits preparations for Y2K. He was President Clinton's Y2K czar.

Koskinen: ... they were able to in effect take all of those Y2K scripts and make sure that all the transactions with all of the major players would close. Without that they never would have been able to do it in the time frame with the confidence they had.

Farrell: A record 2.4 billion shares traded on the New York Stock Exchange the day it reopened.

Y2K was a unique economic event. Earlier jolts to the economy, like the 1973 oil price hike and the 2001 attack of 9/11, were shocks. But the Year 2000 arrived right on schedule. The surprise was how little immediate impact the much-feared transition had on the economy. Yet we're still living and working with the economic impact of Y2K five years later.

For Marketplace and American RadioWorks, I'm Chris Farrell.

Are federal fiscal deficits accelerating deindustrialisation in the United States? For four decades, employment in U.S. manufacturing as a share of the labour force has fallen further and faster than in other industrial countries. In the mid-1960s, manufacturing output was 27 per cent of gross national product and manufacturing's share of employment was 24 percent. By 2003, these numbers had fallen to about 13.8 percent and 10.5 percent respectively. Employment in manufacturing remains weak, with an absolute decline of 18,000 jobs in September shown in the Labor Department's payroll survey.

At the same time, the orgy of tax-cutting, with big revenue losses, continues unabated. On October 6, House and Senate negotiators approved an expansive tax bill that showers businesses and farmers with about $145bn in rate cuts and new loopholes -- on top of what were already unprecedented fiscal deficits. These are principally financed by foreign central banks, which hold more than half the outstanding stock of US Treasury bonds. Moreover, meagre saving by American households is forcing US companies also to borrow heavily abroad.

The upshot is a current account deficit of more than $600 billion a year. America's cumulative net foreign indebtedness is about 30 percent of gross domestic product and rising fast. How will this affect manufacturing? The transfer of foreign savings to the US is embodied more in goods than in services. Outsourcing to India aside, most services are not so easily traded internationally. Thus when U.S. spending rises above output (income), the net absorption of foreign goods -- largely raw materials and manufactures -- increases. True, in this year and last the high price of oil has also boosted the current account deficit. However, since the early 1980s, the trade deficit in manufactures alone has been about as big as the current account deficit -- that is, as big as America's saving shortfall (for more detail, see http://siepr.stanford.edu).

If U.S. households' and companies' spending on manufactures is more or less independent of whether the goods are produced at home or abroad, domestic production shrinks by the amount of the trade deficit in manufactures. The consequent job loss depends on labor productivity in manufacturing, which rises strongly through time. If the trade deficit in manufactures is added back to domestic production to get "adjusted manufactured output", and labor productivity (output per person) in manufacturing stays constant, we get projected manufacturing employment. In 2003, actual manufacturing employment was just 10.5 percent of the US labor force, but it would have been 13.9 percent without a trade deficit in manufactures: the difference is 4.7m lost jobs.

In the 1980s, employment in manufacturing began to shrink substantially because of the then large current account deficit attributed to the then large fiscal deficit: Ronald Reagan's infamous twin deficits. With fiscal consolidation under Bill Clinton, the savings gap narrowed but was not closed because personal saving weakened. Now under George W. Bush, the fiscal deficit has exploded while private saving is still weak. The result is heavy borrowing from foreigners and all-time highs in the current account deficit. The main component remains the trade deficit in manufactures, intensifying the shrinkage in manufacturing jobs.

Is there cause for concern? Note that I do not suggest that the trend in overall employment has decreased, but only that its composition has tilted away from tradable goods -- largely manufactures. In the long run, growth in service employment will largely offset the decline in manufacturing. However, the rate of technical change in manufacturing is higher than in other sectors. It is hard to imagine the US sustaining its technological leadership with no manufacturing sector at all.

