Report: North Korea Would Freeze Nuclear Facility in Exchange for Oil

SEOUL, South Korea – The main U.S. envoy to North Korea nuclear talks said Sunday the upcoming round could see agreements on initial steps toward the communist nation's disarmament, but he cautioned it would take longer for the North to completely give up its nuclear weapons drive.

"Frankly, we cannot accept anything less than 100 percent implementation of the September statement," U.S. Assistant Secretary of State Christopher Hill told reporters, referring to a 2005 pledge in which the North agreed to give up its nuclear program in exchange for aid and security guarantees.

"We won't get it this month, but maybe we can have a good beginning," Hill said before a meeting with his South Korean counterpart, Chun Yung-woo, to coordinate strategy ahead of the nuclear talks set to resume Thursday in Beijing.

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"But, the ultimate task for us is to complete denuclearization, not just begin denuclearization," Hill said.

Hill's comments came after a Japanese news report on Sunday said that North Korea is prepared to halt operations at a key nuclear facility in exchange for oil and an easing of U.S. financial restrictions.

Japan's Asahi Shimbun newspaper reported that North Korea was prepared to close the reactor in its main nuclear complex in Yongbyon and accept inspections by the International Atomic Energy Agency -- though the reactor itself would remain off-limits.

Asahi quoted former U.S. State Department official Joel Wit, who was in Beijing following meetings with chief North Korean arms negotiator Kim Kye Gwan and other senior officials in Pyongyang days ago.

The North, however, does not intend to close the site used for its October nuclear weapons test, will not allow inspections there, and is not prepared to reveal details of its nuclear weapons program, the report cited Wit as saying.

Hill declined to comment on the report.

At the coming disarmament talks this week, North Korea also will demand it be taken off Washington's list of states sponsoring terrorism, the report said.

In return, Pyongyang plans to demand energy aid of more than 500,000 tons of crude oil a year to compensate for an aborted project to build two light-water reactors in the country, according to the report.

The North also will insist that Washington take steps to lift financial sanctions against North Korean assets held in Macau, imposed over the communist regime's alleged counterfeiting of U.S. dollar bills and money laundering activities, the report said.

U.S. treasury and North Korean officials last week wrapped up another inconclusive round of negotiations over the financial sanctions. But U.S. officials have since expressed optimism the financial dispute would not disrupt the main nuclear talks.

Wit was accompanied by U.S. nuclear expert David Albright and traveled to Pyongyang on an official invitation, the report said.

The United States had supplied 500,000 tons of heavy fuel oil annually to the North until Pyongyang received the two light-water reactors as a reward under a 1994 deal to freeze its nuclear program.

The deal was scrapped in 2002, however, when the nuclear crisis re-emerged and North Korea kicked out IAEA inspectors.

The international arms talks, which involve the U.S., the two Koreas, China, Japan and Russia, have made little headway since the 2005 accord, the only agreement reached in the process.

At the latest round of discussions in December, the first since the North's Oct. 9 nuclear test, Pyongyang refused to discuss disarmament and demanded the U.S. lift financial sanctions first.

Complete coverage is available in FOXNews.com's North Korea Center.