TEXT-Excerpts from UN panel report on N.Korea breaches

UNITED NATIONS, May 16 (Reuters) - North Korea appears to have been exchanging ballistic missile technology and expertise with Iran in violation of U.N. sanctions, a U.N. expert panel said in new report obtained by Reuters over the weekend.

The report said that North Korean-Iranian missile trade went via a country neighboring North Korea, which U.N. diplomats identified as China. [ID:nN14299617]

A Chinese member of the expert panel refused to endorse the report, which diplomats said was due to pressure from Beijing. It remains unclear if the U.N. Security Council, which received the panel's report on Friday, will be able to publish it. Expert panel reports are only published if all 15 council members agree to release them.

North Korea was hit with two rounds of U.N. sanctions after its 2006 and 2009 nuclear tests.

Following are excerpts from the unpublished report, which the Security Council is expected to discuss on Tuesday.

FROM EXECUTIVE SUMMARY OF REPORT

"Over the period under review the Democratic People's Republic of Korea (North Korea) has continued to reject and to violate Security Council resolutions. In November 2010 the Democratic People's Republic of Korea revealed that it had been pursuing a programme of uranium enrichment and was constructing a new nuclear reactor. The country has also continued to defy the bans on imports and exports of nuclear-related items, of conventional arms and of luxury goods."

"The Panel believes that, while sanctions have clearly not stopped the Democratic People's Republic of Korea's nuclear programs and trade in arms, they have made it more difficult and expensive for the country to pursue these."

"The Panel has discovered loopholes and other vulnerabilities in shipping and transportation practices that the Democratic People's Republic of Korea and others have exploited, and notes increasing sophistication on the part of the Democratic People's Republic of Korea both in the establishment of shell and front companies and offshore financial agents, and in the proliferation of affiliates, substitutes and aliases intended to mask already designated entities and individuals."

IRAN-NORTH KOREA COOPERATION

"The indigenous infrastructure of the Democratic People's Republic of Korea has been supplemented by imports of specialized material and components. In an effort to get hard currency and advance its own programs, the country has been actively engaged in the export of complete systems, components and technology to numerous customers in the Middle East and South Asia."

"(North Korea) employs various techniques, including exchange of visits by scientists and technicians, exchange of data, reciprocal participation in tests and analysis of results. Those indications were echoed by observations made during the military parade of 10 October 2010. ... (North) Korea displayed a new warhead for its Nodong missile, which presented a strong design similarity with the Iranian Shahab-3 triconic warhead. The capacity of the Democratic People's Republic of Korea to develop nuclear weapons small enough to be fitted in its missiles, whose range is increasing, is a subject of uncertainty and concern."

IRAN-NORTH KOREA TRADE

"For the air shipment of cargo whose illicit nature could resist the level of monitoring and scrutiny attached to passenger flights, such as certain dual-use items, the Democratic People's Republic of Korea is reported to use regular Air Koryo scheduled passenger flights. ... Prohibited ballistic missile-related items are suspected to have been transferred between the Democratic People's Republic of Korea and the Islamic Republic of Iran on regular scheduled flights of Air Koryo and Iran Air, with trans-shipment through a neighbouring third country. For the shipment of cargo, like arms and related materiel, whose illicit nature would become apparent on any cursory physical inspection, the Democratic People's Republic of Korea seems to prefer chartered cargo flights. Cargo aircraft fly generally from or to air cargo hubs which lack the kind of monitoring and security to which passenger terminals and flights are now subject."

"The Democratic People's Republic of Korea seems also to have resorted to chartered passenger flights to transport personnel known or suspected to be involved in ongoing illicit cooperation with other countries."

OVERSEAS ACTIVITIES

"From information provided by Member States and research studies, the Panel has learned that the Democratic People's Republic of Korea maintains a wide network of trade offices which work in close conjunction with its diplomatic missions overseas. These offices are charged with both procurement and developing select trade opportunities ... including arranging and handling the country's illicit trade and covert acquisitions."

"Of special concern is the number of registered 'business merchants' who hold diplomatic passports and work in banking centres in Asia which do not have or enforce strict banking rules." (Reporting by Louis Charbonneau, editing by Eric Beech)