More uncomfortably, more Congressmen, pundits and voters feel justified in claiming that foreigners use unfair trade practices to steal U.S. jobs, particularly in manufacturing, and hence in urging protectionism. The irony is that, if imports were somehow greatly reduced, this would prevent the transfer of foreign saving to the United States and lead to a credit crunch, with a possibly even greater loss of US jobs.

The answer is not tariffs, exchange rate changes or subsidies to manufacturing that further increase the fiscal deficit. The proper way of reducing protectionist pressure and relieving anxiety about U.S. manufacturing is for the government to consolidate its finances and move deliberately towards running surpluses -- in short, to eliminate the U.S. economy's saving deficiency.

China's government has sentenced two of its citizens to life in prison for their role in securing prostitutes for hundreds of male Japanese visitors in the southern city of Zhuhai last autumn. The Chinese government is also pressuring Tokyo to turn over the Japanese businessmen who allegedly requested the prostitutes. This story made headlines around the world, and fits well with how the world press typically covers Sino-Japanese relations. Regrettably, such incidents recur with enough regularity to feed the media machine that continues to stir a nationalism rooted in conflicting historical memories. Japanese Prime Minister Junichiro Koizumi's annual visits to the Yasukuni Shrine -- which is widely viewed as a symbol of Japan's former militarism -- is a conspicuous example of this. The publicity that the press gives to these visits has helped impede an invitation to Koizumi from China's leaders for a state visit. Recently, the discovery of mustard gas canisters left behind by Japanese forces during World War II has also served to keep memories of the Imperial Japanese Army's wartime conduct alive among older Chinese. Moreover, rival Sino-Japanese claims to the Senkaku (or Diao Yutai) Islands resurfaced last year when the Japanese government leased three islets in the chain from private parties. The action, purportedly undertaken to reduce the prospect of landings and demonstrations by Japanese right-wingers, set off a brief, though frenzied, reaction in China, as well as in Hong Kong and Taiwan. Meanwhile, differences over Taiwan also foster tensions periodically, such as when former Taiwanese President Lee Teng-hui sought to visit Japan for medical treatment. But this is not the whole story. Although such incidents reveal a troubling level of mistrust between the Chinese and Japanese that is not merely a product of media coverage, it is noteworthy that both governments have worked consistently, diligently, and with considerable success to resolve such problems and contain their political fallout. Of course, official relations between the two countries are marked by much political and economic competition -- some of it healthy, some of it a possible harbinger of future strategic rivalry. The competitive strain in Sino-Japanese relations is especially visible in energy politics. Demand for oil in Asia is growing rapidly, and with China and Japan increasingly dependent upon imports, each has naturally sought to improve its energy security by diversifying sources of supply. Both countries covet access to Russian reserves, especially those located in the Angarsk fields of Siberia. Last spring, China appeared to have locked up a Russian commitment to build a pipeline to service the China market at Daqing. Japan, however, raised the ante with new offers of financial incentives. Its bid for an alternative pipeline to Nakhodka to serve Japanese, Korean and other markets remains alive, creating another point of competitive friction. In their rivalry for leadership in promoting Asian regional cooperation, meanwhile, China has taken an early lead. Nearly two years ago, China trumped Japan by offering a Free Trade Agreement to the members of the Association of Southeast Asian Nations, while front-loading its own tariff concessions. But this backdrop of contention and competition masks emerging collaborative aspects of Sino-Japanese relations that are profoundly important. For example, trade and investment flows continue to expand rapidly. Bilateral trade topped $100 billion in 2003, as Japan's exports to China increased by more than 10 percent, fueled by semiconductors, electrical equipment and automobiles. Meanwhile, China replaced the United States as Japan's biggest source of imports, and is now one of the few non-members of the Organization of Petroleum Exporting Countries with which Japan runs a trade deficit. Similarly, direct investment by Japanese firms is increasing as they relocate production facilities to China to capitalize on lower labor costs and high-quality engineering talent. Of course, there is no assurance that today's expanded commerce will preclude eventual strategic rivalry, or succeed in erasing lingering wartime animosity. But both countries now place a premium on extending their economic interdependence. Ultimately, the historical wounds that have long divided China and Japan, and the more current diplomatic flash points that the global media inevitably trumpet, tell only part of the Sino-Japanese story. There are economic and geopolitical rivalries between China and Japan that dwarf in importance the high-profile insults to national pride that make headlines. But there are also compelling economic and political inducements toward cooperation that prevent these rivalries from developing into full-blown crises.

