It would be better to create the Utopian NT.
If by better you mean it would make an even bigger joke of Utopia than the idea of Utopia itself then yes, it would be better in that sense. However, unless something has changed since I last did geography, Utopia is not a nation or a country, or even a principality so I think this is a total non starter.
Since we're stating personal beliefs rather than interesting ideas I'll just say that (IMO) it would be better to remove Utopia from the game altogether.
Failing that, giving the draftees to the smaller nations seems to be the best idea all round to avoid Utopia being more of a nonsense than it has been since it was "invented."