Perhaps no other country has more to lose from North Korea's acquisition of a sizeable nuclear arsenal than China. The existence of such weapons would not only endanger the city of Beijing but also provoke a regional arms race in which Japan, South Korea, and possibly even Taiwan would eventually develop their own strategic deterrents. Given these facts, it is surprising that China has not acted more forcefully to persuade Pyongyang to terminate its nuclear program.

The explanation for this reluctance is the importance Beijing attaches to regional stability. If the North Korean regime were to collapse, a refugee crisis would ensue as starving people flooded across the border into northeastern China, and the way would be opened for South Korean and American troops to advance up the peninsula towards Beijing.

If the Bush administration wants to enlist Chinese help against Pyongyang, therefore, it must first assuage these very reasonable concerns.

China's importance to the United States stems from the absence of other sources of leverage over Pyongyang. Military action against North Korea is an unattractive option because Kim Jong Il and his generals could retaliate massively. Promises of long-term economic aid in exchange for Pyongyang's renouncing its nuclear aspirations also offers little hope. Kim has a long record of consenting to such deals and then surreptitiously reviving his armament efforts.

What is needed is an intermediate form of suasion. China is the only power that possesses this sort of leverage. According to South Korean analysts, in 2002 China supplied 31 percent of North Korea's imports and accounted for 37 percent of its exports. In addition, each year Beijing gives several hundred thousand tons of food aid to its troublesome neighbor, and, now that the United States and Japan have suspended their oil shipments, provides the preponderance of its fuel.

Beijing has occasionally used its influence to express discontent with North Korean behavior, and, by all accounts, the diplomatic dialogue between the two states has also become more acrimonious of late.

However, Beijing will presumably not press Pyongyang much further unless it is assured of the Bush administration's goodwill. In practice, this means that Washington must identify and alleviate China's specific geopolitical concerns. If Beijing fears a refugee crisis, then the United States and its allies must promise to help finance the care of the displaced and perhaps to absorb some significant number of North Korean emigrants. If Beijing fears the approach of American military forces, Washington should consider promising to limit U.S. activities north of the demilitarized zone.

While demonstrating that the United States is willing to accommodate China's needs, the Bush administration must also prove that Pyongyang's policies represent an immediate threat to East Asian stability. To do this, Washington needs to engage more frequently and more conciliatorily in diplomatic talks with Kim and his representatives. For with each abortive discussion, each rejection of reasonable American gestures, the North Koreans push Beijing closer to the conclusion that they pose an unacceptable danger to China's national security interests.

The effect of this policy of dual engagement with China and North Korea would almost certainly be positive. As Beijing's attitude towards Pyongyang hardened, the world might see a sharp reduction in its oil shipments, the deployment of more troops to the North Korean border, or overt discussions with the United States about the future of the peninsula. This would be the strongest possible signal to Pyongyang, short of war, that the world will not tolerate its emergence as a major nuclear power. If, on the other hand, he remained intransigent until the intensified pressure caused North Korea to collapse, Washington and Beijing would still be relatively well situated to deal with the ensuing challenges.

It is through the joint resolution of serious challenges that potential rivals like the United States and China learn to trust each other. If there is a silver lining to the North Korean cloud, it is this opportunity to improve bilateral communications in anticipation of future exigencies.

The writer is a fellow at the Asia-Pacific Research Center, Stanford Institute for International Studies.